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Larry Beinhart's Body Politic: A Rising Tide Sinks All Boats


Last Updated: 07/14/2015 12:26 pm

The official mythology of America's rising inequality is that it is the result of natural economic forces. The market is doing it. Low-cost foreign labor and technological progress in less developed countries has driven down the wages of "unskilled" labor.

It's a great theory. It assigns blame to those foolish, inept, lazy, bad choicers who decided to be unskilled. They're just getting what they deserve. Even better, it says that the solution is not about power and politics, constraining the rich or corporations. It's up to you. Just go out and get the right education and you are statistically guaranteed to have a higher income.

Also, we are constantly told, a better educated workforce is what America needs to compete in this era of increased international competition.

If this theory was true—or even if it was false, but our leaders really believed in it—there would be an inverse ratio. As income inequality gets worse, the commitment to public education, especially public higher education, would go up. Yet exactly the opposite has happened.

America turned from a belief in relative egalitarianism to radical redistribution of wealth toward the rich. The moment of change is surprisingly precise. All the numbers change direction around 1980, the onset of the Age of Reagan. Before that, a student could earn enough from a summer job to pay for a state or city college. From then to now, the cost "surged 1,120 percent" (Bloomberg Business News).

While the costs went up, the relative value declined.

The pressure against wages and benefits was rising higher. Better educated, middle wage workers were next. According to the Economic Policy Institute, except for the late 1990s, "The wages of middle-wage workers were totally flat or in decline over the 1980s, 1990s and 2000s." It's kept rising. Now its reached what used to be the top professions, like doctors and lawyers. A story in the in the New York Times on June 17 noted that "for the last four years, less than 60 percent of law-school graduates have found full-time jobs requiring a bar qualification."

Yet the insistence that education is the key, the solution to everything, has not slackened a bit. It has intensified.


As the costs went up, and the value decreased, we invented a new system to finance it—student loans. Banks made loans and got the profits. But the government guaranteed them and removed all risk for the banks.

The loans came with far more liability for the students than any normal loan. "Bankruptcy will usually not cancel student loans, and the government has the power to seize income tax refunds and garnishee wages as needed. Some parents who guaranteed student loans that have defaulted find the money taken out of their Social Security checks" ("The Hefty Yoke of Student Loan Debt,New York Times, February, 20, 2014).

The loans were sold in a way that hid risks and the extreme liability and disarmed any resistance. They were offered, as if they were gifts, along with college acceptance letters (Oh, moment of joy!) as part of financial "packages" that would enable to the student to attend.

In this environment, for-profit schools grew faster than mold. They made the same high-income promises that everyone else does. Their failure to deliver is beyond belief: "The Department of Education reports that 72 percent of for-profit colleges produced graduates who earned less than high school dropouts."

Social and economic class play a very important part in this system. The higher up a student's family is, the less likely they are to borrow. But the more likely they are to choose an institution that will really help them in life and the more likely they are to succeed. If a student dropped out, therefore not getting the benefits of a degree, they still owed what they borrowed. If a school took their money, then went out of business, the students still owed their loans. In sum, the richer you were, the less you were affected.

Words mislead. Actions speak truth. Strip away what's said, look at what's been done, and it becomes clear that higher education has become another  gigantic system to transfer wealth from the 90 percent to the one percent. (Is this similar to how the unleashed mortgage business led to the housing bubble?)

Student loan debt is now over $1.2 trillion. The default rate is higher than any other form of consumer debt. According to the Wall Street Journal, 31.5 percent of debtors are at least a month in arrears.

The weight of student loans is having a depressing effect on the entire economy. Graduates, or dropouts, with debts, don't buy homes. They live with parents. They don't even buy cars. So they can't leave even if they want to.

There is, at last, some pushback. Elizabeth Warren, among others, has called for debt relief. Obama is campaigning for universal free community college. That would cut the cost of a four year degree in half and also give people a chance to learn how to cope with school.

The bloom is off the rose.

Don't worry. There will be new devices that insure that education will continue to be used as a way to transfer wealth from those who need it the most to those who have accumulated the most.

John Hartley, who lists himself as a World Economic Forum Global Shaper on Huffington Post, announced, "A novel funding concept is sweeping the college education funding system by storm. Income Sharing Agreements."

What is an ISA? A student gets money from a rich person, then signs over a portion of their future income for 10 years, 20 years, for life. Of course it wont be a student and one rich person, ISAs will be packaged, like mortgages, sliced and diced, and then sold as investment vehicles.

Richard Vedder, Adjunct Scholar at the American Enterprise Institute, is thrilled that it will bring market forces into play. People who pursue subjects that investors favor will give up less of their income. This will select for "good" areas of study. He specifies only one, petroleum engineer, then poses the rhetorical query: "Isn't this "unfair" to those wanting to be librarians, teachers, social workers, etc., since they would have to forego more of their incomes to satisfy the human capital contract?" Then he answers, "Not really. Society puts a relatively low value on those jobs." Society? Or people who think that profit taking is the only value?  

Is this just another Wall Street Journal, right wing think tank fiscal wet dream?

ISAs have already been endorsed by two of the more prominent presidential candidates, Chris Christie and Mark Rubio. I promise you, if you or your children, want to sell a piece of themselves to the 1/10th of the one percent to go to college, our nation will see to it that they can do it. 

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