04/05/2013 03:09 pm ET Updated Jun 05, 2013

Visible Hand

Elizabeth Warren made news in mid-March when she argued for a hike in the minimum wage, saying that if it kept pace with productivity gains since 1960 the wage would be $22 today (v its actual $7.25) . We'll trust her on the numbers, but since 60% of those earning minimum wage are under the age of twenty-five, and nearly 23% are under the age of twenty, Warren gets points for originality in equating teenagers with productivity. What Warren left out is that its not just teenagers whose wages are lagging productivity--median household income hasn't changed even as productivity (and per capita income) has increased more than 30% since 1990.

Maybe you had a sense it wasn't just the no/low skilled who weren't keeping pace when you saw the Enterprise Rent-A-Car commercials crowing that they are the biggest hirer of new college graduates in the US. If you were aware that all the income gains in the US since 1980 have accrued to the top 1% and that 30% of households have at least a bachelor's degree
you would already have known that plenty of college grads weren't improving their financial lot.

But what skills, beyond the ability to come up with tuition are our colleges requiring of student to earn a diploma? Productivity gains don't by some divine right line the pockets of employees, especially if those employees are not 'responsible' for the gains. Meaning, if productivity gains come from workers who are uniquely skilled to operate productivity-enhancing equipment, then higher wages would accrue to the workers. But if productivity comes in the form of easy-to-use tools that can be operated by anyone, then higher profits accrue to management. Does that not define our age? The advent of extremely productive tools that anyone can use (cell phone, word processor, browser, microwave oven, remote control, garage door opener, Sham Wow, etc...). And paradoxically this has the effect that fewer people stand to improve their economic station.

One way out of this box would be to wait for people to spontaneously become more aware of how to improve their plight. If you've seen the lines for Powerball tickets v Java programming courses you might think this unlikely. But what if we had a little nudge from big brother? Most in this country don't like to consider the possibility of central planning in personal decisions. We've seen how that turns out: South Korea is the fifteenth largest economy in the world, while North Korea ranks first in presidential holes-in-one and 125th in GDP (just behind Papua New Guinea).

But it would be a mistake to declare all government intervention verboten. The classic argument for intervention is in the case of externalities, where an object's true costs are not included in its price. Exxon doesn't pay for the cost of the Fifth Fleet in the Persian Gulf, and so neither do you at the pump. Frito Lay doesn't pay for the health care costs of our diabetes epidemic, so neither do you at the check-out line. But you do pay for them elsewhere, which is very inefficient and why capitalist stalwarts ranging from the WSJ to Michael Bloomberg have argued that oil, non-edible and edible, needs to reflect its true cost via government intervention.

For those that resist the idea of government becoming involved in our personal choices, it already is involved in college education via the student loan program. We might as well get something for our effort besides highly indebted rental-car clerks. Why not mandate that colleges need list the average wage for each major on course enrollment sites-- like calories on a menu, or skull and cross bones on cigarette packs. If you don't believe that reminding people of the risk of what seem to be obviously dangerous pursuits, you need only consider that American smoking prevalence has dropped from 50% to 20% in in the forty-odd years since warning labels began appearing on cigarette packs. If you are seriously considering a theater degree, we might as well graphically remind you of the expected monetary result.
From that first step we could move to make the terms of student loans conditional on choice of major. Lending tuition to engineers and philosophy majors on the same terms is akin to giving the identical mortgages to a Google programmer and a barista.

There is ample evidence that people could benefit from guidance. Today the poor line up for the aforementioned Powerball tickets, the middle class over-trade their stock portfolio. Both are bad bets made by people that don't have better options. Why not give young people guidance when they start to deal themselves their hand?

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