Obama and Romney on reviving the economy: Blow up the education bubble

The education bubble is just like the housing bubble and it's ready to pop. But both Obama and Romney think blowing it up further will help revive the economy.

TAMPA, October 18, 2012 – Mitt Romney has been able to cruise through two debates with Barack Obama by utilizing a surprising strategy. When Obama has gone on the attack, citing the “draconian cuts” that the delusional on both sides of the aisle imagine Romney would propose as president, Romney has completely defused the president by simply telling the truth.

He’s not cutting anything.

He went a step further during last night’s debate. Like Obama, Romney is not only refusing to cut a single penny from any government program (other than Big Bird), but he’s now on the record that expanding the welfare state is a key plank in his “job creation” plan. In addition to stating “I want to make sure we keep our Pell Grant program growing,” Romney went on to emphasize the importance of keeping student loans available.

Forget the supposedly conservative principle that it is immoral for the government to force one citizen to put up his money to guarantee loans taken out by another, much less force that citizen to pay another’s tuition outright. That principle is long, long gone from the conservative psyche.

What is disturbing is that neither candidate seems to have any idea that their plans for education will exacerbate a bubble that has all of the same characteristics of the housing bubble.

Like home prices in the past decade and healthcare prices for several decades, the price of higher education rises at a much higher rate than inflation and beyond what the market would naturally bear. That’s because the same forces are working on the price of education as healthcare and housing.

First, the Federal Reserve’s easy money policy provides capital that would otherwise be unavailable to non-creditworthy borrowers. With that money available, government subsidization through direct transfer payments or by guaranteeing loans to people who otherwise would not get them explodes the demand curve. With demand virtually unlimited and the government also limiting supply with its myriad regulations, price must obviously go up.

This distorts the market in innumerable ways. More colleges and universities get built than the market can actually support. They hire more people and pay them far more than the market can bear. More people go to college than would go in a natural market. People take on debt that they cannot pay back for a product that isn’t worth anywhere near what they paid for it. That the average college graduate is taking a job flipping burgers illustrates this perfectly.

This should all sound eerily familiar, but apparently not to Obama or Romney, who not only don’t see the education bubble as a problem, but instead cite blowing it up further as a key plank in their economic recovery plans.

That’s not surprising. Neither politicians nor their crony economists have the intellectual tools to foresee these easily predictable disasters. They all subscribe to the same government-centric worldview that inspired Paul Krugman to exhort Alan Greenspan to blow up the housing bubble in the first place.

Meanwhile, student loan defaults increased significantly in 2012 for the fifth straight year, with 13.4% of all loans defaulting. Not only are students taking out monstrous loans to pay for higher education, but in many cases their parents are also taking out loans in addition to their student kids.

Sooner or later, the bubble is going to pop. When it does, Americans will see an instant replay of the housing bubble. Defaults will accelerate and banks will be looking for bailouts.  Tuitions will plummet, causing massive layoffs of teachers and administrators. Schools that the market could never have supported naturally will stand empty. The spike in unemployment will further reduce the government’s ability to service its debts or guarantee new loans, which will compound the crisis in education.

Of course, the government will react as if this were some unpredictable crisis whose cause is completely mysterious, even though plenty of people saw it coming for years.

If the crisis hits during the next presidential term, whoever is president will continue the grand government tradition of trying to solve a government-created problem by creating a new one. Mitigate the NASDAQ meltdown with a housing bubble. Mitigate the housing meltdown with an education bubble. When you’re out of bubbles, start a war.

Meanwhile, the American public doesn’t bat an eye as both presidential candidates promise in lockstep to hit the gas pedal while driving down this road to disaster. When the inevitable occurs, voters will likely accept the establishment’s explanation that this was some failure of the free market and support even more government intervention. When will we ever learn?

Tom Mullen is the author of A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

 


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Thomas Mullen

Tom Mullen is the author of A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. He writes weekly columns on his blog and has been featured on The Daily Caller, The Huffington Post, Daily Paul, LewRockwell.com, 321 Gold! and Peter Schiff’s EuroPac.net. Tom has been a guest on Fox’s Freedom Watch with Judge Andrew Napolitano, Adam Vs. the Man, Free Talk Live, and numerous other programs.

Tom is originally a native of Buffalo, NY and graduate of Canisius College. He earned a Master’s Degree in English from State University of New York College at Buffalo. He now resides with his family in Tampa, FL.

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