Our University-Culture, Chapter 5: On Bubbles and Bureaucracy (Part 1)

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I. The Higher Education Bubble

It may seem odd that I have combined (economic) bubbles and bureaucracy in this chapter, but we will see that the two are intimately related in the case of our universities. The two reinforce and drive each other. To see this, we have to understand what causes bubbles.

The biggest economic bubbles are primarily caused by the creation of cheap money. The economic crash of 2008 was the result of artificially low interest rates for home mortgages, combined with government incentives to lend to those who obviously could never make the payments. The lowest rates at any given time are always the variable rates — meaning that mortgage payments would vary depending on the interest rates. If interest rates are high, a variable rate is recommended, but if interest rates are extremely low, there are few things less advisable than getting a variable rate. Nevertheless, the low rates were attractive, and many people bought houses. The problems arose when the Federal Reserve increased the lending rate, which nudged up interest rates throughout the system. Suddenly, people couldn’t afford to pay their…