Hyperinflation in Higher Education

This week I decided to follow up on a graph I saw in the Wall Street Journal that compared college tuition and out-of-pocket costs to the costs of medical care and overall living costs. See the graph at the bottom. All I can say is, Wow. The red line in the chart goes from the year 2000 to 2016. It shows that costs of higher education increased by just short of 150%. Imagine if your waistline increased by 150%. 

We all complain about the rising costs of medical care. It is the yellow line in the chart, and it rose by about 75% over those same years. Apparently a nice course in the liberal arts is worth a lot more than a course in biology. Okay that's a distortion, but what the graph says is that the costs of college education went up twice as fast as medical care costs from 2000 to 2016. And then there is all that other stuff you buy -- all those silly aged steaks, lovely cars, and ovens. The overall Consumer Price Index increased by under 50%. 

It is pretty clear from the pretty graph that higher ed spending is the winner. As a former professor, I resent that. Where was all that money when I was sweating it out in my office without electricity and running water? 

Mean conservatives have looked at all this and have come to some conclusions. They see a connection between the ease of getting loans for college, tax benefits, and the expansion of grants and scholarships. Some of these big meanies are proposing a crazy thing. Maybe if the government quit favoring higher ed so much, the price might not go up another 150% in the next years. Crazy idea, eh?

But Junior has to go to school, right? School? Are you kidding? Don't scream at me but I remember what it was like to go to school. Jim and I roomed together for three years in what might now be considered a Georgia prison. Back in those olden days there was no student union, there was not even an espresso maker or a StairMaster in our dorm's break room. Basically there was nothing in the break room except for a couch. No TV. No beer. No JD. No computer games. The entire floor of our dorm shared one pay telephone and one bathroom. We had to pass 18 hours per quarter to graduate in four years and therefore the lack of almost all amenities was necessary since we actually had to study. Study, really?

Today, universities are not spending the money on the faculty -- or at least not on most of them. In fact, the new wave in higher ed is to minimize the use of regular tenure-track faculty. But they do seem to have plenty of money for planting and replanting all the flower beds each season and for building walls, monuments, and other things of architectural beauty. We have more trees on the IU campus than Redwood Park. We build new academic and other campus buildings faster than the NFL can build domed stadiums. Clearly we want the alumni to be comfy when they go to sporting events and we want helicopter parents to enjoy their spring strolls around campus when they come to harass their lovely children's professors. We build luxurious dorms faster than Starbuck's builds coffee shops. Why would a student want to graduate if she could stay in these palaces located within meters of favorite student watering holes?

The kids do not get jobs and the ones who run out of courses to take leave campus and move in with their parents. Meanwhile, the nation has a shortage of plumbers and programmers. Luckily many of these unemployed students are excellent at creativity activities and learning how to discover themselves as they go on their graduation trips to Luxembourg. 

Sorry folks, but this old codger does not like this brand of change. I'd rather see our country surging ahead as a model of innovation and technological progress. I'd like to see adults worrying less about the creature comforts of their kids and helping them better understand the values of things like history, economics, accounting, hard work, patience, and so on. Removing some of the government support might lead to more demanding consumers who require that universities get back to doing what they should be doing. In the meantime, if college is too expensive, young people might try going to a local community college where they might learn something and also gain a marketable skill. They can go to Luxembourg later on their own own dimes. 

Lesson 19 Tax Reform and Simultaneous Organization

Who is up next? I am. My name is Tax Reform. My friend healthcare already struck out. Budget, debt limit, and immigration will be up in future innings or maybe in future games. I don’t know.

No, government policy is not a baseball game. But it sure seems like one as policy deliberations and decisions flow sequentially from one month (inning) to the next. 

What other choice is there? While it seems almost crazy to mention, a better choice is to do it all at once – simultaneous instead of sequential.

We seem to be focused now on tax reform. But we are already hearing that you can’t do tax reform until you settle healthcare. Or you can’t get much accomplished with tax reform until you settle the budget or change the debt ceiling. It’s all related. Who came first, the chicken or the egg?

There must be a prize in government that is awarded to the people who make simple things impossible. People make budgets all the time. So do companies and churches and drug dealers. We plan and make budgets because this activity produces better results. Instead we could wake each morning and make a new decision. It’s Tuesday so maybe I will buy a TV. It is Wednesday so I might sell some shares of stock. It is Thursday, and I will get a job and earn some money.

Sound stupid? It should. But this is the way government works each year. The main reason that sequential budgeting does not work in government is that each policy affects many aspects of our lives. A given policy helps Nolan while is hurts Jenny. Of course, Jenny and her friends scream bloody murder. The next policy helps Jenny but not Nolan. Nolan organizes his kindergarten buddies, and they throw rotten eggs at guilty politicians. The upshot is that sequential decision making gets nowhere because EACH decision has a natural resistance.

Better would be a more simultaneous approach. Let’s take five different areas of policy and find the best solutions. Policy 1 helps one group. Policy 2 helps another group. Policy 3 might help both groups. If you decide and then announce all five policies at once, it is harder for resistance to form. For one thing, figuring out the net effects on people might not be easy when summing up all the pluses and minuses of all the policies. For another, it might be the truth that most of us benefit from the whole package, warts and all.

The above is too abstract. Think next how this might play out in the real world. Good planners begin with a statement of problems. Once the problems are known they can then think about the remedies. What are our national problems?

Low labor participation
Low capital spending 
Slow economic growth
Unequal distribution of income
High government debt
Inefficient tax system
Too little/too much government spending
Too much/too little government regulation of business
Healthcare
Pimples, JD, and other

We can argue about these problems and their order of importance but it seems possible that a fruitful beginning step by national policymakers would be to list these problems according to some definition of priority or importance. Ties are permissible. Just rank them, damn it.

Then they would produce a list of policies that might address one or more of those problems. Such policies would include tax reform, tax cuts, government spending changes, reforms to healthcare, immigration policies, and so on.

Assign every policy a positive or negative number as to how that policy might impact each and every problem listed. Note that a tax reform policy might help the rich more than the poor in dollar terms. A government spending policy might do the opposite. Do not try to make every policy help every problem and every person. Each policy should have an intended benefit though with side effects.

Summarize the positive and negative impacts of each policy on each problem area. The first round of this simultaneous approach will find some policymakers do not approve of the results. Go back at it and adjust each policy so that the net result of all the policies is acceptable. No set of policies will make everyone happy. This approach has a chance of finding a solution that recognizes that not every policy will make everyone happy but that the sum of all the policies generally improves things.

Every major organization works this way. The board approves a comprehensive plan whose purpose is to best meet the goals of the organization – be they marketing, finance, or human resources. They do not go from day-to-day making decisions willy-nilly. Call me a dreamer for believing that government can be thoughtful and goal focused. But that just shows how we have come to accept idiotic and failed approaches to our very important problems and goals. Or maybe, like watching a good fist fight, we revel in the blood and guts. Government policy is pure entertainment. In that case, we deserve what we get. 

Net Neutrality: David Versus Goliath?

I was thinking about words and names and it occurred to me how misleading they can be. Social Security is a good one. Who feels secure about their retirement years because of the Social Security checks they may or may not receive? It should have been called Pin Money or maybe Chump Change. It is a damn shame that so many people will retire with little in the bank and must rely on so-called Social Security.

And then there is Net Neutrality. At first I thought NN had something to do with not touching the badminton net. Then I realized it had something to do with the Internet, and it made total sense – the Internet should be neutral. The Internet should not be for or against Tom Brady. But then I read on and realized NN is all about a war between ISPs (Internet service providers like Comcast and AT&T) and all those content providers (like Amazon, Google, Facebook, and thousands of others).

The issue took on significance when President Obama’s FCC initiated a rule that concluded that Internet service is a basic need. It’s like weed – we all need a little from time to time. No, that’s not true. It is like the pavement between your house and your job. We all need to get to work. Your sexy neighbor with the big smile and hot red car should not have better access to that concrete than you. Be proud of that Lada and drive it right down the middle of the road!

The FCC enacted the Open Internet Order in 2015 to treat Internet service more like a road or a public utility. And thus the issue got hot. President Trump’s FCC reopened the case and is wondering what to do about it, so it is approaching a boiling point. I like the article I just found by Nelson Granados https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/nelsongranados/2017/05/31/the-net-neutrality-debate-why-there-is-no-simple-solution/&refURL=&referrer= ) 

The article is pretty unbiased as indicated by the title – The Net Neutrality Debate: Why There is No Simple Solution. Granados concludes that NN is much like any government regulation – the basic premise might be correct but the unintended side-effects need to be considered. On the one hand, the right amount of NN means more fairness to content providers. Too much NN means a lack of progress, investment, and innovation on the part of ISPs.

When Granados says there is no easy solution, he basically means it is not easy to find the exact point of net benefit to society with NN. As in many cases, the answer lies not in the perception of government versus the company but rather impacts on one set of companies (and consumers) versus another set of companies. As you can imagine, both sets of companies are lobbying the government when it comes to NN. The ISPs (e.g. Comcast, Verizon, AT&T) want lighter regulation. The content providers (Amazon, Facebook, Google, Netflix, and many more) want tougher regulations.

In this blog post today I don’t pretend to know enough about which side is right. Perhaps you will educate me. But what I do think is curious is how many people are phrasing this as a David (content providers) versus Goliath (ISPs) confrontation. And of course, we are supposed to favor tiny sweet David over huge ugly Goliath. So today’s post is a look at the relative size and wealth of some of these companies.

I got the data from the Internet and mostly from Forbes.com. Most of it is for year 2016. So here goes…CP means content provider and ISP means Internet Service Provider.

The largest companies in terms of market value are CPs – Alphabet, Amazon, and Facebook. The largest ISP (AT&T) is valued at $255 billion with Verizon at $199 billion. The main point here is that there is no David and no Goliath if the biggest CPs are duking it out with the largest ISPs.

I will admit that this data may be misleading. For example, saying that AT&T is a CP might be misleading because it operates in numerous business activities. The same goes for Alphabet which owns Google. But the data are relevant in the sense that these companies lobby, and the entire wealth/sales of the company is an indicator of what they are capable of spending on government support. The column presenting each company's sales data is not more helpful in the David/Goliath breakdown. ISPs AT&T and Verizon have huge sales but so does CP Amazon.

I had a limited purpose today. NN is not a David/Goliath story. It is more a government regulation story. We consumers don't really care who wins but we want two things. We want continued investment and innovation from the Internet. We also want fairness in the sense that some content providers are not elbowed out of competition simply because they are friends with the right people. We want our Internet cake and we want to eat it too. Hopefully a public discussion will move the regulatory needle so we at least get a nice brownie with some ice cream on top of it. 

                                             Sales      Market

                                                            Capitalization

                                             $Bil        $Bil

CP          Alphabet                90         583

CP          Amazon               136         423

CP          Facebook               28         411

ISP         AT&T                  164         255

ISP         Verizon                126         199

ISP         Comcast                 80         178

ISP         Charter                   29         101

CP          Priceline                 11          88

CP          Netflix                      9          64

CP          Salesforce                8           58

Truth, Lies, and Misrepresentations

We are learning a lot lately about how people purposely lie and mislead on social media. Especially sad is how people fabricate news stories to the delight of friends who they know will spread the lies multiple times. The term urban legend has been around a long time. I understand it to mean a fictional account that has been circulated enough so that many people believe it to be true.

It worries people that soon we won’t know the difference between fact and fiction. Information will exist but its validity will be suspect. Whether it is evidence about global warming or about the color of the skin of a murderer, most of us will just shake our heads and wonder if the latest story has any truth to it. Information will (already has) become entertainment and persuasion.

We have been dealing with fact and fancy for a long time. In physics, we learn that the very fact of observing a phenomenon can bend its result. Does a tree that falls in the woods make a sound if we are not there to hear it? These ideas titillate the mind. Complicated phenomena (like poverty, economic growth) must be observed and interpreted, and there is room for two different observers to come away with two very different observations and conclusions.

Thus it is reasonable to think of truth as being subjective. And therefore it is possible that you might think one person is lying despite his or her very ardent attempts to be truthful. But when it comes to most things, this element of subjectivity is pretty minor. Many things are very clear. What goes up usually comes down. One final JD has predictable effects. A person high on crack may commit horrible crimes. Too much pollution makes for illness and discomfort. It it other more complicated phenomena that cause the consternation about truth or fiction.

I want to split a hair about these complicated issues. Yes, there is more than one interpretation. There is more than one intelligent view of the truth. But that does not give one license to intentionally lie and mislead. I am often critical of economists who intentionally distort issues by leaving out critical facts that they know to be true. They probably do not admit to their families that they tell whoppers, but surely they appreciate the back slaps, promotions, and high-paid speech opportunities that come with wowing their followers.

Sadly, misrepresentations are hitting new levels. Let me list below some of the ones that have been spouted in the last week by very prominent people.

Federal Reserve interest rate increases will lead to the next recession.

Any attempt to reform Obamacare will be tantamount to pushing grandma over the cliff.

Because Boomers are retiring, it is impossible to have strong employment growth in the US.

Consumer finance deregulation will lead to predatory lending and hurt loan customers.

Tax rate reductions that are part of tax reform will worsen poverty.

Deregulation of the financial sector will lead to excessive leveraging and lead to another financial disaster.

Any attempt to regulate abortions will cause irreparable harm to women’s health.

Infrastructure proposals with strong private sector participation/ownership will lead to rampant corruption.

No, I am not going to take each of these and bore you with a complete analysis. But be honest. The people who are now saying these things (and more) are misrepresenting truth. The people who say these things get wealth, power, and popularity by misleading you or providing ideological fodder for your predilections.

Could any of the above statements be true? Of course they could. But they might also never happen because they are each based on excluding things we know to be true. We know that regulations introduced in the last eight years were not all perfect. We know they have had severe unintended effects. We know that today we have major economic and social policy challenges. 

Policies and regulations can easily be represented by a meter or a dial. In some years the needle moves to the left. In other years it moves back to the right. Arguing about these shifts and changes is normal. Screaming bloody murder when the next team gets power is normal too. But making up stories is not and should not be tolerated. 

Let’s decide a position for the needle in the coming years based on honest and open discussion of the fullest possible set of facts. It might not amount to absolute truth but it will get us a lot further than a bunch of sad distortions. 

Padded Bras, Idiotologies, and Government Regulation

After my last diatribe about supply-side economics a business friend of mine gently reminded me that I left out the impact of government regulation. So immediately I decided to write something about the impact of government regulation and warn my 17 readers about the evils of government. I was stoked.

But then it dawned on me that this is 2016 and the year of a presidential election. It also dawned on me that the candidates have waged a war or revolution against most things large – large companies and large government. And revolutionaries don’t care much about careful analysis – or for that matter, any analysis. They prefer to have rallies and shout slogans and be especially proud of themselves for defying the man.

So I immediately felt a sense of reluctance. Who really cares about the impact of government? We have our ideological camps and the camps already have well-rehearsed slogans. One camp says to regulate those greedy, immoral corporations. The other camp screams that governments are morally bankrupt and bought and paid for by those corporations. Between revolutionary zeal and warring idiotologies (not a misspelling) why should I spend time writing “on the one hand this and on the other hand that”?

Why? Because it feels good. It tastes better than a fried egg on toast. I started writing these blogs back in 2010 because I felt like spouting off. So why should things be any different in 2016? Okay I have less hair and can’t remember where I left my keys but why should any of that matter?

So onward with regulation.  My main point is that many of us who are not Rand Paul supporters immediately side with the pro-government regulation camp. Even Adam Smith believed that competition needed some oversight from the government. Smith believed competition is a very benign force for society. Business people might like to talk-up competition but some would prefer less of it. And I recall reading about market failure and how such failures mean that markets are not always self-medicating. I loved the topic of externalities – wherein an innocent third party gets negatively affected by business activity. A great example is the business on a river that pollutes the river making padded bras for ladies and as a result poor Nathan’s drinking water tastes like hydraulic fluid.

And the rest of us nod when our friends point out that police and fire protection are forms of government intervention. Naturally we want someone to objectively oversee the process of making sausages and medical devices. And we know that financial scam artists like The Fonz who misrepresent the benefits of reverse mortgages should be examined for head lice and their truth-telling.

So it is pretty clear that government regulation, like pole dancing, has a good side. Government regulation is here to stay and for many good reasons. But like pole dancing, it is worth pondering at least now and then if there is bad side. Looking for bad sides is not an activity cherished by many of us. How could there be a bad side of government regulation? After all, the mission is correct and government workers are underpaid servants of the people. Think of those nice workers at the airport who so gently and caringly pat you down as you shed your shoes, wallets, nail clippers, weed pipes, and other vestiges of your human dignity.

So the case is pretty strong for government regulation and even daring to analyze it makes me seem suspicious to many people. Larry don’t attack our government! But golly gee I am not attacking anyone. I simply want to ask some questions – is it possible that governments don’t necessarily make things better? If corporations can’t fix problems, then why are governments naturally better? Is it possible that governments sometimes have nice people but that temptation leads them down the wrong path? No, I am not going to answer all those questions. I am just saying…just because business creates problems it does not necessarily mean that something called government is the better solution.

Citizens evaluate government all the time. Private toll roads replace free government roads from time to time because it is believed that markets provide more efficient outcomes especially when Government George’s cousin Bob owns the local asphalt plant. Formerly Soviet Bloc countries have privatized many of their corporations as part of programs to create more efficient outcomes for their workers and consumers. I often wonder why I can’t choose Singapore Airlines to fly from Indianapolis to Seattle. Surely Delta customers would benefit from a bit more competition for domestic airlines.

It is okay to stay focused on government. It is possible that government has unintended side effects. It is possible that government over-does its mandate. It is desirable to scrutinize government as much as we watch over business. I won’t repeat any of the estimates of the costs of government regulation on the average firm and customer – because they are probably exaggerated. But they are real. Yup, we want a clean and safe environment. But we also don’t want to throw the baby out with the dirty bath water. Government regulations impede productivity and they raise business costs and negatively impact our nation’s economic growth. That’s for sure. We need to regulate government so that we get it just right – plenty of safety and plenty of growth!