the marginal utility of money

[shiny!]

Re: the marginal utility of money

This statement is true, but it (pan)glosses over the economic reality.

A student who takes on $40K in debt to become a teacher - is not a self sustaining reality.

A student who takes on $150K in debt in order to become a doctor - is likely more than a little concerned about finances.

And indeed, where then comes the richness of living in a supposedly prosperous 1st world society if the only choice in order to access higher education is massive, 1/2 generation long debt?

Are indeed the very wealthy to not only control our consumer choices via oligopoly of supply, our political choices via oligopoly of campaign finance, our information sources via oligopoly of media, but also our entertainment and education sources via only rich kids having the luxury to go into non-tangible-productive areas?

Thank you, C1ue. My husband the teacher and our son the doctor bear out what you said. My husband took out a student loan to get his Master's degree. While he's taught over 20 years, a few moves put him at the bottom of the districts' pay scale several times. He will never be able to pay it off.

Our son has several hundred thousand in Medical School debt. At almost 32 years old he is just beginning his career outside of the hospital where he did his residency. He just signed on with a private hospital and received a signing bonus that equals what his dad earns in a year! He plans to live frugally so he can pay off his debt as soon as possible.

Doctors do get paid a lot, but also incur a lot of debt and don't start earning a decent salary until mid-life. The cost of obtaining a Teaching degree really isn't worth it, IMO.

[blazespinnaker]

Re: the marginal utility of money

I'd like to see lower interest rates / more guarantees for college debt. I'd also like it to be easier for people to make 'interest' only payments as well when they need the money for other things.

[c1ue]

Re: the marginal utility of money

I'd like to see lower interest rates / more guarantees for college debt. I'd also like it to be easier for people to make 'interest' only payments as well when they need the money for other things.

You're still not getting it.

Interest rates for student loans are already low.

It is the fact that they exist which encourages tuitions to rise, much as low property taxes and mortgage interest loan interest rates encourage home price inflation.

The increase in tuitions in turn either forces a 'path to serfdom' for non-FIRE types, or simply prices the lower classes out of the better schools.

[chr5648]

Re: the marginal utility of money

I'd like to see lower interest rates / more guarantees for college debt. I'd also like it to be easier for people to make 'interest' only payments as well when they need the money for other things.

Low interest rates and loans subsidize the cost of college and encourage the price to rise like real estate. Colleges are already over filled with over grown children who waste their time in remedial study, I doubt we need more.

What needs to happen is the complete abolition of the college loan system, that way prices will be forced to go down and instead of being stuck with massive loans after 4+ years you may have smaller or no loans at all.

[blazespinnaker]

Re: the marginal utility of money

You're still not getting it.

No I'm getting it, don't worry

I think the people at colleges deserve to be paid lots of money. Teachers are among the most important people in any society and learning is one of the great achievements anyone can do.

Getting an education is important ... in fact, I think of the great problems is the lack of education. People do not understand basic math, probabilities, science or history which leads them to making very foolish decisions in the voting booth.

Interest rates can go lower. There should be switch to interest-only payments now and then.

Government plays a critical role in solving our problems, of course that solution might be they have to first fire 90% of all government employees and re-structure our taxation system radically to tax carbon and consumption, but regardless, they are the solution.

Government is not the enemy. But while government is always the solution a big part of that is to understand that government is also about standing back and letting people experiment as well. That is a great challenge .. when to parent and when to let go.

There is a lot of cognitive dissonance here that the vast majority of the voting population does not 'get'.

[Serge_Tomiko]

Re: the marginal utility of money

Low interest rates and loans subsidize the cost of college and encourage the price to rise like real estate. Colleges are already over filled with over grown children who waste their time in remedial study, I doubt we need more.

What needs to happen is the complete abolition of the college loan system, that way prices will be forced to go down and instead of being stuck with massive loans after 4+ years you may have smaller or no loans at all.

This is the argument against usury in general. The increase in affordability is illusory and comes at the expense of future generations, who in time rebel out of resentment or necessary.

[jtabeb]

Re: the marginal utility of money

The cost of obtaining a Teaching degree really isn't worth it, IMO.

But look at the value (good) teachers provide. All the ones that I have had in my life have been PRICELESS.

Since we value the service that good teachers provide, maybe their compensation should reflect the value that they add to society.

How much societal value has an excellent teacher provided over say 30 years of service? Can you even caluclate the cummulative value in terms that make sense. Think about how many "dividends" the initial contribution to each individual student is going to return to society as a whole, as these students interact with society throughout their lives. What a priceless value to provide.

Disclaimer: I try to do a bit of teaching myself, (on the side, of course).

[blazespinnaker]

Re: the marginal utility of money

This is the argument against usury in general. The increase in affordability is illusory and comes at the expense of future generations, who in time rebel out of resentment or necessary.

Yeah but if the interest rates are lower than LIBOR I wouldn't call it usury.

[c1ue]

Re: the marginal utility of money

Since we value the service that good teachers provide, maybe their compensation should reflect the value that they add to society.

I don't disagree - but the realities of the teacher labor force is such that they can never be paid well enough to compensate for the shenanigans of a society under FIRE dominance.

No middle class society can afford to pay $100K salaries to every teacher.

Only Oligarchs can, and do.

Dr. Michael Hudson doesn't state this directly, but his paradigm of property taxes/mortgages/home prices can be directly transferred to other areas. The result of this type of examination leads to the conclusion that the costs of FIRE dominance of an economy in turn creates the economic distortions which lead to inequality, which in turn is exemplified by the pay of 200,000 teachers being less than the pay of the top 10 hedge fund managers.

The class struggle is perfectly embodied by this: is indeed the societal contribution of 10 hedge fund managers averaging $3B a year more than the 200,000 teachers who are compensated less?

[Starving Steve]

Re: the marginal utility of money

I think you are Mr. Ben Bernanke, himself. Either that, or you taught Mr. Bernanke. Your statment, " I'd like to see lower interest rates and more guarantees for (debtors)," tells me plenty about who you might be, especially now that interest rates set by the FOMC are still at zero and debtors run wild with mortgages under 5%.

You could be Martin Feldstein at Harvard or else another one of Bernanke's clones. Are you Marc Carney at the Bank of Canada? Are you Samuelson who wrote the idiotic economics text used in current Econ 101 classes? Or you could be Greenspan except that your written language is rather simple and direct, not in the incomprehensible and meaningless jibberish known now to the world as Greenspanese. Are you Paul Krugman at the New York Times ?

Just how much inflation and dollar destruction might it take for you to change your thinking? How many pensioners and savers have to be bankrupted in their old age? Is age 70 too old to live?

[Rajiv]

Re: the marginal utility of money

Yeah but if the interest rates are lower than LIBOR I wouldn't call it usury.

Usury (pronounced /ˈjuːʒəri/, comes from the Medieval Latin usuria, "interest" or from the Latin usura "interest") originally meant the charging of interest on loans. This included charging a fee for the use of money, such as at a bureau de change.

However in common usage today, the word means the charging of unreasonable or relatively high rates of interest. So in this case I may agree with you on that issue.

However, as Michael Hudson says quite eloquently, that charging interest leads to systemic problems, leading to boom bust cycles -- but that is not of concern in this thread other than in the impacts such charging of interest has on systemic inflation, which in turns erodes the real wages of labor.

I will outline below, why the Higher education system in California is in the shambles it is today. To highlight the situation, I will take 1976, and compare it to 2010 using only the fees charged by the UC System.

1976 - Annual UC Fees for in state residents - $2200
2010 - Annual UC Fees for in state residents - $9300
2010 - BLS inflation adjusted 1976 tuition in 2010 - $8500
2010 - Shadow stats inflation adjusted 1976 tuition in 2010 - $26000

Most long term users of Itulip will regard the Shadowstats version of inflation as a better estimate than the BLS version

Education in 2010 in the UC System is clearly a better value than it was in 1976.

So where does the problem arise?

The problem lies in the inability of the wage rate to keep up with inflation - when the money supply increases. The money supply has increased at a more rapid rate than GDP

From The Money Supply and GDP

The money supply since January 1959, as defined by the Fed, can be seen at
http://www.federalreserve.gov/Releas...st/h6hist1.txt.
The GDP over the same period can be seen at
http://eh.net/hmit/gdp/gdp_answer.ph...CHKrealGDP=on&...
.

The data shows that the growth rate in M2 is a fairly good proxy for the
growth rate in the nominal GDP, but not the real GDP. Over the 48 year
period ending December 2006, M2 grew by a factor of 25.7 while real GDP grew
by a factor of 4.6. In terms of annualized rates, M2 grew at 7.0% while
real GDP grew at 3.3%.

Over the same period, the annualized inflation rate was 4.1% which appears
to account for almost all of the difference between M2 and real GDP.

Inflation of course is BLS -- and the real GDP growth rate would have been lower had Shadowstat CPI been used (in other words the CPI methodology had not been changed)

The issues with the inability of the wage rate to keep up with inflation has been discussed by me here in January 2010 and also in November 2008.

In 1974, the minimum wage was $2.00 per hour. Graduate Assistant pay ~ 3.25 time minimum wage = $6.50 per hour

If minimum wage kept up with CPI

BLS min wage $8.75 ergo Grad Asst pay = $28.44

CPI+lies min wage ~ $20 ergo Grad Asst pay = $65

Graduate Asst pay today $16.50 per hour

So wages have not kept up with either official inflation or true inflation
.
.
.
Just looked again at Shadowstats, and the numbers look even worse

CPI+lies min wage ~ $27.20 per hour ergo Grad Asst pay = $85 per hour

compared to $16-18 todays pay for graduate assistants

So while the real family income has declined, the number income earning members gone up. The ability of young people to earn enough to pay interest on the loans has declined because of the decline in real income for college graduates. However, fewer people needed to take a student loan in 1976. If a loan was taken out, it was for a much smaller proportion of the costs of the education.

So who has benefited from inflation? The rentiers and FIRE -- in other words those who benefit from the charging of interest.

See Michael Hudson -The Mathematical Economics of Compound Rates of Interest: A Four-Thousand Year Overview Part I

and The Mathematical Economics of Compound Rates of Interest: A Four-Thousand Year Overview Part II

[blazespinnaker]

Re: the marginal utility of money

No middle class society can afford to pay $100K salaries to every teacher.

Quite the opposite. No middle class society can NOT afford to pay 100k.

If we are to survive as a species we need to value enlightenment.

[c1ue]

Re: the marginal utility of money

Quite the opposite. No middle class society can NOT afford to pay 100k.

If we are to survive as a species we need to value enlightenment.

Please provide some economic proof that this is possible.

Where would the tax revenue come from? How would this be enforced in poor vs. rich communities?

At present there are roughly 450K teachers in the US. At $100K per, x2 for FICA, overhead, and what not, we're looking at $90B. This is only a little less than double what the present average teacher pay is: $51K

http://712educators.about.com/od/job...teacherpay.htm

Of course the $45B present spent on pay is only a small fraction of the $972B being spent on education in the United States.

So it is that simple that paying more, perhaps by simply shifting around existing spending, will yield better results?

[Rajiv]

Re: the marginal utility of money

So it is that simple that paying more, perhaps by simply shifting around existing spending, will yield better results?

The answer is NO -- See my above post, and read between the lines. Until there is a way to reduce the disparity in income and wealth that is produced by policies oriented at favouring FIRE and the rentiers. Generally this is done by taxing at a high rate non wage income. However, politics of the last thirty years has made taxation into a dirty word.

See also - Wealth, Income, and Power by G. William Domhoff

[ThePythonicCow]

Re: the marginal utility of money

Quite the opposite. No middle class society can NOT afford to pay 100k.

The correlation between school funding and good schools is not obvious to me (I have the same problem with medical funding.) Once one gets past paying a modest "living wage", so that the worker isn't spending their work time worrying about debt collectors and affording food, then other factors determine the quality of work done. The usurpation of the academic agenda by the FIRE interests (Job #1: produce well behaved consumers) is a bigger concern for me in the area of schools.