Ten years ago this month the American economy suffered its worst financial crisis in nearly a century. Problems had been building through the previous year, but in September 2008 things came to a head with the collapse of Lehman Brothers and the onset of the Great Recession. These events changed the world in ways I think we’re still struggling to understand.
With this post I’d like to share some reflections about what that titanic event meant, especially for education and the future. I invite readers to share their thoughts, including their personal reflections, in the comments box.
There are many good accounts of the crash in all of its complexity, so I will refer the reader to those. I am especially fond of the documentary Inside Job, which is very lucid, powerfully critical, and at times hilarious. John Lanchester has written powerfully about then events, although to little American readership, as far as I can tell; let me commend his recent essay reflecting on the crisis and its aftermath. Adam Tooze offers an internationally-focused account; his new book on the subject looks excellent.
On a personal note, in 2008 I was working for a nonprofit. We chose late August to roll out a new and more expensive membership plan for our campuses. Needless to say the timing wasn’t good. I don’t think the nonprofit ever recovered from that misfire; it disappeared six years later. This was the recession/recovery environment in which I decided to risk everything on launching a business.
For years the American economy struggled to recover, first in clawing its way out of the recession, then trying to rebuild what was lost. Americans also struggled to understand what happened. Determining the causes of the crash and assessing the policy reactions are all still controversial to this day. (Which confirms my intuition that a big chunk of economics is better understood as a branch of history.)
On the plus side of the ledger, unemployment gradually dropped, year by year, and is now at historically low levels. Wall Street is doing well. The financial sector, that caused and was trashed by the crash, recovered very nicely even after some new, mild, and much-resisted regulation.
However, the recovery hasn’t been accomplished yet. Home ownership is down, below even 2006 levels. This makes it harder for some people to take out loans.
The generation of people who became adults during the crisis suffered a serious financial hit, and haven’t recovered from that loss since. As Kim Gittleson puts it,
Americans born in the mid-1980s have accumulated 34% less wealth than predicted based on previous generations, the St Louis Federal Reserve found. One reason? We started out with less.
One reason for that drop is that most of the jobs created since 2008 have paid less than $50,000 per year.
For one commentator the combination of rising inequality and declining home ownership spells doom for the middle class.
People had fewer children than usual in 2008-2010.
One key detail of the crash and recovery: nobody was prosecuted for the crisis, neither by the Bush(2) nor Obama administrations. No Congress set up anything like the 1930s Pecora Commission. This dog that didn’t bark – and still hasn’t – has become something of a folkloric truth for us, building up the conviction that the powerful are immune to accountability, and that the game might be rigged.
Economic class and inequality reappeared as major themes in American politics, starting with Occupy, then reappearing through Bernie Sanders’ presidential run and Alexandria Ocasio-Cortez’ Congressional upset primary win. Economic inequality and general economic anxiety also reappeared as an explanation of political behavior, from arguments over explanations for Trump’s 2016 victory to new research about the rise of Sweden’s right-wing party.
Education in and after the crisis
What happened to higher ed as a result of the meltdown?
Many colleges and universities were clobbered. Some saw investments shrink and a few had their cash reserves dry up. State funding, including scholarships, fell off a cliff as tax revenues dropped and some state expenses shot up. Hiring freezes, salary cuts, layoffs, furloughs, reductions in force occurred. Careers were blocked, blighted, set back. Published tuition and fees rose.
Charitable giving took a big hit as the investments philanthropy and the wealthy depend on were shocked.
Family investments, including home values, shrank, so they tended to prefer spending less money even on the great good of post-secondary education. It took time – years, in some cases – for families and institutions to progress past this point. Some have not as of this writing. Borrowing for higher education shot upwards.
More students took classes overall, as higher ed is often counter-cyclical to employment (with high unemployment people head to school to re-skill). The recession boosted enrollment.
The curriculum shifted, too. It seems that students voted with their feet to major less often in the humanities, and more often in a mix of STEM and professional programs. Interestingly, business is still riding high as a major.
The alt ac movement was kicked into high gear by the 2008 financial disaster. The reasons are obvious, if rarely discussed: college and university budgets hammered, tenure track jobs declined. So a cadre of freshly-minted PhDs and near-PhDs had to carve out new worlds. This is a heroic story, in fact:
I suspect the economic woes that started hitting us in 2008 help explain the steady growth of open education.
I’m fascinated by how the academic discipline of economics responded to this enormous challenge. While many economics both academic and non-academic failed to anticipate the crisis (again, see Inside Job for some hilarious stories of this) it’s not clear that the economics profession has responded effectively. Bernanke, Geithner, and Paulson just published a column praising their grasp of and efficacy in handling the crisis, suggesting their understanding was just fine. “Although we and other financial regulators did not foresee the crisis, we moved aggressively to stop it.” Dean Baker begs to differ, criticizing their thinking and actions on multiple levels.
For some the crash was a textbook example of a black swan (Taleb’s book appeared in 2007), a highly unlikely yet very influential event. At this point I’m still not sure how academic economics has changed in response, beyond interest in behavioral economics and a sudden popular comeback for Keynesian economics. Readers are welcome to supply news.
Was 2008-2018 a lost decade for higher ed, or was it a period that began with a terrible shock, followed by growth?
So what comes next? What will we be reflecting on in September 2028, on the 20th anniversary of Lehman’s fall? How will academics think about the epoch?
We know that people had fewer children in 2008-2010. K-12 schools will be continuing to cope with that shrinkage, balancing class sizes and appropriations. Higher ed will be on the hook next, as Nathan Grawe has shown that this means a major drop in the 18-year-0ld population for the mid-2020s.
Looking ahead, we should think more about two populations, Millennials and GenZers. Separated by history from the Cold War’s anticommunism, their experience of modern capitalism approaches that of the Gilded Age’s youth, either caught up in ascendent wealth or in the majority below. Recall John Lanchester’s observations on how many adults’ lives are shaped by their youthful worldview at 20 years of age. As John Warner describes in a new book review,
Today’s typical age college freshmen were eight-years-old when the global economy cratered in such a way that even rich people got scared for a little while. The resulting “recovery” has only exacerbated our sense of scarcity and precarity, as the fruits of that recovery have accrued to smaller and smaller groups.
The relatively well-to-do, but not quite rich folks that populate the bulk of the “paranoid parenting” demographic understand the needle their children will be required to thread has grown smaller by the year, and any slip in achievement may result in falling out of the ranks of the economically secure.
How will their career choices change? How will their politics differ from their predecessors’?
Institutionally, public colleges and universities might suffer continued pressure from state legislatures. At least one observer notes that years of low interest rates will now shape state spending patterns:
the bailout’s policy of Quantitative Easing to re-inflate asset prices has reduced rates of return for pension funds, insurance companies and employee retirement savings. This means that more state and local government income must be diverted to meet retirement commitments.
Something has to give, and it is not likely to be the savings of the donor class at the top of the economic pyramid.
So public universities will often see funding shifted away from them and towards public pensions. Private colleges and universities may experience something similar if their own retirees’ costs rise. Either way, that’s a lot of pressure on tuition to rise. In May of this year I tentatively forecast the first six-figure tuition bill to land in 2029; maybe it’ll be even sooner than that.
…and now back to September 2018, and over to you. What did the 2008 meltdown do to your life and world? What do you think it meant for education? And what does it tell us about the future?
(thanks to Tom Haymes and many others for their thoughts)