Are We Really Helping the Natives?

When I stand before an audience of my peers I am often rebuffed by the majority of the room for talking about autonomy of all human beings and how the government has not taken our liberties and created order out of them. This is usually because, unlike conservative and pseudo-liberal positions, I can’t explain the Classical-Liberal stance in the form of a sound bite. The conservatives can argue, “Because freedom isn’t free” and the pseudo-liberals can argue, “Because healthcare is a right” which both sound great when they role off a politician’s tongue, and because of that no one questions the economics of their statements. But notice the difference between their sound bites and mine, mine goes as such, “We need to remove minimum wage” “we shouldn’t involve ourselves with the problems of the world” “legalize all drugs”. These don’t sound as good and are easily used against a libertarian campaign, but that’s because the economics of everything is far more complicated than “freedom isn’t free” or “healthcare is a right” and it’s those type of mentalities that bring us massive spending and more government overreach into our lives and the economy. Despite the 90% of professional economists who believe minimum wage stifles growth and employment, the Classical-Liberals are still labeled the bad guy. Despite all of the economists who said we can’t go to war with no room in the budget, the Classical-Liberals were labeled as unpatriotic and borderline treasonous. Despite economists who warned a government mandate will not lower healthcare cost and that they will increase instead, the Classical-Liberals are labeled as heartless. And of course, when the Classical-Liberals warned of an impending collapse of the government manufactured housing bubble, they were labelled as crazy. (Even the pseudo-liberals prized procession and Nobel Laureate, Paul Krugman, didn't see that one coming) 

There’s no doubt that being an intense advocate for a liberalized market and social order is about as close as someone can come to handing out open invitations to be chastised for something other than their policies. Most people begin their reprimand of a Classical-Liberal’s views before they are even able to explain themselves, often cutting in and insinuating that they must be a racist or lack all commiseration towards others, or both. They never think that maybe the Classical-Liberal is in favor of the Austrian business cycle and liberalized social policies because they believe it promotes racial equality and creates more wealth than any other economic system ever formulated. That thought never seems to cross their mind, instead the Classical-Liberal is believed to be behind a conspiracy to bring down the entire country and send us back to the 1800’s. (I have often been told that my policies will bring about the reemergence of slavery in American. One person even told me that if the Federal Government stopped funding K-12 education that there would only be dirt floors in the public schools). The absurdity of such claims made against the Classical-Liberal positions is never based on any facts and are often mere talking points to win over anyone listening to the debate. They know that if they can pin me as a racist (which is about the worst thing I could be) no matter how much sense I make, the audience will not listen or heed my advice.

The majority of cynicism towards the Classical-Liberal ideology seems to be rooted in the indoctrinated belief that government is good, so of course a Classical-Liberal is met with some degree of hostility or another when they tell that indoctrinated believer in government that everything they believed in is wrong. The hostility (not reasonable thinking) is what usually leads to them calling me a bigot, or unpatriotic, or some other fallacious name. And it takes getting over that initial hostility towards the anti-state liberals challenging their pro-regulation beliefs for them to offer any significant rebuttals.

It is here that I met an interesting argument against the laissez-faire approach to governing. A girl in a class of mine had heard my positions stated day after day in a very discussion oriented government class, she knew very well that I wasn’t a racist and that I was genuine in wanting to better the country. For that, I thank her and respect her. Other classmates of mine on the other hand, not so much. Nonetheless, we were discussing the pros and cons of regulations. I, of course, naturally opposed every single regulation that did not offer equal treatment under law that protects all people’s fundamental rights.  The girl, however, naturally favored any regulation that sounded good. I’ll admit, it is tempting to ignore the economics and favor the regulations that sound good, but I held strong to my convictions, as did she. Eventually I suppose it began to bother her that I was saying things like drugs should all be legalized, bars shouldn’t be required to have liquor licenses, and I should be able to carry a gun in any public area. She eventually snapped and said something to the effect of, When you deregulate you get Indian reservations. Indian reservations are little pockets of free-market economies and they’re terrible places if you’ve ever been to one.

The statement was certainly thought provoking and had me easily perplexed (I’m not a very quick thinker which usually puts me at a competitive disadvantage in live debates). I recalled the last time I had driven through an Indian reservation in Louisiana where I saw a guy passed out next to the street with an empty bottle next to him. I saw almost zero wealth, and if it weren’t for the lavish casinos I would have thought the place was a deserted Hollywood set from an old Clint Eastwood film. The air even smelled bad and the people looked more oppressed than the poorest regions of Appalachia. I saw signs for bare-knuckle boxing and gambling, drinks were cheaper than anything I could get at a grocery store in my hometown. The cost of living was cheap and the cost of goods was cheaper. It was almost everything a free-marketeer like me would hope for in-terms of the costs to purchase goods and services. Was this girl right? Is the cheap cost of living and cost of goods which the Classical-Liberal strives for through competition just a pipe dream that really causes mass poverty, broken families, and zero growth?    

I didn’t respond to the girl in class that day, I just nodded my head almost as if I was conceding the victory to her. Later that night, after some research, I came to realize that the response I should have given her was simply returning almost the same statement back to her; when you increase moral hazard, you get Indian reservations. That’s what I should have said.

Strangely enough, government intervention in Indian Reserves and the government’s cause of our current economic state has one remarkable similarity: moral hazard. What led to our current economic state involved many contributing factors including the Federal Reserve lending with artificially low interest-rates and pumping the economy full of fiat dollars, along with other economic tampering via the Bush administration (i.e –healthcare reform, social security reform, cutting taxes while boosting spending, stimulus checks, and subsidizing Fannie & Freddie). But one key element helped to build the housing bubble at an increased rate that ultimately led to a financial collapse.

In 2004 President George Bush called for the removal of all down-payment requirements for over 150,000 new homeowners, Economist and Historian Thomas E. Woods explains in his book Meltdown that:

[Bush] Declared, “to build an ownership society, we’ll help even more Americans to buy homes. Some families are more than able to pay a mortgage but just don’t have the savings to put money down.” The down payment, which traditionally serves to minimize defaults, was being swept aside by the president himself, and thus the trend away from traditional lending standards received a presidential imprimatur.    

So the believers in heavy regulation stand up and point to this one particular piece of legislation and blame the entire collapse on this one deregulation. They, of course, forget that it was regulation and the Federal Reserve that built the bubble so that it could bust in the first place, but that’s beside the point to them. They think their beloved bubble would have sustained itself perpetually into the future had it not been for that one, single, dreaded deregulation. But was it really a deregulation? Woods explains:

When the moral hazard of deposit insurance is combined with the “too big to fail” mentality, which will not allow large institutions to fail, the result (a conclusion compelled by common sense and bolstered by recent research) is that banks will take on considerably more risk than they would if they were subject to genuine market pressures.

This is the context in which regulation and deregulation have to be considered: a system so far removed from the free market that innocent third parties are on the hook for private firms’ foolish and risky decisions. In that context, is “deregulation” necessarily the best approach? Of course, REAL deregulation, which would abolish all monopoly privileges, establish free competition, eliminate the “too big to fail” presumption, and force banks to produce their depositors’ money on demand or declare bankruptcy –in other words, treating banking just like every other industry –would be the most welcome outcome of all.

In short, if you “deregulate” but increase moral hazard you are asking for more risky decisions. Removing the down payment requirement was merely a fraudulent deregulation that simply aided in the already massive housing bubble. If the down payment requirement is going to be removed, which I’m not against, you must also remove the FDIC. Before I get jumped on for wanting to abolish the FDIC, it should be pointed out that the FDIC only has enough money to cover 0.5% of total deposits so it couldn’t save anyone if there were to be a run on the banks. The government would just revert to the Federal Reserve to print more fiat dollars to further deflate the dollar’s worth.

How does this all tie into Indian reservations? We’ve given the Indian people their own communities to do, basically, whatever they want in them. And most Indian reservations are fairly unregulated, at least relative to our economy. But the government, because we invaded their country and stole all of their land, provides them with healthcare, Medicaid, food stamps, housing and other government benefits. Our government has set the Indian people up for failure, just as it did the banks. They are “deregulated” but the government has increased moral hazard. Why wouldn’t they be riskier with their money, drink more, and stay unemployed? The government will cover them. The median household income of Indians in North and South Dakota, for example, is just under $15,000, while the median income for the rest of the United States is nearly $44,000.[1] Shockingly and worryingly enough, 16% of Native Americans attending Bureau of Indian Affairs Schools in 2001 admitted to attempting suicide,[2] the amount of children being put up for adoption is eight times that of non-Indian children,[3] and on top of it all, 1 in 10 Native American deaths are alcohol related[4].

Obviously the government can’t just leave and give the entire land back over to the Native Americans, but the government would be wise to stop increasing moral hazard for the people. I understand, we came, we saw, and we concurred a land that was not rightfully ours, but that was a long time ago and the best way we can pay the Native Americans back is by giving them a chance to live a good life. We must learn from history, and if there’s one thing our current economic state has taught us, it should be that we cannot raise moral hazard while calling for phony deregulations. 


Now, along with the laundry list of names already in existence that only serve to falsely frame me as a bigot need to make room for one more, "He's against the Native Americans!"  

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[1] "Quality of Life of North Dakota and South Dakota Native American Reservations." Cranium Hostage Productions. Web. 08 Sept. 2011. .

[2] Shaughnessy, L., Doshi, S. R., & Jones, S. E. (2004). Attempted suicide and associated heath risk behaviors among

Native American high school students. Journal of School Health, 75(5), 177-82.

[3] North Dakota Indian Affairs Commission (NDIAC). History lesson: American Indians. Retrieved October 29, 2000 from the World Wide Web: http://www.health.state.nd.us/ndiac/history.htm

[4] "1 in 10 Native American Deaths Alcohol Related - Health - Addictions - Msnbc.com."Msnbc.com - Breaking News, Science and Tech News, World News, US News, Local News- Msnbc.com. Web. 08 Sept. 2011.

It was the Free-Market's Fault

I often hear people say the cause of the Great Depression and our current economic state is a result of the free-market, and I always agree with them. While neither Hoover nor Bush were laissez-faire Presidents, it was the free-market that brought their economies crumbling down. Both came into their presidencies with booming economies and bullish stock markets, and both left with a busted economy and bearish stocks. Both Presidents were extreme interventionist, (to name only a few) Hoover bolstered wage rates, propped up insolvent businesses, gave out subsidies, and raised tariffs that were detrimental to trade, and Bush removed the requirement to make a down payment on a house while assuring banks the government would bail them out, he reformed healthcare (medicare part D),increased spending at massive rates, and added over 159 regulations that Economist Veronique de Rugy calls "economically significant", but how is it that I claim the free-market was the cause of both severely depressed economies? Well it’s simple, no matter how long you avoid the free-market with intervention, regulations, and through allowing the government and the Federal Reserve to build bubbles, the free-market always catches up. Bubbles are unnatural and can only occur through government and the Federal Reserve in which prices exceed the natural market prices and interest rates are far lower than natural market rates. The sheer size of these unnatural bubbles cannot sustain themselves against the force of the natural-market and the more they resist the natural flow that the economy wants to take, the closer they come to bursting the bubble. As these bubbles grow and grow and grow, the economy artificially grows and grows and grows which is where the state of the economy was at when both Bush and Hoover took office. Eventually the bubbles can no longer resist the free-market and the free-market bursts the bubbles which results in the economy crashing down below the natural standards in order to naturally cleanse itself of the impurities of insolvent businesses that were being propped up through fiat dollars, credit, and regulations. As the Nobel Laureate in Economics, Milton Friedman, once put it, it’s “like alcohol, the good effects come first.” For a metaphorical story regarding the boom-bust cycle please read Maynard's Binge, just below.

Maynard's Binge

Reader, meet Maynard, he’s the proud owner of a small-business with a house, wife, and 2.5 kids. Everything’s going well in his life, albeit he’s not financially secure enough to roll his cigars with hundred-dollar bills or have a full-time butler at his expense, but nonetheless life is steady and predictable for him. Quite frankly though, Maynard has grown tired of his humdrum life and wants a little stimulation. His mood has always been good, but not great so his two friends who want to party offer a suggestion that grabs Maynard’s attention and imagination.

They pull him in and tell him he needs to let loose and start drinking. Maynard, who was never a drinker, is uncertain about the idea at first, but his friends tell him about how great they feel when they’re drunk and how everyone’s your friend and how everyone is so much better off when they’re drunk. Maynard agrees he’ll go out with them.

They arrive at the bar just after 8 o’clock, and Maynard’s friends remember that they forgot to tell him something. They forgot to tell him that they are fresh out of cash and that he’ll need to pay for their tabs at the end of the night. Maynard protests and says he can’t afford to do that. His friends put their arms around him and tell him he can’t drink alone, that’s no fun; he needs people to drink with him in order to feel the boom of sudden happiness and ecstasy. Maynard protests once more and says he’ll just go home and continue living a good life, rather than a great life. Besides, he says, my budget is pretty tight, I only have thirty dollar to spend.

Just then a wealthy man who was about to enter the bar interrupted, he had overheard their conversation. He tells Maynard that there’s no way he has enough money to get himself and his friends drunk; he only has enough to get himself drunk. So the wealthy man says to Maynard’s friends, I can lend you the money needed to get drunk tonight, just tell me how much you need and don’t ask where the money comes from. The friends are originally hesitant, but the wealthy man insists he will only charge them an interest rate of just below 1%. The friends gladly agree to the deal and Maynard is happy because he’s off the hook for their tab. The friends take the money from the wealthy man and pat Maynard on the back with smiles on their face, they’re all so happy that they’ll be able to get drunk and feel better about everything.

They enter the bar and sit down. Immediately the bartender comes and asks what they would like. They all order a glass of scotch and put it on their tab. They drink their scotches slowly because it burns and they want to pace themselves otherwise they’ll never make it out alive. Roughly forty-five minutes later, after plenty of chatter about this and that, they finish their glasses and decide to have another. There’s not much of a buzz at this point because they have paced themselves very nicely, Maynard begins to wonder whether or not his friends were exaggerating how great getting drunk is. He does start to notice, however, as he takes his first sip of his new glass of scotch that it burns a little less. He can’t complain about that, and he is actually beginning to enjoy the taste to some extent.

As chatter about this and that grows into more exciting chatter involving secrets and funny stories, they begin having more fun and pay less attention to their drinking pace. They have begun to drink slightly faster now. They finish their drinks about ten minutes faster than their first glass and feeling a little buzzed, Maynard especially.

See, Maynard has never had more than three drinks in one sitting in his life because a fourth drink was always out of his budget. He was always very good with his money. His friends were not afraid to go over four drinks from time to time because it usually paid off for them in the end, but they generally kept a fairly tight budget- only taking risks here and there. But since they had a wealthy man at the bar that particular night with more money to lend them at a very low interest rate in the case they ran out of their already loaned money they were more than willing to drink until the bar closed down.

After the second glass was through, they holler to the bartender to bring them a third round. Instead of a sip, Maynard is feeling good so he takes a gulp. It burns more than usual, but he enjoys it. He goes back to sipping his scotch shortly after that though and the boys continue their banter about nothing of any significance. At this point, it’s surely becoming a cheery night for these fellas.

This is where Maynard reaches the fork in the road. He’s reached his budget limit of three drinks. He’s feeling very good, but not drunk. He knows from what his friends tell him that if he gets drunk life will be great for him, he’ll have an unlimited amount of friends coming in through the swinging bar doors, he’ll feel like he’s eight feet tall, and everything will be booming like the Jukebox in the corner. So at this proverbial fork in the road, Maynard decides to get a fourth drink, much to the applause of his friends who join in on the fourth round of scotch.

Maynard has now gone over budget, but he’s buzzed on the good times as a result so he throws all inhibition to the wind and drinks on. His friends on the other hand, while they are also buzzed, decide an easy way to repay the loans to the wealthy man. They decide they are going to take more money from the wealthy man at a reduced interest rate and lend that money out to drunken people for higher interest rates. This way they’ll be able to pay the man back in full while turning a profit for themselves so they can get drunk the next night after they collect their loans tomorrow morning.

The night roles onward, Maynard and his friends discontinue ordering glasses of scotch on the rocks and start ordering shots. Maynard’s friends give out loans to drunk people, and those drunk people tell their drunk friends that two drunk guys at the bar are giving out loans, so the drunk friends of the drunks who first received loans from Maynard’s drunk friends go up to Maynard’s drunk friends and get loans for themselves because they can’t afford to get more drunk at that moment in time. So as Maynard and his friend’s are getting drunker, the people around them are also getting drunker rather than going home after a few drinks as they usually would. As the people around them are getting drunker, they keep going to Maynard’s friends and asking for more loans after spending the other monies lent to them earlier in the night. Maynard’s friends keep running out of money so they keep going back to the wealthy guy who lends them more money at a below 1% interest rate. At this point in time, Maynard’s friends have loaned out enough to have turned a massive profit. Although they won’t get their loaned money, plus interest, back until the next morning they know they will have enough left over money after paying the wealthy guy back to drink for the rest of the night at a very heavy rate and still have money left over to get drunk the next night!

While Maynard’s friends are doing business and downing shots, Maynard is on the dance floor having the time of his life. In between songs he runs over to the bar and orders another shot. He downs it and then goes back to dancing and having the time of his life. In his head he thinks, Everything IS better when you’re drunk. I’m never going to stop drinking. As the Isley Brother’s big hit “Shout” plays and Maynard is in the middle of the crowded dance floor jumping up and down each time they yell “Shout!” he notices the room is beginning to spin. He looks over through the crowd and see’s his friends are beginning to feel the effects of too much drinking as well. One of them is face down on the bar, while the other is only minutes away from being in the same state.

Maynard rushes over as best he can, considering the room is spinning every which way for him, and gets them both up. They stumble ever so slowly down the sidewalk back to their apartments, occasionally stopping to vomit in a nearby trashcan or flower pot. They all have realized at this point that they had far too much to drink and their body was now crashing.

They all make it home and pass out in their beds. The following morning, they all wake up to terrible headaches and the feeling of sickness in their stomachs. For Maynard, the room is still spinning along with a bad headache and a bad stomach. He vomits after trying to drink a glass of water and then returns to bed. He thinks to himself, my friends didn’t tell me about this part. I went from the happiest I’ve ever been the worst I’ve ever felt. Upon lying back down in his bed, he sees his pants next to the bed and decides to check to see if he saved his receipt. He finds the receipt in his pant pocket and pulls it out. He drops the receipt on the floor because he can’t believe the amount of money his tab added up to, it is over $100. He thinks about the night, unable to remember much of it, and vaguely recalls buying several people shots on top of the shots he was buying for himself. He was feeling so good that he wanted other people to feel just as good so he bought them drinks as well.

Just as Maynard was pulling his receipt out of his pocket, his friends in the neighboring apartment heard a loud knock on their door. They both stumble to the door and open it to see the wealthy man standing there with a smile on his face. He asks for his money, plus interest, back. He reminds them that they borrowed a total of $1,000 each. They are unable to pay at the moment, so they call all of the numbers of the people they loaned money out to at the bar to have them pay their loans back, plus interest. They find out with almost all of the calls that the people who they had given loans too were really drunk and just wanted some more to drink. They were so drunk that they were unable to realize there was no way they could pay back their loans.

Before getting back to the wealthy man, the friends check their pockets and look at their total tab and realize they too had each spent well over $100 for themselves alone. They realized everything was going to collapse at this point. They owed money that they could not pay, they needed help.

They ran over to Maynard’s apartment, at which point Maynard was still worrying about the massive overdrafts he had incurred, and knocked on his door. Maynard was by far the wealthiest of the three because he owned a business and he was always very frugal with his money. The friends plead with him to bail them out and give them money so they can payback the wealthy man. Maynard resists at first, but then realizes he was equally to blame as any of his friends for the hangover they all had and the negative dollars in their accounts. So Maynard agrees to pay.

Maynard, however, cannot necessarily afford to pay to bail his friends out with his own money; he doesn’t have enough. So he goes to his business and takes $2,120 out the business account that goes towards paying his employees ($1,000 for each friend and $120 for himself to pay the seventy dollars that took him over budget and the overdraft fees). He gives his friends the money and then reluctantly notifies his employees that he will have to temporarily cut their pay in order to bail out himself and his reckless friends.

Maynard quickly realizes that had he not tried to make his life better through quick and temporary fixes like binge drinking and been patient with his natural life, he never would have gotten into this mess. But it’s too late for that now and his employees are enraged, they had nothing to do with Maynard or his friends going out and getting drunk so they don’t see why their pay must be cut.
Maynard simply replies,

It wasn’t because of drinking, if anything, it was because we didn’t drink enough.

At which point he pulls a bottle of scotch from his desk and pours another shot for himself. And what’s worse, the employees believed him when he said it. They fell for his lie that it has nothing to do with his selfish want to make his life boom, and that it had everything to do with him and his friends slowing down their drinking at the end of the night, so the solution to the problem is that he is going to drink more.

College Tuition: Capitalism to Blame?

It’s no secret that college tuition has been on the rise for several decades now and Capitalism has been labeled the culprit like it has been for such things in recent years as the Great recession and Healthcare costs in America. It’s as if capitalism can’t get a break. College tuition has risen by more than 400% since the early 1980’s, it’s rate of increase is nearly double that of medical care, and far more than doubled the rate of increase in the median family income . From 2009 to 2010, the Federal government spent 41.3 billion dollars on aid for undergrad and graduate students, an increase of 72% from the 2008 to 2009 academic year. It’s numbers like these that have driven President Obama to make college more accessible to all Americans and he supposedly did so by adding college tax credits to his already massive stimulus bill signed into law early in his presidency. On the subject of the college tax credits he declared, “The first $4,000 of a college education is completely free for most Americans, and will cover two-thirds the cost of tuition at the average public college or university,” he said. “And by making the tax credit fully refundable, my credit will help low-income families that need it the most.”
Most believe it is unbridled capitalism that has led to the massive increases in tuition, which is why Obama’s tax credit is so necessary, otherwise only the children of wealthy parents would be able gain a higher education. This couldn’t be further from the truth; there are two things that drive up the cost of tuition: Demand for better living standards and government intervention.

The first of the two is obvious, ask any person who went to college in the seventies or eighties what their dining hall was like and they will likely describe something along the line of a high school cafeteria with slightly better food. But take the University of North Carolina, Chapel Hill for an example of what today’s modern dining halls are like at college campuses, not only do students at UNC-Chapel Hill have multiple places to dine, they have such things as Mediterranean food, an American grill, the Lean & Green-for the vegetarians, the Dinner Grill, and a Subway.

It’s not just the dinning that has gotten better; it’s other things such as the dorm rooms. Many college dorm rooms (granted, not all) now have air conditioning which many students of the seventies and eighties would have killed for. The gyms are far more state of the art than anything students from decades ago got to handle as well and there is far more staff on the payroll for such things as crisis counseling or increased professors to keep the class sizes smaller. These are things that were never around in the early eighties when tuition was a fraction of the cost it is today. But those things all cost money and the colleges and Universities would certainly go out of business if they didn’t raise tuition prices to pay for those costs.

Now the second of the two causes in rising tuition prices is a bit harder to swallow. A few months ago I was chastised by an audience of my peers when I stood before them and declared the federal government should permanently suspend all aid to undergrad and graduate students. One person yelled above them all before I could even explain myself that she would have never been able to go to college had it not been for federal aid and that I was only seeking to spread the gap between the rich and the poor. At first I began to doubt my own words because not a single person in the room of about thirty was content just sitting in their seat silently. Everyone wanted a piece of me. But after they calmed down I proceeded to explain how government intervention has played a key role in keeping tuition rates high.
Suppose that before the next academic year the Federal government did indeed permanently and indefinitely suspend aid to undergrad and graduate students. What would happen next? Tuition would likely stay the same, it may even go up slightly, but what will happen to enrollment? Students like the girl who stood up and berated me wouldn’t go to college. Hundreds of thousands of high school graduates simply would not go to college that next year because they couldn’t afford it. So how are the Colleges and Universities supposed to pay for their new fancy gyms, fine dining, and air conditioned dorms on top of all the other basic costs that go into running an institution? They can’t if their prices no longer fit the market demand.

The government has been propping up tuition rates through no fault but their own. One thing that sticks out when you draw your own graph of tuition rates over the past thirty years with federal spending on aid for higher education included is that when tuition goes up, so does the government spending on aid. The Universities have begun to realize that no matter how high they raise tuition the government will always be there to insure the less affluent can afford the education they deserve so the institutions continue to raise their tuition to fund more gym equipment, bigger football stadiums, better food, prettier dorms etc etc. But if the government refrains from giving aid the colleges lose their bargaining abilities. The colleges can no longer raise their tuitions because they will end up with not enough students to fund the university. The fact of the matter is 47% of students are currently making it through college on federal aid so that means the next incoming class would probably have 47% less students than average which means the university would make about 47% less revenue on the incoming class than they typically would be used to. The Universities cannot operate under such low revenue so they’ll have to meet market demands and in order to do so they will be forced to either lower their tuition dramatically or go out of business. And since they are greedy capitalists who would prefer to continue making money rather than filing for chapter 9, they will lower their tuition rates and be met by an onslaught of young students of all income brackets who are ready to learn.
What should be most evident to people is that tuition rates are rising, not due to capitalism, but because of government intervention building what I can no longer deny, a tuition bubble. Prices can't rise the way they are without braking the law of Supply & Demand, and that can only happen through the government because the government, aside from the Federal Reserve, is the only thing that can directly influence the markets to build bubbles. If you will recall how the housing bubble came about, you'll remember that prior to the housing bubble's collapse, the rate of home-ownership was on the rise. Home-ownership essentially equals Supply. So if Supply is on the rise, Demand will fall which means price of home-ownership will fall as well. But as everyone from the Austrian School of thought knows, the price of home-ownership didn't fall. In fact, it continued to climb. The only way the price of housing can defy the natural market laws of Supply and Demand is through intervention in the market. Hence, the bubble grew and burst and landed us right where we are today. Where I draw my conclusion that there's a tuition bubble is through the similarities I see between the housing bubble and college tuition rates. There's no doubt the government is meddling in the market of higher education, Federal Aid rose by 72% from 2008-2009 for God's sake. And there's also no doubt that college tuition is on the rise. Both of those two statements are undeniable. But nonetheless, college attendance is on the rise. An Increase in students essentially equals an increase in Supply. So if Supply of students is on the rise, Demand should fall which means prices should fall as well. But as you and I know, the price of a college tuition isn't falling. Should we be worried? Yes, all bubbles burst. A bursting bubble is extremely natural when government tries to avoid the natural market, which it is currently doing by unintentionally raising the prices of tuition. As the tuition rates continue to rise, which I assure you they will, the government will also increase its aid. This will inevitably lead to the bust through one of two ways: either the government realizes it can't afford to keep boosting aid and freezes it rate of increase, or students in the upper class stop going to college. The first of the two is very likely, government will at some point be unable to sustain the amount of aid it gives to students and will either freeze its rate of increase in aid or maybe even cut aid (when was the last time government ever cut anything though?). If this is the route we take, then we go back to the scenario I described earlier where students will stop going to college because they will not be able to afford it without government help so prices come crashing down to market levels otherwise the colleges go out of business. The second of the two routes that leads to the inevitable tuition bubble burst is what will happen if government does not stop raising aid, and that is the upper class students will be unable to go to college or their parents will be less inclined to pay for the tuition. If government continues to stay involved in the higher education market than prices are only going to continue to rise. This is where we have to take into account exactly who is getting the federal aid for college tuition. It's generally upper-middle class down to the lower class students who are getting aid. The upper class students are left out, and for good reason, their parents have no problem paying. But if government continues to inflate the cost of tuition than eventually the wealthy parents are going to say enough is enough and have their children join the workforce out of high school instead. I went to school with plenty of rich kids who had careers lined up before they even set foot on a college campus. They're well connected and have no problem skipping the collegiate years. In fact, they'll probably end up better off because they'll get four-years of real world work experience before a college student ever graduates. But to get back on topic, the wealthy families not only pay their kids way through college without federal aid, but they also contribute a massive amount to their child's college and when that child graduates and gets rich they'll donate money as well. If the government inflates the tuition rate too high, the rich will leave the college campuses and revenue will drop severely for colleges, causing the bubble to burst. There's no way to avoid a bubble being burst once it has started growing, but the longer it has time to grow, the harder the bust. If you don't believe me, look at what the housing bubble did to us after just eight years of government manufacturing. CITATIONS: "Student Loan Market Created a Tuition Bubble Rivaling the Housing Bubble. When Banks and Government Subsidize Markets the Average American Gets an Education in Debt Serfdom. For Profit Schools Dominate the Pell Grant Market." Finance My Money. Web. 19 Aug. 2011. . Supiano, Beckie. "Federal Spending on Student Aid Jumps as College Prices Go Up Again - Students - The Chronicle of Higher Education." Home - The Chronicle of Higher Education. Web. 19 Aug. 2011. . "Two-Thirds of Students Get Financial Aid, Federal Report Says - News - The Chronicle of Higher Education." Home - The Chronicle of Higher Education. Web. 19 Aug. 2011. .