Tuesday, June 21, 2011

The Education Complex

Over at Zero Hedge, they and Bill Gross are catching up to the Socionomist in casting a critical eye on Higher Education as it has manifested itself over the past couple of decades:

Bill Gross: "College is Worthless"
submitted to ZH by Tyler Durden
...In his just released latest letter (below) Bill Gross piggybacks on this observation in what is one of the most scathing notes blasting the traditional of higher education, and in essence claiming that college, as means of perpetuating a broken employment status quo whcih redirect labor to a now-expiring Wall Street labor model, is now worthless: "The past several decades have witnessed an erosion of our manufacturing base in exchange for a reliance on wealth creation via financial assets. Now, as that road approaches a dead-end cul-de-sac via interest rates that can go no lower, we are left untrained, underinvested and overindebted relative to our global competitors. The precipitating cause of our structural employment break is both internal neglect and external competition. Blame us. Blame them. There’s plenty of blame to go around." And why college graduates have only a 6 digit loan to look forward to: "American citizens and its universities have experienced an ivy-laden ivory tower for the past half century. Students, however, can no longer assume that a four year degree will be the golden ticket to a good job in a global economy that cares little for their social networking skills and more about what their labor is worth on the global marketplace..."

The article reposts Bill Gross' usual insightful writing. Agree with him or not, he is a sharp man and one worth listening to. I fear his insistence on a massive goverment jobs program is going to run into the brick wall of empty public coffers, but you can expect many to echo his call.

It is nice to see that he is catching up to an issue that was reviewed in detail by Alan Hall back in the February issue of the Socionomist:

Back to the School of Hard Knocks?
The Education Industry Faces a Multi-Decade Peak
by Alan Hall
America's higher education business is about to hit a patch of trouble. It is in the late stages of a bubble, one that is credit-fueled, government-supported and widely popular.

A massive shift in society's attitudes toward education is beginning, as we shall see. If it continues in earnest, as we expect, educational institutions will soon encounter spectacular challenges to survival.

If your income depends on higher education, get ready by taking clues from the crumbling housing business...

Alan's article is a ten-page review of the state of higher education in the U.S., complete with supporting wave counts and variety of supporting evidence. The socionomic model once again proves its worth as a forecastsing tool relevant to your daily life - at least if you have kids that are headed to college, or work in a town or city reliant on a big university, or are like many of us who review our individual state budgets and see the vast sums of money steered towards higher education and know that it will become a ripe target in the coming years when "austerity" makes its trip from Europe to the U.S.


This bubble is going to have multi-generational impacts, in my opinion. In the interests of full disclosure, I get my paycheck from a public university (my facility is operated under the University system). My particular facility makes 85% - 90% of its own budget every year from products & services, research grants from corporations and government and specialty analytical work. While we are a bit insulated from the "typical" attitudes of academia, we do get to see it in full force. And I can promise you that large academic institutions are in full-fledge denial that anything could ever change in the model used to deliver education to their students.

In an era when you can get an undergraduate level of education for free on Youtube from the Khan Academy in math and finance, the large education institutions are relying more and more on the credentialing and research aspects of their mission while lagging behind in lowering costs and providing better service seen in most every other "industry" touched by the digital revolution.

In my opinion, it is going to take a crash in revenues to change the model.  Entire universities and university systems will go broke when revenues collapse.  The new "rust belt" of the early 21st century may very well be a string of ruined "ivory towers" stretched from coast to coast.

Vast amounts of emotional energy and fiscal resources will be plowed into these institutions before they are allowed to finally die.  Entire generations of men and women have a significant portion of their self-worth bound in their college experience.  Soccer moms all across America who hover over their children, demanding they jump through the right hoops to get into the "best" colleges are not going to let their hours of work "helping" their kids prepare for the "best" schools.

But the crash will come.

Action Items

If a massive contraction in the education business happens, as I expect, expect a major social revolution on top of the financial problems that will beset those who rely on a university paycheck or from spending from university employees. If you are in that group (like me), have a Plan B.

And what happens when wave after wave of kids stop going off to college every year?  Small and mid-sized towns see an exodus every year of talented kids who leave town and never come back.  Some of those kids will still leave of course.  All universities are not going to dry up and of course many will leave for larger cities and more opportunities there, but what happens when a higher percentage stay in their home towns? 

Could the popping of this education bubble be the catalyst for the rebirth of more vibrant small and middle-sized towns?  Pile on the other effects of a Grand Supercycle sized wave of negative mood and who knows, perhaps instead of just another generation of beer-drinkers, we might get a generation that become future civic leaders and small business owners.

There are surely many ways to play the potential for this retention of talent. Small business owners take heart, you may have a more talented pool to draw from in the coming years.


David said...

The university-path model exists because in the USA we see a paycheck job with a large corporation as the ticket to Middle Class prosperity.

Corporations demand 4 year degrees because it is an easy way to screen large numbers of applicants. Attainment of a BA or BS indicates a willingness to put up with the same useless crap that stuffs a job with a big corporation.

The modern corporation is a shell of its former self. Impersonalization due to lawsuit avoidance is all but complete, taking with it any sense of mutual loyalty. Top executives' behavior can only be described as strip-mining whatever value they can obtain, often through book-cooking to ramp stock prices and meet share price targets for bonuses.

The financial collapse will destroy the shells of these hollow firms, and the impetus to get a degree (for the sake of getting a degree) will evaporate.

It's no surprise what's coming. I have 3 sons who have recently finished college and their experiences were appalling, despite their getting technical degrees and good jobs (at the aforementioned big corporations, so who knows how long that will last).

Flagg707 said...

@David: Well, at least your kids got technical degrees. Those can still pay off. Imagine having a degree in economics or history and $50k in student debt...

David said...

@Michael: You can't imagine how many of my sons' peers are still unemployed over a year after graduation. My 2010 graduate literally had a 4.0, a CO-OP through a division of United Technologies, a summer internship with a different aerospace mfg co, and finished in 7 semesters, and he fortunately got a job with yet a 3rd company (the CO-OP and internship companies were on hiring freezes). This is just how barren was the job market, and I think it largely remains so.

People getting degrees in BIO, ECON, COMS, HIST, ENG, SOCIOL, PYSCH, etc., are wholly and totally screwed, as are those getting technical degrees who are below the 80th percentile of their peers. Parents of these young adults are just enablers of their childrens' debacles.

A young adult would be better off studying to be a professional poker player than getting a useless degree.

The coming epidemic of suicide will tragically hit both the young and the old as hopelessness will be the handmaiden of the credit bubble's total bust. Knowledge of this cyclical condition will be one's only defense.