More On the Higher Education Bubble
CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Monday, August 09, 2010
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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21 Comments:
The biggest worry I have for higher education relates mostly to the "bricks and mortar" pricing models. Specifically, online "for profit" education enjoys pricing flexibility (as in the capacity to lower tuition due to lower costs), while traditional universities enjoy no such flexibility. Moreover, when the governor of Arizona is meeting with university representative, the reality is that the University of Arizona president comes first to plead for a larger state subsidy, while the University of Phoenix delegation follows to ask what they can do for the governor's upcoming reelection campaign as a tax-paying state institution of higher learning. In an environment of tight revenues and subsidies, clearly the "for profit" institutions enjoy the advantage...
Time to consolidate the universities and layoff scores of the dead-weight, Marxist professors. The cost structure should be collapsing in this age of the internet, Kindle, and video conferencing. Instead, the universities are where decrepit old hippies find a lifetime tax payer supported gig after they're done fighting the system.
These are private-sector institutions, charging what the market will bear.
It is a little bit rich to see private-sector enterprises getting bashed by Dr. Perry, who is safely ensconced in the publicly financed Michigan University.
But we love free enterprise--and famr subsidies, and ethanol, and public universities, and....
Quote from Dr William J McKibbin: "In an environment of tight revenues and subsidies, clearly the "for profit" institutions enjoy the advantage..."
Oh what a world, where efficiency, productivity and customer service are an advantage.
Isn't the CPI artificially low compared to the true cost of inflation? Aren't food and energy prices not included? If the school tuitions bear these costs to some degree, the increase in tuition may be closer to real inflation, compared to the CPI number that is geometrically and hedonically manipulated by the goverment.
"The CPI is under-measuring inflation" is some sort of right-wing hysteria making the rounds. The evil Clinton is behind it.
Guess what? The way inflation is measured gets out of date unless modernized. Horse shoes might be very expensive compared to 100 years ago.
Manufactured goods in fact improve every year, as does health care--thanks to our free enterprise system. You gotta measure that.
There is a completely nutty strain of right-wing dementia out there, to the effect the gummint is secretly and maliciously undermeauring inflation, so that it can jack up the money supply and cause a huge inflation.
(Although Reagan ran huge deficits and knifed Stockman and Volcker, to get both fiscal and monetary stimulus going, but don't talk about that).
In the real world, not the faith-based version, inflation is at 1 percent or less, and deflation is likely. The gummint is miserably failing at creating inflation, and seems actualyl to be pursuing the opposite course.
The guy running shadowstats is an uninformed crank.
My guess is that as soon as the R-Party recaptures the White Hosue, the talk about deficits will vaporize, and pressure will build on the Fed to ease.
Reagn, Bush, Bush jr--all wanted to run big deficits and pushed the Fed for easy money (Reagan edging out Volcker to bring in Greenspan). You think that is going to change in the future?
Agree with Paul. With the internet, ANYONE can self-educate with enough motivation for virtually FREE.
If they still want a real paper diploma, they can get one at a cheapo university by paying a fee.
If a young person is NOT motivated, well, he should go to a state junior college for a year or 2 to establish some ideas (and socialize!).
From the link Paul provided:
Controversial College Professor Ayers To Retire
"Chou said Ayers' retirement had nothing to do with the controversy surrounding him..."
If anyone believes that, I have a bridge to sell them. I have a feeling the University of Illinois has become a little uncomfortable with the lightening rod Ayers has become lately.
"and hundreds of students cherish they were taught by him."
Now that part, if true, is just downright scary.
Some thoughts:
- Many public colleges and universities are passing on a greater % of the costs to the users.
- There has been inflation in services and not goods the last decade -- See Scott Grannis' post.
- The flattening of organizations that has taken place in the private sector the last twenty years has not taken place in public insititutions. No, this does not mean the professors that directly deliver the product but instead the layers of administration and their staffs.
To summarize: Although costs have gone up dramatically the higher education leaders have not lead a response to cut down their minions.
benji-
private sector institutions that are heavily affected by a number of government policies including tying grants and tax treatment to scholarship levels (ask harvard and princeton about this) and the ready availability of federally guaranteed student loans (ginnie mae etc).
the best time to buy into a real estate market is just before mortgages become available. once they do, values triple and quadruple in 5-7 years. look at lebanon (beirut in particular) for an excellent example.
educational fees will behave the same way: add in the ability to do it with debt, and prices skyrocket. imagine what car prices would be without auto loans.
scholarships drive prices up as well. if each student who actually pays pays for 1.5-2 students, then bingo prices rise 50-100%. this is what happened at my high school which was $15k in 1990 and is nearly $40k now.
PS-
benji, you keep making the same false claim over and over - it was not reagan who ran the deficits, it was the democratic congress in office at the time who failed to cut spending as planned. it is the legislature, not the executive, that controls the purse. note the drastic deficit reductions (though the actual surplus claim is a lie) during the clinton administration. when did that occur, why after the republicans took over the congress.
"(Although Reagan ran huge deficits and knifed Stockman and Volcker, to get both fiscal and monetary stimulus going, but don't talk about that)."
Paul Volker LEFT THE FED AFTER HIS TERM ENDED IN....1987, years after the Reagan boom started. What jackass lefty blog/columnist gave you that info, Benji? Will this be enough to dissuade you from repeating the same talking point in the future? Highly doubt it.
And David Stockman is an arrogant, backstabbing little prick who has spent the past 25 years agitating for higher taxes. His sniveling twit demeanor practically leaps off the page in his book, "The Triumph of Politics." If anyone knifed anyone, it was Stockman knifing Reagan via William Greider.
Morgan-
I used to work at the CBO.
Let me tell you how the ebudget works: The President, with the huge OMB behind him, proposes a budget--and Reagan's budgets always included huge deficits, though somewhat obscured by fanciful revenue estimates (that was why Stockman quit).
The House and Senate have the relatively small CBO, and maybe the Joint Taxation Committee staff and some other resources. Yes, they control appropriations. Have you ever read an apprropiations bills. The DoD app. bill is 800 pages. No one knows what is in it.
Clinton in fact proposed surplus federal budgets, and public debt vs. GDP declined in his years. Did an R-Party Congress help him? I doubt it. Why?
All-all--congressman want more spending in their districts, and tax cuts or subsidies for constituents. It is an institution almost sure to run deficits.
A prezzy has to propose a surplus budget just to get to zero.
The Reaganites loved red ink and easy money--this is history. Stockman quit, Volcker was pushed aside for Greenspan.
The thing of it is, the economy boomed.
A bubble isn't formed unless it bursts. The housing bubble wouldn't exist if there was sufficient liquidity.
The education "bubble" will burst when millions of net jobs are created in a very short period, or 20 million net jobs are created within a few years.
How many net jobs were created over the last 10 years? Zero. Millions of net jobs have been destroyed. Americans attend school when there aren't jobs.
"..and Reagan's budgets always included huge deficits, though somewhat obscured by fanciful revenue estimates (that was why Stockman quit)."
And the Democrat Congress budgets spent even more.
"Did an R-Party Congress help him? I doubt it. Why?
All-all--congressman want more spending in their districts, and tax cuts or subsidies for constituents. It is an institution almost sure to run deficits."
What an absolute joke, a complete revision of the historical record. Do you remember the '95 budget showdown, Benji boy? In one corner was Bill Clinton defending tax-and-spend, in the other were the "extremist" Gingrich Republicans, as the Clintonites called them, trying to cut the budget. Your boy Clinton won.
Benji,
How about a little data for our discussion on the national debt. I did go through and pull the debt to public data for every year since 1900. I then compared it to the size of the gross domestic product. In 1900, the debt/GDP was 10.37%. Today, debt/GDP is 60% (we no longer qualify for membership in the EU).
In the past 110 years, Republican have controlled the House of Representatives 38 years while Democrats have controlled it 72 years. The reason I focus on the House is that the Constitution requires all revenue bills to originate in the House. In the years that Democrats have controlled the House, Debt/GDP rose by 92%. In the years Republicans controlled the House, Debt/GDP FELL by 42%.
You may argue that that it requires the President, House and Senate to pass a budget. That is true. In the years where Democrats controlled all three (full control), Debt/GDP rose by 71%. When Republicans were in full control debt/GDP fell by 15%. When power was split, debt/GDP fell by 6%.
If we don't want to go bankrupt, we need to get the Democrats out of control of Congress.
Junkyard,
Awesome. Expect no reply from Benji, he'd rather live in his hopeychangey fantasy land. Do you have a link to that?
benji-
for someone who worked at the CBO, you seem to have very little grasp of how the underlying decision making works. did you work there in a professional capacity or as the caterer?
you think presidents create a budget in a vacuum? they do it based on the political realities of what the congress will get behind. otherwise, it deadlocks as clinton's did. hawg laid out the facts about the house well, so i won't belabor that, but the correlation tells you everything you need to know.
you have incredibly confused ideas about easy money. you argue that current conditions are tight but that reagan's policy was "easy".
that is so wrong i don't even know where to start.
you are entitled to your own opinions, but not your own facts. you are just flat out making stuff up.
Paul,
I don't have a link to the overall data because I compiled it myself. The data came from different sources. The control of House, Senate and Presidency came from Wikipedia. The debt to the public since 1940 came from Wikipedia:
http://en.wikipedia.org/wiki/File:USDebt.png
The debt/GDP data prior to 1940 came from here:
http://www.usgovernmentspending.com/federal_debt_chart.html
Note that the pre-1940 data is overall debt, but there is no distinction for party in power because prior to FDR, there were no government trust funds so overall debt equaled debt to public. I would be glad to e-mail the excel spreadsheet to you.
Paul,
Since change of power in the House is relatively rare, here is an overview of the data:
1900 Debt to GDP: 10.4%
R Control 1900 to 1910. Debt to GDP in 1910: 7.9%
D Control 1911 to 1918. Debt to GDP in 1918: 19.3%
R Control from 1919 to 1930. Debt to GDP in 1930: 17.8%
D Control from 1931 to 1946. Debt to GDP in 1946: 108.6%
R Control from 1947-1948. Debt to GDP in 1948: 84.5%
D Control from 1949-1952. Debt to GDP in 1952: 61.6%
R Control from 1953-1954. Debt to GDP in 1954: 59.5%
D Control from 1955 to 1994. Debt to GDP in 1994: 49.3%
R Control from 1995 to 2006. Debt to GDP in 2006: 37.1%
D Control from 2007 to Today. Debt to GDP today: 60%
I have the data for each year as well.
Junkyard, great work! I hadn't seen that before, thanks for doing it. Somebody should publicize this info.
Hi,
This is great info, every school with higher education must have to read this post. This must be publicize. Thanks for sharing.
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