One thing you should never predict is the future
The following piece is my first post at New Economic Centre a blog friend:
Sala-i-Martin a Columbia University professor wrote not long ago that if you want to know how the economy is going to perform in the next years you should not ask an economist but a fortune-teller.
The truth is that usually economists are mistaken for fortune-tellers. Economists’ main duty should not be long-term forecasts but to analyse policies effectiveness. Like weathermen, some economists do short-term forecasts, but those are basically based on the ‘what goes ahead must be similar to what’s left behind’ principle. That is, they use statistical models that predict the future based on the past. That is like driving a car looking at the rear-view mirror. In short, economists are ignorant of future events as anyone.
Yet there are exceptions to any rule. In particular, I found two exceptions worth mentioning. One is 1996 Paul Krugman masterly article in the New York Times and the other is Alan Blinder 2005 academic paper. Both forecasted the same future events, but to do so they didn’t use a crystal ball but basic economic principles. Here I just want to focus on their prediction about the end of higher-education. This prediction, they suggest, is going to happen as a result of two economic events or factors.
First event is about the information age and its importance. Krugman disagreed with all those prophets that argued information to be a key sector: “In general, when the economy becomes extremely good at doing something, that activity becomes less, rather than more, important. […] When something becomes abundant, it also becomes cheap. A world awash in information is one in which information has very little market value.” Today’s world is supremely efficient at growing food; that is why it has hardly any farmers. The future world, and to some extent the present one, is supremely efficient at processing routine information; that is why traditional white-collar workers are going to virtually disappear. Many of the jobs that once required a college degree or postgraduate degree will be eliminated. College provides knowledge and information to its students but as it’s been said information is going to lose its value, computers which are proficient analysing and processing information will replace white-collar professionals.
The second event is about the possibility that human analysts play a –small- part in the information sector. If such future happens, white-collar workers of Europe or America won’t have an opportunity either. In this future, information will be transmitted easily to poor countries and analyzed there for a fraction of the cost in Boston or London. This is what has been called, downsizing and outsourcing. Downsizing and Outsourcing are already affecting for the first time the college, white-collar graduates and will affect them even more in the future. Alan Blinder give us a clue why this is happening “…because technology is constantly improving, and because transportation seems to grow easier and cheaper over time, the boundary between what is tradable and what is not tradable is constantly shifting-- Over time, more and more items will become tradable. Many services are now tradable and many more will surely become so”.
Consequently, wages trends are clear, educated jobs will diminish. In relative terms, personal, face-to face jobs, (that is, jobs that cannot be delivered electronically) will see an increase of their wages. Face-to-face jobs like paranursing, waiters, firemen, policemen, carpentry, household maintenance and so on, “[will] pay nearly as much as if not more than a job that requires a master's degree, and pay more than one requiring a Ph.D.”
This should be rather obvious already; Steve Jobs and Bill Gates were college dropouts, Krugman argued. He finished saying that white-collar, college-educated workers will be fired in large numbers, even while skilled machinists and other blue-collar workers will be in demand. This will signal that the days of ever-rising wage premiums for people with higher education are over. Without investment returns for students, higher-education will lose their clients and without clients universities will disappear or in the best-case scenario become what they were back in the 19th century, a club for the children of the rich, a social institution “to refine their social graces and befriend others of their class.”
So, in conclusion “education, full stop, cannot be the answer anymore.” Blinder says. Don’t get too scared, Dr. Blinder also offers a solution “Want to get ahead today? Forget what your parents told you. Instead, do something foreigners can’t do cheaper. Something computers can’t do faster.” For example, playing live a piece of beautiful music can not be done faster or abroad.