once again: there can't be a higher education bubble

Conservatives hate the university, for reasons of elementary anti-intellectualism and because they hate any enterprise that doesn't kiss their ass. (I'm serious; anti-conservative bias, in the conservative mind, now means the absence of pro-conservative bias.) Meanwhile, everybody loves contrarianism, and many people are resentful that, having graduated from competitive colleges, they've been unable to get employed in the kind of jobs they want, so there's a lot of anti-university animus out there. Enter Peter Thiel, and his argument that we have an asset bubble with higher education. (As breathlessly, credulously reported by TechCrunch writer Sarah Lacy.)

Now, Thiel's a certified Randian nutcase, and you'll find that the regard for this opinion stems from the anti-academicism I discussed above. But it's important to say that you don't have to have any particular orientation towards the university at all to point out that Thiel's argument is bogus. It's bogus not just because we aren't in a higher education bubble, but because you can't have a higher education bubble. You can't have an asset bubble, in any conventional meaning of the term, when you're dealing with an asset that can't be transferred. Here's what I said in a comment written some time ago:

The housing bubble was a bubble because people were able to borrow against the market value of their homes. The fluctuation in the home's value is actually of little concern to an owner who intends to hold the asset. It is of great importance to the owner who is either planning on selling the home soon, or who is borrowing against the value of the home. Neither of these situations apply to college students. 

You can't have a classic asset bubble when the asset in question is non-transferable. The students are expecting to earn more based on the possession of the degree, and this can turn out to not be the case-- but let's be clear: the value-added of a college degree has never been higher. Generally, talk of college students not getting the value for their degree is limited to anecdote. On the level of data, the financial incentive for attending college has never been higher. To wit.

Anyway, I digress. While a college degree may or may not confer a financial advantage equal to the price of attendance, that is irrelevant to the formation of a classic asset bubble. You can't speculate on the value-added of a college degree. The degree is non-transferable; you can't take a bet by buying someone elses or reduce risk by moving yours away. And while there is some limited action in derivatives revolving around student loans, it is nothing compared to the endless derivatives, hedges, and collateralized debt that went into housing. Because, again, when an asset is non-transferable there's limited opportunity to speculate.

Really, both education and housing suffer from being defined as investments rather than tangible goods. A house's value can fluctuate wildly without cause for concern if the owner's primary interest is in living in it. (Refinancing your mortgage, after all, amounts to a bet by the bank on the future value of your home.) Meanwhile, higher education is treated as though it is only a financial instrument, rather than having the actual value of having been educated. Of course, education isn't going to look worth it, when you separate it from its actual value! It's like buying a chair, refusing to value the ability to sit in it, and calling it a bad investment if the chair doesn't rise in value. The question isn't purely of value but of utility.

Again, consider the housing bubble. Had it simply been a matter of individuals transferring houses at unrealistic prices, and then having those prices be adjusted to a more reasonable level, the financial risk to the greater economy would have been contained. Individuals might have recklessly based their personal finances on their ability to renegotiate their mortgages with the banks, presuming the value of their homes would never rise. (Note that even this limited risk taking is impossible with a college degree; go to a bank and see if you can get a loan risked against the rising value of your degree.) That would have caused financial distress for the individuals borrowing against the values of their homes, but it would have been contained. What made the danger so great was that so many other people had essentially made the same bet, securitizing and trading pooled mortgage risk with the assumption that home values would only continue to rise. Not only is there no equivalent investment vehicle with the value of a college degree, it's difficult to imagine how any such investment could work. Again, when you can't transfer an asset, the ability to speculate on that asset is very limited.

Also very important: stock and publicly traded asset bubbles have been especially pernicious because they have come to represent such a huge part of our economy and growth. The subprime mortgage crisis was an existential threat to our economy because such a huge portion of our economy was based on its continued existence. Meanwhile, what the value of a college education is meant to contribute to, increasing worker wages, is now, I'm sorry to say, a very small part of our economy. Nobody's making bets on the value of worker compensation rising. Why would they? Real wages have stagnated for decades.

Why does a presumably bright person like Sarah Lacy report Thiel's alarmist talk so uncritically, and why do so many smart people buy into it? Because it's provocative and loud, and because it speaks to the fundamental anxiety of many of the people who live on the Internet. Which is why Thiel's argument is bound to be linked to and passed around all over the place, whereas arguments like mine will largely go unheard.