Commencement in a time of economic uncertainty

Today I was the commencement speaker for Woodbury University. Woodbury has a lot of first generation students, that always makes for a wonderful commencement. In more staid universities. graduation exercises are a bit more predictable. But in places like this university, families come to celebrate the first in their families to graduate from college. The events become a real celebration.

Woodbury is a niche university. They have a short list of specialized programs. When their current leadership came they changed one important detail - many universities exist by saying who they are not. "We're not quite as good as XXXXX." But Woodbury began to try to define who they are. BY doing that they came up with a set of programs that fit a group of students quite well. It is an interesting place that serves a group of students pretty well.

Here is what I said for my commencement address -

David and Fred

First, congratulations on commencing your new life after completing a Woodbury degree. I realize that the job of a commencement speaker is pretty well defined, and limited. Commencement speakers stand as a resolute and possibly superflous gate that keeps you from celebrating the completion of one of life’s major tasks. So I have always thought that any commencement address should have two qualities – brevity and humor. Even if one cannot achieve the latter, the former is an imperative.

There is a second quality for commencement addresses. Some want to use this occasion to explain the meaning of life. It is probably better to stick with what you know. Since my doctoral work was in finance, I want to tie two relatively obscure economists with the value of your degree. Those two are David Ricardo, a British member of Parliament in the 19th Century and Frederic Bastiat, a French member of the Assembly who lived about the same time as Ricardo.
I should start with a story about Woodbury. About twenty years ago I began to work with universities in Mexico. At one conference, a major speaker discussed one of the finest architectural programs he knew about. He slyly did not mention the name of the place until near the end of his talk but described the qualities that the University had which made it so good. Right before he mentioned the name, I realized he was talking about Woodbury.

As I thought about this speech, I thought it would be a good idea to review what makes this university special. It’s described in the mission statement “Woodbury University is committed to providing the highest level of professional and liberal arts education. The integrated nature of our educational environment cultivates successful students with a strong and enduring sense of personal and social responsibility. We prepare innovative learners who are adept at communicating and willing to cross the boundaries of knowledge in a rapidly changing and complex world.” If you take advantage of those skills – communication across boundaries and integration of concepts your future will be bright. David and Frederic offer some ideas about that.

Ricardo’s most famous work is the Principles of Political Economy, in that book he introduced the concept of comparative advantage. Economists have spent the last couple of hundred years debating the idea. But let me give you the short definition of what it is. He suggests that countries and individuals benefit by specializing in what they do best – even if they do lots of things well. Ricardo argues against the idea that individuals or countries should try to do all things. Even if you are better than your neighbor at everything you want to produce, it is always a good idea to concentrate on what you do best. For example, if I grow oranges and my neighbor grows apples – and I am more adept at growing both – I still should encourage my neighbor to produce whichever I am less good at producing.

Over the 1980s and 1990s California’s largest import was human beings. Our population growth during that period just from immigration was larger than all of the countries of Europe. Some people worry about the complexities that all these people produce. This very diversity gives us opportunities. But only if we educate this generation of students. One of my most important tasks is to advocate for funding the Cal Grant, which offers students with financial need who have worked hard in high school, the opportunity to grow to their potential.

There is a second part of Ricardo’s theory, that relates to the value of networks. Comparative advantage works when we think about networks. If you think of your classmates and your degree as something to be checked off, you will be shorting yourselves. Each of you has a career ahead of you, but remember your university. Come back to consult with your professors. Stay in touch with your classmates. Comparative advantage is first about connectedness.

The second economist was a person who inherited wealth about the time he would have gone to work, so he was able to become a politician and a public intellectual. That is nice work, if you can get it. Even if you don’t like economics (and in this environment, that is not a small group) you might like Bastiat’s most famous book – Economic Sophisms – which lays out some very important ideas in economics in a humorous way.

Bastiat was a master at pointing out the odd ways that self interest can be converted into public interest. For example, one of his essays discussed a fictitious legislative petition by the candlemakers against the sun. In their petition they argued that the sun was unfair and that if the legislature would only outlaw windows,they could sell more candles. Bastiat created the distinction between that which is seen and that which is unseen. Economists call the effects of actions externalities. There are positive and negative externalities.

The state of California is in a serious budget situation and has been for the better part of a decade. In about a week Californians will vote on six propositions that are complex. Four of those could help to stabilize the budget. There are lots of causes for the budget problems but we know that funding for education in the state has suffered.

During the last big growth cycle in higher education California invested heavily by building more public campuses and by funding grants to promising students who wanted to attend an independent college. The “seen” for those investments was obvious. The state spent some more money on students. But the “unseen” is almost more important.

During the decade of the 1990s California lost more military bases than any other state. But our economy did not even hiccup from those changes. Indeed, we transformed ourselves in wonderful ways. The five new growth sectors of our economy center are computers, biotech, professional services, foreign trade and entertainment. I’ll give you two examples of the transformation. Twenty five years ago California’s portion of the fashion industry was just over 5%. Today it is more than a 25%. Twenty five years ago California’s entertainment industry was strong – but even with changes in the industry we continue to dominate, even in new fields like digital animation. Without those investments in education, most of which were not connected to either fashion or entertainment directly, those transformations would not have happened. All those people who came here may have added complexity, the “seen”, but they also made us a powerhouse in international markets – the “unseen.”

For the last eight years, the maximum award available to students who want to attend an independent college has been flat. That looks like budget savings – the “seen.” But in reality the “seen” is allowing fewer Californians to realize the full breadth of their educational objectives. Thus, a recent Public Policy Institute of California report suggested that in the next two decades the state will be short of its needs for college graduates by almost a million degrees. If we allow that to happen, California will go from being the eighth largest economy in the world and will look less like an economic powerhouse and more like Mississippi with earthquakes. That is not a future I would like to see.

As you commence on this new phase in your life and careers, remember David and Frederic. Think about comparative advantage and connectedness. Remember the benefits of understanding the seen and the unseen. Before you take on those new responsibilities, take some time to celebrate. Congratulations!