Why I’m voting for Gary Johnson

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This is part three of my series of posts on Why I am voting third party. This is a long post that you may not agree with, so here is your trigger warning. Read at your own risk.

So, now we’re down to it. I’ve written at length about my opposition to Donald Trump and my unwillingness to to vote for Hillary Clinton. I’ve called one an ass and the other incoherent, though many would likely say the titles could just as easily be swapped. Now comes the crux of the matter, why I’m choosing to vote for third party candidate Gary Johnson. Despite what many may believe, this is not a protest vote. I’m also going to argue at length that it’s not a wasted vote. My vote for Johnson is actually a vote for the individual whom I consider the best current candidate.

Economic issues

As a libertarian, Gary Johnson supports policies that generally seek to avoid meddling in free market economics. While he doesn’t go into great detail on many of his policies, the ones that he does align with my thinking on them.

Tax reform

Trump wants to cut taxes. Clinton wants to raise taxes. Gary Johnson is the only candidate that has consistently supported an actual full reform of the U.S. tax system. I’ve been talking about the need for system-level tax reform for years. If you’re wondering, I support a European-style value added tax (VAT) for a host of reasons, many of which have to do with ease of collection and economic efficiency.

Gary Johnson, in contrast, is a proponent of the FairTax. This is a complete re-work of how taxes are assessed and collected. His plan would get rid of income taxes, estate taxes, and pretty much every other federal tax entirely. It would replace them with an across-the-board consumption tax on all goods  and services. The core idea and justification for a consumption tax is that the amount one pays in taxes will scale with one’s spending. If you spend more, you pay more in taxes. In the minds of its advocates, this is quite fair. However, one of the biggest arguments against consumption taxes are that they are regressive. This isn’t the simplest economic concept to explain, so I’ll let Investopedia do it for me.

Imagine two individuals each purchase $100 of groceries per week, and they each pay $7 in tax on their groceries. The first individual earns $2,000 per week, making the sales tax rate on her groceries 0.35% of income. In contrast, the other individual earns $320 per week, making her grocery sales tax 2.2% of income. In this case, although the tax is the same rate in both cases, the person with the lower income pays a higher percentage of income, making the tax regressive.

Clinton has consistently called for the wealthy to “pay their fair share.” What this means, exactly, is open to interpretation. However, I think most could agree that taxing a low-income individual 2.2% of their income just to purchase groceries while taxing a high-income individual only 0.35% for the same seems wrong. In this way, the FairTax would not be very fair.

In order to offset this, the architects of the FairTax proposed issuing a “prebate,” in which the federal government would send out a check each month to every household that would provide funds to offset the taxes that would be paid that month. The amount of the prebate would be based on the poverty rate and the consumption tax rate. Here’s the table provided by FairTax.org assuming a tax rate of

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When I first heard about this plan back in my undergrad, I thought it was brilliant. After doing lots of research, I still think it has some merit, but is not the best option. I find it interesting that it was actually considered under the Bush administration and was found wanting. Bush’s Federal Advisory Panel on Tax Reform evaluated a number of different tax plans, of which the FairTax was one. Here are some excerpts from their full assessment:

The Treasury Department’s proposed targeted cash grant program would cost $780
billion in 2006. It would represent 30 percent of total federal government spending,
and would dwarf all other federal entitlement programs and exceed the combined
size of Social Security and Medicaid. To implement the program, the government
would need to collect 34 percent more revenue and redistribute an additional 6
percent of GDP. The Panel concluded that this substantial increase in the amount of
revenue collected from taxpayers and redistributed by the federal government was
undesirable. Some Panelists were also concerned that the precedent set by the large
cash grant program could set the stage for further growth in the size and scope of the
federal government. To pay for the targeted cash grant program and remain otherwise
revenue-neutral, the tax rate would need to increase to at least 37 percent, assuming
low evasion and using the Extended Base.

This brings up an interesting conundrum for the libertarian. While it would massively simplify the tax system and therefore avoid complexities and loopholes, it would create a massive federal entitlement program, perhaps the largest ever. Granted, the entitlement is simply the inverse of the current “tax rebate” system we’re used to. However, it does make me wonder if he’s thought through this.

For my part, I’m in support of tax reform, and it’s a simple jump to move from the FairTax to a VAT. The nice thing about either is that they are easily adjusted, though not without economic costs. There would have to be significant studies that would take place to determine the correct tax rate, and numbers like 37% scare some people. However, it’s important to remember that this tax replaces basically every other tax. There would be no income taxes. Businesses would no longer be covering their half of payroll taxes, and workers would not be covering their half either. In addition, everyone would be getting a check at the beginning of the month which they would likely spend, increasing sales for businesses.

If you want to read why I support a VAT over the FairTax, here’s a short post with an example. I’m in support of systematic tax reform, and Gary Johnson is the only candidate even considering it. If you support the idea of universal basic income (UBI), this is also very likely the quickest path to it, as the prebate concept is essentially the same thing.

Decreased regulation

Regulation does a lot of great things. Antitrust regulation keeps industries from becoming too concentrated where competition fails and monopoly power kicks in. Food safety regulation keeps us safe from food borne illness. Wallstreet regulation keeps banks from making bad loan decisions and then offloading risk in ever complicated circles that are ready to collapse. However, excessive regulation can hurt competitive forces and damage markets. I’m generally against regulation unless a very strong case can be made for it. Gary Johnson agrees with this stance.

Illegal immigration

I’ve already spoken my peace on this at length on this topic. I think Gary Johnson has the most coherent approach to the issue, which is “creating a more efficient system of providing work visas, conducting background checks, and incentivizing non-citizens to pay their taxes, obtain proof of employment, and otherwise assimilate with our diverse society.” I fully agree with this approach.

Social issues

Marijuana

Gary Johnson is the only candidate proposing significant effort at the national level to promote marijuana legalization. I agree with this viewpoint for a variety of reasons. Meanwhile, prisons continue to fill up with thousands of individuals caught with an ounce of a plant that I would argue is at worst as dangerous and likely less dangerous than alcohol or tobacco. I say legalize it and allow states to tax the heck out of it and reclaim some of the massive spending.

Abortion

I’ve written at length on my views on abortion and where I think the dialogue needs to go. Gary Johnson’s views are very close to mine. He is personally opposed to abortion generally, but does not think the courts are the best place to fight that battle. He opposes late-term abortion and wants to defund Planned Parenthood. I can respect a person who, unlike Hillary Clinton, is forthcoming about his private views differing from his public stance. I also appreciate that, unlike Trump, Johnson hasn’t pre-selected supreme court justices and would therefore give himself the flexibility to select an individual whom he truly felt would fill the role well.

Privacy

Johnson is the only candidate with an actual position on privacy, in which he advocates for it. Clinton and Trump have said little about it, which I take as a tacit endorsement of the Patriot Act and the massive surveillance apparatus that has been set up over the past two presidencies. I don’t know that I believe in a universal right to privacy, but I know that I would like the government to move towards more privacy rather than away from it.

Internet freedom

As a web developer and avid user of the internet, I am a massive advocate of net neutrality and internet freedom. I’m also a fan of encryption and avoiding backdoors that the government or others can use to get into my devices. Clinton has come out in support of net neutrality in the past, but Trump has no idea what those words mean, and many other people don’t either.

Net neutrality prevents ISPs like Comcast or AT&T from charging you more for certain types of content or access to certain websites. This image provides the best explanation I’ve yet seen for it.

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Imagine having to choose an “internet plan” based not on speed or data caps, but based upon what types of files you want to download or what websites you want to be able to visit. Like current cable and satellite television packages, you would likely get a certain base set of websites you could visit or file types you could download. To expand this, you would have to pay. $5/mo extra for google, $10/mo extra for Facebook, $20/mo extra for Netflix. Want videos…$10. Want images…$5. This is the reality of a system without net neutrality.

Now, imagine a world where a police officer can take your iPhone, plug in a small piece of plastic, and download all of your texts and photos for use as evidence against you. If encryption is not allowed, this is a reality that could come true. Trump raged against Apple’s support of encryption. Clinton’s support of encryption is murky. I’m all for net neutrality and encryption, and Gary Johnson is the only one saying anything about them right now.

Foreign policy

I have a life goal of never being an apologist for any candidate’s blatant shortcomings, and I’m not going to try to defend Gary Johnson’s gaffes on foreign policy. Whether it’s asking what is Aleppo or not being able to name a foreign leader he admires, he came across as an idiot. Granted, I wouldn’t have known what Aleppo was offhand either, but I’m not running for president. I get that he’s a libertarian and is focused on domestic issues, but at some point you’ve gotta step up your game. This is by far his weakest area, and that is more than a bit concerning.

Having said that, I do like his commitment to deliberation on the use of military for and his deference to congress. The issue page on his website says:

As President, Gary Johnson will move quickly and decisively to cut off the funding on which violent extremist armies depend. He will repair relationships with our allies. And he will only send our brave soldiers to war when clearly authorized by Congress after meaningful, transparent deliberation and debate.

I’ve been a critic of the expansion of executive powers for quite some time, and it seems like in this Johnson and I agree. I really wish someone would have asked Trump for his thoughts on Aleppo, because I imagine he would have given a similar response. Trump hasn’t shown me any more qualifications for his foreign policy experience than Johnson has, so in this I consider them equal. Given a choice between the two of them, I’d go with Johnson’s restraint over Trump’s aggression every time.

Where this leaves me

Having gone through Gary Johnson’s stance on a variety of economic, social, and foreign policy issues, I find I agree with his stances on nearly everything. I do have concerns about the effects his cutting spending would have on the economy, and I really wish there was more solid math behind his tax plan. I have some concern about his foreign policy experience, but appreciate his commitment to restraint and deference to congress. In the end, he’s the candidate whose views most match my own, and he’s someone I can trust. I will be voting for him.

Why I am voting third party

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It’s time to vote, and for the first time in my life, I’m voting third party. I’m a moderate-leaning-conservative on many issues. In every other election, I’ve begrudgingly voted for the republican candidate despite a host of flaws because I aligned more with them. In this election, however, I can’t bring myself to do that for a variety of reasons that I will expound upon in a series of posts. In fact, if there was any democrat running other than the current one, this could have been the first election I crossed the aisle. However, it isn’t so, and therefore I’ll be voting third party.

My unwillingness to vote for Trump and my turning to a third party has been a point of contention and distress amongst many of my friends and family members. That said, I’ve had it relatively easily. I see social media posts on a daily basis full of arguments and anger. It seems that the vigor with which Clinton and Trump have repeatedly attacked one another has spread to the masses. I’m a white Christian, as are the majority of my friends, and so many arguments center around a few key issues. Along with the aggressive arguments, I also see passive-aggressive posts lamenting the state of this election from both sides. If only Christians would vote for Trump, he’d win easily. The Supreme Court appointments are all that matter, so vote based on that. If you don’t vote for Clinton, you’re voting for Trump and aligning yourself with him. So, here’s my unapologetic take on the election and why I’m voting how I am, for anyone who cares.

Why I have opposed a Trump presidency from the beginning

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I’m a #neverTrump hipster. I was calling out his awfulness before it was cool. Actually, that’s not completely true. I’m not #neverTrump, because the best way to beat Trump would be to vote for Clinton, and I can’t do that for reasons I’ll post later. However, I have opposed his candidacy from the beginning. Back before he grabbed her by the *****, before #speechplagiarismgate, before he started winning primaries by the dozen, I actually sat down and read Trump’s platform and did some digging. What I found was a man who either had no basic understanding of how international economics and diplomacy work (doubtful) or was choosing to ignore said knowledge for political gain (probable).

Economic issues

Everyone knows Trump was (is?) going to make Mexico build a wall. However, the manner in which he planned to do this was ridiculous, comprising impounding remittance payments from undocumented immigrants (unenforceable, unestimable, and likely illegal), massively increasing visa fees for legitimate entry into the country (hurts trade, tourism, and diplomatic relations with our 3rd biggest trading partner), and worse of all…creating trade tariffs. If you want to know why tariffs are bad, I wrote a post just for you. The short version is they nearly always lead to fewer consumer choices, lower quality goods, and higher prices, which is another way of saying inflation. If you don’t have time to read the post and want a good one-liner on why this happens, consider this quote from Donald Trump during the second debate concerning insurance companies freely competing across political lines:

Artificial lines, where we stop…companies from…competing…gives the…companies essentially monopolies. We want competition.

As bad as the wall debacle is, his tax plan was arguably worse. I’m all for lowering taxes whenever possible. From an economic perspective, they distort the actual costs of decisions, create artificial incentive structures (like sending all your money to the Cayman Islands or founding your business in Ireland), and lead to higher prices (like tariffs). Fiscal conservatives generally love the idea of lower taxes. That said, they also generally hate the idea of the national debt increasing. The nonpartisan Tax Foundation found in January that his original plan would increase debt above-and-beyond its already increasing levels by $10 trillion over a decade, effectively adding 50% to its currently constant-increasing level. The nonpartiscan Committee for a Responsible Federal Budget cited his plan increasing the debt by far larger amounts than Clinton’s plan.

Over the past year, Trump updated his plan with significant changes, leading the Tax Foundation to change their estimates of the decrease in revenues in September. Their current estimates describe the effects over the next 10 years as increasing GDP by around 7-8%, increasing the levels of capital investment (the strongest driver of long-term growth) by 20-24%, increasing wages by 5.5 to 6.5%, and creating around 2 million jobs. This is a much better plan than his initial one. Like, it’s hard to explain how much better of a plan this is. However, these economic gains come at a price, and that price is decreased government revenues by $2.5 to $4 trillion over the next decade that come from his significant tax cuts. This number actually started out much higher, at $4.5 to $5.9 trillion, but the positive economic outcomes from his tax cuts would grow the tax base and offset some of the lost revenue. Remember this, as it’s going to come into play soon.

Every fiscally conservative republican candidate up until now has paired decreased taxes with massive decreased spending. The numbers never actually line up, but they at least make an effort. Trump’s views on decreased spending are murky. He’s suggested getting rid of the department of education and used to support decreasing military funding. However, now he supports increasing military funding, has proposed a half trillion dollar infrastructure fund, and wants to build the aforementioned multi-billion dollar wall. I actually don’t care all that much about the national debt for reasons I’ll explain in a later post, but for strong fiscal conservatives and debt hawks, this should be a non-starter. The national debt is currently approaching $20 trillion, and the annual deficit is around $590 billion. Trump’s plan would increase the national debt by 10-20% without any changes in spending, but it would likely be even more with the additional spending he has proposed.

There are plenty of other economic missteps from Trump that could be covered here, including his disastrous statements that we should consider refinancing the national debt. I was opposed to Trump from the beginning looking solely to his economic policies and their seeming incoherence. Granted, his tax plan has gotten better over time. However, his plans for immigration and trade would damage the economy, serving to  counteract significant portions of the economic gains from his decreased taxes. This would drive the national debt far higher, likely increasing it by 30% or more. Given this, I’m still strongly opposed to Trump’s economic plans. Now, let’s turn to some other issues.

Illegal immigration

This topic gets its own heading, and also its own full post. This is because I believe this issue is the one that really launched Trump’s campaign. Building a wall made his name big, and you build a wall because you oppose illegal immigration. If you want the full version, read the post. However, here’s a key excerpt.

From all this research, I’m convinced that from an economic point of view, illegal immigration is a net positive for the state and national economies. The expense required to lock down the borders and increase deportations is massive, on the scale of hundreds of billions of dollars. However, the harm it would cause to the state and national economies to suddenly have labor prices jump up in a number of key industries would be worse than that. Due to this, I will never support an across the board deportation for these purely economic reasons. I think it is incredibly foolish and harmful to the economy.

I would support efforts to massively increase the number of work visas available to provide legitimate means of work and as a means of collecting more taxes. I would consider supporting paths to citizenship for individuals who have worked here for a period of time, though that would have to be balanced against the cost of the benefits (social security, etc.) that would be provided. It gets much more complicated when looking at local level effects, as most of the costs of undocumented immigrants are incurred in education and healthcare funded by local governments. I would support efforts to have the federal government provide more funding to schools and healthcare for communities supporting undocumented immigrants or those with temporary work visas. I would support efforts to provide more scholarships and funding for technical schools so unskilled U.S. citizens can learn skills and move away from competing against immigrants who are lowering their wages.

I would support all these things not based on morality, but based solely on economics. Some might say this is not a conservative viewpoint…that I’m moving to the left. Well, border patrols, massive walls, and deportation are incredibly inefficient ways of dealing with the realities of a labor market that wants cheap labor and individuals who are willing to take great risks to provide it. Since when did conservatives abandon giving the free market what it wants? When did they abandon the goal of coming up with inexpensive, small government-focused, efficient solutions to challenges? I agree with Cato institute’s Alex Nowrasteh, who said, “even if the fiscal costs of immigration were consistently larger than the fiscal benefits, there are far easier and cheaper methods to lower the cost than scaling back or outlawing immigration. Reforming welfare, charging immigration tariffs, or allowing more immigrant workers could all redress a possible net fiscal cost.”

That’s my stance. Trump is the opposite of this. #nodice

Foreign policy

From what I can find, Trump hasn’t spoken much to foreign policy. Most of the things he talks about as foreign policy are really domestic immigration policy and domestic tax policy, which I’ve already covered my feelings on. I think this is probably an area many Americans feel strongly about but have little real knowledge of. I definitely feel I have little ability to analyze foreign policy. I can’t see classified intelligence. I don’t know what our long-term objectives are.

Trump does emphasize focusing on fighting ISIS instead of Syria, and I think I can probably agree with that, though I honestly can’t parse through much of that current situation. He puts emphasis on not being the world’s police, but he also said in a debate that he can’t take anything off the table (including nuclear intervention) and complained that we’re doing nothing about North Korea. I get a sense of isolationism mixed with a desire to ambitiously protect the U.S. and its interests. I can’t say I’m entirely comfortable with his tendency to strike out at people mixed with a nuclear option.

Character flaws

Donald Trump is an ass. He may have a personality disorder. He may be completely disconnected from regular people. He may be racist or sexist or misogynist. He may be “a good businessman that knows how to push people around and get what he wants done.” It all equals ass for me. Lots of people are deciding to vote against Trump because of these things. I decided not to vote for Trump months ago based on previously mentioned issues, so any character flaws are just the icing on the cake for me.

Trump has a weird superpower of being able to inspire assery in people who support him. Watching good people try to get around his character failures is just sad to me. Maybe this is a superpower granted to all political candidates, seeing as I experience the same sadness when I watch Clinton supporters try to dismiss her corruption and her husband’s obvious licentiousness or when I watch supporters of my congressional representative, Hank Johnson, try to explain how he wasn’t actually asking if Guam would tip over if we put another military base on it. Sigh. However, I’m here to talk Trump. Clinton will get her own soon.

I’ve watched Trump supporters…women even…argue that his “locker room talk” about sexual assault is just what men do. I was raised by a single mother and a grandmother to respect and honor all people, which actually does include women. My faith calls me to do the same. I’ll admit I’ve had a regrettable number of sarcastic and negative conversations about women over the years. I’ve also had a large number of conversations about how men are all stupid. Cynicism comes with the millennial turf. However, Trump actually had the means and opportunity to do the things he said, and I am willing to believe he actually did them. There’s a term for that, and despite the vocal opposition to it from many Trump supporters, I think sexual assault is actually quite accurate.

Conservatives attacked Bill Clinton’s moral failures. They now attack Hillary for defending his moral failures. Maybe you can understand my cognitive dissonance when I see them supporting Trump despite his. As I stated before, I decided not to vote for Trump based solely on economic issues, so much of these points are moot for my voting decision. However, I think the real losers here are Trump supporters, many of whom are Christians. I’m sad for Christianity as a whole because of this election season and I wonder how much the church has been harmed by Christians choosing politics over morality. The gospel itself endures, the pure message of salvation through faith in Christ cannot be tarnished. However, I see rough times ahead for the church.

Moral policy issues

So, now that I’ve taken all of Trump’s biggest economic and international issues off the table as well as his character flaws, we’re left with domestic issues, most of which are moral. It’s time to talk about gun rights, marijuana, and abortion. I think a lot of conservatives have finally begun to realize what I did…that Trump’s an ass and his economic policies are terrible. However, I’ve seen many still clinging to these three issues.

Gun rights

I honestly don’t care that much about this issue. I don’t think gun ownership will ever be outlawed in this country. I think restrictions will eventually be put on it…most of which will be ineffectual at actually curtailing gun violence. The overemphasis on so-called “assault rifles” from the left is baffling. The misunderstanding of automatic versus semiautomatic firearms is baffling. I’d put more time into this, but it’s just not that important to me. If this issue matters so much to some people that they are able to overcome every other negative about Trump through it, then that’s their prerogative. To me, gun rights are important, but not to such an extent that I would trade it for the negatives of all of Trump’s other terrible policies.

Marijuana

I’ve never tried it. If I ever go to Colorado, I probably will. In the meantime, I think it should be legal. In this way, I definitely depart from the Republican party, and from most moral conservatives. However, I think this is an incredibly fiscal conservative stance. I’m not going to go into a full discussion of the economics of this because I don’t have time. However, suffice to say that we spend billions of dollars annually to try to prevent marijuana use through policing and incarceration, and millions of people still use it. I say legalize it and tax the heck out of it. Is it dangerous? Potentially. Is it more dangerous than smoking and alcohol? I don’t think so. Also, the fact that people are against prescribed medical marijuana is absolutely ridiculous to me. My grandfather died of multiple sclerosis, a condition that has viable treatments with marijuana. If there was potential for it to improve his life at all, I think it’s abhorrent that it was denied. I support it for the thousands suffering from MS or similar conditions. Trump supports it for medical use and opposes its overall legalization. I support it for both. That’s all I have to say about that.

Abortion

So, now we come to abortion. I’m putting it last because it was the hardest one for me to write. Abortion is one of the issues I’m most opinionated and passionate about. I really had to sit down and take a serious look in the mirror for this issue. I wrote a post on where I ended up. It’s raw, it’s earnest, and it’s heartfelt. I’m not even going to write a summary here. If you really want to know my thoughts on it, read the post.

Where this leaves me

Having covered all of this, I cannot and will not vote for Donald Trump.

Why tariffs are bad

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This post was written in connection with a larger post, Why I am voting third party, so I’m going to take a decidedly Trump-centric approach here. Sorry if you stumbled upon this looking for a more generic discussion.

The idea of protecting U.S. businesses through tariffs is one of the reasons that a lot of people support Trump. I can’t count the number of times I heard him say “We’re getting beat on trade all over the world.” He argues often that other countries charge tariffs and therefore we need tariffs to make things fair. Well, here’s a fun life rule. Tariffs nearly always increase prices, decrease consumer choices, and lead to lower product quality. We’re going to discuss all of these in depth, and I’ll be using the U.S. and Mexico as the example since that’s where Trump’s strongest tariff arguments are pointed.

A little about the U.S. and Mexico

These data are taken from the Office of the U.S. Trade Representative’s website.

  • Mexico was the United States’ 3rd largest supplier of goods imports in 2015.
  • The top import categories in 2015 were: vehicles ($74 billion), electrical machinery ($63 billion), machinery ($49 billion), mineral fuels ($14 billion), and optical and medical instruments ($12 billion).
  • U.S. imports of agricultural products from Mexico totaled $21 billion in 2015, our 2nd largest supplier of agricultural imports. Leading categories include: fresh vegetables ($4.8 billion), other fresh fruit ($4.3 billion), wine and beer ($2.7 billion), snack foods ($1.7 billion), and processed fruit & vegetables ($1.4 billion).

Tariffs increase prices.

This is literally the definition of what a tariff is…you charge a tax for things brought into your country, which then is passed on to the consumer in the form of increased prices. The oft-used rationale for why this is a good thing is that imports being more expensive means domestic producers are favored. They can ramp up production, hire more people, and the economy prospers.

However, let me give you a hypothetical here. You’re a business that was charging competitive prices and producing as much as you could sell at those prices. Suddenly, the prices all your competitors charge goes up 35% (Trump’s suggested tariff amount for Mexico). Suddenly everyone is buying from you. You can’t keep product on the shelves. So, you hire more people. Well, you had already hired the best people you could find, so these people aren’t quite as good at the task. You could try to hire people away from other companies, but you have to offer them more than they’re making now. In addition, assuming you’re producing any of the major items that we import from Mexico (cars, machinery, fruits, wine), you’re going to have to invest in significantly more capital. You need equipment to make cars. You need land to make fruit. Well, even if you don’t have any direct competitors in your industry, all the other companies in industries that competed with Mexico are about to be looking to buy land, facilities, and equipment as well. There’s only so much of these things to go around, and so prices for those production inputs start rising with demand. So, you’re paying more for capital and staffing it with less qualified people or people you’re paying more. Your production costs have increased. My guess is that you’re going to increase your prices. You probably won’t increase them by the full 35% that Mexico just had to endure, but you could easily bump them up 25% and still have the full market share.

For this reason, nearly every time a tariff is put in place, prices go up. There’s a word for prices going up, and that word is inflation. Most people learn that inflation means that their money is worth less, and they’re right, but the implicit cause of this is that money is worth less when things cost more. In our hypothetical Trump-induced tariff situation, prices for things like cars, machinery, fruit, and beer would go up. Sure, some people might have jobs that wouldn’t have had them otherwise, and that’s a definite positive, but that has to be weighed against significant price increases in key industries for the entire country. We’re talking things like avocados, tomatoes, cucumbers, peppers, and Honda accords.

Also, there’s no assurance that the jobs will even be created in the U.S. Companies could move to a country that we don’t have a tariff on, or natives in those countries could start businesses to supply those goods to us. In either case, prices would still go up because there’s a reason we were buying from Mexico in the first place. So, if you don’t want higher prices and you don’t like inflation, you should never support tariffs.

Tariffs decrease consumer choices

This one is a little more obscure than the price increases, but it makes sense when you think about it. If the price for a good that comes from Mexico (fruit, etc.) suddenly goes up by 20%, stores may stop carrying it due to not being able to sell as much stock as they need to make it worth using the space.

Tariffs decrease product quality

This is the most difficult result of tariffs to quantify, but it makes sense intuitively when you think about it. Competition forces companies to be held responsible for their products. A company with few or no competitors (think Comcast) has little incentive outside of government regulations to create quality products or consumer experiences. Decreased competition due to higher priced imports from tariffs means companies would have the ability to produce lower quality products with no consequences. While this is not an assured outcome, it is a very likely one.

Where does that leave us?

Having said all this, Trump would have you believe that to be “competitive,” the U.S. needs tariffs on imports. However, I would argue the opposite is true. Tariffs actually destroy competitive markets. Said another way, if you’re someone who believes in competitive markets, then you don’t want tariffs.

Consider this quote from someone who is strongly in favor of allowing insurance companies to compete across political boundaries:

Artificial lines, where we stop…companies from…competing…gives the…companies essentially monopolies. We want competition.

-Donald Trump, 2nd presidential debate

Election reflections

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It’s been fascinating to me to watch this election cycle. I’ve had at least half a dozen deep discussions and and full on debates with friends about so many different sides of this. I decided I’d put down a few thoughts just because everyone else is and I need to clear my head.

The grass isn’t nearly as green as you thought

I feel like this election is giving the parties the opportunity to see what it looks like from the other side. Democrats have two rich, white candidates. Granted, one of them is female, which is a huge deal. Very few women (among them Geraldine Ferraro and Sarah Palin) have even gotten close to just becoming Vice President, much less President. However, on the other side, Republicans have had two individuals of Hispanic descent this cycle and have had a black man as a serious contender in both of the last two cycles. The party often identified with racism and bigotry has shown quite the tendency towards diversity, and I think that’s progress.

Speaking of minorities, Republicans have claimed for years that minorities are winning elections for Democrats, but that the policies Democrats put in place are hurting these individuals more than helping. They usually argue this on the grounds that Republican fiscal policies would better promote job growth for these often working class individuals. I’ve often heard this paired with frustration that stems from a belief that many minority individuals are uneducated and are just voting for the party they’re told to or voting based entirely on personality and not on substance. I think back to President Obama’s first run, when he was seen by many Republicans as simply having won a popularity contest with no actual ideas. I seem to remember the phrase “voting for someone who looks like them.”

Enter the current Republic front runner, who has offered essentially no tangible policy ideas and has run entirely on personality and questionable business success. He’s a man who says what he thinks and feels in the moment without regard to how it sounds and whose most noticeable fashion accessory is a trucker hat. Donald Trump, to me, is everyone’s redneck uncle and/or 3rd cousin who made (and also lost) a whole lot of money through various odd business ventures. He’s the guy whose dad was a home builder in a rural area turning suburban who started helping out with the family business in high school and was able to make it work from there…except he was in New York working with much higher numbers. Everyone said George Bush was someone you could have a beer with. The Donald is that guy you can share a case of beer with while watching a football game and complaining about how your neighborhood is becoming more dangerous because of all the blacks and hispanics moving in…at least until he got annoyed with your whining.Take a look at a voting heatmap and you’ll see that most Trump supporters tend to live outside of major cities, have lower relative income levels, and lower education levels. The rapper Eminem has a lot in common with the Donald, in his statement that he’s “Like a head trip to listen to, cause I’m only giving you things you joke about with your friends inside your living room. The only difference is I got the balls to say it in front of y’all and I don’t gotta be false or sugarcoated at all.” Well, there is one other difference. The Donald actually has a means of doing something tangible with those feelings. I think there may be a correlation here…something about voting for someone who looks like you.

As President Obama surprised everyone with his breakaway campaign in 2008 by preaching hope and change, Mr. Donald is surprising everyone with his breakaway campaign by preaching…himself. The thing is, we’re ok with that, and this isn’t an isolated case. Trump, to me, is all these things mixed with the Georgia Board of Regents member who was voted into another term even though he was having a well publicized extramarital affair with the gymnastics coach and earned the team sanctions by flying gymnasts on his private jet to party in New York (http://www.redandblack.com/opinion/leebern-jr-should-not-still-be-a-university-system-regent/article_e9ccca27-1122-5181-b8dd-c1668d4198b3.html). The thing is, no one really cares about that guy. He’s one of the biggest donors to the University system. How much harm can he do? It’s probably a net positive to keep him there.

Why is Trump succeeding?

As I wrote to a friend yesterday, economics teaches that gathering and processing information has a significant cost in terms of time and mental energy. Information that challenges your beliefs is even more expensive. College removes significant amounts of that expense, as you’re forced to sit in rooms and confront ideas that differ from yours and people who are different than you in order to move forward. Living or working in a major city does the same. Those who don’t get the opportunity to go to college or who live/work in rural areas have much higher cost and time barriers to delve into the depths of topics like economics or immigration reform. That said, we all actually face those same constraints. When’s the last time a college educated city dweller delved deep into determining the relative pros and cons of the two candidates for state commissioner of agriculture? I know there are quite a few rural-dwelling blue collar individuals who could give you an earful about them, whereas I just abstain or pick whatever name I’ve seen the most signs for. I think people are choosing Trump for the same reason.

In a time when it’s tough to get even 7 out of 10 top economists to agree on the best minimum wage level, when there are massively diverse opinions from experts on how to reform the prison system, when we can’t decide if having guns increases or decreases violent crime rates, and when a single payer system may either give everyone healthcare or lead to death panels, it may be a bit optimistic to expect people to vote on anything more than a name or personality. When life consists of working 40-50 hours of hard work a week and coming home to take care of a family of 4, a tweet of a quote from a dictator whose name you haven’t heard in 30 years probably doesn’t seem that important. In reality, how much is it going to matter which person gets in office anyway to that individual? They’re probably not making minimum wage, so that’s not a concern. To them, getting less money from their paycheck due to higher taxes, making sure an immigrant doesn’t take their job, making sure the economy doesn’t go bad so they still have a job, making sure they can keep buying ammunition for their ranch rifle, and making sure terrorists don’t blow them up are probably actually the most important and relevant issues.

Speaking of which, Trump has said things about all of these. Sure, he’s been on both sides of all of these issues at most points, but hasn’t every politician? John Kerry and Hillary Clinton both famously changed their stances on many major issues, which may have led to their eventual defeats as the Democratic electorate tried to decide whether they were trustworthy (or it may have had something to do with recounts…who knows). Now the Republicans get the chance to deal with the same. Does he want to accept refugees or deport them? Yes to both. Is he actually pro-life? I have no idea. He likes being flexible…whatever that means. At this point, we enter what I’ll call Maslow’s hierarchy of giving a damn. I’m sure there’s a proper sociological term…perhaps a stress-induced halo effect? Anyway, it comes down to…when you can’t be sure you’ll have a job tomorrow because you’re afraid immigrants will take it, it’s probably somewhat harder to care about the fate of terrorists’ families. This is why economics is called the drab science…because we say things like that. Remember that time you had a bad morning, were running late to work, got cut off, and you turned from NPR to the rock station in anger because you really didn’t have the emotional capacity to care about the person talking about the fate of kids living on the streets in Cleveland anymore? Same idea, in a more chronic sense.

People behave differently under stress, and both sides of the aisle have done a great job stressing us out by convincing us the US is struggling and in need of hope, change, and being made great again. It’s a great strategy, and likely a necessary strategy to build momentum and interest in a process that generally frustrates and exhausts us. People have mental and emotional limits on how much empathy they can give and how many decisions they can make, so let’s make empathy and decisions easy by using slogans instead of policies and emphasize the vague over the specific. Specifics are hard, but fear alleviation is easy. Sure, when you dig in to it, you find that research generally points towards the immigrants not replacing you but instead eventually leading to more management positions opening up, but when’s the last time you sat down and cracked open the American Economic Review? The individual may have heard something about it on CNN, but that’s a liberal news outlet, right? Can it be trusted? Information costs time and effort, and trustworthy information takes more. A lack of trustworthy information leads to more uncertainty, and more uncertainty leads to simplifying our decision making process. I can’t trust the information I’m getting externally, so let’s turn internal. Hence…is this person likable…can I relate to them…would they make the same decisions I would? I like that goofy hat…he’s been successful so far in business…I can tell because he’s rich…I don’t like politicians…at least he has some strong opinions…he’s a Republican…I’m a Republican…he can get things done…it’s a go.

The Berninator

Having said all that, there is one candidate who seems to be quite consistent in his opinions. The Berninator has been the new hotness (while on the surface appearing old and busted) this cycle. I’ve found it interesting watching his campaign, especially in that it’s so similar to Trump’s. Sure, he has some actual policy ideas, but their political and economic feasibility seems right up there with Trump’s insistence on making Mexico pay for a wall. Do we really think a congress filled with individuals making over $200k annually is going to approve a plan whose top bracket effective tax rate has been estimated at anywhere from 52-75%? I’m pretty sure he couldn’t get that through a Democratic supermajority in both houses. They’d go all Will Smith on it (https://www.youtube.com/watch?v=hs3NzBx5ei0). Also, most estimates I’ve seen show increases in the tax burden across the board. Taxes can be both helpful and dangerous things, causing much damage when used poorly. I admire Bernie’s dedication to healthcare for all, and honestly even as a conservative I would love to see it in my lifetime. However, I just don’t think it is realistic in a country and a government filled with as much division and bloat as we currently see.

At least Bernie isn’t racist or bigoted…or otherwise dismissive of individuals due to certain characteristics or beliefs they have, right? No, he’s really not, from everything I’ve seen. He’s run a very good, somewhat unrealistic campaign. However, there was that one time he went to one of the most conservative colleges in the country and spoke to an audience likely filled with individuals who feel that the killing of half a million+ babies annually might be a serious issue. Now, before I make a point, we need to pause here for an honest chat. You see, to many people (including one whose name rhymes with Panders), these are just fetuses with no rights. They often refer to them as parasites or simply tissue. To these people, it’s absolutely beyond reason that anyone would care about a clump of cells. They are unwanted growths that have encumbered a woman’s life and don’t deserve any consideration. However, some people (especially those whose names rhyme with Drumpf) view undocumented immigrants and their children as individuals with no rights. They often refer to them as “Mexicans.” They are unwanted parasites that have broken the law and don’t deserve any consideration. To these people, it’s absolutely beyond reason that anyone would care about an undocumented immigrant. “It’s a human with dignity and inherent rights,” screams the opposition from both sides. “It’s not the child’s fault that he was put in the situation he’s in. She doesn’t deserve to be taken away from the only place she has ever been, the source of provision and life, and put into a situation where she will surely die.” You see, we have more in common than we thought. Is this a perfect argument? No. Is it overly simplified and does it gloss over critical parts of both sides? Yes. Is it offensive? Probably. Does it make a point well? Hopefully. No, we’re not all the same, but we do all view certain beliefs that other people have as completely irrational, untenable, and worth of being called a name. That said, many people actually have have strong, logical reasons for the ridiculous beliefs they seem to espouse. Even if they don’t, perhaps they themselves deserve some dignity as we approach these beliefs. I prefer to skip the names and try to talk about these things…though that’s hard to do.

So, back to Bernie, who was at a talk filled with individuals who believe that half a million children are being legally killed annually. He made this statement early on in his speech: “I understand that the issues of abortion and gay marriage are issues that you feel very strongly about. We disagree on those issues. I get that, but let me respectfully suggest that there are other issues out there that are of enormous consequence to our country and in fact to the entire world, that maybe, just maybe, we do not disagree on and maybe, just maybe, we can try to work together to resolve them.” It’s a great line, and well delivered. However, I can’t help thinking that it feels more than a bit dismissive of an issue that a significant portion of his audience considers the biggest humanitarian and ethical crisis in our nation. I get it…most Democrats do the same…but the audacity that it took to plan a speech at such a venue and then drop that line is incredible. Sure, it’s not racist or bigoted (perhaps birthist if you need a term for it…discriminating on the basis of whether one is born or not), but I’ve yet to see Trump go to Agnes Scott and dismiss women’s rights or LGBT issues to talk about growing the economy. To me Bern Gully is pretty much just as unrealistic and probably as brazen as the Donald.

Where do we go from here?

People talk about how the Republican party is fracturing, and a lot of people are scared for its outcome. However, I think a lot of Democrats have to be nearly as nervous for their own party. It’s much less likely to split, but it seems we live in a time where personality, unwarranted devotion, and extremism is king on both sides. John McCain was always called a maverick, but these guys are showing him up quite well. This is perhaps a dangerous game to play, but one that doesn’t have a readily available solution. Checks and balances are there for a reason, but even those have weakened more and more in recent years. I hope that whomever ends up in office will live up to the dignity of the position. I hope whatever ends up happening with congress, that they will realize that the President is actually their enemy as much as he’s their ally. I hope that the justices appointed will adhere to the constitution as well as to justice itself. I will pray for all of them.

For me, I believe I will always lean conservative. I’m ok with change, but only when it’s actually based on serious discussion, debate, research, and has a healthy dose of empathy to the other side’s concerns. Empathy seems fairly lacking in today’s environment. Liberalism just jumps too quickly for me. That said, conservatism gets frustrating sometimes. The Republican party missed its chance on so many issues. The libertarian side could have offered a non-governmental solution to same-sex marriage years ago, but the religious side prevented it. The Bush administration issued a tax reform study that came back with great analysis, but nothing was ever put in place from it. The compromise 2007 immigration reform bill had promise, but was not passed. I wish that conservatism would be just that…conservative. Hesitant, thoughtful, yet willing to move when needed. I just hope I don’t have to choose between Trump and Hillary, because I honestly don’t know which button I would push…

 

Why I’ll (Probably) Never Buy a Pair of TOMS

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I’ve had bits and pieces of a rant about TOMS shoes rolling around in my head for some time, but the stars aligned tonight perfectly, and I decided it was time. So, before I commence ranting, a couple of disclaimers. First, this is not meant to offend, attack, or otherwise speak poorly of anyone who has ever purchased a pair of TOMS. Having studied it for just a semester, I’ve already found that helping people improve their economic situation is a much more complicated task than I ever believed possible. However, I suspect I have a number of friends are currently purchasing or are contemplating purchasing a pair. This post will hopefully shed some light on the harsh realities of the “buy one give one” (BOGO) model. Disclaimer number two is that much of the information contained herein has been sourced from a number of other blogs, youtube videos, etc. I will cite those as much as possible.

Ok, commence rant. TOMS shoes burst on the scene in 2006 as “the new hotness” of the business/philanthropy world. The amalgamation of a for-profit business with nonprofit-like tendencies seemed to defy classification at the time. The idea that the simple act of buying a pair of shoes could directly help a child in need was compelling, and the company quickly grew due to press coverage from such sources at the LA Times and Vogue. College campuses were a prime target for the business, filled with young, trendy would-be activists just waiting for a way to stylishly help young Argentinian children avoid hookworm. Finally, a company seemed to have the right idea about how to be not only socially-conscious…but socially-active. Soon alpargatas-style shoes with a TOMS tag began to fill college campuses in a way that only Ugg-lovers could understand. I had my doubts about TOMS from the beginning, and not just because I thought they were painfully ugly. So, I did some reading…forgot about it…remembered a year later…did more reading…forgot about it…and so the cycle continued. However, I recently took a class focused on studying the burgeoning field of social enterprise where business and charity collide. I also found myself teaching a class on nonprofit management, which included a healthy dose of ethics. Upon asking my class to identify a socially responsible company, TOMS topped their collective lists. So, I took up my study again, put TOMS under a microscope of economic theory and pseudo program evaluation, and found that the fairy-tale story, sadly, does not add up.

Question #1: how much does it cost to make two pairs of shoes, ship one pair to the U.S., and another to Argentina? If I had to venture a guess, it wouldn’t be $44…the cost of the cheapest pair of shoes TOMS offers. I did a little digging, and found Alibaba, a great website for buying products from other countries. On their site, I found some alpargatas-style shoes from China, which is one of three places where TOMS manufactures their shoes. So, after a five minute search, I came upon the “Casual hemp brazil alpargatas” shoes. I considered posting a picture here, but they don’t like their photos taken, and I don’t want a copyright fight. Though not an exact match, they look suspiciously similar to a number of TOMS models. So, how much do these beauties cost? Well, if you buy 500 at a time, the website prices them at 6.5 RMB, which is the Chinese currency Renminbi. When converted, that is roughly $1.06 per pair. Well…that’s awkward.

Wait, you say, that’s just purchase price…what about shipping? Well, let’s pretend our headquarters is in Atlanta…a challenging destination since we’re shipping from China. Alibaba has us covered there as well. Shipping from Ningbo, China to Altanta, Georgia for $150/m3? Check. I’d imagine 500 pairs of shoes wouldn’t take more than 3 cubic meters no matter how poorly packed. So, distribute that $450, and we have…$1.96 per shoe in the U.S. From there, we unpack, sort, repackage, and ship direct to your home. Thankfully (for my sake), TOMS charges you separately for shipping, so I don’t have to include that calculation. The final step is to calculate getting another box of shoes to Argentina to the child who so eagerly awaits. So, back to Alibaba we go, and I found shipping to Argentina. This one is even cheaper than to the U.S., coming up at $30/m3. I assume it’s somewhat costly to get from the port in Argentina to the children, so we’ll pad that with a conservative $5. There are also import dues, but I can’t find anything close to a number on those, so I’m going to eyeball them pretty low (especially given the fact that I can buy Chinese-made beach flip-flops for $10).

So, here we are. The production cost to TOMS for two pairs of shoes being delivered to you and a child in Argentina? Somewhere around $10, given my estimates.  I actually assumed TOMS was getting much better discounts than my numbers show as they buy in greater bulk. However, after doing some digging, I stumbled upon a CNBC report in which the  cost of a pair of TOMS was stated to be “about $9 per pair” (just after the 19 minute mark). Apparently I should start selling shoes, since in my estimates I’m beating their costs by half.

We’ll go with their number…even though I think it likely too high.  TOMS charges $44 (for the cheapest model), and it costs them $18 to get the shoes. Where does the other $26 go? That, my friends, is the $26 question. We have no idea. Why? As TOMS is a privately-owned for-profit company. They are not legally required to tell us anything. I’m sure some of it goes to overhead (paying U.S. employees, website expenses, etc.). However, once again, the CNBC report comes through for us, stating that company is “clearing $17 per sale.” Though that wording is vague, it sounds a lot like net income per sale. Assuming CNBC already factored in interest, taxes, and the like…40% profit margins aren’t bad ($17/$44). This number declines a bit if taxes, interest, and such have not been included. However, of note is the fact that this video is a bit dated…TOMS now selling some models for upwards of $98.

So, question #1 answered…in quite an unsettling fashion. Question #2: how much good does giving shoes away to children for free do? This is another complicated question. Instead of spending another two paragraphs building an argument, I’ll turn to an excellent Youtube video that provides some insight into the question.

This video raises some tough questions. Are free shoes really an effective solution to the problems countries like Argentina face? Does giving free shoes away hurt local retailers who sell shoes?  This video would seem to say TOMS is causing more harm than good, and I would tend to agree. It is hard for local retailers to compete with free, and there’s a chance they could be forced to shut down. In addition, there is very little sustainability to this model. If TOMS disappeared tomorrow, either due to economic struggles or blog posts like this, what would come of the Argentinian children?

While I admire the sentiment that led to TOMS shoes, I don’t believe individuals living in the developing world need shoes handed to them, but they could really use jobs. In addition to China, TOMS says some of its shoes are manufactured in Argentina and Ethiopia. This is great. I would love to see TOMS abandon the BOGO model and instead sell their shoes at half price, allowing them to open even more factories in the developing world and provide jobs to those who have none. Instead of giving away a pair of shoes for free, perhaps use the extra money to run public awareness campaigns about the importance of wearing shoes or to pay your factory workers higher wages. Help existing local vendors expand their own retail networks, providing them an incentive to work with you. Perhaps even develop a better model of shoes to sell to Argentinians that are affordable. When that day comes, I might buy a pair of TOMS. In the meantime, I’ll keep my $26 to myself…or perhaps use it to support an organization that seeks real, lasting change in developing nations.

If you would like to read more about this topic, you can visit the website of the creators of the video I used in my post. They have links to a number of blogs that are similar to this. If you’re more scholarly inclined, check out this paper from Garth Frazer at the University of Toronto on the negative impact of clothing donations to the developing world. For the entrepreneurial-minded of you, check out this critique from a couple of months ago by Fast Company.

That said, TOMS has a full impact evaluation forthcoming. We’ll see how it turns out. I could be completely wrong. Perhaps I will buy a pair of TOMS eventually. Time will tell.

The Higher Education Bubble

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I recently had a conversation with a co-worker about the current state of the U.S. economy. This is always a fun topic, as he is working on his master’s in economics and is pretty well-read in the subject. After a long, serpentine discussion on the Gramm–Leach–Bliley Act and complex derivatives, our conversation happened upon the collapse of the internet and housing “bubbles” in the late ’90s and early 2000’s and their role in the current economic challenges. This topic prompted me to cite an article1 I had read that week referring to a potential “higher education bubble” in the United States. After much discussion, my coworker and I decided that a higher education bubble probably does exist in some form. Upon that discovery, our discussion turned to why that bubble might exist and ways to avoid having that bubble burst in your own life. That conversation led me to do a little bit of research. Here is a short compilation of my thoughts coming out of that conversation and what I’ve found thus far. This post will be made in 2 parts, the first of which will make the case for a “bubble” and the second of which will provide means of avoiding the bubble.

What’s a “Bubble?”

For a long time, I didn’t have a strong grasp of what exactly was meant by an economic “bubbles.” If you’re in that situation, it’s a pretty simple concept (at least as I understand it). The basic idea is that a “bubble” is created when large volumes of a particular good or service are sold/traded at prices that are much higher than they should be. Buyers/investors during the .com and housing bubbles were working under the assumption that internet startups and homes were worth the money they were paying for/investing in them. This assumption was supported by the thousands of similar transactions taking place around them. When the “bubbles burst” in the late 90’s and early 2000’s, the values of assets (shares in .com companies and homes) fell drastically. In some cases, this left buyers/investors with no value at all or negative value (more debt than equity). In retrospect, economists say the “intrinsic” or “real” value of these assets was much lower than the amount paid for them. This was due to a number of factors which I will not even attempt to begin delineating. The short of it is, there were “bubbles,” they “burst,” and thousands of people were out thousands of dollars.

To illustrate, let’s suppose an investor put $100,000 of his own cash into Pets.com back in 1999 for shares of stock/ownership. The fact that he was one of thousands of investors doing the same thing made it seem quite the reasonable thing to do. At some point shortly after that investment, the company discovered it had a non-existent business model and was selling pet supplies for less than it cost to buy them and ship them. The company went bankrupt and was dissolved…and those stocks are now worth $0. Thankfully, the investor does not have any debt and therefore must simply eat the loss. Sadly, he same is not true for a hypothetical couple who purchased a home in 2001 with a $250,000 loan. Everyone else in the neighborhood was getting their homes at a similar price, so why not? However, the massive demand for housing and the ridiculous availability of credit had pushed the home to that price from an actual value of $180,000 one years before. When the “bubble burst,” the home dropped back to its actual value. Now, even if the couple is able to sell the house for its full value of $180,000, they’d have to find $70,000 in cash to pay off the rest of the loan. They have negative equity…and are “underwater” or “upside down” on their mortgage.

Economic bubbles can ruin the best plans and intentions, and often come as a surprise since so many people made the same decision. So, is there a higher education bubble? Are hundreds or thousands of people paying more for college than they should be? I think there might be…in some circumstances. Why? Well, here are some “findings.” Hopefully they will help you get an idea of the current situation.

The Education “Bubble”

Apart from intangible benefits (the “friends” I’ll have for life that I met there), the intrinsic value of a college degree is determined by how much money the degree allows an individual to earn than he or she would otherwise not earn without it. Basically, using our house example, it’s the degree’s “resale value.” The question at hand, then, is whether the amount paid for a college degree exceeds the amount of money that will be earned by obtaining that degree. To make a fair evaluation, those numbers must be determined. That, however, is a sticky calculation fit for an actual economist. As I am not one, I’m going to use some average numbers I found from a number of varied sources to try to get a rough idea of what the actual numbers might look like.

So, how much does college actually cost?

The tuition costs alone to attend college span a vast array of possible numbers depending on the type of school, its reputation, the student’s residency status, and a number of other factors. The College Board website cites numbers ranging from a few thousand dollars a year for a public, 2-year school to upwards of $40,000 a year for a private, nonprofit school. However, tuition is just the beginning of the equation. One has to add in room and board for on or off-campus living, book costs, student fees, moving expenses, transportation costs to-and-from campus, parking, and, of course, ramen noodles. Also, as I’m sure my aspiring economist friend would tell me, one must factor in the opportunity cost of the wages missed out on due to spending one’s time in a classroom instead of in a job. When it comes down to it, there’s not an easily-determined across-the-board number to represent the cost of college. However, there is a number available that I believe is usable for this particular endeavor.

A CNN article2 last fall cited numbers provided by the Project on Student Debt12 showing that the average college student pursuing a bachelor’s degree at a public or nonprofit private college or university graduates with $24,000 in student loan debt. This sounds about right given the average tuition numbers cited by The College Board9 and the ratios of public to private to 2-year students given by the National Center for Educational Statistics10. Though it may not include many of the aforementioned factors, this number provides a somewhat startling picture of how college costs can affect a graduate long after a degree has been obtained. I will use this number moving forward as a reference for argument’s sake.

What is the value of a college degree?
Now that we’ve gotten a rough idea of the cost burden of college on a recent graduate, we can contrast this $24,000 number with a New York Times article from last month3 that cites a Rutgers University study8 that found the average college student graduating with a Bachelor’s degree earns just $27,000 annually in their first job. This number may surprise some (though not me…my first job out of college wasn’t too far from there) given the oft-quoted Bureau of Labor Statistics number which states that Bachelors Degree holders make, on average, around $1,000 a week ($52,000/yr). However, given that the Census Bureau11 reported the average age of Americans being 36.8 in 2009, the $52,000 number is slanted towards a mid-career holder of a bachelor’s degree.

So, graduates make $27,000, right? Well, this assumes that all graduates immediately find jobs. The Bureau of Labor Statistics reported last year4 that the unemployment rate among all people with Bachelor’s degrees is 5.5%. Comparatively, the aforementioned CNN article2 pegged the rate among recent graduates at 8.7% in 2009. I would venture a guess that it is higher now, given that in the UK, it’s currently at 20% 5,6,7. When all these things are considered, the argument for an education bubble begins to take shape.

Where does this leave us?

I don’t currently plan on doing any net present-value calculations to provide an actual number for comparison, but I think these rough numbers send a strong message. It’s hard to get rid of $24,000 in debt making $27,000 a year. Whether we like it or not, market forces have combined in such a way that the value of an undergraduate degree just isn’t what it used to be. Simultaneously, the cost of one continues to increase. So, should you abandon college altogether? Well, the main redeeming factor is that things are worse for those who don’t have a college degree. That same Bureau of Labor Statistics report4 shows that, on average, unemployment nearly doubles and wages are cut in half for those without a degree. I tend to browse the job markets a good bit just to keep apprised of what’s out there, and it’s hard to find a job that doesn’t require at least some college. So, the looming questions are “Can I get a college degree, but still avoid the bubble?” and “If so, how?” Well, those are pretty open-ended question…and I’ll be attempting to tackle it in my next post, so check back soon!

Sources

1 http://www.usnews.com/education/blogs/the-college-solution/2011/05/03/higher-education-bubble-will-burst
2http://money.cnn.com/2010/10/22/pf/college/student_loan_debt/index.htm
3http://www.nytimes.com/2011/05/19/business/economy/19grads.html
4http://www.bls.gov/emp/ep_chart_001.htm
5http://www.telegraph.co.uk/education/educationnews/8283862/Graduate-unemployment-hits-15-year-high.html
6http://www.guardian.co.uk/education/2011/jan/26/fifth-graduates-unemployed-ons
7http://www.bbc.co.uk/news/education-12286264
8http://www.heldrich.rutgers.edu/sites/default/files/content/Work_Trends_May_2011.pd
9http://www.collegeboard.com/student/pay/add-it-up/4494.html
10http://nces.ed.gov/fastfacts/display.asp?id=372
11http://factfinder.census.gov/servlet/STTable?_bm=y&-geo_id=01000US&-qr_name=ACS_2009_1YR_G00_S0101&-ds_name=ACS_2009_1YR_G00_&-_lang=en&-redoLog=false&-state=st&-CONTEXT=st
12http://projectonstudentdebt.org/