By Dr. Mike Walden
I have a friend whose son – we’ll call him Steve – is unhappy with the economy. Steve went to a well-respected college, earned a degree in accounting and accumulated several tens of thousands of dollars in debt doing so. The borrowing was expected, and based on the average salary earned by accountants, Steve’s student debt could be repaid in under a decade. Using projections of the lifetime earnings of accountants, borrowing to earn the degree made perfect financial sense.
So what’s the problem? The problem is Steve now doesn’t want to be an accountant. After practicing accounting for a year, he finds it boring and unfulfilling. Instead, Steve now wants to earn a living using his hobby – playing the guitar. He says his passion is music.
Yet he’s not that good of a guitar player. Based on what he can earn from mainly weekend gigs at not top-of-the-line establishments, he’ll be lucky to earn 10 percent of his accounting salary.
Steve says this isn’t fair and considers his situation an example of a broken economic system. He recognizes he needs to practice to get better at the guitar. But ultimately he thinks if he wants to play the guitar as a career, he should be able to earn decent money doing it.
I went through a version of this when I was in college. I started out to be an architect. My dad was a carpenter, so I guess building was in my blood. Yet after a year I found I was a lousy architect. I had little design skill, and my grades reflected it. I still had a keen interest in architecture – which continues today – but even if I could have gotten a degree, it was clear I wouldn’t earn good money.
Should I have thought the economic world was unfair to me? At the time I probably did. But later, as I gravitated to economics, received three degrees in it, and have taught the subject for 42 years, I now know I would have been wrong.
The major economic problem all societies face is using limited resources in a way that best satisfies our wants and needs. In the old, old, old days, wants and needs were based on survival. To survive, we wanted and needed food, shelter, clothing and sometimes medical care.
Fortunately, for our country and for an increasing portion of the world, our wants and needs have expanded beyond those required simply to stay alive. They now include transportation, education, entertainment, personal services, leisure activities like vacations and many others.
This is good in two ways. First it means our lives are more multi-faceted. We have more products, services and activities available to us.
Second, it means the range of possible occupations is wider. Today people have more money and time to devote to activities outside of food, clothing and shelter. Fifty years ago I likely would have had a different career than college teaching – maybe hammering nails like my late father and taking pride in what I built.
The big question still bothering my friend’s son Steve is this. What determines the kinds of jobs available and what they pay? And – specific to that music-loving young man, why can’t playing a guitar pay as much as crunching numbers as an accountant?
Collectively, people control what is produced through their spending. Products and services people like will have more spent on them. Further, for products and services people really like, they’ll be willing to spend more per unit (such as per ticket, per ounce, per computer, etc.)
For worker pay, there are three main determinants. First, for the worker to be paid at all, she or he has to be doing something people value having done. Second, a worker will be paid more if they’re very good at doing a job that people want done. And third, workers will be paid more if there are few others who can do what they can do.
I think these simple rules explain a lot. Let’s go back to Steve. Clearly, listening to a guitar melody is something many people enjoy. So that’s a positive check for Steve. But most people want to hear good guitar-playing. Since Steve’s guitar skills are not good, that’s a negative for him. Last, since Steve is a mediocre player, there are many other mediocre guitar players to choose from. Steve may find work, but it won’t pay well.
If Steve is mad, he shouldn’t be mad at the “system”. There are many people who like listening to guitar playing, but most want it to be good playing. Even more, to make a decent living playing the guitar, you have to be very, very, very good. This takes time – lots of time. It’s estimated a minimum of 10,000 hours of practice is needed to be proficient in most skills or tasks.
So the question for Steve is, are you willing to put in the time to be very good? And if the answer is yes, do you have the talent to be very good? Practice doesn’t always pay off. Last, if you become very good, how many other guitar players are as good as you or better?
I understand young people’s dreams, and I never want to discourage them from following those dreams. But since I’ve lived almost seven decades, I also understand something about reality – in particular – economic reality. To be happy and successful, dreams and economic reality have to be combined. At least that’s my experience, but you decide.
Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.