Belmont Club

The Crisis of the Blue Model

The greatest ship disaster in American history is probably one of the least known. The river steamboat Sultana, laden with over 2,400 passangers, blew her boilers and sank with the loss of 1,800 lives on April 27, 1865.   That was more than the number who perished on the Titanic but the story of the Sultana was overpowered by more dramatic contemporaneous events, notably the assassination of Abraham Lincoln and the manhunt for John Wilkes Booth.  Everyone remembers the Lincoln assassination.  Nobody remembers the steamboat.

In similar fashion, the story of the Corinthian College closures in California have been eclipsed by continuing race riots in Baltimore. The narrative in Baltimore has all the drama and visuals,  but the saga of Corinthian College is in its own way as important as events in Maryland,  being about the wholesale destruction of the futures of tens of thousands of young people — or whether they ever had any at all.

The Corinthian network of schools, based in California has shut down Heald College, Everest College and WyoTech College leaving 16,000 students across six states “with questions about how they would finish their educations and how they would pay off the loans that they had taken out to ‘get ahead.'”  But perhaps “education” isn’t exactly the right word for what they were offering. The system is being closed in response to accusations of being a diploma mill that encouraged students to take out government student loans amounting to over a billion dollars. This enormous debt enabled the hopeful to pay Corinthian fees in exchange for instruction of questionable quality that left many unemployable but loaded with student loans.  The LA Times relates the case of one aspiring dental assistant.

Julio Colis, 19, said he was worried about the $10,000 in loans he took out to finance his education. He was studying to be a dental assistant, and said his plan B was to go to East Los Angeles College.

“I’m worried about the debt we have, like what we would have to pay on it,” he said. “I had talked to one of the counselors before about getting a bad feeling about this place and she said, ‘Don’t worry.'”

“Don’t worry.”  These are famous last words that often signify you’re about to have the rug pulled out from under you.

The school knew it was closing but never told students or helped them get into other schools. It goes to show how greedy they were. They should offer some kind of refund for their deceit.

High levels of student debt have been a central issue for Corinthian, which has been under investigation by more than a dozen state attorneys general and federal investigators over allegations of aggressive and fraudulent marketing, and unfair financial aid practices.

Median federal loan debt for Corinthian’s Everest College programs in Southern California ranged from $9,000 for a dental assistant program to $28,000 for a criminal justice degree, according to school disclosures. The average price at one of Corinthian’s Everest campuses in Southern California is $20,000 to $25,000 per year, according to federal data.

It’s partly a California saga, the story of a well connected cabal ripping off the taxpayer. The New Republic described how Corinthian, with a bevy of Democratic party heavy hitters on its board, was investigated by California AG Kamala Harris for going too far after having been given a second chance at the last minute by Jerry Brown, until it finally shut itself down.

On June 6, 2007, the California attorney general’s office was on the verge of suing Corinthian Colleges for intentionally and blatantly lying to prospective students about the company’s record of placing graduates into jobs. The AG’s complaint against the giant, publicly traded for-profit higher education company had been written, and a request prepared for a preliminary injunction to bar Corinthian from continuing to make false claims about its job placement rates. The press office was busy contacting reporters to let them know that there would be a news conference the next day announcing the suit.

The press conference was never held. At the eleventh hour, Attorney General Jerry Brown surprised the lawyers in his office by telling them he was stopping the lawsuit. A month and a half later, Brown (who is now California’s governor) announced that his office had reached a $6.5 million settlement with Corinthian, which has annual revenues of about $1.6 billion. The agreement required the school chain to provide $5.8 million in restitution to students who had been misled. It also forced the company to shut down nine of its campuses’ worst-performing programs. And it permanently enjoined Corinthian from continuing to deceive students about its job placement rates.

Yet in another way the Corinthian story is universal, of a piece with the Baltimore riots and the now fading Atlanta Public School cheating scandal.  The question these events jointly pose is whether the Blue Model has any life left in it. For years lower-income people, especially African Americans, have been sustained by the dream of a middle-class prosperity that lay at the end of government funded-conveyor belts.  Corinthian was the epitome of a people-mover into the good life, a process that Hillary Clinton calls middle-class economics.  The deal was is that if one voted for those who promised to “spread the wealth”  they in return would open doors closed for centuries by racism, patriarchy or gender specificity so that the masses could enter the broad uplands of the Dream.

Now there’s a growing sense that — like the diploma mills — the whole middle-class economics promise has become a scam.  The pathways to the coveted future which once consisted of an educational system that credentialed people into white collar or high paying blue collar jobs through welfare, unions, subsidized industry and public sector employment, are now a dead end.  They don’t work any more.  Global competition and technology have severely limited what the Blue Model can economically offer.

Liberals may now be transitioning under the impetus of automation from the old Blue Model into its successor: oligarchy.  According to the Brookings Institution robotics is having the same transformative contribution to labor productivity as the steam engine. “Research indicates that the steam engine, a classic example of a GPT [general purpose technology], increased labor productivity by 0.35 percent annually between 1850 and 1910—or by about the same amount as robotics have of late (though the steam engine did so for a much longer time period).”  The only reason we have noticed it more is because the IT revolution has been taking place in parallel, stealing the show with a “0.60 percent of labor productivity growth and 1.0 percent of overall growth between 1995 and 2005—or about two to three times the amount contributed by robotics”.

Why would this produce an oligarchy?

As the Financial Review noted, the steam engine and the industrial revolution had two contradictory effects.  On the one hand it destroyed the previous way of pastoral and artisanal life and yet by drastically increasing productivity simultaneously made the real cost of goods everywhere cheaper.  It created discontent while providing the possibility of ameliorating it.  The modern Democratic party resolved the dilemma of industrial productivity by controlling access to labor and taxing it, and from these proceeds distributing welfare to the unemployed.  It could do this because technology provided a new surplus to distribute.

Four centuries ago, William Lee, the clergyman son of an English yeoman farmer, built a knitting machine and nervously demonstrated his invention to Queen Elizabeth I, hoping to secure a patent.

When he handed Her Majesty a newly woven woollen stocking from the machine she recoiled in horror: “Consider thou what the invention would do to my poor subjects. It would assuredly bring them to ruin by depriving them of employment, thus making them beggars.”

Furthermore, she declared “the privilege of making stockings for everyone is too important to grant to any individual”.

Economic historians say the Queen’s opposition in 1598 – which forced Lee to flee England for France – was symptomatic of resistance among trade guilds concerned the invention would make their artisans obsolete. It took another two centuries, until the Industrial Revolution, to replace those ­artisans with textile factories that ­mass-produced affordable stockings – in effect giving ordinary people a rise in living standards and real wage increase.

Getting into the paid, but taxed middle-class was the essence of the New Deal’s promise. But as a Pew Research study on the effect of automation suggests the new GPT revolutions is creating yet another shift which may make the middle class a lot smaller.

Impacts from automation have thus far impacted mostly blue-collar employment; the coming wave of innovation threatens to upend white-collar work as well.

Certain highly-skilled workers will succeed wildly in this new environment—but far more may be displaced into lower paying service industry jobs at best, or permanent unemployment at worst.

Our educational system is not adequately preparing us for work of the future, and our political and economic institutions are poorly equipped to handle these hard choices.

This would turn the traditional pathways of the Blue Model into dead end. Rising in its place is what what Conn Carroll called “a feudal society” of which California, in which the impacts of the GPT revolution and the Blue Model have simultaneously operated, could be the harbinger.

Even before the Great Recession, California already suffered from some of the highest levels of income inequality in the nation … Worse, a 2012 California Budget Project study found that what little job recovery has occurred in the state has been confined to the low-skill sector. The employment rate for prime-working-age Californians with a bachelor’s degree or higher has been flat since the recovery began, whereas those with just a high school diploma and those without one have both seen job gains. To the extent that the California labor market is recovering, it is a McJobs recovery.

Of course, the Googles, Facebooks and Apples of California are all still swimming in profits and growth. If you do happen to have a job already among the highest fifth of California income earners, your weekly wages are up 1 percent since 2006. But every other income group has experienced sharp earnings losses.

California is rapidly becoming a near-feudal society. On one side is an older, educated, landed, wealthy elite that lives on California’s beautiful coasts. Then there is a much larger, younger, less-educated, indebted mass living inland, many of them working farm jobs at subsistence wages.

The collapse of Corinthian Colleges, the race riots in Baltimore, the shambolic “education” offered by the Atlanta Public Schools are the sound of parts of the Blue Model hitting the floor.  It represents the collapse of some old conveyor belts. The effects of this sea-change are only beginning to be felt, but a glimpse into its social content can already be seen in the White House Correspondents dinner.  Washington is no longer the town “of the people”; it has become a court with a king surrounded by his jesters, a court obsessed with empty manner and gesture where offense is taken at “micro-aggression”.

In the process of feudalization, the Democratic Party may gradually become everything an autocracy has historically been: obscurantist yet vaunting, arbitrary yet capricious, envied yet ignorant and licentious yet tyrannical. Parenthetically this also implies that the Republican party, if it is to have any political future, must abandon its current obsolete position as “New Dealers lite” in favor of something much more creative. The ground over which they wish to compromise no longer exists. But that is for another post.

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Storming the Castle at Amazon Kindle for $3.99, why government should get small
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