Tuesday, September 07, 2010

The Unsustainable College Textbook Bubble

I've been covering the "higher education bubble," see posts here and here.  One reason for the still-inflating higher education bubble for college tuition and fees is administrative bloat, see CD post here.

A direct partner in the "higher education bubble" is the unsustainable "college textbook bubble," captured graphically in the chart above.  To put the textbook bubble in perspective, consider that the unsustainable housing bubble started in the late 1990s when home prices started appreciating much faster than the consumer price index, and the housing bubble peaked in 2007 when median home prices had increased by a factor of about 4 since 1978. By comparison, increases in the price index for educational books and supplies have outstripped rises in the general price level for the last three decades, and are now more than 8 times higher than in 1978. Simply put, the textbook bubble displayed graphically has inflated to more than twice the size of the house price bubble.

Prediction: Just like the unsustainable housing bubble eventually peaked and crashed, the textbook bubble is likewise unsustainable and is set to crash.  As Michael Barone wrote about the higher education bubble, "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."  I think the exact same thing can be said about the people running today's college textbook companies. 


At 9/07/2010 11:07 PM, Blogger sethstorm said...

The interesting thing is that more than a few of them have "developing world" editions that are a fraction of the cost. Yes, they're not hardcover, but they're at a more reasonable cost.

At 9/08/2010 7:59 AM, Blogger Junkyard_hawg1985 said...

Ultimately, the output of the university is an educated person. Has the education level of a college graduate today vastly improved vs. 1978 with more expensive textbooks and additional administrators after tripling the real cost?

From a GDP perspective, we are producing 3 times as much education.

At 9/08/2010 8:17 AM, Blogger Ironman said...

If it helps, here's a post with a graph that gives a first cut analysis of just how big the bubble in U.S. higher education has become, as well as how it has developed over time.

Picking up sethstorm's observation - it's possible that textbooks have more in common with prescription medication than most people might think!

At 9/08/2010 10:08 AM, Blogger bix1951 said...

We save a little on our kid's textbooks by selling the old ones to Amazon and then buying used ones from Amazon.
Bubble rule:
When big brother subsidizes
consumers must cry
when big brother taxes
industries may die

At 9/08/2010 10:44 AM, Blogger Buddy R Pacifico said...

Further with bix1951's comment:

One of my kids just bought Greg Mankiw's Principles of Economics (5th Ed). The list price is $172.95 but Amazon sells it new for $132.33 and in good used condition starting at $77.00. Greg has a new editon coming out in 2-11 and can be pre-ordered for $172.95.

Greg Manikw's Princples of Microeconomics and Princples of Macroeconomics are the two best selling Economics textbooks at Amazon. Greg's books are obviously recognized by his peers as the best so they are required reading. Supply and Demand!

Yes, the best books are expensive but electronic book evolution/revolution/creative destruction is coming to textbooks. "Principles of Macroecnomics" by Mankiw is available for download to the Kindle reader for a hundred bucks.

At 9/09/2010 10:13 AM, Blogger juandos said...

"Greg's books are obviously recognized by his peers as the best so they are required reading. Supply and Demand"...

Hmmm, so why should a book from a Keynesian economist be considered better and more expensive than a book from a real economist?

At 9/09/2010 10:17 AM, Blogger juandos said...

Some of you might find this bit from the Economist interesting:

Declining by degree
Will America’s universities go the way of its car companies?

At 9/09/2010 10:48 AM, Blogger morganovich said...

at the risk of setting off the measurement of inflation debate again, where does that "CPI - educational books" number come from?

is it hedonically adjusted for how much better the books are?

is it geometrically weighted away from the books the rise in price and toward the ones that don't?

i'm not arguing that textbooks are not expensive, i'm just wondering how much of the difference in their price increase and that of CPI are due to measurement differences.

is that graph comparing apples to apples?

At 9/27/2010 7:14 AM, Anonymous Anonymous said...

I find that the revolution of the kindle will change books everywhere. How it pertains to college textbooks, I can't be too sure, but I could definitely hope. The college textbook is huge and being that we're in an eco-economic famine, a switch to digital would be pivotal.


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