Economic policy reports, blog postings, and media stories of interest:
James Surowiecki of The New Yorker looks at the arguments over whether there exists a “bubble” in higher education. and finds the arguments in favor of a bubble somewhat wanting, with one big exception.
The bubble analogy does work in one respect: education costs, and student debt, are rising at what seem like unsustainable rates. But this isn’t the result of collective delusion. Instead, it stems from the peculiar economics of education, which have a lot in common with the economics of health care, another industry with a huge cost problem. (Indeed, in recent decades the cost of both college education and health care has risen sharply in most developed countries, not just the U.S.) Both industries suffer from an ailment called Baumol’s cost disease, which was diagnosed by the economist William Baumol, back in the sixties. Baumol recognized that some sectors of the economy, like manufacturing, have rising productivity—they regularly produce more with less, which leads to higher wages and rising living standards. But other sectors, like education, have a harder time increasing productivity. Ford, after all, can make more cars with fewer workers and in less time than it did in 1980. But the average student-teacher ratio in college is sixteen to one, just about what it was thirty years ago. In other words, teachers today aren’t any more productive than they were in 1980. The problem is that colleges can’t pay 1980 salaries, and the only way they can pay 2011 salaries is by raising prices. And the Baumol problem is exacerbated by the arms-race problem: colleges compete to lure students by investing in expensive things, like high-profile faculty members, fancy facilities, and a low student-to-teacher ratio.
Econbrowser explains how the Eurocrisis could impact the economy of the United States.
A significant economic contraction in Europe will reduce demand for U.S. exports. But my bigger concern is with international financial linkages. Which financial institutions have made loans or entered into derivatives with exposure to these troubled debts? A recent assessment by the Congressional Research Service estimated that U.S. banks have $641 billion in loan exposure to Portugal, Ireland, Italy, Greece and Spain. But French and German banks themselves have considerable debt to those same countries, and U.S. banks have another $1.2 trillion in loan exposure to German and French banks.
…
And this is the heart of the problem. Who takes the losses, and if they fall, who do they then bring down in turn? If you’re somebody with funds to lend and don’t know the answer, in response to these fears what you do is cut back all kinds of lending. If that sounds familiar, it should, because it’s exactly this kind of ricocheting financial uncertainty that brought down the world economy in the fall of 2008.
Economic policy reports, blog postings, and media stories of interest:
Louis Uchitelle wonders why Americans seem so passive about mass unemployment.
More than 25 million people in America are unemployed or stuck in part-time work or parked on the sidelines hoping for jobs, according to the Bureau of Labor Statistics. Roughly 6.2 million are classified as long-term unemployed, which means they have been seeking work for at least six months. Not since the severe recession of the early 1980s has the share of the population wanting jobs or more hours of work been so high. But the numerous rallies and protests that gave vent to the hardships of unemployment in the early ’80s are absent now.
…
Then, the manufacturing sector went through its first big shakeout since the 1930s, sidelining and shocking hundreds of thousands of workers who had thought their jobs were secure. In a climactic moment, an estimated 260,000 people marched on Washington in September 1981, protesting President Reagan’s mass dismissal of the nation’s air traffic controllers the month before because they had refused to heed his order to end a strike and return to work.
…
Nearly a generation later, the unemployed think differently. They join self-help and job-search groups, but they don’t see a route to employment through protest or through outspoken demand. Activism has given way to acquiescence, although unemployment is once again stubbornly high in the aftermath of a recession that has left the economy persistently weak.
Email Sign-Up | 
RSS Feed
