Education bubble question

Miscellaneous Newbies
1

Hello,

I recently complained to my friend about the rising cost of education. His response eventually led to an argument, in which I tried to explain to him that the rise in cost, far outpacing reported inflation, is essentially due to government creating artificial demand for eduction - via cheap loans, regulation which erodes the industrial base, etc, etc, etc. Unfortunately my friend was not convinced, probably because I myself do not have a crystal clear understanding of the issues. I wanted to ask if anyone can recommend an article, at least 3 pages long, which is both detailed and broad enough to gain a basic understanding of the problem. I want to study it myself and forward it to my friend.

Thank you!

2

Is the education sector in a bubble? I don’t know about online universities and whatnot, but I wouldn’t say that rising prices in public universities is a product of a bubble. Rather, it’s the product of socializing costs to a considerable degree, which usually leads to a limitless rise in demand (and therefore a limitless rise in cost).

3

No, perhaps bubble is not the right term. I think socialzing cost leading to limitless demand is what I need to understand more. Hazlitt may have something to say about this.

4

The more they subsidize it, the higher the price goes. The higher the price goes, the more they subsidize it.

5

In simplified terms:

Federal subsidies make it easy to get money to pay tuition.

Colleges and universities have limited resources, so to counterbalance the sudden influx of students, the prices go up. This is a normal market function if you take away the subsidization.

The demand drives up the price of those scarce resources.

The extra money being paid for tuition is used by those colleges and universities to gather more resources (professors, new faculty, new rooms, new desks, etc.).

The rise in prices causes the subsidies to be increased by the government, because they missed the whole “scarcity” thing the first go-around.

Rinse and repeat the above process a few times.

Some people take courses for in-demand careers.

Some people take courses for whatever they think sounds cool, because hey, free money.

They graduate.

The in-demand group fills the demand. They are in debt, but probably able to start paying it off.

The rest graduate, a few get some decent jobs, others find that their choice of study is not currently useful. They are in debt, unable to pay it back.

That group goes to work at McDonald’s.

Meanwhile, there is another group of graduates behind them, being pumped through an education system inflated with resources that allow more people to enter fields than those fields need.

Rinse and repeat.

People start looking at ten thousand dollar loans to pay for a single term and thinking about how they won’t be able to find work with their degree.

Attendance in college dwindles.

Many graduates are left in debt.

The colleges have acquired more resources than they can now afford, and they practically can’t GIVE some courses away.

The education system has to start cutting back at a major loss. Faculty loses jobs. Classrooms are empty. New equipment is just sitting there.

The boom has ended. Enter the bust.

And, to top it all off, enter the government, to say that free education failed us, and they need to regulate colleges and universities more.

All because some people don’t understand scarcity. You know, the people telling you what to do with your lives?

I can’t really offer you any reports that go over this, nor any articles, as I have never read any. I’m fairly certain the problems are covered in Man, Economy and the State, by Murray Rothbard, and Human Action by Ludwig von Mises. But I would recommend doing lots of reading and spending several hours in quiet rooms once in a while just sitting with your eyes closed and following things to their logical conclusions in your head. It helps to have read arguments, but there is no substitute for being able to say, “Wait, this idea is impossible…” after considering it from many angles. Spend a month or two at it, write your own paper, and bring it to your friend as written by an “anonymous” author.

6

Thanks for all the responses, they were very helpful! Subsidies leading to increased demand is key. Also, regulation, taxation, inflation, torts, unions drive industry abroad, killing out of high school job prospects and further exacerbating demand for higher education.