If Obama Really Wants To Change The “Foundation” Of The Economy, He Will Demand A Change In The Current Balance Sheet
I’m writing this article while watching the President give his “major speech” at Georgetown University on what is needed to do to create a new foundation for the economy. He has re articulated how busy he and his administration have been and a number of core beliefs they are bringing to their efforts. He has suggested five new “pillars” to the U.S. economy:
- New rules for Wall Street designed to “drive innovation” and discourage “reckless risk taking”
- New investments in education “to make our workforce more skilled and competitive”
- New investments in energy and technology that “will create new jobs and new industries”
- New investments in health care that “will cut costs for families and businesses”
- New savings in the federal budget that “will bring down the deficit for future generations.”
Very nice. Great principles.
But there is one step he did not discuss that I believe is crucial if we want to establish a new foundation for a new economy. That would be: change the balance sheet. The current balance sheet is outdated and flawed for the Knowledge Economy, which is replacing the Manufacturing Economy for which the current balance sheet has been created.
In the manufacturing economy, hard assets – property, plant and equipment – are the most important assets, and that is what our banking system uses as the basis for lending decisions. But those assets depreciate over time. They rust and they need maintenance and eventually they become outdated. That’s an exact mirror of the most important assets of a Knowledge Economy business: human brains and skills. Those appreciate with time. When part of a collegial team, those assets are even greater than they are when in solitude. But where do those assets show up in the GAAP balance sheet? If anywhere, they only show up as part of “goodwill,” but that happens only if there was an acquisition at a value greater than hard asset book value, and goodwill is broadly disliked and dismissed as a balance sheet negative.
I do not see how this nation can move forward with a new economy if something as fundamental as the balance sheet is so fundamentally flawed. President Obama has intruded – perhaps correctly, perhaps not – on the management of our nation’s auto industry; he’s about to reshape the health care system; the nation’s energy grid is on the agenda for change; there’s about to be a radically new level and detail of regulation on U.S. financial services companies; on and on. Couldn’t he send a message to the AICPA to urge the accounting profession to figure out some way that the instrument that is designed to give a picture of financial health be structured so that the picture can be accurate for Knowledge Economy businesses?
Uhhmm…you are missing the point. The problem is demand for educated people. You really don’t know what is going on, and what these students, who are after, chasing the “American Dream” are going through. And it not just the for-profit institutions, it is rife throughout non-profit Universities.
I graduated cum laude from a non-profit University, majoring in accounting, which I thought was a “secure” field. I subsequently got my CPA on my first attempt (10% pass ratio for first-time takers for all 5 parts). I hated accounting, so I went to law school, thinking that a J.D./CPA would never be out of work. Now after 17 years of practice, and numerous skills gained, I have been laid off along with 11 other attorneys at the firm. I still have $100k in debt.
Last year’s graduating law school class had a 13.5% employment rate at law firms–why hire a new graduate when you are already laying off experienced lawyers? These kids come out of school with $100K-$150K of debt, and are asking you “do you want fries with that?”
They will NEVER pay off their student loans, and they are non-dischargeable in bankruptcy.
What did they do to deserve this death of their dreams, ambitions, and aspirations? They listened to a prior generation, who thought everyone who does things right, getting an education and succeeding in school will lead to advancement. They are the discarded generation–the most ambitious and smartest of the bunch, only to find that a lot of other people bought into the propaganda, and the Chinese and Indians will work more cheaply than Americans (not that we won’t take competitive wages, but the cost of living here on $50/day is prohibitive).
So you are right in one respect. I should have become a plumber. And if in America our brightest and best decide that they are best off becoming a plumber/electrician or working in non-mentally challenging jobs, where does this lead America, and worse, where does this lead to current blue-collar workers when their jobs are challenged by the best and brightest? If people pursuing education abandon their dreams and education, due to the glut of graduates and the shrinking job market, where will any growth come from? And what will happen to the traditional blue-collar worker who could otherwise make a decent living, but is undercut by people with a better education?