Fed Chairman Highlights Importance of Investing in Human Capital

The Chairman of the Federal Reserve, Ben Bernanke, gave a speech today at the the Annual Meeting of the Southern Legislative Conference of the Council of State Governments. The topic: Challenges for the Economy and State Governments</p

Below is an outline using excerpts from his speech. We've been grinding this ax for the last year or so and think it is an important perspective to keep in mind.</p

CHALLENGES FOR STATE GOVERNMENTS…</p

The recession–as all of you know too well–has also battered the budgets of state and local governments, primarily because tax revenues have declined sharply. Many states and localities continue to face difficulties in maintaining essential services and have significantly cut their programs and work forces. These cuts have imposed hardships in local jurisdictions around the country and are also part of the reason for the sluggishness of the national recovery.</p

With revenues down and Medicaid spending up, other categories of spending by state governments have been tightly squeezed. Over the past year, numerous state governments have laid off or furloughed employees, decreased capital spending, and reduced aid to local governments.

All that being said, with economic conditions still far from normal, state budgets will probably remain under substantial pressure for a while, leaving governors and legislatures a difficult juggling act as they try to maintain essential services while meeting their budgetary obligations.

A question for the longer run is whether the vulnerability of state budgets to business-cycle downturns can be ameliorated. The pressures that states face during and after a recession are the result, in part, of balanced-budget rules in state constitutions that prohibit the use of long-term borrowing to cover operating budget shortfalls, a constraint not faced by the federal government, as you know. </p

I do not advocate changing the balanced-budget rules followed by 49 of the 50 states; they provide important discipline and are a key reason that states have not built up long-term debt burdens comparable to those of many national governments. However, as is the case today, these rules may force significant state cutbacks in bad economic times when services are most needed. Moreover, many government programs–in areas such as education or health care, for example–are likely to be most effective when funding sources are stable and predictable, allowing for longer-term planning.

A basic economic principle is that growth requires investment. Investment includes physical investment such as infrastructure development; surely, adequate transportation networks and the like are necessary for economic growth. But for sustained economic development, investment in people–in their knowledge and skills–is even more important. No economy can succeed without a high-quality workforce, particularly in an age of globalization and technical change. </p

I am confident that, in light of this experience, your efforts to improve education and workforce skills will continue. As you do that, please keep in mind that formal K-12 and post-secondary education, as important as they are, do not alone build better workforces. Research increasingly has shown the importance for both individuals and the economy as a whole of both early childhood education as well as efforts to promote the lifelong acquisition of skills. </p

Though creating opportunities for workers to retrain is always important, it is especially critical now, when the high rate of long-term unemployment threatens the longer-term employability and productivity of many.

CONCLUSION…</p

In the past few years, the weak economy has significantly reduced state and local government revenues, which in turn has forced difficult decisions on spending and taxes. An improving economy should help, but state finances will remain under pressure for some time. In the longer term, like the federal government, state governments must respond to the aging of the population and the seemingly inexorable rise in health-care costs. These are daunting challenges indeed, but I believe we can find constructive ways to meet them, and I suspect that many of these solutions will be found at the state level. Dealing with the fiscal challenges at all levels of government will be essential to ensuring that our resilient and dynamic economy delivers rising living standards to the citizens of your states and to our nation as a whole.</p

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Plain and Simple: Governments are cutting educational funding, emergency event budgets, police overtime, parks and recreation allocations, fire fighter training, etc, etc, etc. With over 6.7rn million jobless Americans (not counting underemployed and discouraged), it is downright scary to see state and local governments spending less on budgetary items that help maintain our quality of life and ensure future generations have the means to innovate and compete in the global economy.</p

If you are an unemployed American:  re-tool and re-educate. Figure out a way to contribute, learn how to use the technology that will drive productivity in the year's to come, just don't sit on your kiester and wait for the your unemployment benefits to hit the mailbox. Use the resources around you. </p

From the DOL: The Department of Labor's Employment & Training Administration (ETA)  funds job training programs to improve the employment prospects of adults, youth, and dislocated workers. These programs are delivered primarily by states through the One-Stop Career Center System. Training programs can vary from state to state depending on the skills that are needed to compete for jobs in the local area. All programs are aimed at boosting workers' employability and earnings.</p

No one wants to see this in five years….</p

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Source</p

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