College Graduates and Young People Will Struggle With Buying a House

I came across a good article in Seeking Alpha discussing the how housing is outpacing inflation. The author makes a good point of saying that the cost is rising quickly and inflation is starting to rise leaving some people unable to buy homes. This might depend on where you live. If you are in San Diego this is defenately true but if you live in a rural area might not be so true.

Part of the problem is that we want bigger houses than we need. We are always looking to get houses that reach the top of our limit thereby pushing up the prices for everyone else. In San Diego, people with loans are outbid by people with cash. They simply can't keep up and the owners know there are a dozen waiting in line.

Some of us would do better with a more modest home and then put our earned capital into revitalizing them to help urban and rural areas. Younger people may need to be a little more inventive on where they find their house and where they are willing to live. Big cities will continue to demand high prices that are outpacing both wages and inflation.

It may be possible to consider alternative types of houses that are smaller and easier to construct. We have become accustomed to luxury even while the real earning power has drop historically. We may need to be accepting of smaller houses, more basics, and then put in the elbow grease to stylize them the way we want. At present, housing will continue to push the limits until there is another bubble bust.

Outdoor Recreation Growing Faster Than Economy.

Outdoor recreation is becoming a bigger issue in the U.S. as people become more concerned over the environment, fitness, pollution, and lifestyle. Outdoor recreation studies conducted by the U.S. Department of Commerce found that it grew 3.8% when compared to 2.8% of the economy. It contributed $373.7 billion dollars which was much higher than many large industries such as warehousing.

Why is this happening?

Younger people have a belief in the value of lifestyle and recreation. They enjoy the outdoors and have concerns over pollution. They flock to these areas to get out of the urban environment and balance their lifestyles.

The trend will likely continue as people move to cities and people seek to return to a natural way of life. In this way, they use outdoor recreation much like watching a movie or going to the gym. It is something they take in snippets and then go back to their lives.

The Working System of the Economic Hub

Economic hubs have many components that make them successful. The most important aspect is they work like a system where the proper elements must be drawn into that environment to make it work properly. When one of these components is missing the entire system will lag much like we are seeing in the overall U.S. competitive environment.

Government is one component that is not included in the above diagram because they are the "brains" behind the system that ensures, in conjunction with local stakeholders, proper direction to ensure the elements are present. Such governments help ensure the proper tax structure, fair laws, and infrastructure are available.

We see that as a system we have inputs and outputs. As resources come into the system they are used, evaluated, changed, and improved into finished products. This happens through the interactions between suppliers and the supply chain. There must be adequate interchange of financial, material, network development and information to create innovation.

Of course the system won't work very well without needed capital. The intellectual and physical skills and abilities developed from universities and training are important in ensuring that the right kinds of skills are available for global competition. The system will also need access to investment capital as drawn from loans and outside investors that speed up the transactions between organizations in a way that returns investment.

You may also notice that it will be hard to draw in appropriate skills and abilities without an attractive lifestyle and social interactions that not only improve the quality of life but also the spill over information. A positive lifestyle will also contribute to political stability and retention of top talent.

The overall infrastructure of the area is vitally important to the full functioning of the system. An export oriented infrastructure with ports, railways, roads, high speed Internet, and utilities will encourage the drawing of investment but also the overall success of the business within the hub.

Finally, you will notice that it isn't enough to have a great system in place without advertising it appropriately. The government, organizations and businesses have a stake in ensuring that their product and place are well known to both customers and potential investors. To be successful they will continually need to have feedback loops that improve the functioning of their business through alignment to market needs.

Return on Investment in Higher Education

The debate on higher education and its value continues forward. Graduates make about 70% more than non-graduates but at what level do the returns start to diminish. An argument brought forward in the Economist states that real earning power of higher education is declining.

The Economist Article

There is a point and certain fields that the return of higher education may not be worth the cost. This all depends on what you are trying to accomplish in your life. Up to the MBA level advanced degress seem to have some relevance in the market.

Unless you are going to be a researcher or an academic the obtainment of a PhD is worth much less. You may make descent money but it doesn't seem to significantly improve. The type of work changes but the overall value to the market seems to be less.

There is also a problem with being overqualified and people won't hire you for industry jobs. It would seem that a manager would love a doctor for a discount price. The problem is they don't want to hire someone who has more education then them knowing that eventually they may be replaced.

Likewise, where you get your degree is important. Call it "elitist", unfair, or call it snobby but the ugly truth is that a Harvard or Yale degree is worth more than your local community college. These are brands. Education may be great but actual performance is questionable.

You may also consider what field you get your degree in. Certainly, philosophers are important to society during our massive transition but they are not likely to be paid as much as say someone in the medical field which is supported by large insurance industries or in the technical fields that have strong corporate utility.

Combining Keynesian and Schumpeterian Models

The two models of Keynesian and Schumpeterian models have been at the forefront of modern economic debate often split along party lines. While each of these models have some advantages they are not the whole story in and of themselves. Research by Giovannie, et. al. (2017) helps us understand that these models can work together to encourage proper government policy and economic adaptation and integration. When discussing economic growth models that can help the U.S. it is more intuitive to see innovation as fostered not only by the ability of companies to create and adapt technology but also how government can better ensure that happens.

The K+S model combines Keynesian (demand-driven) mechanisms with Schumpeterian (innovation-driven mechanisms. Using this combined model we find a) search capabilities of firms, b) the pool of technological opportunities available for innovation, c) the degree and breadth of patent protection, d) the strength of market selection and competition.

The Schumpeterian growth model is used to understand innovation and growth within the economy. It rests on growth as a result of innovation and imitation and the diffusion and new products/ideas that lead to more efficient production processes. Innovation is motivated by financial returns and new technologies often replace older ones in a chaotic manner.

Keynesian economics is more based on demand economics which basically says that if people are working then the economy will be good. In this model, government has an important role in ensuring that jobs are growing and government influences the ability of the economy to grow. Sometimes, this is going to require significant investment.

What the researchers found was that an increase in technological opportunities and entrant-carried search have a positive effect on the long-run performance of the economy. Likewise, too much patent protection can damage sharing of information and thus deters growth. There is likely a happy medium of protection and adaptation by other firms but the study doesn't say where this was. There is some positive indication that stronger market competition impacts long-run economic growth. They also found that fiscal policies have an positive impact on unemployment, output stabilization and long run growth.

Neither of these models is true or not true but only useful based on gradation. Combining the models does mean that we can foster creative destruction and innovation by the proper use of government administration. The study helps us understand that government does have a role in encourage stronger policies that raise internal competition and foster greater economic growth. Patents and innovation are important but have their widest use when other firms within a cluster can eventually immitate those advantages raising the economy in the long run. Thus, by creating stronger government policies, pin pointing investment in key areas that improve the business environment, and helping companies to invent and imitate can raise the overall advantages of local economies.

Giovanni, D., et. al. (2017). Micro and macro policies in the Keynes+Schumpeter Evolutionary Models. Journal of Evolutionary Economics, 27 (1).