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People's inability to service/pay their loans, due to not having enough income, due to the job market collapsing, due to a recession (which is already overdue).

by jcbrand 10y ago

rahimnathwani 10y ago
What you've described here is the value of an asset (student loan paper) declining due to a change in the underlying cash flows generated by that asset. This is how asset prices are supposed to work. It's not the busting of a bubble.
- stale2002 10y ago
  OK, how about this. Imagine that employers stop caring about degrees, and evaluate potential hires based on other qualities. This is already happening in tech. If employers no longer cared about degrees, then workers who don't have them would now suddenly be on equal footing. The non degree holders would get much higher paying jobs, and conversely the degree holders would get worse jobs. This causes the "value of education" bubble to pop.
  - rahimnathwani 10y ago
    Then we're back to my earlier point. There is no 'value of education' bubble analogous to a housing bubble. An individual's degree isn't tradable in the same way as a house is, so the value of that individual's degree isn't being bid up by people competing to buy it. So what would it mean for the bubble to burst? If you're talking about a mechanism by which the price of newly-issued degrees were to fall (i.e. college tuition sticker prices fall by 50% within a year or two) then, even if it were to happen, that's just a fall in the price of a consumer good. If the price of laptop computers falls because people realise they can do their work with tablets and chromebooks, we don't think of that as a laptop bubble. Not a perfect analogy but I hope you get my general point: if you're calling something a bubble, then you've got to be able to point to the stock of existing assets whose price is out of whack with fundamental value (e.g. based on future cash flows) due to irrational investors bidding up the price. I'm not claiming tuition fees are in line with fundamental value to the recipient. If they're not, then it's just people buying stuff they shouldn't. If they are in line, but it's for signalling reasons rather than the education received, then there's economic inefficiency due to market failure, but it' seems still not a bubble.

People's inability to service/pay their loans, due to not having enough income, due to the job market collapsing, due to a recession (which is already overdue).

by jcbrand 10y ago

People's inability to service/pay their loans, due to not having enough income, due to the job market collapsing, due to a recession (which is already overdue).

rahimnathwani 10y ago

What you've described here is the value of an asset (student loan paper) declining due to a change in the underlying cash flows generated by that asset. This is how asset prices are supposed to work. It's not the busting of a bubble.

stale2002 10y ago
OK, how about this. Imagine that employers stop caring about degrees, and evaluate potential hires based on other qualities. This is already happening in tech. If employers no longer cared about degrees, then workers who don't have them would now suddenly be on equal footing. The non degree holders would get much higher paying jobs, and conversely the degree holders would get worse jobs. This causes the "value of education" bubble to pop.
- rahimnathwani 10y ago
  Then we're back to my earlier point. There is no 'value of education' bubble analogous to a housing bubble. An individual's degree isn't tradable in the same way as a house is, so the value of that individual's degree isn't being bid up by people competing to buy it. So what would it mean for the bubble to burst? If you're talking about a mechanism by which the price of newly-issued degrees were to fall (i.e. college tuition sticker prices fall by 50% within a year or two) then, even if it were to happen, that's just a fall in the price of a consumer good. If the price of laptop computers falls because people realise they can do their work with tablets and chromebooks, we don't think of that as a laptop bubble. Not a perfect analogy but I hope you get my general point: if you're calling something a bubble, then you've got to be able to point to the stock of existing assets whose price is out of whack with fundamental value (e.g. based on future cash flows) due to irrational investors bidding up the price. I'm not claiming tuition fees are in line with fundamental value to the recipient. If they're not, then it's just people buying stuff they shouldn't. If they are in line, but it's for signalling reasons rather than the education received, then there's economic inefficiency due to market failure, but it' seems still not a bubble.