College Affordability Lamentations Don’t Measure Up

The National Center for Public Policy and Higher Education has published another of its biennial Measuring Up reports, and once again the report itself doesn’t measure up. It has lots of problems, but the most glaring — and the one that regularly generates the most wailing and gnashing of teeth — is its insistence that only money students don’t have to pay back constitutes “financial aid,” and loans are the cruelest thing since Attila the Hun.

But student loans are hardly rapacious student victimizers. For one thing, federal student loans — meaning the vast majority of the nearly $86.7 billion in loans distributed in 2007-08 — have very low interest rates and generous terms. In addition, there are oodles of loan-forgiveness programs available. Most importantly, people go to college to vastly improve their earnings over a lifetime, and do so to the average tune of hundreds-of-thousands to perhaps even a million extra dollars. Yet for those students who leave college with debt — and roughly a third graduate debt-free — the average loan burden is only around $20,000. That’s a heck of a windfall profit, yet heavily subsidized loans apparently don’t count as useful aid!

Unfortunately, advocacy groups like NCPPHE are not alone in portraying students having to foot their own college costs as some sort of grave economic injustice. Just yesterday, U.S. Secretary of Education Margaret Spellings gave herself and her boss’s administration a huge pat on the back for expanding taxpayer subsidization of student profiteering. Nonetheless, in Spellings’ opinion student debt remains an ugly stain on the country’s soul:

Today, the average college graduate is more than $20,000 in debt. That’s $20,000 farther away from buying a home and starting a family. And $20,000 less likely to give back through teaching or public service.

I’m going to address head-on the effects of student debt on potential teachers in an upcoming PA, but overall this woe-is-students whining is ridiculous and counterproductive. There is nothing unfair about students taking on debt for their own huge payoffs — especially in contrast to foisting the costs on the plumber, electrician, carpenter, or anyone else who hasn’t gone to college — not to mention that there is lots of reason to believe that aid just drives up costs. Unfortunately, there is no sign that either higher education advocates, or politicians looking to score points with students and parents, are going to stop their very public lamentations anytime soon.

Mexico’s Drug Violence Spreads to Guatemala

At least 17 people were killed this weekend in Guatemala in gun battles between rival Guatemalan and Mexican drug gangs. This is the latest piece of evidence that Mexican drug violence is spreading down to Central America, where governments lack the institutional strength to fight these powerful cartels. A few months ago the Guatemalan army even stated that there are parts of the country’s territory that are not under its control.

The influence of Mexican cartels extends all the way to Argentina where a suspected Paraguayan drug trafficker was recently arrested for possibly supplying ephedrine (key ingredient of methamphetamine) to Mexican drug lords.

The next U.S. administration should pay more attention to this dangerous situation. It’s time for Washington to consider the cost of this war on drugs on the region’s stability.

David Hyman Now Blogging at Volokh Conspiracy

Fans of Cato adjunct scholar David Hyman – you know, the guy who claimed that Medicare is a tool of the devil – will be happy to know that he is now blogging at The Volokh Conspiracy.

Hyman’s inaugural post – the first in a series on capping non-economic damages in medical-malpractice cases – can be found here.

And seriously, he was just kidding about that whole Medicare/devil thing.  Honestly.

This Time, Don’t Blame Court for Lost Educational Freedom

Florida’s First District Appellate Court has just ruled that only the state’s public school districts have the right to approve and oversee charter schools, striking down a 2006 law that had created an alternative state-level charter authorization body. Districts typically – and correctly – see charters as competitors for scarce public funding, and this ruling will allow them to once again protect their monopoly position by stifling the competition (the very problem the 2006 law was meant to address).

School choice advocates often blame biased or misguided courts for such unfortunate decisions. This time, the blame lies elsewhere: in Florida’s constitution. Unlike most state constitutions, which leave legislators considerable freedom in the area of education policy, Florida’s spells out how its public school system must be organized, run, and funded. Among its many stipulations is that each school board ”shall operate, control and supervise all free public schools within the school district.” Florida districts clearly have an absolute monopoly on how public school dollars are spent.

Monopolies aren’t exactly famous for innovation or responsiveness to their customers. So Floridians who want greater freedom and diversity in education will have to demand a constitutional amendment to that effect. Until they do, their elected representatives will remain helpless to provide them with meaningful alternatives to their assigned district schools.

This Month at Cato Unbound: What Happened?

Writing the history of a financial crisis can’t be easy, and it’s even harder when that crisis is still unfolding.  That’s why this month we’ve invited a team of economic experts for a very special issue of Cato Unbound.  Each brings a different perspective on our financial troubles, and, partly because the matter is so far from settled, we’ve decided to give them all equal billing:  Lawrence H. White, William K. Black, Casey Mulligan, and J. Bradford DeLong will each write a full-length essay in a first of its kind roundtable format.  The question at hand:  What happened?

Prof. White’s essay is available here, and I found the following particularly interesting:

One can’t explain an unusual cluster of errors by citing greed, which is always around, just as one can’t explain a cluster of airplane crashes by citing gravity. Anyway, the greedy aim at profits, not losses.

I’m just old enough to remember how everyone called the 1980s a decade of greed. Then there were the 1990s, also a decade of greed. The 2000s? Greed yet again. (I wish I could invest in this “greed” thing. It never seems to go out of style.)

I also liked the following, which makes one of its most substantive points in the final parenthesis:

As calculated by the Federal Reserve Bank of St. Louis, the Fed from early 2001 until late 2006 pushed the actual federal funds rate well below the estimated rate that would have been consistent with targeting a 2 percent inflation rate for the PCE [Personal Consumption Expenditure] deflator. The gap was especially large—200 basis point or more—from mid-2003 to mid-2005. [4]

The excess credit thus created went heavily into real estate. From mid-2003 to mid-2007, while the dollar volume of final sales of goods and services was growing at a compounded rate of 5.9 percent per annum, real-estate loans at commercial banks were (as already noted) growing at 12.26 percent. [5] Credit-fueled demand both pushed up the sale prices of existing houses and encouraged the construction of new housing on undeveloped land. Because real estate is an especially long-lived asset, its market value is especially boosted by low interest rates. The housing sector thus exhibited a disproportionate share of the price inflation predicted by the Taylor Rule. (House prices are not, however, included in standard measures of price inflation.)

I understand that it isn’t easy to incorporate housing prices into measures of inflation, and that there is no generally accepted method of doing it. It seems more important than ever, though, to include these prices in some way, if only to let the public know the sort of trouble housing inflation has very likely been causing.

The Pre-Public Choice View

I always thought the view that the private sector is full of greed and self-interest, while the public sector is all about selflessness and public service, was confined to 1950s civics books. But lo and behold, it turns out that view is still held by federal appointees interviewed by NPR:

“We’ve always thought of the government as motivated by a sense of service to the people,” says Charles Tiefer, whom Congress appointed earlier this year to the new Commission on Wartime Contracting, which oversees Pentagon contracts in Iraq and Afghanistan. “We’re getting away from that [by contracting out government services].”

After all, he says, federal employees take an oath to the Constitution, while private contractors are just motivated by their own economic interest. It’s a lovely vision, and apparently some people actually believe it. But about 50 years ago the public choice economists, such as James M. Buchanan, Gordon Tullock, and William Niskanen, began to suggest that people in government are still people, with all their good and bad characteristics. And also that analyzing the actions of government in the light of self-interest leads to pretty sound predictions and observations. As Buchanan put it in an interview:

I usually have a three-word description [of public choice economics] – it is “politics without romance”. Politics is a romantic search for the good and the true and the beautiful. “Public choice” came along and said, “Why don’t we model people more or less like everyday persons? Politicians and bureaucrats are no different from the rest of us. They will maximize their incentives just like everybody else.” By taking that very simple starting point, you get a completely different view of politics and its analysis.

Buchanan won a Nobel Prize for his insights, but obviously they haven’t fully permeated Washington yet.

A Perfect Introduction to Congress

NPR reports on the new public entry to the U.S. Capitol:

The U.S. Capitol Visitor Center formally opens to tourists Tuesday, over budget and behind schedule.

At 580,000 square feet, it’s the largest project in the Capitol’s 215-year history. It was originally scheduled to open almost four years ago, and the $621 million price tag is double the initial estimate.

What a perfect introduction to Congress and its activities! I hope they have a display in the entryway about the construction of the Visitor Center. And maybe they could have interactive graphs and figures showing cost overruns in the Visitor Center, weapons systems, Medicare, Medicaid, and other federal programs. A sign of the times in the Bush-Obama New New Deal era.

The Washington Post offers more details on the progress toward the Visitor Center:

The unveiling that will be marked with one Capitol Hill staple – speechifying by politicians in an invitation-only morning ceremony – already has achieved much else for which Congress is noted.

Take, for example, spending. What was proposed as a $71 million project in the early 1990s became a $265 million endeavor a decade later. By the time work got underway in 2002, the price tag was up to $368 million. Tomorrow, the ribbon will be cut on a $621 million project.

Then there was the congressional penchant for thinking big. The center’s architects were ordered to include 150,000 square feet of “shell space” for some future day when Congress might need more office area. The finished center is about two-thirds the size of the entire Capitol.

Then there have been delays, a malady common to many federal endeavors. The project once was expected to be finished in time for the presidential inauguration – in January 2005. As that date neared, the center was about half done, so the completion date was bumped ahead to spring 2006.

Six months after President Bushwas sworn in for a second term, the Government Accountability Office reported that the architects and contractors were making so many mistakes and facing so many unexpected problems that March 2007 was probably more realistic. When that target rolled around without a ribbon-cutting, project officials were summoned before a House subcommittee to explain why, and Rep. Jack Kingston(R-Ga.) scolded them for overseeing “a monument to government inefficiency, ineptitude and excessiveness.”

Members of Congress did manage to achieve one thing with the timing:

Top lawmakers and Congressional officials have been fretting for months that the visitor center would finally open its impressive doors in the weeks before Election Day. They worried that it would inspire a raft of news stories and snide commentary about how Congress had erected another monument to itself, just in time to irritate voters already irked at Washington.