Higher Education Bubble Update; New York Daily News Calls It a "Government-Sanctioned Racket"

The College Board released new data this week on "Trends in College Pricing" for 2010, and reported that four-year public universities raised tuition this year by 8%, almost twice the 4.5% average increase for tuition at America's private universities.  That differential follows a well-established pattern over the last decade of higher tuition increases at America's public universities than at private schools (see the chart above).  Public university tuition has increased faster than private tuition in each of the last four years, and in eight out of the last nine years, by an average of 3% per year.  As the chart above shows, the trajectory of college tuition in the U.S. is on a path that makes the recent housing bubble seem like a minor historical footnote by comparison. 

In assessing the College Board data, a NY Times article "As College Fees Climb, Aid Does Too" finds some "good news," but only by reversing cause and effect:

"The good news in the 2010 “Trends in College Pricing” and “Trends in Student Aid” reports is that fast-rising tuition costs have been accompanied by a huge increase in financial aid, which helped keep down the actual amount students and families pay."

The New York Daily News does a much better job of reporting the true causal relationship in an editorial that could be titled " As College Financial Aid Climbs, Tuition Follows:"

"College financial aid comes largely from the federal government. Meaning, out of your pocket. And ours. And out of the pockets of families scraping to raise that extra 8% for tuition. A government-sanctioned racket is what it is. States cut back on assistance to schools, so the schools raise tuition. Then the feds jump in, dish out billions in taxpayer dollars in student aid, and tuition goes up again. And again (see chart above).

Meanwhile, those fortunate folks who inhabit the groves of academe feel absolutely no need to hold the line on expenses. They ought to be ashamed, most of all for sending so many graduates out into the world with diplomas and loan statements showing a near-lifetime's worth of debt."

And this ongoing "higher education bubble" is especially troubling at a time when economist Richard Vedder reported recently that millions of students with college degrees not only graduate with debt, but "are doing jobs that the BLS says require less than the skill levels associated with a bachelor’s degree."  Some of those jobs include bartenders, janitors, and food preparation workers, all the more reason to call it a "government-sanctioned racket." 

Thanks to Gregory Tetrault. 

Beaver Cleaver Economics

Calvin on Capitalism

John Stossel On Going Green Part 1

The Unemployment Game Show: Are You *Really* Unemployed?

Julian Simon via John Tierney Wins Another Bet

In the summer of 2005, when oil was trading at $60 per barrel (see chart above), there was a bet between Malthusian Matthew R. Simmons (member of the Council on Foreign Relations, head of a Houston investment bank specializing  in the energy industry, and author of “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy”), and New York Times science writer John Tierney, proponent of the Julian Simon school of economics.  

"Peak oil" advocate Simmons predicted in 2005 that the inflation-adjusted price of oil would more than triple over the next five years, and he made a $5,000 bet with Tierney that the average price of oil in 2010 would be at least $200 per barrel in 2005 dollars.  Tierney agreed to share his bet with Julian Simon's widow, who enthusiastically participated in a bet on the real price of a natural resource in the tradition of her late husband, who won the famous bet in 1990 against Malthusian Paul Ehrlich about resource scarcity based on real prices of five commodities selected by Ehrlich and his doomsayer colleagues (see details here). 

Although Mr. Simmons died in August of this year, the representatives of his estate will deliver $5,000 on January 1 to John Tierney and Rita Simon, because the price of oil this year has averaged about $80, or about $70 in inflation-adjusted 2005 dollars (see chart above), which is about 1/3 of the $200 per barrel price predicted by Simmons.   

John Tierney summarizes his economic optimism a la Julian Simon here:

"Giant new oil fields have been discovered off the coasts of Africa and Brazil. The new oil sands projects in Canada now supply more oil to the United States than Saudi Arabia does. Oil production in the United States increased last year, and the Department of Energy projects further increases over the next two decades. The really good news is the discovery of vast quantities of natural gas. It’s now selling for less than half of what it was five years ago. There’s so much available that the Energy Department is predicting low prices for gas and electricity for the next quarter-century.

Maybe something unexpected will change these happy trends, but for now I’d say that Julian Simon’s advice remains as good as ever. You can always make news with doomsday predictions, but you can usually make money betting against them."

Source: http://mjperry.blogspot.com

Incentives Matter: The Speed Camera Lottery

From Wired: "As well as ticketing you when you run through a speed-radar too fast, the “Speed Camera Lottery” in Sweden also notices you when you come in at or under the speed-limit. It then automatically enters you in a lottery. And here’s the really smart part: the prizes come from the fines paid by speeders."

Average speed before the experiment: 32 km/hour

Average speed after the experiment: 25 km/hour

Watch video above for the full story.

Tenure: Economic Anomaly That Protects Laziness

From today's Wall Street Journal article "How to Succeed in Teaching Without Lifetime Tenure: The Franklin W. Olin College of Engineering attracts 140 applicants for every faculty position. And they can even be fired" (paid subscription may be required to view full article, but see first comment below):

"Franklin W. Olin College of Engineering in Massachusetts is showing what's possible when a school sheds tenure, one of the most antiquated and counterproductive employment policies in the American economy. Instituted at a time when people in most professions remained in the same job for life, tenure today is an economic anomaly. The policy protects laziness and incompetence — and rewards often obscure research rather than good teaching."

Sowell on Lessons

"The first lesson of economics is that we live in a world of scarcity. There is never enough of anything to satisfy all those who want it.  The first lesson of politics is to ignore the first lesson of economics."

The Magic and Miracle of the Marketplace: Christmas 1964 vs. 2010 - There's No Comparison

1964 Sears Christmas Catalog

Pictured above are some color TVs from the 627 page 1964 Sears Christmas Catalog, available here at WishbookWeb along with many other Christmas catalogs from 1933 to 1988.  The original prices are listed ($750 for the Sears color TV console and $800 for the more expansive one), and those prices are also shown converted to today's dollars using the BLS Inflation Calculator: $5,300 for the basic console TV model and $5,650 for the more expensive model.   

To put that in perspective, the pictures below illustrate what $5,300 in today's dollars would buy in the 2010 marketplace:

Bottom Line:  For a consumer or household spending $750 in 1964, all they would have been able to afford was a console color TV from the Sears Christmas catalog.  A consumer or household spending that same amount of inflation-adjusted dollars today ($5,300) would be able to furnish their entire kitchen with 8 brand-new appliances (refrigerator, freezer, dishwasher, range, washer, dryer, microwave and blender) and buy 9 state-of-the-art electronic items (laptop, GPS, camera, home theater, plasma HDTV, iPod Touch, Blu-ray player, 300-CD changer and a Tivo recorder).  And of course, even a billionaire in 1964 wouldn't have been able to purchase many of the items that even a teenager can afford today, e.g. laptop, GPS, digital camera.  

As much as we might complain about high unemployment, high taxes, a huge deficit, we have a lot to be thankful for, and we've made a lot of economic progress since the 1960s as the example above illustrates, thanks to the "magic of the marketplace."  

Source: http://mjperry.blogspot.com/