Posted on 07/21/2011 7:03:14 AM PDT by SeekAndFind
When governments want to encourage what they believe is beneficial behavior, they subsidize it. Sounds like good public policy.
But there can be problems. Behavior that is beneficial for most people may not be so for everybody. And government subsidies can go too far.
Subsidies create incentives for what economists call rent-seeking behavior. Providers of supposedly beneficial goods or services try to sop up as much of the subsidy money as they can by raising prices. After all, their customers are paying with money supplied by the government.
Bubble money, as it turns out. And sooner or later, bubbles burst.
We are still suffering from the bursting of the housing bubble created by low interest rates, lowered mortgage standards, and subsidies to Fannie Mae and Freddie Mac. Those policies encouraged the granting of mortgages to people who should never have gotten them — and when they defaulted, the whole financial sector nearly collapsed.
Now some people see signs that another bubble is bursting. They call it the higher-education bubble.
For years, government has assumed it’s a good thing to go to college. College graduates tend to earn more money than non–college graduates.
Politicians of both parties have called for giving everybody a chance to go to college, just as they called for giving everybody a chance to buy a home.
So government has been subsidizing higher education with low-interest college loans, Pell grants, and cheap tuition at state colleges and universities.
The predictable result is that higher-education costs have risen much faster than inflation, much faster than personal incomes, much faster than the economy has expanded over the past 40 years.
Moreover, you can’t get out of paying off those college loans, even by going through bankruptcy. At least with a home mortgage, you can walk away and let the bank foreclose and not owe any more money.
Peter Thiel, the co-founder of PayPal, is adept at spotting bubbles. He sold out for $500 million in March 2000, at the peak of the tech bubble, when his partners wanted to hold out for more. He refused to buy a house until the housing bubble burst.
“A true bubble is when something is overvalued and intensely believed,” he has said. “Education may be the only thing people still believe in in the United States.”
But the combination of rising costs and dubious quality may be undermining that belief.
For what have institutions of higher learning done with their vast increases in revenues? The answer in all too many cases is administrative bloat.
Take the California State University system, the second tier in that state’s public higher education. Between 1975 and 2008, the number of full-time faculty members rose by 3 percent, to 12,019 positions. During those same years, the number of administrators rose 221 percent, to 12,183. That’s right: There are more administrators than teachers at Cal State now.
These people get paid to “liaise” and “facilitate” and produce reports on diversity. How that benefits Cal State students or California taxpayers is unclear.
It is often said that American colleges and universities are the best in the world. That’s undoubtedly true in the hard sciences.
But in the humanities and to a lesser extent in the social sciences, there’s a lot of garbage. Is a degree in religious and women’s studies worth $100,000 in student-loan debt? Probably not.
As economist Richard Vedder points out, 45 percent of those who enter four-year colleges don’t get a degree within six years. Given the low achievement level of most high-school graduates, it’s hard to avoid the conclusion that many of them shouldn’t have bothered in the first place.
Now consumers seem to be reading the cues in the marketplace.
An increasing number of students are spending their first two years after high school in low-cost community colleges and then transferring to four-year schools.
A recent Wall Street Journal story reported that out-of-staters are flocking to low-tuition North Dakota State in frigid Fargo.
Politicians, including Barack Obama, still give lip service to the notion that everyone should go to college and can profit from it. And many college and university administrators may assume that the gravy train will go on forever.
But that’s what Las Vegas real-estate developers and homebuilders thought in 2006. My sense is that once again, well-intentioned public policy and greedy providers have produced a bubble that is about to burst.
— Michael Barone, senior political analyst for the Washington Examiner, is a resident fellow at the American Enterprise Institute
Motivated students can pick up the material at a prodigious rate. Costs are extremely low. Let Feynman teach physics to all until someone better comes along.
Information is ubiquitous. Just set up agencies to test and certify. Gone are the days when one had to put in time sitting in front of a lecturer in order to assimilate knowledge.
I hope the bubble bursts. Colleges are a breeding ground for liberals. A bursting bubble would mean less money for these liberal incubators.
However, our two local colleges have record enrollment and are yet again raising tuition 3.5%, so I don’t see any signs of a burst.
Big lesson here that government “aid” inflates prices and everyone ends up paying double for it in the end. This is true in all sectors of the economy, food, housing, education, medical.
BigEducation is among the most absurdly distended of bubbles.
I anticipate with glee the day abjectly inefficient and non-productive academia has to go off the mother teat of a bankrupt federal government, and come to terms with the disciplining rigor of competition and the free market.
The biggest ripoff/surprise looks to be coming for doctors, whose tuition load is much higher than the average student’s. The trend in Obamacare will be to pay them much less in the future... but the educational debts they incurred will still be there.
“For years, government has assumed it’s a good thing to go to college.”
Michael Medved (who if anything knows facts and data) said that there are 3 things that if done would put you into the 89 percentile of having a happy and successful life. That is excellent odds, and I wholeheartedly agree with him on this one. Notice college is not one of the three. Adding college does little with this percentage. And none of these you have to get a massive loan for that will take you years to pay off.
• Finish High School
• Don’t have children before you are married
• Don’t get married before the age of 24
Only 1 of the 5 kids in my Parents family went to college. The one that did go to college can’t hold a job, is living in filth in a moldy old leaky trailer and won’t listen to worthy advice from the other four on how to get out of her poverty.
The 4 that didn’t go to college, - one is retired from Boeing, two are making over $80,000 a year and are very happy with their careers and lives, and one married a Health Insurance professional living in a million dollar dream home and doing very well, and she has a side business herself so she does not get bored.
So Yes, you can do nicely without a costly college degree, and you can drop like a rock with one. Your work ethics and determination say more about where you will take your lives than any paper you can frame and hang on the wall.
RE: yet again raising tuition 3.5%, so I don’t see any signs of a burst.
I remember a real estate agent telling me something similar in 2006 when I visited Tampa.
The price of books goes up every semester. The late Stephen J. Gould wrote how publishing houses will make a few cosmetic (legalistic) changes to a textbook then reintroduce as a new edition often with the same flaws and inaccuracies that have been strung along for decades. Meanwhile the sales reps wine and dine admins and faculty to get their acquiescence to require a more expensive ‘new edition’ every 3 years.
there’s a widespread contempt for the expenses vs the snobbery of socialist indoctrination.
they’ve destroyed the once so-called “humanities” and social “sciences”.
Mostly objective content courses can be easily run online in an extremely cost efficient fashion after they are composed and “published”.
BTW—I am a computer science professor at a state university. My take with regard to the current population of college students is that:
— 33% deserve to be there.
— 33% are capable of doing the work, but lack motivation and/or discipline
— 33% are just wasting everyone’s time and $$
Agree that the whole system is distorted, but (frankly) I’ve seen worse.
Colleges won’t go away...where would all the HS graduates go or what would they do? Besides, there’s always sports revenues.
Just curious...what is your annual compensation as a professor? Are you part of the problem with rising college tuition costs?
Gov. Corbett tried to cut their subsidies by 50% here in PA, and they responded with a truly shameful panhandling campaign.
Alas it was largely successful. Most of the cuts were reversed. Does not help that the University of Pittsburgh is now the largest employer in Western PA.
For 70yrs?
The one that did go to college can’t hold a job, is living in filth in a moldy old leaky trailer and won’t listen to worthy advice from the other four on how to get out of her poverty.”
Anthropology major, eh?
Not going to tell you my annual compensation or the school where I teach. However, my compensation is a lot less then before I retired from the Air Force (as a Lt Col). It is my retirement pay that allows me to do the professor gig. I also co-own a software company on the side that supplements my income.
At our school, faculty are required to teach 12 credits (~ 4 classes) per semester. The norm is 3 classes at most public and 2 at most private universities. You can buy out of a class if you bring in a substantial research grant, but most pocket the $$ and teach the normal class load.
Confess that I choose Academia for the lifestyle, not the $$. From a quality of life standpoint, you can’t beat it. I could probably earn about $50-$60K more in the private sector per year. But...after 22 years in the AF, I wanted to be my own person for a while.
they’ve destroyed the once so-called “humanities””
This is for me one of the saddest stories of all.
In order for civilization to survive longterm, some people need to be doing legitimate, painstaking scholarship in the humanities. But that is not what is going on anymore.
I have told several young people to be business majors (especially accounting and finance...stuff that doesn’t come so easy without a teacher), and that I will personally help them self-educate in the humanities.
Sadly, we have gotten to the point where the humanities fields are simply too important to allow the Universities to screw them up anymore. It’s up to the monks now to preserve civilization as the threat of barbarism looms just over the horizon.....
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