Wednesday, February 25, 2009

The Wealth of the United States

By Richard Vedder and Jordan Templeton

Our vast material bounty was not given to us solely by God. Rather, most of it was created from the wealth of the nation. That wealth accumulated over time through various forms of investment. And most of that wealth today is in the form of the talents derived from human resources. That is why many say that higher education is largely an exercise in the creation of human capital.

In order to assess the contribution of higher education in human capital formation, the first step is to calculate the size of the nation's human capital stock, which added to the physical capital stock is the nation's total stock of resources and, approximately, the national wealth.

We calculated the value of the human capital of the U.S. by simply adding together the discounted present value of the future compensation of all workers. Certain assumptions have to be made, of course, including ones relating to interest rates, probable future earnings growth, work life expectancy, etc. With that in mind, our initial estimate is that the U.S. human capital stock in 2007 was worth slightly over $96 trillion dollars. This estimate is preliminary, and could be modified in either direction after some refinements we are doing in the interest of accuracy.

Since estimates of the value of the physical capital stock (including housing) approach $50 trillion, it would appear than the total national wealth approaches $150trillion, or nearly $500,000 a person. Interestingly, two-thirds of that wealth is in the form of labor resources, consistent with labor absorbing roughly two-thirds of the national income. The national capital-output ratio is about 10 --there are $10worth of resources for each dollar of output generated annually. You could say that implies about a 10 percent annual rate of return on the stock of physical and human capital.

Calculating the national wealth in the aggregate helps put other problems in perspective. The unfunded Social Security liability of less than $10 trillion seems managable given the magnitude of our wealth, although when one adds the much larger unfunded Medicare liability, the total obligation of over $50 trillion is a lot even for a nation as rich as ours, and annual trillion dollar borrowings to finance government on a regular basis can become an additional major strain. Adding to that over $50 trillion in unfunded liabilities (via, for example, expanded entititlements to citizens) would definitely put the national balance sheet into a serious condition and helps explain the concern of some (including at least one of us) about our ability to engage in vast stimulus packages and new social welfare programs.

Our purpose in calculating the nation's human capital stock is simple --we want to try to disaggregate the portion of that stock that was created by formal learning at different levels from the proportion that was created through more informal learning mechanisms in the home and on-the-job training. And we would like to calculate the incremental impact on wealth arising from college education. This is a tricky business, as we hope to point out in future studies.

Stay tuned. This is the first of hopefully many writings at CCAP on this topic.

Richard Vedder directs the Center for College Affordability and Productivity and is Distinguished Professor of Economics at Ohio University. Jordan Templeton is a CCAP research assistant and an undergraduate student.


maxheadroom said...

Everyone who is reading these words understands the concept of a “Golden Parachute”, the outrageous benefits packages owned by some corporate CEOs in the event of dismissal or termination of contract. Now myself, I would term the practice “Golden Claymores” for they are merely used to ambush the rest of us while providing the executives with a means for escaping from their own ‘tactical’ disasters. As heinous as these financial inducements are, however, nothing compares with the instrument that President Barack Obama has prepared in order to safeguard his slow descent back towards the rest of us firmly planted upon the planet Earth.

If you recall – and have recovered from – last year’s campaign cycle, then-candidate Obama’s keynote was the war in Iraq and a hasty troop withdrawal. It endeared him to the masses of anti-war zealots who believe not in freedom and liberty but in anti-Americanism and the defeat of innocent human life. Sadly, from Mr. Obama’s perspective, the Surge in Iraq worked and the eventual conclusion of the conflict turned decidedly in America’s favor. Regardless of when our brave troops do come home, defeat can no longer be charged to the previous administration. Our team was in the lead when Coach Bush retired from the game.

Barack Obama’s quagmire is thus no longer the “illegal” war in Iraq but the domestic economy and his first actions therein are even more unconstitutional than former President Bush’s actions in the war against terrorism. President Obama’s $1 Trillion “stimulus” package, ordained by his Liberal Congress, places all Americans into a confinement worse than those terrorists hibernating down at Gitmo. At least they are fed, pampered, and publicly held above all else. Who will come to our aid when President Obama’s economic policies shatter our stock market, torpedo our employment prospects, and enslave our children and grandchildren? Amnesty International? The International Red Cross? Certainly not the ACLU which has more innocent blood on its hands than all of the militaries in human history combined.

Because he is quite incapable of solving the crisis generated largely in part by his own party and those wayward Republicans who tried teasing the “when in Rome” scenario, President Obama’s tenure as our Commander-in-Cheat has failed before it even has had a chance to succeed. Its collapse comes in large part to his inability to admit that he has ignored that fundamental thought of history “Remember, thou art only a man”. Instead, ‘The One’, America’s answer to messianic salvation rites throughout the world, has let his arrogance overshadow his ignorance. At least President Bush joked about his murdering the word “Nuclear”, for instance. President Obama will not – cannot – admit to possessing human frailties. He is, after all, the Great Black Hope who shares everything with everyone. Kenya calls him a son. Ireland calls him a son. Indonesia calls him a son. The Muslims call him a son. I prefer to call him a son of …well, let us not digress there.

In the fairness of the sort that proponents of the Fairness Doctrine cannot hope to understand, I was not one hundred percent satisfied with President George W. Bush either. I think that he overstepped his boundaries by enlarging the federal government beyond its Constitutional limits. Where I am willing to permit the former president some slack, however, was that he kept us safe from further terrorist attacks. Maybe history will prove that we are both wrong, but for the remainder of his presidency, terrorists did not attack us again. For that, I am quite thankful.

President Obama’s intent, however, is not to protect us from foreign threats, but to dismiss our chances of economic survival here at home. The Messiah of Hope has descended into the Economic Angel of Death. Knowing that his Economic Stumbling Package is filled with Grade A pork, Mr. Obama has now sentenced us to endure his plans for reducing the federal deficit. How, exactly? By raising taxes. He will raise taxes on everyone his ilk deem too successful and responsible. He will raise taxes on the independent businesspeople that employ the majority of your family, friends, and neighbors. He will raise taxes on those products, such as guns and ammunition, which he cannot ban outright because of our Constitution. In short, if we do not play his game, then we are going to pay. Reminds you of Rod Blagojevich, don’t it?

The Great Awakening of President Barack Obama was when he, like all politicians before him, from both the Left and the Right, first stepped into office and realized that Bedtime for Bonzo was a serial. Its latest manifestation is called Bad times for Bozos. From Nancy Pelosi, who still reminds me of a constipated Chihuahua whenever in front of the cameras, to Harry Reid, who is so liberal that he demands a high-speed rail network to bring his constituency closer to Hollywood, our current “Leadership” has bit off more of the Constitution than we voters should have allowed them to chew. They are in well over their heads but it is we, America, which will drown if we do not make the effort to remove them from power.

By signing into law his anti-American, anti-Capitalism, and anti-Employment stimulus package, President Obama has assured himself as one of America’s most influential presidents. That he may ultimately become our nation’s worst ever president, far exceeding either Jimmy Carter or Franklin Roosevelt, is quite beyond his care. While our country lies in ruins, swept under history as just the latest attempt at socialism gone amok, President Obama will drift down effortlessly in history carried by his own golden parachute. Good or bad, generations will now know his name. That, friends, is pure ego. Perhaps even treasonous. We don’t need it.

Marty Carbone said...

This is a good first effort. But human capital isn't nearly the whole story.

What about our physical assets?

And what about those of us who do not draw a paycheck. It is very short sighted to consider only the future "compensation". What do you consider compensation?

Are you assuming that all human capital winds up getting "compensated"? The most valuable contributors to our country probably do not draw a paycheck.

Marty Carbone