September 3, 2015

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To close the week we have an unintended consequences edition. Starting us off, the Wall Street Journal Editors write on the economic problems caused by this president’s explosion of student loan debt. 

For years we’ve warned readers about the burgeoning calamity known as student loans, and the latest news is that the debt bomb is hurting the economy as well as the federal fisc. New evidence from the Federal Reserve Bank of Philadelphia illustrates how subsidized student loans sap small business creation.

Student loans have ballooned tenfold since 1999 to more than $1 trillion, the authors note in a July report. Other consumer debt—mortgages, car loans, credit cards—dipped during the 2008 financial crisis, but student debt doubled from $547 billion in 2007, nearly all of it on Education Department books. The Philly Fed is the first to examine how mortgaging an education influences entrepreneurship.

Here’s the connection: Entrepreneurs borrow money to get rolling. But the average student-loan customer owes $28,000 and so some enterprising adults are loaded up with debt, even decades after graduation. Nascent business (with no employees) report capital of about $44,000, according to a recent survey; half comes from loans and lines of credit. Debt-financing, the Fed points out, is critical for expanding a business in the years following its founding.

Yet graduates have sunk too far into the red to amass more liabilities, and not even bankruptcy can liberate them. The Fed found that new firms with roughly five employees dropped 17% on average between 2000 and 2010 in counties where relative student debt grew by 2.7%. …




Ed Driscoll posts in Instapundit about a restaurant in San Francisco that is using iPads for patrons to place orders. So, idiot liberals pass a $15 minimum wage and jobs are lost. Just another example of unintended consequences or is it a new chapter in the left’s war on the poor.

Eatsa in the city’s financial district offers iPad-based ordering, with meals prepared by people whom customers never have to see: …

… Riley Thomas, a San Francisco resident who works near Eatsa, was one of the few patrons who questioned the concept at a time when more and more families are struggling to survive in the city. “I like the food and love the price,” he said. “Still, it worries me that people will begin to think that this is how all restaurants should be run and it could really hurt jobs that are needed right now.”

Co-founder Scott Drummond said: “There is a fast food business model that we need to hit and we’re looking at ways that technology can increase efficiency … That way we can get the price down.” …




Glenn Reynolds of Instapundit with another example of left/liberal foolishness. This time from France where the government mandated 35 hour work week is creating problems. Go figure!

French Minister: Hey, that 35-hour work week isn’t working out so well.

His comments, which echoed similar sentiments from an interview almost exactly a year ago – made a splash across front pages of French newspapers on Friday.

‘ “The left was wrong to think that France would improve if people worked less. It was a false idea,” he said during his closing statement at the conference.

He added that “one shouldn’t ask what your country can do for you, rather what you can do for your country’s economy”.

Supporters say the flagship policy of the French left creates jobs by limiting the amount of time employees are allowed to work, thereby encouraging companies to take on more staff.

But critics at home and abroad say it is an inflexible law that hampers business and creates a bloated workforce. ‘

Yeah, I’m going with #2 here.




And our betters in the bien pensant class have begun to notice that college is not always a good deal. As an example we have a recent article by John Cassidy who writes on business for The New Yorker; one of the left/liberal house organs. In a hyperbolic mood Pickerhead once called the education establishment “a vast criminal conspiracy.” More to the point, there is no other part of our economy that does a poorer job serving its customers while charging higher and higher fees. And what do you know? Even the slow people who set government policy are beginning to figure it out. Of course, this is from the New Yorker so, Cassidy can’t seem to figure out these problems are typical unintended consequences of left/liberal messing with our economy.

… The “message from the media, from the business community, and even from many parts of the government has been that a college degree is more important than ever in order to have a good career,” Peter Cappelli, a professor of management at Wharton, notes in his informative and refreshingly skeptical new book, “Will College Pay Off?” (PublicAffairs). “As a result, families feel even more pressure to send their kids to college. This is at a time when more families find those costs to be a serious burden.” During recent decades, tuition and other charges have risen sharply—many colleges charge more than fifty thousand dollars a year in tuition and fees. Even if you factor in the expansion of financial aid, Cappelli reports, “students in the United States pay about four times more than their peers in countries elsewhere.”

Despite the increasing costs—and the claims about a shortage of college graduates—the number of people attending and graduating from four-year educational institutions keeps going up. In the 2000-01 academic year, American colleges awarded almost 1.3 million bachelor’s degrees. A decade later, the figure had jumped nearly forty per cent, to more than 1.7 million. About seventy per cent of all high-school graduates now go on to college, and half of all Americans between the ages of twenty-five and thirty-four have a college degree. That’s a big change. In 1980, only one in six Americans twenty-five and older were college graduates. Fifty years ago, it was fewer than one in ten. To cater to all the new students, colleges keep expanding and adding courses, many of them vocationally inclined. At KansasState, undergraduates can major in Bakery Science and Management or Wildlife and Outdoor Enterprise Management. They can minor in Unmanned Aircraft Systems or Pet Food Science. OklahomaState offers a degree in Fire Protection and Safety Engineering and Technology. At UticaCollege, you can major in Economic Crime Detection. …

… “It is certainly true that college has been life changing for most people and a tremendous financial investment for many of them,” Cappelli writes. “It is also true that for some people, it has been financially crippling. . . .The world of college education is different now than it was a generation ago, when many of the people driving policy decisions on education went to college, and the theoretical ideas about why college should pay off do not comport well with the reality.” …

… If almost everybody has a college degree, getting one doesn’t differentiate you from the pack. To get the job you want, you might have to go to a fancy (and expensive) college, or get a higher degree. Education turns into an arms race, which primarily benefits the arms manufacturers—in this case, colleges and universities. …

… It is well established that students who go to élite colleges tend to earn more than graduates of less selective institutions. But is this because Harvard and Princeton do a better job of teaching valuable skills than other places, or because employers believe that they get more talented students to begin with? An exercise carried out by Lauren Rivera, of the Kellogg School of Management, at Northwestern, strongly suggests that it’s the latter. Rivera interviewed more than a hundred recruiters from investment banks, law firms, and management consulting firms, and she found that they recruited almost exclusively from the very top-ranked schools, and simply ignored most other applicants. The recruiters didn’t pay much attention to things like grades and majors. “It was not the content of education that elite employers valued but rather its prestige,” Rivera concluded. …

… Increasingly, the competition for jobs is taking place in areas of the labor market where college graduates didn’t previously tend to compete. As Beaudry, Green, and Sand put it, “having a B.A. is less about obtaining access to high paying managerial and technology jobs and more about beating out less educated workers for the Barista or clerical job.” Even many graduates in science, technology, engineering, and mathematics—the so-called STEM subjects, which receive so much official encouragement—are having a tough time getting the jobs they’d like. Cappelli reports that only about a fifth of recent graduates with STEM degrees got jobs that made use of that training. “The evidence for recent grads suggests clearly that there is no overall shortage of STEM grads,” he writes. …