Economists coined the term "bubble" to describe an economic cycle characterized by rapid expansion followed by a severe contraction. The greatest examples of the phenomenon have been dubbed "manias," of which the tulip crazes in Europe in the 1630s are a prime example. At one point, the cost of a tulip soared to 10 times the annual income of the average skilled worker.
A century later came the South Sea Co. fiasco in which prices of company stock skyrocketed on promises of a high return on investment in a deal brokered with the British government in 1720. Modern examples include the Dotcom stocks in the late 20th century and, of course, the housing bubble of 2005.
The net result is that people investing in these bubbles, particularly the last ones to come aboard, take a financial shellacking. Living along the Gulf Coast for years, my students would come to class telling me how great the fishing was the day before. Caught up in their enthusiasm, I would head out that afternoon to get my share of the goodies only to hear the refrain, “You should have been here yesterday.”
I believe the next bubble could be higher education.
To earn a degree costs time and money, both of which have dramatically increased over the years.
More graduates are walking across the stage and ending up in unemployment lines. Others are seriously underemployed. For years, figures were quoted regarding how much more college graduates earn versus those with a high school education. A point often overlooked is that people who choose to go to college tend to be more ambitious and harder working, qualities that would earn them more money in life whether they went to college or not.
The truth of the matter is we are saddling our nation’s youth with an enormous debt under the assumption that higher education is economically worth it. That, quite frankly, is no longer a safe bet. A red flag went up last year when, for the first time in our history, college debt exceeded credit-card debt.
To add fuel to the fire, Stafford Loan interest rates are scheduled to double this summer from 3.4 percent to 6.8 percent. It is a hot topic of discussion on Capitol Hill this election year. The real question we should ask ourselves is should the government subsidize education loans and encourage college enrollment in an economic environment that has completely changed?
Just as the government had a significant hand in the housing debacle by encouraging homeownership by lowering lending standards and reducing down-payment requirements, it is interfering in the operation of the free market by making credit too easy to obtain and ignoring the long-term consequences.
Times change and society must adjust accordingly to prevent a misallocation of resources, which in turn results in economic hardship for its citizens. All of this brings to mind the Robert Redford film "The Candidate" and his character’s campaign slogan: "There has to be a better way.”
Laughlin is a Christian Libertarian. He is an economist, teacher, father, husband and most recently a grandfather. He has written a weekly column for The Tribune for 13 years. He and his wife Gina reside in Meadowlakes. To contact him, email email@example.com. He is an independent columnist, not a staff member, and his views do not necessarily reflect those of The Tribune or its parent company.