Dodging the Pension Disaster

The looming pension meltdown is still within our power to avert

by JOSH BARRO

When Dan Liljenquist began his first term as a Utah state senator in January 2009, his financial acumen quickly earned him serious legislative responsibilities. A former management consultant for Bain & Company, Liljenquist was appointed by the Utah senate president, Michael Waddoups, to three budget-related committees; he was also made chairman of the Retirement and Independent Entities Committee. As Liljenquist remembers it, Waddoups pre-empted any concerns the freshman might have had about his new responsibilities: "Don't worry," Waddoups said, "nothing ever happens on the retirement committee."

But then, in the early months of 2009, the stock market went into free fall. Worried about the effects the market crash would have on Utah's public-employee pension plan — which, like most states', is invested heavily in equities — Liljenquist asked the plan's actuaries to project how much taxpayers would have to pay into the pension fund in order to compensate for the stock-market losses. The figures that came back were alarming: Utah was about to drown in red ink. Without reform, the state would see its contributions to government workers' pensions rise by about $420 million a year — an amount equivalent to roughly 10% of Utah's spending from its general and education funds. Moreover, those astronomical pension expenses would continue to grow at 4% a year for the next 25 years, just to pay off the losses the fund had incurred in the stock market.

This scenario alarmed lawmakers, and for good reason. It also alarmed public employees, who feared that rising pension costs would limit the state's ability to pay higher wages. Tapping into these concerns during the 2010 legislative session, Liljenquist built consensus around a cost-saving reform plan: Utah will now require all state employees hired after June 2011 to choose one of two retirement options — either a 401(k)-style benefit plan, or a sharply modified pension plan with costs to taxpayers capped in advance. The reform isn't perfect, of course, but it will be significantly less expensive for Utah's taxpayers, and will leave more room in the state budget for the real business of government.

Utah, it seems, has thus narrowly escaped catastrophe. But what about the other 49 states? The pension-cost explosion is hitting nearly every one of them, too. And unlike Utah's, these states' efforts at pension reform are not being overseen by management consultants. Rather, in most places, state legislators are overmatched by savvy public-employees' unions and by pension-fund managers wedded to the status quo. Their influence explains why, though 18 states enacted some sort of pension reform in 2010, very few will offer real, long-term relief to taxpayers.

The Passing of an Illusion

Beyond the Welfare State

by YUVAL LEVIN

It is becoming increasingly clear that we in America are living through a period of transition. One chapter of our national life is closing, and another is about to begin. We can sense this in the tense volatility of our electoral politics, as dramatic "change elections" follow closely upon one another. We can feel it in the unseemly mood of decline that has infected our public life — leaving our usually cheerful nation fretful about global competition and unsure if the next generation will be able to live as well as the present one. Perhaps above all, we can discern it in an overwhelming sense of exhaustion emanating from many of our public institutions — our creaking mid-century transportation infrastructure, our overburdened regulatory agencies struggling to keep pace with a dynamic economy, our massive entitlement system edging toward insolvency.

But these are mostly symptoms of our mounting unease. The most significant cause runs deeper. We have the feeling that profound and unsettling change is afoot because the vision that has dominated our political imagination for a century — the vision of the social-democratic welfare state — is drained and growing bankrupt, and it is not yet clear just what will take its place.

The Economics Of Breaking Bad

Who protects the drug cartels?

by John Aziz

Breaking Bad is the story of Walter White, a cash-strapped, suburban 50-year old high school chemistry teacher, who following a life-changing cancer diagnosis hooks up with his drug-dealing former student, Jesse Pinkman, to cook and sell crystal methamphetamine. Immediately thrown in at the deep end, White undergoes a vast personality change; from mild-mannered Father into the lying, murderous gangland drug lord Heisenberg;  first cooking methamphetamine wearing an apron in a winnebago, then working in a high-tech underground laboratory for the Chilean gangland kingpin Gustavo Fring — who White eventually kills — and finally amassing a multi-hundred-million-dollar pile of cash.

A key dynamic in the show is White’s relationship with his brother-in-law, DEA agent Hank Schrader. It is Schrader who first introduces White to the idea that selling methamphetamine can pay — boasting of multi-hundred-thousand-dollar drug hauls, and even taking White out on a DEA raid of meth lab, where White first encounters his former student Pinkman. As White’s famously pure blue methamphetamine grows in popularity, Schrader becomes increasingly obsessed with its influx, yet spends the course of almost the entire series unaware that its source is his own brother-in-law.

Who Will Determine Greece's European Future?

Greeks ?

By El-Erian

Many feel that Greece's fate, including its continued membership of the eurozone, rests in the hands of the Troika - officials from the European Commission, European Central Bank and the International Monetary Fund charged with evaluating Greek's reform efforts, its financing needs and how they should be met. But this is not the entire story by any means.

The country's fate is also closely linked to what happens in Italy and Spain, and in a manner that is yet to be sufficiently understood by many. (Read More: Can Spain Avoid Greece’s Vicious Circle?)

Domestic political stability and economic reforms are clearly critical for Greece's continued membership of the eurozone. Many are thus interested in how the Troika, acting on behalf of official creditors, will react to the government's request to stretch out the budgetary adjustment over an extra couple of years.

Will they agree? If they do, how will the accompanied structural reforms be tweaked? And who will pony up the additional financing, either explicitly or through indirect methods (such as the refinancing undertaken recently by the ECB ?

Important as they are, these questions are just part of the required analysis. You see, Greece's triple problem - of way too little growth, much too much debt, and a political elite that has lost popular credibility and legitimacy - cannot be solved by adding a couple of years to the adjustment program and finding a bit more money.

A sustainable solution requires a major reset of the country's parameters - economic, financial political, and social.

The real fiscal cliff

Low interest rates will rise

By Peter Schiff

As we head toward the end of the year, the media’s fixation with the congressionally imposed “fiscal cliff” will reach a fever pitch and no doubt become a major factor in the presidential campaign. The danger is supposed to arise from the simultaneous implementation of $2 trillion in automatic spending “cuts” (in reality, just reductions in the rate by which federal spending increases) and the expiration of the George W. Bush-era tax rates. Most economists fear that higher taxes and slower increases in federal spending will combine to send us back into recession. Despite the hand-wringing, it is certain that the lame-duck Congress will slap together a late-December, last-minute, can-kicking compromise that will buy time at the expense of long-term solvency. Any success in wriggling out of this particular budgetary straitjacket will just make it more certain that we head straight for another, larger, fiscal cliff that is hiding in plain sight.

As it is constructed currently, the U.S. budget will be completely and thoroughly upended when interest rates approach levels that would be considered normal by historical standards. A mere 5 percent rate portends a clear and present danger to the budgetary priories of the United States.

The current national debt is about $16 trillion. This is just the funded portion — the unfunded liabilities of the Treasury, such as Social Security and Medicare, and off-budget items, such as guaranteed mortgages and student loans, loom much larger. Our recent era of unprecedented fiscal irresponsibility means we are throwing an additional $1 trillion or more on the pile every year. The only reason this staggering debt load hasn’t crushed us already is that the Treasury has been able to service it through historically low interest rates (now below 2 percent). These easy terms keep debt-service payments to a relatively manageable $300 billion per year.

The Fed’s Dirty Easy Money

While the GOP met in Tampa, titans of finance flew to Wyoming

By Niall Ferguson

Which mattered more to you last week: the Republican National Convention in Tampa, or the Federal Reserve’s annual economic-policy symposium in Jackson Hole, Wyo.?

If you’re just managing to get by, then it was the former. In his barnstorming speech, Paul Ryan nailed it again: “The issue is not the economy that Barack Obama inherited ... but this economy that we are living. College graduates should not have to live out their 20s in their childhood bedrooms, staring up at fading Obama posters and wondering when they can move out and get going with life.”

Direct hit.

But if you’re one of the fortunate few who manages anything above $100 million in financial assets, it was Jackson Hole you were watching, for any sign of fresh monetary stimulus from Fed Chairman Ben Bernanke.

Everyone knows about the fiscal cliff of spending cuts and tax hikes that the United States is going to hit at the end of this year, barring some miraculous bipartisan agreement. But could there also be a monetary cliff?

The Fed has thrown a lot at our ailing economy. It has slashed interest rates to near zero—and promised to keep them there until 2014. In the wake of the Lehman Brothers bankruptcy, it bought all kinds of toxic assets to avert a chain reaction of bank failures. “Quantitative Easing 1” was followed by QE2 (purchases of Treasury securities), resulting in a cumulative threefold increase in the monetary base. Bernanke’s most recent gambit was “Operation Twist” (exchanging short-term for long-term Treasuries).

If the Fed’s mandate were to juice the stock market, Ben Bernanke would get an A. Since the last Jackson Hole meeting a year ago, the S&P 500 is up nearly 22 percent. But since the Fed’s mandate is to achieve price stability and full employment, the grade is B- at best. True, inflation is—officially at least—around 2 percent. But unemployment is stuck at 8.3 percent. If I’d bought assets worth nearly $2 trillion, I’d be a tad disappointed by that.

Fears Rising, Spaniards Pull Out Their Cash and Get Out of Spain

Spain’s picture is growing dimmer

By LANDON THOMAS Jr.

It is, Julio Vildosola concedes, a very big bet.

After working six years as a senior executive for a multinational payroll-processing company in Barcelona, Spain, Mr. Vildosola is cutting his professional and financial ties with his troubled homeland. He has moved his family to a village near Cambridge, England, where he will take the reins at a small software company, and he has transferred his savings from Spanish banks to British banks.

“The macro situation in Spain is getting worse and worse,” Mr. Vildosola, 38, said last week just hours before boarding a plane to London with his wife and two small children. “There is just too much risk. Spain is going to be next after Greece, and I just don’t want to end up holding devalued pesetas.”

Mr. Vildosola is among many who worry that Spain’s economic tailspin could eventually force the country’s withdrawal from the euro and a return to its former currency, the peseta. That dire outcome is still considered a long shot, even if Spain might eventually require a Greek-style bailout. But there is no doubt that many of those in a position to do so are taking their money — and in some cases themselves — out of Spain.

In July, Spaniards withdrew a record 75 billion euros, or $94 billion, from their banks — an amount equal to 7 percent of the country’s overall economic output — as doubts grew about the durability of Spain’s financial system.

Confident ignorance

Obama's Dreams

by Thomas Sowell

After reading Barack Obama's book Dreams from My Father, it became painfully clear that he has not been searching for the truth, because he assumed from an early age that he had already found the truth – and now it was just a question of filling in the details and deciding how to change things.

Obama did not simply happen to encounter a lot of people on the far left fringe during his life. As he spells out in his book, he actively sought out such people. There is no hint of the slightest curiosity on his part about other visions of the world that might be weighed against the vision he had seized upon.

As Professor Richard Epstein of the University of Chicago Law School has pointed out, Obama made no effort to take part in the marketplace of ideas with other faculty members when he was teaching a law course there. What would be the point, if he already knew the truth and knew that they were wrong?

This would be a remarkable position to take, even for a learned scholar who had already spent decades canvassing a vast amount of information and views on many subjects. But Obama was already doctrinaire at a very early age – and ill-informed or misinformed on both history and economics.

The Battle Begins

There will be blood

by Mark J. Grant

If the leaks from the European Parliament are to be believed then the lines are being drawn in the sand for quite a fight. The rumor is that Mr. Draghi is going to propose a plan to buy short sovereign debt (0-3 years) without limit if a nation fills out the requisite form and officially asks for aid with conditionality. The rumor further states that this short term-buying, which involves lending money directly to various governments and not just buying bonds in the secondary market, does not violate the mandate of the ECB which specifically forbids the ECB from doing exactly what he may be proposing. I find his argument spurious as defined by maturity and it will be quite interesting to see what reaction Germany and her allies may have to this scheme. The dog fight will begin later today as he releases his actual plan to the various central banks in Europe. The constant speculation will end and the reactions of the various governments will be front and center upon the world’s stage.

“He thinks it’s not a violation of the treaty and you can do it under the current legal framework,” said Gauzes, a French Christian Democrat. “He said for example three years is ok, 15 years no.”

I find this once again proof that the rules and regulations in Europe, the very stipulations that we rely upon, can be changed, modified or distorted with the blink of an eye and the wave of a hand. It seems that nothing is set in concrete, nothing is firm and that everything is moveable upon a moment’s notice. I find Mr. Draghi’s argument ridiculous, if the report is to be believed, and one fraught with fiscal danger as it would probably mean that all new sovereign financing would be within the timeframe that he sets and so the amount of upfront debt, which would constantly have to be rolled, would present a series of dangers including the inability to finance it as it comes due along with a balance sheet at the ECB that could swell well past the $4 trillion mark where it is now or 45% larger than the current balance sheet at the Fed. The world does not receive funding from alien worlds and there are consequences that append from having a ledger that expands without boundaries and where the slightest imperfection pricks the balloon and the whole bloated piece of plastic twizzles off into the air with frightening results and a dreadful sound.

Everybody knows

How "Policy By Panic" Can Backfire for Environmentalists

Kansas Dust Bowl drought 1930's

Saying that droughts are caused by global warming leads to public distrust and disengagement when the rain starts to fall.

By Bjørn Lomborg

“Everyone knows” that you should drink eight glasses of water a day. After all, this is the advice of a multitude of health writers, not to mention authorities like Britain’s National Health Service. Healthy living now means carrying water bottles with us, sipping at all times, trying to drink our daily quota to ensure that we stay hydrated and healthy.

Indeed, often we drink without being thirsty, but that is how it should be: As the beverage maker Gatorade reminds us, “your brain may know a lot, but it doesn’t know when your body is thirsty.” Sure, drinking this much does not feel comfortable, but Powerade offers this sage counsel: “You may be able to train your gut to tolerate more fluid if you build your fluid intake gradually.”

Now the British Medical Journal reports that these claims are “not only nonsense, but thoroughly debunked nonsense.” This has been common knowledge in the medical profession at least since 2002, when Heinz Valtin, a professor of physiology and neurobiology at Dartmouth Medical School, published the first critical review of the evidence for drinking lots of water. He concluded that “not only is there no scientific evidence that we need to drink that much, but the recommendation could be harmful, both in precipitating potentially dangerous hyponatremia and exposure to pollutants and also in making many people feel guilty for not drinking enough.”

The drink-more-water story is curiously similar to how “everyone knows” that global warming only makes climate more extreme. A hot, dry summer (in some places) has triggered another barrage of such claims. And, while many interests are at work, one of the players that benefits the most from this story are the media: the notion of “extreme” climate simply makes for more compelling news.

Economics and the Citizen

In Western democracies today, the study of economics is practically outlawed

This article is excerpted from Human Action, chapter 38, "The Place of Economics in Learning."

by Ludwig von Mises

Economics must not be relegated to classrooms and statistical offices and must not be left to esoteric circles. It is the philosophy of human life and action and concerns everybody and everything. It is the pith of civilization and of man's human existence.

To mention this fact is not to indulge in the often-derided weakness of specialists who overrate the importance of their own branch of knowledge. Not the economists, but all the people today assign this eminent place to economics.

All present-day political issues concern problems commonly called economic. All arguments advanced in contemporary discussion of social and public affairs deal with fundamental matters of praxeology and economics. Everybody's mind is preoccupied with economic doctrines. Philosophers and theologians seem to be more interested in economic problems than in those problems which earlier generations considered the subject matter of philosophy and theology. Novels and plays today treat all things human — including sex relations — from the angle of economic doctrines. Everybody thinks of economics whether he is aware of it or not. In joining a political party and in casting his ballot, the citizen implicitly takes a stand upon essential economic theories.

In the 16th and 17th centuries religion was the main issue in European political controversies. In the 18th and 19th centuries in Europe as well as in America the paramount question was representative government versus royal absolutism. Today it is the market economy versus socialism. This is, of course, a problem the solution of which depends entirely on economic analysis. Recourse to empty slogans or to the mysticism of dialectical materialism is of no avail.

The Shape of things to come

Inside America's Most Indebted City

by Mike "Mish" Shedlock

The town's 50,000 citizens are on the hook for $1.5 billion according to the NPR article Inside America's Most Indebted City.

The city has delayed payments to light bulb venders and paper sellers. Restaurants have hired their own security. A local strip club paid to keep the street light on. The city is projected to run out of money entirely in October.

A judge has recently ordered a 1% income tax hike on the people still left in Harrisburg. But the city council has promised to fight it.

$1.5 Billion Does Not Include Schools, Pensions, Unfunded Liabilities

The Patriot News notes Harrisburg's eye-popping debt total is just one piece of city's bleak financial puzzle

 It’s almost impossible to say exactly how much money the elected and appointed officials of Harrisburg have borrowed.

Missing financial audits, complicated transactions and intertwining finances create a labyrinth of money that stretches decades into Harrisburg’s history. 

At best estimates, based upon reviews of independent reports and audited financial statements, the amount of debt owed by the city and its affiliated entities — with interest — stands somewhere north of $1.5 billion.

U.S. Companies Brace for an Exit From the Euro by Greece

It’s not impossible or unthinkable anymore

By NELSON D. SCHWARTZ

Even as Greece desperately tries to avoid defaulting on its debt, American companies are preparing for what was once unthinkable: that Greece could soon be forced to leave the euro zone.

Bank of America Merrill Lynch has looked into filling trucks with cash and sending them over the Greek border so clients can continue to pay local employees and suppliers in the event money is unavailable. Ford has configured its computer systems so they will be able to immediately handle a new Greek currency.

No one knows just how broad the shock waves from a Greek exit would be, but big American banks and consulting firms have also been doing a brisk business advising their corporate clients on how to prepare for a splintering of the euro zone.

That is a striking contrast to the assurances from European politicians that the crisis is manageable and that the currency union can be held together. On Thursday, the European Central Bank will consider measures that would ease pressure on Europe’s cash-starved countries.

JPMorgan Chase, though, is taking no chances. It has already created new accounts for a handful of American giants that are reserved for a new drachma in Greece or whatever currency might succeed the euro in other countries.

Stock markets around the world have rallied this summer on hopes that European leaders will solve the Continent’s debt problems, but the quickening tempo of preparations by big business for a potential Greek exit this summer suggests that investors may be unduly optimistic. Many executives are deeply skeptical that Greece will accede to the austere fiscal policies being demanded by Europe in return for financial assistance.

55 MPG is Going to Cost Us

Long Live Caesar

By Eric Peters

It’s fortunate for the car industry that the government regards it as “too big to fail” – because it’s going to fail again. Because of the government.

This will be third time, actually.

The first time was back in the late 1970s, when Chrysler rolled over like a mortally wounded battleship – to a great extent because it wasn’t able to turn a profit selling the cars it had anticipated the market would want – but was stuck trying to sell cars the government told Chrysler it wanted. Cars that met the first round of federal Corporate Average Fuel Economy (CAFE) standards, which stipulated 27.5 MPG at a time when the typical American car was as large as the current-era’s largest cars, with a big V-8 under the hood instead of something Toyota Corolla-sized, with a four under the hood. The Japanese at that time made nothing but small, four-cylinder cars – so Uncle handed Toyota, Datsun (Nissan now) and Honda an artificial leg up in the market – while kicking Chrysler, et al, in the soft parts.

It’s true the American cars of that time were not of primo quality. And it’s true the first round of Japanese imports were also just good little cars that sold on the merits. But it’s also just as true that CAFE imposed ruinous costs on the domestics, who were forced to prematurely retire entire vehicle platforms (and engines) long before the investment in designing, tooling and so on had been amortized (paid off) over the course of these vehicles’ otherwise natural life cycle. It almost killed Chrysler – which was (and still is) the weakest of the Big Three, with fewer resources to fall back on. But it also hurt GM and Ford.

Why Listen To Keynes In The First Place?

A great guy!

by James E. Miller 

In a recent BBC News article, philosopher John Gray asks the quaint but otherwise vain question of what would John Maynard Keynes do in today’s economic slump.  I call the question vain because practically every Western government has followed Keynes’ prescribed remedy for the so-called Great Recession.  Following the financial crisis of 2008, governments around the world engaged in deficit spending while central banks pushed interest rates to unprecedented lows.  Nearly four years later, unemployment remains stubbornly high in most major countries.

Even now in the face of the come-down that inevitably follows any stimulus-induced feelings of euphoria, certain central banks have taken to further monetary easing.  The Bank of England recently announced an extension of its quantitative easing program by £50bn.  Not to be outdone, both the People’s Bank of China and the European Central Bank cut interest rates in an effort to boost consumer borrowing.  Still, these new rounds of monetary stimulus don’t appear to be doing the trick.  The Keynesian miracle cure has been a spectacular dud thus far.  All that modern day disciples of Keynes can do is scratch their heads and say “more should have been done.”  They never allude to how many more trillions of paper dollars should have been created or spent; just call it the excuse that keeps on giving.

Euro zone factories faltering as core crumbles

The national picture remains one of widespread contraction

By Jonathan Cable

The euro zone manufacturing sector contracted faster than previously thought last month, despite factories cutting prices, as core countries failed to provide any support, a survey showed on Monday.

The downturn that began in the smaller periphery members of the 17-nation bloc is now sweeping through Germany and France and the situation remained dire in the region's third and fourth biggest economies of Italy and Spain.

"Larger nations like France and Germany remain in reverse gear... the (manufacturing) sector is on course to act as a drag on gross domestic product in the third quarter," said Rob Dobson, senior economist at data collator Markit.

Markit's final Purchasing Managers' Index (PMI) for the manufacturing sector fell from an earlier flash reading of 45.3 to 45.1, above July's three-year low of 44.0, but notching its 13th month below the 50 mark separating growth from contraction.

Labor Day 2012

The Future of Work

by Charles Hugh Smith

Technology and the Web are destroying far more jobs than they create. We will need to develop a "Third Way" based on community rather than the Market or the State to adapt to this reality.

What better day to ponder the future of work than Labor Day? Long-time correspondent Robert Z. recently shared an essay on just this topic entitled Understanding the 'New' Economy.

The underlying political and financial assumption of the Status Quo is that technology will ultimately create more jobs than it destroys. Bob's insightful essay disputes that assumption:

Over the past 15 years, the global economy has experienced structural changes to a degree not seen in nearly 150 years. Put simply, the Industrial Revolution of the 1800s has given way to a post-industrial economy. In this post-industrial economy, technology has now evolved to the point where it destroys more jobs than it creates.

Still, most people are Luddites to some extent. Human nature is to resist dramatic change, either actively or passively, until we have no other choice. If you don’t believe that, just listen to our presidential candidates.

Both Mitt Romney and Barack Obama will give us happy talk about maintaining entitlement benefits (e.g., Medicare and Medicaid) that cannot possibly be sustained. They will talk about energy self-sufficiency. They will talk about creating jobs. They will tell us that we can somehow ‘grow’ our way out of our economic distress. But neither candidate will admit that technology now destroys more jobs than it creates, because to do so would be to commit political suicide. The fact is that none of the happy talk will ever come true. Instead, the Federal Government, with the tacit approval of both major political parties, continues to run trillion-dollar-plus deficits year after year in a futile attempt to spend our way out of our economic problems and to sustain an economic model that cannot be sustained.

EU's Poorest Member Country Smacks Down Euro As Bulgaria Refuses To Join Eurozone

Bulgaria is Going Short on Euro

When a parasitic technocrat asks to shake your hand, you refuse

By Tyler Durden

If one needs a shining example of why the days of Europe's artificial currency are numbered, look no further than the EU's poorest country which moments ago said "Ne Mersi" to the Eurozone and the European currency. From the WSJ: 

"Bulgaria, the European Union's poorest member state and a rare fiscal bright spot for the bloc, has indefinitely frozen long-held plans to adopt the single currency, marking the latest fiscally prudent country to cool its enthusiasm for the embattled currency. Speaking in interviews in Sofia, Prime Minister Boyko Borisov and Finance Minister Simeon Djankov said that the decision to shelve plans to join the currency area, a longtime strategic aim of successive governments in the former communist state, came in response to deteriorating economic conditions and rising uncertainty over the prospects of the bloc, alongside a decisive shift of public opinion in Bulgaria, which is entering its third year of an austerity program. 

"The momentum has shifted in our thinking and among the public…Right now, I don't see any benefits of entering the euro zone, only costs," Mr. Djankov said. 

"The public rightly wants to know who would we have to bailout when we join? It's too risky for us and it's also not certain what the rules are and what are they likely to be in one year or two."

Spontaneous Order in Sports

Civil Order at Work

By Stephen Davies

One of the most profound and difficult insights of the economic way of thinking is that free association can produce complex, rule-governed institutions and social orders that no single person or small group designed. Professional sports illustrates this insight dramatically.

Today professional sports is an important business and a major social phenomenon. It is a staple of casual conversation, a topic that most people have opinions about (even if only that they hate it), and a large part of both television and print media. The Super Bowl is America’s most-watched television program, and the World Cup and Olympic Games attract a truly worldwide audience. There are many kinds of organized competitive sports, with no fewer than seven widely played kinds of football, for example. Most of these have formal governing bodies and elaborate rules both for playing and for settling disputes. There is even a sporting “world court,” the Court of Arbitration for Sport in Lausanne. Typically sports have a complex technical language, which is often impenetrable to someone not familiar with the game in question–as generations of Englishmen have discovered when trying to explain cricket to baffled Europeans and Americans.

This vast array of practices, institutions, and rules is generally taken for granted: Few ever ask how it came about. The story, however, is fascinating. While there certainly was purposeful action, and many rules and institutions were consciously created, organized sports are not cases of straightforward, “top down” planning.

The Coming Higher-Ed Revolution

The Dinosaurs are dying

by STUART M. BUTLER

In recent decades, key sectors of the American economy have experienced huge and disruptive transformations — shifts that have ultimately yielded beneficial changes to the way producers and customers do business together. From the deregulation that brought about the end of AT&T's "Ma Bell" system, to the way entrepreneurs like Steve Jobs forever changed the computer world once dominated by IBM, to the way the internet and bloggers have upended the business model of traditional newspapers, we have seen industries completely remade — often in wholly unexpected ways. In hindsight, such transformations seem to have been inevitable; at the time, however, most leaders in these fields never saw the changes coming.

The higher-education industry is on the verge of such a transformative re-alignment. Many Americans agree that a four-year degree is vastly overpriced — keeping many people out of the market — and are increasingly questioning the value of what many colleges teach. Nevertheless, for those who seek a certain level of economic security or advancement, a four-year degree is absolutely necessary. Clearly, this is a situation primed for change. In as little as a decade, most colleges and universities could look very different from their present forms — with the cost of a college credential plummeting even as the quality of instruction rises.

If this transformation does come to pass, it could have profound and beneficial implications. It could significantly increase the international competitiveness of American workers in a world in which we need higher skills and productivity to compete. It could sharply improve the employability of those on the bottom rungs of America's income ladder, giving them the tools they need to move up. And it could do much to restore the American Dream for those who have begun to believe that opportunity in this country is disappearing. In other words, such a change could hardly come too soon.