Two sobering datapoints for American higher education economics

I’d like to share some recent economic research.  Saying so is usually a cue that insomnia and narcolepsy have both at last been cured, but I think these are important points for higher education. Each are vital, and their interaction is sobering.

I have included colorful graphs to help you along the way.

The first finding comes from the Federal Reserve Bank of New York, and analyzes how consumer debt is changing.  Note the size and role of student loans, the pink band on top:

Please notice the total amount of student debt: $1.31 trillion.  It increased by a mere $31 billion in just the last three months of 2016.

Note, too, how the proportion of student loans within consumer loans is growing.  Not only do we owe more student loans than ever before, but that debt takes up a larger chunk of our debt than ever before.

The second point is broader in scope, and concerns the total American economy.  This analysis is from another Federal Reserve bank, the one in Richmond, and analyzes how several key factors are changing.  I’d like to draw your attention to two lines in this graph, gross domestic product (GDP) and productivity:

(I’ll hit on employment at another time, time permitting)

You’ll see that gross domestic product growth (the thick dark blue line) (how much economic stuff, goods and services alike, we make) has slowed down drastically since around 2005, with an especially big collapse in 2007-2008 – i.e., the financial meltdown.  But GDP growth has continued to shrink right up through the data’s end.  In short, the American economy is barely growing at all.  Given that our population keeps growing in size, that level of GDP growth just about accounts for the new humans.  In short, American economic growth has stalled out.

One reason for that is the slowdown in productivity growth (the red dashed line above).  This is crucial.  As Paul Krugman famously observed, “Productivity isn’t everything, but in the long run it is almost everything.”  That’s how economies grow.  Productivity growth is the power of any financial progress.  And you can look back in the chart to see it taking a walloping during the late 70s and early 80s, with stagflation, oil shocks, and the recession.  Now?  Productivity is barely inching along.

What do these two macroeconomic trendlines mean for education?  Several general* things.

1. To the extent that colleges, universities, libraries, and museums depend on state funding for support, that funding stems from local economies which aren’t growing.  So when our institutions come to states to ask for more funding (especially as our costs rise), we’re fighting for a share of a pie that isn’t really growing.  Meanwhile, other needs are also wrestling for slices from the same non-expanding pie: health care, state-funded pensions, police and prisons, public health (remember the opioid epidemic?), and roads, for starters.  And some of those needs are increasing, like Medicaid, Medicare, and pensions, as our population ages.
2. To the extent that colleges etc. depend on donor support, those donors are generating their own wealth in an economy that isn’t really growing.
3. #s 1+2 mean students will have to borrow more money to pay for academia.  Remember the graph which started this post?
4. Our students are graduating into an economy that isn’t growing, and will be even more in debt than their predecessors.   Think about what that means on a humanitarian level.
5. It is possible that #3 is putting a drag on the economy, as graduates saddled with debt* are less likely to make investments, start businesses, or buy houses or cars.

Looking forward, I’m hard pressed to be optimistic.  It’s possible that a new technology or process will nudge productivity and GDP up a bit.  That’s one reason I’m looking hard at nanotechnology, 3d printing, and the internet of things. So far these are nascent and/or not boosting the overall economy.  Indeed, most digital and automation booms now enrich a few without much spillover or trickle-down benefit.

Meanwhile, president Trump claims he’ll grow the economy.  I’m not too sanguine about this, and worry more about the negative impact of possible trade slowdowns (Mexico) and wars (China).

So unless these trendlines reverse themselves, we should expect student loan debt to continue to grow to mind-boggling levels.  State support won’t build up.  And pressures to cut institutional spending will be fierce – i.e., little chance of reversing adjunctification and returning to an early form of tenure.

What should we do?

*Obviously there are exceptions.  These are big, top-level, macro trends.

Liked it? Take a second to support Bryan Alexander on Patreon!