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.
Advertisement
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.
But the children will have to suffer their whole lives then. If they don't go to college, there won't be as many people telling us what to do. They will have jobs like A/C repairmen, electricians, and auto mechanics(technicians) where they can start their own business and buy trucks and hire people to work for them.
While I was fortunate enough to go to college,(BS in 4 years) I see many I went to high school go on to start their own small business and become quite successful. Not all, but more than a few. If I had to do it over again, I would have to think long and hard which direction to go.
Sir:
Unlike price controls, subsidies are free money for both buyer and seller. If the subsidized transaction was fundamentally sound before it was disrupted, subsequent transactions will tend to apportion the boon equally. If the subsidized transaction was already unequal (perhaps due to previous meddling) the split will tend to mirror that inequality. The Googled results of “subsidy” will provide the reader with ample empirical evidence of this effect.
When the gods wish to punish us, they give us subsidies.
I went into medicine for a couple of reasons: 1. I wanted to help people. 2. I wanted job security, as my own father was abruptly laid off when I was 16 (he worked on the Moon Rocket program, which was abruptly terminated in 1973). Going into medicine, I never even really thought about the money. With hindsight, I can see that my 14 years of 100-hour weeks of study and "apprenticeship" (internship, residency, chief residency, and fellowship) equates to the equivalent of 35 years of 40-hour work-weeks for someone who might have, say, just gone to work on the auto-assembly line at age 18, and been able to "retire" at age 53. I never made more than $26,000 until I turned 32; and had $25,000 of student loans to pay (in 1982 dollars -- equal to probably $100,000 in 2011 dollars). I am in a pediatric field, which tends to be lower-paying than most physician work. So, you see, purely from an economic perspective, one could argue that I would have been better off just going to an assembly-line blue-collar job and working 40-hour weeks for 35 years (at least, that is, for me, in a primary-care field -- and people wonder why we don't have enough primary-care physicians?)....
As an addendum to my initial comment: I believe that leftist college administrators engage in what I call "affirmative-action pricing" of tuition, etc. The sky-high sticker-price for college tuition, room, and board is a ploy -- to allow the socialists who run our universities to control who pays how much in real life based upon their own socialist conceptions of "from each according to his/her ability." I will never forget Texas A & M students who conducted an affirmative-action bake sale, in which the students decided what price the cookies and cakes would command based upon the apparent ethnicity and gender of the prospective purchaser -- with white males always paying the most $$$ for the goods. The same thing happens when college administrators arrogate to themselves the "right" to determine how "needy" the student is based upon the parents' income and assets. I believe that a real reform would be this: force colleges to publish, online, a listing by race/gender/ethnicity/parental income -- to publish a detailed listing of how many students pay exactly how much tuition by these criteria. Fairly soon, I'd guess, it would become painfully obvious that some students -- based solely upon these criteria -- are "more equal than others" (see George Orwell's "1984").
It's a racket; the government offers subsidies, then passes laws that say you can't get out of your student loans if your higher education doesn't pan out and you have to go bankrupt.
That might be OK from the perspective of the taxpayer who has to foot the bill of these subsidies, but it's being done in a context where (1) it's not clear that a college degree will actually pay more, as is routinely said, and (2) the expectation is, as stated in the comment, that the golden goose will continue to lay its golden eggs, and (3) kids expect far more than reality will provide and start out life living in poverty when they could be breaking even or better if they refused the subsidies and took one of those jobs they and their parents look down on.
I try and point these things out for my siblings to consider. My brother is starting his third year and thinking of majoring in philosophy, and my sister about to start college with the ever popular undecided major. But after 12 years of public schooling which does little to prepare students for the working world but very much to inculcate a reverence for ever more education it's like speaking a foreign language to them.
I like education, but paying up the nose to be cloistered away for four otherwise productive years is hardly an investment everyone should be expected to have. For the idle rich or very gifted or ambitious sure. For those who need to certify they can pay attention and learn, there has to be a more efficient solution.
The entire student loan program should be abolished. Average tuition would probably drop by about two-thirds, making college far more affordable for all. Of course, that would drop the salaries of college professors and administrators appreciably, while also eliminating the administration of the loan programs, so, it will never happen.
I strongly believe in college but I am sick of the finances of it.
I was a high school dropout, got a GED, joined the Navy, got a BS while in the Navy going to night school. Navy paid about half and I paid about half with their program at the time. Now I make pretty decent money although I work every second of overtime I can get.
My son graduated high school with a 3.9 GPA. My daughter with a 4.0. Neither were offered any significant scholarships.
My son got a "leadership scholarship" which is the way a 3A school gives a sports scholarship I think. He ran decathlon. It did not amount to much and I put down about 75K on his education. Interestingly he got married between his junior and senior year and his tuition went to $0, because now he was officially poor.
My daughter did her first 2 years at a community college graduating with a 3.98 GPA. She has been accepted as an engineering transfer student at MIT. Again virtually no scholarships from the school, which I can see in a way. Everybody at MIT has great grades. The thing that kills me is that if I made <$60K per year, my understanding is she would go for free. If she got married right now, she would probably go for close to free if not free. As it stands now, I will put about $125K into this next college adventure.
I don't mind the money too much. I think it is money well spent, it is my choice and it is one of my life's goal to ensure my children have the best education possible. Both kids are getting engineering degrees. None of the liberal art nonsense. Two things frost me however.
1. Where is an academic merit scholarship? They don't seem to exist. All needs based or sports based.
2. Part of me wants to give underpriviledged kids a break. The Navy gave me a partial break, although I had to earn it and they did get the benefit of my increased training. The other part of me is really angry when I am working overtime and a good chunk of the money I am sending to the college is paying for the education of kids whose parents are not working as hard as I am. It's like the financial aid forms basically just say "Send all your savings. That will be your tuition. Oh and if you have any real estate, we will take that too."
I should not complain too much because it is my choice and I did get somewhat of a break myself, but it just seems a little out of whack.
I think I will get it back though, because at this point in time I trust my kid's future earning power and their integrity more than I trust my retirement funds and Social Security. I feel like I am throwing back to old times when a person's retirement was their kids. I save hard for retirement but my kids are the insurance policy.
You are a victim of "affirmative-action pricing," (see my previous posting on this site) apparently on the basis of the fact that you have worked hard and have assets and income. College ought to cost the same for everybody, with the exceptions being for stellar students. After all, the purpose of college is to educate bright youngsters! Let the colleges compete for the scarce commodity of kids who are super-smart! Let everyone else pay exactly the same. Furthermore, let there be complete transparency of pricing -- let these schools show how many students got how much aid based upon SAT, ACT, GPA; and, then, show, how many students got how much aid based upon their parents' income quintile; and based upon their own ethnic categorization. How long do you think the current socialist-pricing-system for college tuition would last? About a nano-second!! You say you are glad for your kids to get this expensive education -- I hope that this is merely because you value education in itself; because when your grandchildren go to college, your own children's success will serve to force your kids to relinquish a huge chunk of their income (that they worked their butts off to get) for tuition. "From each according to his ability, to each according to his (so-called) needs." NO! If college tuition is really WORTH it, let colleges PROVE it by charging everyone the same; and then even POOR kids will BEG to BORROW the money to go through college, because they KNOW it will PAY OFF BIG!! Is that so hard to explain? Let poor and rich kids pay the same! Let the Colleges explain why it's worth it to ANY of them!!
San Diego State is under fire because its trustees just approved a $400k annual salary for its new president. His predecessor made $100k less and no one can explain exactly why the new guy is worth so much more. And $400k doesn't include his perks and benefits. To rub salt in the wound, at the same time the trustees approved the salary hike they raised tuition rates. The outcry has been so bad even Governor Jerry Brown wrote a letter to the trustees asking them to please reconsider their decisions.
A sound piece and I'm glad to see a national writer like Barone adding his weight to the attack on the notion that the more people we put through college, the better off the nation will be.
The big point that's missing from his piece, though, is that we're already scraping the bottom of the barrel for students to lure into college. Many of them have extremely weak basic skills and little if any interest in serious academic study. But since colleges want them to enroll and remain enrolled, they have lowered standards to the point where kids with middle-school capabilities can get through college and graduate with the same low "human capital" level they had as freshmen. We hear from politicians like Obama that higher education is a tremendous national "investment" but for great numbers of young people, it isn't an investment at all. It's just a high-cost waste of time that puts money in the pockets of an inordinate number of college administrators and faculty.
The simple solution is to bring back the concept of an apprentice. We have done that in our office. The person gets minimal pay (realtivly speaking)instead of paying and gets real world experience.
The best book I have read on the subject is Charles Murray's book Real Education.
"Is a degree in religious and women’s studies worth $100,000 in student-loan debt?" You can add "African American Studies", and a host of degrees with "Environmental" in them. These degrees seem to only produce "Victims with a Degree" whose only goal in life is to get even and extort wealth from those who have produced and actually built something in life.
The investment in education has to be justified by the future attainable salary.
It is still possible in areas like engineering and business, where employers value those educations, but the job prospects for English and Political Science majors are very thin.
Most end up working at a job that doesn't require a college degree.
That's true, and as the labor market becomes increasingly saturated with people with college degrees, employers insist on college degrees as a requirement for applicants for work that doesn't call for the slightest bit of academic preparation. One effect of the college for everyone mania is credential inflation, which shuts out people who don't have degrees from getting a chance at jobs they could easily do.
Cicero's first law of economics:"Debt expands to meet the money allotted to it."
If you want to see education and health care cost go down, cut off the government money. Teachers teach and doctors try to heal. They earn their livings that way. If you offerd them $500,000.00 per year to do their thing, they will do their thing for $500,000.00. However, if they are only offered $50,000.00 per year to do it, guess what - they will do it for $50,000.00. Why - because that is what they know how to do. They are not gooing to become garage mechanics.
Now, maybe they will decide to go into another line of work if they know in advance that they will not be making the big bucks. However, ask any professional why he/she went into that profession, and not one of them will tell yoat they went into it for the money.
The fact that the government has thrown gigantic sums of money at their favorite programs has completely scewed the marketplace, and left us with $1 million college presidents, $450 thousand professors who teach 1 to 2 classes a week, and $4 million college football coaches.
All social maladies can be traced directly to a government program that either spawned it or subsidizes it.
It's my opinion that people ride the gravy train harder when they see it starting to collapse, especially those with better visibility (at the top). These politicians know whats coming and are positioning themselves. It's going to be terrible but remember even in the poorest countries, those in government always live best.
Americans have been sold on the idea that it is wise to go into debt to buy something that may be worth more later; this is the rationale for taking on a mortgage to buy a house. The same rational has been co-opted by "higher education".
The difference is a big one: you can start living in the house the day you sign the mortgage, so you do have an immediate economic return from the house, regardless of the long-term financial return. With "higher education" there is not necessarily an immediate economic return, and the long-term financial return is increasingly speculative.
