Budgetary Darwinism

I’ve heard a number of people refer to current economic disaster as a tsunami or “perfect storm” but, as events continue to unfold and the upcoming state and federal budget cycles loom large, it’s clearly time to update the disaster metaphor. What we are about to experience in government is closer to a massive asteroid strike, an Extinction Level Event that will cull those programs that are unable to quickly adapt to a radically new paradigm. Given the fact that a hallmark of government programs has never been the ability to rapidly adapt to changing situations, the challenge facing those of us with the responsibility for providing public services is both immediate and immense.

Many of our programs have become comfortable with slow adaptive processes, responding to budgetary ebbs and flows by corresponding adjustments to the scale of activity. When funding is adequate and changes are incremental, programs evolve slowly, rarely challenging fundamental suppositions about what, in fact, is actually needed and how it is best provided. When need exceeds funding, waiting lists result. Many program administrators bemoan the inadequacy of services but are perfectly willing to place the responsibility solely on the funding bodies that won’t provide the resources to allow the current delivery models to be scaled to meet the increasing needs of our citizens.

However, like an asteroid approaching the Earth at speed, impact has become inevitable. Disaster movies aside, there are no nuclear solutions to return things to the way they used to be. Large and ongoing shortages of financial resources will trigger a kind of budgetary Darwinism that will relegate some programs to the scrap heap of history. Only those that can adapt effectively to a radically new environment will survive. Like the dinosaurs, those slow but majestic programs that have relied upon a history of dominance and political cachet to provide the resources to support their ponderous frames will quietly vanish from the scene. To survive in this new milieu, we must adapt, take risks, be entrepreneurial, and as my Director repeatedly reminds me, “Meet our customers where they are at.”

Things Fall Apart - The Cost of Arrogance

Reflecting on the end of what has proven to be a turbulent year in the economy, I wonder whether or not 2010 will prove to be the year that we finally learn from our mistakes, both the errors of our actions and the predictive failures that allowed us to be caught so ill-prepared for the economic devastation of the past two years. Over the preceding decade our brightest scholars had embraced the theoretical perfection of markets, confident in the intrinsic connection between price and underlying value. Confidently, we had declared ourselves immune to the massive market failures that led to the great depression of our grandparents.
In retrospect, I don’t think the events of the past two years reflect so much a failure of our economic policy as a lesson in humility for the excesses of our hubris. Increasingly, swayed by the elegance and purity of mathematical solutions, we embraced a manner of thinking that aimed to define complex human behavior in terms of predictable and rational mathematical relations. When applying the rationale of the current market and price theory, not only was the economic collapse unpredictable, it was virtually impossible. Bubbles could not burst because they could not, by definition, exist.
When finally forced by circumstance to come to grips with the fact that monetary policy alone could no longer suffice to spur activity as the interest rate approached zero, economists have either had to accept purely Keynesian responses, such as expanded government spending or do nothing at all and simply declare that recessions and massive job loss are natural adjustments ultimately good for the economy.
Workforce Development has been equally handicpped by this same type of flawed thinking. The federal government provides funds to communities to implement demand-driven training because the historical data dictates the logic of that approach. We utilize historical and survey data to predict skill needs corresponding to projected industry growth and assume that if a workforce is prepared with the appropriate skills, employment will result. But, just as in the economic scenarios above, we fail to allow for the behavioral side of the calculation. We surmise that employers will behave rationally and that when the underlying conditions provide a basis for expanded hiring, that jobs will be created. But when these jobs fail to appear, we find ourselves at a loss, lacking any tools to address the situation. One problem is that job creation is often directly linked to very human and altogether irrational (though predictable) behaviors. In the current economy hiring mangers are far more likely to be concerned about further losses than incremental gains and when the media is saturated with stories of foreclosure, layoff and bankruptcy, these employers (especially small employers) extrapolate what they have heard to their own situation. Consequently, when all we can offer is services which respond to market demand we find ourselves relegated to waiting for the actions of a labor market that is essentially paralyzed.
Like Neoclassical economists stuck in denial, some at ETA continue to cling to the belief that those areas that are unable to place workers into jobs are simply not using their data effectively to link to market demand despite abundant evidence that the real problem is the lack of demand itself.
Unless we reevaluate the policy tools we are providing for workforce development, we will see diminishing returns for our expanded training investment. I’m not advocating for corporate welfare, but until we understand and can offer the kinds of incentives to employers that will increase their willingness to risk expanded hiring, many areas will experience increasing labor force detachment, be forced to devote an increasing proportion of training resources to participant support, and fail to produce a timely return of jobs from the expanded federal investment.

I think the economists have seen the light. I'm optimistic that the workforce system will soon follow suit.

Fireworks, Festivals and Fortitude

Between the fireworks, parades and community festivals of the Independence Day weekend, I ran across the following online article by Heather Boushey from the Center for American Progress.
http://www.americanprogress.org/issues/2009/07/recession_today.html

For me, this article served as a reminder that, despite the forecasts of impending economic recovery, millions of American families will continue to struggle to survive, cobbling together a patchwork of government assistance, and short-term or under-the-table work when they can find it. Many of those fortunate enough to have accumulated assets when times were good are depleting their resources to maintain standards of living, while confronting the uncomfortable realization that those standards will need to change significantly in the future.

Although there’s nothing dramatically new presented here, the timing is perfect and some of the facts in the article deserve a second look:

• 
  · The share of the population with a job fell to 59.5%, lowest since 1984
  · The number of mass layoffs in May reached an all-time high of 2,933 incidents, indicating more pain to come in the pipeline
  · The average hours worked fell to 33/week, a historic low
  · The unemployment exhaustion rate for the initial benefit period (26 weeks)reached 49.2% in May
  · Only 67.7% of adult men are employed, a number that had never previously fallen below 70.5%
  · The number of discouraged workers has more than doubled to 793,000 since the recession began in December 2007

These are stark reminders that this recession has transcended the cyclical shedding of jobs impacting those with marginal labor force attachment to penetrate the broad spectrum of the American population. While the massive debt resulting from efforts to stimulate the economy and shore up our safety net is painful, desperate times call for desperate measures. One thing is clear, however…the stimulus investment must be treated with a level of critical importance. These funds cannot be treated as simply “more of the same” to be used in precisely the manner to which we have become accustomed. Our traditional workforce, economic development, education and community resources are being called upon to facilitate the kind of revolutionary practice needed to make a difference in the future direction of our economy and our nation.

So, while I'm participating in this most American ritual watching tonights fireworks, I'll feel just a little more connected to those around me and further convinced that what we do, indeed, matters.