Piketty and the Austerity of Imagination

Thomas Piketty’s recent book Capital in the Twenty First Century has gotten rave reviews and has been proclaimed by many liberal and progressive pundits and scholars as the best thing since Marx.  Piketty’s central claim is that the return on capital (investments, real estate, rents) will always exceed the return on labor unless some extraordinary shock occurs, like a world war or depression.   In laymen terms, this means that rich people who can inherit and invest their wealth will always make more than everyone else who has to earn their money through labor. The solution Piketty proposes to this inevitable growth in inequality is a global wealth tax, which he himself says is utopian and unlikely.

So why is this book so popular with liberals?  One possible reason is that it displays moral indignity in the face of wealth inequality, but it does not ask any of us to change or do anything.  It also gives the reader a strong sense of historical knowledge of the global economy, but this understanding is plagued by several glaring blind spots.  As Thomas Frank has pointed out, in a book on labor and capital that goes on for close to 700 pages, the role of unions is barely mentioned.  Moreover, the incredible destructive nature of the 2008 global financial meltdown is also ignored, and most of his statistics only focus on a small number of countries, and this is due to his reliance on a narrow set of tax data.  In short, Piketty is blinded by his own limited source of information and his own ideology.  Although he looks like a Occupy Wall Street proponent, he really is locked into a moderate austerity mindset.

Since he believes that the only thing that can cause income from labor to exceed wealth from investments and inheritance is a war or massive depression, he promotes the logic of austerity: we will never have strong economic growth, so all we can do is try to tax the wealthy and reduce social benefits like pensions.  If this austerity logic sounds familiar, it is what is driving the thinking of the White House and the State House.

What is missing from this austerity of imagination is any hope that we could expand economic growth by increasing the wages of working people.  While Piketty justifies the Federal Reserve lending trillions of dollars to banks and corporations to stabilize their books, he does not even ponder how some of this money could have been used to refinance mortgages or student debt.  Like Piketty, the Fed does not think that the government can do anything to spur economic growth and job creation, and so the only alternative is to feed money to the investment class who have decided that we no longer need consumers or workers since businesses and banks can make money by just buying back their own stocks from cheap government loans. 

What we need are policies that help to create better high paying jobs so we can increase consumer demand and create even more economic growth.  However, companies have found that they can increase their profits, stock valuation, and executive compensation by reducing labor costs, and this is done in part by hiring people part-time with low wages and no benefits.  Since most workers do not have any bargaining power and do not belong to unions, there is a global race to the bottom as everyone loses ground to inflation except for a small number of managers and investors.   

UCSB, Tragedy, and College Culture

I have had a hard time writing on this blog because I do not want to strike the wrong tone or appear insensitive.  The recent deaths of several students has created a strange vibe on campus: people do not know if they should return to business as usual or mourn and think through a radical break in normalcy.  As an educator, my first inclination is try to turn this “senseless” act into a learning moment; however, people are saying that it is too soon to learn anything, and we should take some time to respect the dead. 

Throughout the quarter, I have been discussing with my Social Science Writing courses the relation between higher education and popular culture.  One theme has been how media depictions of class, race, and sexuality affect the lives of students inside and outside of the classroom.  We have looked at the social science findings in the book Paying for the Party, and students have done on the ground research on why students do not graduate in four years and what students think about online education.  We have found that most students think they will graduate on time until something unexpected happens.  These unanticipated events range from failing a course in their intended major or a loss of family finances or a personal health issue or a romantic breakup.  Moreover, students report that they would like to try taking an online course, but they do not want to lose the experience of sitting in a classroom together, and they do not think that online classes will help people graduate at a faster rate.  Also, students are willing to experiment with online classes for convenience sake, but they still desire a sense of classroom community.

After the murder of six fellow students, all UCSB students are dealing with the unanticipated, and many are having a hard time focusing on their studies.  Several students have also protested the role of the media in feeding off of human tragedy and giving the killer more exposure.  There is also a debate going on of whether Roger’s views were just the product of a psychotic mind or did his ideas reflect some truths about sexuality inside and outside of college.  Since my class has been discussing the role of sexual hierarchies and stereotypes in contemporary media, it is hard to escape the observation that many college going males and females have bought into a sexual hierarchy that victimizes women, even if women “freely” chose to participate in the culture. 

During a time when the responses of colleges and universities to sexual assault has become a national issue, we have to ask what role our institutions of higher education have in the social lives of their students.  We also need to have more courses that deal directly with the relation between higher education, peer culture, and the media. 

Let’s hope we can learn something from this senseless tragedy.   

UC Bait and Switch Part Two

In my last post, I discussed how UC was fulfilling its obligation to accept every eligible Californian student by admitting them to Merced instead of Berkeley and UCLA. I also pointed out that some campuses are cashing in on the new policy that allows schools to keep all of the tuition dollars they generate.  The end result of this system is that some campuses have a huge incentive to accept a high number of non-resident and international students and reject a great number of students from California.

During recent meetings with state officials, I warned that we will see a backlash from Californian residents who feel that their deserving children are being shut out of an institution the parents have helped to support, and in fact, there has been a constant stream of editorials and letters voicing this concern.  In one recent article, we are told the following:   “As more California high school seniors fight for spaces at popular UC campuses, the universities have flung open their doors to students from other states and countries, more than tripling the ranks of out-of-state freshmen in the past five years. Freshmen from outside the Golden State now make up almost 30 percent of their class at UC Berkeley and UCLA, up from just over 10 percent four years earlier.”

When I presented these statistics to state officials, I was told that the implicit arrangement was that UC had to maintain its current number of in-state students even though the governor has removed enrollment targets from his recent budgets. However, recent statistics so that it is unclear if this deal is being upheld: “The UC system enrolled about 700 more California freshmen in 2013 than in 2009, a 2 percent increase, and nearly 5,000 more freshmen from other states and countries -- a 273 percent increase. About 57 percent of the added spots went to international students, and 30 percent to students from other states, while about 12 percent went to Californians. UC Berkeley enrolled 800 fewer California freshmen this academic year than in 2009, but it accepted about 580 more from other states and about 500 more from other countries.” Although we still do not know about actual enrollments, it should be clear that UC has changed its admission priorities.

Some will argue that the increase in high-paying non-resident and international students is the price the state should pay for its divestment in higher education, and while this is partially true, we have ask how is this change in the student body going to affect the campuses.  In particular, as UC accepts more non-resident students, it brings in more students who come from wealthy families.  According to the book, Paying for the Party, one effect of state schools increasing their number of wealthy out-of-state students is that the entire campus culture is reshaped by class hierarchies.  In this type of transition, all students have to decide if they want to pursue the party pathway controlled mostly by rich students or focus on the mobility and professional pathways that are still influenced by wealth and  social sorting.  Moreover, in order to attract these out-of-state wealthy students, schools have to feed the party pathway by providing easy majors and a vast array of expensive facilities and activities. 

The reputation of some universities as party schools then is not an unfortunate side-effect of contemporary college life; rather, it is in part a response to decreased state funds and the need for public universities to attract wealthy non-resident students.  Furthermore, universities have convinced themselves that it is easier to please students outside of the classroom than inside, and so they have an incentive to recruit wealthy out-of-state students who are attracted by a school’s reputation for partying and spending on extracurricular activities.  

Another side effect of catering to wealthy non-resident students is that all of the students have to pay more and often go into debt to finance the increased costs of housing, dining, and extracurricular activities.  An increase in rich non-resident students may also help to fuel the need for expensive athletic programs and a problematic Greek system, which enhances issues related to binge drinking and sexual assault.   

The irony is that in order to compete for more wealthy non-resident students, campuses have to increase their spending on non-instructional activities in order to turn their schools into country clubs.  The end result is that instruction and learning become a low priority, and thus institutions of higher education are no longer mainly about education; rather, they become systems to enhance wealth and class inequality.  

The UC Admissions Bait and Switch

The UC has published its 2014 admissions’ statistics, and while the system is still required to admit all qualified students from California, a secret tactic is being used to make sure that it increases the number of high-paying non-resident and international students.  What the UC is doing is admitting students from California, but not offering them places at the campuses of their choice.  Simply put, students are applying to Berkeley and UCLA, but they are being admitted to Merced and Riverside. 

Looking at the latest statistics, we see that Berkeley accepted 8,391 students from California, 3,071 from out of state, and 1,333 international students.  Likewise, UCLA accepted 9,128 from California, 4,095 from out of state, and 2,537 international students.  So out of the 28,555 students accepted by both campuses, 11,036 are not from California.  These students (39% of the total admittees) each pay $23,000 exrtra for tuition, and they do not receive financial aid. Of course, not all of these students will accept their admission offers, but if all of them did, the two campuses would bring in an additional $254 million. 

If we now look at Merced, we find that 9,313 were accepted from California, and 152 from out of state, and 315 are international students. In the case of Riverside, we get 17,758 from California, 649 from out of state, and 1,390 are international. This means that out of the 27,071 admits from both campuses, 2,506 are not from California, which is 9%, for a total extra revenue of $57 million. In other words, the two elite campuses admitted almost the same amount of students as the two non-elite campuses, but the elites will get about $200 million more in tuition revenue.

Although the UC system is supposed to be correcting the historic inequality between the campuses, it is clear that this is not happening.  Meanwhile, the UC knows that many students who do not get their top choice and are offered admissions at Merced or Riverside will decide to go elsewhere.  Furthermore, the ability of UCLA and Berkeley to be more selective helps to raise their school rankings, which then perpetuates the disparities, since students do not want to go to a lower ranked school. 

Congress Recycles Higher Ed Myths

Currently, the US Senate Committee on Health, Education, Labor, and Pensions is holding a series of hearings in anticipation of the reauthorization of the Higher Education Act.  The main underlying theme appears to be that the Democrats want to regulate the for-profit colleges and do something about student debt, while the Republicans would like to deregulate higher education and help the “free market” expand its reaches into public higher education.  In a recent hearing on student debt, this polarized discourse was mediated by a bipartisan set of misconceptions regarding the costs of higher education. 

During his opening statement, ranking Republican member, Lamar Alexander set the stage by arguing that since the average cost for community college was about $3,000 and students receive over $4,000 in aid, some of the money must be going to other things.  In fact, Alexander’s own press release entitled, "College More Affordable than Most Students Think,” argues that, “The average community college student in America is receiving about $1,500 more in grants and scholarships than it costs in tuition and fees” The problem with Alexander’s argument is that he fails to take into account the total cost of education (tuition, fees, room, board, books, and living expenses), and so he can pretend that there is no reason for students to borrow, and if they are borrowing, it is for personal pleasure.

According to Alexander, “An Inspector General’s report from the U.S. Department of Education warns that some students borrow excessively for personal expenses not related to their education.”  However, it is clear that students need a place to live and they have to buy books for their classes, and so these non-educational expenses are actually the main cause for student debt.  The US Department of Education reports that the total annual cost of attendance for a full-time community college student is  $13,237, so if students are receiving on average $4,500 in grant funding, they are still on the hook for close to $9,000 per year. 

Apparently, not only Alexander fails to understand the difference between the cost of tuition and the total cost of attendance, but also James W. Runcie , Chief Operating Officer of Federal Student Aid of the Department of Education, does not understand why students borrow money to go to college.  In response to Alexander’s question about why students are taking out more money than they need, Runcie, (at minute 50) simply says that this is a concern, and the department is looking into possible cases of fraud or abuse.  The underlying message Alexander and others are circulating is college students are going into debt because they are borrowing money to spend on leisure items like fancy cars and clothing. 

This failure to understand the true cost of attending college is also shaping several recent proposals to make community college freeto students in Tennessee, Mississippi, and Oregon.  All of these states are only discussing making tuition free, but most lower- and lower-middle-income students already have their tuition covered by state and federal grants.  This means that only upper-income students will receive the new break, and these tuition-free programs may end up cutting additional funding to the non-wealthy students who need aid to pay for the non-tuition aspects of the total cost of attendance.   Once again, a progressive sounding policy turns out to be welfare for the wealthy as the non-wealthy continue to get stuck with the bill. 

Subprime Higher Ed and Washington DC

Like everything else in our nation’s Capitol, higher education has become a deeply polarized issue.  Although the Higher Education Act is supposed to be re-authorized this year, no one thinks that it will get done.  On one side, you have the Republicans in the House who are upset with the Obama administration’s efforts to regulate high-debt, low-peforming for-profit schools, and on the other side, you have some progressive Democrats trying to find ways to reduce and refinance student debt.  While technology is no longer being presented as the solution to all problems, there is little discussion of a comprehensive plan to help higher education.  In fact, most politicians argue that we still have the best system in the world, so all we need to do is just improve access for some excluded groups.

On a more positive note, the United States Student Association’s legislative conference did show that students are very concerned about student debt and the fact that students are paying more and getting less.  There is a new coalition (Higher Ed, Not Debt) that has been formed around the student debt issue, and it has brought together several important groups and progressive political leaders, like Senator Elizabeth Warren.  I am hoping to work with this campaign to tie the issues of student debt, contingent faculty, instructional quality, and higher ed funding together.

When people ask me why I think anything might change for the better in higher education, I argue that the student debt issue threatens to affect so many individuals and families that something will have to be done regarding how we fund and regulate universities and colleges.  As Suzanne Mettler stresses in her book Degrees of Inequality, much of this debt is being driven by the rise of for-profit schools who have used their profits to capture Washington regulators and politicians.  These schools now take in collectively a quarter of all Pell grant funding and a large part of the current GI bill. At some point, the failure of profit-colleges to graduate students could push the government to re-invest in public higher education.

Of course the irony of the for-profits is that many of them receive more than 90% of their funding from the federal government; thus instead of being the free market alternative to public higher ed, these institutions embody the rise of corporate welfare within the context of the fall of public welfare.  Mettler documents how the Obama administration’s attempts to regulate this industry has been countered by not only the free market evangelists of the Republic party but also progressive Democrats who believe that for-profits are the only schools catering to low-income African-American and Latino students.  Like the bipartisan push for subprime loans to minority populations, this cashing in on the poor is a bi-partisan affair: the liberals want to do something for disadvantaged people, and the conservatives want to support the corporations seeking to turn public money into private profits.  Let’s hope that when the student loan bubble bursts, the Fed will bail out the students and not the banks.

A New Deal for Higher Education

Next week, I will be going to DC to meet with the United States Students Association, AFT higher education leadership, and members of Congress to discuss a new funding model for higher education.  Here are the main talking points:

1.     We need an integrated plan to deal with student debt, higher ed funding, contingent faculty, and quality higher education. This requires a new compact among institutions, students, federal government, and state governments.

2.     The current system is an incoherent combination of institutional aid, state aid, federal aid, student loans, federal tax breaks, and state tax breaks.  We are currently spending enough on higher ed from all sources to make it free to the students, but we need a comprehensive plan.

3.     The proposed plan is to tie state and federal aid to the requirement that each university and college receiving funding generates at least 75% of its student credit hours in classes taught by full-time faculty.  Another possible requirement would be to tie this support to a certain level of direct instructional spending and to demand that at least 75% of the courses be taught in classes of less than 26 students. This policy would not only force schools to put more resources into undergraduate education, but it would also motivate universities and colleges to have more effective learning environments. There would also be a requirement that states maintain their support for higher education. 

4.     Currently, we are spending more per student, but fewer students are earning degrees.  The overall graduation rate for higher education is under 40%.  A major cause for not graduating is the high cost and the need for students to work while in school.

5.     The biggest cost for students is not tuition but related student expenses (room, board, books, etc).  Politicians and school officials only talk about tuition, and this hides the true cause of debt and dropping out.

6.     Students also do not graduate in a timely fashion because some schools spend most of their funds on non-instructional activities. To make up for a loss of funding, schools have increased their use of large lecture classes, decreased their number of courses, and have increased the use of insecure, part-time faculty, which has lowered the quality of education and has decreased graduation rates.

7.     The more students have to finance their own education, the more the public sees higher ed as a private good and not a public good.  Although college does provide preparation for work, if this is seen as the main goal, it becomes a private good without public support.

8.     We need to build a broad collation of students, parents, teachers, faculty, and concerned students.