One of the crucial lessons of economics is that setting prices either too high or too low will have distorting effects on behavior and cause waste of resources. When government sets interest rates too low (through the Fed’s machinations) one result is that we get an artificial boom in stuff that calls for financing, such as college buildings.
In this new SeeThru piece, Rich Vedder connects the dots between the Fed’s long-lasting policy of keeping interest rates down to almost zero, and the way many college officials have gone on a building binge. In time, the binge at many schools will be revealed to be what the Austrians call malinvestment and will contribute to the financial troubles they will face.
Another splendid example of the malign effects of government economic meddling.