The Education Silver Bullet

Standard and Poor’s, the very non-partisan financial ratings agency, recently warned the country that we were soon facing big problems if we didn’t address inequality. No longer is inequality just a problem for American poor people, because they don’t have very much money. No, it’s actually going to start to be a problem for the economy as a whole.

According to the agency:

Standard & Poor’s sees extreme income inequality as a drag on long-run economic growth. We’ve reduced our 10-year U.S. growth forecast to a 2.5% rate. We expected 2.8% five years ago.

We see a narrowing of the current income gap as beneficial to the economy. In addition to strengthening the quality of economic expansions, bringing levels of income inequality under control would improve U.S. economic resilience in the face of potential risks to growth. From a consumer perspective, benefits would extend across income levels, boosting purchasing power among those in the middle and lower levels of the pay scale–while the richest Americans would enjoy increased spending power in a sustained economic expansion.

This is interesting. And important. The current situation just isn’t sustainable. The solution S & P dreams up to fix inequality, however, doesn’t really make any sense.

A clear and strong correlation exists between the educational attainment of a state’s workforce and median wages in the state, with more educated individuals more likely to participate in the job market and earn more, and less likely to be unemployed.

if we added another year of education to the American workforce from 2014 to 2019, in line with education levels increasing at the rate of educational achievement seen from 1960 to 1965, U.S. potential GDP would likely be $525 billion, or 2.4% higher in five years, than in the baseline.

That’s right, more education. Specifically S & P wants to invest in education. There’s a reason the organization wants to avoid taking a possibly controversial political position–the brief warns that increasing taxes on the rich looks tempting, but might have adverse consequences for the economy–but this solution doesn’t make any sense.

SilverBullet

The policy A & P recommends, in fact, looks a lot like the policy the country’s been pursuing for the last 30 years. Here’s primary and secondary education spending since 1970:

EdSpending

We’re already doing what S & P advises. In the last 40 years we’ve been greatly increasing education spending while not increasingly taxes on the country’s rich. We’ve mostly been reducing their taxes. We’re spending more on education and less on infrastructure and a social safety net, and weakening labor standards and policies in favor of unionization.

It isn’t working. These seem to be the policy trends that result in inequality, not the ones that fix it.

That’s because it’s pretty hard to address inequality without redistributing wealth.

But man, they sure gave it a try. The agency argues that “heavy taxation solely to equalize wages may reduce incentives to work or hire more workers….” And therefore we should apparently avoid all consideration of increasing taxes.

Admittedly, the organization has focused on a potentially interesting detail in the contemporary economy. The wage gap between people who went to college and those who didn’t is quite high. A lot of people in America are very poor. Therefore, A & P tell us, we should invest more in education in order to improve education achievement and reduce inequality.

This sounds good, except that as a historical trend this doesn’t make much sense. It’s true that there’s inequality between those with a college education and those who don’t have it, but there was always inequality there. The wage gap that’s growing isn’t between people with a college education and those without one. College graduates aren’t getting paid more now than they used to. Indeed, many of them are actually making less.

No, that inequality, the fact that the top 10 percent of U.S households take home about half of all income, and the fact that top 1 percent have about 21 percent of total income doesn’t much to do with education. That’s just because more and more of the country’s wealth is owned by a tiny group of a few rich people. For everyone else, whether a college graduate or not, he has few assets.

The situation for working class people in America is really bad, but it’s not very good for middle class professionals, either.

That education thing just sounds like a way to avoid addressing fundamental structural questions about taxes, labor rights and the safety net. Also, if we don’t address the structural problems, what good would increasing GDP by $525 billion do?

In the last three years 95 percent of income gains in this country have accrued to the top 1 percent of the population. If contemporary economic trends hold, most of this $525 billion would go to a few super-rich people in America, and then we’d be right back where we started, with “ imbalances [that] can no longer be sustained [and] boom/bust cycle[s] such as the one that culminated in the Great Recession,” as the agency describes the situation today, wouldn’t we?

Education is a wonderful thing, and I’ve long urged more public funding for colleges, but it can’t fix everything. We can’t educate our way out of a grossly inequitable distribution of wealth in America.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer