Spiraling College Costs

Universities On The Brink - Louis E. Lataif

Higher education in America, historically the envy of the world, is rapidly growing out of reach. For the past quarter-century, the cost of higher education has grown 440%, according to the National Center for Public Policy and Education, nearly four times the rate of inflation and double the rate of health care cost increases. The cost increases have occurred at both public and private colleges.

Like many situations too good to be true--like the dot-com boom, the Enron bubble, the housing boom or the health care cost explosion--the ever-increasing cost of university education is not sustainable.

Just 10 years ago the cost of a four-year public college education amounted to 18% of the annual income of middle-income families. Ten years later, it amounted to 25% of that family's average annual income.

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We're seeing articles with headlines like: "The End of Higher Education Enrollment as we Know It"; "Is College Worth the Investment?"; "Will Higher Education be the Next Bubble to Burst?"; and "Drowning in Debt: The Emerging Student Loan Crisis."

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All this happened while total federal student aid more than doubled, in constant dollars, from $60 billion ten years ago to $120 billion today. Sadly, more federal student aid simply fuels the rising costs. The cost of education tracks with the growth in federal aid; the transaction cost for students is not lowered. The federal money effectively flows directly to the operating expenses of the Universities-which seem to rise in direct proportion to the flow of federal funds.

Because all universities offer some kind of financial assistance, the nominal tuitions are not the amounts universities actually take in. Discounting, often in the range of 25% to 35% of tuition, is offered as financial aid. But even after the discounting the average realized tuition revenue at universities continues to grow.

Perry proposes $10,000 bachelor degrees - Erin Cargile

During his state of the state address Tuesday, Gov. Rick Perry said it is time for colleges and universities to lay out a low-cost path to a degree.

"It's time for a bold, Texas-style solution to their challenge that I'm sure the brightest minds in their universities can devise," said Perry. "Today I'm challenging our institutions of higher education to develop bachelors degrees that cost not more than $10,000 including textbooks."

It is a goal Perry said could be reached with online courses and "innovative teaching techniques." Patrick said offering a packaged price for what a college education will cost is a good idea. Democrats blasted the governor said it would dumb down Texans.

HIGHER EDUCATION BUBBLE - Steve Schroeder via instapundit.com

While visiting with old college friends on New Years’ Eve we did a back of the envelope calculation on the cost and value of our BA degrees in Accounting from 1981. We attended a small well regarded Midwestern liberal arts college from 1977 to 1981. Tuition, room and board was between $3,000 and $4000 per year so around $16000 for our BA. As entry level accountants in public CPA firms we earned a salary of around $17,000 per year. So we earned in salary an amount equal to the cost of a BA degree in our first year of employment. Now that same college, which my youngest daughter is looking at attending costs $42,000 per year. If she earned her BA in Accounting it would cost her $168,000. Her possible first year salary as a CPA? Not even close to $168,000. Maybe around $45,000. What a change in 30 years in the value of that BA in Accounting.

HIGHER ED BUBBLE UPDATE - Glenn Reynolds

Administrative Bloat at American Universities: The Real Reason for High Costs in Higher Education. “Between 1993 and 2007, the number of full-time administrators per 100 students at America’s leading universities grew by 39 percent, while the number of employees engaged in teaching, research or service only grew by 18 percent. Inflation-adjusted spending on administration per student increased by 61 percent during the same period, while instructional spending per student rose 39 percent. Arizona State University, for example, increased the number of administrators per 100 students by 94 percent during this period while actually reducing the number of employees engaged in instruction, research and service by 2 percent. Nearly half of all full-time employees at Arizona State University are administrators.”

UPDATE: Related: Is The College Business Model Broken?

Obamacare in the Courts

Florida Judge Rules Obamacare Unconstitutional - John Hinderaker

Federal district court judge Roger Vinson issued his ruling today on summary judgment motions in the Florida case, State of Florida v. United States Department of Health and Human Services, in which 26 states allege that Obamacare is unconstitutional. Judge Vinson agreed with their arguments and granted summary judgment in favor of plaintiffs.

Judge Vinson's ruling evens the score at 2-2; two federal courts have upheld the act against constitutional challenges, while two have now found it to be invalid. The ultimate decision will be made, of course, by the Supreme Court, some time in the next few years.

Judge Vinson held that the Commerce Clause cannot be stretched so far as to require individual Americans to buy health insurance approved by the government. This conclusion may not seem surprising to those who simply read the clause--It gives Congress the power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes"--but beginning in the 1930s, broad interpretations of the clause have greatly expanded federal powers. Still, Judge Vinson was certainly correct in saying that "Never before has Congress required that everyone buy a product from a private company (essentially for life) just for being alive and residing in the United States."

Florida Ruling Requires Government to Stop Implementing Obamacare - Ilya Shapiro

As I continue digesting Judge Vinson’s ruling, I notice two key things beyond the facts that the “individual mandate is unconstitutional”:

1. In performing his severability analysis — determining which parts of the overall legislation survive — the judge threw out all of Obamacare.

2. In discussing whether to issue an injunction – a judicial command to do or refrain from doing something — the judge determined that his declaratory judgment in this context was the same as an injunction. That is, a federal court saying that a piece of legislation is unconstitutional is effectively the same as a decision mandating the government to act.

A judicial drubbing for Obamacare - Washington Examiner Editorial

In a rigorously reasoned decision that seemed to delight in turning the government's arguments on their head, U.S. District Court Judge Roger Vinson on Monday struck down as unconstitutional President Obama's signature legislative achievement, the Patient Protection and Affordable Care Act, aka Obamacare. In the suit brought by 26 states, Vinson found that "Congress exceeded the bounds of its authority" by including the individual mandate and held the entire act unconstitutional "because the individual mandate is unconstitutional and not severable" from the rest of the law. Vinson, who was appointed by President Reagan to the U.S. District Court in the Northern District of Florida in Pensacola, even tweaked Obama, pointing out in a concluding footnote that the president whose name is forever linked to the measure had backed a health care reform bill without an individual mandate when he was in the Senate. Vinson quoted then-Senator Obama as saying in 2008 that "if a mandate was the solution, we can try that to solve homelessness by mandating everybody buy a house."

Vinson said the government even conceded that its interpretation of the Commerce Clause to support the individual mandate "breaks new legal ground" and is "unprecedented." He concluded, "If it has the power to compel an otherwise passive individual into a commercial transaction with a third party ... it is not hyperbolizing to suggest that Congress could do almost anything it wanted. It is difficult to imagine that a nation which began, at least in part, as the result of opposition to a British mandate giving the East India Company a monopoly and imposing a nominal tax on all tea sold in America would have set out to create a government with the power to force people to buy tea in the first place."

A moratorium needed for Obamacare until its constitutionality is decided - Tom Fitton

President Obama's signature legislative "achievement" plunged deeper into legal limbo Monday with a decision by a Florida federal judge ruling the entire law unconstitutional. This follows the Dec. 13 Virginia court invalidation of the central component of the president's health care reform law requiring individuals to buy health insurance.

Both decisions hinged upon the constitutionality of the individual mandate. This individual mandate "exceeds the boundaries of congressional power" and would "invite unbridled federal police powers," U.S. District Judge Henry E. Hudson wrote in his 42-page December opinion.

How important is this mandate to Obama's health care reform law, or Obamacare, as it is widely known?

"Without an individual responsibility provision (or mandate), controlling costs and ending discrimination against people with preexisting conditions doesn't work," wrote Attorney General Eric Holder and Health and Human Services Secretary Kathleen Sebelius in an editorial published in the Washington Post the day after Judge Hudson's decision.

All Your Thoughts Are Belong To U.S. - William A. Jacobson

That seems to be the import of the ruling by federal Judge Gladys Kessler in upholding the Obamacare mandate in a suit brought by a group of private plaintiffs in Mead v. Holder (pg. 45, emphasis mine):

As previous Commerce Clause cases have all involved physical activity, as opposed to mental activity, i.e. decision-making, there is little judicial guidance on whether the latter falls within Congress’s power....However, this Court finds the distinction, which Plaintiffs rely on heavily, to be of little significance. It is pure semantics to argue that an individual who makes a choice to forgo health insurance is not “acting,” especially given the serious economic and health-related consequences to every individual of that choice. Making a choice is an affirmative action, whether one decides to do something or not do something. They are two sides of the same coin. To pretend otherwise is to ignore reality.

Our thoughts are now actions. There literally is nothing the federal government cannot regulate provided there is even a hypothetical connection to the economy, even if the connection at most is in the future.

Those Pesky Death Panels

The Reality of Death Panels - Mike Stopa

SUPPORTERS OF President Obama’s health care reform law have relentlessly derided Sarah Palin’s notion of “death panels’’ as a vulgar rhetorical technique, with no basis in reality, devised merely to scare a gullible, uneducated citizenry into rallying to repeal the law. The death panel notion persists, however, because it denotes, in a pithy way, the economic realities of scarcity inherent in nationalizing a rapidly developing, high-technology industry on which people’s lives depend in a rather immediate way. G.K. Chesterton once wrote that vulgar notions (and jokes) invariably contain a “subtle and spiritual idea.’’ The subtle and spiritual idea behind “death panels’’ is that life-prolonging medical technology is an expensive, limited commodity and if the market doesn’t determine who gets it, someone else will.

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To the extent that ObamaCare ultimately succeeds in imposing uniformity on basic health care, it will likely lead to the creation of secondary markets for providing insurance against various health eventualities and access to “heroic’’ procedures to extend life. Water runs downhill and it’s a good thing that it does. First, we need to have people buy the expensive medicines and experimental technologies. Europe has discovered this as its regulated system of medicine has driven its pharmaceutical industry farther and farther behind that of the United States. Capping costs kills innovation.

But, in addition, Palin is right. Death panels are an inevitable consequence of socialized medicine. The law of scarcity demands them.

A mature discussion of health care must recognize basic economics so that we can think ahead on how to satisfy the demands of those who are not satisfied with base-level care.

Study Skills

To Really Learn, Quit Studying and Take a Test - Pam Belluck

Taking a test is not just a passive mechanism for assessing how much people know, according to new research. It actually helps people learn, and it works better than a number of other studying techniques.

The research, published online Thursday in the journal Science, found that students who read a passage, then took a test asking them to recall what they had read, retained about 50 percent more of the information a week later than students who used two other methods.

One of those methods — repeatedly studying the material — is familiar to legions of students who cram before exams. The other — having students draw detailed diagrams documenting what they are learning — is prized by many teachers because it forces students to make connections among facts.

These other methods not only are popular, the researchers reported; they also seem to give students the illusion that they know material better than they do.

The Economy - January 2011

Memphis Blues Again - Scott W. Johnson

Malpasss puts it this way (if I understand him correctly): "Since inflation is a deeply lagging data series - the Fed was able to claim throughout the 2003-2007 monetary bubble fiasco that inflation was 'moderating' even as the core PCE deflator, upon revision, was rising and always exceeded the Fed's 2% ceiling -- it's unlikely that inflation will ride to the rescue in time, nor does anyone other than commodity buyers really want that outcome."

Can this really be the end? Bob Dylan's lyrics run through my mind: "An' here I sit so patiently/Waiting to find out what price/You have to pay to get out of/Going through all these things twice."

UPDATE: Reader Carl Pham takes my concerns a step further:

if you've lived long enough, you'll notice the *order* in which inflation picks up is always the same, or at least it has been for the past 50 years or so: first gas and heating oil prices go up steeply (oil is priced in dollars, after all), then food (lots of transportation in its price), then durable goods and rents, and only last wages and real estate. . . .

I think the mistake many commenters make is assuming that these facts are not already well known to the policymakers, e.g., the Fed or the administration, or even older media talking heads, and that they need to have these facts pointed out to them.

I think that unlikely. I think they know exactly what they are doing, and they rely on muddling the connection between, say, rising gas and food prices on the one hand and what they are doing on the other.

In this particular case, I think both the administration and the Fed feel the inevitable pain is worth it for their goals, which are dominated by the urgent wish to get investors -- potential homebuyers, or potential employers -- to stop cautiously hoarding their cash and start forking it out, buying houses or employing people.

They have (probably correctly) deduced that Democratic re-election prospects in 2012-14 are tied to the unemployment rate and the price of houses, and they will do anything to move those numbers, regardless of future damage. (Besides, a roaring inflation later is just another crisis that cannot be allowed to go to waste! Wage and price controls are lovely avenues for centralized power.)

It's little different than FDR in 1934-35 observing that businesses were sitting on cash instead of hiring people (because of the insane regulatory environment, among other things), and determining to pry that cash out of them. In those days he took the blatant approach -- the undistributed profits tax of 1936. Nowadays a more subtle approach is called for: in this case, inflation, which is essentially a massive tax on savings and retained profits.

It probably doesn't hurt that in addition the one party that does well in a strongly inflationary environment is he who owes loads of money (the debt is rapidly eroded by inflation) and who has an income that is fully indexed to inflation, meaning it automatically rises in lockstep with nominal prices and wages. That of course describes state and federal governments today.

Constitutionalism

Constitutionalism - Charles Krauthammer

Americans are in the midst of a great national debate over the power, scope and reach of the government established by that document. The debate was sparked by the current administration's bold push for government expansion - a massive fiscal stimulus, Obamacare, financial regulation and various attempts at controlling the energy economy. This engendered a popular reaction, identified with the Tea Party but in reality far more widespread, calling for a more restrictive vision of government more consistent with the Founders' intent.

Call it constitutionalism. In essence, constitutionalism is the intellectual counterpart and spiritual progeny of the "originalism" movement in jurisprudence. Judicial "originalists" (led by Antonin Scalia and other notable conservative jurists) insist that legal interpretation be bound by the text of the Constitution as understood by those who wrote it and their contemporaries. Originalism has grown to become the major challenger to the liberal "living Constitution" school, under which high courts are channelers of the spirit of the age, free to create new constitutional principles accordingly.

U.S. Home Mortgage Crisis

The Last Trillion-Dollar Commitment - Peter J. Wallison, Charles W. Calomiris

The government takeover of Fannie Mae and Freddie Mac was necessary because of their massive losses on more than $1 trillion of subprime and Alt-A investments, almost all of which were added to their single-family book of business between 2005 and 2007. The most plausible explanation for the sudden adoption of this disastrous course--disastrous for them and for the U.S. financial markets--is their desire to continue to retain the support of Congress after their accounting scandals in 2003 and 2004 and the challenges to their business model that ensued. Although the strategy worked--Congress did not adopt strong government-sponsored enterprise (GSE) reform legislation until the Republicans demanded it as the price for Senate passage of a housing bill in July 2008--it led inevitably to the government takeover and the enormous junk loan losses still to come.