Hennessy's View

While everyone was screaming about the rising cost of medical treatment, America’s leftist incubation chambers—colleges and universities—robbed us of our economic future. And the federal government’s misguided student aid program is to blame.

What allows this growth? 

• Increased per student government funding
• Massive private and public debt

Who benefits?

• College administrators
• Unions working on college campuses
• Political causes that college administrators like (liberal)

Who pays?

• Taxpayers (who else?)

Check out these statistics:

• College tuition increased 799% between 1978 and 2007 (source)
• Student loan debt has increased 511% since 1999 (source)
• Government per student increased 246% between 1978 and 2007
• In the past 20 years, college tuition has increased about twice as fast medical costs
• The education bubble makes the housing bubble look like a pimple (source)
• Recent college graduates are no smarter than graduates of 40 years ago (observation)

On that last point, I’m not alone.  From contraryinvesting.com, Brett writes:

Did this increase in spending do any good? Not on the available evidence. Test scores — measuring achievement — have not budged in 40 years. In other words, the additional investment over the last 40 years has been wasted. We might as well have thrown the money down a well.

Read Brett’s piece in its entirety.  The arguments against everyone going to college are important.  Seth Godin raised similar questions in 2010.

Most colleges are organized to give an average education to average students.

Check out these graphs from www.mymoneyblog.com:

And Tuition vs. Healthcare

There is great value in a college education, but not at any price.  Not when the lifetime economic value of an education is about to become a net negative.  According to the rating agency Moody’s:

Unless students limit their debt burdens, choose fields of study that are in demand, and successfully complete their degrees on time, they will find themselves in worse financial positions and unable to earn the projected income that justified taking out their loans in the first place.”

Personal finance coach Dave Ramsey shows families how a child can complete a 4-year degree without a penny of debt.  But that formula might not work today. Tuition has gone up 16 percent in the two years since I first heard of Ramsey’s plan.

So what’s Obama’s prescription? 

You guessed it: Obama wants more government spending.  More borrowing.  More forgiveness of debt. 

While some on the right want to vilify students, in most cases, I disagree. Kids born near or after me grew up with “college education” pounded into our heads. 

“You’ll be nothing! without a degree,” we heard.

We scorn people who don’t go to college.  (Look at the recent flap involving St. Louis County Executive Charlie Dooley.) 

But the government has encouraged colleges to drive their costs through roof. For years, the federal government promised to fill the gap between what a student could afford (according to the government) and what a college charged. 

Seriously.  What if the government made the same deal with car buyers?

The solution isn’t simple.  There’s a big bubble in the higher education market, and it has to burst. Families, students, and governments have no more money to lend.  The ROI on a degree is falling fast. 

Kirsten Winkler of the blog big think shares one alternative to college degrees as credentials.

I see only two possible solutions: we continue to bail out colleges by feeding borrowed money to the bubble, or we unwind our addiction to traditional higher education.

Exit question:  Do we do as Obama says and borrow more money to endow colleges, or do we begin dismantling the “college or death” mantra? Or is there a third way out?

Popularity: 2% [?]

I’m proud to know David Rose.  Dr. Rose is chairman of UMSL’s economics department. He’s also the President of the Discussion Club, one of St. Louis’s most valuable intellectual assets.

In this interview with Russ Roberts, Dr. Rose discusses his new book Moral Foundations of Economic Behavior.

This is great stuff for everyone, especially economic liberty fiends like me.

Popularity: 1% [?]

Maureen Dowd’s having trouble slathering make-up on her favorite pigs these days. Her President—the man for whom she surrendered all pretense of intelligence, wisdom, and self-control—is flailing.

And Maureen Dowd is going all wobbly.  Wobbly on Obama. Wobbly on America.  Wobbly on life.  Here’s an exceprt:

On the razor’s edge of another recession; blocked at every turn by Republicans determined to slice him up at any cost; starting an unexpectedly daunting re-election bid; and puzzling over how to make a prime-time speech about infrastructure and payroll taxes soar, maybe President Obama is wishing that he had thrown the game.

Maureen Dowd makes a big mistake in blaming Obama alone for America’s jobless carnival of mayhem.  It’s not all his fault.

Let’s not make the same mistake made by Dowd and her friends.  Barack Obama did not wreck the American Job Machine.

His Democrat Party did.

Face it.  When the Democrats took overwhelming control of Congress in 2007, unemployment was 5.5 percent.  When John Boehner pried the Speaker’s gavel from Nancy Pelosi’s dry, cold claw, unemployment stood at 9.9 percent.  (Source)

That’s a 44.4% increase in the unemployment number.

For two years, Democrats controlled the House, the Senate, and the White House.  What did they do with that power?

They created a new entitlement.  Even after admitting that the existing spending programs were unsustainable, Democrats invented yet another new entitlement.

Sure, George W. Bush and the Tom Delay Republicans had their problems.  But they’re not around THIS TIME.

We are living under a 100 percent Democrat economy now. The GOP’s grasp on 1/2 of  1/3 of the government can’t undo 4 years of Democrat damage.

We have a Democrat in the White House and Democrats running the Senate.  It’s not the Republicans in the House preventing Obama from moving the economy forward; it’s the Democrats in the Senate and White House frightening natural risk-takers into keeping their job-creating money in their pockets.

I can see only one solution to the continuing unemployment nightmare facing people in America. That’s to finish the work started in 2010 by turning over the Senate and the White House.

Popularity: 1% [?]

Answer: Bondbonds.

Sometimes the only option is humor.  Maybe it’s time to laugh . . . at ourselves, at our pre-occupations, and at our president.

We elected him. And, in a republic, you always get the leadership you deserve.

Now what?

Now focus. Public displays of anger only hurt us. Anger is a tactic.

Yes, I’m angry. Furious. But acting out on anger does us no good.  Instead, wise men and women focus that anger into a steely resolve to electorally destroy the cretins that destroyed America’s credit rating, liberty, and economy.

What makes United States Marines, Rangers, Delta Force, SEALs, an the like so deadly is not bloodlust . . . it’s discipline.  Had an angry mob descended on Usama’s compound in May, he’d be alive and the mod would be dead.

Steely determination to electorally destroy.  Lacking that discipline will hurt the cause.

The next meeting is September 15 at 7:00 at Crowne Plaza Hotel in Clayton.  Please bring a cold, steely resolve.  But leave room for a warm smile for friends.

For more on S&P’s downgrade of US debt, see WSJ Weekend

Popularity: 1% [?]

It’s not the Balanced Budget Amendment, though that’s a good second choice.

It’s certainly not senseless and impossible ideas like impeaching Obama or suing over birth certificates.

Instead, we should push an idea that’s ripe for quick passage.  It’s an idea that cheers political moderates and conservatives.  And it doesn’t immediately turn off liberals.

What is it?

It’s an old idea that Jack Kemp championed for decades. It’s an idea that I’ve written about many times before.  It’s the best next step in restore fiscal sanity to Washington.

It’s time to implement the Flat Tax.  Here’s why:

1. Flat Tax Closes Idiotic Loopholes:  I know that many Tea Partiers oppose legislation to close tax loopholes.  I do, too, if it’s done to punish certain classes of business.  But there’s really no good reason why General Electric paid no taxes on $5+ billion in profits.

2.  Flat Tax Eliminates Innocent Mistakes:  Flat tax is almost fool-proof.  We can test that theory on Tim Geithner.  When the formula is Tax = (Income – $30,000) * n (where n = rate), it’s hard to screw up.  The current tax code is so complex that the Secretary of the Treasury cannot understand it. 

3.  Flat Tax Eliminates Same-Sex Marriage Argument:  The individual flat tax is per person, not per household. There is no marriage penalty or marriage benefit.  Since marriage isn’t mentioned in the Constitution, it makes sense that our tax code ignore it, too.

4. Flat Tax Increases Revenue:  Yes, revenue will increase. Some, including many rich, will see their effective rate increase.  Others will see their effective risk fall.  Some who pay nothing today will begin contributing to functioning of government—legitimizing their opinion.  With a $14.3 trillion mortgage that grows every day, we need to increase revenue.

5.  Flat Tax Is Marketable:  Don’t underestimate the importance of marketability.  Great ideas (like the Fair Tax) are often stillborn because of their complexity.  Ninety percent (or more) of people don’t want to spend a week studying the effects of government policy on them. Complex tax codes strike people as crooked schemes designed to hide something.  The flat tax sells because it’s simple and obviously fair. 

6.  Flat Tax Eliminates Bracket Creep: You pay a flat percentage of your income above a flat, inflation-indexed deduction of about $30,000.  The poor pay no taxes.  Everyone pays an identical amount.  Without bracket creep, the marginal tax rate is constant, encouraging additional activity.

7.  Flat Tax Solves the Warren Buffett Problem:  Billionaire Warren Buffett (incorrectly) claims that his secretary pays more in taxes than he does.  (So why doesn’t Warren increase her salary until she hits his happy bracket?)  Although Buffett’s argument is nonsense, many smart people take him at his word.  The flat tax solves the problem of high income people avoiding taxes. 

There’s no reason why the Flat Tax cannot proceed in parallel with the Balanced Budget Amendment, which I came out for in The Conservative Manifesto in 1993.  But the BBA will take a while to get through Congress and 38 states.  The flat tax have to be phased in over a few years to prevent too large a jolt.   If Congress passes it 2011, it can be fully implemented by 2014 or 2015. 

While the flat tax may not be perfect, it’s the best tax reform that’s possible.  

Popularity: 2% [?]