The Exchange

The Education Industry Faces A Multi-Decade Peak

The Exchange

By Alan Hall

America’s higher education business has hit a patch of trouble. A massive shift in society’s attitudes toward education is beginning. Educational institutions should soon encounter spectacular challenges to survival.

Signs of Peak Psychology

Society’s feelings about education shift in concert with social mood. As a 1987 report, “Changing Public Attitudes Toward Higher Education,” said:

In the late 1940s … people had no quarrel with colleges. They wanted more of them, they wanted more young people to go, and they admired professors. This approving public attitude … continued into and throughout the Golden Era of higher education (1955–1970) … . The confidence of the general public in colleges and universities … diminished between 1965 and 1985, a period of time in which … the public and elected officials look[ed] critically at higher education.

That bear-market attitude shifted again in the subsequent bull market. Public Agenda’s report on education, “Great Expectations,” recorded society’s mindset toward higher education in 2000, at a historic social mood peak:

Higher education is perceived as extremely important, and for most people a college education has become the necessary admission ticket to good jobs and a middle-class lifestyle.

This peaking psychology is manifesting in record popularity of college education, record tuition prices, record debt levels and several other telling indicators as well.

Record Popularity

Higher education is more popular in America than ever before.

Figure 1 shows U.S. per-capita college enrollment reaching an all-time high in 2008.

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The top line in Figure 2 plots U.S. PhDs granted per capita from 1900–2008, which has also reached a record high. The average U.S. PhD candidate requires 8.2 years to earn a doctorate, so we backset the line by eight years to reflect the moment of decision. Doing so reveals a fair correlation with the Dow Jones Industrial Average (DJIA), our most sensitive indicator of social mood. Our hypothesis is that social mood, via waning optimism, economic decline and war, influences the decision to seek or not seek a PhD.

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Record Prices

Figure 3 shows Yale’s tuition prices from 1701–2009 and U.S. stock prices (spliced to British stock prices) from 1695–2009, both adjusted for inflation via the Producer Price Index. Harvard’s tuition data for this period (not shown), while spottier, display the same five-wave sequence. Yale and Harvard have the longest tuition price histories we could find, and their correlation to social mood is strong, so they serve as our proxy for tuition prices in general.

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Longer term, our research suggests that a larger five-wave Elliott advance in overall tuition prices began almost four centuries ago. If indeed this pattern is nearing completion, the 1917 wave (IV) low is a likely retracement target.

A Flood of EduCredit

Since 1997, the total value of student loans has ballooned over 800 percent, from $92 billion to $966 billion. We compared that rate of growth to numerous other debt categories, including total U.S. mortgages, government pensions, and total credit card debt, none of which came close to this multiple. In fact, we were unable to find any significant measure that grew faster than student loans over this period.

Despite record levels of federal debt, the U.S. government continues to encourage people to borrow for an education. This is exactly what it did with housing, to a disastrous end.

Supercycle-Degree Grade Inflation

Positive mood inflates academic grades along with asset values. Writer and teacher Stuart Rojstaczer compared “grade inflation” to an asset bubble. In the January 28, 2003 Washington Post, he explained his perspective as a teacher:

Parents and students want high grades. Given that students are consumers of an educational product for which they pay dearly, I am expected to cater to their desires … . So I don’t give C’s anymore, and neither do most of my colleagues … .

Figure 4 is from Rojstaczer and Christopher Healy’s March 2010 academic paper, “Grading in American Colleges and Universities.” Socionomists can see a clear five-wave rise in grades that began in the 1930s and may already have topped.

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Chapter 14 of The Wave Principle of Human Social Behavior offers a possible explanation for this broad academic trend. It says a rising social mood generates alignment, benevolence, convergence, liberality, supportiveness and the tendency to praise. Declining social mood produces the opposite traits.

Social Mood Drives Academic Performance

Figure 5 shows the rally that followed Princeton freshmen’s record-low SAT scores in the early 1930s. The chart is from John H. Bishop’s 1989 study in The American Economic Review, “Is the Test Score Decline Responsible for the Productivity Growth Decline?” The socionomic answer is no, social mood drove both. Bishop’s graph shows that high-school seniors’ scores on the Iowa Tests of Educational Development (ITED) climbed with social mood to a record high right at the 1966 Cycle-degree wave III peak, bottomed in the late 1970s along with stock values, then rose again with stock prices.

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Figure 6 graphs SAT scores and the DJIA adjusted for inflation by the Producer Price Index from 1965-2009. Stocks and SAT scores registered lows in 1981. During the subsequent wave V rally, the rise in SAT scores was interrupted for several years by the 1987–1990 stock market correction, which resulted in recession, extensive layoffs and the biggest collapse in S&P earnings since the early 1940s. After bottoming in 1991, SAT scores then rose until 2005 to peak with real estate, the heart of the asset mania at that time. It is evident to socionomists that social mood determines educational, business and asset price performance.

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A Multi-Decade Shift in Psychology

In financial markets, signs of exhaustion often precede a top. Higher education in the U.S. is giving similar signs. The weariness is apparent via rising dropout rates, declining international educational rankings, waning student effort, anger about student debt, chronic government intervention, and rising grassroots doubt about the value of higher education. All of these items, taken in context with EWI’s social mood forecast, point to a looming reversal.

Alan Hall is a senior researcher for the Socionomics Institute. Hall has traveled widely, and has authored numerous socionomic studies including in-depth looks at Russia and Vladimir Putin, the European housing bubble and crisis, commodity prices and environmentalism, stock prices and epidemics, and authoritarianism. On April 13, 2013, Alan Hall will speak at the 2013 Social Mood Conference. Join Hall, Murray Gunn, head of technical analysis at HSBC, Algorithmic Finance editor Philip Maymin, Minyanville CEO Todd Harrison, Topsy Labs founder Rishab Ghosh, former ANZ Private Bank CIO Kevin Armstrong, Robert Prechter, and some of the brightest financial, academic and entrepreneurial minds in the world to see how today's leading social mood researchers are tearing down old barriers and building new standards for social mood research. Learn more at: www.socialmoodconference.com/pr.

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