Failures of The American Education System - The American Inequality Series #5

In this final instalment of the American Inequality Series, we analyse how responsible the USA's education system is for the nation's growing economic inequality.

The quality and level of education is seen worldwide to be a strong determinant of an individual's future socioeconomic status. 

fig.1

Take a look at this graphic (fig.1) from the US Bureau of Labour- a clear positive correlation exists between level of education and earnings, and a clear negative with the level of education and unemployment rate. 

According to the Institute of Education Studies, the median earnings for young adults with a bachelor’s degree was $46,900- the equivalent for high school dropouts was less than half, at $22,900. It’s been getting worse for high schoolers: those who have only graduated from high school have seen their real incomes decline by over a quarter in the last 25 years.

So a correlation can be observed, but is there a causality between the two? The general consensus among academic seems to answer yes- in a well-known study by David Card, of UC Berkeley confirms the causality, concluding that “individual returns to education are declining with the level of education”. Education was proven to be a major factor in unemployment during the recent recession- nearly 4 out of 5 jobs lost during the economic crash belonged to workers with a high school diploma or less. Furthermore, 63% of US jobs now require a postsecondary degree- up from 28% in the 1970s. So education, now more than ever, seems to provide a safety net from both unemployment and low earnings.

Sometimes even a bachelor’s degree is not enough: according to Elena Bajic, CEO of online executive job recruitment site IvyExec, “when an employment recruiter looks at an Ivy League degree, they will look at it more carefully”.

Nevertheless, clearly advanced education of some level plays a role in one’s future economic prosperity. The ‘American Dream’ dictates a desire for opportunity for all to become prosperous- so if education is a key (though not the only) to the door from poverty into prosperity, do all Americans have this opportunity?

fig.2

The greatest barrier for many Americans to college education (in particular elite the Ivy League elite) is financial. The Higher Education Research Institute at UCLA observed choices made by students with regards to college- in particular those who had been offered a place at their first choice. HERI noted that only 56.9% of students enrolled in their first choice college in 2013- and compiled the most significant factors for why so many students didn’t enrol in their first choice, even if they got an offer. Fig.2 shows the 4 most notable reasons- all of them centering around college fees highlights how much finances matter to students wishing to go to college.

Public colleges hold relatively little clout over the education ‘market’ of the USA. Only 5 of the top 20 universities in America are public (state-funded)- a damning statistic, though it must be considered that there are almost three times as many private 4 year institutions as there are public equivalents.

But there is still an increasing pressure among the young people of America to go to top universities- and the majority of these are private colleges, whose national average total fees (for a typical four year study) in 2013-14 were $40,917, $9,000 more than the public equivalents. 

Two conclusions can be drawn from this data:

1) The poorest of society are struggling to afford a college education, and therefore are more rarely enrolling. 

2) Those who are only able to afford a public college education remain at a disadvantage when it comes to post-graduate employment.

fig.3

Colleges have attempted to lower economic barriers of entry via financial aid; for example, 70% of students at Harvard University receive such aid from the college. 

However, the effect of this has been minimised by rapidly rising college tuition fees- fig.3 shows how in the past decade, fees have inflated at a rate disproportionate to most other goods and services- and at a strongly contrasting level to real household income, which has in fact fallen in previous years (fig.4). 

fig.4

This has led to a widening gap between education opportunities for the poor and wealthy. The wealthy are mostly in the best position to provide their children with good quality education, which in turn benefits their future income, so they can educate their children well, and so on.

Socio-economic mobility is not dead- successful ‘rags to riches’ stories are not unheard of- however for many lower class people the environment and opportunity is not present to help them succeed academically- and the state of the US jobs market means they often remain poor for their whole life as a result.

Pros & Cons #4: The Minimum Wage

The Minimum Wage is something that has often been a focal point of the left vs right debate over economics and the government's role in managing its economy.

So let's have a look at both sides: both at those who say the minimum wage is an unnecessary, harmful form of government interference, and those who say it is necessary for the welfare of the working citizens of developed nations.

PRO: Worker Protection

Arguably the most significant reason for the existence of a minimum wage is the fact that it can prevent the abuse of workers desperate for employment by lean, restrictive employers. People desperate for a job can often be manipulated by employers into jobs in which the employee is strongly underpaid, often resulting in these people falling into poverty despite being employed. The minimum wage seeks to prevent such people falling into poverty, by giving them a wage that is calculated every few years to be supposedly enough to cover living costs for an individual and perhaps one or two dependents.

A study done by David Neumark and William Wascher of the American National Bureau for Economic Research (NBER) concludes that "over a one to two year period, minimum wages increase... the probability that poor families escape poverty" due to the increase in household income post-implementation of the minimum wage.

A higher minimum wage could reduce the need of
food banks like this.

Not only does escaping poverty help those fortunate enough to climb out, though. According to The Centre for American Progress, raising the minimum wage from $7.25 to $10.10 would reduce money spent on federal food stamps by $4.6bn a year, lifting off a great debt on the government.


CON: Shrinking Wages

However, Neumark and Wascher are careful to explain that their findings suggest separate stories for the poorest in society (who will benefit) and the rest- notably those just above the poverty line, who they claim would be harmed by a minimum wage.
An argument exists that the minimum wage could create a 'vortex' effect around the poverty line- while sucking the poorer up to and perhaps over the poverty line, it could simultaneously pull down those above the poverty line.

One could argue that despite the 'spirit' of the minimum wage, that is to raise the living standards of the poor, it could conversely provide a benchmark of acceptable pay for people who should be earning more. A company may reduce the pay it gives to employees to the minimum wage, reducing the income of those perhaps just above the poverty line and according to Neumark and Wascher, perhaps even dropping them below.


PRO: Productivity

Prominent psychologist Ivan Robertson summed this up very simply: "Improved psychological well-being (PWB) leads to a more productive and successful workplace". The link between income and this psychological well-being is further explored in a study by Princeton economists Daniel Kahneman and Angus Deaton- they conclude that, up to an income of $75k, "emotional wellbeing rises with log income". This means that, to an extent, money does often buy happiness- particularly when we're talking about those on the minimum wage, a figure far less that $75k.

Combining the two conclusions of Robertson, Kahneman and Deaton, it appears that the minimum wage's effect of increasing the wages and thus living standards of those below it can indeed have the effect of increasing productivity in the workplace. Wage is ultimately a great contributor to job satisfaction- and the higher the job satisfaction, the higher the likelihood of an employee being enthusiastic in their work, being present when needed and ultimately being more loyal to the employer.


(?): Lost Jobs

The reason why there's a question mark on this one is because this is perhaps one of the most contentious points in the whole minimum wage debate.

Some argue a minimum wage forces businesses to spend more on staff, meaning many will have to reduce staff numbers to keep the wage expenditure from increasing too much. This means fewer jobs, and consequently higher unemployment.

Their historically low pay has left fast food workers
among the most sensitive to any minimum wage regulation.

According to the American Enterprise Institute, this was the case in Seattle in the first half of this year- during which an increase in the minimum wage to $11 was said by many to have been responsible for the post-recession record loss of 1,300 restaurant jobs in the area. Author of the report Mark Perry highlights in particular how 1,000 of these jobs were lost in May alone, following the minimum wage increase in April- "the largest one month job decline since a 1300 drop in January 2009, during the Great Recession".


On the other hand, there is much evidence to suggest the minimum wage has little impact on unemployment levels generally. A famous study by David Card and Alan Krueger from 1990 compared restaurant employment in neighbouring states New Jersey (where the minimum wage was set to rise) and Pennsylvania (where the minimum wage was unmoved). "We find no evidence that the rise in New Jersey's minimum wage reduced employment at fast-food restaurants in the state", the study concluded.

A study in the British Journal of Industrial Relations set out to test the results found by Card and Krueger in 2009, and concluded the same- that they saw "little or no evidence of a negative association between minimum wages and employment".


CON: Price Inflation

Card and Krueger's findings that minimum wages had little effect on employment, however, did not absolve the minimum wage of any negative impact. In fact, upon investigation they concluded that "much of the burden of the minimum-wage rise was passed on to consumers", when restaurants would increase their prices to compensate for higher wage spending.

The idea of price inflation following minimum wage implementation arguably discredits the notion that the minimum wage causes unemployment. Theoretically, it would seem more likely for a restaurant to not risk all the potential issues that come with a shortage of staff, but instead retain staff (on the new minimum wage or above) and instead make the customers pay for the new burden.

Many businesses have laid the blame for price increases on minimum wage increases. One high profile example was Mexican food chain Chipotle, who, following a minimum wage increase in San Francisco, raised the price of their menu on average by 10%. Here in the UK, following the announcement of a new 'living wage' of £7.20 last month, Whitbread (the group including brands such as Costa Coffee and Premier Inn) announced they would be raising prices as a result of the supposedly "substantial cost increase" of operating as a business under the new minimum wage.

One could argue that such price inflations are simply selfish acts of protest by these businesses against minimum wage regulations that increase their expenses. It probably often is the case- but whether it is a selfish or 'necessary for survival' move, either way prices do increase for us as consumers.

Franklin D. Roosevelt championed the minimum
wage in an economically struggling USA.

PRO: Economic Stimulation

The minimum wage could have positive effects for the national economy, firstly in the form of stimulating consumer spending. A study by the Chicago Federal Reserve Bank examined 23 years of household spending statistics, concluding that for every dollar the minimum wage increased, the average worker received an extra $2800 for consumer spending. The 2009 study noted that spending on cars in particular increased as a result of increasing the minimum wage.

President Franklin Roosevelt was a huge proponent of the minimum wage for this reason- he famously stated "the best customer of American Industry is the well-paid worker", during his push to enact the federal minimum wage in the USA in 1938, during a recession following the Great Depression.


The Minimum Wage- Help or Hindrance? Put your opinions in the comments below! 

Who Will Be The World's First Trillionaire?

We've all thought about it- will, at some point, an individual's wealth surpass $1,000,000,000,000?

Needless to say, the first trillionaire on Earth will be MASSIVELY wealthy. A trillion dollars means 1,000 x billion dollars- or a million x million dollars. If their cash was stacked in hypothetical $1000 bills, it would extend over 63 miles vertically. An 80 year old trillionaire will have earned, on average, more than $34 million every day of his life. So yeah, it's a massive amount of money (you can read more fascinating trillion dollar facts here).


But, it is such a massive figure that some are sceptical that a single individual worth over a trillion dollars will ever walk the face of the earth. The wealthiest man in the world right now, Bill Gates, would have to multiply his current net wealth around 14 times to reach such a trillion dollars.

Despite the daunting mass of such a figure, it is very reasonable to think that we may have a trillionaire within the next 100 years or so.

Rockefeller's net worth (in today's terms)
was over $350bn- over 4 times that of Bill Gates.

Let's look at the past. The first ever millionaire was John Jacob Astor, a 19th century fellow who profited massively off his monopoly of the fur trade, and later his ventures into real estate. Then came John Davison Rockefeller Sr., the world's first billionaire and on record the wealthiest man to ever have lived, with a wealth today that would be over 4 times that of Bill Gates. Rockefeller was an oil man- like Astor, a monopolist who at his peak controlled 90% of the oil in the USA.

So a common theme between these past juggernauts is monopoly- almost total domination, and complete control over their respective markets. This theme continues today (Bill Gates created the (ex?) monopolist Microsoft), and is very likely to continue when it comes to the first trillionaire. But what will he/she monopolise?

Astor created a monopoly of fur coats in a USA in its infancy of independence, Rockefeller capitalised on the oil boom of the late 19th and 20th centuries, and Gates played a key roll in bringing the personal computer to the mass market. These people did not become massively wealthy by following other businesses of the time, but by taking charge and carving out their own markets, and the first trillionaire will have to do this on an even larger scale. They will need to be a complete game-changer.

The trillionaire could produce key developments in the technology arena. Revolutionise key areas of our infrastructure- like transport (think autonomous technology), or education. But it's very difficult to speculate what particular area they will profit from- their vision will have to be such that they produce something we may not even think about right now.

Asteroids such as this have been estimated by some to be
home to raw materials worth up to $5.4 trillion.

An interesting proposition is that the first trillionaire will be the first to effectively capitalise on something we've always lived with, but been unable to grasp fully- space. In his 1997 book Mining the Sky, Professor of Planetary Science John Lewis makes the claim that "we can relieve Earth of its energy problem, make astronomical amounts of raw materials available, and raise the living standard of people worldwide" by effectively taking advantage of the wealth of materials that can be found in space, whether on planets or bodies like asteroids. Just like Rockefeller worked to capitalise on a growing but young oil industry in the US to revolutionise energy consumption, the first trillionaire could be the person who leads the revolution of our own energy consumption by venturing into space.

A far less thrilling but arguably more realistic prospect, however, is that the first trillionaire is just a current billionaire who becomes a trillionaire as his wealth accumulates and expands, thanks to investments or just ordinary inflation. The wealthiest individuals around the world are already becoming exponentially richer, and for people like Bill Gates it could just be a waiting game- albeit one with the constraint of lifespan.

Let's assume Gates lives until he's 100 (40 more years). From his current wealth of just under $80bn, he would require a 6.5% annual interest rate to become a trillionaire by his 100th year. So it is possible that he will become a trillionaire- but unlikely, considering recent US interest rates have barely been exceeding 1%.

Facebook CEO Mark Zuckerberg-
could he be one of the first trillionaires?

However, keeping money in financial institutions could enable younger billionaires, the likes of Mark Zuckerberg, to become trillionaires by the time they reach old age- especially considering the extra time allowed for interest rates to increase. Again, assuming a life of 100 years, Zuckerberg would require a 4.9% rate for his $36bn wealth to grow to a trillion.

Gates and co. could make a faster journey to the top by investing all of his $80bn correctly- but again, for a man who plans to give most of his money to charity, this is unlikely to happen. Investing such a large proportion of their wealth would probably be an unlikely move for Gates' fellow billionaires to take.

So there are two scenarios- either a trillionaire rises fantastically from some groundbreaking innovation that they are able to quickly monopolise, or a trillionaire rises less glamourously thanks to favourable interest rates and/or long term investments.

The first scenario would indeed be a spectacular event, but dwelling on the second makes you realise that perhaps the first trillionaire will not be such an iconic figure. Inflation raises not just the nominal income of the wealthiest, but it raises everyone's incomes. That's why earning a 5-figure salary is not the big deal now that it was a century ago, and why earning a 6-figure salary in 2115 will probably not be as valued as earning it now in 2015. The first trillionaire could just arise from the wave of inflation that raises everyone's wealth on paper- $1,000,000,000,000, after all, is just a number, not a real wealth indicator.

So, at the end of the day, becoming a trillionaire on paper might not be as big as a deal as we think it is now.

Anyway, it could be argued that thousands of people have already become trillionaires- in a country called Zimbabwe, I've heard they even used to print bank notes in the trillions.

Why Is It So Expensive To Live In London?

London. Capital City of England, home to the Queen, and one of the most popular cities on earth. Attracting over 16 million tourists in 2013, its charm is undeniable to those who come to visit.

See our YouTube video HERE.

But for those living in London, the story is quite different after the initial 'honeymoon period' of living in the world's greatest city passes. London is known not just for its exemplary Britishness and history but equally the dreadful cost of living suffered by its inhabitants, as sky high as the towers of Canary Wharf.

Just a few months ago, London overtook Hong Kong as the most expensive city in the world to live in- a surprising statistic when you consider that just seven years ago, London was ranked fifth. Since then (in dollar terms) the cost of working and living in the capital has risen by almost 40%, the third highest growth behind Rio De Janeiro and Sydney respectively. Consequently, we've been seeing some crazy stories, like about how this student finds it cheaper to commute from Poland weekly than live in London accommodation, and how renting an average place in Camden Town costs more than commuting from Madrid everyday. Even in Britain, London's housing is ludicrously expensive- while the nation's average house costs £299,000, according to the Greater London Authority, London's average price is currently over £530,000.

So what is the reason behind London's new status as the most costly city in the world to live in? Well, at the core of this complex issue is supply and demand. Simply put, prices are so high because demand is constantly increasing, as supply is decreasing.

It's not too difficult to see why demand for housing in London is so high- one of the most vibrant, iconic cities in the world, the capital of England is a very appealing place to live. Though it has been having its troubles, transport in London is unparalleled in the rest of Britain. There are all the shops, leisure centres, cinemas, theatres, restaurants, that an individual could desire.

But increasing numbers of people are unable to select which city they live in, solely based on these luxuries. For many people, employment is what matters, and the factor that is driving many people to London. While much of the British economy has been slowly recovering since 2008, London's economy has accelerated the fastest- meaning massive numbers of jobs have been created in the capital, such that in early 2014, London had 10 times more job vacancies than other British cities, such as Birmingham and Edinburgh. Jobs have played a significant role in peoples' decisions to move to London, driving up demand for housing.

Despite the 2008 crisis, the City of London has thrived, creating many
high paid jobs.

However, the recent jobs boom in London has caused prices to rise in more ways than just this. It's important to look not just at how many jobs are available, but what types of jobs these are- and it is particularly noticeable that higher paid jobs make up a larger proportion of jobs in London than in most UK cities. The finance industry has particularly grown in stature in the past 30 years or so in London, despite shocks such as the recent 2008 crisis; data compiled by Z/Yen Group analysts concluded that London was the most competitive financial centre in the world, coming first above cities like New York and Singapore in every category tested.

Such an increase in high paid workers coming into London has meant that there has been a housing development boom, largely in luxury properties regular Londoners couldn't afford- pushing up the market prices, by as much as 7% in the last year.

Globalisation has further compounded this issue, allowing foreign wealthy individuals (the likes of Roman Abramovich and Lakshmi Mittal) to relocate to the capital, purchasing or building massively expensive properties at the same time. While foreign investment in the capital does indeed have its benefits, this aspect means that housing prices rise massively. Currently, almost 10% of the world's billionaires live in London (the highest proportion in the world), and the number of millionaires is also rising.

Both London's mayor and the government
have sought to take on London's housing crisis-
but their efforts have been relatively futile.  

Supply of affordable properties in London has not been keeping up with this rocketing demand. Despite George Osborne's efforts to stimulate home buying through schemes such as Help to Buy, which have made it easier for first time house buyers, not enough houses are being built. Mayor Boris Johnson's target is 42,000 homes built per year- but House of Commons research has suggested that over 80,000 would be required to meet demand.

With their financial power, wealthy individuals are able to purchase property in prime areas in central London- causing the average house prices of these areas to increase. Consequently, with a lack of new affordable housing developments in the centre, poorer people are being 'priced out'- forced to move to cheaper areas on the outskirts of the city. 

Is The Military Invasion Of Syria A Viable Option?

Following the British Government's announcement that it will be launching air strikes against Daesh in Syria, is the path being laid for a future military invasion? What could this path lead to? James Rosanwo analyses the situation and gives his view.

On Friday 13^th of November 2015, a series of terrorist attacks in Paris led to the deaths of approximately 128 innocent civilians. This, and various other terror-striking attacks have elevated Daesh or the so-called “Islamic state Of Iraq and al-Sham" onto the global stage as a serious global threat.

A cult of blood thirsty individuals who use a peaceful religion as a basis for the inhumane and callous slaughter of fellow human beings, Daesh claimed responsibility for this onslaught in Paris and boldly reinforced their intention of striking fear and terror into the hearts of the Western citizens. France’s Prime Minister Francois Hollande responded by reiterating France will remain strong, and he recently urged Russia and America to “unite forces” in a coalition to destroy Daesh. Following the downing of a Russian airliner, the Paris attacks and bombing in Turkey; there is a heightened determination to defeat them. France, the USA and Russia have a common interest in the destruction of the militant group; however tension remains between Russia and the West, as the Russian invasion in Ukraine looms in the background and considering Russia’s vested interest in Syria. Therefore, the prospect of any significant joint attack and alliance against them seems unlikely, despite the bold display of solidarity by the involving nations.

However, at the moment Russia, France nor the USA are willing to launch a full scale ground attack in Syria, amid fears of political and economical backlash. Many believe that a full scale military response would do nothing but aid the militant group, as they would simply publicise and broadcast images of Westerners invading and annexing Arab lands, bolstering their recruitment campaign and luring more vulnerable and angry individuals to join the radical group.

Thankfully, a military invasion is not the only solution. Many strategists say that in order to gain victory , the coalition must halt the militant group’s financing, counter its propaganda and find a diplomatic solution among world powers on Syrian rule, as the Assad regime has proved incompetent time and time again. In terms of counteracting their propaganda, the mirage that Daesh are the saviour against the West is deteriorating, as more and more Syrian refugees flee towards western countries. This highlights that they are not the saviours but the captors, laying waste to Syria.  Although, the longer and more severe the air strikes become the more radicalisation occurs and the worse the situation gets.

Furthermore, stopping the financing of the extremist group could prove fundamental to their capitulation. The extremist group receive the majority of their income from selling oil from the Syrian and Iraqi oil fields they seized. It is estimated that overall, they earn about $1.53 million a day, by selling oil directly to independent traders or into the black market. The U.S have attempted to disrupt and limit oil production by striking several oil production facilities, however it has been to no avail as the militants have been able to repair the sites easily. An alternative would be to directly bomb oil refineries and fields but that would significantly reduce any chance of economic recovery for Syria and Iraq, hence why this issue cannot be easily resolved.

The predicament of replacing the Assad regime is also a prominent issue. In order to restore Syria to full economic and social stability, a reliable and competent government is needed. Initially the idea was to replace the Assad regime with a secular, western style democratic government, however many predicted that Assad would eventually be replaced by a similar minded or worse ruler. Therefore, as presumed, the only feasible solution could be to reach an agreement with Russia and Iran, as they both are heavily vested in the country and finding a suitable replacement will almost be as difficult as defeating Daesh.

Further military intervention in Syria, however justified, will only lead to more difficulties- not solutions. The recent decision by Parliament to conduct air strikes in Syria will simply highlight that fact. Britain’s Prime Minister David Cameron claims that these supposed targeted strikes in Raqqa (Daesh’s presumed stronghold) will make Britain safer- a flawed claim indeed. Mr Cameron and the remaining 397 MPs have done the exact opposite of what they intended to do, and simply made a threat to Britain as imminent as ever. Bombing their home will enrage the already distraught Syrians, making them ever more susceptible to propaganda, radicalising them in the process. And this is before we even get to talking about the inevitably high number of civilian deaths and casualties that will ensue.

The question still remains, if successful, what would happen after the West invades Syria? The United States are still recovering from the war they waged in Afghanistan and Iraq after the 9/11 attacks. I believe that this vengeful path of which France and Russia are on will most likely produce the same outcome- further tarnishing the crumbling relations between the West and the Middle East. 

Defeating Daesh is an ordeal which will require the very brilliance that makes the West the global force that it is now. However, it is certain that a military invasion will have catastrophic effects on Syria and the rest of the world, a necessary evil one might argue which is needed for the greater good.