By Ron Meyer, Editor - The Quad
Youth unemployment is skyrocketing (now around 18-19%), and a small part of the blame lies with poorly chosen college majors. Bill Frezza offered an interesting opinion on RealClearMarkets yesterday comparing the US and Chinese higher education policies:
A little noticed Associated Press news story last week reported that China now plans to phase out college majors that consistently produce unemployable graduates. Any program in which 60% of the graduates failed to find work for two consecutive years would face funding reductions until supply was brought back into balance with demand.
This Chinese hand may not be invisible, but it would be one that Adam Smith would recognize. Isn't it amazing that even self-identified communists are figuring out that markets only work when adjustment mechanisms act to reduce surpluses and shortages? Destroy those mechanisms and unemployable college graduates pile up as fast as unsold electric cars.
Frezza's story begs the question: why are students majoring in seemly worthless fields? CBS News reported the 25 college majors with the worst unemployment, and it should surprise no one that the fields dominated by liberal professors (psychology, fine arts, and [revisionist] history) are at the top of the list. Students are not being armed with an education that will help them get a job.
The market mechanisms that would force students to pick more relevant majors are being manipulated by the federal government. Ultimately, the students who choose poorly can only blame themselves, but unlike when students had to work hard to pay for their tuition, easy access to subsidized or nationalized student loans allow college students to put off thinking about their financial future.
Basically, college has become an extended childhood: one either paid for by the paternalistic federal government or by students' parents. If college students aren't forced to make tough choices, more and more of them will continue to be carefree about their education.
This is just one more externality of the government's interference into higher education. Under the Obama Administration's orders, most student loans have become completely nationalized, and before that, the vast majority were handled by Sallie Mae (sister to Freddie and Fannie). The zero-down, no-strings-attached lending policies forwarded by the federal government are building a financial bubble that will hurt more than just young people.
The student loan industry--now at over $1 Trillion--is larger than the credit card industry. A popped bubble could easily mean another crash in the financial sector.
To fix this problem, we shouldn't follow China. Telling people what to do is un-American. But, incentivizing them to do the wrong thing is also morally hazardous. America needs to privatize home loans and stop trying to parent young adults.
