Even #OWS Has A Point: Rent-Seeking In Higher Education

The #OWS movement has become like the Type II Diabetes of a customer at an all you can eat buffet. It won’t go away, and it has become accepted as a problem of everyday life now. A portion of this longevity can be traced to its political expediency to a media-favored and embattled incumbent president. Part of this can be ascribed to the tenacity and organization of the protestors themselves.


So that begs another question. People have been out there since Sept 17. They’ve been doing this for long enough for the sanitation to get tenuous. They could be indoors sipping coffee instead. In another month it may not be very good for their health to sleep outdoors in a large group. It becomes possible that the most dedicated ones are legitimately angry and legitimately scared. The demands may have been only partially coherent, but at least some of these #OWSers actually have a point.

A common gripe that I can empathize with some myself involves the crushing burdens that come with student loans. The protestor pictured below is a prime example.


Did this guy plan poorly and screw up? Yes. Should he have chosen his school with some concern for his own economic well-being? Certainly. Are we certain he would be the cracker-jack science teacher he would claim to be? Of course not.

But does he make an interesting and valid point about our current system of higher education? Bingo. I’m obviously not exactly crazy about his decision to be a stalking-horse for a corrupt and imminently fireable President. Yet his predicament should raise questions about how our current higher education system is working out for us.

The cost of higher education is an embarrassment. The graph below shows that it went up over 400% in twenty-three years between 1982 and 2005.

There Is No Way We Still Get Fair Value

To get the 439% increase, the tuition has to go up a hair less than 6 ¾% a year. Absolutely nothing that you put in a portfolio the day your baby is born will outperform the 284% increase in tuition that would occur by the time your child was 17 and sitting for his/her SATs. Wall Street really would have to be an Evil Empire to make that sort of magic happen.


The next component of the #OWSer conundrum involves what they get in return for their education. I’m willing to hang out on a limb here and guesstimate that university graduates in 2005 were not over 4 times as bright and inquisitive as the Class of 1982. That’s the required improvement, in graduate intellect that would be required to justify education costs, if we sent kids to college in order to be smarter.

We don’t send children to universities to learn. We send them there to get credentialed. This is their ladder out of a tedious, broke and frustrating life. And with tuition getting jacked through the roof at 6 ¾% a year, that ladder is being pulled up before our young people today ever get to climb. So what is done? We lend them the tuition.

This brings us to the part where the trap springs shut and seemingly dooms the typical #OWSER to an unearned punishment of Sisyphus. Student loans are handled differently than any other type of loan. It has lead to corruption, and made a GSL default about the worst thing that can show up on a credit report. Karl Denninger explains the final nail in the student loan coffin below.

Congress made student loan debt unable to be discharged in bankruptcy. Student loan debt now has a privileged position above all others, and it was both Republican and Democrat Congresses and Presidents that went along with it. This removed the risk of bad lending from the student loan lenders.

The basic laws of supply and demand responded to the fact that student loans became “fog a mirror” loans, just as did these loans in the housing bubble. Since there was no risk you could avoid the debt in bankruptcy there was no reason for a lender to care if your chosen path for both debt and vocation had any reasonable congruence with the ability to pay. With this influx of “students” that were preyed upon in this fashion, demand outstripped supply and price went to the moon, exactly as basic economics tell you that it will. The Universities actively engaged in these acts, as did the lenders and government. They screwed this individual and all others in this situation on purpose by taking steps they knew would radically inflate the cost of college and screwed with the law so students would get hosed when (not if) those loans went bad while they would be protected from making those intentionally-bad loans.


And with all of this money fire-hosed remorselessly into our education and research system, we should have enjoyed a new Florentine Renaissance. We should enjoy a level of scientific and technological enlightenment that Neal Stephenson wrote about in The Diamond Age. The Freakonomics Blog shows us what we won instead.

But it’s probably also important to consider how much money colleges have been putting into student amenities as well. When I visited my undergrad alma mater a few years ago, the chancellor pointed out that three buildings had gone up in the past decade or so that were each larger than any existing building on campus. There was a library, a convocation center (a multipurpose arena), and a huge student gym. The gym, he said, was a top priority because parents and prospective students increasingly think of themselves as customers,….

The $93,000 indebted protestor probably has his issues. We are all sinners who short of the glory of God. But he also has some gravamen for complaint. I can’t believe that is really just for the perceived price of admittance to the American Middle Class to go up 6 ¾% every year. If our society does this for ten more years, the next generation of protestors could hold something far more dangerous than a protest sign.


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