Sunday, November 25, 2018

I See Market Distortions and Dysfunctions - Part 2

The emphasis of part 1 centered on how the government money ends up influencing the costs of virtually everything in the healthcare sector.  In having an infinite checkbook, because government spending isn't constrained by anything real, they can pay whatever they want toward healthcare.  The graphs shown and linked to tell the story that the US government spending on healthcare per capita is the fourth highest in the world, but the government's spending as a percentage of total spending on healthcare, the US ranks near the bottom.  That just means private sector spending in the US, mostly the insurance plans most Americans get through their jobs, is higher than in the countries with very large government healthcare systems.

Still, the government requirements for what insurance must cover and how much Medicare pays for specific expenses impose some of the cost inflation in the medical system.

The infinite checkbook distortion applies to education, too.  The data I have is 10 years old, and while I've used it before, searches for an update have yet to yield something newer.  At that time, college tuition rose at about 3 times the regularly cited cost of living.

From John Uebersax on Creative Commons (Wikimedia).

The explanation for how government money causes this is straightforward "supply and demand".  There are only so many seats in the colleges, and the demand exceeds the supply.  In a normal market, that means price rises until demand falls; some number of people would say that's overpriced and find another way around the problem.  If the majority of people decide to go around college, tuition will start to come down.  Colleges find they can charge whatever they want because government guaranteed financial aid pays for it.  Right now, there's a limited supply of seats compared to the demand, and the public demands those government loans.  Politically, we can't ration or cut money for college loans and grants because that be mean, if not hateful.  It would deprive some poor underprivileged student of their chance - their chance to take out an enormous loan on a bet they'll be able to pay it back.

There's a tremendous push for free college, or at least free community college. That will make the situation worse. Those calling for free community college assert that since current community college graduates appear to have an increased value in the job market, we should create more of them.  This shows complete ignorance of the law of supply and demand.  If people coming out of community college make more than high school graduates it's because they're thought to be worth the cost to employers.  To create more CC graduates is to reduce their differential value and drive the wages down. 

Simply stated, if everyone goes to community college, there's nothing to distinguish the community college graduates and an Associates degree becomes functionally the same as a high school diploma.  It's already regularly referred to as 13th and 14th grade, "free college" will formalize that.

Extra credit question: will "free college through a bachelor's degree increase or decrease the differential pay of bachelor's degree holders?"  Same principle: more graduates would drive the pay differential down.  It will have less effect on Masters degree holders, and a graduate degree will functionally take over the role of the bachelor's degree in society.  

In all cases the government's fiat currency and infinite checkbook combine to distort the costs and benefits. It's as predictable as the sunrise.

As some wise guy said, if you think it's expensive now, wait til it's free.


  1. The kindest thing that we could do is to eliminate all government student loans. The price of an education would crash down to where is should be.

    Actually, I am in favor of government scholarship support for hard science majors because those are useful to society. Liberal arts and social sciences may be something that people feel is needed and students can float that on their own.

    1. Actually, I am in favor of government scholarship support for hard science majors because those are useful to society. I tend to agree.

      In the old days, financial aid used to be a package deal, roughly 25% scholarship, 50% loans and 25% part time work. That seems reasonable.

      Your first statement about eliminating all government student loans, reducing the number of people trying for those college seats, is one of those ideas that while perfectly rational and likely to do what you want, you'll never convince a liberal of it.

  2. Which demonstrates immediately the basic rationality of doing that!

  3. What you earn is, in a free market, a fraction of what you produce. So if everybody goes to college and gets trained to produce more, then everybody's pay goes up. This is not an illusion or distortion from currency. If you're more skilled on Gilligan's Island, then your pay goes up as measured in fish caught/hour or a fancier house.

    1. Outside the STEM fields, college doesn't teach you to produce more (or anything at all, really). It just shows you were smart enough to pass the classes, and persistent enough to graduate. That by itself used to be valuable to employers - until the colleges dumbed down the curriculum.

    2. What McChuck says - outside the stem fields, colleges largely produce degrees that are useless to society. How many literature doctorates are needed? Language doctorates? Just replacement levels for the teachers dying off (we can ignore the discussion of why we need literature teachers at all). How many women's studies or aggrieved minority studies degrees are needed? I'd argue society needs a negative number of those because any positive number seems to retard societal growth.

  4. Seriously, though, since you can't get government out (at least, until it crashes and goes tits up), let's try something almost as simple.
    First, everyone starts out with a theoretical 100% free ride.

    BUT: That gets multiplied times your letter grade:
    A-students get a multiplier of 1.0.
    B-students get a multiplier of 0.8.
    C-students get a multiplier of 0.5.
    Students with less than a C-average get their loan amount multiplied by 0.0.
    ("But teachers will inflate grades!")
    Yes, they will. Any school without a bog-standard bell curve grade distribution from As to Fs gets assigned a multiplier of 0.0, for every student there, except the ones who also placed in the top quintile of the SATs.
    Grade inflation is gone.

    Then take that new loan percentage, and multiply it based on major:
    Medical professionals and STEM gets multiplied again by 1.0.
    Liberal arts by a vastly lower number.
    Victim Studies, pre-law, and other over-subscribed horsehi...rose fertilizer degrees get multiplied by 0.0.
    Graduate school goes the same way.

    If you have straight As, a max-score SAT, and want to go to Stanford Medical School or do quantum phyics at MIT or CalTech, it's a free ride.
    If you have Ds, and want to be a community organizer, you go to night school at Whatsamata U., and pay the whole cost out of pocket.

    Any amount colleges themselves dole out gets deducted from their total loan amount, year-by-year. A college with a huge endowment, and wont to give a free ride for low-grade SJWs, gets zero loans, and the snake eats itself.

    Now, if you want to go to college, you get subsidized based on your merit and likelihood of success, times the value to society of your intended field of study.

    And every institution gets penalized 1% per every administrator over a 50:1 professor to admin ratio.

    Victim Studies and campus-sponsored SJW schemes go away overnight, and suddenly, they have enough math and English professors that all classes are not impacted for 3 years.

    Any student needing remedial pre-college prep course gets their loans reset to zero until they finish all such prep.

    Now, the seventeen-step repeat of everything from K-12 in English for the Special Snowflake illiteratti goes away, and those folks get booted from college, and learn to cope with a career in either retail food service, construction labor, or the custodial fields.

    Problem of costs solved, QED.

    Even better?:

    1. I got my BS going to school part time while working FT for a living. Two or three classes at a time (mostly two).
      A-students get a multiplier of 1.0.
      B-students get a multiplier of 0.8.
      C-students get a multiplier of 0.5.

      At that time ('80s) companies had tuition assistance programs which (I'm fairly sure) was because of federal tax deductions for it. That scale you have was similar to the reimbursement I got from the company. 100% reimbursement for an A. 75% for B or C, and no reimbursement for less than a C. Considering they wouldn't hire anyone with less than a B average, reimbursing a C was a little surprising.

  5. (cont.)
    Ditch the brick-and-mortar route almost entirely.
    People like Thomas Sowell or Richard Feynman come along once in a lifetime.
    They now teach the courses electronically and digitally.
    Every state nominates one best teacher for each subject.
    You do a teach-off, graded by everyone else in that field, and a panel of student evaluators.
    The winner(s) record entire fields of undergraduate study.
    It's available online for a nominal fee to anyone.
    The University only exists for labs, athletics, and testing.
    All testing is done in-person, using biometric identifiers, in a sterile environment.
    You could be in a bare room in McMurdoo Station, on an aircraft carrier in the Indian Ocean, or in a one-room schoolhouse in the Mongolian desert, and if you ace the calculus exam, you get the letter grade and the credit.
    The university or college need only keep the best of lesser-skilled professors for answering questions, mentoring, tutoring and advising, and hands-on labwork.

    There is no field from Art to Zoology that cannot be reduced to that, and available to anyone with a credit card at the speed of bandwidth in most of the civilized world.

    In fact, we could have done it twenty years ago, and should have.
    The same is true for vo tech, and every other field of human endeavor.

    Education would become a lifelong endeavor, not a sprint to a h.s. or college diploma, and you'd always get the best instructors in every field of endeavor. Every degree would become the equivalent of Oxford or Harvard or Stanford or the Sorbonne. Your tuition would be nothing but what was required for the minimal maintenance and in-person staff, and the biggest expense would be the computer to do it on.
    Coursework and textbooks would be standardized, peer-reviewed, and electronically downloaded, at cost-plus, with a simple royalty included. No more $100 textbooks. There'd be maybe three versions of any text, and they'd priced like paperbacks at the supermarket. Neither calculus nor English literature changes much over decades of time, but if they wanted to update them once every seven to fourteen years or so, because of copyright, I'd be fine with that. At the prices you'd get, every student could have all two-three-four standard texts in every class, for less than the cost of one mediocre hard copy one penned by the college's Hometown Homer. At current capabilities, you could hand students a memory stick or two with their entire major's texts on it on Day One, and another stick with all the General Ed requirement texts at the same time.

  6. (cont.)
    And for a nominal fee, anyone anywhere could challenge any course for credit, if they could pass the exams.
    Bootstrap U., right there.

    Top professors would be getting paid like NBA starting forwards, tuition could be halved, and halved again, and government - the giver of the loans - could control the costs by the power of the pursestring.

    Athletics could be subsidized by the pro teams and the interested leisure businesses for Olympic sports, as that's really all they're there for anyways. If you had Olympic skills at something other than baseball, basketball, or football, Nike or Spaulding or Ruger or Rossignol or whoever would be looking for those talents, and paying the freight for their development. Meritocracy meets capitalism solves that in about a New York minute, and marketplace pressure on teams and equipment manufacturers would insure that they subsidized women's sports too. All the money gets thrown in a pool, and the colleges in total would dole out equal amounts to everyone qualified, on every team, or every individual in every sport. Every football player at every school would be getting the exact same chances, at the exact same rate, whether it was Ohio State or Podunk Tech. The payoff for the best is draft picks and endorsement deals, just like now, but in college, it would all be about simple subsistence, and improving their skills. Anybody injured gets a free ride to graduation, so the break-and-discard model for football, for one example, goes away entirely. but if Bubba no-brainz couldn't get into college in the first place, he'd never even be up for the option. Or, you'd suddenly find that the local vo tech might have a football team that would kick Nebraska's or Alabama's @$$ in the Cotton Bowl, made up of guys majoring in automotive repair or plumbing.
    Welcome to egalitarian educational democracy.

    And all those SJW administrators that have bloated tuition and payrolls, and all those hacktastic dreadful mediocrities on campus would have to get paying work as barristas and WalMart greeters, and the sun would shine 365 days a year, and it would only rain at night from 3-5AM.

  7. KD writes: To the person above who said I predicted the end date was before the end of Trump's FIRST term, I challenge you to provide the quote.

    This was the quote I remembered. Titled "The CERTAIN Destruction Of Our Nation*", written at 2016-10-15 06:00, underlining and bold in original:

    We will _not_ manage to get through the next 10 years at this rate and in fact will not get through the next President's term.

    2016-10-15 was before Election Day on November 8, so "next President" refers to Hillary or Trump.,_2016_timeline

    I read "get through" as meaning spending tradeoffs made within the existing federal budget which were qualitatively different from what has happened since 1985. A thwarting of government will. An embarrassing admission of planning failure, that things cannot go on as they have. For example, huge military airplane or ship development programs put on hold.

  8. Public relations agents for the patriot movement said there were 1,000 persons on the line of scrimmage at the Bundy standoff, but the photo showed 100. After this 10X lie went unchallenged, I concluded the patriot political party was willing to lie just as much as the mainstream political parties. None of their promises or projections could be trusted.

    Exaggeration is a straw man fallacy. It is consciously knowing the argument fails, so lying to make a different argument which wins. You won't win the trust of the remnant if you exaggerate doom in the hopes of motivating the masses. The oceans will rise 20 feet in 100 years! Sure, right, put a later date on your doomsday sign. In the long-term, it is extremely difficult to snatch a win out of the mouth of an exaggeration lie.