Scenes from the College Bubble

This video is rude in places (it beeps or blurs out the worst stuff), but it is spot on.

The most eye-opening part of the video to me were the bowling alleys, Jacuzzis, and other luxury items that were on display from real college campuses. The extravagant pools really looked like something from a theme park.

Since I wrote about the college bubble yesterday, I should mention that this is further proof of it.

Remember the housing bubble that crashed in 2007: That didn’t just mean that everyone’s homes went up in value. That often happened, but also more homes were built much more extravagantly. The word, “McMansion,” became much more common. We saw more ceramic tile and more granite countertops. Despite a rise in the price of property, often it was profitable to tear down a perfectly good home and build an upscale house in its place.

That’s how bubbles commonly work. They don’t just experience price inflation but also luxury inflation. The industry grabs up more resources due to the new consumer demand for higher quality. But that demand doesn’t reflect consumers saving or changing preferences so that they do without some other good to buy better quality (though they often do give up the habit of saving money in favor of “investing” in the bubble). It represents increasing debt through low interest rates provided by central banks.

The industry’s use of unprecedented resources is actually used as a reason to deny there is a bubble. They can say that the homes are now of a higher quality than the homes before, so of course they cost more. Furthermore, the various industries that feed into the booming industry experience an increase in wages and prices. (In housing, businesses that sold and installed granite countertops could charge more and hire more people.) Official economists then claim the prices are rising because the “fundamentals” of the economy are strong.

So that’s what is happening in college campuses. The schools have sometimes built up theme-park-like amenities. Remy argues in the video above that these luxurious accommodations drive up tuition prices. They are related, certainly. But I think the cause-and-effect relationship goes the other way around.

Students didn’t originally demand to go to school in a luxury resort because few could afford it. But as government-subsidized student loans drove the price of college up, colleges had to do something with all the money that came pouring in. Since they were competing with other schools for students, many have made their campuses into playgrounds.

I think this helps explain the decadence we see in many college students, that is mocked in the video. They leave high school, which is a bad enough environment, and then enter the fantasy world of college life.

But it can’t last. That which goes up must come down. Already a decline in couples having children has resulted in a decline of the number of students enrolling in college in some areas.

The collapse is inevitable.