Government Subsidies Fuel Huge Tuition Increases

Previously I have commented about how college tuition costs have increased so much faster than any other industry in America.




Now Grey Gordon and Aaron Hedlund at the National Bureau of Economic Research have published a paper Accounting for the Rise in College Tuition confirming the source of this stratospheric rise -- tuition subsidizes (sometimes called "financial aid").  Their conclusion:

"colleges respond to expansions of financial aid by increasing tuition. In fact, the tuition response completely crowds out any additional enrollment that the financial aid expansion would otherwise induce, resulting instead in an enrollment decline."
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So in its usual perverse way, government distorts markets creating results that are exactly opposite to the ostensible goal.

Sound anything like what government did when it decided to increase home-ownership by subsidizing mortgages to buyers who were otherwise not qualified to obtain them? It should. Just as people were lured by mortgage subsidies to buy homes they really couldn't afford, lenders (in this case 90% government) lure young people to borrow money to pursue college degrees that many won't even achieve with the promise that college is a "sure thing" to a good job.

Bottom line: Owning a home and getting a college education are good things worth incurring debt for the right people who have a solid likelihood to repay. Government subsidies distort this equation such that all sorts of people who don't meet this requirement are enticed to borrow. People should be free to make bad decisions, but it's wrong for your government to actively enable them.

Median HH Income Has Fallen, But Not Because Workers are Earning Less

Yes, median household income has fallen. Not because those who are working are earning less, but because the number of households without earners is increasing. One-quarter of all households now have nobody employed and just subsist on the huge number of welfare handouts available In many states you are actually better off not working than having a job.

Yes, The Middle Class is Shrinking. It's Gotten Wealthier

I'm getting a little tired of hearing from both Democrats and Republicans that "the middle class is shrinking". Yes, the middle class is shrinking. And it's because they've gotten wealthier.


                                                                                             1967           2014

Share of American Households earning $100,000 
or more (2014 constant dollars)                                            8.1%         24.7%

Share of American Households earning
$50-100,000  (2014 constant dollars)                                  33.7%         28.5%

Share of American Households earning
$50,000 or less (2014 constant dollars)                               58.2%         46.8%



Why isn't this a good thing? Does this look like something that "must be fixed"? When your argument for socialism is that the Middle Class are getting richer, I think you've got a problem.  

Demagogue: A leader who makes use of popular prejudices and false claims in order to gain power.

Want More Unemployment? Adopt a Minimum Wage.

Want to have high numbers of unemployed? Just adopt a minimum wage to prevent people with low labor value from being able to work.