Friday, November 13, 2015

Entitlement Nation ... Where 'Free Stuff' Isn't Free ... Government's Role in the Education Bubble and the Law of Unintended Consequences

It seems that we've become 'Entitlement Nation' where everybody is trying to live at the expense of everybody else. Our schools, our health care and retirement systems 'protect' us from the nasty free market forces.

To choose not to live in Entitlement Nation would require some measure of self reliance from those of us who are capable of taking care of ourselves and our families. And even some encouragement from our pandering politicians of both parties. Sadly, that doesn't appear to be on America's agenda.

And now our young collegians (think Missouri) not only want free stuff but they want to attend college in a protected from free speech 'safe' environment while getting that free education. How about just skipping the entire on campus experience and instead mailing a free college degree to any person who wants one? It would be easier than giving out A's to everyone while keeping them safe from hurtful speech, housing them, feeding them and giving them free tickets to the Saturday football games. Go Mizzou! Beat BYU!

Many U.S. politicians say they want college to be free. So do many college students. And so do many parents and other adults. Well, nothing's free, my friends. Somebody always pays.

In simple terms, when nobody pays, everybody pays. And when some people get things for nothing, some others pay for that 'nothing.'

Making matters worse, however, is that subsidized or free offerings do great lifetime harm to many of the intended beneficiaries as well as the often well intentioned payers. Instead it's the wasteful bureaucrats and those on the payroll that actually get all the money. And for 'earning' that money, neither productivity nor value for money is required of them.

That's socialism at work and it's become prevalent throughout the world. Now it's finally come to America and is even being taught in our schools and on our campuses in a 'right to be safe' from free speech environment.

Now let's look briefly at the recent housing bubble and bust as an 'instructive and educational' example. Government subsidies and unlimited consumer credit to buy homes played a huge role in the recent housing bubble bursting. Prices went higher and higher as demand grew greater and greater, both attributable in large part to government guaranteed loans for home purchases.

Could it be happening again regarding student loans and the inability of borrowers to repay the debt assumed to attend college? It could and it is. It's not some grand conspiracy at work but rather the law of unintended consequences. It's simply another example of "The road to hell is paved with good intentions."

It's not good for anyone, and it's never free. The U.S. education bubble is now upon us says this:

"One of the fundamental purposes of government is to advance important public goods. But, if not handled carefully, the pursuit of significant social goals can have unfortunate economic and financial consequences, sometimes even leading to systemic disruptions that undermine more than just the goals themselves.

This happened a decade ago in the United States, with the effort to expand home ownership.... And it could happen again in the U.S., this time as the result of an attempt to improve access to funding for higher education.

In the first case, the U.S. government eagerly supported efforts to make mortgages more affordable and accessible, including the creation of all sorts of “exotic” lending vehicles. The approach worked, but a little too well. The surge in debt-enabled demand drove up real-estate prices, while banks’ greater willingness to lend led many people to purchase homes they couldn’t afford. The collapse of the subsequent bubble — a major contributor to the 2008 global financial crisis — nearly tipped the world economy into a multi-year depression. . . .

America’s effort to expand access to student loans — a fundamentally good initiative, aimed at enabling more people to pursue higher education — carries similar risks. Fortunately, there is still time to do something about it.

No one doubts that investment in education is vital. Numerous studies have shown major returns for individuals and societies alike. Higher levels of educational attainment improve overall economic well-being and prosperity, lower retirement burdens, and enhance social mobility and satisfaction. The unemployment rate for college graduates in the U.S., at 2.5%, is roughly a third the rate for those without a high school diploma.

What policymakers must determine is how to invest in education in ways that maximize these benefits, without creating new risks. This is where the U.S. risks falling short.

Over the past 10 years, the combination of higher tuition fees, more student enrollment, and greater reliance on loans has caused the stock of outstanding student debt nearly to triple. It now stands at well over $1.2 trillion, more than 60% of which is held by the bottom quartile of households (those with a net worth of less than $8,500).

Today, seven of 10 post-secondary students graduate with debt, with the total volume exceeding debt from credit cards and auto loans combined. . . .

Making matters worse, the return on investment in education is falling, because the economy is growing slowly and changing rapidly, making it difficult for some graduates to secure employment that takes advantage of their knowledge and skills. . . .

If the return on investment in education continues to decline, the servicing of student loans will tend to crowd out other consumption and investment outlays . . . . In this scenario, the risks of default and delinquency would rise, along with financial insecurity and general instability, all of which would exacerbate the inequality trifecta (income, wealth, and opportunity).

The good news is that, though some 10% of borrowers already face repayment problems, the macroeconomic and financial tipping points remain some way off. But this is no excuse for complacency; it merely provides time for a concerted effort to implement measures that will ameliorate the destructive trends stemming from student loans. . . .

For their part, universities — which have benefited considerably from the wide availability of student loans — should rein in their costs, while offering more direct financial aid funded through philanthropy. Some universities have already adopted “no loan” policies; students’ demonstrated financial need is met entirely with grants financed by the university and other donors. Not all universities need to go this far, and most can’t because they lack large enough endowments to cover the costs. But a broader move in the direction of non-debt financing of higher education is needed.

Efforts could also be made to encourage households to save more, starting earlier, for education. Student loan disclosures should be made more transparent, thereby enabling applicants to make responsible decisions . . . . And more could be done to expand income-based repayment schemes.

None of these measures will be easy. But if implementation continues to lag behind realities on the ground, the challenges will be far greater down the road."

Summing Up

Limiting free speech on college campuses is a very bad idea. America's real world doesn't operate like that.

College costs too much, but it's not free, and it never will be.

It costs so much because of government 'freebies' and the failure to pay any attention to faculty and administrative productivity at college campuses --- and throughout grades K-12 as well. And government loans, grants and subsidies are the primary cause of this admittedly wasteful and growing affordability problem.

If markets and vouchers played a role in pricing for education, young adults wouldn't be in such trouble financially at such a young age. And costs would be a fraction of what they are. As a result, students, their families and America as a whole would be much better off financially.

Instead we're 'teaching' the young that free choice, debt, productivity, costs and value for money don't matter. And while doing so, we're limiting free choice as well as free speech.

Only when the students get older and as adults get the bills for all this free stuff will they realize that they've been had --- by us.

That's my take.

Thanks. Bob.

No comments:

Post a Comment