Economic News for September 19, 2011

Your morning economic news:

"The toughest point, said Brittany Modlesky, may have been when she had to sell her bedroom furniture to help pay for a class. She got $350 — a good amount, more than she earned in a week of waiting tables and tending bar while juggling courses. Modlesky graduated last year from Shippensburg University with a degree in communications, high hopes for the future and $60,000 in debt."

In the aggregate, the one form of debt that has been rapidly increasing in recent years is student loan debt. Combine that with the fact that unemployment rates for recent college graduates are just shy of 10% and you have a recipe for disaster.  Doing nothing to bring down unemployment rates is not an option.

In a fascinating study of the effect of supportive social networks on teacher productivity, Carrie Leana of the Graduate School of Business at the University of Pittsburgh found that both the amount of time that teachers spent talking to peers and teacher stability had positive impacts on student outcomes. In other words, the development of 'social capital' contributed to the productivity of human capital. All these economic factors help explain why Mr. Brill’s version of education reform should get a low grade.

High quality jobs make for high quality outcomes, full stop. And what are the big thinkers in Harrisburg doing? Increasing class size so as not to have to close corporate tax loopholes. Brilliant.

The rule — named for the billionaire investor Warren E. Buffett, who has complained that he is taxed at a lower rate than his employees — calls for a new minimum tax rate for individuals making more than $1 million a year to ensure that they pay at least the same percentage of their earnings as middle-income taxpayers.

The majority of income gains in Pennsylvania have gone to the top 1% of households.

For years, Linda Macht's customers have urged her to open a metal-stamping plant in the South, to be closer to the new center of domestic auto manufacturing ... It didn't help that from 2004 to 2009 Ford, General Motors, and Chrysler closed assembly plants in Edison, N.J.; Baltimore; Newark, Del.; and Wilmington. A key loss was the 2003 closure of the Budd Co. factory in Philadelphia, which stamped and welded metal sheets into doors, roof panels, and tailgates for the Ford Econoline van, the Ford Expedition, a BMW sports-utility vehicle, and other vehicles.

Officials in Central Pennsylvania like to tell a story about a local steel plant that might have been reopened, but the company seeking to reopen the facility choose not to because they couldn't find just under two dozen industrial electricians. This story is told in the context that the education system isn't providing the right skills. It is interesting to me that these officials never ask themselves why would anyone get a skill for a field for which their are no local openings? The story of Macht's is important because it reminds you that business activity tends to cluster. Once you lose the commanding heights in a sector, there is a great risk that suppliers will also disappear.

In any case, evidence is starting to emerge that the economy’s “short run” troubles — now in their fourth year, and being made worse by the focus on austerity — are taking a toll on its long-run prospects as well. Consider, in particular, what is happening to America’s manufacturing base. In normal times manufacturing capacity rises 2 or 3 percent every year. But faced with a persistently weak economy, industry has been reducing, not increasing, its productive capacity. At this point, according to Federal Reserve estimates, manufacturing capacity is almost 5 percent lower than it was in December 2007. What this means is that if and when a real recovery finally gets going, the economy will run into capacity constraints and production bottlenecks much sooner than it should. That is, the weak economy, which is partly the result of budget-cutting, is hurting the future as well as the present.

Regions lose manufacturing capacity and nations lose manufacturing capacity.

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