Sunday, December 22, 2013

Disconnect -- College Cost Inflation vs. Household Median Income Growth in Free Trade Environment

We have known for a long time that the amount of education directly impacts wages, and, as far back as 1994, in light of movement towards free trade pacts,  economists highlighted surging income gap between those with and those without college education:

(See "Trade and Income Distribution Panel: The Debate and New Evidence" delivered by William R. Cline, Institute of International Finance at Yale University Alumni Meeting, 1994)

So it's easy to justify education as one of the best investments a nation can make.

We Americans claim to view extensive public education as essential to healthy democracy, equal opportunity, expanding economy, scientific advancement, and military preparedness ... or so we say. In practice, we no longer make it affordable to every citizen ... only the wealthy.

Back in 2002, professional association research on American public education found unequal funding of education but, most interesting to supporting the value of public elementary and secondary education, is the finding that each time affluent Americans migrate to a new (usually suburban) community, they support highly funded schools.

Education has been the great economic equalizer throughout our history. American founding fathers spoke often and clearly in favor of free public schools. For example:

"If Virtue & Knowledge are diffused among the People, they will never be enslaved. This will be their great Security." -- Samuel Adams (Letter to James Warren, February 12, 1779)

"A Bible and a newspaper in every house, a good school in every district--all studied and appreciated as they merit--are the principal support of virtue, morality, and civil liberty." -- Benjamin Franklin

"I think by far the most important bill in our whole code is that for the diffusion of knowledge among the people. No other sure foundation can be devised, for the preservation of freedom and happiness...Preach, my dear Sir, a crusade against ignorance; establish & improve the law for educating the common people. Let our countrymen know that the people alone can protect us against these evils [tyranny, oppression, etc.] and that the tax which will be paid for this purpose is not more than the thousandth part of what will be paid to kings, priests and nobles who will rise up among us if we leave the people in ignorance." 

                                                         -- Thomas Jefferson (to George Wythe, August 13, 1786)

Remember when NASA selected a school teacher, Christa McCaulif, to be the first civilian as well as the first woman in space?

Now some, such as N.J. Governor Chris Christie, belittle teachers, professors, and universities, belittling the value of learning, of education. 

Embedded image permalink College costs, including tuition, books & supplies, and room & board (or commuter transportation) have risen far faster than and far higher as a percent of average family income than the costs of other citizen essentials. Also the cost of borrowing for college far exceeds that of other essential costs, such as mortgages, and that which the U.S. government charges banks to borrow. 

The U.S. government should charge college students the same interest rate that it charges banks to borrow -- the Federal Reserve Bank's Discount Rate, which happens to be 0.75%. The current U.S. government "Stafford Loan" rates are 3.86% for undergraduate school and 5.41% for graduate school.  

The interest rate the U.S. government guaranteed loans charge to college students is more than 5 times the discount rate for undergraduate school and more than 7 times the discount rate for graduate school. 

Again, U.S. government guaranteed student loans for college education costs more than 5 times for undergraduate and more than 7 times for graduate school than the interest rate as U.S. government Federal Reserve guaranteed borrowing by banks.

Do you see the wrongness of charging 5-7 times more for a college student loan than a Fed bank loan? Do you see the inconsistency with our stated national values? And, don't you see the consistency argument for all-out government support for college education in a free market global economy?

U.S. college tuition rose more than 10-fold ... more than 1,000% ... during the past 30 years. The consumer index rose about 250%. 

But U.S. median household income only rose approximately 20% during this same period.  

Clearly, a college tuition has been growing out of reach for a long time. The historical tuition prices charts are in nearly every article on the subject of college. That said, I'm glad to hear the issue rising to the top of voters' concerns and, perhaps, getting serious initiatives to eliminate the college cost problem without gutting the college education. 

However, President Obama and Congress's legislation -- to make student loans directly from the government at annual repayment rates that cannot exceed 10% of a student's annual income during the repayment years -- only covers a small share of the total student loans outstanding and, going forward, available to new students and the interest rates are nearly 10-times the rate paid by banks to the FED. Furthermore, these Stafford Loans have annual loan limits that do not cover the cost of college. 

Let's increase government Stafford Loans amounts to realistic college and graduate school tuition costs and charge interest at the same rate that banks pay to the Federal Reserve. Our democracy and free trade global economy demand it.

Let's get real!

Saturday, December 21, 2013

Republican Governors' Hippocracy on ObamaCare Medicaid Expansion

In total, only 12 of the 27 Republican state governors have outright rejected any form of participating in an ObamaCare approved Medicaid expansion. That means that 15 of the 27 either have committed to participation or remain undecided.

Specifically, accoding to research by The Advisory Board (30-year consulting company):

Fully 11 of the 27 Republican governors deciding to take ObamaCare's additional Medicaid federal funds and 4 are undecided officially at this point.

Of these 11 Republican governors who definitely will participate in the program, 8 plan to participate with the Medicaid expansion program as-is and 3 support some alternative versions of the plan specifics (which is permitted under ObamaCare if approved by CMS).