Our first article about the college admissions scandal focused on third party payers and how they destroy the pricing mechanism for four year college admission. Instead of the consumer voting with their wallet as they would in a free market, third parties like government grants, student loans, scholarship funds, and other forms of financial aid bid up the prices colleges will charge for tuition. The article also mentioned two other factors that contribute to this fraud – college administrators who have no skin in the game and the federal government’s fractional reserve banking (fiat currency) system. Here we focus on the lack of institutional accountability; the next article will focus on the government money spigot, and the fourth one will highlight their unholy alliance.
In his book Skin in the Game, Nassim Taleb writes, “It is immoral to be in opposition to the market system and not live in a hut or a cave isolated from it. It is much more immoral to claim virtue without fully living with its direct consequences.” The essence of this hubris is illustrated in The Ohio State University’s 2016 Operating Budget:
The University’s move to eminence will continue to be founded in the University’s three discovery themes of Health and Wellness, Food Production and Security, and Energy and Environment. Through these discovery themes, Ohio State will focus its resources and activities on finding durable solutions to issues of global as well as regional importance.
Ohio State’s abandonment of the market system for its core academic mission is evidenced by the “Strategic Finance” part of their budget:
We have launched a number of successful initiatives to increase the resources available to support the core academic mission. Revenue generation initiatives have included the establishment of unique partnerships and collaborations such as affinity agreements, innovative financing strategies, and asset monetization strategies.
As economist Jesus Huerta de Soto discovered about socialist planning schemes and their econometric models, Ohio State is substituting the ethics of markets with the complexity worship of data analytics.
Data analytics is a process of collecting, organizing, integrating and examining vast amounts of information in order to extract insight. With today’s increasingly large, complex, and diverse data sets, problem-solving is more data driven than ever.
All of this guarantees an even larger bureaucracy of unaccountable elites who produce nothing. It makes sense that a public university that added “The” to its legal name would assume the mantle of ethical purity and hire administrators who consider for-profit education as mercenary. The only discovery themes that matter are the efficient allocation of resources inherent in free markets and the morality of capitalism. But they can’t have that, it would render them irrelevant.
The Real Mercenaries
According to the Merriam-Webster online dictionary, the definition of mercenary is “serving merely for pay or sordid advantage.” Speaking of sordid advantage, according to economist Walter Williams,
Only 37 percent of white high school graduates tested as college-ready but colleges admitted 70 percent of them. Roughly 17 percent of black high school graduates tested as college-ready but colleges admitted 58 percent of them. To deal with ill-prepared students, professors dumb down their courses so that students can get passing grades.
Why would these institutions of “higher learning” do this, meaning admit students who are not prepared, or whose ambitions are poorly served by college matriculation in the first place? It pays, and the way to insure the sustainability of their unearned wealth is to create, out of thin air, degreed programs that cater to the mass market of unprepared high school graduates who are being manufactured by the progressive left’s compulsory public schools.
And this is entirely predictable. The founder of this system, John Dewey, believed that “There is no obvious social motive for the acquirement of mere learning, there is no clear social gain in success thereat.” For too many of these kids, their purpose in life is some vague notion of social justice or saving the planet. The motivation of the college administrators who serve up worthless degrees rooted in social justice was summed up best by Governor LePetomane in the Mel Brooks 1974 classic Blazing Saddles, “We’ve gotta protect our phoney baloney jobs, gentlemen!”
Unfortunately, those in academia who have the mercenary opinion of entrepreneurship are uninformed about the morality of the profit motive and the justice of the price mechanism. Much worse, they will not experience the consequences of their fraud. They will not outlive the pensions and benefits funded by the private sector that they condemn.
The Trillion Dollar Money Dump
When the federal government took over the student loan industry in 2010, there was about $900 billion in outstanding debt. Today, that number is $1.5 trillion. That’s a $600 billion dollar increase, 67% in 8 years. With the rising costs of attending college, and the fraudulent nature of the value they offer, student loan debt growth is triple that of auto loan growth over the last ten years, and student loan default rates are rising.
Nassim Taleb sums up the fallacy of the postmodern college administrator best:
In any type of activity or business divorced from the direct filter of skin in the game, the great majority of people know the jargon, play the part, and are intimate with the cosmetic details, but are clueless about the subject.
The subject is conducting business with morally defensible principles – trading value for value. Entrepreneurs have skin in the game. They rely on human action and rational thinking and don’t hide behind data analytics, complexity and sanctimony. The public university system elites, like higher-ups in any government or corporate hierarchy, do not risk their own hides, they always get paid. They have no skin in the game. You do.