Posts tagged ‘housing bubble’

Debt and Risk Aversion

Our debt has a way of focusing us on downsides, because debt turns a continuous income curve into two discontinuous lines: “solvent” and “insolvent.” More generally, debt has a way of magnifying life events. When things are going well, debt can help them go better: You can buy a house and a car, or you can buy a bigger house and a nicer car. But when things are going badly, debt can turn a slight income loss into a major disaster.

Most Americans now have a lot of debt, whether they’re ordinary workers or commercial landlords. Which means that most Americans have to be extraordinarily sensitive about letting their income cross the line where they can no longer support their debt payments. Which in turn means that already sticky prices may become positively glue-like.

Too Much Debt Is Making Us Sticks-in-the-Mud

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Education Bubble, Grade Inflation, and Illiteracy

We already know housing was a bubble and we are dealing with the ramifications of the pop back in 2007. Yet the higher education bubble keeps moving higher and higher.

Dr. Housing Bubble: California Household Income and UC Tuition Compared

In 1980 the typical California household would be able to finance 17 bachelor’s degrees at a UC with one year of household income. In 2000 that number had dropped to 5. Today it is only enough to purchase one bachelor’s degree at the UC system. Now keep in mind we are looking at the cheaper public option partially backed by the state of California. You have other institutions in SoCal like USC that charge over $50,000 per year. Without a doubt higher education is in a bubble more so in the private sector.

In 1980 the median California household income would have purchased 17 UC bachelor’s degrees. Today it can barely purchase one UC degree.” by Dr. Housing Bubble, May 5, 2011

And what are the results for money spent on public schools in Detroit?

Creative Commons License photo credit: JSFauxtaugraphy

A study funded by 10 major foundations reported yesterday that 47 percent of Detroiters are functionally illiterate–unable to read a bus schedule, fill out a resume, or make sense of the directions on an aspirin bottle.
. . .
The report notes that half of the illiterate population has either a high school diploma or a GED. That’s beside the point. Virtually the entire illiterate population has completed elementary school, the level at which reading is theoretically taught. That’s seven years of schooling (k-6), at a cost of roughly $100,000, for… nothing.

Nearly Half of Detroiters Illiterate. Cause Apparently a Mystery.” by Andrew J. Coulson, Cato@Liberty, May 5, 2011

Speaking of bubbles and inflation:

Robin Hanson has been arguing that perhaps along with redistributing income, we should redistribute grades. I have myself been known to argue that perhaps we should consider redistributing PhDs and Harvard professorships, to limited success with the sort of people who have those things.

Should We Redistribute Grades Like We Do Income?” by Megan McArdle, The Atlantic, May 4, 2011

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