Month: March 2012

Mark Thoma Will Never Appear on the Today Show

Economist Mark Thoma writes,

“If the distribution of income is distorted by monopoly power, political power, and other market failures (e.g. taking advantage of informational asymmetries to sell questionable assets to unsuspecting customers who are reassured by triple A ratings, and so on), then taxing away some of the money and redistributing it to where it would have gone without the distortions is justifiable.”

Hm, that parenthetical sounds familiar … like a stripped-down, academic version of something you’d read on your friendly neighborhood scamblog. It’s not too much more of a stretch to skip the tax and force the recipients to pay the money back directly to the buyers via the judicial system. Same result, different mechanism.

Dear Mark Thoma, you are hereby banished from appearing opposite Matt Lauer on Today. Any more outbursts like this and we’ll revoke your Boomer credentials.

(Also, the irony of writing this post while listening to the Beatles’ 1965 masterpiece, Rubber Soul, is not lost on me.)

NY Fed Researchers Believe High College Tuition is Necessary

Data on student loan debt isn’t easy to come by. Rightly or wrongly there’s much reliance on’s student loan debt clock, and wrongly, there’s over-reliance on ED’s two-year cohort default rate. That’s why I hope people take a good long read of the NY Fed’s report on student loan debt based on data supplied by one of America’s three favorite credit reporting agencies, Equifax! Oh don’t make that face; its name is cool!

Some facts:

  • As of Q3 2011, the NY Fed calculates outstanding student loan debt at $870 billion. This is lower than the debt clock.
  • Of the 241 million people whose credit Equifax tracks, 37 million (15.4 percent) have student loans. I’m guessing this is an accurate tally of the total, for the people who’re least likely to have credit scores are too old, too poor, or too young to have any debt. I could be wrong though.
  • 40.1 percent of those under 30 have student loans as opposed to 25.1 percent of those aged 30 to 39 and 7.4 percent over 40.
  • Yet, 14.7 million people under 30 have $294.93 billion in student loan debt (a third of the total). The average 20-something with student loan debt has about $20,000, which is lower than the total average, but importantly these figures include many current students who are just starting college and will take on more debt as they advance towards their degrees.
  • The median student debtor has $12,800 in debt, which is about half of the average ($23,300). Again, this also excludes the fact that many people whose debts are in the low end are either current students who will originate new loans to complete their degrees or older borrowers who are close to retiring their debts.
  • 75 percent have less than $28,000; 10 percent have more than $54,000.
  • 1.1 million people have more than $100,000 of debt; 167,000 (0.45 percent) have more than $200,000. Lord knows how many of them went to law school. I’m guessing it’s an unusually high proportion.

Here’s the researchers’ image of the distribution:

  • Only a quarter of the 10 percent of student loans that are “past due” by conventional definitions is held by people under the age of 30. This is damning evidence that the cohort default rate shouldn’t be relied on. Pray that the young will avail themselves of IBR.
  • Although some of their definitions are questionable, the researchers found that 47 percent of loans were in deferment or forbearance, and 27 percent of the adjusted number of borrowers (20 million) had student loans that were “past due,” well north of the rates for credit card and mortgage debt. That’s 5.4 million people that are or in or near Default Country, where flavor is king and debt is permanent.

These findings are about what I expected. The researchers claim they’ll update us quarterly, which is good news because it’ll allow us to see who’s taking on the inevitable increases in student debt. If the percentage of high debt holders increases faster than the low end, then we’re watching the tuition/debt disaster unfold. Conversely if the number of low-end holders increases more rapidly it means people are paying it down or taking on less debt for college (or more people are enrolling in cheaper undergrad programs relative to more expensive ones). Either way, so long as the ratio of student loan debt keeps increasing faster than GDP with no jobs or salary payoff in sight and low inflation—as it’s projected—then this will be an embarrassing disaster for the government, with some wrecked lives as a bonus.

However, the researchers don’t see the connection between access to debt causing tuition hikes.

“In addition to worries about the volume of outstanding student debt, there is concern about having enough federal aid to support the large number of students taking up postsecondary education. Federal and state governments are deeply involved in the student loan market, either directly originating student loans or indirectly guaranteeing them … [A]dvocates for students clamor for more to be done to increase the availability of student loans. Further, state budget cutbacks to higher education amid tight fiscal circumstances may result in higher tuition.”

Lack of sufficient aid isn’t the problem, tuition is, but the Fed researchers think education must be expensive. Furthermore, I’d like to know who these “advocates for students clamoring for increased availability for student loans” are. I do know of plenty of advocates who think that tuition should be cut or that cheap student debt shouldn’t be readily available.

Then the LA Times picks up the story and runs in precisely the wrong direction.

W. Norton Grubb, a professor at UC Berkeley’s School of Education, is worried that rising debt levels are forcing some students to drop out. Only 40% to 50% of those enrolling at universities such as the California State University schools end up completing their degrees, he said.

Such figures have helped bolster a long-held belief by scholars that America’s declining or stagnant college graduation rates have become an Achilles’ heel in the competitive global economy.

Again, high tuition is the problem, not high debt forcing people to drop out. Notice also what the professor isn’t saying. He isn’t saying that dropouts are suffering under debts with no degrees to show for it. Nor is he saying that tuition is too high, perish the thought. (Edububble occasionally accuses UC of packing its seats with out-state students so it can charge them at the out-state rate for at least a year. Hey, those UC police lieutenants aren’t going to pay themselves $100k to pepper-spray nonviolent, seated protesters.) Rather, he’s saying we need to send even more people to college to compete in the “globalized economy,” which really means running a trade deficit to borrow money to buy oil, land, consumer goods, and budget deficits wasted on tax cuts for rich people and endless warfare. If you’re curious about the “globalization” angle, read Peter Wood instead.

Eating America’s Young on the Today Show

If you haven’t already seen the clip on NBC’s Today where Matt Lauer asks a panel of professionals what they think of law graduates’ lawsuits against their law schools, don’t waste your time. It’s nothing new, just three well-off Boomers (Star Jones (b. 1962), Donny Deutsch (b. 1957), and Nancy Snyderman (b. 1952)) wagging their fingers at Millenials for believing that people will randomly hand them jobs that will allow them to pay off their loans. At least, that’s their characterization. I recommend reading New York Magazine‘s analysis instead.

NOTE: because I graduated from law school in 2008 and my name is all over the Internet, I’m not going to comment on whether I believe the lawsuits are meritorious, lest I prejudice myself.

I will say that Lauer needs to find better professionals, particularly Star Jones, who has a law degree. One would think a lawyer would educate viewers on the legal issues the cases raise, using terms like, “reasonable reliance,” “industry standard,” or, “material misrepresentation,” and applying those terms to the facts available (and hypothetical, remember what you did in law school?). Also, a lawyer, a businessman, and a doctor don’t usually study generational dynamics formally the way social scientists do. A sociologist’s opinions would’ve been more helpful to viewers regarding what Millenials’ values are, but that’s what I call “not-baseball television” for you.

That said, I’m guessing that Today‘s professionals represent the show’s viewers’ ages, class, and sentiments, even though the panelists are probably much better off than they are. Today‘s viewers are fools if they believe them.

Now, I’m not a professional social scientist, just a late Gen-X writer (albeit an educated one), but allow me to provide some background on the America that today’s emerging adults are entering.

Jobs Are Scarce

There was a housing bubble.

It popped.

The economy went into a nosedive and is operating well below capacity.

This is bad. It is evidence res ipsa loquitur of economic mismanagement at the highest levels, and Alan Greenspan and Ben Bernanke are not Millenials. They are professionals with high-paying jobs whose explicit purpose is to ensure that everyone else has jobs, except that the Boomers running our government (and appearing on our TVs) now believe that the dignity of full employment is optional—like upgrading to business class.

Importantly, the U.S. economy never really recovered from the Dotcom Bubble.

As a result, we’re short 10-15 million jobs, and the brunt of that shortage falls on younger, less-educated workers. Those entering adulthood today are at decisive disadvantage compared to the Baby Boomer generation. What people refer to as “giganomics,” or “the new normal,” I refer to as “economic depression caused by incompetence.”

College Grads’ Earnings Have Stagnated

Setting aside the issue of whether college education actually does make people better workers than they would’ve been otherwise, yes, college-educated workers do earn more on average than high school degree holders of the same age—graduate and professional degree holders even more so. Here are three charts sorted by average earnings by age and then education (the Census Bureau doesn’t have median earnings, a crying shame).

Now here are two charts of mean earnings for everyone who’s received a bachelor’s or more by age bracket and the same for high school diplomas.

And here’s the five-year growth rate, if it’s fit to call it that.

(Source: Census Bureau, Current Population Survey, Table P-28)

See how little higher education has “helped” in the last decade? This is a heavy composite, but we know that college tuition has risen well over the inflation rate and student debt has as well. Most of that student debt is guaranteed or lent directly by the federal government and since the late 1990s cannot be discharged in bankruptcy, and many parents have co-signed loans and depleted their retirement savings to pay for their kids’ educations. Law degrees in particular have lost much of their value due to a growth in supply of potential practitioners and stagnation in demand for legal services. These facts are important because it leaves law graduates in a uniquely bad situation compared to most other college graduates. This is why they’re suing their law schools.

How Did This Happen?

18th century economist François Quesnay observed that economies are like circulatory systems (he was also a doctor, like Snyderman, but a sharper social scientist apparently). Our economy is leaking, borrowing capital from overseas to finance a current account deficit (to buy oil and consumer goods) and into untaxed economic rents, such as drug patent monopolies, media copyrights, health care services, higher education institutions’ prestige, and the biggest one as Quesnay noted: land values. I’d add public debt (spent on tax cuts for rich people, a military to protect us from nonexistent communists, and endless messianic vanity wars) as people with badass names like Mason Gaffney do, but our debt is yielding negative real interest rates to bondholders, so it isn’t a problem right now. The housing bubble bust and the accompanying financial meltdown are the result of these policies, not the direct cause. Until we close the leaks by taxing unproductive behaviors and privileges, as well as pollution, any stimulus will drain away all over again in the long run. And don’t get me started on property tax caps.

In short, the U.S. economy has been redesigned to subsidize unproductive economic activities while taxing productive ones. This is bad. This is why those naughty, rascally, entitled, whiny Millenials are suing their law schools instead of “being responsible” by accepting their unpayable debts and downward mobility.

The Implications

Matt Lauer’s question to the panel of professionals wasn’t crafted to challenge a lawyer, a businessman, and a doctor to discuss liability; rather, it was meant to give viewers an opportunity to look down on young people and feel good doing it. I hope they enjoyed it, for their pleasure will be fleeting. Soon Today‘s viewers are going to want to retire, selling their houses to young people and relocating to fairer climates.

Uh oh. Young people are supposed to buy these houses? How can they to do that with tens of thousands or hundreds of thousands in student loan debt and real incomes that belong in the 1990s? Even the business media are starting to become concerned.

As for the students suing their schools, don’t scorn them, thank them. They’re doing Boomers a favor. The graduates aren’t going to be able to repay their loans based on their current or future incomes, meaning Uncle Sam will have to take a write-down. Moreover, Boomers have already lost the income and payroll taxes the law students would’ve paid had they been able to remain in the workforce. Shouldn’t they at least try to claw back the money from the law schools that prosper from debt peonage before resorting to that? Until the write-down, however, the universities and the private banks will continue receiving the wealth that should go to buying houses, (electric) cars, furniture, tickets to baseball games, and Star Jones’ books, if that’s your thing.

Don’t worry for Jones and her peer professionals though. They’ll still be able to retire on their cash assets, and while they’re at it, they’ll scorn their fellow Boomers for their entitlement, jeering at them and calling them “whiners” too for believing that young people would bail them out of their homeowner retirement speculations. This is the price of listening to professionals who advocate eating America’s young as economic policy.

‘At Last, a Rational Explanation for Why Law School Tuition Keeps Rising’ up on the Am Law Daily

A revised, more entertaining version of last week’s post.

At Last, a Rational Explanation for Why Law School Tuition Keeps Rising

I’d like to add that this is the first post I’ve busted out on the Colemak keyboard layout. I got sick of typing on QWERTY, and since I write for a living, I decided to save my fingers some time. Colemak is statistically tested (I think) to be the best possible keyboard layout that maintains as many QWERTY keys as possible.

The transition (that word is wholly on the home row, BTW) has not been easy, but I recommend it. At some point I’ll put stickers on my keyboard so I can look at it and not be completely confused by what I’m seeing. Results vary, but it’s already impossible for me to touch type in QWERTY. Here’s what I’m seeing going forward.