October 21, 2011

The Next Bubble?

Interesting thoughts from James Taranto:
Here's a puzzle: Try to figure out what we're describing.

It costs a lot of money, so much that most people have to go into debt to buy it. It has considerable intrinsic value, but it is also understood to be an investment. And it is a status symbol--indeed, almost a necessary condition for achieving middle-class status.

Its acquisition by as wide a swath of the population is widely seen as a social good. Thus the government heavily subsidizes it through tax incentives and other means. That, however, creates an artificial demand that drives prices up and, in a vicious circle, spurs demands for more subsidies...

In the current economy, it has turned out to be considerably less valuable than promised. As a result, many Americans are under water, with debts that they will not be able to pay off easily.

What is it? A house, but that's the obvious answer. We're thinking of a college education. The similarities between the housing bubble and the higher-ed bubble are remarkable, aren't they?

"The amount of student loans taken out last year crossed the $100 billion mark for the first time and total loans outstanding will exceed $1 trillion for the first time this year," USA Today reports. We'd seen that $1 trillion figure before--last Saturday, at New York's Zuccotti Park, where a 23-year-old Occupy Wall Street protester named Taylor was carrying a sign that read "Where's our bailout? $1 trillion in student loans outstanding."

You can see why young people like Taylor would feel aggrieved. Growing up, they were told they needed a college education as a ticket to a productive life. Now they find themselves deeply in debt, their employment prospects limited in the Obama economy. So they're lashing out at the banks that hold their debt and at the corporations that have made a college degree into a license to hunt for a job.

Their anger is understandable but misplaced. The banks were merely doing what banks do; if they had refused to make student loans, these youngsters would have been just as upset. As for the corporations, the reason they demand college degrees, as we wrote in 2007, is that the government forbids them to screen applicants directly for basic intelligence under a doctrine of antidiscrimination law known as "disparate impact" that the U.S. Supreme Court established in the 1971 case Griggs v. Duke Power Co.


Marie said...

This is brilliant.
I have a friend whose son was attending an expensive private Catholic university, not for the religious aspect so much as because his mother believed going to a fancy U would mean more prestige and opportunity later.
He had a full ride to a local four year college, and he wanted to leave the $25 a year university and attend school for free.
She considered this an immature and irresponsible move, even though she could not pay for his college and he would leave school over $100,000 in debt under her plan.
Another friend has a son who left cooking school $60,000 in debt to bake at near minimum wage with no benefits. There's no indication that will change any time soon, if ever. But it was a really fancy school.
These kids are being set up for a life starting hugely behind, it will take years to get back to even if they ever do, because they and their parents buy into the branding. If you buy a cool car when you shouldn't, at least you can sell it when you figure out you've messed up and be maybe $10 thousand in the hole.I know women who cannot change their paths and quit or even limit their work to be with family because they are tens of thousands of dollars in unbankruptable debt. Their choices are gone. They can't sell their overpriced education on ebay and get some of the value back.

TS said...

I agree it's crazy to go that much in debt for a fancy degree. It's a big gamble on oneself and the national economy that you can dig yourself out from that kind of hole. Shades of Las Vegas.