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This week, the men of the Ricochet Podcast travel to America’s heartland to interview a beloved figure from the country’s recent political past. Former Indiana governor and current Purdue University president Mitch Daniels joins us to discuss his WSJ Op-Ed piece How Student Debt Harms The Economy. We also chat about making college more affordable and the President’s proposal “to lower the cost of community college — to zero.” Also, a boots-on-the-ground report from NYC on the alleged Snowcopalypse, what liberals get wrong when they demonize the Koch bothers, Apple’s stunning quarterly report and the lessons for the economy as a whole, Putting to Rest the Idea that the National GOP Is Conservative (thanks to Ricochet member Robert McReynolds) and finally, Why do so many Hollywood liberals and Western lefties have a beef with American Sniper? We attempt to answer Ricochet member Paddy Siochain‘s question while correctly pronouncing his user name. We pretty much fail at the latter.
Music from this week’s episode:
Hail Purdue by Purdue University
The opening sequence for the Ricochet Podcast was composed and produced by James Lileks.
What’s a boilermaker, EJHill?
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The WSJ piece by Daniels doesn’t make particularly strong points.
1) $33,000 in debt is hardly a large amount. Its actually rather small, given the time periods associated with paying it back.
2) Evidence suggests that this debt is more heavily concentrated at the top income households: i.e. those people who can afford to pay them back much more easily.
3) The evidence suggests that the “burden” pf paying the loans back has decreased considerably over the past years…i.e. the amount of monthly payments. In fact, they have decreased by more than 100% sine 1992. Mainly due to increased terms for borrowing and more flexible terms and interest rates.
4) It’s not particularly “troubling” or even “interesting” that those with more debt don’t start businesses as often. Those with more debt are usually pursuing better educational opportunities, or higher degrees…which afford them better opportunities than starting their own business.
5) Starting a business is not only an extremely risky and highly unlikely to succeed, but it also means foregoing tremendous amount of opportunity costs.
Spending the first 5 years of your time after college on a “business” that is…very…likely to go bust, will have rather large impact on your future earning potential if you decide to go back into the “corporate world”, then spending those first 5 years actually getting experience.
6) The last thing that would be a good idea…is to have young people with no experience or knowledge go open “businesses”. You open a business when you have something to open, i.e., you have an idea worth pursuing.
7) Money is hardly ever the impediment to opening a new business. Good business ideas…are.
8) The returns to college education, and particularly to higher level degrees (which would also be highly associated with higher levels of debt), are extremely attractive. So why would it be a good idea for a “young person” to forego these rates of return…for a “new business” which on average is much more likely to fail then ever make any money?
Dang! A 21% yearly return on an engineering BS? And we’re “worried” that people aren’t starting their own businesses? What rates of return are those likely to give the “entrepreneur”? Likely…zero.
So I disagree. Overall, this is not only not a problem, it’s very rational and a good idea.
Purdue – First on the moon (Neil Armstrong) and the last to leave (Gene Cernan).
Student loans should be dischargeable in bankruptcy, and the college(s) who got the money made the primary guarantor(s) of the debt. If the student defaults, the college is on the hook.
Ancient wisdom:
Hey whoever is managing this podcast make sure to tell Peter and Rob they were close but no cigar:
Paddy Siochain is in english Paddy Sheehan. (I have to disguise my name as I am a secondary teacher)
Thanks for the compliments on the piece Rob and Peter.
Facts people! Facts!
1) If they are discharged in bankruptcy, then their interest rates will be higher.
2) Colleges don’t get the money. The student does.
3) Colleges already provide massive amounts of grants and scholarships to students. Money which they don’t even ask back. So they’re already “on the hook” for all that. 35% of public university students and 55% of private university students receive scholarships from the university (in my case, for example, the scholarship accounted for a full 1/4 of the total cost)
4) If the student defaults because he/she made poor life choices and decided to gamble all their money in Vegas, what’s the fault of the college?
5) Default rates for 4-year universities are actually pretty low…7-8%.
6) The biggest contributor to default rates on student loans…are 2-year institutions (20-25%)
7) The amount in default is on average pretty low (about $14,000)
8) To get out of default, payments as low as $5/month are sufficient.
So the default has nothing to do with it. It isn’t people from Purdue that are defaulting. It’s the people going to “community college”, “trade school” and “fly by night for-profit schools”. Those people are already much more likely to default simply because they are much less likely to be able to handle money properly.
Is this a misspelling, or a Sharknado-like blizzard carrying police officers?
A recommendation for the future: Don’t bring a guest onto a political podcast who is committed to avoiding political discussions. His segment turned into an extended marketing pitch for Purdue University. The paid sponsorships are more interesting.
PS: The relationship is precisely in the opposite direction…people who go to cheaper schools and taken on less debt, are much more likely to be in default than people who go to more expensive schools and take on more debt.
And that’s exactly the way you would expect them to be: those schools are more expensive for a reason. They provide better opportunities.
Given that default rates for 4-year colleges are about the same level as default rates for residential home loans…is telling…given that student loans aren’t given out on the bases of your credit score or history, while you can’t even get a home loan on bad credit (for you to default on). If they had credit score criteria, then the numbers would be tiny.
Fixed!
You raised my hopes and then dashed them.
So…skyrocketing tuition rates are just a-okay. completely justified, nothing to see here, just move along?
Yep.
No Amazon button on the Apple TV… I suppose if Amazon wants to purchase space Apple would be glad to have them.
A lot of major media companies have taken a hand at controlling the pipe into your home. Time-Warner was at one time the largest Multi-System Owner (MSO) in cable television and had properties like CNN, TBS and TNT. They ditched that and spun the infrastructure off.
For a while NewsCorp owned DirecTV. They bailed.
Now Comcast is trying to gobble up the remains of the Time-Warner cable business and all while owning the NBCUniversal properties.
In each case the FCC prevented them from ditching the networks of their competitors. As net streaming starts to rival cable you can bet the government is going to use that as another excuse to get into heavy handed regulation of the internet.
Regarding videogames.
1.) I am listening to this podcast while playing a game. So there.
2.) There’s actually some sporadic evidence that videogame makers are not actually doing that well. They sell lots of units, but the development costs for a videogame are orders of magnitude greater than movies -for a AAA title that seems obvious as just the cutscenes themselves may well be the length of 2 or 3 movies, plus the gameplay -and therefore even when they sell millions of units, they still lose money.
Hurray! I figured right!
Basil Fawlty: I just want to say one word to you. Just one word.
James: Yes, sir.
Basil Fawlty: Are you listening?
James: Yes, I am.
Basil Fawlty: Roku.
Basil: I know, I know, but it’s another box. Unless you mean the stick. In either case it’s another remote. And I’ve used all 3 HDMI ports. Easier to stream from the phone, and the app just updated to fix the hiccups.
I was next going to suggest a $7.77 HDMI splitter from Amazon, but then I remembered that it comes with another remote.
Ok, the whole “No, this is new” in an audibly worried tone from Rob after Peter asks if James has ever before walked off after a segue interruption had me roaring. Lucky I didn’t run into the car in front of me.
Fogey Alert: When James walked I wondered who among them was worthy of the title “Our Regis Philbin.” (Or Hugh Downs)
You have a new opening. Fine. But the line just before the final Reagan line is barely audible. Is that Thatcher? C’mon, make her line louder.
So, who’s in the new opening? John Kerry, Hillary Clinton, Bush 43, Marco Rubio, Margaret Thatcher, and Reagan?
How’d I do?
BTW: The day you guys drop Peter Robinson’s line, spoken by Reagan, from the opening is the day I ask that you cancel my membership and demand a pro rated refund.
It’s always interesting to hear Mitch Daniels because he has a very non-accountant-like way of communicating complex issues simply, especially for an accountant, who really sounds like an accountant, just the mythical interesting kind.
On the flip-side of that trait, however, his accountant-iness seems to sometimes over-simplify issues in a balance sheet sort-of-way. In the podcast, he focused on two key areas: 1) cost, and 2) declining opinion of the importance of a post-secondary education. He seems to see the higher ed issue as one of as many people as possible getting a post-secondary education while keeping the costs down. On a balance sheet, that means we need to keep demand up (students, with overall revenue matching expenses) while reducing costs (expenses).
I think this analysis completely misses the core issue, which he sees but misappropriates. The first thing he said about costs is dead on: the central issue in rising costs is inelastic demand, i.e. when price to the buyer goes up or down, the buyer’s demand for that particular product does not match the price change; in fact, demand barely changes at all. (In higher ed, once administrations starting figuring this out, costs, particularly administrative and programmatic, have skyrocketed.)
The question that should always be asked about a product that induces this phenomenon is, “Why do buyers pay so little attention to price for this one thing when they are so price sensitive for most everything else they buy?” Daniels seems to identify the phenomenon without asking this obvious question. I would say the answer to the question for this product, higher education, is simple: everyone says college is worth it (“it” being totally undefined).
Daniels sees a problem in Americans’ opinion of the importance of college dropping from 70ish% down to 40ish%. I see it as progress, in that many more people are now considering why they would go to college and what the costs and benefits of the current homogenized system are. I see the first number, 70ish%, as way too high, at least when it is presented as an unqualified importance.
Daniels clearly emphasized the need for better quality in education and the detrimental effects of excessive costs. Importantly, he emphasized the need for a range of higher ed options. But he also stated that it should be our goal for everyone to want to get at least some degree beyond a high school diploma. If inelastic demand is the core problem generating rising costs, is making demand less elastic the answer? Clearly not. More beneficial to us all, I would say, is an emphasis on appropriate continuing education at the appropriate time, along with emphasis on variety, quality, applicability, and cost.
I would love everyone to get a good liberal arts education and then a good professional one, making us a vastly knowledgeable and thoughtful democratic citizenry with economic skills. That simply is not attainable. But we can do a whole lot better than simply saying everyone should get a degree.
You do a fairly good job of analyzing the situation, but you yourself don’t answer this question.
WHY…do people think it’s worth it?
Now, if one takes the assumption that people, in general, and in large groups (;) ) are…not…stupid, then the answer is that they “do” so because it actually is so.
I emphasize…do so…because what people “think” is irrelevant. What people actually, do, is the only relevant thing.
The answer becomes even more obvious when one looks at every objective measure of performance of college educated people, broken down any way one wants to…compared to other groups. The returns are huge.
If someone came to you sand said: Hey, if you give me $33,000 today, I can pretty much grantee you, with very little risk and very little volatility, a yearly return of somewhere between 7% and 21% per year, for the next 40-45 years.
What do you say?
Any reasonable person would say that that is the best investment opportunity in existence. And take the deal.
And here we are, scratching our heads, wondering “gee, why these people keep going to college if prices are going up?”
The second issue here, of course, is that the US higher ed system is by far and away the most successful and effective in the world. No comparison.
So “better education” is a meaningless term.
It’s one of those terms that only politicians and policy wonks can every utter.
Better than what?
And third of course, the US already has a wide range of universities and colleges in terms of quality and price and all sorts of things.
Saying we need “more variety” is a meaningless term. You have State universities charging minuscule tuition amounts, such as Texas Tech for example…which is a pretty decent school…and where you can get a pretty decent engineering degree for a…CRUSHING…$4,500 a year :)
And then you have MIT where you can get the world’s best engineering degree for $50,000 a year.
That’s a rather “varied” range, don’t you think? But people aren’t stupid, and they can make their own trade offs whether the extra cost of MIT is worth the extra benefits, over Texas Tech.
And people aren’t stupid, and they do make those trade offs, without any politician telling them.
This is one of those claims that has become religious dogma for “conservatives”…but for which not a shred of evidence exists.
The growth in “administration” is almost entirely driven by 2 things: research and medical schools. Medical schools is obvious why. Research, is because virtually every grad student also works as something, and is counted in the employment rolls of the school (i.e. double counted as a student and an RA or TA). As the number of people going into graduate programs at research universities has increased considerably, so has…not surprisingly…the number of people employed by the school.
The comments about the Koch Brothers were really great. If I am in a situation where a proudly moderate, fiscally conservative yet socially liberal friend who now hates the Republican party (there are lots of these types these days) scoffs at the Koch Brothers, I can lead them into the trap…
“Do you know who shares the same beliefs as you? The Koch Brothers, that’s who.”
As am I.
AIG, I don’t know how they count things where you live, but at my institution we count research and teaching staff differently from administrative staff different from other staff (custodians, for example). Whether you cut it by FTEs or total payroll, administrators have ballooned in the last 20 years. And that’s not because I have an army of GAs at my beck and call.
Now, I’m actually generally OK with this -as I point out not-infrequently to my colleagues -if you want to get rid of the vice president for intramural sports, we’re going to have to either divide their job up among the rest of the faculty, or we’re going to have to accept that the job won’t get done and just let students figure out how they’re going arrange these games.