First, a quote from Mike Shedlock's excellent blog:

Like it or not (and most don't) this is a global economy. The US cannot make itself into a self-sustaining island. Moreover, the idea that we can pay everyone $35 an hour and compete globally is ludicrous.

As I have said many times, the problem is not wages, but how far wages go. Greenspan and Bernanke have wrecked the US dollar. Financial engineering drove property prices up to insane levels. The US wastes $trillions attempting to be the world's policeman. There are so many student loan programs that the cost of education has soared. This is what happens when one throws money around.

Fairly straight forward, right?  The U.S MUST trade with the world, whether one likes it, or believes it. MUST.  ALL of us must compete at every level with people that do not have 3 extra bathrooms to pay for, or a bunch of retired police officer's pensions.  Ergo, they are pretty competitive (they can work cheap).

$35 per hour.  If one worked 40 hours per week (the U.S. work week is about 32 hours presently), 52 weeks per year that would work out to $72,800 in compensation.  But, as Mish just said we can't all get paid $35 per hour, or said another way, the average American cannot earn $72,800 per year by mathematical necessity or $2,184,000 over a 30 year career before taxes... or $1,419,600 in after tax income LIFE TIME income.  Let us assume that this worker was EXTREMELY disciplined and saved 10% of their after tax income - $141,960 over the course of their LIFE.

Does anybody think that its a good idea for EVERYONE to spend $200,000 of after tax money on an UNDER GRAD education in order to get a job that will only yield $141,960 in savings IF the subject is a FANTASTIC saver AND it is not possible for the AVERAGE American to earn the $35 per hour in the first place?  My best guesstimate is that an average of $20 per hour, or just over $40,000 per year will be tough to achieve.

If you are fortunate enough to have that money (not counting folks with net worth's of $5 million or more) available to educate your child... well, for the AVERAGE person the $200k investment just is not worth it. Itt is nothing more than a confiscatory tax benefitting a very few... a few who are participating in a system that is going to break down.  THAT  is why I say that half of the private colleges WILL NOT be in business by the time your college age kid is my age.

Believe me, you are going to be buffeted over the next 5 or 10 years with studies, propaganda, guilt trips, etc... in the media in an attempt to get you to make this really, really dumb move.  

Don't fall for it.

From the movie "Fight Club":

We are the middle children of history, with no purpose or place. We have no great war, or great depression. The great war is a spiritual war. The great depression is our lives. We were raised by television to believe that we'd be millionaires and movie gods and rock stars -- but we won't. And we're learning that fact. And we're very, very pissed-off.

-------------------------------

The U.S. has seen its supplies of petroleum products reduced by 2.7 MILLION barrels per day (if you do not consider ethanol a "petroleum product" - and I do not).  

Let me put that into perspective.  The U.S., from its peek in 2006 or 2007, has seen its daily supply of petroleum drop by MORE than the entire country of Germany uses each day.

So?  At this rate of decline, several million people in the U.S. each year FROM THIS POINT FORWARD are going to stop commuting and start working from home (those that will still have a job, that is).  That means that the value of commercial Real Estate is going to drop like a stone (Who holds all of those commercial mortgages?

It is simple physics.  If you remove an energy input large enough to run Germany from the American economy a certain number of people either are NOT going to have a job or are going to have to work from home and the commercial space they formerly used is going to go vacant. A certain number of hotel rooms will have to go empty and a certain number of jets will have been grounded.

The U.S. was already overbuilt with office, retail, and commercial space.  I think it likely that the U.S. will NEVER need any more construction in these products - ever again.  The 2 year rate of decline for petroleum imports is over 8% per year.  If that continues, and I think it likely to continue AND accelerate, in a addition to no need for further construction, the U.S. will have little demand for cars and trucks, aircraft, etc...

We are in the grips of powerful deflationary forces, yet the stock market has taken off and the US$ has cratered.  These things can happen in tandem in the short run, but over the longer haul they are mutually exclusive events.  And while the US$ might catch another bid (I had thought that would have happened as I write this... didn't work out that way), over the next 2 years the Federal Budget Deficit is likely to grow by nearly $3.5 Trillion.  More than the reserves of China and Japan combined.  Will the new American saver have enough savings to finance the difference?  Maybe. Then again, maybe not.

Continued...

I had a comment on my previous post: "focus on useful degrees".

I love it when someone says something so profoundly common sensical... Thank you! (I expected nothing less from a fellow named "gardenerG". Us gardeners are used to getting our hands dirty
but seeing the reward.)

I did not suggest rejecting education - I suggested doing a careful cost/benefit analysis of what you pay for and what you ACTUALLY get.

Spread out your life on an excell form! It used to be that a home was our biggest investment and a car was our second... but NO MORE! The costs of Private school education and then private college, and compounding the lost interest yields an investment FAR greater than the individual's likely home.

My son's private school education since preschool has totaled over $200,000. Private college is another $200,000. But that is just PRINCIPAL. Had I invested that $400k in U.S. 10 year Treasuries by the time he graduated college he would have had well over $1 MILLION. Will the increased earnings of his undergrad degree EVER catch up to the continued power of compounding? NAFC.

Of course, there might have been some intangibles that could be factored in, but on a dollars and cents basis, the investment is indefensable.

Look, this idea has now gained traction all over the web. It ain't just me making the point anymore. People can count.

Its all about what you get for your money. If my son becomes a highly paid surgeon (besides the nachus I will have) it will have been worth it. If he becomes a social worker? A noble profession, but a very, very poor investment for the family.

Greg

From the Hinterlands

I received this email from a young man seeking my advice:

I read your energy blog regularly and am trying to chart a course in life amid the ongoing collapse. I'm writing to ask what, if any, thoughts you have about what I should do. I was thinking about law school, undergrad for econ, or grad school for stats, or education. But will there be time to use any of those? Guy McPherson (from the Nature Bats Last blog) advised me to forget school and move far from pop. centers.

Background: I have one useless degree (in religion/philosophy, but with great grades) and one seemingly more practical (mathematics) that may be useless due to mediocre grades. I was valedictorian in high school (with scholarship to a top college), but am now 31 and flat broke due to never having a real job. If the industrial economy weren't in its death throes, I'd still be young enough to start over, but with oil production soon to fall to 1980 levels, my margin for error is not large. I currently scrape by teaching test prep courses part-time for one of the major companies. My family moved from NJ to Montana 5 years ago when my dad retired as a carpenter. They would take me in a second, but there is no work there except Walmart.

I think the solution under "normal" circumstances would be a degree, but is the time right? Any thoughts, please send them along.

I replied:

Well, though I don't know you or your talents, I will speak in generalities…

Another degree is not the answer, unless you need it for a professional license. Education does not really require somebody else's approval. When I referred to myself as self-educated, my good friend, family clergy man, and adviser Rabbi Mo Silver sniffed and said: "As if there was any other kind." He has an uncanny ability to grasp the obvious and to remind me that it was so...

Start a business. Learn to make money, negotiate, sell, buy, trade, manage... the most important skill in business is the ability to "grind it out". It is true: “80% of life is just showing up”. Business is not as much fun as going to school (with all of it attendant social opportunities), but it can provide you with a living.

Don't know which business? Me neither. But I think something where YOU add value beyond just being a merchant... but if you can't add value, well... being a merchant ain't all that bad.

Northern Rockies? LOOOOOOONG Winters... if that is OK with you... but the middle of the country will likely empty out (with the exception of rain belt farm land), and that ain't good for a local economy... and in the end, that kind of isolation is not for many people.

The U.S. advanced education industry has ripped off millions, saddled them with debt, and held up their productive lives for years and years - and you might have been caught up in that fraud, though I can't be know for sure. 31 years old is a bit late to be going to work, unless you are a surgeon and spent 8 years in full time training...

I have a son, 16 years old. Every chance I get I tell him the faster he can get through college and get some real life experience in business, the more success he will likely see, and the more comfortable will the end of his life be.

I can only look at my own life for perspective, and compare that to others… which is rather imperfect. I went to work at 17 (14, if you count my weekend job I held till 17), worked through college with an athletic scholarship (I would have been better off working at McDonald's), skipped back packing around Europe (mistake, but I did travel extensively through South America’s third world – excellent eye opener) to go right after it in business (best thing I ever did, by the time my friends got their MBA's I was a millionaire) and I have been at it ever since with a couple of weeks off per year. That's life. The good news is that I have been blessed to be able to provide very well for my wife and children - and that really IS a reward. I worked hard, saved my money, and never bought a red sports car.

But there is something you should know... unless you are a freak of nature, there will be times when life beats you up. I have had business failures, lost every thing, came back, lost everything again in a market collapse that nearly broke me… went through a divorce… personal loss… came back... nothing is static, especially in business.

Still, through good times and bad I always had a glass of wine with dinner, never missed desert, and endeavored to make love every night. I played hard in general.

If I could give you any advice... start with the wine, desert, and love making... add some hard work in a business that pays (too many folks give you the circle jerk about doing what you love, doing what makes you happy... let me tell you something... while “money can't by happiness”, happiness can't buy money... whoever said the former had never been poor - I have. Poverty SUCKS. You will find whatever you do for a living infinitely more fun if it pays $2 million a year, or even $200k...

Go into business, and go to work. Besides, since you probably can’t get a job you really don’t have a choice.

Good luck!

I continue to be struck by the number of people just STARTING to go to work at 30 or 31 years old. If you need medical or law school to enter the profession, that's OK. That is simply the start up costs... but if you are getting Poly-Sci degrees and putting off work until you are 30 years old... well, I think you would have to have rocks in your head.

Greg