"Education bubble"?

[ja_va]

There is a popular conservative motto which is repeated over and over again recently: "education is the next bubble, people have already said. Financing college is the new real estate, and we know how that works out."It has been repeated so frequently that there seem to be a need to address it

Comments

[chron_job]

"education is the next bubble, people have already said. Financing college is the new real estate, and we know how that works out

[mikeyxw]

Pretty much. Real estate and tulips were asset bubbles. Assets work differently than other goods, when peanut butter goes up in price, people buy less. When an asset goes up in value, people tend to buy more, not with the idea that they would consume them but that they could resell them in the future. This is what powers asset bubbles. Higher education costs will cause fewer people to go to college, acting more like peanut butter than stocks, this prevents an asset bubble from forming. It's the wrong model.

[meus_ovatio]

You're missing the point. Debt is the product. That product is then speculated, transferred, bought and sold, etc. etc. Debt associated with a service is not reliant upon volume to grow.

[mikeyxw]

Debt is a byproduct of a bubble, the speculative behavior is what drives it. I'm not seeing more and more people going to college to produce debt.

Don't get me wrong, college debt certainly is a problem, especially for people in their 20s, it's just not a bubble. I'm also not aware of much speculation going on around education debt. It's usually pretty crappy debt with low returns, not something like .com stocks in 2000 or real estate in 2007 that are the subject of irrational exhuberance. If you can point to a huge amount of speculation around college debt, I'd certainly like to see it.

Education might be a bit overpriced in some instances, but the return on most degrees at most colleges is higher than the cost.

[meus_ovatio]

The explanation is wanting in some respects. Higher prices didn't mitigate consumption on tech stocks or real estate, and higher prices haven't mitigated consumption on college. Of course, bubbles serve an important function: soaking up excess capital. Educational debt is big business, driving for-profit models and creating new sectors in the educational field. All of this "activity" is as much a bubble as any other. They are not the same kinds of bubbles, but they rarely are.

[ja_va]

"Higher prices didn't mitigate consumption on tech stocks or real estate"

Of course they did not. Are you kidding? They instigated It. It is the higher prices that lead to people over-consuming both stock and real estate. People were buying second and third house only to "flip" them and turn the profit! And with zero income and zero downpayment. Why? Because banks were sure the rising prices will make it profitable even in the case of foreclosure.

If prices did not grow so fast no one would by so many houses or so much stock. But even cautious people lost their mind because there was so much short term profit. People were thinking "oh, I agree that there is a bubble and it may burst eventually, but before it does I can turn 100 000 dollars profit! Worth the risk!"

I do not think you can use the same logic with education

[meus_ovatio]

Do you know what the word "mitigate" would mean in this context?

[ja_va]

Opposite of the word "instigate"
I missed the word "not", read the corrected version.

[meus_ovatio]

http://www.huffingtonpost.com/adrian-nazari/student-loan-debt-crisis-_b_1572482.html

The point is that education debt, like any debt instrument, is an interest-bearing asset. The ability of the borrowers to repay the interest is fundamental. Whether or not the debt is over trinkets or prestige, the instrument exists and produces activity, investment and value.

[chron_job]

It would only fit the bubble metaphor if one can "buy" some student debt or student debt instrument, with the expectation of selling it for more than one bought it for, plus the time value of money.

If that's not the case, calling it a speculative bubble (or comparing it to speculative bubbles) is a misleading metaphor.

Debt instruments indeed aided and abetted the housing speculation bubble of the mid 2000's, but it was the housing prices which were bubbling in value, not the debt instruments.

[mikeyxw]

BTW, seeing your post at the end of a link about an often repeated conservative motto was the funniest thing I saw here this Friday. It was a fine post and all, a bit Trotskyish in the remedy, but still, frigging hilarious.

[harry_beast]

The metaphor may be strained, but it points the discussion in some interesting and productive directions

[ja_va]

As with houses, increasing demand leads to higher prices in education.This would not have been a problem until people began to buy houses purely for profit. They would buy to resale. This is how bubble is formed - you do not need a house, but you buy anyway, you buy bigger one, you buy second one, etc

[harry_beast]

unemployment for college graduates is twice as low as for high school graduates
Wow, twice as low. That's deep. And you didn't have to repeat it. It has no bearing on the argument. Whether it's twice as low or half as high, some people, not you, evidently, have trouble paying back their student loans on the salary that the market gives them.

[ja_va]

It means that there is more demand for college grads than for highschool grads.
It means that the problem is not that too many people are getting degrees, but that degrees cost too much.
So the solution should be not to cut off people from college, but to make education cheaper, better yet- free.

Direct bearing on the argument for you.

[ja_va]

Compare the situation with housing bubble:

1) There was no demand for homeowners, only for homes, driven by homeowners themselves. (there is demand for degree-bearers (college graduates), which is shown by low unemployment I quote, and not just for the degrees themselves.

2)Demand for degree-bearers (college grads) is independent from the price, since it is employers who need them, and employers do not care about the cost of the degree, so they do not need more degree-bearers just because the price of the degree went up - THEY DON'T CARE. They need more because they have a need for skilled well educated labor)

3) When house market prices went up buyers were actually happy - they were making more profit on the homes they bought! Compare to the college students - how can they be happy? Some of them actually have to drop out when prices go up