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This is utterly outrageous.

WASHINGTON (Reuters) - President Donald Trump said on Friday he is planning changes including a possible pathway to U.S. citizenship to foreigners holding H-1B visas, issued temporarily to highly educated immigrants who work in specialty occupations such as technology or medicine.

There goes what is left of the US middle class and the complete destruction of the value of college education.

College has traditionally been about two things: Teaching you how to think critically and providing very specific, career-oriented training.

The former has quite a bit of value -- provided it actually gets imparted to you.  Colleges have destroyed that over the previous 30 or 40 years; fields like "women's studies" and similar make a flat-out mockery of the precept of critical thinking, as has "affirmative action" which inevitably leads to taking the critical part out of the game because those who are "less advantaged" cannot possibly compete at anything approaching an appropriate level, and thus aren't required to.

But our college systems have ramped in cost to an insane degree as well, destroying the value equation for most students.  When I was of that age you could spin pizzas or flip burgers and not only pay for college pay for all your living expenses too.  It wasn't easy but it was possible.  Today it is flat-out not possible to work a part-time job and go to school.

Therefore the only options for most young people are either to have their parents cover it or to go into massive amounts of debt.  Very few parents have a hundred large or more laying around and further, the marginal value of that "education" is questionable at best unless you are interested in one of a few fields, so they'd be nuts to pay for it.  To say "yes" would be to coddle narcissism to an extraordinary degree, much like the so-called "parent" who buys his or her teen driver a brand-new $50,000 BMW and then is shocked when they wreck it.

The problem with H1b visas is that virtually all of those who come into the country using them are not burdened with that debt and further, they come from nations where their expectations and cost of living are a tiny fraction of ours.

The computer programmer coming in on an H1b from India, for example, will take a job programming for $30,000 a year.  To him or her that's decent money and they don't mind living six to an apartment.  As a US graduate today with $50,000 in debt you cannot survive on that salary but he can because he got his education with no debt and in many cases via a subsidized system abroad!

The H1b system is supposed to prevent this by insisting that said people are paid the US "prevailing wage or better."  The premise is that no company would intentionally overpay for workers, so they'll only use H1b employees if they can't find very high skilled US citizens who thus get high wages.  Therefore, the story goes, it doesn't harm US workers at all but does help US employers find the people they need.

That claim is a lie.

The requirements are never enforced.  Worse, many of those jobs are in very high cost areas yet the "prevailing wage" doesn't adjust for that, and as a result what appears to be a decent salary isn't.  Tell me how you make it on $60,000 a year in San Jose, CA?  You couldn't do that in the early 1990s and today you'd literally be living under a freeway overpass.

The H1b program has been riven through with fraud for the last 20+ years.  It has laid waste all but the very best in the US STEM fields in terms of actual salaries and advancement.  US "industry" has strongly resisted any reform, such as requiring they pay double the standard prevailing wage.

Such a requirement sounds crazy but it isn't -- if your intent is to use these people only in places where you need extraordinary capability.  In other words if the "average" programmer makes $50,000 a year to require that an H1b holder in that field be paid at least $100,000 would restrict their use to those who are truly extraordinary -- and unavailable in the United States.  Such a change would instantly stop nearly all of the abuse.

Should there be a path to citizenship for such people?  Maybe.  But only after we resolve all of the poaching and salary-deprecating "features" of the current system and see who still is here on one of these visas when they truly are extraordinary, and not simply being used as a means for US firms to drive down wages and trash the US middle class.

Until then the President go **** himself with this proposal, sans lube.

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2018-12-28 10:10 by Karl Denninger
in Education , 254 references
[Comments enabled]  

So word now comes that David Hogg, who can't calculate or think his way out of a paper bag (as evidenced by his SAT scores) has been admitted to Harvard -- after being denied at several other colleges due to lack of academic ability.

This is an obvious "social justice" sort of thing, given his political stance.

Harvard used to mean something on a degree.  It doesn't any more.

Of course it's damned expensive, and I'm sure he'll figure out some way to scam that from someone too; maybe some more-wealthy people who get his tuition cost-shifted to them.

The problem with social justice admittance is the same as it is with racial discrimination (so-called affirmative action) admittance.  Once you let someone in who doesn't have the academic chops to do the work at the level the University allegedly represents you have only two options: Let them fail, in which case they flunk out and you're accused of discriminatory conduct or lower the course standards enough so they can pass.

The inevitable choice is the latter which is how you get so-called "computer scientists" out of supposedly good schools who can't program in assembler nor can they accurately model the computing requirements for a given task, taking into account all the various elements required (e.g. storage, memory, CPU, etc.)  It only gets worse at the graduate level when the so-called "thesis" process gets similarly corrupted (can't have all those discrimination students fail at the Masters or PhD level, you see) and thus you have the sort of nonsense that has been repeatedly demonstrated for alleged "graduate" work at that level too.

One need only read Michele Obama's thesis.  Whether you agree with her point of view isn't the salient point of doing so -- we can agree or disagree on the political and sociological observations she makes, and in fact such a debate is interesting on its face.

No, the salient point of reading it is that strictly on a grammatical basis she lacks the ability to produce prose at a level suitable for entrance to a University after four years of being there -- and despite this she was awarded a degree.

In other words Princeton's degrees do not provide evidence of the ability to write at a 12th Grade High School level.

So how in the Hell did she get into Harvard and stay there without flunking out if she couldn't write a Senior Undergraduate thesis sufficient to pass muster as a long-form essay in High School?

I would have failed High School Senior English with grammar, sentence and paragraph construction as poor as that thesis displays.  In fact I doubt I would have even bothered with taking the final exam since by that point the screaming "F" would have long since moved beyond the "recoverable" point irrespective of how well I did on said final.

Incidentally while I can't find Michele's (or Barack's) LSAT scores Harvard obviously didn't care about those or Michele's terrible ability to write.

Then again being able to actually write coherent paragraphs of prose isn't a requirement for a lawyer, is it?

Hogg's admission to Harvard on an obvious "social justice" basis can't corrupt Harvard; that already happened at least 30 years ago.

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There's an interesting article in The Atlantic that contains a graph you should pay attention to:

This is the number of hours you must work at minimum wage to pay for a credit hour at Michigan State University.

In 1979 it was about 10.  Now it's about 60.

Note that a "full load" is generally considered over 12 credit hours per semester; let's take the minimum (you usually need 120 hours to graduate, so this would be a "five year" plan); this means you would need to work 120 hours (or about 10 hours a week) to pay for school while in school.  That can be done along with the academic load.  It also can be done during the summer. Note too that tuition is nowhere near the entire cost; the usual "all in" price is about double tuition expense, so you would need to work 20 hours a week to cover it.  Again, that's doable -- two 8 hour shifts on the weekend and an hour four nights a week, and you're good.

Today, at six times that cost, it cannot.

The conclusion, however, is backward:

Is it any surprise that so many students today are suckered into taking out non-dischargeable loans, in growing chunks, to pay for their bachelor's degrees?

Wrong answer.

The reason the price went up 600% is the availability of those loans.

That is, it was the financialization of education that made this possible, because it is through financialization that entities sit down and figure out exactly how much they can extract from others in a transaction, causing the price to rise right to that limit.  At the same time they lobby vigorously for "ever-easier-appearing" (but more-onerous in fact) terms that increasingly transfer the fruits of the result of whatever has been financialized from the buyer to the seller through that increased price!

The result of this paradigm and the unholy alliance between banks, Wall Street, Washington DC and the colleges themselves is that the marginal utility of college degrees for many, perhaps even the majority of students, is now negative.

Remember that the school, the lender, Wall Street and Washington DC do not care about individual outcomes.  They could give a damn about whether college is a good deal for you.

That is what happens when anything becomes financialized; the only metric that matters is the aggregate outcome for the financial chef; that is, his goal is to strip all but one penny of the benefit on average from the participants and keep it. 

The closer he gets to that goal the more money he makes.  He does not care about your outcome, only that in aggregate the pool of "buyers" keep just enough that the next group will come in the door.

In other words so long as they can point to a few rocket scientists that make $100,000 a year right out of school that you can only make $30,000 and leave school with $150,000 in non-dischargeable debt,  thereby virtually guaranteeing financial hardship if not outright bankruptcy, does not matter to them at all!

The colleges are not only aware of this they are willing participants in that they have their own finance offices that will help you arrange for your own fiscal destruction and, if they (or you) can talk your parents into it, theirs as well.

This must be stopped -- but until the financialization of education is reversed it won't be.  Until that day comes the best you can do is to take a long, hard look at the numbers and figure out how to get the education you want without taking any debt at all.  If that cannot be done given your specific set of circumstances then in most cases what you're proposing to do is objectively a bad deal.

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So by now you have three reasons to tell the college finance office to go blow a donkey when they "propose" that you go into debt to fund your education.  You can read them here, here and here again if you need to.

Now I'm going to give you the biggest reason of all not to do it, and it has to do with your personal wealth over time.

It's simply this: Statistically speaking you will never get rich working for someone else.

Oh sure, there are exceptions.  You might wind up working for the next Google before it goes public, and be far enough up the food chain that you get stock options and the company hits the home run in the public markets and those options vest and they're successful long enough for you to cash them out.

That's a lot of "ands", by the way, so let's put probabilities on it.

  • Working for the next Google: 1 in 10, if you work for a startup. 9 of 10 fail entirely.
  • Being far enough up the food chain to get a lot of options: 1 in 5, if you're high-skilled.
  • The company hits the home run: 1 in 10 again; from venture capital to IPO with nothing that blocks them in the middle somewhere due to a mistake.
  • The options vest: 75%, probably, provided you get the other three first.
  • The firm succeeds long enough to cash them out: Lockup periods and all, you know.  Maybe 50%.

So how's this work out?  .1 * .2 * .1 * .75 * .5 = 0.08% chance.

In other words, less than 1 in 1,000.

Still think this is a good path to getting rich?  Uh, no.

By the way, I still have some paperwork somewhere around here with a bunch of options that I was granted in a spin-off that ultimately did go public.  So I got 1-3, and guess what -- the firm failed anyway and thus the options were worth zero.

Oh well.

This, by the way, is why you never, ever count those options as part of your compensation when you're figuring out whether to take an offer in a non-public firm, even if it's planning to go public.  The odds are overwhelming that you have a nice small stack of pieces of paper with their highest and best value will be found in starting a campfire or your BBQ in a few years.

Now sure, there are exceptions.  Google has its share of millionaires, as does Facebook.  But remember that people win the Powerball all the time as well -- this does not make buying Powerball tickets a good investment.  In fact the lottery, just like options in non-public companies, are a stupidity tax to the extent that you actually expect either to be worth anything.

What options in non-public companies are is an incentive for you to work hard in an effort to make them valuable.  They do a very nice job of that, by the way, and my comment on the odds has nothing to do with whether they're proper to grant to people.  They clearly are, and they clearly serve a purpose, but the purpose isn't making you, the grantee, rich.  It's to do the firm's level best to spike your performance in your job to the maximum possible extent.

So how do you get rich?  You work for yourself.

Let me clue you in on a secret to working for yourself: It is utterly essential that your life overhead is as low as possible in order for you to succeed in working for yourself.

The reason is this: On average you will fail at least once, and probably more than once, before you succeed.  It is only through having a very low life overhead in the form of essential spending that you will personally be able to get through those failures without being rendered destitute, having creditors chase you, being thrown into the street or all of the above.

Don't be fooled either by the claim that you "have to" go to college to earn a good living.  That's a lie.  You can do a number of things that don't involve college yet make a darn nice living, and give yourself the opportunity for entrepreneurship.  How about plumbing or electrical work?  Both have no college requirement and reasonable apprenticeship or certificate requirements with you actually getting paid to learn the trade instead of the other way around.  There are dozens of others, from various forms of physical labor to intellectual labor such as web design, and the nice thing about all of them is that none require going into debt of any sort in order to gain the "first job", and most have a direct path into self-employment.

Now let's look at the economics.  Let's assume instead of four years in college you instead spend them apprenticing for electrical work.  Let's further assume you can make $15/hour doing so as an apprentice, then $25/hour once you have the certificate or license.  There are 2,000 working man-hours in a year, assuming 50 weeks of 40 hours and two weeks off for vacation.

So in the first two years you earn $30,000 each, and then $50,000 the next two.  You do not blow all of this on creature comforts nor do you go into debt.  Instead you stash 20% of your gross and live frugally.  In those first four years you have amassed $32,000 in savings and have no debt.

The college graduate, on the other hand, has $52,100 in debt and at the nice low current interest rates will be paying $522.35 a month on graduation.  The problem is that at graduation if he gets a $50,000 a year job he has $4,166 a month in gross income less the $522.35 in loan repayment, or $3,644.32 before taxes.

You, earning $50,000 a year at the same point in time, have $4,166.67 a month in gross income and no debt obligation at all.

Now let's assume two things: First, from that day forward you both live equally frugally and spend the same amount.  Second, the $32,000 the trade-follower amassed continues to expand.

Let's assume that inflation is 3%, or roughly historical averages (yes, that's 50% higher than Fed target, but it's reality over the last 50 years or so.)  Let's further assume you can earn 6%, or 3% after inflation, and that we will do so for 45 years before you retire.

That $32,000 the non-college-goer amassed turns into $440,467.55.

What's worse is that if you both live under the same standard of frugality from that point forward for the next ten years the non-college goer gets to add $6,268.20 to that balance every year for the first ten while the college graduate has to pay off the debt.

Now let's look at what happens.  The college graduate has zero saved at that 10 year point.  The non-graduate has $139,926.99, and both are living under the exact same standard.  The entire difference is the loan repayment the college graduate has to make.

Can he make this up over time with better salary?  Maybe.  How much does he have to make up?  More than you think.

Guess what happens in 35 more years?  The non-graduate has $1,075,490, and all of that is due to (1) living frugally during the four years while the college grad is in school and (2) socking away only the loan repayment he is not making during the next ten years.

By doing just those two things the guy who doesn't go to college has over a million dollars when he's 65.  Note that this is a quite-conservative set of assumptions -- if you can manage to get an 8% return (hint: not without a lot of risk you can't!) then that "nut" is over $2 million at age 65.

Note that neither of these guys stuck one penny in a 401k or 403b, or anything like it, from that 10 year point forward.  The college graduate is literally over a million dollars behind in retirement income at the point his student loans are paid off and he's also 14 years behind in contributing -- a crippling deficit that will require that he both make a hell of a lot more money and save more of it to catch up.

Now here's the other part of it.  Neither of these two guys will get truly rich doing this.  The college grad and non-grad will work for someone else and while both can find their way to retirement and be ok, neither is going to hit the jackpot and retire at 40 on this path.

And here's where the real bad news for the college guy who has to take out loans comes from.

During those first ten years the college grad can't start his own business because he needs that $500+ a month every month without interruption -- if he doesn't pay he's screwed, permanently.  There is no way for him to cut way back for the inevitable bad months while starting up a business where there is little or no income.

The non-graduate has the option at any point in time to split off from working for someone else, and after a decade or less he's going to be in a utterly excellent position to do so, assuming that he or she does good work.  And it is there, in entrepreneurship, that one finds the path to wealth.

Wealth, by the way, is not really about having a lot of money when you get to 65.  Wealth is actually about freedom.  The choice to change careers, to raise your kids and be there for their important times, to take a day or a week off when you want to, to "retire" at 40 and go do something else.  To have a kid that needs you there for him or her in some form or fashion so you back off on what you're doing and voluntarily accept far less economically for a while, because you can and in doing so you'll be ok. You can never do these things working for someone else; that set of options simply doesn't exist.

If you're a young adult there is one thing I will tell you above all else that will impact your economic success in life: Do not go into debt no matter how it's sold to you or what someone claims you can accomplish with it.

Either find another way or do a different thing.

How do I know this is utterly true and works?

Because I've been there and done that, both personally and in business.

That is, in fact, why I can write this column, and why you're reading it today.

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