The old joke goes what is the difference between an graduate in Economics and a graduate in another degree and the answer is the Economist knows why he is in the unemployment line. With the current recession most new college graduate are having a hard time finding a job. I am one of those so here I am living the old joke and tell you why you do not have a job.
First, Education is the only thing in which you can spend your money on and not be taxed. At the same time, it is provided with a lot of federal funds. This is called a subsidy. In Economics, a subsidy always causes an overproduction. Think of it in this way, if the government pays the corn farmers more money than they are bringing in from the market then the corn farmers will create more corn then the market needs. So the important thing to note is that the subsidy causes an overproduction driving the price down.Next, the government usually buys up much of this excess in order to keep the farm prices high.
Since education is heavily subsidized and not taxed at all then that means there are more people earning college degrees then the market is asking for. As in their are less high skilled jobs than high skilled workers. This is also why the demand for graduate level degrees is going up as well. So during a recession it is much worse than just a surplus of students. The government solution in the farming industry solution is to buy up the excess. The government tries to do the same with the Americorp, Peacecorp, and the Military. Obama has realized that this is more of a serious issue and since he knows stopping the subsidies is political suscide his plan is to create more government jobs.
Many do not see this as a problem but there is one major one. First, as there becomes more workers in the public sector, which derives its income from taxpayers we have lesser and lesser people paying for more and more. This causes more and more debt. The next problem is that when the economy does pick up, now the government and the private sector will bid for employees. This is a major distortion in the market.
Everybody in America has noticed the growth in immigration both legal and illegal. Many of the arguments for immigration is that they do the jobs that Americans do not want to do. Some of this is true. The government has encouraged people to go to college more and more, thus they cannot take a job doing lesser skilled work or they will constantly be in debt. The more we subsidize education the more we will have to bring immigrants to fill in the lower skilled jobs.
The correct policy in this situation would be to only allow private subsidization of college students. This would allow the market to match up exactly how many skilled workers would be demanded. This would allow college students to make more when they came out. What about those who were on the margin? They would spend time working their way up in a corporation instead of wasting their money on education. My father was one of those. He could have went to school and gotten a business degree and then went into McDonald’s corp. or he could have started as a crew person and worked his way up. He choose the latter and there is nothing wrong with that.