Boldly Committed to Truth Telling in the False Face of Fakery
A Tale of Two Bubbles
Publisher's note: The John William Pope Center for Education Policy provides a treasure trove of information suggesting the better path forward in regards to North Carolina's number one issue - public education. Public education, at all levels, requires a significant amount of funding from our state government, and all one hundred North Carolina counties, so it is essential that leaders effecting education policy get it right, and know that concerned entities, like the John William Pope Center, will be minding their progress to do so. We welcome the John William Pope Center for Education Policy to our growing readership, and expect our readers to learn all they can to do their part in this wise endeavor to better educate our People.
The author of this post is George Leef.
Is college attendance an overinflated market that could crash, as the housing market did? Here is the argument.
Almost every American knows that we went through a destructive housing bubble. The bubble inflated from about 2002 until 2007, when it burst.
A large percentage of those Americans also know that government policy had something to do with that bubble, although you do encounter some who insist that it was entirely due to capitalistic greed. (Similarly, there used to be people who insisted that the poor harvests in the Soviet Union were due to bad weather and "wreckers." Many defenders of big government think they must shield it from every criticism lest the masses lose faith in it.)
The housing bubble was an artifact of government policy and so is another bubble that is still inflating - the college bubble. Let me draw the parallels between them.
Just as the federal government's super-low interest rate policy made the cost of buying a home artificially low, thereby drawing in many Americans who wouldn't otherwise have taken the plunge into mortgage debt and the costs of home ownership, so has it lured many Americans into college with grants and cheap loans. When government policies make it less expensive to buy something, more people will buy it. If those policies continue long enough, you get a bubble.
If it hadn't been for federal grants and loans, many young Americans would have pursued some path after high school other than enrolling in college. But politicians felt that increasing the number of college-educated people would be a good thing and the student aid policies they fashioned worked - in just the same way that federal housing policies "worked" to get lots of Americans to buy houses who should never have done so.
Easy money got both bubbles going, but it took more than that alone.
If you're old enough to remember the old days in housing, you'll recall that would-be borrowers had to put 20 percent of the price of the house down, and they also had to show a history of employment at compensation sufficient to pay the principle and interest. That was the market's way of allocating limited capital to those most likely to make good use of it.
In that system, home ownership was not treated as some sort of a public boon, much less an entitlement, but instead as something that people had to strive for if they wanted it. That striving reinforced the economically virtuous behaviors of working, saving, paying your bills on time, and minimizing your debt.
Now think back to the old days in higher education, going back 50 years to put us just prior to the onset of federal intervention during LBJ's Great Society. Back then, a college degree was not thought to be necessary for an individual to succeed in life, and few careers were closed off to people who didn't have one.
With the small exception of GI Bill college assistance for military veterans, the federal government had nothing to do with higher education. Politicians didn't push college, either by trying to make it more affordable or by claiming that having more college graduates would be a big national economic benefit.
In those days, the relatively few Americans who thought that going to college made sense - that is, who estimated that the benefits they'd reap in human capital would exceed the costs (which were quite low, even at the best-known schools) - mostly saved for the expenses. Students whose families couldn't afford the tuition and other costs often found help from scholarship organizations. Also, earnings from summer and part-time work defrayed a substantial amount of the cost.
Notice that, as with the old housing market, people had to look to their own efforts (and voluntary financial assistance, which could not be taken for granted) if they wanted a college education. Again, the system rewarded the virtues of striving: work, saving, foresight.
And striving was crucial in another respect. In the old days, college admission standards were more rigorous. Although there were a small number of open admission schools, students who weren't willing to settle for them knew that they needed to excel in their high school work. Merely coasting through with the minimum of effort would have bad consequences, so those who wanted a shot at college worked pretty hard.
Moreover, those students who did go to college were more motivated to put forth strong efforts there because they and their families had made considerable financial sacrifices to make it possible.
Summing up, the old college and housing systems worked very efficiently because they rewarded sensible, virtuous behavior. Then, unfortunately, the government stepped in and wrecked those systems. Both home ownership and college attendance were turned into virtual entitlements that called for no striving. Old standards that minimized the number of bad mortgages and the number of college students who were wasting their time and money were undermined by politics.
In housing, the old lending standards were swept away by federal pressure to maximize the number of people who took out mortgages, the idea being that increasing home ownership somehow meant that the nation was becoming more fair. Easy money, easy mortgages, and lots of talk about what a great investment housing was led to a huge overexpansion of that industry.
In higher education, politics similarly created a bubble. Old admission and academic standards have given way to a "college is for everyone" mentality: government subsidizes almost anyone who wants to give college a try, and almost everyone does because of the constantly broadcast idea that getting a degree is a "great investment." Even weak and disengaged high school students are told by their guidance counselors to go to college because they'll never get a good job otherwise. And political leaders declare that the nation needs ever more college grads so we can compete with other countries that are supposedly ahead of us.
The housing bubble eventually burst because people realized that prices were unsustainably high. Once they began to fall, investors headed for the exits. Many couldn't get out before the market collapsed.
In higher education, people are starting to figure out that the promised benefits of college are, at least for many of the weak students who have been dragged in, miniscule or even non-existent, while the costs are very high. The general misperception about the supreme value of college is giving way in the face of reality: many students learn little of lasting benefit and can only obtain mundane work that barely pays the freight on their student loans.
While the college bubble hasn't burst in the spectacular fashion that the housing bubble did, it is starting to deflate. We are seeing that most clearly in law school, which used to be regarded as the ideal choice for bright graduates who didn't want to work with numbers or with blood. But the enthusiasm for law degrees has waned as the cost of getting one has gone up while the job prospects for graduates has plunged. Enrollments are way down at many law schools this year.
We are also seeing enrollments decline at many colleges, especially small, private ones.
To recapitulate, in the housing market, government meddling led to a widespread mania that drove up prices and caused many to think, "I've got to buy even if I can't afford it because housing is a sure thing." Similarly, government meddling in higher education led many to think, "I've got to get a college degree no matter the cost, because a college degree is the path to prosperity."
The higher education industry probably won't contract as dramatically as the housing industry did, but its bubble is quickly losing air.
(Editor's note: This article appeared on October 23, 2013, at Forbes.com, where George Leef, the Pope Center's director of research, is a regular columnist.)
Go Back
The author of this post is George Leef.
Is college attendance an overinflated market that could crash, as the housing market did? Here is the argument.
Almost every American knows that we went through a destructive housing bubble. The bubble inflated from about 2002 until 2007, when it burst.
A large percentage of those Americans also know that government policy had something to do with that bubble, although you do encounter some who insist that it was entirely due to capitalistic greed. (Similarly, there used to be people who insisted that the poor harvests in the Soviet Union were due to bad weather and "wreckers." Many defenders of big government think they must shield it from every criticism lest the masses lose faith in it.)
The housing bubble was an artifact of government policy and so is another bubble that is still inflating - the college bubble. Let me draw the parallels between them.
Just as the federal government's super-low interest rate policy made the cost of buying a home artificially low, thereby drawing in many Americans who wouldn't otherwise have taken the plunge into mortgage debt and the costs of home ownership, so has it lured many Americans into college with grants and cheap loans. When government policies make it less expensive to buy something, more people will buy it. If those policies continue long enough, you get a bubble.
If it hadn't been for federal grants and loans, many young Americans would have pursued some path after high school other than enrolling in college. But politicians felt that increasing the number of college-educated people would be a good thing and the student aid policies they fashioned worked - in just the same way that federal housing policies "worked" to get lots of Americans to buy houses who should never have done so.
Easy money got both bubbles going, but it took more than that alone.
If you're old enough to remember the old days in housing, you'll recall that would-be borrowers had to put 20 percent of the price of the house down, and they also had to show a history of employment at compensation sufficient to pay the principle and interest. That was the market's way of allocating limited capital to those most likely to make good use of it.
In that system, home ownership was not treated as some sort of a public boon, much less an entitlement, but instead as something that people had to strive for if they wanted it. That striving reinforced the economically virtuous behaviors of working, saving, paying your bills on time, and minimizing your debt.
Now think back to the old days in higher education, going back 50 years to put us just prior to the onset of federal intervention during LBJ's Great Society. Back then, a college degree was not thought to be necessary for an individual to succeed in life, and few careers were closed off to people who didn't have one.
With the small exception of GI Bill college assistance for military veterans, the federal government had nothing to do with higher education. Politicians didn't push college, either by trying to make it more affordable or by claiming that having more college graduates would be a big national economic benefit.
In those days, the relatively few Americans who thought that going to college made sense - that is, who estimated that the benefits they'd reap in human capital would exceed the costs (which were quite low, even at the best-known schools) - mostly saved for the expenses. Students whose families couldn't afford the tuition and other costs often found help from scholarship organizations. Also, earnings from summer and part-time work defrayed a substantial amount of the cost.
Notice that, as with the old housing market, people had to look to their own efforts (and voluntary financial assistance, which could not be taken for granted) if they wanted a college education. Again, the system rewarded the virtues of striving: work, saving, foresight.
And striving was crucial in another respect. In the old days, college admission standards were more rigorous. Although there were a small number of open admission schools, students who weren't willing to settle for them knew that they needed to excel in their high school work. Merely coasting through with the minimum of effort would have bad consequences, so those who wanted a shot at college worked pretty hard.
Moreover, those students who did go to college were more motivated to put forth strong efforts there because they and their families had made considerable financial sacrifices to make it possible.
Summing up, the old college and housing systems worked very efficiently because they rewarded sensible, virtuous behavior. Then, unfortunately, the government stepped in and wrecked those systems. Both home ownership and college attendance were turned into virtual entitlements that called for no striving. Old standards that minimized the number of bad mortgages and the number of college students who were wasting their time and money were undermined by politics.
In housing, the old lending standards were swept away by federal pressure to maximize the number of people who took out mortgages, the idea being that increasing home ownership somehow meant that the nation was becoming more fair. Easy money, easy mortgages, and lots of talk about what a great investment housing was led to a huge overexpansion of that industry.
In higher education, politics similarly created a bubble. Old admission and academic standards have given way to a "college is for everyone" mentality: government subsidizes almost anyone who wants to give college a try, and almost everyone does because of the constantly broadcast idea that getting a degree is a "great investment." Even weak and disengaged high school students are told by their guidance counselors to go to college because they'll never get a good job otherwise. And political leaders declare that the nation needs ever more college grads so we can compete with other countries that are supposedly ahead of us.
The housing bubble eventually burst because people realized that prices were unsustainably high. Once they began to fall, investors headed for the exits. Many couldn't get out before the market collapsed.
In higher education, people are starting to figure out that the promised benefits of college are, at least for many of the weak students who have been dragged in, miniscule or even non-existent, while the costs are very high. The general misperception about the supreme value of college is giving way in the face of reality: many students learn little of lasting benefit and can only obtain mundane work that barely pays the freight on their student loans.
While the college bubble hasn't burst in the spectacular fashion that the housing bubble did, it is starting to deflate. We are seeing that most clearly in law school, which used to be regarded as the ideal choice for bright graduates who didn't want to work with numbers or with blood. But the enthusiasm for law degrees has waned as the cost of getting one has gone up while the job prospects for graduates has plunged. Enrollments are way down at many law schools this year.
We are also seeing enrollments decline at many colleges, especially small, private ones.
To recapitulate, in the housing market, government meddling led to a widespread mania that drove up prices and caused many to think, "I've got to buy even if I can't afford it because housing is a sure thing." Similarly, government meddling in higher education led many to think, "I've got to get a college degree no matter the cost, because a college degree is the path to prosperity."
The higher education industry probably won't contract as dramatically as the housing industry did, but its bubble is quickly losing air.
(Editor's note: This article appeared on October 23, 2013, at Forbes.com, where George Leef, the Pope Center's director of research, is a regular columnist.)
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