Those without value-creating human/social capital will be
mired in a low/minimum wage environment that will make it difficult to escape
debt-serfdom.
Let's start with the sobering reality that the Millennial
generation faces economic challenges that are unique to this era: sky-high
student loan debt, soaring costs for basics such as rent and healthcare, a
stagnant neofeudal crony-cartel economy and an intellectually bankrupt status
quo in thrall to failed ideologies: Keynesian Cargo Cult central banking,
outdated models of capital and labor and an unthinking worship of debt-funded
centralization as the "solution" to all social and economic ills.
The potential solutions are also unique to this era. Never
before has humankind had such a wealth of revolutionary decentralizing
technologies: nearly friction-free peer-to-peer networks and commerce,
decentralized cryptocurrencies and the expansion of what my friend G.F.B.
describes as neo-tribalism: opt-in communities that are not bound
to geography or central-state imposed identities.
Many smart, well-informed people see massive government
stimulus using borrowed money as the "solution" to Millennial
impoverishment and under-employment--in other words, more debt-funded
centralization.
The idea here is that such debt-funded stimulus will employ
millions of Millennials to rebuild America's crumbling infrastructure.
While we all understand the appeal of this proposal, those
proposing it have little experience in actually building or repairing
infrastructure. The assumption that such massive public spending will
create millions of jobs is never examined closely, nor is the impact of adding
trillions of dollars in additional public debt considered.
What such schemes boil down to is: Millenials are
supposed to borrow trillions from their future earnings and their children's
earnings to fund a few years of employment.
But what happens after the bridges get repaired and the
homeless housing gets built? In the conventional fantasy, the economy
magically moves into a self-sustaining growth cycle because those construction
workers will be buying more coffee at Starbucks, more lunches at Mickey D's,
and so on.
But the cold reality is: once the money has been spent,
those jobs go away.Once the bridge has been repaired with public money, the
workers are laid off because there is no private-sector funding for more
bridges or homeless housing, etc. Once the construction workers are laid off,
sales at coffee shops and fast-food outlets fall back to pre-stimulus levels.
The surge in employment fades as soon as the funding dries
up. Additionally, there is little productivity gain from the infrastructure
spending: the repaired bridge performs the same service as the aging bridge.
The problem is this: after the government funding dries
up, we still have a corrupt crony-cartel economy based on predatory privilege,
parasitic rackets and central-state enforced fraud. In other words, we
still have an economy that strangles productivity that could benefit the many
in order to further enrich the few.
And as Gail Tverberg and Art Berman have explained, we have
an economy that is facing lower energy consumption per capita (per
person)--even if oil prices remain around $40/barrel.
Central state stimulus funded by debt only creates a
brief illusion of prosperity; it changes nothing in our broken system. All
it does is burden a heavily indebted generation with more debt--a generation
that cannot afford to consume more because so much of their income is already
devoted to debt service.
The other fly in the ointment is this sort of
spending doesn't create as many jobs as the uninformed assume. If you
stop and look at a bridge being repaired, you'll note the crew is small--in
many cases, a half-dozen or less. The same is true of road resurfacing crews
and other infrastructure repair work.
You'll also notice the crew has skills that take years to
acquire: operating a crane, welding, etc. The unskilled are limited to waving
the traffic-control flags.
The same is true of new construction. If you count the
workers erecting large new residential buildings, you'll note a few dozen
workers on site--and the buildings are finished in a matter of months.
Since on-site construction labor has been more expensive
than factory labor for decades, construction fabrication has been pushed to the
factory. Beams, walls and other components are assembled at the
factory, where wages typically remain between $15 and $20/hour. These
components are shipped to the site and assembled by small crews of skilled
workers.
Much of the expense in construction is now in the financing
(private or public, the interest payments and bond sales fees constitute a
large percentage of total construction costs), permits/fees and materials. The
actual labor component of major construction/repair work is relatively modest.
It makes no financial sense to hire people with little
experience for high-skill tasks. What makes sense is to increase the
hours of the experienced workers the contractor already employs. What is the
payoff for a contractor to spend three years training neophytes to become
productive? That only makes sense if you can keep the trained worker, and the
intermittent nature of construction work means your workforce shrinks when
demand falls. The worker you trained goes off to work for somebody else.
The beneficiaries of infrastructure stimulus will be workers
that already have the requisite skills and experience--Gen X and those
Millennials who have completed formal or informal apprenticeships.
But even these workers have to look beyond the few years of
infrastructure stimulus, and acquire whatever skills the private sector will
need.
As I explain in my book Get a Job, Build a Real Career and Defy a Bewildering Economy,
whatever is abundant has little scarcity value: that includes unskilled labor
and credentials such as college degrees.
What's scarce are value-creating skillsets, most of which
are path-dependent, i.e. they must be accumulated over years of work experience.
What creates value? The ability to solve problems and
increase productivity.
If you want to know why the economy and Millennial prospects
are both stagnating, just look at productivity--it's tanking:
As I explain in the book, the line between labor and capital
is becoming blurred.Capital is increasingly intangible: the most
productive forms of capital are human, social and intellectual--the knowledge,
experience and networks acquired by people.
In contrast, the return on money--a traditional form of
capital--is near-zero.
Owning a credential is not the same as owning skills. If
we think of human/social capital as an asset, then we see a new line between
labor and capital: labor is low-skilled labor with little scarcity
value, and capital is high-skilled human/social capital.
Those without value-creating human/social capital will be
mired in a low-wage/minimum wage environment that will make it difficult to
escape debt-serfdom. To understand why human/social capital is the
most important form of capital, we must understand that this capital
asset is fundamentally an enterprise.
If we look at what wealthy households own, we note they
own enterprises. This is not a coincidence, as wealth is generated by
value-creating enterprises.
If you want to escape Minimum Wage Debt-Serfdom, start by
developing skills that create value by solving problems and increasing
productivity, which is another way of saying doing more with less.
Understand that your human/social capital is
fundamentally an enterprise that you own and manage. Taking ownership
of your capital and managing that asset as an enterprise is the first step to
escaping stagnation.
