Belmont Club

Bubbles bursting

The common denominator uniting protests in Libya, Bahrain, China, Iran and even Wisconsin is the mundane matter of money. Social policy — things we wanted and thought we could afford — whether food subsidies, biofuel manias or higher education bubbles, have created shortages and gluts that cannot now be resolved without changing the underlying policies themselves. In an article entitled, How the Higher-education Bubble Is Fueling Revolts in Tunisia and Egypt, the New American Explains how supply and demand affect the price of everything, even wages for new college graduates.

Would you like your college education to be free? Sure, who wouldn’t? Better question: Would you like the results of free education? Well, the people of Tunisia and Egypt are learning that whenever the government supplies something, it is never really “free.”

In Tunisia, “free” university education is guaranteed to anyone who passes the government’s exams at the end of high school. Largely as a result of this, the number of Tunisians who graduated college more than tripled in the last 10 years. This may sound like a good thing, but it has produced a glut of graduates.

Fifty-seven percent of young Tunisians entering the labor market are college educated. This is while only 30 percent of Americans earn a college degree by the time they are 27. Recent Tunisian college grads have an unemployment rate approximately three times higher than the national average of 15 percent. This is up nine-fold from 1994.

But the higher education bubble is not just about the glut of graduates, it is also about the price of the education product. As Forbes put it, “Just 10 years ago the cost of a four-year public college education amounted to 18% of the annual income of middle-income families. Ten years later, it amounted to 25% of that family’s average annual income. … Over the past 14 years the average debt for a graduating college student has doubled.”  More broadly, education — even primary and secondary education — is requiring more and more taxpayer dollars or parent fees, to sustain. As CNN puts it, the education funding crisis is expected to grow beyond Wisconsin.

This week’s growing controversy about funding public education in Wisconsin is hardly an isolated incident, as 40 states are coping with budget shortfalls totaling $140 billion, which will threaten America’s 14,000 school districts for the next five years, one analyst said Thursday.

Concerns about funding kindergarten through 12th-grade systems were evident this week in Denver when big education’s stakeholders — the nation’s two largest teachers unions, a superintendents group, a school boards group and federal education officials — met to discuss labor-management cooperation, one participant said.

When the cost of paying unionized teachers increases from the kindergarten level on up while graduates at the end of the educational conveyor belt find themselves unable to parlay their credentials into jobs, one has the classic symptoms of a bubble that has to burst. Glenn Reynolds noted that the same signs which preceded the end of the real-estate bubble are happening to higher education.

It’s a story of an industry that may sound familiar.

The buyers think what they’re buying will appreciate in value, making them rich in the future. The product grows more and more elaborate, and more and more expensive, but the expense is offset by cheap credit provided by sellers eager to encourage buyers to buy….

A New York Times profile last week described Courtney Munna, a 26-year-old graduate of New York University with nearly $100,000 in student loan debt — debt that her degree in Religious and Women’s Studies did not equip her to repay. Payments on the debt are about $700 per month, equivalent to a respectable house payment, and a major bite on her monthly income of $2,300 as a photographer’s assistant earning an hourly wage.

And, unlike a bad mortgage on an underwater house, Munna can’t simply walk away from her student loans, which cannot be expunged in a bankruptcy. She’s stuck in a financial trap.

Business Insider says, “If you had to sum up the education bubble in one misconception, it might be: ‘The average 22-year-old is a good credit risk for $150,000 in debt, collateralized by something completely intangible.'”

At its most basic nonpolitical level, the showdown in Wisconsin is about the price of teachers; about a bubble. It is about whether Wisconsin can continue to afford a union/monopoly supplied product whatever the disparity with the true market value of their ‘value added’ represents.  And in other parts of the world it is about the price of food, energy, or the price of maintaining juntas, politburos, kings, emirs or presidents for life.

Bubbles are at the heart of many of the riots now being reported daily and globally throughout the world. Their frequency and persistence are a sign that they are cascading on to each other, like a collapsing house of cards. The growing crisis over the federal deficit, like unrest over food prices, fuel supplies and job allocations in the Middle East — even the troubles in China  — are about prices which have been distorted by government policy and now seek an equilibrium it can’t attain.

What is in the way are the institutions and attitudes we’ve accumulated over the second half of the Twentieth Century.  What is in the way are all the things we wanted and now find we can’t afford unless we change our institutions or modify our wants.  We have accumulated, along with our entitlements, a vast pasture full of sacred cows which we have declared immortal. The 21st century was peculiar in that many regarded it as the permanent extension of the 20th, that End of History. All future time was dedicated by definition to the perfection of the 20th and the grazing of the sacred cows.  The world had enumerated its rights in the hundred years just past and was going to devote the eternity following to enjoying them. But there was one problem.

Beyond the notions of “collective bargaining” rights, or “the right to food”, “right to migrate”, “right to carbon credits”, “right of return”, or the “right to welfare” or whatever rights people thought they had, was the crass question of whether the society on whose transfer payments were going to underwrite it  could afford it.  The unrest that is sweeping the world is underlain by a struggle between the core idea of market economics that you can’t get something for nothing and the fundamental promise of every statist politician that of course you can.

Now it looks as if the 20th century really can’t afford its promises without significant reform, however entrenched the sacred cows are. And whatever can’t be sustained, won’t be.

All the problems now besetting the EU, the Middle East, the US and Asia will find their basic settlement when those who can’t hang on to their rent-seeking arrangements finally let go. Their titles may vary: military men in Egypt, Ayatollahs in Iran, the dictator and his cronies in Libya, Eurocrats in Brussels, public sector unions in the United States.  What they share in common is an attachment to a way of life that has now become unaffordable. They can try to hang on, but the handwriting is on the wall. It will all come tumbling down, and soon.

Some will do as well or better after the smash. But a few will never find their footing and spend their waning days looking back at their Golden Age. It is no use pretending that a fin de siecle brings no unhappy endings. We were never at the end of history. But we are — and for some time have been — at the end of the 20th. One day we may all miss Time and Newsweek or the Ivy Leagues the way we miss vaudeville.  But there’s no way back.

“If my twelve-year-old self, of whom I had grown rather fond, thinking about him, were to reproach me: ‘Why have you grown up such a dull dog, when I gave you such a good start? Why have you spent your time in dusty libraries, catologuing other people’s books instead of writing your own? What had become of the Ram, the Bull and the Lion, the example I gave you to emulate? Where above all is the Virgin, with her shining face and curling tresses, whom I entrusted to you’- what should I say?

I should have an answer ready. ‘Well, it was you who let me down, and I will tell you how. You flew too near to the sun, and you were scorched. This cindery creature is what you made me.’

To which he might reply: ‘But you have had half a century to get over it! Half a century, half the twentieth century, that glorious epoch, that golden age that I bequeathed to you!’

‘Has the twentieth century,’ I should ask, ‘done so much better than I have? When you leave this room, which I admit is dull and cheerless, and take the last bus to your home in the past, if you haven’t missed it – ask yourself whether you found everything so radiant as you imagined it. Ask yourself whether it has fulfilled your hopes. You were vanquished, Colston, you were vanquished, and so was your century, your precious century that you hoped so much of.”
L.P. Hartley (The Go-Between)

Goodbye, 20th. But there’s still the twenty-first.

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