Wednesday, September 8, 2010

The Education Bubble: A Different Perspective

I think this article actually appeared in print in the New York Post (from what I was told).  For those who are unfamiliar with New York Newspaper Culture, the Post is the working man's paper.  It's filled with pictures. It's opens like a book.  The articles are short and sweet and refreshingly popular in nature.  So, when this op-ed was published in the Post, I was ecstatic.  In my humble opinion, the story of the education bubble is reaching the masses.  Of course, since the Post is geared towards the masses, the story speaks to them--not us.  Us meaning those with a higher education--which is only a small percentage of the population as a whole.

Anyway, it's worth looking at:

Government-subsidized loans have injected money into higher education, as they did into housing, causing prices to balloon. But at some point people figure out they're not getting their money's worth, and the bubble bursts.
Any day now.  I'm waiting and hoping for this day to come.  And he's not even talking about law school. He's talking about college.

My American Enterprise Institute colleague Charles Murray has called for the abolition of college for almost all students. Save it for genuine scholars, he says, and let others qualify for jobs by standardized national tests, as accountants already do.
"Is our students learning?" George W. Bush once asked, and the evidence for colleges points to no. The National Center for Education Statistics found that most college graduates are below proficiency in verbal and quantitative literacy. University of California scholars Philip Babcock and Mindy Marks report that students these days study an average of 14 hours a week, down from 24 hours in 1961.
Wow.  So all the things that we say about law school are doubly true of college. I went to a great undergrad and I had a 4.0 and pumped it for it was worth.  It never occurred to me that college failed in in goals of educating students in the most basic ways.  Literacy?

I live in the hood, as many of you know.  How does one know she lives in the hood?  Well, if there are more people sitting on stoops then there are stepping off the bus in the evening, you probably live in the hood.  But my neighbors are not completely nonproductive.  Many are enrolled in a local college or community college.  They are continuously taking classes--aimlessly.  I have written many stories about my run-ins with local "students."  There's the retarded guy who works at the local Duane Reade.  You can tell that he doesn't have the intellectual capacity to be in college, but he's been going and will continue to attend college until he can get a Ph.D. in History so he can be a Middle School teacher (his goal, no joke).  Or the guy who I overheard on the train that said that he's been going to school for Criminal Justice for 7 years and he was too good to take a job in Customs through connections, where he will top out at $80K--even though he couldn't form a full sentence.  I don't mean to look down my nose at people, but I'm not sure either of these guys can even read.  So, I guess I shouldn't be surprised.  I guess the problem is more widespread than I thought:

The American Council of Alumni and Trustees concluded, after a survey of 714 colleges and universities, "by and large, higher education has abandoned a coherent content-rich general education curriculum."
They aren't taught the basics of literature, history or science. ACTA reports that most schools don't require a foreign language, hardly any require economics, American history and government "are badly neglected" and schools "have much to do" on math and science.
So, the failure of college should be measured by the content of the curriculum and not the probability of scoring a job upon graduation.  That's the same analysis we've been applying to Law School, which fails on both counts.  Then these poor souls go from being an undereducated undergrad to an ill prepared lawyer.  Why are we paying so much more for so much less?  Well, isn't it clear?

Universities have seen their endowments plunge as the stock market fell and they got stuck with illiquid investments. State governments have raised tuition at public schools but budgets have declined. Competition from for-profit universities, with curricula oriented to job opportunities, has been increasing.
People are beginning to note that administrative bloat, so common in government, seems especially egregious in colleges and universities. Somehow previous generations got by and even prospered without these legions of counselors, liaison officers and facilitators. Perhaps we can do so again.
Yes, of course.  The parasitic administration that feeds off of other's misfortunes, i.e. your mortgaged future.  Yet the politicians of this country have sold education as the panacea to poverty and stagnancy.  Is it really?  Weren't we doing better just 50 years ago with so much less of an education?
A century ago only about 2 percent of American adults graduated from college; in 1910 the number of college graduates nationally was 39,755 -- smaller than the student bodies at many campuses today.
Wow. That is putting it into perspective.  I guess too much of a good thing is no longer a good thing.
As often happens, success leads to excess. America leads the world in higher education, yet there is much in our colleges and universities that is amiss and, more to the point, suddenly not sustainable. The people running America's colleges and universities have long thought they were exempt from the laws of supply and demand and unaffected by the business cycle. Turns out that's wrong.
That's a little premature, Mr. Barone.  When schools stop opening up and start closing down, I will believe that they are no longer exempt.  But I think we're a few years from that, especially with federally backed student loans and the protections that affords them.  But I hope you're right.  They need to start worrying about customer satisfaction or suffer the consequences.


  1. Have you ever wondered why the "higher educated" among us avoid news outlets that are big on pictures and short on text? I mean really. Think about it.

    If you are intelligent and a great communicator it should not take pages of fluffery to inform the fair reader. Like the father's advice in "A River Runs Through It," brevity and clarity should be the goal of any well written piece.

  2. I remember reading something from an expert in the past that claimed that school should only be up to a certain age, I think he said either 12 or 16, and then children should be working for a few years. Those that then would want to go back to school and would do well would get the opportunity, everyone else could stay in their current jobs. He of course had a lot more backing it up than what I wrote here, maybe someone else is familiar with this and can give us a name.

    I always figured something was off about school. I always knew everything I was learning was impracticable and completely useless. 90% of school is simply memorization, including in law. If you have a photographic memory it is almost impossible not to do well in school at any level. But in real life why would you need that? You could and should open reference books as needed or discuss the situation with an expert, as doctors do.

    I do not think we will see any reform. I believe the reason why the academic system we have in place now is because it was designed to be a population control. Too many people were being born and would need jobs, so more and more schooling was required for everything to extend the time for the older generations to die or move on, or for expansion to occur.

    This slowed down economic collapse for awhile. But now we don't expand anymore, and people live forever and hold onto their jobs. So either more schooling will be invented, or we will have to figure something else out. War, expansion, whatever, something needs to happen or I guess the middle class will just disappear entirely.

  3. 10:48, good point! I guess we need to read convoluted op-eds to exercise our minds. I dunno.
    10:52, damn good point. School is something you do because you can't find gainful employment because people don't leave the market. That would be a fine hiding place if it didn't cost $40K a year to hide out. We all need to put on our thinking caps and figure out a better way.

  4. I can't wait until we can finally tell our useless career counselors to "network" for a job.

  5. 10:48: Wouldn't a brief and clear piece of writing be more likely to be short on text than a long and convoluted one?

  6. We used to sell "home ownership" as an economic panacea, and look how that turned out. Is elevating a "college" education to a moralistic axiom any different? No. And just look how you accomplish both: You lower standards whilst professing the virtues of the moral, the bubble balloons, and eventually the divergence between the actual value of the asset and its professed value becomes so great that it gets crushed under its own weight. It's happened hundreds of times. College education loans are no different than mortgages, are no different than tulip bulbs.

    You need to watch Frontline's "College, Inc." on-line. The abuse is as rampant as it is profoundly stupid.

    Is there any reason to have career counselors at all? If your education is worth anything, not only are you marketable, but you're intelligent enough to sell yourself in a market that wants to buy you. If our educations were worth anything, we wouldn't need career counselors, now would we.

    Last, an certainly not least, the story of the state schools (and "administrative bloat") in all this is about a transfer of cash from the federal government to the state balance sheet via unwitting students. When state governments operate universities which exceed their budgets, you have two options: Cut the budget to sustainable levels or increase funding. The federal government provides a convenient way to do this whilst ruining people's lives by hooking them up with loans. Just like the private post-secondary schools (who defraud the government for their own profit), state schools use the same modus operandi to transfer weath from federal to state coffers.

    Conclusion: We're massively screwed.

  7. "For those who are unfamiliar with New York Newspaper Culture, the Post is the working man's paper. It's filled with pictures. It's opens like a book. The articles are short and sweet and refreshingly popular in nature."

    Good article. But I don't know if that's how I'd describe the NY Post. It's not so much the paper of the working man as it's a companion paper to the Fox News Channel (both owned by Rupert Murdoch) where virtually 90% of it's content is telling you how any non Conservative is the spawn of the devil.

    I like to think of the NY Post as more suitable for lining the cage of my bird with.

    However, once every 10 years or so they have a decent article.

  8. Education will eventually respond to the market reality, but it will take a while. I don't think you can characterize as a bubble - like all of a sudden there is a huge dropoff in people going to college. Any dropoff in the near term is likely to be related to the ability to get financing.

    As for law school, people still do see lawyer as a prestige job - so people will seek to become lawyers even if it is not economically wise. But it will be hard for many to continue to justify law school if it is seen as a money loser.

  9. Angel, great, great post. For an even better pictorial view... look at the second graph.

    It's like the housing bubble is mere statistical noise compared to the "student loan bubble."

    does anyone know if student loan debt has been repackaged and sold off as securities like mortgages were?

  10. America's present and its future...

    "What happens to a generation of young people when:

    * They are told to work hard and go to college, yet after graduating they find few permanent job opportunities?
    * Many of the jobs that are available are part-time, temporary or contract labor?
    * These insecure jobs pay one-third of what their fathers earned?
    * The low pay makes living at home the only viable option?
    * Poor economic conditions persist for 10, 15 and 20 years in a row?

    For an answer, turn to Japan."


    "he Japanese term ''freeter'' is a hybrid word that originated in the late 1980s, just as Japan's property and stock market bubbles reached their zenith. It combines the English ''free'' and the German ''arbeiter,'' or worker, and describes a lifestyle that's radically different from the buttoned-down rigidity of the permanent-employment economy: freedom to move between jobs....

    Take the bestselling book The Herbivorous Ladylike Men Who Are Changing Japan, by Megumi Ushikubo, president of Infinity, a Tokyo marketing firm. Ushikubo claims that about two-thirds of all Japanese men aged 20-34 are now partial or total "grass-eaters." "People who grew up in the bubble era [of the 1980s] really feel like they were let down. They worked so hard and it all came to nothing," says Ushikubo. "So the men who came after them have changed."

    See full article from DailyFinance:

  11. @EvrenSeven:

    Oh, yes, it has been. In fact, it's even better than that. By manipulating the cohort default rate, the private banks for "federal" loans (like Sallie Mae) can make it appear that a very low percentage of students actually default on their loans. So, using a two-year cohort default (which was the standard until recently when it was changed to a three-year default rate), the banks can claim that only 4 or 5% of their student debtors default. Using that data, the federal government then decides how much of each bank's portfolio they are going to guarantee. Then the banks take that guarantee, and use it to market securities based on the student loan payment streams. The then sell the securities to the market as "safe" investments because they are backed by the government to 97% of the underlying debt obligations, for example. It's the same as the rating agencies getting it horribly wrong with home mortgages, or not really caring about whether they got it right. It's just the federal government pricing the securities instead of Standard & Poor's. Of course, by excluding anyone in default for more than two years, the banks can get a low default rate, a high federal guarantee percentage, and a "safe" security to sell.

    Of course, there IS less risk because no one can discharge the loans in bankruptcy. But at some point, when it becomes pointless for the students to even try to pay on the debts, then trouble still comes to town.

  12. I think it is time to start talking about people, and not institutions.

    Talking about Institutions will always result in Failure.

    Institutions are not Phantoms, even though they would have you believe so. They are made up of people.

    Who are the Lobbyists who work for the banks?
    They must have to register their names somewhere at a place that the entire public can view.

    Who are the bankers? The executives, the politicians? The Wall Street Crooks?

    Who are the individuals involved?

    Don't many of them appear on an annual report?

    I'm tired of chasing shadows around. Aren't you?

    The sickest thing about all of this is that the people that have destroyed so many lives go around calling themselves "Good Guys"



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