Posted on 03/11/2006 12:56:51 PM PST by Dark Skies
Asset classes--stocks, bonds, real estate, collectibles--are always competing with one another. Each clamors for our spare dollars. For periods we favor one asset class over others (e.g., stocks from 1982 to 2000). But when a collective judgment is reached that a particular asset class has been bid up too high, dollars are pulled and the asset class shrinks in value. Real estate may now be at that point.
I can think of only one asset class that in my adult life has outperformed GDP growth plus inflation yet has been blissfully immune from busts--any busts at all. That is the value of a four-year-college degree. When I graduated from college in 1976, our class joker had T shirts made up that said “$24,000 for one diploma and a lousy T shirt.” Actually my diploma and shirt cost only $12,000, as I had transferred from a community college where I’d been on a track scholarship. Those Adidas spikes, pricey at $24.95 in the early 1970s, were a great investment.
Today it costs $175,000 to send your kid to my alma mater. Yep--that’s the market price for four years of tuition and expenses at any elite private college. Did I say elite? Sorry. The second- and third-tier private colleges have also learned this economics game. They, too, are charging north of $100,000 for a four-year degree. And parents are lining up to write checks. Special Offer for Forbes.com members -- receive a Free Trial Issue of Forbes Magazine... no risk... no obligation! Click here for your Free Issue!
Do you suspect that this asset class--a four-year-college degree--might be overpriced? I do, for three reasons:
# Search engines such as Google have ushered in the era of open-source learning. Society is rapidly progressing to the point where any Googler is on equal footing with a Widener Library pass-holder.
# Most of today’s higher-paying jobs go to those who exhibit a combination of adaptable intelligence, numeracy, communications skills and a strong work ethic, as opposed to evidence of specific knowledge.
# Which leads to a third, and no doubt controversial, point. Society once counted on universities to imbue students with the traits named in the paragraph above. It was once assumed, for instance, that a liberal arts degree holder was numerate and literate and knew how to draw lessons from history, weigh evidence, think, write, speak, debate and learn. Or so Larry Summers, the ex-Harvard president, innocently imagined. He thought undergrads should learn about the math-and-science-driven world they’d be entering as adults. This belief conflicted with the postmodern professoriat that prefers cutting rap records to teaching--or, if forced to teach, teaches liberation theology over the American Revolution. Summers lost the battle.
My prediction is that parents who risk their own financial security shelling out $100,000 to $175,000 for a four-year degree will lose, too. History will show that they could have achieved far greater returns for themselves and their children in other asset classes.
Why does the price of a four-year degree keep rising? Past performance is one reason. The cost of college degrees earned in the 1940s--tuition at Yale was $450 in 1940--through the 1980s looks like a bargain compared with the cost of those today. The return on investment for older degrees has been spectacular. Take a well-known statistic: As recently as the 1970s, there was little difference in the lifetime earning potential between a high school grad and a four-year-college degree holder. But in just one generation the four-year degree holder has leaped ahead in the earnings wars. In 2003 he could have expected to earn 62% more than the high school grad.
But there’s no guarantee the present trend will hold. It might even reverse. The same forces--technology and globalism--that quelled the wage growth of blue-collar workers may do the same to white-collar workers. Already software writers feel salary pressure from India, cartoon animators from China, classified ad salesmen from Ebay and so on. Despite this, you may conclude that my opinion of the worth of a college degree is nonsense. Degrees have always gone up in value, you think, and always will.
Degree Is Just a Proxy
Okay. Allow me to pose a question. Suppose you are an employer and are filling jobs for which no credential is required. In other words, for typical white-collar jobs--product design and engineering, sales, marketing, non-CPA accounting work and so forth. Would you pay a steep salary premium for a four-year degree holder versus a high school grad? You might. Perhaps you’d think the four-year degree speaks to the job applicant’s intelligence, along with a certain facility to set goals and finish them.
But what if you could guarantee those qualities in other ways (military service, missionary work, etc.)? See, I think the Harvard or Yale degree is worth plenty, not because of what Harvard or Yale teaches--the postmodern university can do more harm than good; witness Yale’s admission of a former Taliban spokesman. The degree simply puts an official stamp on the fact that the student was intelligent, hardworking and competitive enough to get into Harvard or Yale in the first place. May I present to the jury Bill Gates? He was smart enough to get into Harvard. Then he proved his financial intelligence by dropping out to start a company.
Okay, enough Harvard/Yale whipping. Like oceanfront property, their degrees will always command a premium and will probably pay out a terrific ROI. The same is true of degrees from 10 to 20 other private colleges. But beyond those 10 to 20 schools, I suspect the price of a four-year, private college degree--$100,000 to $175,000--will be money poorly invested.
Not if he's the one writing the checks!
Among serious real estate players in NYC he's seen as something of a joke.
Before the baby boom generation, college was strictly for rich people. Women went to college not to pursue a career, but to attend the equivalent to a charm school that would prepare them to meet a rich husband. Men went to college to gain entre within certain professional circles where you had lots of alumni from a particular school.
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Not exactly true. Both of my parents graduated from college in 1937 - the depths of the depression. Their fathers were employed, but certainly not rich. All of their siblings also achieved college degrees, and had fruitful careers. Education was valued in both households, and sacrifices were made to get the children all the way through to the BA. My grandfather's sibs were grads of Cornell, before WWI. He (my grandfather) dropped out of high school when he was 16, because like Bill Gates, "they couldn't teach me anything, that I could not teach myself."
Perhaps, that is why he made sure that his daughters as well as his son completed their schooling.
I suggest that education is evolving. The odd intermediate position of professor (with no practical knowledge) might soon be eliminated.
Why learn from a self-proclaimed expert when you can learn from someone who is in the fight and suceeding.
The Donald has definitely graduated to a tacky level...but he isn't a joke.
Martha may think he is a joke...he may not be the most tasteful developer in the world...but to say he is a joke...is funny.
GM Building
The Plaza
Atlantic City Casinos
St. Moritz
.
Real estate isn't a zero sum game wherein those who make it do so by taking it away from those that can't.
Good development is good for everyone.
Teaching is fun! And real estate development/architecture is an artform to many.
"I think the Ivy Leagues are going to lose their reputation in 10-20 years."
Not as long as the "elites" (like the Bushes, Kennedys and Clintons et al.) are in charge of the chicken house.
The Plaza
He didn't develop either of those.
I've met a couple of real estate developers in their off hours. Even in their off hours they are scary people. I can't see any of them teaching for "fun."
He bought the Plaza for $400 mil and sold it for $325 mil.
He was unable to make loan payments on the GM Building and essentially (though not technically) got foreclosed. People on the street were actually cheering and mocking him -- including the work crews -- when they took his name off the thing.
Would I do it his way...I doubt it. But is he playing the game effectively. So far, so good.
Trump has moved out of the real estate business and is in the deal making business. A very different business. He is now (IMHO) making plays with leveraged risk and limited backblow. Time will tell if he suceeds.
The Plaza is closed temporarily.
The only people really stressing education are the people who are in the education industry. They know there are a lot of government dollars to be sucked down, babysitting people in classrooms that don't provide anything our society really needs.
Well, there is the Saturday nite slack rule...any comment is appreciated on Saturday nite. Just don't get too persnickity...it is Saturday nite after all.
No, he still owns the old Gulf+Western as a hotel...I forget who put the money into it.
For a short time -- a couple of years -- he had his name on the GM building, then fell behind on the payments. The Plaza is closed for condo conversion and renovation into a mall. Christies is auctioning off a bunch of the stuff next week, I believe.
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