Wednesday, November 23, 2011

The Fundamental Problem with the Higher Ed Bubble

I read virtually everyday about the bubble in higher ed. I think the general public has some clue about it by now, and that it is tied to federal student loan aid. Libertarians like myself are good at explaining how federal dollars have led to inflated tuitions and substandard education. What we are not good at is explaining the high unemployment and underemployment of college graduates. It isn't that we don't have an explanation. It is that we don't want to face the reality of that situation.

The high unemployment among college grads can be blamed on a poor economy. The problem is that when the economy was good that was also a bubble. The problem isn't that college grads aren't finding jobs now. The problem was that they were finding jobs in the first place. Bubbles punk people into malinvestment. For instance, during the tulip bubble cited by many who study such things, people were led to believe that tulip bulbs were more valuable than they really were. When the market for those bulbs collapsed, those people were stuck with worthless bulbs. But we must remember what Austrian Business Cycle Theory teaches us. The damage isn't done during the bust. It is done during the boom.

The following chart shows that by 2009 a whopping 70% of high school grads were enrolling in college:



If you look closely, enrollment remained around the 50% mark until the 1980's when it began its meteoric rise. This coincides with the economic boom we have had for the last 30 years. The growing economy demanded an ever increasing supply of college grads to fill the positions corporate America was offering. The education establishment from K-12 to beyond all pushed the need to have a college education.

I have Googled hard to try and find a comparable chart for enrollment in vocational education, but I have found none. What I have done is read through dense studies of education and employment to draw the conclusion that I already had. Enrollment in vocational programs on the high school and the post-secondary levels have declined over the same time period. Most high school students are enrolled in the college prep track while few take shop classes. This goes unquestioned. I really enjoyed this quotation:

While reformers postulate about restructuring the American high school, a "quiet" restructuring has been taking place as increasing percentages of all high school students select the college prep program of study and enrollments in vocational education decline. This development has gone largely unnoticed, or if noticed, has not been questioned.

The college prep program of study was never designed to educate the majority of all high school students; it was created for the academically blessed, specifically those who had both the aspirations and the ability to be competitive in the college admissions process and academically successful in college. But now the percentage of students (including those from the academic middle) who take the college prep curriculum has increased dramatically, while the curriculum and instructional modalities remain about the same.

A consensus seems to have developed that assumes that the college prep program will prepare all who enroll equally well, regardless of their academic ability. Perhaps educators simply do not want to stir up controversy; if parents think their children are preparing for college, and colleges are admitting them, why look for problems? Yet, what if a large number of them are not well prepared, graduating without the credentials needed to be successful in higher education or in work? What if large numbers of those who do go on to higher education end up in expensive remedial courses and ultimately drop out? Or, what if those who do go to work without vocational education end up in dead-end jobs? If any of these scenarios is true, there should be cause for concern about the growing percentages of all high school students who enroll in the college track.


http://scholar.lib.vt.edu/ejournals/JITE/v32n2/gray.html


The author of that telling prediction wrote this in 1995. Dr. Howell has seen his predictions come true.

The flip side of this argument is the issue of that federal student loan aid. Trade schools, voc-ed, and technical colleges all take various forms of student loan aid including loans. We like to put the blame on those loans for the bubble, but there is no glut of voc-ed grads. There is a glut of art history majors. If there is one thing I have learned about bubbles, they all begin with a common sense judgment and get distorted by the availability of cheap money and easy credit.

I have watched and read about trade school suckers who went to expensive private for-profit trade schools to get job training. Most of them get jobs, but they don't pay anything that would justify the debt they incurred. These schools are a scam to get those federal dollars, but state universities and Harvard are no different. We can blame federal student loan aid for increased tuition, but we can't blame it directly for the unemployment and underemployment college grads now face.

The reason college grads are unemployed or underemployed is because there are too many of them. The system as it now stands encourages and demands that all high school students prepare for and attend college. Those people have listened to that message and have done exactly as instructed. In short, the effort has been put into trying to make everyone above average. This has led to below average prospects for the college grad compounded with the fact that the grad gets to pay for the punking with interest.

I tell people that I am an elitist, and this naturally comes with the expectation that I am some sort of conceited prick who thinks he is better than everyone. But there is a difference between being an elitist and being in the elite. I think sports achievements belong to people like Michael Jordan, but I am not Michael Jordan. But I'm not going to champion equality in the sports arena because it might help salve my bruised ego over my inability to dunk a basketball.

You can dumb down college, have open admissions, and provide all the tuition. This is not going to generate a bunch of smart people. This is going to generate a bunch of dumb people who think they are smart. The marketplace says otherwise on this effort to make everyone smarter than average, and it shows in the employment numbers. College in all its forms is an oversold product. This is the bachelor's degree, the graduate degree, the law degree, the MBA, the STEM degree, etc. Across the board, too many people go to school relative to the job demands that await them after school.

So, what is the advice to the fresh high school grad? Go to college. Even today, every high school grad is told to go to college while people cite old outdated stats on increased earnings for college grads. This is incredibly stupid, but it isn't going to change.

The people that go to college should be the smart ones. People are not equal. This is an inescapable fact of life. Some people are very intelligent. Others are physically gifted. Some are gifted in the arts and humanities while others can spend hours with math and chemistry. But for most of us, our place is in the fat portion of the bell curve. This is a crushing revelation for people. Nobody wants to be average. But there it is.

When I talk to people of my parents' generation, I notice something. Most of them never went to college. They fall somewhere in the middle of the spectrum having a certain degree of literacy coupled with real world skills. They generally like reading the newspaper, and they are skilled enough to make a middle class living. They would like to retire, but they are seeing that hope dashed to ruins. Between inflation and depleted retirement funds, retirement isn't in the cards. This is good for businesses because they would be up Shit Creek without them. This is because there is virtually no new blood to fill these occupations.

The reason the middle class is disappearing is because we are hollowing out the middle. We are training generations to become rock stars in various fields. The result is a shortage of skilled labor. In time, the machinist will earn more than the engineer because few people will be skilled enough to use CNC equipment. As everyone strives to be above average, the bulk of them fall well below average relative to their parents and grandparents. This is not unique to America. The same thing has happened in Europe and the Middle East. Much of the revolution in Tunisia was sparked by college educated youth who could not find work.

Upward mobility is not what it is cracked up to be. This is anathema to the democratic and egalitarian spirit of the West. But saying that not everyone is going to be a Nobel prize winner or CEO of a company should be about as controversial as telling someone they probably won't realize their dream of becoming a movie star. People's expectations exceed what is realistic except we live in a time when people can run up a sizable chunk of debt in the pursuit of those pipe dreams. The result is the same as lending money to compulsive gamblers to play on the lottery.

The education establishment needs to level with kids and tell them the truth. Most of them are going to be just average people. High schools need to bring back shop class, and guidance counselors need to stop overselling college as a path to prosperity. Colleges need to ratchet up admission standards and grading while the federal government needs to get entirely out of the student loan business. Blue collar trades should no longer be denigrated. The bottom line is that we can't continue having 70% of our high school grads going to college. That figure points to the fundamental problem with the system today. Ambition is not a virtue. We need to stop encouraging it.

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