The post below is about half common-sense reasoning about the current crisis and half bloggy speculation about its effects on the higher-education biz. Much of it is brain dump, though there are a few useful links thrown in. You have been warned.
Common-sense reasoning about the current crisis:
In one view of the world, people make spot decisions over whether to buy based on current prices—this applies to people in shops as well as to employers thinking over whether they should “buy labor”, i.e., hire someone. In this model everyone’s got a strike price in mind, and when the thing they want hits the price they’re willing to pay, they buy. And in this model, the thing to do in a crisis like this one is to sit, and wait while prices fall, till they hit the point at which people will start buying—till they reach their market-clearing price.
But anyone who’s had a little extra money to spend over the past couple months knows this isn’t quite so. A lot of shoppers looked at the desperation pre-Christmas 25%-off sales and held off buying, because they thought, I bet things will be cheaper after Christmas. And then a lot of shoppers looked at the desperation post-Christmas 50%-off sales and held off buying, because they thought, I bet things will be cheaper in the New Year. And then there were 70%-off sales, and so on and so on.
Which is to say that the price one’s willing to pay depends not only on supply and demand, but also on expectations about price movements. A lot of people who would be willing to pay the 50%-off price, were it offered in an ordinary economic time, thought—rightly—this is no ordinary economic time, and I can get that gizmo cheaper if I wait.
When you factor in these expectations, it’s no good just waiting for things to sort themselves out—it’s no good waiting for goods to hit their market-clearing low price—because owing to these expectations that things will continue to get worse, people will sit on their hands and decline to buy even what they can readily afford. Lenders will decline to lend, employers will decline to hire, and at the very least you’ll way overshoot your low, market-clearing price before things begin looking up; quite possibly, you’ll end up watching as GDP falls off a cliff and unemployment shoots through an unconscionable roof and people in the world’s richest economy suffer malnutrition and begin actually starving to death. Which is what happened in the Great Depression.
And which is why even a poorly implemented policy like the National Recovery Administration might in theory have been successful, as Gauti Eggertson points out in a math-heavy paper here: if you can shift expectations so that people no longer think prices will continue falling, then you can get them buying again.
And which is why Robert Shiller is mildly arguing here that
Different kinds of stimulus have different effects on confidence, depending on how they are viewed and interpreted by the public. The focus has to get off of “what fraction of this stimulus will be spent” to “how does this stimulus affect confidence”.
Bloggy speculation about the effects on higher ed:
I expect some industries are more vulnerable to these shifts in expectations than others. One of them is probably higher education: the prospective value of a university degree is difficult to determine by any means other than current reputation, which is based on recent performance—which is to say, assessing the value of a university degree, whether to purchase one, and which one to purchase, asks the entrant to make a decision based on expectations.
Some of the choice of whether and where to go depends on family history, locality, other path-dependent kinds of circumstances. But there is a more-free market in university education, consisting of people who leave their own country to get educated abroad.
For a long time, the reputation game has given the advantage to US higher education in this market. People going on the world market to choose their university degree choose to attend college in the US more often than they choose anywhere else—according to the OECD, about 20% of students going abroad to study go to the US; the UK gets a little over 11%, Germany about 9%, France 8.5%—and those four countries together account for about half the market in education of students from foreign countries.
But the trend has been bad for the US, the OECD says; the 20% figure for the US is down from 25% about five years before. Australia, France, Japan, South Africa and New Zealand have by contrast been big gainers.
Higher education in the US is losing its relative appeal. Possibly this is because concrete measures of reputation show that higher education in the US is losing its value: e.g., the US share of cited scientific papers has been steadily falling.
To some extent, this is a natural and desirable convergence, as other parts of the world develop and do better. But to some extent, one can’t help feeling, it’s maybe part of the cavalier attitude we’ve taken toward higher education in general and science in particular in the recent past. During the Cold War, we cared an awful lot about, and invested an awful lot in, the relative worth of our educational systems and our scientific prowess, which dramatically improved through the middle of the twentieth century. Lately, not so much.
As it happens, also, the seeds of the improved public attitude toward higher education and science were planted by New Dealers. I’ll have more to say about this later, I think, but note—via Ars Technica, who link to the searchable stimulus bill—the government is once again using a recovery/relief program to increase emphasis on science.
Will this kind of thing be enough to shift expectations and the reputation of US higher education back in the right direction? Or will the disasters now evident simply continue to cascade toward an apparently bottomless abyss?
26 comments
January 30, 2009 at 10:01 am
ari
Hasn’t the decline in foreign students studying in the United States been partly a function of the increased difficulty of getting a student visa in the wake of the September 11 attacks? Which is to say, not directly related to a dip in the perceived value of a degree from a US university?
January 30, 2009 at 10:15 am
eric
Yes, that goes to reputation, too. I don’t have OECD data for trends pre-2001. The decline in relative superiority of American science predates 2001, though. (Let me put on my doomsayer hat … there.) We may be looking at something like the agricultural sector in 1929 — in chronic trouble for many years, then in real disaster territory very suddenly with the onset of general crisis.
January 30, 2009 at 10:17 am
ari
I should add: it’s possible that the above is nothing more than the lie that American university personnel have been telling themselves to cover up the reality that the product we’re selling is much less attractive than it was just a few years ago. Not to mention, we may have damaged the overall appeal of our product by conducting an unnecessary and likely futile war on something as ephemeral as “terror”. I mean, who wants to go to school with a bunch of people who think that it’s possible to fight fear.
January 30, 2009 at 10:18 am
ari
Our comments crossed. So when I say “the above” in the above, I’m actually referring to my original comment, rather than eric’s. Sorry about that.
January 30, 2009 at 10:19 am
eric
Even so, I don’t think the two ideas are mutually inconsistent. There are plenty of true anecdata about difficulties getting visas to come to America; whether they add up to enough to inflect the broader trend, I don’t know.
January 30, 2009 at 10:34 am
Kevin
Are you two having this online back-and-forth while working in the same office building?
“Hey funboys! Get a room!”
January 30, 2009 at 10:39 am
eric
Have you seen the building where we have offices? It would give M. C. Escher a headache.
January 30, 2009 at 10:48 am
foolishmortal
It’s “math.” You’re American! Have some pride.
January 30, 2009 at 10:50 am
eric
Hah. You should have seen some of the other typos. Or maybe you did.
January 30, 2009 at 11:32 am
Kevin
Have you seen the building where we have offices?
I’ve never been invited there, so, no. No, I haven’t.
Well. This is awkward, isn’t it? I hope you’re happy.
January 30, 2009 at 11:53 am
eric
I’ve never been invited there, so, no. No, I haven’t.
Careful, or we’ll invite you and give you a guest office here. Good luck finding the washrooms — or a way out!
January 30, 2009 at 12:09 pm
kid bitzer
maybe there was never any prospect of our remaining the educator to the world.
after all, part of what we were trying to produce was not only scientists and technicians, but also: educators. train somebody here in the states, and they acquire the capacity to train someone else, somewhere else. in 1940, country x has no experts who can teach quantum whizbang; in 1980, it has a whole department of them, trained in the u.s. and now it can train its own.
i mean, it’s not a bug, it’s a feature. we actually *wanted* people to come over here, acquire knowledge, and export it back to their countries.
plus, the countries that sent them here, often did so with the express restriction that they should come back. sure, they didn’t always go back as they were told. there was lots of brain drain, with various countries sending us their most educable, and then those people staying after they were educated. and that was an awesome windfall for us–the only thing that did as much to improve the intellectual culture of our country was the rise of nazi germany.
but both of these windfalls for the u.s. came at some cost to other countries. on the whole, it is probably better not to have people fleeing genocidal persecution. and on the whole, it is better not to have people emigrating from poor ignorant countries, supported by the taxpayers in those countries to get an education, and then never going back to make the countries less poor and ignorant.
i’m delighted to continue teaching the world–i have profited from really smart foreigners at every stage of my academic career–and i hope there will always be plenty of ’em. but “this is a natural and desirable convergence, as other parts of the world develop and do better.”
so: the trend is good news!
January 30, 2009 at 12:12 pm
Kevin
And it’s a Haunted Mansion reference for the win.
Well played.
January 30, 2009 at 12:14 pm
eric
it’s not a bug, it’s a feature
Quite; I tried to concede this when I said, “this is a natural and desirable convergence” — but I’m sticking with, to some extent.
January 30, 2009 at 12:15 pm
eric
it’s a Haunted Mansion reference for the win.
Notso secretly, I am the middlingest of brows.
January 30, 2009 at 12:25 pm
kid bitzer
and of course all of my blathering about teaching a man to fish may be beside the point if what we’re really discussing is the *relative* decline between the u.s. and its other 1st world competitors. it is *not* a feature if most of the world still has to leave home to get trained, but they no longer want to come to the u.s..
in that case, i put a lot of stock in the uglification of america over the last eight years–homeland security, xenophobia, etc.
then we can hope that it will be reversed by the new administration.
January 30, 2009 at 12:58 pm
Artemis
Possibly ignorant question: why are the sciences the measure of the value of a university education? Does this measure exclude any value of the humanities? Is excluding the humanities as a measure of value a reason why US education values have fallen? Do we exclude the humanities because they’re imperialist whereas science is neutral (except when the robots take over the earth, as John Stewart recently reminded us)? I get that in political speak, science and math are short-hand for (and precursors to) technical innovation and hence economic development. But I’m bothered by that easy equation. And I like to think that my English courses add value to a university education.
January 30, 2009 at 1:14 pm
eric
Sciences aren’t, of course, the exclusive measure of a university education, Artemis — it’s just that they’re an indicator, and an available one. Do you know of an indicator of the value of US humanities research?
January 30, 2009 at 1:41 pm
kid bitzer
if the unquantifiable is inestimable, eric, only quants will get esteem.
yeah, okay, probably *not* coming soon to a bumper sticker near you.
January 30, 2009 at 1:57 pm
eric
Actually, kb, I’m reasonably confident one could get infromation on how attractive non-science degrees are; it would probably take more work than googling, is all. Wasn’t this self-evidently a rambling, lightly researched post?
January 30, 2009 at 2:02 pm
Artemis
I think I am responding less to your point and more to my feeling that the general public expectation, and hence the general political rhetoric, about higher ed in the US always seems to begin and end with talk about the sciences.
I’m not saying that humanities work is never valued or measured–though I haven’t checked to make sure.
January 30, 2009 at 5:21 pm
PorJ
A couple of thoughts:
1. On confidence in the market finding a bottom/the pernicious effect of deflation (as described in the top of the post): How does the government bail-out/stimulus effect this? It seems to me that the most troubled sector of the economy – Real Estate – isn’t near the bottom because the banks are counting on the true (i.e.:actual market) price never being reached because of price supports. Look around: in your housing market, the prices might be off a whopping 50%, but people still aren’t jumping in – and banks and developers in places like Florida aren’t lowering their prices by 70% to “stimulate” the market. Yes, it could be even more disastrous to do this, but at least we’d have actual numbers to work with, and idea of “real” value in the sense of “real estate.” When you think about the troubled assets part of TARP, who is going to define those values in the absence of a real – i.e. relatively open & operating- market? I don’t know the answer, but I wonder if we’re trying to stabilize everything at a place where the discrepency between reality and government support could cause serious problems. Of course the government’s done price supports for agriculture forever, but I think we’re at a whole new level here- houses/homes aren’t corn or sugar. This isn’t to say I’m against the stimulus, only that I’ve got feeling that its disrupting the market in ways we still haven’t measured yet.
2. On American Universities and competitiveness – I was a little surprised at the numbers, because of the weak US dollar in those years. It would have been a “bargain” to pay for US tuition in pounds or Euros between 2001 and 2006. The general international reputation of the US certainly kept applicants down, I’m sure.
3. The link to the Brandeis problem: Brandeis is the canary in the coal mine. I taught there, and I can tell you: that school charged high tuition and deferred repairs in a desperate attempt to meet its ambition for years. They don’t have a pool anymore, for instance: the swim team this year has to practice at neighboring schools (Bentley and Regis). I think we’re going to see a whole bunch of private schools doing desperate moves soon, because the idea of a prolonged period of endowments shrinking is something nobody’s really seen. The issue in Brandeis’ case is they could have held on for another year or two and hoped for the best but their long-range projections were brutal and they are acting now in a prudent way. Its tragic, but wont be unique.
January 31, 2009 at 9:58 am
RobDP
It would have been a “bargain” to pay for US tuition in pounds or Euros between 2001 and 2006.
But hardly any people who spend pounds go to the US to study, since university fees for home students in the UK (which has good universities) are negligible by comparison to going to the US. This is also true for most of the people who spend Euros — many of those countries have practically no fees at all (though often slightly weaker universities).
I grant you the general point of the weakness of the dollar. I just meant to raise the point that these are not the target markets for US undergraduate programmes. Or at least, that’s my impression. Anyone got stats?
January 31, 2009 at 10:05 am
RobDP
OK re: above. It’s all about Asia.
“Nearly half of all U.S. international students come from one of 5 countries: India, China, Korea, Japan, and Canada. Students from Asia make up 58% of the enrolled international students in the U.S.”
http://www.vistawide.com/studyabroad/study_abroad_statistics.htm
Slightly outdated figures here too:
http://opendoors.iienetwork.org/?p=69736
which suggests that Europe (including the UK) only accounts for about 12% of the States’ international students.
I was at the supposed 7th best university in the world (yes, I know it’s bullshit) the year of those statistics, and my degree cost £1000 a year in fees. Would only cost £3000 a year now… why travel?
January 31, 2009 at 7:43 pm
Louis
For an analysis that picks up on some of Eric’s themes, but also explores how far the U.S. and especially California now lag in access to higher ed for its own population, see
http://alumni.berkeley.edu/california/200805/freespeech.asp
John Aubrey Douglass, a historian of higher education has written in his The California Idea and American Higher Education that during the Great Depression “California’s higher education system faced a conundrum that would accompany other periods of economic dislocation: the dichotomy of severe budget reductions and a surge in enrollment demand. . . . Between 1931 and 1939, state appropriations to the university declined by 26 percent. At the same time, enrollment grew by 25 percent.” (140)
Some of the demand was driven by an expanding population, which grew 25% between 1930 and 1940. But one of the interesting facets of the Great Depression story is that demand for higher education in California was at least as great during the downturn as before.
A more interesting and relevant example could perhaps be found in the recession of the early 1980s, but I can’t find any UC enrollment figures for that.
February 5, 2009 at 8:42 pm
Jake
I think I am responding less to your point and more to my feeling that the general public expectation, and hence the general political rhetoric, about higher ed in the US always seems to begin and end with talk about the sciences.
Well… I think most would agree that if all you want from college is a high-paying job, the humanities are not the place to look. And if as an international student you have to pay some comparatively huge amount of tuition because there’s much less financial aid available to you, you might put a lot more value on a high-paying job than most others.