How your iPad will conquer student debt

Aristotle teaching Alexander.

College costs are out of control. Students and families are reeling under burgeoning debt. Politicians, state and federal, are rushing to feed the beast they have created. That might work.

The statistics are appalling when taken in whole. Here are a few…

• Since 1990, the cost of attending college has risen at over four time the rate of inflation
• In the last 25 years, full-time university administrators have increased 75% while student enrollment has grown only a bit over 25%
• Median pay for public-college presidents is now over $400,000 with several being paid over $1,000,000
• Since 2001, the cost to attend public college will have doubled by 2016
• In 1991, one in ten families carried tuition debt while today it is one in five, with many owing over $100,000

It’s undeniable that attending college has become as much a financial burden to the typical American family as home ownership. But, the recent housing bust included, home ownership on whole is still a long term investment that pays off. The same cannot always be said of the “investment” in a college education. Nearly half of all college grads now work in jobs that don’t require a college degree. Was that a double latte macchiato?
  

There appears to be a confluence of several trends at work here.

1. Public funding of tuition support has enabled colleges to exorbitantly increase fees and tuition
2. Colleges have greatly increased the number of dean or director-level positions dealing with equality, diversity, and related non-academic functions
3. We have encouraged all students to attend college, some who might be better served by excellent vocational schools

While we might continue down the path of publicly funding these fiefdoms, there is little hope that strategy will yield affordable results. Fortunately, there is a light on the horizon.
   

Teaching is the act of imparting knowledge. But over 2,000 years, we are using techniques that are fundamentally unchanged since Aristotle’s students sat at his feet. The internet has blown up that model by allowing a skilled professor to now instruct thousands of students at one time. Computerized courseware administers quizzes and recommends supplemental studies individually tailored to each student. Academic courses can be undertaken in the solitary environs of a student’s home, or in small study groups, or remote classrooms. The only requirement is an internet connection.
  

Simply use your favorite search engine to look for “university courses online.” You will find that many leading universities are offering internet courses, a good number for credit. Private, donation-based organizations such as the Khan Academy provide in-depth training in a wide range of topics from mathematics to history to physics to finance. For-profit companies are beginning to see the opportunity. Coursera, Inc., has partnered with 33 top universities to offer academically rigorous courses to students all over the world. 
  

Bloated colleges feeding at the public trough will soon take note. Some of them will see the opportunity and will embrace this new paradigm. The rest will see their enrollments dwindle. That’s life.

The unintended consequences of Obamacare

President Obama signing the Affordable Care Act

What do these disparate items have in common?

          -  9.9 horsepower outboard motors

          -  50-seat regional jets

          -  29 hour work week

All are unintended consequences of government actions.

For instance, the great state of Maine, as well as other jurisdictions, require that 10 horsepower outboard motors and above be registered (and therefore taxed). What was the reaction of manufacturers? Of course, they detuned their 10 horsepower models slightly and rebranded them as 9.9 hp. Now, in the marketplace, 10 horsepower motors are extremely rare and 9.9 models plentiful.

The Federal Aviation Agency has a safety regulation (FAR 121 section 391) that specifies the following:

“For airplanes having a seating capacity of more than 50 but less than 101 passengers – two flight attendants [are required]”

Airlines could save a lot of money by using only one flight attendant in a 50 seat aircraft. And indeed they did, ordering the Bombardier CRJ200 in the 50 seat configuration in great numbers even though the aircraft was capable of carrying 52 passengers.

And finally, the Affordable Care Act (“Obamacare”) defines full time employees as those working 30 hours or more, and requires that those employees must be provided with full health insurance coverage.

“For purposes of section 4980H, a “full-time employee” is an employee who is employed on average at least 30 hours per week.”

So, once again, the reaction of the marketplace is predictable. The Huffington Post reports that the “Community College Of Allegheny County will cut the hours for some instructors to avoid paying for their health insurance coverage under new Affordable Care Act rules.” CCAC President Alex Johnson announced that they will be cutting the hours of 400 employees to less than 30 hours to avoid paying for health insurance, thereby saving $6 million.

But the surprising thing here is the comments posted in response to the Huffington Post article by their audience of typically liberal readers. Here is an example, directed at CCAC:

“If you can't afford to pay for employee benefits, don't start a business. Period.”

So let’s analyze this sentiment. This particular individual, representing the voting bloc that reelected President Obama, is advocating for higher unemployment.

How about this one?

“This is being portrayed as a failure of Obamacare, but it's more a failure of inadequate financing of state run higher education.”

This Obama voter is calling for higher tuition rates, a burden that parents and students already find intolerable.

And CCAC is only the tip of the iceberg. Similar stories are emerging regarding many other companies including Walmart and numerous others. For instance, the New American reports:

“According to the Orlando Sentinel, Darden Restaurants, Inc., operator of casual dining chains such as Olive Garden, Red Lobster, and LongHorn Steakhouse, is doing just that [reducing hours].”

The Affordable Care Act was validated by the Supreme Court and cemented by the election of 2012. The only surprise is that Mr. Obama’s supporters are surprised by its unintended consequences. Apparently, the 1,017 page bill should have been read before being voted into law.

Many liberals are now calling for additional legislation to prohibit companies from reducing hours to avoid health insurance costs. Proof only that big government always leads to even bigger government.

The price is right

Soviet farm women search empty shelves for overshoes.

How is it that we can find fresh tomatoes in Manhattan in January while Soviet farm women struggled to obtain adequate footwear and were often faced with empty shelves?

A seemingly simple question, but one which reveals the power of a market economy and the importance of prices.

When you decide to buy something, price is a very important factor in your decision.  You may decide to buy McIntosh apples at $1.29, or perhaps Red Delicious at $1.39.  But you might decide to substitute bananas for your fruit, or buy nothing at all.  Any of these actions sends a signal to suppliers whether to provide more or less of which variety of apple, or perhaps bananas instead. 

When you participate in these economic decisions as a consumer or supplier, you become part of an enormously powerful, highly parallel, economic computer.  This computer, orders of magnitude more capable than IBM’s Watson, allocates resources to meet demand at prices that consumers will pay.  Hundreds of millions of decisions are made every day: prices accepted or rejected by consumers, set by competitors, and read by suppliers.

What happens when this mechanism is bypassed or distorted?  There is abundant evidence that we suffer shortages, unwanted surpluses, or unaffordable prices when government, in its hubris, attempts to plan supply or control prices.

At one extreme is the Soviet Union; it was a managed economy with faceless bureaucrats determining investment, resource allocation, and production schedules.  Over the period 1928 to 1991, the Soviet citizenry’s experience was one of chronic shortages of food, fuel, and consumer goods.  A bureaucracy, even armed with automation, cannot begin to approach the immense power of our collective  economic computer.

Our government can, and does, fiddle with our market economy, with less than stellar results.  There are many examples.

·       Subsidies cause high prices.  During the conversion from analog to digital TV transmission, the government offered $40 coupons for converter boxes.  You never saw a converter box offered for less than $40 – it became the new zero (price floor).  There is strong evidence that government grants and loan programs have contributed mightily to the inexorable rise in college tuition.  Scholarly  studies show that government subsidies of ethanol have resulted in higher corn prices.  (Have you noticed what a box of corn flakes now costs?)

·       Price controls create shortages. When the government puts a cap on prices, shortages result.  During the gasoline crisis of 1973, price caps resulted in widespread shortages and massive lines of people waiting to get a few gallons of scarce gasoline.  In an attempt to control "gouging" during emergencies, government price caps only insure that shortages will occur.

·        In the absence of price information, competition disappears. Our current health care system is a perfect example of the lack of price information inhibiting wise consumer decisions and supplier price competition.  The result?  The cost of health care rose 7.32% in the 12 months ending in August 2010 (last period available), while the general rate of inflation during that same period was 1.1%.  So why did health care costs increase nearly 7 times the rate of inflation?  Because consumers have no idea what services cost, and additionally, have no skin in the game.  After all, the insurance company will pay.

What can you (citizen, consumer, voter) do with this knowledge?  First, be very skeptical of your legislators.  They may think that they are superior to our human, economic supercomputer, but they are not.  Be wary of schemes that “control prices”.  That can only be done with effective competition and full knowledge of pricing.  Look askance at subsidies; they will only result in higher prices.  Meet with skepticism any proposal that does not engage the pricing mechanism to determine supply, and competition to moderate prices.  

More and better information is always the answer, so that you, the wise consumer, in concert with millions of your fellows, solve the equation of how much of what to produce at a price that consumers will pay.  This is equally true of apples and hospital stays.