John Galt's  Instablog

Sunday’s Washington Post had a great article about Melissa Meyer, a recent college graduate.  She graduated from George Washington University in May with a $200,000 dollar degree.  In high school, Melissa did everything that you are supposed to do to get on the path of success.  She was valedictorian, class president, editor of the school newspaper, honors chemistry student, interned for a Senator, raised money for alternative spring breaks, coordinated a 50 person woman’s leadership conferences and received a 100,000 dollar scholarship for her education.   At 23 years old she graduated magna cum laude from GWU and couldn’t find a job with her business degree.

Melissa moved back in with her parents and works at the same records store she worked at in high school.   She’s applied for a countless number of jobs, fixed her resume, and tried networking with all with no success.  In order to not completely be dependent on her parents, she applied for a $10.29 substitute teacher job. The teacher seminar was filled with eager middle aged men and women in business suits, all with three letters of reference.  The administrator told the crowd that the criteria for selection would be; teacher’s assistants first, those with a teaching degree, and lastly those with a college degree in a high school subject.  Her business degree and lack of teaching experience left her “unqualified” to substitute teach.

Although more qualified, Melissa isn’t the only college grad in this situation.  Here's a story about Samantha Green who can’t find anything above a minimum wage job with her 50,000 dollar journalism degree from Indiana.  We have the 2008 UCLA graduate complaining that he shouldn’t have to live paycheck to paycheck.  In a similar article there was a story about a history major who knew that he might not have the best degree for prospective employers, but he was shocked that nobody would hire him to do anything.  A theme of these stories is the outrageous cost of college.  Some have parents who deplete their savings to put their kid through school, others are left in a generation of debt.  Many leave college with these expensive degrees finding that they need more education.

Lower lifetime earnings

A recent NBER study that said that graduating during a recession could mean a 9% lower salary.  Even qualified graduates can have problems finding a job.  Graduating during a recession could mean starting out at a smaller firm with lower pay, and having lower pay increases thereafter.  Research suggests when you graduate can create a significant pay gap over time.  Basically, it means graduates during a recession start lower and end lower.  Some may have to take a career detour to even get into their desired field of work.  The Melissa Meyer that graduated in 1999 would have gotten a job at a prestigious Washington Law firm or consulting firm, in a couple years she would have experience and can move on above entry level work.  The Melissa Meyer of  2009 is selling records to hippie’s and hopes to get that entry level job in the next couple years.

Austrian Economists would speak of the negative effects of malinvestment.  The Austrians look at the credit cycle and would point out artificially low interest rates that make projects that shouldn’t happen happen (malinvestment)... which is followed by a market correction afterwards.  For example, we had artificially low interest rates, cheap money, we kept building homes that shouldn’t have been built, and now we have a big nasty correction that bled into other things.  Austrians won’t just point to all of the money lost on the real estate bubble, but all of the TIME and losses associated with human capital.  We could have been doing productive things instead of unproductive things.  In a world of natural interest rates, the excess homes wouldn’t have been built, we wouldn’t have so many loan officers, CDO traders, and people could have been working on profitable ventures.   

Real Estate was a symptom of the problem but not the cause.  When you have too much money and interest rates below the natural rate, that cheap money will find a speculative home.  It could be tech stocks, Chinese stocks, Alternative energy, Real Estate or anything else.  People thought that Real Estate prices couldn’t go down.  They don’t build more dirt right?  People need a place to live right?  S&P rates it AAA right?   It wasn’t just Real Estate.  We had a period of cheap money, and over consumption.  The average person couldn’t afford the average home.  People took on debt and bought things they couldn’t afford.  Debt is borrowing against the future or future consumption to fuel current consumption.  We just had the Roaring 20’s.  Over consumption.  Too much debt. We have too much debt and debt is deflationary.  We traded more stuff NOW, for less stuff in the FUTURE. 

The government sets the price & quantity of money.  Think about that for a second and what it means.  We have a supreme regulator deciding how much money we should have and at what price.  Interest rates affect the price of EVERYTHING.  Interest rates affect the price of everything from farmland, cars, cancer research, to business ventures that are in planning.   The mission statement of the fed

The Federal Reserve System is the central bank of the United States.  It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system.

Safer money:  Our dollar has lost 97% of its purchasing power since the Fed took over.  That’s NOT normal and there is nothing safe about it.  Money isn’t supposed to lose 97% of its value over time.  Before governments regulated our money, it didn’t lose 97% of its value in under 100 years.

More flexible:  Why should we think a supreme regulator will gauge people’s values better than they will?  Our economy is filled with different people and businesses all with different interests.  What’s best for the 72 year old living on a fixed income might not be best for the 28 year old that just bought a home.  Our current Fed chairman has been exposed on various youtube videos showing out just how wrong he has been in the past.

More stable:  The US has presided over numerous recessions, a Great Depression, and the current Depression we are in.  We aren’t supposed to have such huge booms followed by huge busts. 

The question isn’t, did Ben Bernanke do the right thing or is he the right man for the job.  The question is why do we even have a Federal reserve and central planners?  You can’t argue we have a free market as long as we have a Federal Reserve.  You either have free will and respect property rights or you don’t.  Having a Fed Chairman deciding 300 million people’s best interests takes away their liberty, property rights, and life.  If people can’t reap the rewards from their success and learn from their mistakes, it robs them of their future.  The Federal Reserve is ground zero for the restoration of American Liberty.

Look at all of the casualties of the Fed’s policy.  The empty homes, the foreclosed homes, the banks gone bust, the generation in debt, the college grads like Melissa Meyer who can’t find work, the tapped out consumer, the unemployed, the tax payer who funded the bailouts, the weak dollar holder.  Is this what we want or should we support H.R.1207 The Federal Reserve Transparency Act and end the madness?