Charles Hugh Smith: The education system is doomed

Why the Higher Education System Is Unsustainable (i.e. Doomed)

Here is an excerpt:

Before we start, it’s important to stipulate that the industry’s failings are systemic, and do not reflect the positive intentions and efforts of those working in higher education, any more than the systemic failures of U.S. healthcare reflect the good intentions and efforts of those employed in that industry. Despite the good intentions and hard work of individuals, these systems are broken.

Due to their size and structure, large systems such as national defense, healthcare and education limit the impact of individual initiative. This has several consequences. One is that individuals feel powerless to change the system and so they relinquish responsibility for changing it. As Voltaire observed, “No snowflake in an avalanche ever feels responsible.” A second consequence is psychological. Even if the system is visibly flawed or failing, insiders feel obligated to defend the system and their role in it, for two compelling reasons: self-preservation and the psychological need to believe in the value of one’s place in the institution.

In other words, don’t expect that anyone who derives their livelihood from the education system to be able to fix the problem.  In my view, however, when the education bubble pops, then the broken system will experience creative destruction but only by necessity.

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The education bubble: Larry Summers quote

Zero Hedge writes, citing Larry Summers:

The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending.” Larry Summers, source

It is only fitting that the sequel to what to a large majority of people is the dumbest quote in history, will once again come from Larry Summers:

Rather than focusing on lowering already epically low rates, governments that enjoy such low borrowing costs can improve their creditworthiness by borrowing more not less.”  Larry Summers, source.

I guess that Summers has never heard of debt to equity ratio.  A strong debt to equity ratio is a crucial criterion in a creditworthiness equation; the problem with borrowing more is that the debt that greatly increases the numerator will at the same time decrease the denominator because:  equity = assets minus liabilities (debt); debt/equity ratio = debt/assets-debt.  Thus, the debt to equity ratio must necessarily increase, reducing the credit-worthiness of the entity.

Thus, mathematically speaking, the only way to increase creditworthiness is to increase assets without increasing liabilities.  Deficit spending, in most cases, does the opposite–it increases debt without increasing assets, thus destroying the creditworthiness of the government.

What does this have to do with the education bubble?  Larry Summers was president of Harvard University, the smartest university in the world, that produced such luminous graduates as George W. Bush and Barack Hussein Obama.

Peter Schiff is a mensch II: Interviewing OWS

Peter Schiff tries to explain that high-wage earners are often the people who provide jobs and if you tax them at too high a rate, they are likely to just stop working hard and stop risking their capital, and people whom they employ will lose their jobs.  It is a compelling narrative if you are an employer, as are both my wife and I.  Craig Carter says something similar (If You are Thankful for Your Job, Hug a Billionaire):

Every time I hear the “Tax the 1%” meme, I feel personally threatened. I feel as though someone is out to destroy the economy and create the kind of conditions in which I could, potentially, lose my job. The war against the rich is really a war against the middle class and it is based on emotional manipulation, rather than reason. The people who are involved in it may be sincere, but they are much too gullible.

Maybe economics should be a compulsory subject in high school and maybe we ought to start purging socialists out of our universities so that free market principles once again dominate the curriculum. OWS and liberal/socialist propaganda is getting out of hand and people are getting hurt.

I don’t think Peter Schiff would argue with Dr. Carter on that point.

Hat tip:  Monty Pelerin

You keep using that word IV: fiat

Economics has become a pseudo-science and one of the reasons why the education bubble is real and will result in the demise of the university system.  It will collapse under its own weight of stupidity.  Here I am a university-trained PhD telling you that much of what goes on in academics is just a bunch of  fantasies created in the mind of the scholars.  In my own field it consists of such scholarly imaginations as Q, the Secret Gospel of Mark, or the anti-Semitic source theory of the Pentateuch (JEPD [pdf]).

So it is not at all surprising to me to learn that the same foolishness inhabits other fields of study, including economics.  So now a certain Prof. Willem Buiter has produced a blog post entitled, “Gold – a six thousand year-old bubble“.  Rather than just simply admit that gold has intrinsic value because of its rareness and unique properties, Prof. Buiter, that colossus of economic brilliance, concludes that mankind throughout recorded history has kept gold in a bubble.  In my view, wisdom would dictate that 6000 years as a currency would make gold the most secure form of money known to man.  But alas, then Prof. Buiter writes these lines:

Gold has become a fiat commodity or a fiat commodity currency, just as the US $, the euro, the pound sterling and the yen … [snip] are fiat paper currencies. (From Financial Times Blog, [snip because of 30 word limit imposed by Financial Times])

The term fiat actually refers to currencies with nothing, such as gold or silver, backing them.  Such currencies are predestined for failure as the temptation to make too much of it seems to derive from human nature.  On the other hand, gold has intrinsic value, so it requires no backing.  To call gold a “fiat” anything is as stupid as Nouriel Roubini saying that gold has no intrinsic value.  These economists don’t even understand what the terms “fiat” or “intrinisic” mean.  This is disgusting and pathetic and it is no wonder that the world is in such economic chaos with such dunderheads running the show.

For the correct definition of fiat currency, see Investopedia.

And now for the video clip, which I dedicate to Prof. Buiter :

Stuck on stupid: celebrating $1500 gold and the East Coast geniuses that made it possible

Earlier Posts:  I. More education bubble stuff

Just after Barack Hussein Obama was elected in November, 2008, I was at an academic conference in Boston.  There was a Festschrift celebration for one my profs, at which I met a childhood friend of his–my prof grew up in the Boston area.  Once this elderly “gentleman” learned that I grew up in the state of Alaska, he became red-faced and angry, “What’s wrong with you people in Alaska?  Has the cold weather frozen your brains?”  Well, one could have asked the same thing of Boston residents that year–it was a distinctly cold November.  He continued, “That Sarah Palin is such an idiot!”  Well, I wonder whether Miss Manners would think it proper to talk in this manner with a new acquaintance.  I mean Sarah Palin enjoyed a very high approval rating in the State of Alaska and if I shared the view of the majority, then this East Coast snob was insulting me as stupid along with my fellow Alaskans.  Most of the people in that room held PhDs–so the gratuitous insults were uncalled for.  Well, I couldn’t really think of anything to say, but by this time I was pretty hot under the collar:  “Sir,” I said, “The our problem in Alaska is that when we are hungry and need to eat, we have to go outside and kill something.”

Then my new East Coast friend started to talk about Barack Hussein Obama:  “He’s so smart.  He talks so well.  I just know he’s going to be a better president than that idiot Bush.”

Then one morning in Grand Cayman at Christmas there was a “lady” sitting with me under the veranda at the pool of the hotel.  We began to discuss where she was from:  Washington D.C.  I told her about growing up in Alaska but that I now live in Canada.  “I am going to move to Canada,” she said, “If Sarah Palin ever becomes president.”  Wow.  Miss Manners where are you?  But this brilliant woman doesn’t understand the first thing about Canada Immigration or moving to another country.  It sometimes takes years to get your paperwork.  I know people married to Canadians who have taken over two years to get landed status, and this lady thinks she can just walk up here and live in Canada.  I hate to tell you this, but this is not the Viet Nam War era, and Pierre Trudeau is not the president of Canada anymore.

Well, to all you brilliant people on the East Coast who think you are smarter than us Alaskans who kill animals to put food on the table, I dedicate this post.  I love what your President and your Federal Reserve Chair have done to the value of my gold portfolio.  In the words of Mogambo Guru, “Whee!  This investing stuff is easy!”

In an earlier post I listed the East Coast schools of some the people responsible for $1300 gold.  I repeat that list here (Harvard, by the way, is in Boston):

Barack Obama, Columbia, Harvard

Ben Bernanke, Harvard, MIT

Alan Greenspan, Columbia, NYU

Hank Paulson, Harvard (MBA)

Paul Krugman, Yale, MIT

Tim Geitner, Dartmouth, John Hopkins

Larry Summer, MIT, Harvard

But some of us people who don’t enjoy PhDs from these schools where the genius go, don’t believe it is advanced economic theory that is going to help the economy, but common sense.  Yesterday, in a seminal article, Monty Pelerin summarized our main problems under five points:

  1. An Incompetent President – The President is inexperienced and incompetent. He is likely a fraud, as evidenced by his guarded and unknown past. He is incapable of leadership, honesty or management. Virtually every one of his policy initiatives has been harmful to the economy and country. His intentions are clear, the degree to which he will be able to drive us further down the Road to Serfdom is not.
  2. An Incompetent Political Class – The political class attained power via Santa Claus economics, providing gifts to constituents in return for votes. Both parties are guilty. Politicians have conditioned themselves and their constituents to “free-lunch” governance. Few know how to govern in any other fashion. Most are indistinguishable from prostitutes — vote for me and I will do “that” for you. Both parties want to preserve the welfare-warfare State, disagreeing merely on the means of doing so.
  3. An Incorrect Paradigm – The Keynesian model of spend and spend has been good for politicians but disastrous for the economy. Over time, it has encouraged loose credit, overspending and living beyond our means. The failures are obvious to all but Statists and so-called Keynesian economists.  The political class cannot stop “free lunches” without suffering severe political consequences. Hence, the abuses will continue until resources are exhausted. Like Rome of old, we will soon run out of bread and circuses.
  4. An Unhappy Ending – Current economic problems cannot be mitigated or solved without incurring another Great Depression. Whether it is preceded by a deflationary collapse or a hyperinflationary blow-off is moot. The ending is inevitable and as more people understand this ending, they take more extreme steps to protect themselves — spending ratchets back, savings increases and businesses refuse to engage in new investment or hiring.
  5. A Dangerous Prelude to the Ending – Government is insolvent. It would be bankrupt without Federal Reserve Quantitative Easing. As a cornered, wounded animal will do anything to survive, so will Government. Does that mean confiscatory tax rates, capital controls, IRA investments forced into Treasury Bonds, “excess profits” taxes, a national sales tax, etc. etc.? It could mean any or all of these and more. Government will not roll over. It will do whatever it can to continue, regardless of how illegal, immoral, unethical or harmful it may be for the country.