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The Education Bubble

Just like nobody could foresee the bursting of the housing bubble (except those who did foresee it), nobody, or at least nobody in power, currently sees the bubble being blown up in higher education.

The similarities between the education market and the pre-bust housing market are too big to ignore (unless you are a politician).  It starts with the government deciding for us what we should want since we are not smart enough to decide for ourselves.  Then through grants, guaranteed loans, or outright government loans, along with a copious amount of propaganda, they convince millions of people to make economic decisions they would not make absent the government’s encouragement.  Just like the government’s housing policies resulted in millions of homeowners being underwater in their mortgages, the education policies we are currently pursuing is putting millions of young people “underwater” in their college degrees.

One thing government economists don’t understand is that you drive up the price of something by diverting a lot of money towards it.  It is the distortions caused by the introduction of  government force into the markets that is driving all the price increases.

Government dollars are bidding up the price of a seat in a lecture hall just like they bid up the price of houses.  But eventually the market becomes oversupplied and the value of that product, whether it’s a house or a college degree, declines.  At one time college graduates could demand a premium for their labor, but now that everyone has a diploma you need a masters or doctorate to stand out.  So because of the government pushing too many young people to attend college we see only a small percentage of graduates getting work in the field they studied in college.  Most end up taking jobs that don’t pay nearly enough to pay off their college loans.  They are “underwater”.  Just like the home buyers of a few years ago, they were told that if they followed the government’s advice they would become rich.  And just like the home buyers of a few years ago they instead are finding themselves hopelessly in debt. 

Many people, such as the self-entitled brats who (with the encouragement of their professors) booed and jeered Christie and Guadagno at their respective commencement addresses, think the problem is insufficient government funding.  They don’t understand that massive government aid doesn’t make education cheaper, it makes it more expensive.  The only beneficiary of the flood of government dollars being funneled into education is the college staff (Brookdale president Burnham, for example) and the faculty.  This is where all that money ends up.  The students get a piece of paper and a big debt, but no job.

Just like medicine, housing and day care, education was a lot more affordable before the government decided to make it more affordable.  God help us if they ever try to make cell phones or computers more affordable!

Actually, the government needs to do for the education industry exactly what it does for the computer or cell phone industries.  And that would be nothing.  The schools need to become businesses again.  Businesses can only stay in business if their customers can afford their product.  If colleges want to stay in business they will have to cut costs and stop acting like a bunch of pampered welfare queens.  And without the moral hazard of a government guarantee, banks will not lend unless they think the borrower will be able to re-pay the loan.  We wouldn’t have 22 year olds with a degree in sociology or womens’ studies and a $100,000 debt.

We don’t need more aid to education, we don’t need loans that can never be repaid, and we don’t need cockamamie schemes like that proposed by Assemblyman Jay Webber (Rino, 26th).  What we need is good old American free-market capitalism.

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