Moods and Markets: A New Way to Invest in Good Times and in Bad (Shawn Kahl's Library) by Peter Atwater

Author:Peter Atwater
Language: eng
Format: epub
Publisher: FT Press
Published: 2013-06-20T16:00:00+00:00

5. Is Higher Education a Bubble?

Recently there has been a flurry of opinion pieces written about higher education that argue both pro and con that, like housing, higher education is also a bubble.

Although the arguments could fill a book all to itself, in this chapter I use the peak mood framework from Chapter 3, “Market Peaks and All the Red Flags They Wave,” to assess whether higher education qualifies as a bubble.

A Big Truth

Much like homeownership became a measurable standard of the achievement of the American Dream during the 1950s, so did earning a college diploma, especially with the introduction of the GI Bill after the end of the Second World War. Consequently, the cost of college became the necessary “investment in the future” that would translate into a better job and job security, a high probability of homeownership, and a secure retirement. Put simply, with a college degree the future was more certain.

Two things strike me as important in our cultural definition of college tuition as an “investment in the future.” First, I would not underestimate how as an “investment in the future” we naturally want more of it (like all other investments) at higher and higher prices. Despite the recent concerns about the value of a college education the data clearly suggests that per capita enrollment has been rising right alongside rising tuition.1

Second, like many of the recent mantras regarding gold, fear and greed are all but indistinguishable for most when it comes to paying college tuition. We pay ever rising tuition to both avoid a painful downside—the lack of a good job (fear)—and to obtain a positive upside—the opportunity for a better paying job (greed). Although some may suggest these are merely the opposite sides of the same coin, we shouldn’t underestimate the effect this has on the demand for higher education. (In this regard note that the increasing emphasis by public policymakers on the “importance of education” is not at all dissimilar to the comments of gold advertisers about the importance of holding gold in one’s investment portfolio as both a hedge against inflation and deflation.)

From my perspective, higher education’s Big Truth makes it clear that like any investment there is an opportunity for a bubble in its price. Even more, with our willingness to pay for higher education largely a function of our perception of college’s ability to make our future (or our children’s or grandchildren’s future) more certain, it is also easy to see how self-assured certainty could set in and how we could ultimately find ourselves in a state of hopeful delusion, particularly, if like housing, we have had a long track record of success that demonstrates higher education’s value. Further, we should not underestimate the role that parents, teachers, and others in the workforce play in the college process. Because college made their own lives more certain, parents and friends extrapolate their own success to those considering college. While clearly well-intentioned, this is not that dissimilar from a long-term investor recommending that you buy Apple stock because he or she has already made a lot of money in it.

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