The Auto Bailout and Unions

If you get a chance read this Salon.com article.  The article talks about the Senators who blocked the auto bailout from going through. The reason the bill failed was because Republicans want the union to take a pay cut.  While this may seem reasonable to some people, one should remember, no one (Republican or Democrat) made any provision for bankers to take pay cuts when that money was given away.

From a strategy standpoint, I am not sure what the Republicans are going for here.  They will not look good coming out of this and in fact will look like they are against your average working citizen.  Why?  Because they haven’t asked CEO’s to take the same sort of pay cut.  They had a chance to create some good will going forward into 2009 but it looks like they just want to play defense until the 2012 election.  This attitude will not serve them well.  Especially because the American people are right on the middle of this issue.  If the auto industry goes down, the Democrats will blame the Republicans for being obstructionist.

What I also don’t get is why the Republicans are so hellbent on destroying unions in the United States?  I mean it is pretty clear that the Republicans who blocked this are in anti-union states.  I am sure the UAW would negotiate in good faith but the Republicans want to make the union out to be the enemy.  They do not want to focus on the fact that the auto industry is using outdated business models and making inferior quality cars.  While we have heard that the CEO’s of the big three will change their plans and become all new and shiny, they haven’t been pressed all that hard by Congress.  All in all I think the Republicans went for an easy target and it will backfire on them.

 

higher ed higher schmed

sequitur an earlier thread:

They say that you should go to school,
And, in fact, that college is cool,
But you’ll major in Psych,
Turn into a dyke,
And end up cleaning a pool.

But, seriously, responses to my post have raised some excellent points. In order:

You’re quite right that educational waste starts long before college. I think, however, the presence and easy access of college encourage that sort of waste in high school and earlier. The availability of higher education and funding for school makes students want to go to college; high schools can hardly be faulted for orienting themselves to that. Technical education alternatives are useless if higher education itself is unchanged.

I’m not sure that college education adds a lot of value to most students. I’m certainly glad that I went to college, and I think it’s helped me; I’m sure that all of us here benefited tremendously, both personally and professionally, from higher education. Most college students (some, at least), however, don’t. It’s true that an educated work force is very important, but that’s irrelevant to the claim that many college students end up in careers that ought not to require college degrees: as I mentioned in my earlier post, many jobs that are mainly filled by college graduates require, at most, a high school education. Clearly, however much higher education a developed nation requires, we’ve still got too much.

I like the reinvestment point. I didn’t mean to suggest that schools are solely raising tuition because it’s what the market will bear, though I think that there are a few like that. I think what I was trying to get at more generally was that the boom in higher education is basically fueled by government-backed student loans, and even if all the money is being spent bona fide to educate students as well as possible, that it might still be wasteful.

I think I tend to agree with Russ on this. Re: the Giffen Good business, which I realize is mostly tongue-in-cheek, I think that there’s some small amount of truth to that, basically because easy loans and a sense of entitlement towards college make demand for higher education inelastic (I’ve no idea what those words mean; I’ve never taken an econ class). The rise of garbage business schools is one illustration of this: these schools add almost no value to one’s career, and cost, in many cases, nearly $50k a year, but still have no trouble attracting students. Business school isn’t undergrad, true, but I think the cases are similar.

One last thing: how much does the government guarantee help student loans? I’ve no idea. Alex may have a better answer on this, being a banker and all. My guess is that when you’re getting competitive interest rates and have no default risk, that being a student lender is a pretty damned good business to be in…

 

questions mostly without answers on higher ed

Alex could you elaborate on what you mean by “areas that a developed nation must excel in for a competitive advantage rely on a educated work force”?

You’ve put forward a few interesting points however I think I’m missing the overarching point. Am I right in understanding that you support the high availability of guaranteed loans because you feel that as a nation we have a need to maintain a very large supply of educated grads, which wouldn’t be met by rich kids alone? Or is it something else to the effect that you support making loans available to those non-rich-kids at the “cost” of contributing to whatever else is driving up the price of tuition?

I personally don’t find it hard to believe that the cost of entry to the college game is pretty high. Presumably, among other things, there’s a lot of work and expenditure involved in me going from slapping a sign on my door and declaring myself a college and people wanting to pay me to attend. Do you know if something like the accreditation process is an expensive one to get through?

The other issue being that in spite of the cost of tuition being high, do we know in fact that most colleges are in fact profit machines?

Anthony’s idea about how schools need to reinvest in themselves to remain competitive might explain in some sense how they are in fact not super profitable and to remain as profitable as they are, much of their profit must be diverted to reinvestment. I’m pretty sure I don’t understand how increasing the price of tuition signals a school is inherently more competitive on a national scale. In spite of my lack of understanding, it appears in this article that one James C. Garland, president of Miami University of Ohio (at least at the time of the article) said “[H]igh tuition makes people think a school has a lot to offer”. Is higher education that elusive Giffen good? (this is a rhetorical joke question). Garland appears to respond to the article in the comments even.

Returning to my response though, I’d argue (unfortunately without the support of data, only anecdote and speculation from not-quite-what-I’m-looking-for tables like this one or table 1 in this report (PDF)) that state schools aren’t actually out of favor at all. What makes you say that they are? Or is this more about prestige, in which case, yes, for varying reasons they tend to carry less than some of the more famous and expensive private research institutions.

When you say you encourage people with vocational training to go to college anyway, what exactly do you mean? Though this will probably come out pretty bad, I think that it’s probably not much of a value-add for a line cook to have gotten a “well-rounded liberal arts education” and read Kant and Aristotle or whatever. I think they’d probably benefit from a shorter education covering more specifically useful topics like accounting, for example. Well, maybe not the line cook unless they are a line cook aspiring to be a chef, perhaps, though I’d probably even be willing to try and make the case that everybody who has any money would do well to learn a bit more about accounting. So in this case I wonder if it is just some confusion of terms as to what “college” means and perhaps I am using the word to mean something that it doesn’t exactly.

A final link; that James guy I quoted earlier apparently wrote a column (linked in the article I linked to earlier) for the Washington Post in 2005 about how to run state schools, which I thought might be an interesting read for you guys, in the context of this conversation.

 

glad to be here

Just signed up for this this morning. Reminds me of the old blogger days. Some of those blogs still come up when I google myself… Just food for thought.

Anyhoo, can’t say I agree with some of the views expressed on the validity of higher education for the masses. Seems like a lot of the areas that a developed nation must excel in for a competitive advantage rely on a educated work force. (Not just for the managers, but for the production employees as well.)

That being said, I think the cost of college tutition is rising too fast (much faster than inflation) and it is very possible that readily available cheap government  student loans are a contributing factor. Not sure what the solution to that would be, since supply and demand dictate that the price will continue to rise as demand from rich kids and student loan kids exceeds supply. If the market decides the price of a college education then it will rise until one group or the other is priced out. (Supply could also increase… which I guess would be the better solution…)

Food for thought: If college tuition is so high, why isn’t owning a college profitable enough to encourage more colleges to be founded? Are the barriers to entry that high?

 

too many people go to college

Apparently college is fast becoming unaffordable.

I think that (1) the reason for this is not that universities are money-grubbing, but that student loans are too easily available, and (2) that it would probably be a good thing if fewer Americans went to college.

(1) I think the increasing cost of tuition is a direct response to the easy credit that students got and continue to get; when the government guarantees a student loan, lenders have every incentive to loan huge amounts even to those students whose expected career paths make it very unlikely that they will pay them off. If the government got out of the business of guaranteeing loans (or perhaps only guaranteed a certain flat amount of them), lenders would have to look carefully at potential students before writing huge checks, and universities consequently would have to lower their tuitions or lose students.

(2) More education is possibly a good thing if it means that more people have more opportunities. That is not, however, what I think the mainstreaming of college education has done. There are only so many jobs that actually require a college degree, and while it’s important that we train enough Americans to fill those jobs, there’s no need for anyone else to have a college degree. Nowadays, you need a degree to get a job as a secretary, or an insurance salesman, or a bank teller, to say nothing of the vast numbers of waiters &c. who have useless degrees. Our culture shouldn’t encourage this educational waste; instead we should make sure that those kids who aspire and are qualified to do something that needs a bachelor’s or master’s degree can get them, and that kids who will end up in the (no less noble) professions that don’t require higher education aren’t forced to waste four years and thousands of dollars.