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Comparing 35 Year Rates of Inflation

Posted by Larry Doyle on March 7, 2013 5:27 AM |

A picture tells a thousand words, right?

Thank you to Jeff Gundlach and his band of truth tellers at Doubleline Funds for recently highlighting a Bureau of Labor Statistics/Consumer Price Index graph which shows the racket defined as higher education displays that the “thousand” applies not to words but to the rate of inflation within that segment over the past 35 years. The actual number is a mere 1,155%.

Every day we read of how students are increasingly delinquent and defaulting on their student loans. Those realities are no surprise as the Ponzi-style financing promoted to fund higher education feels the effect of students wondering “Where’s the value here?” and “Where’s my bailout?”

There are plenty of the same characteristics within medical care, which has only experienced a 600% rate of inflation during that same time frame.

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Thank you Mr. Gundlach and Doubleline.

Navigate accordingly.

Larry Doyle

Isn’t  it time or overtime to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Peter Scannell

    A picture (graph) is worth a thousand words.

    Three lines on a graph from 1996 to 2006 could have foretold of the fraud filled housing bubble that almost crippled our nation.

    Median Household Income from 1996 to 2006 – flat, low $50s.

    Median Home Prices from 1996 to 2006 – precipitously rising almost $10,000 a year, from $102,000 in 1996 to 192, 000 in 2006.

    Home Ownership Rate from 1996 to 2006, precipitously rising despite flat U.S. income and nearly a 100% increase in median home prices, 64% in 1996 to 69% in 2006.

  • Peter Scannell

    The core CPI index excludes food and energy prices.

    How in the world can government ever understand the true financial burden facing the average American family if it excludes two of the most costly monthly expenditures?

  • Stephen Burd

    BLS is usually reliable but I suspect that some apples-and-oranges issues are hiding behind those trend lines.

    The biggest question in my mind is whether or how much of the rapid rise in tuition and fees is due to a significant drop in public funding levels for higher education. That’s been a steady trend for at least two decades that has accelerated in the most recent decade. As public funding per student drops tuition and fees rise to provide the same service at the same cost. For example, see:

    http://libertystreeteconomics.newyorkfed.org/2012/09/soaring-tuitions-are-public-funding-cuts-to-blame.html

    That might explain some or all of the divergence of the tuition & fees trend line from the healthcare rate of inflation trend line in the early 90s and the sharp change in slope in the mid-2000s. Note that the line labels are “cost” for healthcare and “tuition and fees” (i.e., direct cost to the recipient) for education – that’s not an apples-to-apples comparison. A better comparison would be total spending by all healthcare providers compared to total spending by all education providers. Though even that would be problematic since some universities run hospitals and many spend research grant dollars in ways that don’t directly impact degree production.

    I’d expect educational costs to roughly track healthcare costs since the provided services are similar in many respects (labor-intensive and subject to rapid technology replacement, among other similarities). But that doesn’t make 600% a GOOD number. Higher education is just as badly in need of a retooling as is healthcare, though it’s about 5-10 years behind healthcare in making needed changes.

    Calling higher education a Ponzi scheme and a racket is simply trash talk. Investors in a Ponzi scheme receive nothing in return for their dollars. Wall Street’s handling of retail investors come closer to being a racket – but now I’m the one doing the trash talking.

    Not every degree generates net economic reward for every student and far too many students spend money but never receive a degree. Some spend too much money with unrealistic estimates of the economic return. But many studies over a long period of time show a college degree on average adds hundreds of thousands of dollars to lifetime earnings. For example see another BLS chart at:

    http://www.bls.gov/emp/ep_chart_001.htm

    Students pursuing a degree roll the dice and that “gamble” generates substantial rewards far more often than it doesn’t. Retooling higher education to skew the odds more in the student’s favor is something worth doing, but the details of how is another discussion. Yet another discussion worth having is whether the benefits of higher education should be measured only in terms of their effect on lifetime earnings. Is buying a degree really similar to buying a car, food, or electricity?

  • Barry

    Fascinating!

    I might have entitled this the impact of free and subsidized markets on pricing over 35 years of things.






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