College Blues

I think the only reason to read the NYTimes (or any other agit-prop daily) is to get a heads up about what the Cult plans to do to us next. It’s like the scene from Men in Black where Agent K reads the supermarket tabloids for the real news. In the case of the NYTimes, there’s no news, just warnings.

This is from a few weeks back and I saved it figuring there would be other warnings from other places. It could make for blog post material. The other day I saw this on ZeroHedge. My bet is the Liberal Democrats are going to be testing a bunch of these ideas for the 2016 election. The idea is to promise the young free money so they will be vote for the Cult. Inevitably, the other side will offer up their own basket of goodies to the millennials.

The NYTimes idea has been kicking around for years. I recall “new” Democrats yammering about this back in the 80’s. Their big idea back then was a thing called Teacher Corp. The students who went into teaching would get their loans forgiven. I forget the name of the other plan for non-teachers, but it was basically a lifetime tax. The graduate would pay a special tax for the rest of their working life to pay back the tuition.

These ideas all sound great if you are an economic illiterate. When you subsidize demand, prices rise. When you throttle the growth of supply, then prices rise even faster than the subsidy. That has been the policy in the US for decades. Free money from the state is given to student to use for college. Colleges wisely raised their prices to account for the free money. The state keeps upping the free money and the colleges keep raising prices.

Maybe there’s a connection?

If the government created a BMW purchase plan where everyone is eligible for a $5000 subsidy if they buy a BMW, the price of BMW’s will go up by $5,000. The reason is BMW is not stupid. They know that demand will suddenly spike so they can sell all of their cars at the former price plus the new premium. They may even cut supply to reduce costs.

That’s what has happened in America. At the end of WW2, we had eight Ivy League schools and 139 million people. Today we have eight Ivy League colleges and 339 million people. The student bodies of these schools are the same size as they were 70 years ago.

At the bottom end, we have many more state schools and many more seats in state schools, but the price is vastly greater, even accounting for inflation. The California system used to be free for California residents. That’s not longer the case. Amazingly and I’m sure it is a coincidence, most state colleges charge what students are able to borrow under Federal programs.

The trouble is the central planners are in a trap. The delinquency rates on the trillion in student debt are going up. Tuition rates are unsustainable as new students cannot borrow enough to cover the costs. Even if they could, the delinquency rates would just climb faster. Universities, for the most part, are trapped in a cost model that requires raising tuition rates at multiples of the inflation rate.

The doomsday crowd is way over the top on most things, but they may be right about student loans and the whole college racket. The little guys will be the first to go as they often have no reason to exist in the first place. The Sweet Briar closure is a typical example.

The fact is, no amount of clever policy can change reality. People with debts they cannot pay, don’t pay them. When costs rise to the point where prices are unsustainable, people stop buying the product. As the old saying goes, things that cannot last eventually end.

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Gerard Van der Leun
Gerard Van der Leun
5 years ago

“no” amount of clever…

things that “cannot” last …

Delete comment after using.

5 years ago

You can’t eat a college education, but you can eat glue.