STEM education key to future growth

If we are going to reduce the rate of unemployment and actually get Americans back to work, we need both long- and short-term solutions.

“First do no harm” is an all-important rule for doctors, and it is one Congress should adhere to in the next few days. Most economists agree with Bob Doll, chief equity strategist for Fundamental Equities at Blackrock, who recently said, “The important question is whether or not Congress will be able to extend the Social Security payroll tax cuts and unemployment benefits set to expire at the end of this year. Should they be unsuccessful in doing so, it would likely create a significant fiscal headwind in 2012.”

Tom Porcelli, chief U.S. economist at RBC Capital Markets, estimates that by not extending the payroll tax cuts, “you are literally removing 1.2 percentage points from U.S. gross domestic product.”

What these business economists are saying has nothing to do with politics.

The reality is that the two engines that have historically lifted us out of recessions have been the housing market and consumer spending. But extensive home building during the buildup of the housing bubble has left us with a gigantic housing inventory. Housing will come back eventually, as it always does, but far too slowly to help with the recovery we need now. In the short term, we will have to depend on more consumer spending.

That engine may be sputtering. Gross Domestic Income, which climbed at a 4.3 percent annual rate from October 2010 to March 2011, fell back to only a 2.8 percent annual rate from April to September 2011. Even worse, the percentage of GDI accounted for by employees’ salaries was the smallest share since 1955. The lion’s share of GDI in the last six-month period was in corporate profits, indicating that corporations were accumulating cash.

Michelle Meyer, senior U.S. economist at Bank of America Merrill Lynch, says that “businesses are very cautious, so they’re not hiring, and they’re not distributing their profits to consumers as they had in past expansions. With slow wage and salary growth, consumer spending will be on a sluggish trajectory.”

It is clear that corporate America is still on the sidelines at this stage of the recovery. That makes it even more important to extend unemployment compensation benefits. As a matter of simple fairness, we ought to recognize that many of those presently unemployed are there by no fault of their own. But extending those benefits is also a crucially important way to increase consumer spending. The nonpartisan Congressional Budget Office says “households receiving unemployment benefits tend to spend the additional benefits quickly, making this option both timely and cost-effective in spurring economic activity and employment.”
The long-term employment problem is truly challenging. According to management consulting firm McKinsey & Associates, “to return to pre-recession employment levels by 2020 and accommodate the new entrants into the labor force, the United States needs to create 21 million net new jobs in this decade.” Achieving that will require major changes in the way we do business.

Most of the industries that will be the source of future growth have one thing in common. They are going to require innovation and a workforce that has been educated in Science, Technology, Engineering and Mathematics (STEM). Delaware’s initiative in this area is setting a good example for the rest of the country. Gov. Markell has established a STEM Education Council, which I co-chair with Jud Wagner. He has selected extraordinary individuals from education, government and business who will help guide the development of STEM education programs in Delaware schools.

The STEM Council’s honorary co-chairs, DuPont’s Ellen Kullman and W.L. Gore’s Terry Kelly, are both engineering graduates whose companies have demonstrated Delaware’s success in creating and nurturing innovation. These and other established companies have been joined by companies new to Delaware, such as Fisker and Bloom Energy.

The new innovative industries drawn to Delaware by our STEM-educated workforce are the very best thing we can do in the long term to create jobs for all Delawareans.

Originally published 4 12 2011 on