Creative Class

Two conservative intellectuals have recently raised questions about the value of college for most students. While they come from different starting points, they make the same basic point. I find the sources mildly interesting but I think the basic concept is long overdue. Just as high school needs to be reinvented, so does the undergraduate college model.

Charles Murray from the American Enterprise Institute had a piece in the New York Times about a week ago, which is summarized in these first paragraphs.

Barack Obama has two attractive ideas for improving post-secondary education - expanding the use of community colleges and tuition tax credits - but he needs to hitch them to a broader platform. As president, Mr. Obama should use his bully pulpit to undermine the bachelor’s degree as a job qualification. Here’s a suggested battle cry, to be repeated in every speech on the subject: “It’s what you can do that should count when you apply for a job, not where you learned to do it.”

The residential college leading to a bachelor’s degree at the end of four years works fine for the children of parents who have plenty of money. It works fine for top students from all backgrounds who are drawn toward academics. But most 18-year-olds are not from families with plenty of money, not top students, and not drawn toward academics. They want to learn how to get a satisfying job that also pays well. That almost always means education beyond high school, but it need not mean four years on a campus, nor cost a small fortune. It need not mean getting a bachelor’s degree.

Then yesterday George F. Will had a rambling column in the Washington Post about civil rights court cases that included this nugget:

…many employers, fearing endless litigation about multiple uncertainties, threw up their hands and, to avoid legal liability, threw out intelligence and aptitude tests for potential employees. Instead, they began requiring college degrees as indices of applicants’ satisfactory intelligence and diligence.

This is, of course, just one reason college attendance increased from 5.8 million in 1970 to 17.5 million in 2005. But it probably had a, well, disparate impact by making employment more difficult for minorities. O’Keefe and Vedder write:

“Qualified minorities who performed well on an intelligence or aptitude test and would have been offered a job directly 30 or 40 years ago are now compelled to attend a college or university for four years and incur significant costs. For some young people from poorer families, those costs are out of reach.”

Indeed, by turning college degrees into indispensable credentials for many of society’s better jobs, this series of events increased demand for degrees and, O’Keefe and Vedder say, contributed to “an environment of aggressive tuition increases.” Furthermore they reasonably wonder whether this supposed civil rights victory, which erected barriers between high school graduates and high-paying jobs, has exacerbated the widening income disparities between high school and college graduates.

Maybe this rings true to me because it matches my own experience. I never liked school with its emphasis on memorization, and was bored to tears as a college freshman when I dropped out. By the time I went back years later and got a BA, I was able to test out of about two years worth of courses. By then I had started a couple of small businesses, edited and published two newspapers, been a broadcast engineer, managed a radio station, done a lot of political activism, and had many other jobs. None of these required me to have a college degree at the time.

However, I don’t accept Murray’s thesis that this is primarily Obama’s responsibility - everyone under the sun is trying to pile more work on his desk. Instead it should be the basis of a public conversation involving universities, think tanks, unions, and other interested parties.

What do others think?

Technology push or technology pull: it’s an age-old question. In his new book, The Venturesome Economy, Columbia University’s Amar Bhide comes down squarely in favor of the technology pull view. The real source of America’s innovative edge is not simply in great universities, research intensive companies, government sponsored innovation efforts, or tech-savvy venture capitalists and Silicon Valley-style entrepreneurial companies, but in something much more basic - a large body of “venturesome” consumers ready, willing, and able to try new things. Sometimes I call them the creative class Having lived and worked in the technology push world of Washington D.C., this book should be required reading for members of the incoming Obama administration’s economics and science and technology policy teams. The Financial Times has a nice review. A power-point summary is here.

Nobel-prize winner, Joe Stiglitz says the stimulus should invest in the innovations that can power our future, and not just breathe life back into the industries and economic patterns of the past (via Mark Thoma).

In this newly published article, two Dutch researchers, Roel Rutten and John Gelissen, test the creative class theory for Europe and find it holds. I especially like the last line.

[W]e test the creativity and diversity hypothesis of Richard Florida for European regions. Florida argues that the level of regional economic development depends on the levels of technology, talent, and tolerance that regions harbour. Tolerance, in this case, is a measure for diversity of lifestyles, the creativity that results from it and population’s openness towards non-traditional lifestyles. Using data for 94 European regions we investigate whether differences in creativity and diversity are a good predictor of differences in regional wealth in additive and multiplicative regression models. The results indicate that regional differences in diversity are directly related to differences in regional wealth. Moreover, we find that the synergetic effect of technology and talent on the level of regional wealth depends on the degree of diversity that resides within regions. Our findings support the idea that creativity and diversity deserve a more prominent place in economic geography.

There’s a great post by Edward Glaeser (in the Economix blog of the New York Times), titled “New York, New York: America’s Resilient City.”

In it, he describes how New York has managed to avoid the decay that has afflicted many large older cities, and, after a brief downturn in the 1970’s, came roaring back as arguably the most influential single city in the world.

His explanation? In a word - “smart people.”

“New York still has an amazing concentration of talent. That talent is more effective because all those smart people are connected because of the city’s extreme population density levels. Historically, human capital — the education and skills of a work force — predicts which cities are able to reinvent themselves and which ones are not. Those people who are continuing to pay high prices for Manhattan real estate are implicitly betting that New York’s human capital will continue to come up with new ways of reinventing the city. “

Glaeser continues, describing why dense cities succeed…

“They thrive by enabling us to connect with each other, which then promotes learning and innovation. The current downturn will only increase the returns to being smart, and you get smart by hanging around smart people. As long as New York continues to attract and connect those people, the city will continue to thrive.”

Now here’s what every city planner wants to know. Is this replicable? Can this success be engineered or encouraged, and are the effects measurable in 10 years, 20 years, a lifetime?

Does anyone have successful examples of campaigns and projects to replicate this resilient infrastructure? Or perhaps, examples of some cautionary unsuccessful attempts?

Best wishes to everyone for a creative and fruitful New Year!

The New York Times’ Hannah Seligson reports on how the crisis is causing some financial types to switch to more creative careers.

With Wall Street hemorrhaging jobs, bonuses disappearing and the financial sector going through a seismic shift, some bankers and lawyers are switching lanes to more creative career paths. They are putting down their Wall Street Journals and picking up Variety as they try their hands at comedy, filmmaking and writing.

Harry B. Weiner, a partner at On-Ramps, a recruiting and consulting firm that works with financial professionals, says the economic downturn is creating a new psychology of career transition. “People feel there’s nothing to lose in terms of taking a risk and pursuing a new direction, especially when you have a résumé that says ‘banking’ and no banks are hiring,� Mr. Weiner said.

That was certainly the calculus for Benjamin Cox, 33. After leaving his job as a vice president at Goldman Sachs in August, he immediately began incubating his plans to work on his screenplay — he calls it a cross between “Swingers� and “Annie Hall� — and start a production company. Mr. Cox said that with the upheaval on Wall Street, he feels relieved to have a backup plan. “I’m seeing a lot of people who never thought of an alternative to banking.�

Shaun Gatter, 38, left his position as a vice president and counsel at a large investment bank last year to work on his novel about a Jewish South African family, a story set against the backdrop of apartheid. Mr. Gatter says that the decision has meant a huge financial adjustment, but that the payback — having more mental energy for his book — has been worth it.  “It’s been euphoric to be able to think mainly about the book and less about equity derivatives and client risk.�

Greg Collett, 37, left his job as a director in the commodity exchange-traded fund business at Deutsche Bank in June to explore a career in stand-up comedy.  “I had this gnawing feeling that things were only going to get worse and that Wall Street was not the place to be,� Mr. Collett said, adding that it was easier to leave knowing that compensation packages were going to be a fraction of what they were a few years ago.

Richard Florida, author of “Who’s Your City?� and director of the Martin Prosperity Institute at the University of Toronto, sees the gravitational pull away from Wall Street and toward more creative industries as part of a necessary economic recalibration.  “The economy couldn’t survive on speculation and what really amounted to advanced financial alchemy,� he said. “We are now realizing it is our human creativity that is our real capital.  “The economic downturn is going to free up top talent to do other things that are going to change the metabolism of cities like New York in a very good way.�

While most bankers and lawyers who pursue careers in comedy, writing and filmmaking say they are somewhat anomalous, the situation could change quickly.  “Things look so bad in finance that if you think the difference in salary multiple isn’t as big as it used to be between doing what you are viscerally interested in versus a job that’s just about money, it puts a whole different spin on it,� Mr. Terry said.

Mr. Gatter said that many of his colleagues at the bank commended his choice to leave, telling him that they also nursed ambitions to be chefs, photographers, writers and artists. “Everyone seems to have something else they would rather be doing than their 9-to-5,� he said. “I think that people who are losing their jobs are being forced to pursue their dreams and, in a way, are being liberated from the golden handcuffs of Wall Street and venturing into something that might fulfill them.�

Rich has already written about how 1930s New Deal stimuli projects will not help this country prepare for the 21^st century global economy. Bloomberg has an incredibly insightful article on the Obama stimulus package. In effect, all the funds that will be appropriated for infrastructure will go for fixing old roads and building new ones to open new open spaces to crackpot development. Whatever one believes about global warming, this is certainly environmentally irresponsible and a step in the wrong direction. Moreover, it will cost cities, which, as Rich, Ed Glaeser, and many others have shown, have subsidized suburban development in the past. Now, U.S. “leaders” want to give us another dollop of past solutions. Optimistically applying old solutions (like ever greater indebtedness) for a debt and insolvency crisis is definitionally “crackpot.”

Can Obama translate his vague promises of change into a real change of direction for this country? To those that responded to my posting about taxation decisions, thanks.

I hope you all have great holidays. Rest, have fun, and prepare to put your thinking caps on because next year will be the most important for the global economy since 1933. We need to be there with alternative solutions and open the space for debate. Otherwise, the economists with old failed theories, some of whom claim to understand the Great Depression, will continue to provide crackpot solutions… to be discussed in the next posting.

If you own a home, chances are you are racing to refinance and mortgage brokers are calling you. Lots of folks are taking advantage of record low rates on vanilla-flavored 30-year loans. Cash in your pocket! Some are wondering, is it time to pick up a second home? Invest in a downtown condo?

Moreover, oil has crashed and there is little that OPEC or traders on global and virtual exchanges can do about demand reality. Is it time to pull that SUV back out and drive it around town? Maybe take a weekend trip with the kids? (There are lots of hotel deals!)

Is this how its gonna play out? Are we gonna stumble out of this recession and back into our old habits?  Remember in about two months the Fed will be writing out a lot of checks. Record spending + cheap money + cheap commodities = ?  What do you think? Happy Holidays to all!

Some members of San Francisco’s creative class are taking advantages of bargain prices being produced by the crisis, according to this San Francisco Chronicle report.

For the younger employed set who lack crushing debt, mortgages or families to support, the recession has a silver lining: Previously out-of-reach items are suddenly affordable. As consumer prices fell 1.7 percent in November, the biggest monthly drop on record, some have decided to take advantage of the deals - though not without caution …

“In a year where we would have expected the consumer to say ‘no’ to spending, this younger generation - the young adults who have not had to divert all of their discretionary spending to other family members - continues to self-indulge,” said NPD Market Research Chief Analyst Marshal Cohen. “It’s not a new concept,” Cohen added, noting that “mobile young adult consumers” have always wielded buying power. “It’s just a surprise that people are doing it when they are told not to.”

Cynthia Jaspar, a consumer spending expert at the University of Wisconsin-Madison, said that although young people are vulnerable to job loss in a recession, they will continue to be an important retail sector. Indeed, both the Wall Street Journal and Forbes magazine have reported on the youth-driven bright spots in retail: American Apparel, Urban Outfitters and Buckle stores are some of the only clothing companies to see sales rise in November. Analyst Cohen points to the video game industry as a sign that young adult buying power remains strong …

But just because young consumers may be able to afford holiday sales doesn’t mean they are spending with abandon. Certainly, the culture of excessive spending itself has been called into question by the current recession. Many report a newfound sense of guilt or unease about buying things. “But I’m young, single and don’t have the burden of property. This sounds really sad, but maybe we’re like the carpetbaggers of the horrible economic situation.”

USA Today’s Haya El Nasser and Paul Overberg report on how the combination of the crisis alongside longer-run economic and demographic trends are reshaping America’s economic landscape. The once booming Sun Belt is taking it on the chin.

The housing collapse and economic crisis are dramatically transforming the population and political landscape of the nation by ending the Sun Belt boom that dominated growth for a generation, according to Census Bureau estimates released Monday.

For the first time since the early 1970s, more people left Florida for other states than moved in during the 12 months ending July 1. Nevada, among the four fastest-growing states for 23 years in a row, slipped from No. 1 to No. 8. Michigan lost people for the third straight year.

The housing meltdown has turned migration flows on their heads. Of the top 20 fastest-growing states, all but four showed slower growth this year compared with last year and only one of the top 10 (Colorado) grew faster, according to an analysis by William Frey, demographer at the Brookings Institution.

“A giant share of it is housing,” says Robert Lang, co-director of the Metropolitan Institute at Virginia Tech. “One, you can’t sell a house. You’re stuck. Two, there’s no job growth attracting people to those states.” Lang says every previous recession had one thriving state or region that lured people. This time, no place is immune.