University Bubble 99 - Remedial Global Financial Stupidity at the U


Posted On: Friday - February 17th 2017 8:01AM MST
In Topics: 
  University  Global Financial Stupidity

First off readers, this post is a prerequisite for the understanding of University Bubble 101. If you mistakenly read that post before this one, you must:

a) Report to the adviser for Global Financial Stupidity Studies, get a signature, and bring that paperwork over to the registration building to sign back up and pay your fees again (not to worry, it will all get lumped onto your school loans - no hassle for you).

b) You may "test" out of this remedial level course by showing proof to the Dean of the College of Global Financial Stupidity that you have perused and commented on ZeroHedge for the last 3 semesters. You WILL NOT RECEIVE CREDIT for the course, if you have not used the phrase "Gold, bitchez" at least on one occasion. There are NO EXCEPTIONS."

OK, housekeeping aside now, let's start by saying that the University Bubble 101 post was premature. I understand that the reader may wonder how this writer made a simple financial dealing at the local restaurant into a BIG FINANCIAL BUBBLE. Let's give some background in this post then.

The higher education business is different from most big business for a number of reasons. The first is that it is not clear who is the real customer - sure students pay tuition and expect a service out of that, but the state government chips in a significant share for many colleges. The idea is was that the entire state will benefit if the population is educated; they'll be more doctors, engineers, scientists, etc that, in the old days, would most likely stay in state and improve the economy and the quality of life in the state. Even in the case of humanities majors, the point was that a portion of well-educated people would benefit the state. This was the reason in-state tuition used to be set at very low rates vs. tuition for outsiders, not to mention foreigners. This entire concept doesn't seem to mean much anymore, as people in general are very mobile, and a significant portion of the students in a given college may be from out-of-state and out-of-country (these days), but also the chance of the graduates remaining in the state are also much smaller than in the past.

In the case of private colleges, there are donors who really want the type of learning that goes on there to continue. It was somewhat more of a free market, as, before recently when the loan-bubble ramped up, tuition would be what the market for this sort of thing would bear on the part of the students.

Another reason higher-ed is not like a normal business is that the bigger universities bring in research money. The original idea is that this is also good for the state and society in terms of the eventual benefits therefrom, and graduate students would get more learning in the process. I think that this noble concept has also been corrupted, as nowadays, the research associated completely with bringing in the money. It's not about education so much, and the learning suffers greatly. Well, it does sound like a normal business, you may say, but the differences are the labor is not free-market labor, but grad-students mostly imported for the work only (who cannot teach well due to poor English), and these university research groups are very much in cahoots with governments of all sorts (yeah, regular business is about this way now too, granted).

Lastly, to define what the service really is that these "customers" - the students and the taxpayers of the state (or donors), are receiving, it could just be the piece of paper. For many employers, this is not necessarily a certificate of "knowledge gained", but also an indicator that this guy can at least work toward a long-term goal - the work it took to graduate The knowledge part is one thing, but for humanities majors, for instance, even in the past, it did not really place the graduate in a certain job. However, for all majors, but especially for the non-STEM (Science, Engineering, Math, Computers - hey, that doesn't spell STEM - we may need to get schooled here) fields, the 2nd part is key. In the past, with very good higher-ed in this country, employers could figure the non-STEM graduates were already screened. As many on the alt-right have rightfully said, this was even more important after the use of IQ tests were outlawed for reasons of being too fair, I guess, and making people notice who the dumb people were.

Here's the problem - the way the job market for decent jobs is now, and with the drastic lowering of standards for college graduates now (partly due to enrolling anyone who can pay - guess what - they all can*!), the piece of paper obtained by the one of the customers, the student, may not be worth so much. The only measure of this is whether the individual obtains a job that would be better in pay and/or quality than one he would have gotten 4-6 years earlier as a non-customer of higher-ed. The institutions may or may not measure this, but payment for service is not contingent on this metric (hey, I could be a lawyer.) The other customer, the taxpayer of that state, really never had a say in this either. This means there is what we economists (or those of us who play one on TV) call a "moral hazard" here. Without the feedback loop from the loss of business, $$$, and goodwill from the graduates who have not gotten their money's worth, the incentive to change policies (admittance, standards, teachers who can speak freakin' English, etc) is non-existent. This is the problem

We did not get into the money part of this today, as this lecture was taken from the notes of a colleague who scribbles in Chinese ;-} OK, go out, play frisbee and drink beer. See you next class (Oh, yeah, you, young lady - the blonde one - I may have a quick extra-curricular assignment for you - see me in the office.).


* This is due to the government-backed student loan madness, producing the bubble of which this post intended to cover - coming next class.

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