Wednesday, April 30, 2014

Moving Up the Food Chain: Hitting Peak Meat?

There has been a persistent cadre of experts who have warned that the world’s population is about to exceed the world’s capability to feed that population. Their arguments have received less attention of late because their previous predictions have thus far been overly pessimistic. Nevertheless, just because the timing was wrong, it doesn’t mean the ultimate prediction is wrong.

Consider the recent predictions for population growth derived by the United Nations (UN): World Population Prospects: The 2012 Revision. The current world population is about 7 billion. The best guess of the future population places it at 10.85 billion in 2100, within the lifetime of a person born today. That is a significant 55% increase yet to come. However this is only an estimate. The UN dataset contains a range of possibilities from 6.75 billion to 16.64 billion (-4% to +238%). Consider what the population would be if the world went on its merry way procreating at the same rate as now; the UN’s constant fertility estimate would yield a population of 28.64 billion (+409%) in the year 2100. Human behavior must change considerably if we are to avoid a Malthusian future.

One way or another, the world is going to experience a great increase in the demand for food. It will probably be due to a large increase in the world’s population as well as a change in the type of food product desired.

It is not widely recognized that total population does not necessarily provide the greatest leverage on food production. Of perhaps greater importance is the type of diet that people aspire to. Humans have always had a desire for more meat than has been available. As the population has become wealthier, on average, meat consumption has increased. Much of agricultural production is aimed not at feeding people directly, but at feeding the animals that produce the meat we so much enjoy.

Lester R. Brown refers to this willingness to spend more of one’s income on animal products as "moving up the food chain." Brown discusses the issues related to food production in his book Full Planet, Empty Plates: The New Geopolitics of Food Scarcity.

"Worldwide, roughly 35 percent of the 2.3-billion-ton annual grain harvest is used for feed. In contrast, nearly all of the soybean harvest ends up as feed. Both pork and poultry depend heavily on grain, whereas beef and milk production depend more on a combination of grass and grain."

If we want meat we must feed an animal to create the meat. If we want affordable meat we must mass produce it in an industrial setting: factory farms where animals of a given species are herded together and fed a mixture of feed (mostly grain, no matter what their natural diet might be) and chemicals needed to aid digestion, stimulate weight gain, and to avoid diseases. The cost of meat then is closely proportional to the amount of food the associated animal consumes.

"A steer in a feedlot requires 7 pounds of grain for each pound of weight gain. For pork, each pound of additional live weight requires 3.5 pounds. For poultry it is just over 2. For eggs the ratio is 2 to 1. For carp in China and India and catfish in the United States, it takes less than 2 pounds of feed for each pound of additional weight gain."

And cost does matter.

"Recent production trends give some sense of where the world is headed. Between 1990 and 2010, growth in beef production averaged less than 1 percent a year. Pork, meanwhile, expanded at over 2 percent annually, eggs at nearly 3 percent, and poultry at 4 percent. Acquacultural output, which sets the gold standard in grain conversion efficiency, expanded by nearly 8 percent a year…."

Brown puts the agricultural demands of a meat-heavy diet in perspective.

"Comparing grain use per person in India and the United States provides some idea of how much grain it takes to move up the food chain. In low-income India—where annual grain consumption totals 380 pounds per person, or roughly one pound a day—nearly all grain must be eaten directly to satisfy basic food energy needs. Only 4 percent is converted into animal protein."

"The average American, in contrast, consumes roughly 1,400 pounds of grain per year, four fifths of it indirectly in the form of meat, milk, and eggs. Thus the total grain consumption per person in the United States is nearly four times that in India."

As the population of India increases its wealth, the demand for meat, milk, and eggs is going to increase—a trend that Brown tells us has already been observed.

A more graphic perspective on what moving up the food chain would mean if all humanity attempts to do it is provided by Chandran Nair, who is concerned that world resources cannot maintain such a level of food production.

"….here is an interesting stat. Americans today consume something like 9 billion birds per year. Asia with a population of about over 10 times that today consumes about 16 billion birds. If Asian meat consumption increases as it is projected to, Asians in 2050 will consume something like 200 billion birds. This again is not going to be possible because on that journey to these levels of consumption, we will see a huge amount of collapse in terms of the ecological systems that we are very much dependent on here."

Brown has published an article at the Earth Policy Institute website that illustrates this effect in action as China attempts to keep up with the demand for its favorite meat—pork: Can the World Feed China? China has labored mightily to be self-sufficient in grain production, but it just cannot keep up with demand.

"Since 2006, China’s grain use has been climbing by 17 million tons per year….For perspective, this compares with Australia’s annual wheat harvest of 24 million tons. With population growth slowing, this rise in grain use is largely the result of China’s huge population moving up the food chain and consuming more grain-based meat, milk, and eggs."

"In 2013, the world consumed an estimated 107 million tons of pork—half of which was eaten in China. China’s 1.4 billion people now consume six times as much pork as the United States does. Even with its recent surge in pork, however, China’s overall meat intake per person still totals only 120 pounds per year, scarcely half the 235 pounds in the United States. But, the Chinese, like so many others around the globe, aspire to an American lifestyle. To consume meat like Americans do, China would need to roughly double its annual meat supply from 80 million tons to 160 million tons. Using the rule of thumb of three to four pounds of grain to produce one pound of pork, an additional 80 million tons of pork would require at least 240 million tons of feedgrain."

China, similarly to most agricultural producers, is already growing about as much grain as possible.

"Where will this grain come from? Farmers in China are losing irrigation water as aquifers are depleted. The water table under the North China Plain, an area that produces half of the country’s wheat and a third of its corn, is falling fast, by over 10 feet per year in some areas. Meanwhile, water supplies are being diverted to nonfarm uses and cropland is being lost to urban and industrial construction. With China’s grain yield already among the highest in the world, the potential for China to increase production within its own borders is limited."

China is not the only country attempting to move up the food chain.

"China is not alone in the scramble for food. An estimated 2 billion people in other countries are also moving up the food chain, consuming more grain-intensive livestock products. The combination of population growth, rising affluence, and the conversion of one third of the U.S. grain harvest into ethanol to fuel cars is expanding the world demand for grain by a record 43 million tons per year, double the annual growth of a decade ago."

Brown’s book is devoted to detailing the reasons why food production is having a difficult time keeping up with demand. Among the reasons discussed are lack of water for irrigation, little new land to cultivate, rising temperatures, and diminishing returns in terms of productivity gains.
He is greatly concerned about the tendency to use water in an unsustainable manner because the ability to produce food is tied to the water supply. If water usage is unsustainable, in terms of drawing down water supplies faster than they can be replenished, then food production is unsustainable. He refers to such a condition as living in a "food bubble."

"We live in a world where more than half the people live in countries with food bubbles based on overpumping [of water]. The question for each of these countries is not whether its bubble will burst, but when."

Dramatic gains in grain production have come from increased productivity of existing cultivated land. Those improvements seem to have played out leaving many countries with stagnant farm yields.

"The keys to this phenomenal expansion were fertilization, irrigation, and higher yielding varieties, coupled with strong economic incentives for production."

"Impressive though the growth is over the last 60 years, the pace has slowed during the last two decades. Between 1950 and 1990, the world grain yield increased by an average of 2.2 percent a year. From 1990 to 2011, the annual rise slowed to 1.1 percent. In some agriculturally advanced countries, the dramatic climb in yields has come to an end as yields have plateaued."

Farmers are already using more fertilizer than the land can accommodate in order to get the last bit of yield. As a result, the excess is running off and entering our water systems. This pollution becomes not only a human health hazard, but a powerful disrupter of aquatic ecosystems that we also depend upon for food supply.

Global warming is also an issue going forward. Plants have evolved to thrive in a narrow range of temperature and other climatic conditions. Rising temperatures and changing weather patterns can have a significant effect on crop productivity.

"High temperatures interfere with pollination and reduce photosynthesis of basic food crops. The most vulnerable part of a plant’s life cycle is the pollination period. Of the world’s three food staples—corn, wheat, and rice—corn is particularly vulnerable."

"….as temperature rises, photosynthetic activity in plants increases until the temperature reaches 68 degrees Fahrenheit. The rate of photosynthesis then plateaus until the temperature reaches 95 degrees Fahrenheit. Beyond this point it declines, until at 104 degrees Fahrenheit, photosynthesis ceases entirely."

Concerns about rising temperatures have sent investigators off to look at historical data correlating crop production with correlated temperature history. Brown describes two studies, one of which concluded:
"….a 1-degree-Celsius rise in temperature above the norm during the growing season lowers wheat, rice, and corn yields by 10 percent."
A second study of corn and soybeans yields concluded that a similar rise in temperature would diminish yields by 17 percent for each crop.

Brown also discusses the issues of soil erosion, desertification, and the conversion of cultivatable land to non-food crops, but the picture should be sufficiently clear by now: large increases in grain production will be difficult to attain. Not everyone will be able to enjoy the diet they might prefer.

Brown predicts that food prices will rise and become more volatile as demand increases. He expects this to lead to more political unrest, particularly in countries where food cost is a major budgetary component. He expresses his concerns in his conclusion to the article about China and grain demand.

"The world is transitioning from an era of abundance to one dominated by scarcity. China’s turn to the outside world for massive quantities of grain is forcing us to recognize that we are in trouble on the food front. Can we reverse the trends that are tightening food supplies, or is the world moving toward a future of rising food prices and political unrest?"

Friday, April 25, 2014

The True Cost of the Meat We Eat

A bit of a stir was made a few years ago when the claim was made that if all costs were factored in a hamburger would cost about $100. This estimate was provided by Chandran Nair

Nair is concerned that we have a growing population in the world whose needs must be satisfied. Unfortunately, one of those needs seems to be to consume like other "wealthy" people. Moving billions of people from a near subsistence level to where they can consume like a middle class European or American just cannot happen. In his view there are not enough resources for this to be possible. He expressed his views in an article in the Financial Times.

"Already resources are stretched to their limits. Since Britain started the industrial revolution, one country after another has launched itself on to the world stage by plundering the world’s land and seas while polluting its air, either in their own borders or overseas through colonies, investment and trade."

"Despite three centuries of growth based on exploitative economics as well as the underpricing or giving away of resources, governments and companies continue to refuse to talk about limits or constraints. Instead the mantra is of continuing growth through the promotion of ever more consumption. But if Asia copies this western model the 21st century will turn out to be nobody’s century."

Nair believes overconsumption could be controlled if only we included all costs in pricing our commodities.

"Companies can continue to do the things they now do – develop and produce the goods and services people need or want. But they must do so in a world where the external impact of their activities is properly priced. This means fully incorporating everything from resource extraction and waste disposal to manufacturing costs, building transport that emphasises public mobility rather than the right to car ownership. Water should no longer be seen as a free public good."

Nair discussed his outlook with regard to meat as a commercial commodity in an interview conducted by the BBC.

"….meat consumption is a particularly interesting one given the concerns about how inefficient meat production is in terms of converting grain to meat et cetera and the water intensity. But, again, here is an interesting stat. Americans today consume something like 9 billion birds per year. Asia with a population of about over 10 times that today consumes about 16 billion birds. If Asian meat consumption increases as it is projected to, Asians in 2050 will consume something like 200 billion birds. This again is not going to be possible because on that journey to these levels of consumption, we will see a huge amount of collapse in terms of the ecological systems that we are very much dependent on here."

Raising and fattening another 200 billion or so chickens per year does seem rather incredible. Actually, consuming 9 billion chickens per year is also a bit incredible.

If Nair is correct in claiming a $100 hamburger, what are the costs he is referring to? And what might these costs be in 2050 if we continue on our merry way?

Nair does not quantify his $100 price tag, but a little thought suggests how he might have arrived at his figure. What needs to be recognized is that chickens, pigs, and cows eat a lot of food and create a great amount of excrement.

Lester R. Brown introduces us to some of details of modern industrial food production in his book Full Planet, Empty Plates: The New Geopolitics of Food Scarcity.

"A steer in a feedlot requires 7 pounds of grain for each pound of weight gain. For pork, each pound of additional live weight requires 3.5 pounds. For poultry it is just over 2. For eggs the ratio is 2 to 1. For carp in China and India and catfish in the United States, it takes less than 2 pounds of feed for each pound of additional weight gain."

It seems that these costs of feed consumption are factored in at least in a relative sense, because growth in meat consumption has been greatest for the least grain-intensive commodities.

"Recent production trends give some sense of where the world is headed. Between 1990 and 2010, growth in beef production averaged less than 1 percent a year. Pork, meanwhile, expanded at over 2 percent annually, eggs at nearly 3 percent, and poultry at 4 percent. Acquacultural output, which sets the gold standard in grain conversion efficiency, expanded by nearly 8 percent a year…."

These growth rates in consumption of meat will require large increases in grain production in order to be maintained. Whether or not that is feasible is a story for another day. Of interest here is deducing the unaccounted for costs that Nair referred to.

Corn is the dominant grain used to feed the animals we eat. In order to produce corn as a monocrop and at high yield it is necessary to use large amounts of chemicals: fertilizers, pesticides, herbicides…. Combining chemicals with the water necessary to make plants grow means that these chemicals will end up wherever water ends up: in groundwater and in rivers and streams, and ultimately in the oceans. And don’t forget the water we drink.

Let us now move to the next stage in the food chain, the industrial sites where large numbers of animals are contained and fed the grain the farmers produce. In the old days individual animals would roam around eating and leaving their manure here and there. The manure was part of the food chain. Now cows are collected in CAFOs (concentrated animal feeding operation) and chickens into large sheds where they consume grain and an assortment of pharmaceutical compounds and other chemicals and convert that to excrement—lots of it. What happens to all this manure? It gets spread out thickly onto the ground where it is left for nature to take its course—it gets rained on and manure goes wherever the water goes.

Alex Prud’homme investigated the effects of agricultural waste on our water supplies in The Ripple Effect: The Fate of Freshwater in the Twenty-First Century.

"In the United States, farmed animals produce more than 1 billion tons of manure per year. As the population, and its demand for food, continues to rise, the amount of cow, pig, goat, and poultry excrement continues to grow and to infiltrate water supplies."

Prud’homme tells us that in 1970 the EPA estimated that most water contamination was coming from point sources such as factories. Those sources have been greatly diminished due to environmental regulations. Now most pollution comes from water runoff from diffuse sources.

"….The greatest source of water pollution today is the more diffuse ‘nonpoint-source’ pollution known as storm-water runoff. This term describes pollutants of many kinds, from many sources—motor oil, paint, sewage, fertilizers, insecticides, pharmaceuticals, and other contaminants—that are washed off the land by rain, snow, or mist and into water supplies."

"….according to the EPA, agricultural runoff is now the single biggest source of water pollution in America. Pathogens such as E. coli are responsible for 35 percent of the nations impaired waterways, and large ‘factory farms’ are one of the most common sources of pathogens."

"An estimated 19.5 million Americans are sickened each year from waterborne bacteria, viruses, or parasites, including those from animal and human sewage."

Pathogens aren’t the only problem. Agricultural runoff carries large amounts of nitrogen and phosphorus from fertilizers and pesticides. These chemicals ultimately end up in our oceans where they can cause great damage. These nutrients cause algal blooms. Consider the flow from the Mississippi into the Gulf.

"When those algae die, they settle into the deeper colder salt water, where they decay and use up all the oxygen near the bottom. Down there, the algae create the Gulf dead zone….The lack of oxygen in the Gulf’s deep waters makes it impossible for fish and other aquatic life to survive."

Wikipedia provides this information on dead zones.

"In March 2004, when the recently established UN Environment Programme published its first Global Environment Outlook Year Book (GEO Year Book 2003), it reported 146 dead zones in the world's oceans where marine life could not be supported due to depleted oxygen levels. Some of these were as small as a square kilometre (0.4 square miles), but the largest dead zone covered 70,000 square kilometres (27,000 square miles). A 2008 study counted 405 dead zones worldwide."

This chart, where red circles indicate the location and size of many of the dead zones, was also provided.

We began by considering the claim that the true cost of a hamburger would be about $100. Given that we appear to be destroying ocean life and threatening our health with waterborne pollutants in our quest for cheap meat, the $100 price tag may be conservative as an estimate. As the drive to produce ever more meat continues, things will only get worse. How do you put a price on our health—or on our oceans?

Lester Brown provides us with a final perspective.

"A startling 80 percent of oceanic fisheries are being fished at or beyond their sustainable yield."

What do you do when you can no longer procure fish in their natural habitat? You turn to industrial fish production.

"When the oceanic fisheries collapse, we turn to fish farming. Doing this, however, takes land and water, since these fish must be fed, most often with some combination of corn and soybean meal. Thus collapsing fisheries put additional pressure on the earth’s land and water resources."

As of 2010, farmed fish consisted of about 40 percent of the total consumed—a fraction that has continued to rise.

This cannot end well.

Monday, April 21, 2014

The Federal Government as Entrepreneur

Mariana Mazzucato is a professor from the University of Sussex whose field of specialty is the Economics of Innovation. She has written a book on the subject: The Entrepreneurial State: Debunking Public vs. Private Sector Myths. Her goal is to disabuse the reading public of the notion that the role of the public sector in innovation is mainly to avoid getting in the way of the private sector where all good ideas are thought to originate.

Jeff Madrick wrote a review in praise of Mazzucato’s effort in the New York Review of Books: Innovation: The Government Was Crucial After All. He summarized the issue quite succinctly.

"’The great advances of civilization,’ wrote Milton Friedman in Capitalism and Freedom, his influential best seller published in 1962, ‘whether in architecture or painting, in science or literature, in industry or agriculture, have never come from centralized government.’ He did not say what he made of the state-sponsored art of Athens’s Periclean Age or the Medici family, who, as Europe’s dominant bankers but then as Florentine rulers, commissioned and financed so much Renaissance art. Or the Spanish court that gave us Velázquez. Or the many public universities that produced great scientists in our times. Or, even just before Friedman was writing, what could he have made of the Manhattan Project of the US government, which produced the atomic bomb? Or the National Institutes of Health, whose government-supported grants led to many of the most important pharmaceutical breakthroughs?"

"We could perhaps forgive Friedman’s ill-informed remarks as a burst of ideological enthusiasm if so many economists and business executives didn’t accept this myth as largely true. We hear time and again from those who should know better that government is a hindrance to the innovation that produces economic growth. Above all, the government should not try to pick ‘winners’ by investing in what may be the next great companies. Many orthodox economists insist that the government should just get out of the way."

Mazzucato focuses on the concept of risk in discussing the appropriate roles to be played by the public and private sectors. The public sector has the duty to participate in the development of promising technologies when the timescale and/or cost of such development are too great for the private sector. This duty exists particularly in high-risk situations where the potential for payoff is very large, but the probability of success is low.

She uses the history of investment in "focused" basic research that has characterized the United States since World War II as an example of how the State can be effective in both supporting and encouraging private sector investment. Her book is focused on the United States, both to remind us that we have pursued effective policies even if we refuse to recognize the fact, but also to warn her European nations that they have not been as wise in their investments in the past, and seem to be headed in the wrong direction now.

"….in most parts of the world we are witnessing a massive withdrawal of the State, one that has been justified in terms of debt reduction and—perhaps more systematically—in terms of rendering the economy more ‘dynamic, ‘competitive’ and ‘innovative’. Business is accepted as the innovative force, while the State is cast as the inertial one—necessary for the ‘basics’, but too large and heavy to be the dynamic engine."

Mazzucato tells us in no uncertain terms that this view is false.

"….most of the radical, revolutionary innovations that have fueled the dynamics of capitalism—from railroads to the Internet, to modern day nanotechnology and pharmaceuticals—trace the most courageous, early and capital-intensive entrepreneurial investments back to the State….

She invites us to think in terms of the government and its "visible hand."

"….radical investments—which embedded extreme uncertainty—did not come about due to the presence of venture capitalists, nor of ‘garage tinkerers’. It was the visible hand of the state which made these innovations happen. Innovation that would not have come about had we waited for the ‘market’ and business to do it alone…."

"But how many people know that the algorithm that led to Google’s success was funded by a public sector National Science Foundation grant?"

"How many people realize that many of the most innovative young companies in the US were funded not by private venture capital but by public venture capital, such as that provided by the Small Business Innovation Research (SBIR) program?"

She is not impressed by the role of venture capital in driving innovation.

"In biotechnology, nanotechnology and the Internet, venture capital arrived 15-20 years after the most important investments were made by public sector funds."

She even suggests that the government is the entity that is driven by Keynes’s "animal spirits."

"Indeed, the discovery of the Internet or the emergence of the nanotechnology industry did not occur because the private sector wanted something but could not find the resources to invest in it. Both happened due to the vision the government had in an area that had not yet been fathomed by the private sector….It was—in these and many such cases—the State that appeared to have the most aggressive ‘animal spirits’."

What has made the US system so productive is that public investments were always viewed as collaborations between government, academia and the private sector—a "symbiotic" relationship. Mazzucato discusses in detail four public investment programs: DARPA (Defense Advanced Research Projects Agency), SBIR (Small Business Innovation Research), the Orphan Drug Act, and the National Nanotechnology Initiative. A brief description of DARPA will suffice to explain what is meant by a "symbiotic" relationship.

DARPA (originally known as ARPA) was formed in 1958 in response to the Sputnik excitement. It was tasked with pursuing more-novel, higher-payoff, and higher-risk technology development than was emerging from the DOD with its more incremental mindset. While DARPA has a significant amount of money to spend, it could hardly be called a vast bureaucracy. It has few permanent employees. It functions by recruiting ambitious and intelligent people from universities, government labs, and the private sector to serve as project managers in particular technology areas. These people serve for 4-6 years and then move on, usually back to the sector from which they emerged.

These project managers entertain proposals for technology development or demonstration from whoever has a good idea. They define the area of interest, but the proposals come from the three communities. The goal is to get industry, academia, and government working together on solutions and proposing specific projects which will further progress. Proposals can range from basic research to commercialization demonstrations of a product. Projects that are not making progress are defunded in order to provide more support to those that are more successful—clearly a good example to set.

"The main focus is to assist firms in developing new product and process innovations. The key is that the government serves as a leader for firms to imitate, in an approach that is much more ‘hands on’, in that public sector officials are working directly with firms in identifying and pursuing the most promising innovative paths. In so doing, the government is able to attract top minds—exactly the type of expertise that generates the dynamism that government is accused of not having."

To provide an example of how prevalent the fruits of government sponsored research are within our economy, Mazzucato produced this diagram illustrating the source of the technologies Apple packaged together to create its highly profitable IPod, IPhone, and IPad products.

Apple, as so many others, said thank you to the government by applying its creative talents to tax-avoidance schemes.

The lack of appreciation for the government’s contributions to the economy increases the risk that our ability to continue a mutually beneficial relationship between public and private sectors will be lost.

"Without a better understanding of the actors involved in the innovation process, we risk allowing a symbiotic innovation system, in which the State and private sector mutually benefit, to transform into a parasitic one in which the private sector is able to leach benefits from a State that it simultaneously refuses to finance."

Let’s finish with a quote provided by Mazzucato to produce an interesting perspective on our strange history. It is attributed to Erik Reinert (2007):

"….since its founding fathers, the United States has always been torn between two traditions, the activist policies of Alexander Hamilton….and Thomas Jefferson’s….maxim that ‘the government that governs least, governs best’. With time and usual American pragmatism, this rivalry has been resolved by putting the Jeffersonians in charge of the rhetoric and the Hamiltonians in charge of policy."

Tuesday, April 15, 2014

Is YOUR College Education a Good Investment?

There are all sorts of tabulations and statistical analyses that will convince you that college graduates as a group earn considerably more than those with only a high school degree. Pundits are tempted to conclude from this that if only we would send more students to get a four-year degree then all manner of beneficial effects would follow: low unemployment, higher salaries, more tax revenue…. 

Consider some global conclusions drawn by the OECD as it evaluated the US education system and compared it to other "rich" nations in a report from 2012. College education (tertiary education) is expensive.

"In the U.S., the total cost for an individual to obtain a higher education is quite large. On average, the total cost for a man in the U.S. to pursue higher education is more than USD 116,000 – about USD 71,000 in direct costs, and USD 45,000 in foregone earnings while he is in school. Only three other countries have total costs that exceed USD 100,000: Japan (USD 103,965), the Netherlands (USD 104,231), and the United Kingdom (USD 122,555). However, in these latter countries, the lion’s share of the total costs consists of foregone earnings. For women in the U.S., the total costs of higher education are slightly higher: USD 117,000 on average, comprised of USD 71,000 in direct costs, and USD 46,000 in foregone earnings…."

But, on average, there is a healthy return on that investment.

"….the payoff for obtaining a higher education degree is much higher in the U.S. than in most OECD countries. For example, over the course of his working life, a tertiary-educated man in the U.S. can expect to earn almost USD 675,000 more than a man with no more than an upper secondary or postsecondary non-tertiary education – far more than in any other country. Meanwhile, a woman with tertiary education in the U.S. can expect to earn almost USD 390,000 more on average…."

The nation as a whole benefits from its investment and from the students’ investments.

"U.S. taxpayers also realise a healthy return on the public funds that are used to support individuals in higher education. On average, they bear a cost (direct and indirect) of USD 45,554 to support a man in higher education and USD 45,618 to support a woman in higher education. Both amounts are higher than the OECD average, which is USD 36,085 for men and USD 35,281 for women. In the long run, however, taxpayers will recoup this investment many times over through the increased income taxes that tertiary-educated workers typically pay, as well as savings from the lower amount of social welfare benefits these individuals typically receive. Overall, the net public return in the U.S. amounts to USD 232,779 for each tertiary-educated man, and USD 84,313 for each tertiary-educated woman."

The issue that is rarely addressed is whether or not a specific four-year education at a specific school and at a specific cost is worth the investment for a given individual. As the OECD report indicates, an individual must consider direct costs for tuition, fees, books, and living expenses during a period of at least four years. He/she must also consider the loss in earnings accumulated over whatever time is required to obtain a degree. And finally, the student must have an estimate of the earnings potential from his/her specific educational path; not all schools and degrees are created equal.

An article in The Economist points out that there is an organization that is tallying data on educational outcomes so that prospective students might have some specific data with which to consider various options.

"PayScale, a research firm, has gathered data on the graduates of more than 900 universities and colleges, asking them what they studied and how much they now earn. The company then factors in the cost of a degree, after financial aid (discounts for the clever or impecunious that greatly reduce the sticker price at many universities). From this, PayScale estimates the financial returns of many different types of degree."

The article suggests that this type of information is greatly needed.

"A report by McKinsey, a consultancy, found that 42% of recent graduates are in jobs that require less than a four-year college education. Some 41% of graduates from the nation’s top colleges could not find jobs in their chosen field; and half of all graduates said they would choose a different major or school."

PayScale provides an annualized return on investment (ROI) for a large number of schools by integrating salary earned over a 20 year period since graduation after subtracting education costs and lost earnings (assuming a high school degree earning potential) while in school. The article provides this selection of results when all majors are included and financial aid is deducted from costs.

The PayScale website can be found here; the data on ROI can be found here. An interested individual can learn a lot by perusing this data.

The University of Virginia rates highest in the list provided in the above chart, not because it is the best school, although it is considered a very good school, but because it has low tuition for in-state students and it provides a significant amount of financial aid to needy students. The 17.6% annual ROI is obtained because only in-state students are tallied and with financial aid subtracted, the cost of the education is a mere $25,880. In-state tuition without financial aid comes at a cost of $94,300 and lowers the ROI to 10.3%. Out-of-state tuition raises the education cost to 191,600 and lowers the ROI to 6.4%.

If one wonders which schools produce the highest earning graduates over the next 20 years, PayScale provides an interesting answer. The winner is Harvey Mudd College with costs of $229,500 and a net ROI of $980,900. Including financial aid lowers the cost to $116,800 and increases the net ROI to $1,094,000.

Of the top 10 schools in terms of net 20-year ROI, eight are focused on technology: Caltech, MIT, Colorado School of Mines (twice for both in-state and out-of-state costs), Georgia Institute of Technology (in-state), Rose-Hulman Institute of Technology, Polytechnic Institute of NYU, and Stevens Institute of Technology. Stanford rounds out this top ten.

One has to wonder if these technical schools rate so high because a large fraction of the students must go on to post-graduate degrees if they are to participate meaningfully in science and engineering.

PayScale also is collecting data on schools by degree type as well. It considers the fields of art, business, computer science, economics, education, engineering, English and the humanities, life sciences, math and physical science, nursing, political science, and social work and criminal justice. This information should be invaluable in choosing a major and a school at which to study in a given field.

PayScale is attempting to provide some transparency to assist in making one of the most important decisions a person makes in his/her lifetime.

The PayScale effort seems very much a work in progress. The website behaved erratically (at least on Internet Explorer), and some of the responses to queries suggested a severe lack of statistically solid data. That was not surprising considering the scope of the effort. Hopefully, the data will only improve over time.

Meanwhile, those behind this project should be applauded and encouraged to continue this important effort.

Friday, April 11, 2014

Wage Theft by Employers: The Most Prevalent Crime?

The Economic Policy Institute posted a brief note by Ross Eisenbrey with the provocative title Wage Theft is a Bigger Problem Than Other Theft—But Not Enough is Done to Protect Workers.

Eisenbrey provides this explanation of what is meant by wage theft:

"Wage theft is a far bigger problem than bank robberies, convenience store robberies, street and highway robberies, and gas station robberies combined. Employers steal billions of dollars from their employees each year by working them off the clock, by failing to pay the minimum wage, or by cheating them of overtime pay they have a right to receive."

This graphic was provided:

This suggests that wage theft is much bigger than what one might call street crimes—but how much bigger? Eisenbrey references a survey whose results were published under the title Broken Laws, Unprotected Workers. That study surveyed 4,387 low-wage workers in Chicago, Los Angeles, and New York City in 2008. It issued these conclusions:

"Workplace violations are severe and widespread in the low-wage labor market. In our sample, 26% of low-wage workers were paid less than the minimum wage in the week prior to the survey, and 76% of those who worked more than 40 hours were not paid the legally required overtime rate."

"More than two-thirds of our sample experienced at least one pay-related violation in the previous work week. Assuming a full-time, full-year work schedule, we estimate that workers lose an average of $2,634 annually due to workplace violations, out of total earnings of $17,616."

This suggests that low wage workers are being deprived of up to 15% of their wages by workplace violations. Could this really be true? Could businesses see low-wage workers as defenseless nobodies who can be taken advantage of at will? Can we trust the results of this one survey?  Conveniently, there is a second survey that was released a few weeks ago.

The Los Angeles Times published an article by Tiffany Hsu titled Nearly 90% of fast-food workers allege wage theft, survey finds. This survey was performed by Hart Research for an advocacy group calling itself the Low Pay Is Not OK campaign. It included 1,088 workers from ten of our large cities.

"The vast majority of fast-food workers in the U.S. say they’ve been the victims of wage theft, according to a survey…."

"Out of 1,088 respondents nationwide, 89% said they have been forced to do off-the-books work, been denied breaks, been refused overtime pay or been placed in similarly unsavory circumstances."

"The same holds for 84% of McDonald’s workers, 92% of Burger King employees and 82% of Wendy’s rank and file, according to the survey, which was conducted by Hart Research for the Low Pay Is Not OK campaign."

We now have two independent surveys that arrive at the same conclusion. Some might still be dubious about the validity of self-reported offenses by these workers. Let us then return to Eisenbrey’s graphic. His number for the amount of wage theft was not intended to be a precise number. Rather, it is a lower bound. It was taken from a Department of Labor document describing its 2014 budget. It included this statement:

"In FY 2012, WHD [Wage and Hour Division] utilized over 1,000 investigators, completed 34,139 compliance actions, and collected more than $280 million in back wages for more than 308,000 workers."

A thousand investigators executing 34,139 compliance actions and recovering almost a thousand dollars apiece for 308,000 workers—if you thought the prior claims were smoke, well, that provides some fire for you.

Nelson Lichtenstein presents us with a conflagration. Making employees work "off the clock" is a form of wage theft.

"Although both K-Mart and Target proscribe overtime pay and squeeze their managers and workers to keep labor costs in line, neither has been the subject of a class-action ‘off-the-clock’ suit. Wal-Mart, on the other hand, was defending itself against seventy-five such suits as of December 2008 when the company announced a settlement, perhaps costing as much as $640 million, in sixty-three of those wage and hour lawsuits covering hundreds of thousands of workers in some forty-two states."

The indications are that wage theft is common in low-wage industries, and the $280 million is just a drop in a very large bucket.


Nelson Lichtenstein is the author of The Retail Revolution: How Wal-Mart Created a Brave New World of Business.

Wednesday, April 9, 2014

Why Universities Are So Liberal

It has often been noted that the professors who inhabit our colleges and universities tend to be liberal on political issues. Neil Gross of Harvard and Solon Simmons of George Mason University have prepared a report that tallies the political tendencies of the professor class: The Social and Political Views of Professors. Their document was provided in 2007. Consequently, it may have missed more recent trends.

The authors provide this chart of political orientation of the professors surveyed.

Only 19.7% are willing to be associated in any way with conservative beliefs, and most of those chose the "slightly" modifier. On the other hand 62.2% felt comfortable with a liberal association. That is more than a three-to-one ratio in favor of liberalism. Gross and Simmons also breakdown political views by academic discipline; that provides some rather interesting data we will return to later.

Conservatives might view this table and worry that colleges are places where professors lie in wait to indoctrinate impressionable young students with their false beliefs. Liberals might use this table to confirm an intellectual and educational superiority associated with their views. Both sides would be wrong according to Chris Mooney, author of The Republican Brain: The Science of Why They Deny Science- and Reality.

Strict alignment with liberal or conservative views is not a matter of intelligence or education; it is more fundamental than that. Rather, it is more a function of personality according to Mooney’s interpretation of psychological research.

Psychologists use a number of descriptors to categorize personality traits. Mooney suggests that the ones most distinctive in determining political traits are termed "Openness" and "Conscientiousness."

Liberals are much more likely than conservatives to be characterized as possessing Openness.

"Openness is a broad personality trait that covers everything from intellectual flexibility and curiosity to an enjoyment of the arts and creativity. It denotes being experimental, a risk taker in one’s way of living and one’s choices, and wanting to sample variety across the range of life’s experiences. People who are open tend to enjoy travel, reading lots of books, listening to many different types of music, dining out, and going to art and theater openings. They’re very self-expressive and creative—and very inclined to distinguish themselves, to show that they’re unique and different from everyone else."

Conservatives are much more likely than liberals to be characterized as possessing Conscientiousness.

"….conservatives have an admirable trait of their own—a characteristic where they best liberals by a good margin. It’s called Conscientiousness, and those who rate high on this trait tend to prize orderliness and having a lot of structure in their lives—being on time, working hard, sticking to a predictable schedule, and keeping one’s home or office neat and clean. Think of a lawn that’s highly manicured, shoes that are perfectly shined….Think, in short, of corporate America or the military. The conscientious are highly goal oriented, competent, and organized—and, on average, politically conservative."

A characteristic associated with Conscientiousness is the need for cognitive closure. It is this need, or lack thereof, that will send liberals to universities in search of satisfaction, and send conservatives to the military or to a church.

"….the need for cognitive closure….describes the state of being uncomfortable with ambiguity and uncertainty, and wanting these to be resolved into a firm belief….Sometimes—more pejoratively—people with a high need for closure are called ‘closed minded.’ Having a high need for closure tends to mean that one will seize on a piece of information that dispels doubt and uncertainty, and then freeze, refusing to admit or consider new information."

Liberals seem to have more of a need for cognitive openness than cognitive closure.

"….liberals tend to have much less need for closure than conservatives. At the same time, liberals often have more need for cognition. They like to think, in an effortful and self-challenging way, and take pride in doing a good job of it. They enjoy complex problems and trying to solve them."

It should be clear now why liberals tend to congregate at universities and colleges.

"The university is kind of like a playground for people who score high on Openness to Experience. They get to indulge their thoughts and their tastes, sample a smorgasbord of ideas and artistic creations—and of course they get to experience a lot of difference."

Liberals probably will sense that they are the winners in this duel of personality characteristics. They should perhaps pause and ask themselves if they would want a bunch of "seeing all sides of all problems" liberals waging a war. They should also explain why, if they are so smart, they can’t win an argument with a conservative.

These relevant personality traits are to some degree inherited and to some degree culturally induced. Since they are roughly equal in distribution, one might conclude that neither was deemed deficient by natural selection. Since we evolved to produce a roughly equal split, perhaps the lesson to be learned is that humanity is better off when liberal and conservative mind sets compete for dominance on issues. Perhaps better understanding of where each side is coming from will allow us to contend more effectively.

Gross and Simmons provided another chart that is of interest. They recorded the votes for Bush or Kerry in the 2004 presidential election and divided the professors up by discipline.

Professors as a whole voted almost four-to-one for the Democratic candidate. That is not too surprising. However, note that not all professors are created equal. While those in the physical and biosciences were about average, those in the social sciences and humanities were much more liberal than average. Note that engineers were considerably less liberal than average. Anyone who has had to deal with both scientists and engineers will recognize that engineers tend to have a much greater need for cognitive closure. It is not a surprise that business professors were also more conservative than average.

What is most curious is the fact that those professors in the health sciences voted preferentially for the conservative candidate. Given what we have just learned, does that mean that those responsible for training those who provide our healthcare suffer from this trait:

"Having a high need for closure tends to mean that one will seize on a piece of information that dispels doubt and uncertainty, and then freeze, refusing to admit or consider new information."

That’s a bit scary.

Sunday, April 6, 2014

Do We Have a Shortage of Skilled Workers? Yes and No

One often hears terms like "skills mismatch" and "skilled worker shortage" as pundits attempt to explain declining employment rates and persistent high unemployment rates. These pronouncements are usually uttered in a context that is politically tinted and based more on anecdotal reports than on hard data. Two recent articles posted by the Economic Policy Institute attempt to determine whether "skills mismatch" is a significant factor in our economy.

The first is by Heidi Shierholz: Is There Really a Shortage of Skilled Workers? Her thesis is as follows:

"….if today’s high unemployment were a problem of mismatches or a skills shortage, we would expect to find some types of workers or sectors or occupations of meaningful size now facing tight labor markets relative to before the recession started. The "signature" of skills mismatch is shortages relative to 2007 in some consequentially-sized groups of workers."

Shierholz examines the change in unemployment rate between 2007 and 2012 by occupation and finds no evidence that any job category is experiencing a shortage.

"….the unemployment rate in 2012 in all occupations is higher than it was before the recession. In every occupational category demand for workers is lower than it was five years ago. The signature of a skills mismatch – workers in some occupations experiencing tight labor markets relative to 2007 – is plainly missing."

She also provides a chart of the number of unemployed versus number of job openings by industry and finds that the" number of unemployed vastly outnumber job openings across the board."

Shierholz then turns to the data on hours worked in each occupational category.

"Another way to approach the question of whether or not the labor market is suffering from skills mismatch is to note that if employers really did have enough demand for their goods and services to need to hire new people but couldn’t find suitable workers, they would be ramping up the hours of the workers they have….Only in legal occupations are hours meaningfully longer than they were before the recession began, though the average workweek in legal occupations increased by less than one percent in those five years. Given that in almost all occupations the average weekly hours of existing workers are lower now than they were before the recession started, it is difficult to see how employers are seeing demand go unmet because they can’t find people who can do the work."

Finally, the change in wages in each of the occupational categories is tallied.

"In no occupation is there any hint of wages being bid up in a way that would indicate tight labor markets or labor shortages. In fact, in no occupation have average wages even kept pace with overall productivity growth over this period. This pattern of productivity growth outstripping wage growth across the board is a signature of weak demand for workers caused by shortage of demand for goods and services, not skills mismatch."

The approach of looking at the economy as a whole allows Shierholz to conclude that any shortage of skilled workers is a small effect and cannot be considered important relative to the true economic concern which is a basic lack of demand for workers.

It only takes one employer to complain about an inability to find trained workers to make front page headlines and have conservative pundits (pundits who are politically conservative) announce that the problem lies not in a weak economy but in the incompetence of our workers.

Most of the indications of shortages seem to emanate from the manufacturing sector. Paul Osterman and Andrew Weaver examine such claims in their article Why Claims of Skill Shortages in Manufacturing Are Overblown. The authors and their colleagues surveyed a representative set of manufacturers having ten or more employees. This effort was part of the MIT Production in the Innovation Economy (PIE) project. Almost a thousand companies participated.

The results regarding worker shortages are summarized in this chart:

This leads the authors to conclude:

"The strong majority of manufacturing establishments simply do not have a problem recruiting the employees that they need, and this should be no surprise given the current state of the job market and wage trends. Nearly 65 percent of establishments report they have no vacancies whatsoever, and 76.3 percent report they have no long-term vacancies. There is, however, a subset of establishments that report problems in the form of extended vacancies. Overall, about 24 percent of establishments report some level of long-term vacancy, while about 16 percent report long-term vacancies equal to more than 5 percent of their core workforce."

Given this data, it would be misleading to claim that the manufacturing sector is being hampered by a shortage of skilled workers. It would also be misleading to claim that there was no need for more skilled workers. What conclusions can be drawn?

Some additional insight is provided by an article in Bloomberg Businessweek by Matthew Philips: Welders, America Needs You.

Welding metal parts is apparently a skill that has not gone away; rather, it has been transformed into a more demanding skill. Unfortunately, no one seemed to be paying attention so it became one of those areas where companies have been hampered by of a lack of workers.

"For the better part of the past 30 years, welding was seen as a dead-end job. When the manufacturing sector began contracting in the 1980s, so did the demand for people who worked with metal. In 1988 there were 570,000 welders in the U.S., according to data kept by the Bureau of Labor Statistics. By 2012, there were fewer than 360,000."

"The assembly line jobs that used to employ most welders have largely been outsourced or automated. Today, the focus is quality, not quantity. Welders work on made-to-order pieces of fabricated metal (metal cut into a certain shape) and alloys, producing high-value pieces of equipment for any industry from automobiles to aerospace."

The economy has been left with population of welders with an average age of 55.

"The American Welding Society estimates that by 2020 there will be a shortage of 290,000 professionals, including inspectors, engineers, and teachers. ‘We’re dealing with a lost generation,’ says Gardner Carrick, vice president for strategic initiatives at the Manufacturing Institute, the workforce development arm of the National Association of Manufacturers. ‘For 20 years we stopped feeding young people into the trades, and now we’re scrambling to catch up’."

Philips describes the training required to become a competent welder for today’s industries.

"The Hobart Institute of Welding Technology has been around since 1930 and is considered one of the top national programs in the trade. To get in, you need a high school diploma or a GED, plus about $25,000 to cover the cost of tuition, books, and living expenses. For nine months, students learn how to weld structural steel and pipe, spending more than 1,000 hours under a hood practicing the art of fusing different pieces of metal. As they advance, they learn to work with more complicated alloys, such as aluminum, titanium, and stainless steel, always striving for that perfect weld that makes the metal stronger. ‘A nice weld is a work of art,’ says Andre Odermatt, Hobart’s president."

"Each year, about 300 students graduate from the school. Eighty-three percent have a job when they leave. The average pay for a new Hobart grad is about $17 an hour, or $36,000 a year. Some students can expect to make a lot more, particularly those learning trigonometry in Hobart’s advanced pipe-layout class. The math will come in handy when they’re welding pipeline along rough terrain or running pipe into a refinery or pump station at unusual angles."

Philips compares these economic prospects with those of college graduates with a four-year degree.

"….the average salary for 25- to 34-year-olds with bachelor’s degrees is $46,900, according to 2012 data from the National Center for Education Statistics."

One should be able to assume that many high school graduates would see nine months of training for a hands-on career as a more desirable option than a four year tour at a college. Not many have been provided the opportunity to consider that choice. Our school system has become devoted to producing college graduates. Vocational training has been almost nonexistent.

Fortunately, vocational training is making a comeback as an educational option. A few school systems are attempting to reintegrate the notion. However, the type of training that workers need cannot be provided solely in an academic environment. The needed qualifications and equipment can only be effectively provided by the interested industries. Philips indicates that some companies are beginning to recognize their responsibility and are collaborating with schools in training new workers.

"Caterpillar is hiring several hundred welders over the next couple of years to work in two plants it’s building in North Carolina and Georgia. The company partners with local high schools and community colleges, donating factory equipment and even helping design curriculums to steer young people toward manufacturing and overcome the stigma of working with your hands. ‘It’s as much about fixing the perception gap as it is the skills gap,’ says Korey Coon, a human resources manager at Caterpillar."

As Shierholz concludes, a skills shortage may not be producing a huge effect on our economic growth, but each unemployed person, each job unfilled, and each economic opportunity missed should be considered a tragedy.

Many relegate manufacturing to an obsolescent niche in our economy. They ignore the fact that, as Osterman and Weaver point out,

"….the manufacturing sector remains of interest due to its size and characteristics. It accounts for 12 percent of GDP, and it is responsible for about 70 percent of industry research and development spending…."

A nation that outsources its manufacturing and the associated research and development will soon become a niche nation.

Tuesday, April 1, 2014

Republican Knowledge: Conservapedia

If one follows current political debates it is difficult to avoid the conclusion that liberals and conservatives, Democrats and Republicans, are each living in different worlds with different facts and different physical laws. Chris Mooney has given himself the task of explaining why that is, in fact, effectively true. He makes the convincing argument that liberals and conservatives are wired differently, partly through genetics and partly through life experiences (or indoctrination). Mooney presents his thesis in his recent book The Republican Brain: The Science of Why They Deny Science- and Reality

Mooney believes the vast differences in thought processes can be understood as instances of "motivated reasoning."

"This theory builds on one of the key insights of modern neuroscience: Thinking and reasoning are actually suffused with emotion….And not just that: Many of our reactions to stimuli and information are neither reflective nor dispassionate, but rather emotional and automatic, and set in motion prior to (and often in the absence of) conscious thought."

Our brains seem to have evolved in a way that attempted to ensure survival in a dangerous environment. In that context, they abhor uncertainty and indecisiveness. If the most important decisions are flight or fight, then machinery useful for quiet contemplation of alternatives does not have the highest priority. Our brains then develop responses to given inputs of data—and only reluctantly wish to change them.

"What counts here is that our political, ideological, partisan, and religious convictions—because they are deeply held enough to comprise core parts of our personal identities, and because they link us to the groups that bulwark those identities and give us meaning—can be key drivers of motivated reasoning. They can make us virtually impervious to facts, logic and reason."

The belief that presenting a dissenter with facts will alter his reasoning is quite naïve.

"Beliefs are physical. To attack them is like attacking one part of a person’s anatomy, almost like pricking his or her skin (or worse). And motivated reasoning might perhaps best be thought of as a defensive mechanism that is triggered by a direct attack upon a belief system, physically embodied in a brain."

All people are guilty of motivated reasoning, but to different degrees.

"Political conservatives seem to be very different from political liberals at the level of psychology and personality. And inevitably, this influences the way the two groups argue and process information."

"The evidence here is quite strong: overall, liberals tend to be more open, flexible, curious and nuanced—and conservatives tend to be more closed, fixed and certain in their views."

Mooney makes it quite clear that the ability to reject demonstrable facts in favor of preconceptions is not related to intelligence or learning. In fact, Mooney describes something he calls the "smart idiots" effect.

"….The politically sophisticated or knowledgeable are often more biased, and less persuadable, than the ignorant."

Smart idiots have more tools at their disposal when it comes to rationalizing a belief that runs counter to facts.

If liberals and conservatives, Democrats and Republicans, are to possess differing worldviews, then they would need to have separate pools of "knowledge." Mooney tells us that that is, in fact, true. Conservatives apparently view Wikipedia as a repository of "liberal" knowledge, consequently it was necessary to create something to counter it called Conservapedia.

"Conservapedia is the creation of Andrew Schlafly, a lawyer, engineer, homeschooler, and one of six children of Phyllis Schlafly, the anti-feminist and anti-abortionist who successfully battled the Equal Rights Amendment in the 1970s."

Mooney provides this assessment of Schlafly’s creation.

"….Conservapedia, the rightwing answer to Wikipedia and ground zero for all that is scientifically and factually inaccurate, for political reasons, on the internet"

"Its 37,000 plus pages of content include items attacking evolution and global warming, wrongly claiming (contrary to psychological consensus) that homosexuality is a choice and tied to mental disorders, and incorrectly asserting (contrary to medical consensus) that abortion causes breast cancer."

The website has something to offend everyone. Mooney was struck by the vehemence with which Einstein’s theories of relativity were attacked—presumably because they were inconsistent with Biblical miracles.

The section on the age of the earth was particularly noxious.

"The Age of the Earth has been a matter of interest to humans for millennia. All verifiable evidence indicates that the Earth is only about 6,000 years old. Yet with circular reasoning and implausible assumptions, liberals insist that the Earth is approximately 4.54 billion years (4.54 × 109 ± 1%)."

"Old Earth advocates rely on one flawed assumption to the exclusion of other evidence, similar to how an investigator may mistakenly rely on one faulty eyewitness's opinion to the exclusion of all else. In fact, eyewitness testimony is proven to be less reliable to than other indicators, just as the assumption by Old Earth proponents that the rate of radioactive decay has always been constant is flawed. In fact, The rate of radioactive decay would slow down greatly as the universe cools. Moreover, a large number of physical processes, such as neutron capture and fluctuations in solar radiation, affect the rate of radioactive decay of elements in the Earth's crust and render radioactive dating measurements unreliable…."

Why bother arguing with someone who has the option of changing fundamental physical laws in order to support their idea.

Lesson learned: We are in deep trouble!
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