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Thoughts for Hard Times: A Conversation with Economist Rick O'Sullivan

vonzastrowc's picture

Like everyone else, Rick O'Sullivan thinks we're all in for a rough ride--perhaps even through 2010. The noted economist recently spoke with me about the causes and consequences of our current economic unpleasantness.

According to O'Sullivan, the causes of the downturn lie deeper than corporate greed, individual excess and widespread financial ignorance. The decline in the numbers of young people--who buy houses and plump the workforce--has stalled two of the nation's major economic engines: the housing and financial markets. And this decline will have a profound impact on the work and finances of public schools.

So what are the major "growth markets" for American schools? Lifelong learning, world languages and education about other countries, O'Sullivan argues.

Listen to about five minutes of highlights from this interview:

Transcript of interview highlights:
Are we doomed?

O'SULLIVAN: (Laughing) You're asking an economist? This is, after all, the dismal science.

No. I don't think we are. I think we're in for a rather long slog.

The thing to realize is that this is probably the deepest recession we've seen in a generation. It's been 24 years since we've seen anything like this, and it is very different from what we've seen in the past. In many ways what's happening here is the economy is fundamentally shifting gears.

While a lot of people blame lending practices, which of course greatly contributed to this mess, what really caused this recession and what made it inevitable was demographic and sociological changes. Basically, we ran out of home buyers. The low birth rates of the '80s finally caught up with the housing market in the late 2000s, and so the mess we're in now was clearly quite inevitable and predictable.

As the Baby Boomers are moving towards retirement, we're starting to see a shift from emphasis on investment in homes to [investment in] lifestyle, health care, and what will be necessary to support an aging population. So what's happening is that the financial services sector is laying off before the health care sector has the money to start hiring.

PUBLIC SCHOOL INSIGHTS: Do you think this has any bearing whatsoever on recent discussions and fears about things like outsourcing, which has so many people in the education community concerned?

O'SULLIVAN: What's happening here in the United States with outsourcing is that the size of businesses has gotten much smaller. Small businesses--those businesses with fewer than a hundred employees--account for the lion's share of jobs now, for the first time since Theodore Roosevelt was president.

When you're working in these types of smaller environments, there's less oversight, fewer rules. What's really needed is people who possess critical thinking skills and [who will] not wait for a boss to come along to tell them what to do, because there isn't one. So the true advantage that we have here [in the United States]--small flexible companies engaging innovative workers--is what's really key.

PUBLIC SCHOOL INSIGHTS: Assuming that we can figure out how to get back on the most appropriate track, do you have a best case scenario for our economic outlook?

O'SULLIVAN: The best case scenario is that we get some of the bad debt written down relatively quickly, and that seems to be moving ahead. The best case scenario that I've heard is that we are able to control the decline and we can start seeing light at the end of the tunnel in the third or fourth quarter next year. Even the pessimists are saying the end of the first quarter or second quarter, 2010.

PUBLIC SCHOOL INSIGHTS: You mentioned this shifting of gears, this movement away from financial services and housing towards lifestyle and health. Surely that's not just a 24-month prospect.

O'SULLIVAN: Oh, no. Twenty-four months is the measure from peak to trough. What that means is that we will have stopped digging and started climbing out.

43 percent of school funding comes from local government [revenue], and 85 percent of local government revenue comes from property taxes. Property taxes are down and are staying down. There are no new buyers. So the schools really need to be part of the lifelong learning continuum, especially with fewer young people and with the young workforce becoming more mobile.

In order to prevent a generational fissure with the older generation saying, "Look, these kids are moving away, I don't care, so I'm not going to invest in the schools," the schools really need, for their own financial security, to become part of the lifelong learning process so that they continue to engage the tax base.

PUBLIC SCHOOL INSIGHTS: Are there any questions I should have asked, but haven't?

O'SULLIVAN: Yes. When talking about globalization, one of the things that needs to be focused on is that to stay competitive in a global environment we need to better understand the competition. We need to better understand how to work with and partner with, rather than compete with, some of these countries. So what is really necessary is for the schools to take the lead in advancing cultural intelligence for most American businesses. One in every five dollars they make is going to come from outside the United States.

The emphasis has been on the threats of globalization, but the fact is the benefits are far higher. The benefits of globalization in increased jobs and increased sales opportunities are not really focused upon. Foreign languages and cultural intelligence are no longer restricted to Mahogany Row. They will need to permeate every level of business.