Thursday, May 29, 2014

Why College Cost So Much And Tuition Risen So Fast And We Still Pay

There has been lots of talk about the cost of education and how to pay for it these days. Obama has made it part of routine talking points.  It is sure to come up in the election campaigns.  However, nobody is talking about what caused exaggerated tuition increases in the first place.  With my love of the use of analogy to lead the reader to reason, here are two scenarios (one building upon the other) that explain, crudely, what happened.  ( hint, in all the stories in that Bible book, only one type of person made that Jesus character angry enough to take to mild violence.)   Read, enjoy, comment..

The first scenario starts with a "producer" who produces this product called "education". His target market it a group called "the people". Because market "value" is set by the equilibrium point  derived from the price "The People" are willing AND able to pay for the "education", the price is set at $5000 per education. (using numbers only as example.) The truth is that The People would be willing to pay more because they believe education has special powers to grant financial stability. But because of income levels and costs of living among The People they are not ABLE to pay more, the Producer can only sell education at 5K. So the question is "Where is the power to value 'education' under this scenario?" A secondary question would be "How much does it cost?" The answer, to me, is clearly in the hands of "The People" and tied rationally to their actual income.

In the second scenario, a "money changer" with extra capital to invest, sees the situation above and devices this plan. He recognizes that people are "willing" to pay more, and with time he can squeeze that extra out of them.  He approaches the "Producer" of the "education" and says, "how would you like to double the amount you can get for each of your educations? The only caveat is that while there are currently 100 "The People" consuming your Education per cycle, next cycle you will only be able to serve 90. But you were getting $50,000 per cycle, you will now get $90,000 per cycle. You will be able to lay off staff and a few other fixed costs with the reduced overhead. Of course the Producer wants to boost his income. But he explains "$5000 is market value, I can not get anymore. I have tried to raise my prices in the past and people did not buy." The money changer says, "leave that to me. Just raise your rates to double." The money change then approaches The People a few days later, who have been informed of the increase in price of Education. He, passing himself off as a "good guy" says, "I have good news. I will pay for 90 of you the $10,000 to purchase Education. In return I only ask that you pay me back $15,000 over then next 10 yrs and not until after you get out of school." Now The People are in competition with each other for a product that may or may not have the value they believe it to. They, caught in this competitive market ignore the many things that could happen. They could fail, they could die, they could become disabled, and other life events, and still owe the money changer. The question is the same, "Where is the power in this new scenario?" The Producer COULD choose not to raise his rates and make more money. But in a capitalist market, that is unlikely and if he did, somebody else will take advantage of them.  The People, believing they need Education for themselves, their kids, and all they love for safety and stability feel trapped. They, wanting to maximize potential for their and their children's future, feel inclined to buy this education at any cost.

  The message of this experiment is that the control over the economy was taken from "The People". It was taken from them by the deliberate method of the "money changers".  While the reality is that many bankers and "investors" are not so deliberate in their intent, the result is still the same.  Good intention have paved the way to places best left untraveled before.  Anyway you care to view it, the real power is with the Money changer. AND THAT is the problem with many economic issues in this country. The people with the money, in a very passive way, hold growing control over those who do not.

No comments:

Counter text

New counter