Obama to Close "Skills Gap"; Where? How? Why is the Middle Class Shrinking?


By Mish   Follow   Tue, 27 Nov 2012, 1:06pm   1,724 views   30 comments
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Obama to Close "Skills Gap"; Where? How? Why is the Middle Class Shrinking? Living Wages
http://globaleconomicanalysis.blogspot.com/2012/11/obama-to-close-skills-gap-where-how-why.html
Mish

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  1. thunderlips11


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    1   2:52pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (3)   Dislike   Protected  

    Bless you Mish.

    "Where are all the kids not graduating with BS' in Biology?"

    Because people who only have a BS or MS in Biology don't make shit; they make the same as a supervisor at a Starbucks, low teens per hour with minimal to no benefits, that's why. Unless you are going onward in education to gain a PhD or MD degree, there is no point in majoring in Biology (or Chemistry, or Physics) for economic reasons.

    Why work your butt off in school to get a Biology degree and miss out on a myriad of drinking opportunities when you can talk about gender relations in Jane Austen novels in between 24-hour Raves, and end up with the same pay? At least the English major at Starbucks, might be promoted to regional manager one day, in addition to having more undergrad nookie opportunities and party stories. Lab Tech is a dead end career.

  2. lostand confused


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    2   2:57pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (3)   Dislike  

    Why graduate, when your job can be shipped offshore any second. Nowaday,s even research facilities are moving offshore. It is what it is. Obama is insulting everybody's intelligence by suggesting that the answer is more education.

  3. Call it Crazy


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    3   3:03pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (2)   Dislike (1)  

    "President Obama says there is a "skills gap". A quick search says that many misguided souls believe the president."

    Oh, I thought Obama was talking about himself in the article....

  4. Ceffer


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    4   3:43pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (2)   Dislike  

    When I sold my business, I was a bit jealous of the buyers because they were young, but I felt sorry for them when I found out how much school debt and general debt they had, it was really a lot.

    They were fortunate enough to have lots of parental outpatient care to help qualify/pay for school and business loans, but still, will probably not be able to buy a house until they are in their 40's. America is becoming dynastic, no more assuming education is a pass to a better life than your parents.

    Of course, going into business in CA is asking for it: more regulation, interference, taxes, employee retaliation, predatory litigators etc. etc., with more piled on each year. It's like getting Easter eggs loaded with s**t every year you stay in business, a torture chamber for the outside chance you might come out ahead.

    It is going to get worse as the viable businesses become rarer and the leeches get hungrier.

  5. APOCALYPSEFUCKisShostikovitch


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    5   3:50pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (3)   Dislike (1)  

    Nothing matters as long as every job can be done in a slave state. You're free to keep your job if you'll work for $5 a month and can swim to China where the factory is being relocated.

  6. Dan8267


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    6   4:07pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    lostand confused says

    Why graduate, when your job can be shipped offshore any second. Nowaday,s even research facilities are moving offshore. It is what it is. Obama is insulting everybody's intelligence by suggesting that the answer is more education.

    Absolutely. There is no point in majoring in anything that does not require physical presence. Outsourcing has caused an irreversible and permanent brain drain in our country. It was the largest brain drain in the history of the world, and now it's way too late to stop it.

    Ten years ago, government could have stopped this brain drain by stopping outsourcing. Instead, they encouraged it. Now it's too late.

    But don't worry, we'll have plenty of people becoming lawyers, bankers, traders, and marketers. Those people create their own work by upping zero-sum games. Of course, they produce no wealth, and with 90% of our working population doing these jobs, the only wealth creation we'll have is at McDonald's.

  7. Rin


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    7   4:26pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    Dan8267 says

    we'll have plenty of people becoming lawyers, bankers, traders, and marketers. Those people create their own work by upping zero-sum games. Of course, they produce no wealth

    Ultimately, S&E types do tend to do well in the above fields, mainly because they've been trained to jump through hoops, to get from place to place. I mean bankers & traders have quants, actuaries, programmers, etc, doing ancillary work for them. And IP law does require some science background for the patent agent exam. Marketers ... well, that's just back office sales, but w/o any quotas to fill.

    But yes, a biology BS to Patent law doesn't mean a successful biologist.

  8. BoomAndBustCycle


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    8   5:04pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    Well, what's the solution Mish?

    I believe you have accurately pointed out the problem being education and asset bubbles created by the FED and bad policy.

    But now that we are up a creek without a paddle so to speak... What's your solution? To jump off the boat and drown?

    If you get rid of federal student loans.. Only rich kids will be able to afford an education for a few years. Then attendance will CRASH, they'll have to fire or cut the pay of all professors and faculty.. and lower tuition dramatically.

    Do you think you'll have students graduating in 2014.. demanding refunds when in say 2020... Tuition is 25% or less than they paid 7 years prior?

    Atleast you can walk away from buying an over-priced house... You can't walk away from student loans.

  9. Rin


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    9   5:39pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    BoomAndBustCycle says

    Atleast you can walk away from buying an over-priced house... You can't walk away from student loans.

    Though I haven't seen anyone do it personally but couldn't one over leverage a property, pay off their student loans, and then declare bankruptcy, thus wiping both housing and school debt at once.

  10. errc


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    10   5:53pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Rin says

    BoomAndBustCycle says

    Atleast you can walk away from buying an over-priced house... You can't walk away from student loans.

    Though I haven't seen anyone do it personally but couldn't one over leverage a property, pay off their student loans, and then declare bankruptcy, thus wiping both housing and school debt at once.

    Or just transfer all student loans to personal loans and then file bk. Probably not as easy as it was back ten years ago when a 21 yo fresh out of university with no income could easily secure over 20k in credit.

  11. BoomAndBustCycle


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    11   5:54pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Rin says

    Though I haven't seen anyone do it personally but couldn't one over leverage a property, pay off their student loans, and then declare bankruptcy, thus wiping both housing and school debt at once.

    Possible but i think it would fall under the category of fraud if you are not careful how you do it.

  12. Bellingham Bill


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    12   6:39pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    This is just repeating my usual spiel but I see the problems the middle classes faces in terms of the money flows into and out of it.

    "Middle class" in my book is people totally dependent on their own labor to survive and accumulate wealth in this world. (Lower class is people who don't even have that degree of economic security, while the upper class is people who have "money" -- income-producing assets -- collecting income for them)

    So for the middle class to be sustainable the money into it via their paychecks has to be greater than the money flowing out of it -- to the lower class via welfare spending and to the upper class via the various rent flows and economic chokepoints the wealthy have found for themselves over the decades.

    Additionally, outside this somewhat "class warfare" analysis is the macroeconomics of our trade deficit, at all geographic levels from the community, to intrastate, interstate, and international.

    Eg, when we go pump $50 of gas maybe $2 will even stay with the retail store -- $48 of it will go off to Big Oil and their transnational entities. It doesn't matter where it goes really, once it leaves the community it's gone for good unless the trade flows are balanced.

    The dirty secret of our governments' (local, state, and DC) spending is recirculating this money flow -- without governments spending $6T+ each year most local economies would simply seize up since there are more flows out of the community than private paychecks coming in.

    That's "redistribution", and this redistribution is generally necessary.

    So, for trade, we have this colossal ~$500B/yr trade deficit:

    http://research.stlouisfed.org/fred2/series/NETEXP

    which is to mostly China, Germany, Japan, and Mexico:

    http://www.census.gov/foreign-trade/top/dst/current/deficit.html

    It's my thinking that we used the mortgage lending boom of 2002-2006 to recirculate this outflow back into the US consumer economy -- not as wages, but as loans funded from our trade partners.

    Currently we've kinda given up on that and are just printing and lending $500B/yr outright to "restock" the money the US consumer economy needs to remain liquid.

    So that's all that can be said about trade -- "free trade" with trade deficits is insane policy.

    Back to the class thing, just looking at our own budgets we can see how our paychecks are being bled dry by the rent-seekers.

    If you are a renter, foremost is probably the monthly rent to the landlord. The national average is like $900/month, but high cost areas like the Bay Area and LA are closer to $2000!

    That's a big flow from wage earners to the upper class and needs to be addressed somehow.

    Then there's health care, our per-capita cost is over $8000/yr, $5000 more than Japan's. Here the middle class is also getting massively screwed, even if the health sector employs a lot of people, so more of the money does at least stay within the middle class economy for a while.

    http://research.stlouisfed.org/fred2/graph/?g=dcf

    shows health employment has risen from 7.5% to 10.5% since 1990, going from 8M to 14M jobs!

    The average household pumps around 1000 gallons a year of gas, so that's another $4000 or so leaving the paycheck economy and going off to the money heaven of the rentier sphere.

    OK, this is long enough now, but to get the middle class healthy again we need to close these money leaks out of it.

  13. everything


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    13   6:48pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Skills no longer needed. Every foreigner student I meet they don't even screw around with a BA or BS, let alone trade/technical college, they just get MD and PHD.

    We can export or import the skills gap, we can export the middle class as well. I'm sure Mish believes the world is flat.

  14. Entitlemented


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    14   7:26pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    We outsourced much of our R&D and Technology. As a EE, I cannot find a citizen EE to hire. Ross was right, we created a bunch of paperpushers, and we cant make anything, cant tax what we dont make, and all Federal and State tax receipts are down.

    We need a few engineers like Germany, Asia, and India.

  15. thunderlips11


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    15   8:26am Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike   Protected  

    $35k in 1988 = $68k in 2012, according to the Fed's CPI Calculator.

    Starting salaries for entry level Engineers in 2009 was ~$60k.

    So Entry-level Engineers make 10-12% less than they did in the late 80s.

    Supply and Demand don't lie, if there was a shortage salaries would be rising, not falling.

  16. thunderlips11


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    16   8:35am Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike   Protected  

    More of Engineer Wages, 1980s vs Today:

    https://www.patrick.net/forum/?p=1211681&c=820227#comment-820227

    And especially -- https://www.patrick.net/forum/?p=1211681&c=820432#comment-820432

    Where I bring up the costs of paying for an Engineering Degree in the mid to late 80s versus the costs of a Degree today. If you look at the costs of an education, it's much more expensive today, way, way, way, outpacing inflation generally, than it was in the 80s. The ROI on an engineering career is now lower since the capital requirements are higher.

  17. BoomAndBustCycle


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    17   8:52am Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Since everyone is so good at articulating the problem, what is a practical solution to get things back on track. One that will not cause social upheaval or another great depression?

  18. Dan8267


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    18   9:23am Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    thunderlips11 says

    Supply and Demand don't lie, if there was a shortage salaries would be rising, not falling.

    I don't make nearly as much as I did in the 90's. Then again, I make more than the median income with 20 years according to your graph.

    I certainly produce more wealth than an investment bankers, a CEO, or any of the Mitt Romneys in the world. Yet, I'm the one that has to worry about outsourcing to slave labor that can't do what I do but will fail to do it for pennies a day.

  19. Dan8267


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    19   9:26am Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    BoomAndBustCycle says

    Since everyone is so good at articulating the problem, what is a practical solution to get things back on track. One that will not cause social upheaval or another great depression?

    Marry executive total compensation to the median total compensation of employees. Count outsourced workers, subcontracted or direct, as employees. If the execs want to pay $3,000/year to those producing the wealth, then the execs will take in only $3,000/yr themselves in total compensation, not just "normal" income.

    Execs still have an incentive to increase productivity, but they don't have an incentive to fleece their workers.

    In the long run, this will be better for the parasitic management as well since it creates a virtuous cycle of production-->paycheck-->spending-->increase demand -->increase production.

  20. thunderlips11


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    20   10:00am Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike   Protected  

    BoomAndBustCycle says

    Since everyone is so good at articulating the problem, what is a practical solution to get things back on track. One that will not cause social upheaval or another great depression?

    Go back to 1980s era Visa System.

    If a company claims they can't find a qualified American and wants a visa. First, they must:

    * Use the definitions from the BLS, a free resource that takes 5 minutes of googling to find qualification and salary level. Not their HR-department's assertions based on ex-rectum unscientific non-reality based claims. (see below*)
    * Offer at least 25% above national or local median for that position, which ever is the higher, which must be printed in the advertisement (ie Acme Corp seeks Engineer IV at $105,000/year. Not "Acme Corp seeks Engineer IV. Please inquire as to salary.").
    * Advertising it for a minimum of 3 months in 3 national publications (ie DICE, NYT, USA Today, American Chemical Society Job Board, etc.) with listed salary range.
    THEN,
    * After receipt of Proof of purchase of marketing required (either printed copy or receipt for marketing expenses from the advertising venue).
    * And ALL the Resumes of Applicants received (regardless of qualifications or what HR thought; all resumes received, not just what the hiring manager saw.)
    * BLS reviews Proof of Purchase and Applicant Resumes.

    If ALL the applicants are truly unqualified or won't accept 25% above median national pay, as determined by the BLS and not by the company:

    $10k for a one-year visa.

    If at least two qualified resumes were received, Company must justify their non-employment for each rejected applicant, with evidence on how the interview went, etc.

    * No Claiming that an Engineer IV position (an advanced degree and a decade's experience and/or multi-decade experience) at an Engineer II salary (only 3-5 years of experience and a bachelor's), then claiming "Hey, can't find anybody!!!"

    By the way, this is a generously easy system. Visas in most other Western industrialized countries, including Sweden and Germany which kick our ass in net exports, are much, much more strict and expensive.

    There would also be a "Short Cut" Visa where a company could bypass all this for $50k and hire who they wanted. Visa renews at $50k/year. If production truly is halted by the lack of one key employee, $50k is no big deal. The visa prices are to stop extreme labor arbitrage.

  21. thunderlips11


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    21   10:16am Wed 28 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike   Protected  

    Just a brief aside, the real crime is where the US is going to be in 5-10 years when the boomers retire.

    Without entry level STEM jobs, you won't get mid and high level qualified STEM workers.

    Sure, you can go to grad school, but at some point you need to put your foot on the bottom rung or two in order to climb up.

    Outsourcing entry-level positions, which is where most of the problem is, is a surefire way not to have qualified people in the future.

  22. maxweber21


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    22   10:53am Wed 28 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    I would not recommend anyone choose STEM for a profession. Its great to do personally if you are talented in it. But professionally is it hard work for low pay. Better to get on welfare and do side work or to buy and sell stuff. Or something like that. Engineers are a dime a dozen and are never rewarded. Now, real estate lawyer is a good gig in NC if you can get it. Things like that with government mandated and protected pay checks. If you feel you must take a square job. If you already have worked for years, then of course you are out of luck because you can't get on welfare/disability easily once they know you can work.

    The fix is simple. Eliminate income tax and payroll taxes. The government can just print money to pay for those things (inflation tax). Or charge use or sales taxes. Either way, pay rates here in the USA would immediately drop 30% versus other countries.
    Otherwise, there probably are no good white collar jobs any more and young people are best served by getting on the dole and doing side gigs. E.g. fix cars, weekend and event gigs, etc. Bartering. With health care costs exorbitant, better to let the gov pay for that one.
    So, replace income tax with inflation and problem solved. Will Americans do this? No! Because income tax is a regressive system which punishes the honest and the hard-working.
    P.s> I have a 41 year old friend who works one of those $10/hr jobs now since he and his family basically have their business a few threads from losing it. They do carpentry and millwork. When they can find work.

    P.P.S> Are the foreign workers degrees from accredited universities? Then neither do American need to be any more. Just go to some random college who is willing to issue you a ph.d. That's the facts jack.

  23. maxweber21


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    23   11:08am Wed 28 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    What does it take for someone to setup their own college? In theory, can I legally issue Ph.D.'s to my neighbor in the USA? Or would I need to issue them in a foreign country? I worked with a useless guy who's family owned several "universities" in his home country. He said it was an excellent business.

  24. Entitlemented


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    24   9:06pm Fri 14 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike  

    I have been working as an R&D engineer for years. Make good money, not as much as Lawyers or upper government job, but contribute far more.

    We all have to get up in the morning, put our pants on and go to work. May as well do something productive, because the 85% paper pushing masses dont do much in my 25 years of job experiences.

  25. Peter P


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    25   9:07pm Fri 14 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    What the hell is a skill gap anyway?

  26. Entitlemented


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    26   9:25pm Fri 14 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike  

    The US has turned in the "land of malivestment". Can someone estimate how much money has been bilked due to the CRA and corresponding FHA and Commercial NINJA, Subprime and other loans. ~4 Trillion?

    How many jobs that were outsourced that we used to do here?
    Hint: Furniture, electronics, Physics, ......

    When the US invented the light bulb, the transistor, the Laser, the Phonograph the US workers made more than the people in other countries at the time.

    Hint: Its all about the loss of technical work, R&D, manufacturing. 90% of the people I know push paper - thats all we do!!!!

  27. thunderlips11


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    27   6:21am Sat 15 Dec 2012   Share   Quote   Permalink   Like (1)   Dislike   Protected  

    maxweber21 says

    What does it take for someone to setup their own college? In theory, can I legally issue Ph.D.'s to my neighbor in the USA? Or would I need to issue them in a foreign country? I worked with a useless guy who's family owned several "universities" in his home country. He said it was an excellent business.

    It's that way in South Asia and South America. Only a handful of colleges are accredited. Most are private and full of shit. Sadly, American employers insist on top tier expensive schools for natives, but accept any rag paper "Bombay First Technical College" for visa holders.

    Oh, and half the time that degree is a counterfeit. Fake degrees are rampant in the developing world. The reason you see people talking in Urdu or Hindi so much is that they are asking their actually educated uncle/cousin how to do something.

  28. CaptainShuddup


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    28   9:14am Sat 15 Dec 2012   Share   Quote   Permalink   Like   Dislike (1)  

    And yet, even as classes like Goldenberg’s are filled to capacity all over America, hundreds of thousands of U.S. factories are starving for skilled workers.

    Then it would seem we need more schools?
    Or perhaps the factories should be training people, like they used to do.

    they had a hard time recruiting in-demand workers for $10-an-hour jobs. “It’s hard not to break out laughing,” says Mark Price, a labor economist at the Keystone Research Center, referring to manufacturers complaining about the shortage of skilled workers.

    Really the whole idea that it will some how be cheaper to manufacture in America, than in China is ridiculous. I don't see this working out. Not any better than it did when America tried to outsource IT work to India in the early 00's.

    Trying to make something Cheaper in America is the wrong reason to bring manufacturing back, because there will be a reversal on that with in a few years. Then the work would be back in China, as was noted in that article there's more upward mobility in Fast Food jobs.

  29. Entitlemented


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    29   11:04am Sat 15 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    Missing in these arguments is trickle down or scale of economies.
    As an example, when ford was building the Mustang, it was thought to be too costly for the average man, but was not so. This is because of Trickle down benefits of the first Assembly lines and higher volume parts manufacturing.

    At the moment I only buy american due to issues with formalgahyde in my clothes, shoes from China never fit, cheap pans coated with Florinated Oxides, cheap cars, cheap furniture.

    I would rather drive a Ford Escape than a Mercedes, every teacher an union member drive these German cars, and I just want to be different.

  30. New Renter


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    30   12:35pm Sat 15 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    BoomAndBustCycle says

    Well, what's the solution Mish?

    I believe you have accurately pointed out the problem being education and asset bubbles created by the FED and bad policy.

    But now that we are up a creek without a paddle so to speak... What's your solution? To jump off the boat and drown?

    If you get rid of federal student loans.. Only rich kids will be able to afford an education for a few years. Then attendance will CRASH, they'll have to fire or cut the pay of all professors and faculty.. and lower tuition dramatically.

    Do you think you'll have students graduating in 2014.. demanding refunds when in say 2020... Tuition is 25% or less than they paid 7 years prior?

    Atleast you can walk away from buying an over-priced house... You can't walk away from student loans.

    I would suggest that much of the problem with higher education has been the shift of attention and resources from providing a quality education to window dressing. I personally have watched colleges spend tremendous amounts of funding on expensive new rec centers. Rec centers have very little to do with education but are great to show off to prospective students. Same with student housing, parking garages, sports stadiums, food courts, and so on. Kids come in and are dazzled with the glitz. Does anyone, parents included, ask hard questions about the success of recent graduates by major or better yet ask for proof?
    I wonder if many potential students just assume college = success

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