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Millions have been misled into pouring their young adulthood into endeavors that won’t pay off…and going deeply into debt for it. The federal government has encouraged this higher “education,” much like it did home “ownership.” The central bank made the borrowing easy with low interest rates — which powered the real estate bubble as well as the higher education bubble — while government entities backed the loans.
Now the education bubble is bursting. The bubble’s start can be traced to the GI Bill, whereby the government got into the business of shoving more people into college than the market would bear. Over time, the same easy loans and guarantees got extended to most of the population.
Over time, some bad notions gained traction. College came to be seen as the ticket to the good life as opposed to something that people already destined for greater things might undertake to help get them there. As often happens, causation became confused with correlation.
In the last 30 years, higher education has come to be viewed as a human right, something that governments are obliged to guarantee. Lost is the notion that a higher education is a path for the exceptional, particularly those exceptional people going into the hard sciences.
Of course, this doesn’t do anything to change the essential ability of the people now being shoved through the system. All it’s done is water down the quality of what’s being offered so that everyone can join in.
Exceptional people still become scientists and engineers. Everyone else gets a master’s in some field that was recently invented to meet the artificial demand for advanced degrees, for people who couldn’t be scientists or engineers, but who had a head full of misguided notions and a boatload of borrowed money.
Worse, this “education” came to supplant things like entrepreneurship, initiative, the willingness to take risk, to accept and learn from failure. As Ellsberg says in his article:
“But most students learn nothing about sales in college; they are more likely to take a course on why sales (and capitalism) are evil.”
Indeed. We hate to keep turning to the Occupy movement, but it is full of the poster children for this. They came out on the other side of the system unemployable and in debt. They feel lost and angry, unable to think of life past the burden of their student loans. And many of them (not all) feel that “capitalism” is somehow to blame, that the world of profits is somehow divorced from the well-being of people.
It’s criminal when “profits” are doled out to banks and “too big to fail” businesses by the government, with money taken from the taxpayers. But what about the real profits — not stolen goods — in which entrepreneurs take risks and business people add value, when the profits are the reward for serving people’s needs?
So the bamboozled have taken to the street. They would like their student debts to be wiped out, that “the people” be bailed out like the bankers and crony big businesses were. Or even worse, they get it in their heads that all higher education, henceforth, should be paid for by the government. It doesn’t matter whether there is a market demand for expertise in a course of study or not.
A system has grown up that encouraged enormous debt for nonperforming assets, namely, schooling in things that won’t pay off. People are still falling for it. But markets aren’t mocked forever. There has to be some painful write-down in central bank-distorted asset values before the economy can regain solid footing. This is just as true for higher education as it is for real estate.
It won’t be pretty. We’re not sure how this will play out for those who’ve misallocated their time and energy based on false signals, and with nothing but debt to show for it. But the stories that we told ourselves about what’s valuable were built on distortions that are now coming to an end.
Reality is asserting itself. And the reality is that entrepreneurship is what drives wealth creation, not going into debt to be taught that wealth creation is secondary to cultural studies or worse, that wealth creation is downright evil.
The education industry has been corrupted by too much easy money. It is now zombified. Sclerotic. And parasitic. It now subtracts value. It takes valuable resources…not the least of which are the minds and bodies of people at their most energetic stage in life…and squanders them, making us all poorer.
Still, parents are terrified of the idea that their children may not get the “education that they need” and may be condemned forever to the lower rungs of the socio-economic ladder. The unemployment rate for college graduates, for example, is only half that of the rate for the rest of the population — less than 5%, even in the high-unemployment slump since 2008. Parents are afraid an uneducated child will not only be a failure, but will be forced by joblessness and poverty to move back in with mom and dad.
Yes, they will tell you, a degree from a Podunk University in the Midwest maybe be worthless. But get a degree from Harvard or Yale and you are on the train to status and prosperity. They are prepared to mortgage the house…and take out hundreds of thousands in student loans to buy the kid a ticket.
And they may be right. But only because the whole society has been corrupted by the same zombie virus. It has shifted the economy from one that cares if you can produce…to one that cares if your papers are in order. A small businessman will not particularly care if you have a college degree or not. He only cares if you can do the job. But big government and the big businesses it manages are different. They use education as a qualifier. Anyone who can sit still in class for 16 years — without questioning the nonsense that passes for knowledge — is a good candidate for bureaucracy.
What have been the growth industries of the last 10 years? Government is the main one. Obviously, government doesn’t care if you can produce or not. Who’s measuring? Its output is un-priced. Who’s to know if you handled your paperwork well…or made the right decision? Likewise, in the education industry, who’s to know if you are productive? What does it mean to be productive? Imagine that you have a job at a major university. You are an assistant director of its Local Community Outreach Program…or its Special Gender Enabling Group…or even its Career Placement Office. Who’s to know…or care…if you are doing a good job? All you have to do is to look and act in a presentable professional way. The rest is BS.
In the absence of any market-based test, you can get away with anything. All you need is a bright smile and a good line of talk. And a college degree, of course!
In non-market sectors, mistakes are eventually corrected, but only…like the Soviet Union…after decades of misery, and a final breakdown or revolution. In the meantime, the mistakes compound. The education industry takes more and more of the national resources while producing less and less real output. And if you want a job, you are better off as a well-credentialed zombie than as an energetic (often disruptive) producer.
But what if you were to start up a new business…a private school, with a clear profit-oriented, market priced output? With modern e-learning tools, you could reduce the cost of a real university education, to a fraction of the price people currently pay.
Mr. David Van Zandt of the New School in New York:
“I apologize to anyone here from Nebraska, but there is no reason to teach introductory chemistry in Nebraska in a classroom of 500 students. Not when you can pump in, say, someone from Harvard,” to give the lecture on video.
It is just a matter of time before the cushy, over-rich education industry meets destruction at the hands of new technology and new entrepreneurs. But don’t expect it to go gently into that good night. It has lobbyists by the score. It has money by the billions. It has its men and women in Washington…who will continue rewarding the failed, zombie schools, while regulating, squeezing out and crushing start-up competition.
That’s why, sometimes, it takes a revolution.
for The Daily Reckoning