The higher-education bubble is “worse than the housing bubble”!

Kirk Here:   This is so true but few see it.  The government subsidizes education so of course whole "education industries" pop up to take advantage PLUS the popular for profit schools raise prices to offset the subsidy since they can charge what the market bears... so the education industry get richer, parents who work hard and save so they are without financial aid scholarships pay more, tax payers pay more and politicians can tell everyone how they are for higher education.  All garbage!

Also note how many over paid government workers use their education to justify their salaries.  Some of these government workers post all day on my message boards or watch porn at the SEC.  I'd like to see them get away with that in private industry that values results more than education!

On 4/16/2011 8:45 AM, Jas Jain wrote:

FWC: The higher-education bubble ["worse than the housing bubble"!]

Education is a bubble in a classic sense. To call something a bubble, it must be overpriced and there must be an intense belief in it. Housing was a classic bubble, as were tech stocks in the '90s, because they were both very overvalued, but there was an incredibly widespread belief that almost could not be questioned — you had to own a house in 2005, and you had to be in an equity-market index fund in 1999.
Probably the only candidate left for a bubble — at least in the developed world (maybe emerging markets are a bubble) — is education. It's basically extremely overpriced. People are not getting their money's worth, objectively, when you do the math. And at the same time it is something that is incredibly intensively believed; there's this sort of psycho-social component to people taking on these enormous debts when they go to college simply because that's what everybody's doing.
It is, to my mind, in some ways worse than the housing bubble…

I have thought so for years. I once met an American regular white woman who complained that her daughter who has two masters degrees was able to only get a job that paid in 20s. Rerurns on technical education in China and India are much higher, maybe 100:1, than the same in America. More than half the college degrees in America, especially those earned by women, are totally useless. An American is an easy victim to the "higher-education bubble." He, or she, was also an easy victim to the housing bubble ("they are not making any more land"! Land shortage in America?). A born-and-bred American is an ideal candidate for propaganda, no? And propaganda is central to bubbles.

Jas

PS: Peter Thiel is among a rare breed of born-and-bred Americans who are not dopes. There are less than 25 such animals, presently. The odds are more than 10,000,000 to 1 against!

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·         The higher-education bubble

More on Peter Thiel

Apr 13th 2011, 19:50 by Schumpeter

I'VE just come across a rather better interview with Peter Thiel than the one in TechCrunch. It is in the National Review online, and covers all sorts of exciting stuff, from seasteading to net neutrality, as well as higher education.

Here's the profile of Thiel that begins the interview:

Peter Thiel may be most famous for his role (portrayed by Wallace Langham in The Social Network) as the venture capitalist who gave "The Facebook" the angel investment it needed to really launch. Before that, Thiel was known in Silicon Valley circles as the "Don of the PayPal mafia," (his official role at the e-commerce site was founder and CEO), and more generally for his centrality as an investor in tech startups. Now, Thiel serves as the president of Clarium Capital, a hedge fund that (though it has suffered recently) made extravagant gains by betting against the housing market in 2007.

Though he's primarily a businessman, Thiel has dabbled in libertarian activism. Most recently, he caused a stir by establishing the Thiel Fellowship, which will select 20 college students under the age of 20 and pay them $100,000 each to drop out of college and embark on entrepreneurial careers. Thiel is also an intellectual of astonishing breadth and depth who finds time, while running a major hedge fund, to produce thought pieces that survey the Western Canon, the geopolitical landscape, and financial economics at a gallop (such as this one for the Hoover Digest).

And here are some highlights of his discussion of higher education:

Education is a bubble in a classic sense. To call something a bubble, it must be overpriced and there must be an intense belief in it. Housing was a classic bubble, as were tech stocks in the '90s, because they were both very overvalued, but there was an incredibly widespread belief that almost could not be questioned — you had to own a house in 2005, and you had to be in an equity-market index fund in 1999.

Probably the only candidate left for a bubble — at least in the developed world (maybe emerging markets are a bubble) — is education. It's basically extremely overpriced. People are not getting their money's worth, objectively, when you do the math. And at the same time it is something that is incredibly intensively believed; there's this sort of psycho-social component to people taking on these enormous debts when they go to college simply because that's what everybody's doing.

It is, to my mind, in some ways worse than the housing bubble. There are a few things that make it worse. One is that when people make a mistake in taking on an education loan, they're legally much more difficult to get out of than housing loans. With housing, typically they're non-recourse — you can just walk out of the house. With education, they're recourse, and they typically survive bankruptcy. If you borrowed money and went to a college where the education didn't create any value, that is potentially a really big mistake.

There have been a lot of critiques of the finance industry's having possibly foisted subprime mortgages on unknowing buyers, and a lot of those kinds of arguments are even more powerful when used against college administrators who are probably in some ways engaged in equally misleading advertising. Like housing was, college is advertised as an investment for the future. But in most cases it's really just consumption, where college is just a four-year party, in the same way that buying a large house with a really big swimming pool, etc., is probably not an investment decision but a consumption decision. It was something about combining the investment decision and the consumption decision that made the housing thing so tricky to get a handle on — and I think that's also true of the college bubble.

You know, we've looked at the math on this, and I estimate that 70 to 80 percent of the colleges in the U.S. are not generating a positive return on investment. Even at the top universities, it may be positive in some sense — but the counterfactual question is, how well would their students have done had they not gone to college? Are they really just selecting for talented people who would have done well anyway? Or are you actually educating them? That's the kind of question that isn't analyzed very carefully. My suspicion is that they're just good at identifying talented people rather than adding value. So there are a lot of things about it that are very strange.

The Great Recession of 2008 to the present is helping to bring the education bubble to a head. When parents have invested enormous amounts of money in their kids' education, to find their kids coming back to live with them — well, that was not what they bargained for. So the crazy bubble in education is at a point where it is very close to unraveling.