Economic Stagnation and Recent College Graduates

In an excellent article about the college-loan “bubble” — the government has made it easy for students to get loans that a large fraction of them will repay only with great difficulty — Matt Taibbi writes:

We’re doing the worst thing people can do: lying to our young. Nobody, not even this president, who was swept to victory in large part by the raw enthusiasm of college kids, has the stones to tell the truth: that a lot of them will end up being pawns in a predatory con game designed to extract the equivalent of home-mortgage commitment from 17-year-olds dreaming of impossible careers as nautical archaeologists or orchestra conductors.

I agree with Taibbi’s big point — college students are being very badly treated — but I would summarize it differently. The worst thing older people can do to young people is construct an economy that has no place for them. Humans are the only animal that specializes. We learn a specialized skill and use it throughout our life to make a living. Not allowing someone to do this is not allowing them to be human.

Due to lack of innovation, too few jobs are being created. New jobs in new industries doing new things are jobs for which young people are especially well-suited. The problem with stagnation — stagnation in new goods and services — is (a) problems stack up unsolved and (b) jobs especially suitable for recent entrants to the job market aren’t created.

Failing to provide college students decent jobs is Horrible Thing #1. Burdening them with a great deal of debt before they enter a stagnant economy is Horrible Thing #2. I have blogged many times about Horrible Thing #3: Not helping students learn and develop their individual skills.

11 Replies to “Economic Stagnation and Recent College Graduates”

  1. “We’re doing the worst thing people can do: lying to our young.” Golly, he can’t know much about history if he thinks that’s the worst people can do.

  2. Presumably a large portion of these loans will never be repaid, despite the absurd regulation that prevents education debt from being discharged through bankruptcy. An intelligent government would be planning to wind them down in an orderly way, while also correcting the misallocation of resources in (and, possibly, to) the education sector.

  3. This article says that 514 schools have default rates that are higher than their graduation rates:

    http://www.takepart.com/article/2013/07/08/student-loan-default-rates-rise-graduation-rates

    This article from The Atlantic cites government figures to claim that the overall default rate on federal student loans is currently 12.8%, although a much higher percentage of borrowers are in deferment or forbearance.

    http://www.theatlantic.com/business/archive/2013/08/our-student-loan-system-is-broken-and-these-new-statistics-prove-it/278453/

  4. “The quote is valid read in the context of the article”: do you mean that the article is hysterical and hyperbolic and the quotation is in line with that?

    It always seems to me a kind of intellectual bad manners to rant and rave about a serious problem that needs calm analysis. Still, I suppose there’s a living in it.

  5. I actually agree with Seth that the article is excellent.

    In any event, Matt Taibbi’s career has gone pretty well so far.

  6. I’m not sure how we go about providing college students with jobs. Scott Sumner would emphasize stable NGDP growth, and I agree, but I don’t think that is what Seth is talking about.

    What jobs develop seems to me a pretty emergent property, rather resistant to design from above. There is a lack of feedback in our current system. See Bryan Caplan Launching the Innovation Renaissance [by Alex Tabarrok] (STEM majors haven’t increased in 20 years, but Psychology majors have increased tremendously).

    Still my biggest issue is that I’m not sure how we are supposed to create jobs for graduates. Software and globalization have eliminated many of the jobs that used to need an intelligent, generally educated person.

    Seth: You create good jobs for recent college graduates by innovation — creation of new goods and services and new ways of providing old goods and services. The world has plenty of problems to solve. For example, two recent college graduates have started a company that produces biodegradable replacements for styrofoam.

  7. I agree with a lot of the sentiment here but I would say horrible thing no1 is neoliberal capitalism (possibly capitalism in general). When capitalism enshrines profit making as a priority (not job creation or innovation), and innovation isn’t really being piqued by capitalism (instead sabotage of human industry, potential is), what happens is less jobs are created, and we see the sort of thing that is happening in the US re tertiary students now.

    Arguably we don’t need new goods and services’. Infinite growth/ the endless pursuit of ‘innovation (innovative ways to rationalise to increase rates of profit in times of increasing resource scarcity) aren’t necessarily needed. Why can’t uncertainty be embraced, not pushed away in discomfort because we focus on endless ‘progression’ to ever greater ways of profit making and limiting people’s potential…

    Seth: “why can’t uncertainty be embraced” — such as uncertainty whether your child will get autism? I don’t agree. I agree that new goods and services are not all we need to solve existing problems.

  8. Matt Tiabbi did a tremendous job exposing the sickening truth about our largest banking institutions during the financial crisis, and I welcome him tackling student debt. The time for calm analysis in this country has come and gone. Considering the fact that what passes for journalism in this country is a mixture of lies, equivocation, and propaganda, I think Tiabbi’s unique style is refreshing while being extremely informative. His research is impeccable, and he does an excellent job putting the puzzle pieces together for the masses.

    Intellectual bad manners? Try being a new graduate with student debt and no prospects, and maybe you will be thankful for the journalist willing to employ some hyperbole and hysteria in exposing how this country treats it’s youth. Having a son who graduated in 2009 (magna cum laude from an excellent institution) I can’t even begin to tell you how emotionally wrenching it is to realize that no one will give you a chance because you have no experience. The amount of wasted human capital out there is staggering, and the fact that our government does nothing to correct it while profiting off of it is obscene.

  9. As an old fogey, it seems to me that some chickens have come home to roost. I recall an eminent economist speaking out of turn at the time when vast numbers of women were entering the workforce in this country in the 1970s and 80s. I asked him where all these jobs had come from and what effect this fundamental change in the job market would have. He reminded me of the law of supply and demand, saying that the eager new workers were willing to take much lower salaries than men, so men’s salaries had already stagnated. Indeed, he said, the future appeared grim for men who expected that they would be the sole breadwinners for their families, and that eventually women, too, would begin to realize that with the cost of childcare and housecleaning services, the additional wages they were bringing to the family were not really very much. I believe we’ve all seen that work out as he predicted. And of course the law of supply and demand applies to educational degrees as well. If only five percent of 25 year-olds have college degrees, having such a degree has meaning, if 95 percent hold such a diploma, it is virtually meaningless.

    Add to that the loss of jobs as the economy changed from manufacturing to service – with many people thrown out of work as factories closed and automation increased – and it seems to me that were we to return to the pre-1970 norm of one breadwinner per family there would be virtually no unemployment. What we have today are more than two people applying for each job available. It would be a wrenching experience to revert to what used to be the norm, but facing reality is better than denying it. And I’m not saying that in every case it would be the mother that would stay at home – we have learned that some women are excellent professionals – and if so then their husbands could manage the household and children, and look for a part-time position. And think, if we could return to a situation in which most children were raised in intact families, with one parent being a mainstay in the home, how much happier our children would be. . . But, such are the musings of an old fogey sitting at her computer.

    Seth: I agree with you. The change is already happening in an unanticipated way: Many people work from home. And more people are self-employed. Those are jobs halfway between homemaker and company man.

  10. College students have already spent 10 years in public schools, isn’t it enough time to find out your talents? Public school seems like a big failure, college even more. Get a job, get payed for learning skills and finding out your vocation and go to university only if unavoidable for your profession and if you know exactly what you want to get out of you studies.

    In the end capitalism is not about profits or the economy but about a moral philosophy, that one do not initiate force against a person and his property and that producer and consumer can exchange freely goods and services. Capitalism does not care if you make a profit on your ventures, but most producers do as if you put more resource in your production than you get out you end up broke.

    Innovation is only beneficial if it reduces cost (consumption of resources), increases the benefit of produces or satisfy new needs. The problem in the west is over consumption, we consume more than we produce and financed it with dept. This dept can’t be repayed unless people reduce their lifestyle and produce more and start saving.

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