HBD and the education bubble

For some reason the education bubble was in the news this week. I recommend this piece.

My personal take is that education bubble is driven by diversity. People will pay a lot make sure that their children are around the "right kind" of other children. The university system has found a way to provide this service in a way that doesn’t run afoul of the PC police. This service is therefore incredibly valuable.

As such, I don’t think there’s an education bubble. If there is one, I suspect that it’s in the bottom tier schools as the recommended article makes clear.

8 Responses to HBD and the education bubble

  1. Handle says:

    There’s two types of “bubbles” being talked about here.

    The first is that “too many people” are trying to go to college. This is undoubtedly true, as per Charles Murray’s Real Education and Harvard’s “Pathways to Prosperity”, and is probably already twice the number (and growing) that actually will graduate and benefit from the experience. But, like you said, there’s also no doubt that this depends on the “tier” of the institution – almost all that get into Harvard are the “right kind of peers” and they will graduate and benefit from a college education. At City University of New York, where any regents High School diploma guarantees you admission, on the other hand, a large percentage of the Freshman class is “triple remedial” and has a 1% chance of even graduating in 6 years.

    The second “bubble” concept is that the price of education at all institutions (I’ll exclude “special” ultra-top schools) has, as with health-care, been unsustainably and unjustifiably trending upwards much higher than the rate of inflation for many years and is now “out of line with fundamentals”.

    That is, the price of even below-top-25 institutions is becoming significantly uncorrelated with the present value of the expected additional stream of income, plus other more personal or intangible benefits of attendance.

    This is party due to unbelievable (and novel) levels of cancerous administrative bloat, but also largely because of the explosion in below-market-rate government-subsidized debt in the form of no-strings-attached, non-dischargeable in bankruptcy, student loans.

    Huge amounts of low-interest new credit plus easier-than-ever terms will also blow bubbles – and the housing market is an adequate analogy.

    Also like the housing market, certain areas are more immune to “bubble popping” than others. Houses are scarce in “good school” neighborhoods which are surrounded by “bad school” neighborhoods, and so will retain their premium. Not having a college degree is a somewhat irrational, but widely-used-by-employers bar to about half the labor market these days, and so colleges can capture a healthy credential / licensing premium.

  2. dearieme says:

    I had lunch recently sitted near two academics – historians, I think – talking about their teaching. The American one complained that many of his students couldn’t write a sentence. He blamed this on tick-box exams and the absence of the teaching of grammar in the schools. He alluded to “diagramming a sentence”. The Englishman made a quizzical grunt, and the American explained. The Englishman said mildly “Ah, parsing”. But, I thought, how can anyone who is obliged to read lots of properly constructed sentences fail to notice how the trick is done? It’s all very odd.

  3. Rollory says:

    This post is one of those “not even wrong” statements.

    The students suck. They don’t want to work, don’t want to learn. They are there to punch their ticket and Get A Good Job. They don’t care about anything else. They don’t care that they’re not learning anything that might relate to A Good Job, they just follow the course laid out and get plenty drunk in the meantime.

    The professors go along with it. When I was in college a dozen-plus years ago I could write my essay papers the morning they were due with half-assed research and be sure of at least a B+. From everything I hear it’s gotten worse, too many students don’t even know how to write coherently.

    Grades are meaningless. The students are learning things in college now that used to be taught in high school, when high school required thinking abilities that a hundred years ago were possessed by 8th graders. The pace of the thing is accelerating.

    If you attend a university and focus on mathematics or the physical sciences, you will get a reasonable education. Most students don’t.

    Prices meanwhile are drastically inflating. Even the comparison between what I was paying when I was in and what it is now is dramatic. You are also completely neglecting the impact of the change of the legal status of student loans to be non-dischargeable in bankruptcy, which encourages the college admissions people to push them that much harder, and raise prices to compensate. Inject free money into a system, prices rise by exactly the amount of money injected.

    I have never seen any university that did not pride itself on its diversity. The ones that don’t have much diversity are the smaller and less expensive ones.

    You are just totally wrong here, up and down and backwards and sideways. Wrong, wrong, wrong.

    • Foseti says:

      “I have never seen any university that did not pride itself on its diversity.”

      This is the obvious response to my post – and it’s a good one.

      But I think that if you think about it a bit, you’ll see that if furthers my point. It’s the 21st Century. You can’t send your kid to an all white school. But you can pay to make sure that he’s around the right sort of minorities.

  4. isamu says:

    You are just totally wrong here, up and down and backwards and sideways. Wrong, wrong, wrong.

    Yeah, pretty much. “Parents will pay a lot for their children to avoid diversity”? Huh? Its not the parents who are in most cases paying for the tution, because its students themselves who are taking on huge debts. And this is clearly stated in both his linked articles (“two-thirds of college graduates now leave school with debt, owing on average about $24,000.”)! Lay off the crack, Foseti.

  5. It seems like you’re saying it can’t be a bubble as long as the demand for the product is genuine. If that were true, there never was a ‘housing bubble’ either. The question is whether the resources being allocated to this sector are sustainable or speculative; whether they will survive a run-in with reality.

    In housing they did not because mortgages were so directly levered to continued near-full employment to keep everyone’s mortgages current, and to the ability to quickly re-sell to the next sucker, that the slightest hint of downturn was enough for most people to reprice their assumptions about deliquency and, thus, home prices.

    In college, I do agree with you in the sense that the mechanism for bursting any hypothesized ‘bubble’ is far less clear. Regardless of whether the pricing is too high by some objective measure, students at top-tier universities (Ivy League and so on) will always make connections with other top-tier types (in environments decorated with a tasteful amount of ‘diversity’, as you point out). They will go on to join the workforce and get from alumni (or just give each other) top-tier jobs, and to those students and their parents, as well as the marginal ones who barely got in or barely didn’t, the whole round-trip will have seemed well worth it even if it cost the better part of a million bucks.

    For a bubble to burst there needs to be a large group of people for whom the effort doesn’t seem worth it, and thus withhold their demand. The most direct mechanism for this would be a large # of people who drop a fraction of a million dollars on an ‘education’ to find out four years later that their kid is no better off, or even worse. But the ones likely to fall into this camp probably aren’t spending their own money in the first place – they are getting student loans.

    So really, this effect wouldn’t be felt unless/until future high-cost-education taxpayers with s****y jobs find their taxes are intolerably high due to paying for student loans and bailing out Sallie Mae for all the student loans they and others have welched on. Needless to say, this is a very roundabout market mechanism and in such an event it’s not obvious the link would ever be made anyway.

    In mortgage-bubble terms, it seems like we’re still in the “2004-5” era: the market appears irrational, and it might make sense logically to go short it, but the market can stay irrational a lot longer than you can stay solvent.

    And I’m not sure how one would “short” this market anyway, to force a burst. Perhaps set up a “prepaid college tuition” business that writes insurance contracts for [a fixed, predefined amount] that are guaranteed to cover future tuition in years N to N+3 at such and such school? Anyone who believes in an education ‘bubble’ should fervently want to invest in and indeed take an equity stake in such a business…any takers?

    • Foseti says:

      Interesting. I’m not sure I completely agree with the analogy to the housing bubble, but even if we stick with it, there’s a big difference between the housing bubble in rich neighborhoods (ie good schools) and poor neighborhoods (ie bad schools).

      My neighborhood has seen maybe a 5% decline in prices. An hour out of the city, values have declined 50%. If the higher education bubble bursts, does this mean it would be a minor inconvenience for Harvard and complete destruction of your local community college?

    • Steve Johnson says:

      The mechanism for the bubble popping is someone somewhere using psychometric exams for hiring.

      This one employer would do very well in getting top talent and could afford to hire high school grads for cheap, etc. Once that happens other employers will follow.

      What stops this from happening? (1) Griggs vs Duke Power (2) massive amounts of propaganda about IQ not measuring anything meaningful (3) disparate impact generally and (4) American business is increasingly rent seeking rather than looking to profit in the market – the company that does this will come under immense fire.

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