Monday, December 27, 2010

Is Pittsburgh sitting atop an economic bubble?

Posted By on Mon, Dec 27, 2010 at 3:47 PM

Here in Pittsburgh, we've gotten pretty good at patting ourselves on the back. Other cities might have had real-estate meltdowns, we cluck, but not us! And we sidestepped that whole internet boom as well!

But what if Pittsburgh's economy were being supported by a bubble of its own -- an industry whose booming growth blinds us to the fact that it is ultimately unsustainable? What if one of our chief industries was headed for a fall like the one which claimed, say, the domestic steel production?

What if even the mighty Cathedral of Learning is built on a foundation of sand?

That question occurred to me after reading work by a couple of local conservatives in recent days.

The first is Jack Kelly, the P-G columnist and bete noir of some local bloggers. This weekend, Kelly wrote a column titled "The Costly College Scam," which argues that "the biggest consumer ripoff in America today is a college education":

Since 1981, tuition and fees have increased sixfold, while the consumer price index has risen just 250 percent. The rise in college costs has been especially fast in the last decade, and has reached heights that place enormous strain on middle class families ...

If you have a degree in physics or engineering, you're almost certain to earn a great deal more than someone who stocks shelves at Wal Mart. But if your degree is in sociology or ethnic studies, you probably won't earn as much as a plumber or an electrician.

Kelly's column came on the heels of an earlier piece written by Jerry Bowyer for Forbes.com. Likening the higher-education biz to Nevada's housing market at the height of the boom, Bowyer argues, "Higher education shows every reasonable sign of having a completely unrealistic, astronomical price tag. Beyond that, the sacred cow psychology that commonly accompanies other mania is clearly present." (Bowyer later did a follow-up here.)

In previous bubbles, the "sacred-cow psychology" was that Internet stocks, or housing prices, could only rise -- either because the Internet had changed the way we do business so much that old economic rules no longer applied, or because in living memory, housing prices had only ever gone up. With respect to college, Bowyer argues, the "sacred-cow psychology" is the old nostrum that a college education always pays off with higher earnings down the road.

Let's acknowledge the obvious: Whatever else these guys are, they're conservative ideologues, and they aren't writing in a vacuum. After all, even Phyllis Freakin' Schlafly has begun asking questions about whether a college education is worth it. And when folks like Phyllis Schlafly start expressing concern for the poor and indebted, you know something is up.

One gets the sneaking suspicion, in fact, that what really bothers Schlafly & Co. is not the cost of education per se, but the fact that Barack Obama has done something about it. Back when giant for-profit enterprises like Sallie Mae were raking in fees, massive student indebtedness was, presumably, just the free market at work. Now that Obama has cut the banks out of student lending, you'll hear conservatives begin to wring their hands about whether those poor first-years are getting their money's worth. 

(I mean after all, when Kelly complains that "it is virtually impossible to discharge student loan debts in bankruptcy," he might have felt obliged to mention the Bankruptcy Abuse Prevention and Consumer Protection Act. That 2005 measure, passed by a Republican-led Congress and signed by a Republican president, made it difficult to discharged loans even when they were issued by Sallie Mae and other for-profit lenders.)

So I can't blame those who wonder about Kelly's motivation here. Does his concern stem from the fact that college campuses are among the few places where liberal ideas are not roundly dismissed ... where they even predominate? Is it any wonder that Kelly -- a global warming denier in the face of strong scientific consesnsus -- doesn't see the value in book-larnin'?

But all that said ... there is no doubt that there is a serious question here, one we lefties have been asking for awhile now. For starters, while Obama has taken on for-profit lenders, the for-profit educators are still out there. And City Paper's Charlie Deitch was among the first to sound the bell about one local player: Pittsburgh-based EDMC. More recently, the Post-Gazette has been raising questions as well.

The vast majority of EDMC's revenue comes from federally-backed student loans, which sort of makes them the General Dynamics of education. Even if you aren't a libertarian of Bowyer's stripe, you might wonder whether students are getting diplomas that are the educational equivalent of $1,200 toilet seats.

And obviously, as City Paper has noted more than once, it's not just for-profit educators students should worry about. At non-profit schools too, costs have been spiralling, and debt burdens have been rising along with them.

How much longer can this go on? At what point will the cost of a college education outstrip a student (or her family's) willingness to pay for it? At what point will a degree's cost outweigh the economic benefits derived from it? And given that Pittsburgh's economy is based on "eds and meds," what will the local impact be if a bubble does burst?

Such questions may be a long way off, and I sure wouldn't turn to Jack Kelly to answer them. You can really only expect these guys to offer simplistic answers -- it's all government's fault! -- to very complex problems. That's what they did with the housing crisis, anyway. And you can already see them lining up their arguments on education.

But although I distrust their argument, this may be a discussion the city needs to have. If anything, the rise of an "eds and meds" economy has distorted our government, rather than the other way around. That often happens when an economy is dominated by just a few actors: The steel industry exercised its own perogatives -- in terms of shaping tax codes and even municipal boundaries -- to maximize its gains. And arguably, "non-profits" like the University of Pittsburgh do the same thing every time they take a parcel of land off the tax rolls.

That may be acceptable as long as their success can be sustained. But if not ... what then? A world-renowned institution like CMU may be strong enough to survive anything short of Armageddon. But what about, say, Chatham University? Or Point Park? If they began to struggle, would we bail out our colleges the way we've done with our less-successful sports teams? Would the state rush in with aid? If there is a bubble here, in other words, would higher education in Pittsburgh be too big to fail?


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