Monday, October 20, 2014

You Can Pop a Lot of Trouble with the Pop-o-Matic Bubble

In case you find yourself wondering why I find Munger's euvoluntary exchange project so compelling, I invite you to read this. It is an indictment of the growing higher education bubble, written almost entirely using the language of exploitation. Even small asides like "the notorious for-profit Everest College" [emphasis added] are underpinned by the very common justice-as-fairness heuristic. Wealthy residual claimants of university endowments reap unjust material gains while students are mired in decades-long debt obligations. It's not fair—it's not just.

If I were a conservative (I'm not), I'd make an argument appeal a little like this:

The student loan crisis is weakening the moral and economic character of America. Recent graduates with tens of thousands of dollars due in outstanding loans (whose interest rates are set by Washington bureaucrats) effectively put the nation's young people in indentured servitude to government organizations. The non-market price of education is so high that it threatens civil unrest, mass disobedience, and tax revolt. America's enemies are keeping a close eye on the sentiments of the young people, hoping for the Yankee version of Red October or the Storming of the Bastille. The last thing America needs with the many foreign threats it faces is domestic insurrection. The time to reform the university system based on the traditional model of separating state and education has come. &c &c.

If I were a libertarian (I'm not), I'd make an argument appeal a little like this:

Students and universities are not free to exchange with each other. Intermediaries like Sally Mae distort legitimate market signals. New students who typically learn very little in the way of practical economics in state-run primary schools are marginally more likely to enroll in marginally imprudent programs with little useful feedback to correct errors after graduation. Private lenders have a strong incentive to issue actuarially fair interest rates based on all available information (default rates associated with majors, & al), thereby better reflecting a truer measure of risk and providing honest prices to the student at matriculation. The time has come to reform the university system based on the free market principles of personal sovereignty and the freedom of contract &c &c.

"But Sam," you cry, "you arrive at the same conclusions no matter what your rhetoric! Your priors are showing."

Well, yes. But that's not the point. The point isn't that I think that collective decision-making has far-reaching unintended consequences for the student loan fiasco. The point is that whenever there's an instance of an exchange that isn't perfectly euvoluntary, the language we use, the rhetoric we deploy matters to our audience. You can take either of those two passages above, mess with them a little, and come to completely different conclusions. You want a stronger America? Well, let's only subsidize STEM fields. You want less exploitation? Remove the tax-exempt status from corporate or foundational grants. You want less coercion? Revoke the public charters of state schools (it's not like students are attending classes anyway).

The problems in higher ed are caused by a confusing mix of issues, ranging from Baumol's cost disease to the unfortunate lock-in of student athletics (incl. Title IX) to insufficient price discrimination of tuition to the outsized influence of teacher unions, and on and on and on. If you're interested in isolating one cause, you're faced with the choice of feeding red meat to your ideological friends or attempting to win converts from your enemies. Write accordingly.

h/t The Peej

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Do you have suggestions on where we could find more examples of this phenomenon?