Invest in education to build intellectual capital

Here is a secret: Most of the world’s wealth isn’t in banks or the stock market. It is inside our brains. The greatest source of wealth in any economy is the intellectual capital of its people.

Intellectual capital is the sum of all your talents and skills inside your head. It includes the ability to read, write, complete a crossword puzzle, cook a meal, make friends, kiss like Casanova, solve a business problem and so on.

If your house burned down and you lost all your material possessions, lost your job and your money, what would you have left? For some of us, a lot!

You can bounce back if you know how to hustle and perform a valuable skill or service. You are in a total mess if you don’t have any marketable skills.

Intellectual capital includes intangibles like kindness, patience, the ability to dance, practice law or perform surgery. It’s why people go to school, and why having a substandard education system is so detrimental to economic prosperity.

According to WalletHub, New Mexico has the worst public school system in the nation, ranking dead last.

So it’s no wonder we face such chronic poverty and intractable social problems.

Education isn’t about getting a degree or a piece of paper — it is about creating intellectual capital. Our intellectual capital is the most valuable thing we have and is responsible for most of the world’s riches.

The more intellectual capital you have, the wealthier you are likely to be.

Intellectual capital is the brainpower behind economics, and it is perhaps the greatest driver of the disparity between the rich and poor. Look at it this way: Modern economics rewards specialization, and specialization requires education.

In addition to specialization, a rapidly changing economy requires the ability to adapt quickly to new information, which involves critical thinking and a love of learning new things.

So classical liberal arts majors who earn a rigorous, multidisciplinary degree can rejoice: Being a great generalist in an age of specialists is a unique specialty.

A broken educational system destroys personal wealth, which is beyond bad. Failure to provide children with intellectual capital that a free market wants to pay for will leave them outside of the wealth-generating machine of capitalism, creating permanently poor people.

This phenomenon is called the “poverty trap” where a poor social infrastructure creates poverty, making

it hard to build a better infrastructure, which creates more poverty.

We also are moving to a world where the need for physical capital and the capacity to earn a living from physical labor is disappearing. If your primary asset is the ability to move boxes in a warehouse, a robot can do that cheaper and faster. If you make a living working in a factory assembling stuff, a company in China can do that cheaper, too.

Any job based on your physical ability is a precarious one. As a simple example, a friend of mine was a yoga instructor. Then she ruptured several disks in her lower spine.

In an instant, her yoga career was over.

Physical capital is fleeting; intellectual capital is durable. It can even get better with age. Stephen Hawking unlocked the scientific mysteries of black holes while needing tubes to breathe and eat as his health deteriorated from Lou Gehrig’s disease.

Our historical economy was based on physical capital, like farming or building a car. Our modern economy is based on knowledge, so having good schools is a moral imperative.

Equally problematic is that people with a lot of intellectual capital and skills, want to be around other people with similar talents and motivations.

The best and brightest of our youth often leave in search of more opportunities for their skills to flourish outside our beautiful state because there aren’t enough opportunities here for them to flourish.

Denying our children a solid education is one of the worst moral injustices we can inflict on them because it sets them up for a life of unnecessary suffering and hardship that could be averted with a better school system.

It also impoverishes the rest of us, which is why fixing our broken public school system should be our highest economic priority.

Doug Lynam is a partner at LongView Asset Management in Santa Fe and a former Benedictine monk. He is the author of From Monk to Money Manager: A Former Monk’s Financial Guide to Becoming A Little Bit Wealthy — And Why That’s Okay. Contact him at douglas@longviewasset.com.