This week Dan Drezner took us to task for our overuse of the word “bubble” to describe the changes under way in higher education, arguing that these changes are not come quickly enough to qualify as a true bubble. We fired back with this response:
The big difference between the bubble metaphor as classically used and the bubble metaphor as applied to higher ed is simple: higher ed is a (mostly) non-profit industry. While colleges and universities issue debt (and with ratings agencies downgrading some higher ed institutions there is a small financial bubble in these securities that appears to be losing air), the higher ed bubble is less about profits and stocks than it is about capacity. We have built too much inefficient capacity in higher ed, and the bursting of the bubble won’t be manifested in a falling value of Yale stocks and bonds or of diplomas, but in a constricted hiring market, the closure of some institutions and painful contractions at others. It is also manifested in an excessive growth of student debt, much of which will not be repaid.
Just as some cities were more vulnerable in the housing bubble, so some departments and some programs are more vulnerable in higher ed. Just as some of the consequences of the housing bubble were felt quickly while others will work themselves out over an extended period of time, so some consequences of the higher ed bubble are already being felt while others will be with us into the future. Just as well managed, efficient construction companies were able to ride out the bust while highly leveraged and inefficient companies went under, so some higher ed institutions will manage the transition reasonably well while others will undergo great stress and even collapse. And just as people continue to need houses no matter what is happening in the housing market, so the business of earning and awarding diplomas will go on — even if methods change.
Look away from the difference between non-profit and for-profit industries, and higher ed looks to be in something very much like the early corrective phase of a classic boom and bust cycle. Overcapacity and over investment in some branches of higher ed is already leading to pressure to shift students out of the humanities and liberal arts and is likely to spread to law programs, where costs continue rising despite signs that enrollment may have already peaked.
The contraction in demand for many educational services (at the prices now demanded) is being fueled by a growing reluctance among students and parents to take on more debt. There is a lot of evidence that students are downshifting; taking two years at community college before moving onto four year institutions and generally thinking harder about the relationship between the price of a given credential and its worth on the job market. The contraction would likely be much faster and more brutal if lenders bore more risk in student loans; government guarantees and the difficulty of reducing student loan obligations through bankruptcy make student loans more widely available than they would be if lenders bore more risk when and if students were unable to repay. But a bubble whose bursting is eased to a slow and gentle, sighing leak by government policy is still a bubble.
Asia watchers have spent the week wrapping their heads around the incoming Abe government in Japan, where rising nationalism and a new administration suggest that Japan may begin to pursue a more aggressive foreign policy. With this transition, three of the major players in the Game of Thrones: China, Japan, and South Korea, have all experienced a leadership change in the past few months. There’s also been ample news about China’s surveillance state, which continues to crack down on Christian missionaries on campuses despite the airing of subversive films on state TV. In India, Gujarat Chief Minister Narendra Modi is preparing for a bit at the premiership in 2014, while the current Administration is deepening the country’s role in the Game of Thrones. Pakistan and Bangladesh, meanwhile, were beset by tragedy, with a deadly factory fire in Bangladesh and terrorist attacks against aid workers in Pakistan.
The war in Syria dominated coverage from the Middle East this week. The pendulum continues to swing towards the rebels, as Assad’s Vice President openly declared that the regime is losing the war; meanwhile, American polls suggest that the public would support intervention should Assad decide to use chemical weapons. Elsewhere, Egyptian liberals continued to demonstrate their ineffectiveness at shaping national politics, bomb attacks destabilized Iraq’s Kurdish regions, and the EU took Netanyahu to task over Israel’s settlement policies. All the while, the Libyan afterparty continued despite the country’s futile efforts to close its borders.
Some of the most interesting domestic news of the week came from Kansas, where Republicans have taken control of the legislature and are now experimenting with the Red Model, including lower taxes, spending cuts, school vouchers, and most intriguingly, an end to state pensions. Meanwhile, blue model battles continued to rage in California, Illinois and New York, as struggles over pensions pitted city governments and young Americans against fund managers and retirees. Yet despite the mostly bad news on pensions, there are some signs of life in education, where dual-degree programs offer students a chance to cut down on time in college. Finally, the fiscal cliff negotiations continued without a deal, although Boehner has been moving closer to the Via Meadia position on entitlements and taxes this week.