Capitalisn’t: Is the College Promise Broken?

Episode Transcript

Noam Scheiber: There's some interesting work from economists at the Federal Reserve Bank of St. Louis who looked at the lifetime return on a college degree, and it found that once you include debt, the lifetime return to a degree had been just steadily dropping generation by generation.

Bethany McLean: Karl Marx had a very clear theory about how capitalism would end. As the system matured, society would split into two classes: the owners of capital and the workers who had nothing to sell but their labor. Workers would become increasingly exploited and alienated until they finally revolted. Here's where the story does get really interesting. Marx imagined that the revolution would be led by the industrial working class, but historically, revolutions are often catalyzed by people who are educated and ambitious, people who are expected to rise and instead find themselves blocked.

Luigi Zingales: Which makes the moment we're living in especially intriguing because some of the most visible labor activists in the United States today are not factory workers but college graduates.

Bethany: In his new book, Mutiny, New York Times reporter Noam Scheiber, who has spent the past decade covering labor in the workplace, writes that the college wage premium is how much more you make with a degree compared with if you only have a high school diploma. A tectonic shift started happening even before the global financial crisis. The premium flattened out and then it began declining. After the Great Recession, the US experienced a surge in college-educated workers and occupations that didn't require that level of education.

These Americans, Scheiber recounts, left college with certain career ambitions only to find themselves laboring in a different kind of job for longer than expected. These disappointed expectations, Scheiber argues, amounted to more than merely a loss of income. It inflicted a psychological injury on the graduates who thought they had done everything right, investing in their human capital, only to see their lives not measuring up to the expectations they had.

Your book focuses on the stories of these people who were promised that a college degree would open doors, and then they discovered that it didn't necessarily do that. You have some data in the book about the big economic story behind that shift, what caused the slowdown in good-paying jobs, whether it was technology, software, already automating white-collar work in fields like marketing or finance long before AI came into the picture. Others said that the supply of graduates simply outpaced demand. You say that it's mysterious. What explanation did you find the most convincing? What do you think the story is?

Noam: I'd say there are three things that economists have settled on, two on the demand side and one on the supply side. On the demand side, clearly, long before generative AI, we've had accounting software, marketing software, financial management software, clerical software. This has been slowly encroaching on work that white-collar workers and college grads have done over the years. There's another piece of this that comes a little later, which I would call pre-gen-AI, AI.

I'll just give you one example. In 2017, 2018, I wrote about the way that fashion buyers were using AI. These are people who work at big retailers, Nordstrom or Bloomingdale, and their job is to try to anticipate 9, 12 months out what the next fashion trend is going to be. They go to fashion shows, and they go to talk to wholesalers. They look at past data. This is a really good-paying job, well into the six figures at a big place like Nordstrom. Increasingly, though, AI could do this very well. It could incorporate several years of data. It could have all kinds of variables from weather to currency fluctuations and incorporate that and actually do as well as or better than the humans.

The other piece is a consolidation story. You see this especially in healthcare, white-collar administrative work in hospitals, things like that. We've also seen big pharmacy chains consolidate. You used to have a lot more independent pharmacies. Over the past 10, 20 years, Walgreens and CVS have massively gobbled up independent pharmacies. There's a consolidation story, too. Then on the supply side, as you say, we've had this steady increase in the number of people going to college. That really accelerates in the post-Great Recession period, where we go from the low 30% of people with a four-year degree to close to 40% over the last 10, 15 years.

Obviously, you have somewhat shrinking demand and increasing supply. You're probably going to see some downward pressure on prices. Then the other wrinkle on the supply side is if you talk to labor economists like Larry Katz at Harvard, who follows this stuff very closely, they'll tell you that there wasn't a ton of heterogeneity among college grads in the '80s and '90s. The wage premium, the bonus that you get from going to college above only having a high school diploma, it was pretty evenly distributed. Again, some people who went to elite schools did better, others did worse, but it really did go in lockstep for a few decades.

Beginning around the early to mid-2000s, you start to see a lot more heterogeneity. School matters a ton. Major starts to matter a ton. The other two things we see here that's part of this heterogeneity story, we see a huge increase in the number of people going to so-called non-competitive public schools or state schools. Not the flagship university in the state or not even the second tier, but a third or fourth or fourth-tier public university. The return on that degree is just much lower than another school. We see a huge increase in the number of people going to for-profit universities. Again, the return on that degree ends up being much lower.

Luigi: Ironically, I've seen this phenomenon before because in Italy, the idea of intellectual unemployment has been around for a long time. I remember more than 15 years ago, my wife, who is American, ordered a sandwich on an Autogrill, and she was surprised that the person was speaking perfect English. Then she started to talk to him, and he was actually had a degree in English and in English literature, blah, blah, blah.

He was working in an Autogrill. At least in Italy, the college doesn't cost much. People are not forced to focus very much on this choice. In the United States, it's very expensive. The question is, are they producing something of value? Of course, education is a value per se, but if you are borrowing $60,000 a year to go to college, you want that college to actually make you more valuable in the job market.

It seems to me that there is now a major divide because if you get a degree in STEMs and business, more or less, you find a job. If you have a degree on humanities, you don't find a job, or you find a job at a much higher risk. Of course, if you get a degree from Stanford in some fancy humanities, you can get a job no matter what, but we're talking like the bulk of the population.

Noam: Yes, I think you're right. You can't think about this problem without the debt piece of it. There's some interesting work from economists at the Federal Reserve Bank of St. Louis who looked at the lifetime return on a college degree. It found that once you include debt, the lifetime return to a degree had been just like steadily dropping generation by generation. It had been like multiple hundreds of a percent for people born in the '40s, down to 40%, 50%, the lifetime wealth premium for people born, I'm going to speed this up a little bit, but like in the 80s or 90s.

For people of color, for Black people, it was indistinguishable from zero if you were born in the '90s. The debt piece can completely overwhelm any positive returns from the degree. I think you're right. One of the main themes of my book is not that college itself is a terrible investment, though it's become a less good investment, but the mismatch between expectations and the return on the investment.

Bethany: When you talk about that mismatch in expectations and this change in identity where young graduates increasingly see themselves not as future managers, but as workers, how does that play out? Historically, revolutions have often been catalyzed by educated or aspiring elites who feel blocked from what they thought they were going to have. When you talk about people having a radicalizing experience, how does this change society, politics, and especially as the path toward unionization is an answer, but not an easily achievable one, and maybe not a complete answer?

Noam: Yes, great question. I think you may be alluding to the Peter Turchin thesis, the overproduction of elites. He's got this fascinating book about this, where he looks at revolutions across history. The Russian Revolution, in particular, is fascinating because you get all these children of aristocrats who are very well-educated, and there's just not enough jobs in the administrative state to absorb all of them, and so you see the effect that has on the revolution.

As you say, it's partly because of the way labor law works in the United States. It's very difficult to unionize, especially if your employer opposes it, and most employers do. Polls typically show that in the upper 60s to low 70% of Americans support a union, and yet only about 10% of American workers are in a union, so that suggests that there's a big wedge between demand for a union and the ability to form one. I think part of the response is clearly trying to organize a union.

We've seen union organizing in some of these industries and companies where we've never seen it before, but clearly, that can't be the entirety of the response just because it's so difficult. I think we'll see part of the fallout play out there. Part of it is just increasing friction, confrontation at the workplace that falls short of a union. I'd point to the tech sector in the past 10 years or so, where 10 years ago, if you were a web developer, you were very much in demand. You had a lot of labor market leverage. You commanded a very high salary.

Over the past 10 years, that job has been increasingly commodified. Now that it's really a buyer's market rather than a seller's market. Web developers just don't command the same salary. The job openings are not as available. You can hire someone in Poland or Ukraine to do the job as easily as you can if they're working in the San Francisco area. We've seen the Facebooks and Amazon's layoff and Google's layoff tens of thousands of people over the past three, four years.

What you just see is increasing friction in that workplace. You go to town hall meetings and people are just very aggressively hectoring the CEOs. They're circulating petitions. They're piling into Slack to voice their dissatisfaction. I think you're just going to see a lot of turmoil, a lot of confrontation that's short of unionization in the workplace, but just much more place.

Then the third realm, I think, is just the political realm. You can look at, say, the results of the mayor's election in New York City. Seattle also had a recent mayor's election where they also elected a socialist candidate. Clearly, there's a lot of very mobilized, very frustrated, young college-educated folks voting for these candidates. A generation ago, the college-educated were not voting for socialists. They were far to the right of the typical voter with only a high school diploma.

Luigi: Rather than the theory of overproduction of the elite, I prefer your version of the inflated expectation that got deflated, especially when I think people feel cheated. Let me give you a financial example. In Hungary, one of the things that brought a radicalization to the right of the population is that before the financial crisis, a lot of people were taking mortgages in euros rather than in the Hungary florint. Why? Because the government told them that they would peg the florint, and it was basically the same thing, but the interest rate was much lower.

Then, surprise, surprise, the government decided not to peg the florint anymore. All of a sudden, your mortgage increased 40%, 50% in value, and the government did not feel any responsibility of doing anything. The right-wing parties started to say, "We need to help those people," started to gain votes and momentum, and that started the radicalization of Hungary. I feel that we have a generation of people that were told education is priceless. You have to get every education possible.

By the way, let me offer you here a loan that, unlike other loans, you cannot default on, so that basically the lender has no responsibility of trying to figure out whether it's appropriate for you. Then they realized that they got cheated, and surprise, surprise, they're pissed off, and they're right to be pissed off. Honestly, I have to say that part of the people they should be pissed off with are the universities, because we're part of a system that actually says education is priceless, and you have to take it no matter what.

Noam: I think that's right. That is the main story I try to tell, though I think there's something to Turchin's thesis, but I think you're right. I think the other thing that's interesting here is you also had a parallel trend in a sort of degradation and deskilling of certain jobs that didn't require a degree, but which used to absorb a lot of college grads. We used to have people who did white-collar jobs, but not degree-requiring jobs, insurance agent, real estate broker, certain types of financial advice.

A whole variety of jobs that were pretty good-paying jobs, so they were kind of like a safety valve. You went to college, you didn't get a job as a software developer or as an accountant, but you got a slightly less skilled adjacent job. Again, the folks at the New York Fed who tracked this had a really interesting dataset about good-paying non-degree jobs and low-paying non-degree jobs.

You see around 2002-2003, the good-paying jobs just start going [gesturing], and the low-paying jobs increase at a much slower rate. The good-paying jobs really start declining pretty rapidly around 2002, 2003, 2004, and they just never recover, even 10 years post-Great Recession. That kind of safety valve, which I think had been very helpful in keeping these frustrations in check, when that disappears too, suddenly all bets are off.

Bethany: To ask a potentially really naive question, given how potentially destabilizing all of this is, why are corporations so opposed to doing anything about it? What did you glean from your reporting about the intense resistance to unions within Starbucks or Apple? Why, given that it's in their long-term interest to keep their workforce happy and to keep the country happy, to keep employees happy, it's in all of our interest? Why this intense resistance to anything that would create a more stable situation?

Noam: Really good question. Part of it is just psychological and sociological. If you look at the case of Starbucks, Howard Schultz, in the early days, he was a pretty generous employer. He was early to offer health coverage to part-time workers, which was pretty rare back then. He offered stock in the company, which was very valuable between the time. IPO, for a decade or two, the share price was really appreciating rapidly. Howard Schultz just thought of himself as a really generous, fair-minded employer, which he was in a lot of ways.

The company changes a bit, especially after the Great Recession. They have to start making cuts. They become less generous. In Howard Schultz's mind, he's still this super generous employer. He always does the right thing. He's always looking out for his employees. When that shifts in ways that employees get frustrated with and they start organizing and saying, ''Hey, you need to treat us better. We want a union," he's personally stung by this. He's like, ''I've always done the right thing. How dare you question my motives, my generosity?''

I think part of it is just the psychological story. The other thing is just the way that capital markets work. When publicly traded companies increase their spending on labor, even if that ultimately accrues to the bottom line, even if they become more profitable investors, and particularly activist investors, punish the company because they see labor costs as a warning sign. This company is going the wrong way. The one data point that I have written about that I thought was fascinating is the Gap did this very interesting study.

I think it was pre-pandemic, 5, 10 years ago, in any case. They actually gave managers more labor. They said, ''We're going to give you a bigger labor budget. Use it how you want to use it.'' We basically want to give people more consistent hours. We want to lower turnover. We want to raise productivity. They implement this pilot. It actually has the results that they expect. There's less turnover. The workers are more productive. There's higher sales. Then they just pull the plug on it.

They don't do anything else with it. I tried to get an answer about why they didn't pursue it. They were very wishy-washy. I have observed that when you have these announcements about either rising labor costs or lower labor costs, the response of investors tends to track pretty closely with labor costs and not with profits.

I've actually asked some investors about this, and they say, ''Yes, it's true that it may seem irrational. When we see rising labor costs, even if the short-term effect is rising profits, we feel like in the long-term, labor costs are going to get out of control and ultimately undermine profitability.'' I think there's this built-in reflex that's been socialized into managers through the stock market that says, ''This may seem like a win-win. It may seem like you're more generous. They're more productive. They're more loyal. There's lower turnover, ultimately higher profits," but the investors do not buy that story. I think that's a big piece of it.

Bethany: Really interesting. If you were to think about the panoply of villains, although that might be too stark a word in this, but from the government subsidizing college and refusing to get involved in thinking about what a good job is, to universities overpromising the benefits of an education, to corporate America. You have this incredible anecdote in there of one of your characters, Chaya Barrett, seeing Tim Cook cash out these hundreds of millions of dollars while she struggles financially. To investors, who do you blame and who do you think is responsible for fixing this, if it is even fixable?

Noam: Yes. I think, as your question illustrated, it takes a village, it takes everyone doing a little bit to contribute to the problem. As Luigi said earlier, I think the role of the universities may be most underappreciated. Just in addition to seeing the rise of tuition and the sticker cost of college, there has been a very aggressive marketing by universities to get people in the door to sell them a dream, and then not really have a lot of candor about what the actual prospects are.

I think probably the most vivid example of this in my book is a chapter I have about video game workers. We've just seen this explosion of undergraduate programs in video game design over the past 20, 25 years. The way that the programs would market themselves typically was like, you're getting a STEM degree, almost like a computer science degree. It's this technical, vocational thing. There are plenty of jobs, and our graduates typically go work in these AAA studios.

In fact, getting a degree in video game design is a lot more like getting a Bachelor of Fine Arts or going to acting school or something. It doesn't really qualify you to do much, and there just aren't that many jobs, even if it did. You had hundreds of thousands of kids getting degrees in video game design. The universities were happy to load them up with debt to get these degrees. Then there's just not really many jobs. One of the subjects of my book was incredibly accomplished in video game design.

He went to the University of Texas at Dallas, which has a video game program that enrolls hundreds of kids. Within that, there's a class called Game Lab, which is a very advanced, high-level class where you actually build a game. It's selected. You have to apply to get into this class. Then he was actually within this group, this elite group that had applied and been accepted to the class. He was named to be the creative director. He was the person in charge of managing the team that built this game. The game was his idea. They executed it.

You can actually go on their website and see the game. He struggled to even get interviews at major studios in video game design. Three, four, five months after graduating, he's got $70,000 in debt. He takes the job as a quality assurance tester, testing video games, which is not the job that he had imagined when he had enrolled in this program. Now, in fairness, they will say that the professors were actually candid. They would tell you, a lot of times, the professors were from the industry. They would say, "Look, this is a very tough field to get into."

When you would go on the website and look at the way that the university itself described the prospects and the course and what people go on to do, it's pretty optimistic. You definitely got a sense that this is a credential that's a vocational credential. Then the studios just need people with these skills when, in fact, it was training to be a writer of short stories or an actor or something. Millions of people want to do it, and only a tiny fraction actually can get jobs that support them. I don't want to pick on video game design, but I think it's illustrative.

Luigi: I think we need more regulation of marketing by university. When it comes to finance and your mutual fund, you say past performance doesn't guarantee future performance. You have to disclose that, but for university, you're exempted from. When you get a mortgage on a house, you have an enormous amount of guidelines to make sure that you're not cheated. These days, investing in college is, for many people, bigger than investment in the house. There is no protection. In fact, everything else goes in the opposite direction, that everybody encourages you and says, "This is fantastic, this is priceless."

Most importantly, the lenders don't have anything at stake because you can never go bankrupt on your college loans. I think that, to me, that's really the ultimate sin because I will have the university have some skin in the game. If they had some skin in the game, all of a sudden they would say, "You know what, maybe you're not really made for college. You may be made for college if you study STEM, but if you study humanity, you might not have a return on your investment. If you want to study because you like it and you have the money, fine, but don't borrow against that because there will be a disaster."

Noam: Totally agree. The fact that these loans can follow you around until you retire is insane. As economists point out, the thing about incentives is that they work really well. They don't always do what you think they're doing. They do what the incentive incentivizes you to do. I think in this case, we're getting exactly what the incentives would imply. We're getting people levering up dramatically, and the people, the underwriter, not being particularly invested in the prospects of repayment.

It's interesting what you say about mutual funds and transparency and disclosure, because you're right. The way that marketing works for university degrees, it's really like it's just some marketing person writing content for a website. There's no restriction on that at all. Just to go back to the video game example, I went back and forth with the people who oversee that program at the University of Texas at Dallas. To their credit, they really engaged with me. We talked through data.

The federal government, Department of Education, has data by university, by major, on the typical median wage 10 years after entering. I really give them a lot of credit. They engaged with me. We chewed over the data. We chewed over the program. Then I asked them about the content on their website. It said, "Our graduates of this program in video game design typically go on to work in studios like--" and then they were big studios. I said, "Yypically, it seems like an overstatement there, given the actual prospects."

They said, " You're right. We should probably adjust that. If what we're doing is depending on some journalist to go to every one of the hundreds and hundreds of universities around the country that are offering dozens of majors, that may not actually be worth the debt. That system's probably not going to work very well. I completely agree with you. Some kind of regulation, transparency requirements, data about return on investment, it wouldn't solve the problem, but it would probably help.

Bethany: There's this vision of the future that as AI comes in and wipes out even more jobs and exacerbates all of what you're talking about, that the government steps in with UBI or some sort of solution, and everybody's happy because they work less and have this lovely life. With the people that you talked to, did you get the sense that this was primarily about money and economic advancement, or was it also about self-worth, and in a sense of purpose and contributing to society? Do you have a take on how likely that idyllic possible answer to what's coming is?

Noam: Yes. I'm pretty skeptical of the UBI story, both because I'm skeptical that the way our political system works will actually get a sufficiently large UBI payment to sustain people. It just feels like one of these things. Economists draw up at a 30,000-foot altitude, and they say this would be Pareto-enhancing trade adjustment assistance. The winners can compensate the losers and everybody would be better off, but the winners never do compensate the losers.

Even though it's in theory, it's possible. It just doesn't happen. I'm skeptical for that reason. Let's suppose, for the sake of argument, that it did happen, we set up this generous UBI system, people could earn whatever the median wage is for a college grad 10 years earlier, pre-AI. Yes, I don't think that would do it. I think what you see in the frustration of a lot of the folks that I wrote about and spent time with is the inability to make good on what they thought they were doing in college.

College trains them to ask questions and think very critically and have a take about what's going on in the world. There's a sociologist that I spoke to that used the term class confidence. It instills you with this class confidence. Part of that confidence is just a sense of agency. Part of it is having a broad perspective on the world, not thinking just what you need to get by day to day or hour to hour. It's also just it's about self-authentication. I think a lot of people would feel like the bargain that they were making was not being fulfilled.

I think one of the most interesting data points in that regard is a lot of the folks that I interviewed or that are main protagonists in the book, they will say that after working a job at a Starbucks or an Apple store for five years, 10 years, the most fulfilling thing that they had ever done in their life and the most satisfying was organizing their store. That was something that really felt meaningful to them.

It felt like they were doing something that mattered. It just was felt empowering. To me, UBI, it may take care of your material needs, but it's the opposite of empowering. It's disempowering. It's telling you, "Thanks. We got it from here. You're not needed, but we'll make sure you don't starve." I would say that it's unlikely to solve the emotional issue even if it solves the immediate material problem.

Luigi: If you have time, I actually have two questions. Hopefully, I'm not very long. The first one is very simple. We know that the Biden administration tried to force a forgiveness of the student loans with a lot of resentment on part of the population that either did not go to college or even paid its way to college or paid down the debt. I have an idea that came out as we were talking. Why don't we force a partial forgiveness paid by universities for the college graduates who don't get a good job after 10 years, especially if this is systematic?

In a sense, if you don't work hard and you don't have a good job, I don't know why that should be forgiven. If I am a university and many for-profit universities come to mind where the college graduates don't make any more money after they come out, that's not a problem of the student; it's the problem of the university that misled the students, and should pay at least part of the cost of the tuition by forgiving part of the loan. What do you think about this idea?

Noam That seems like an obviously positive step in bringing the incentives back into alignment. I'm sure the universities would scream bloody murder if you were to do this. In fairness, the Obama administration did, especially late in the administration, start scrutinizing for-profit universities better, started investigating the for-profit industrial complex. There was a little more scrutiny and regulation attached to that by the end of the Obama administration.

Luigi: My last point that is my obsession, as Bethany knows, is that I realized that the cost of producing a course in STEM is much higher than the cost of producing a course in humanities. However, universities charge the same, no matter what the course is. This implicitly is a subsidization for STEM graduates, who, by the way, make more money afterwards. It attacks on humanities graduates. Now, you can see another study against the cross-subsidization. The question is, I don't see the logic of this cross-subsidization. Do you see any? Why nobody has raised this as an issue?

Noam Yes, it's a great point. As you say, all of the literature on heterogeneity among college grads suggests that major matters a ton, and that the people in technical or business and finance and economics do much better than people in humanities and liberal arts. At a first approximation, the subsidy seems to make no sense. I agree. I would imagine that the universities tell some story like, "We really subsidize everybody."

The value that you get out of being at this university, between the degree itself and the access to all this infrastructure, we're not charging you the actual cost of this. We're subsidizing everybody. Yes, maybe we're subsidizing STEM people slightly more, but everybody is being subsidized. Maybe the STEM people actually end up contributing to that subsidy in future years because they get higher-paying jobs and they donate back to the university. It's win-win for everybody.

That said, I agree with you. Given what we know about the labor market outcomes of people in different majors, it does seem strange to charge the same amount and implicitly have the subsidy. It's hard to think of another market where you can buy the more valuable thing for the same price as the less valuable thing. You walk into an Apple store, and you get the super-fast, professional-quality Mac. You don't pay the same as the iPad or something. It is weird. It's not a feature that we identify with typical capitalist transactions.

Bethany: The thing that stood out to me most about the book is we do tend to think of this as either a crisis that's coming with AI and that is going to be precipitated by AI. What's really interesting is how this has been going on for quite some time. I had not connected the dots until reading his book that the rise in unionization or efforts to unionize at places like Apple and Starbucks was directly connected to these people who thought they were being cheated by the system.

I really think this is one of the most important questions facing capitalism because if the whole mechanism is broken of investing in an education in order to find yourself on a path to the middle class, which therefore makes you a believer in the system, because you're seeing the benefits of the system to you, if that whole thing is derailed, then that does seem to me is a really big problem for our current system. You?

Luigi: Absolutely. As you said, it's not just the problem of AI. AI would make it worse, for sure. The other thing that really made me think is I was always very much against the Biden loan forgiveness program because I thought it was really economically unfair in the way it was designed. Now I think that maybe there should be some form of help for people who were pushed to do the wrong thing, and now they find themselves really trapped.

After all, when banks took on too much debt, they were helped by the government. Why the poor college graduates who really were pushed to go in that direction, and now they find themselves trapped with debt, they shouldn't receive help. I think that would be the more fair thing. Maybe this help comes from the university themselves that have to pay down part of their debt because they promised something that they did not deliver.

Bethany: I really like your line that it is almost financial fraud. It is financial fraud. I don't know why I'm saying almost. If somebody else other than a university had sold this bill of goods to people and it had proven to be as much of a bill of goods as it is, there would be some sort of responsibility for it. All of this does make me think a lot about the financial crisis because, in that case, it was homeownership that was sold to Americans as buy a home, do whatever it takes to get yourself into a home.

That's what you're supposed to do, and that's better for you. It's an investment that's going to pay off. In a sense, student debt is the same thing. It's do whatever you can, take out all this money and loans in order to get yourself an education, because that's the path to the middle class, that's the path to bettering yourself. In both cases, those were large frauds of ideas, I guess, or frauds of aspiration that were perpetrated on people. There are consequences to that because those are both so foundational that when they prove not to be true, the demoralizing aspect of that or the sense of betrayal, I think, is really profound.

Luigi: Maybe Marx turns out to be right. He thought that the profitability of investment in physical capital would go down and this will lead to the collapse of capitalists, but maybe it's the deterioration of the return on human capital that is going to zero. That will lead to the revolution by college graduates who invested a lot, and they don't get a return for their education.

Bethany: I think that's a very profound and interesting realization. Yes, I do think one step in fixing it, the amount of lobbying that led to student debt not being expungable in bankruptcy is insane, and it's one of the great examples of lobbying corruption. There was an element of truth to it in that people were walking away from their student loans, but the solution that was engineered by lobbyists to make people never be able to get out from under it has become free reign to student debt companies and universities to just stick people with whatever amount of debt they can possibly get away from because people can't get out from under it.

That leaves the universities and the purveyors of student debt with no stake, and very little stake in what happens, especially since the government is on the hook for a lot of it. It really just was the wrong answer, especially when we see what's happened since then.

Luigi: Absolutely. I think what is particularly shocking, because fool me once, shame on me-- No, what is it? Fool me once, shame on you. Fool me twice, shame on me. I think that it was very visible after the housing crisis of 2008 that this was the next crisis. It was perfectly anticipated, the fact that universities are not as keen in the game, like that people were doing sort of a lot of the mortgages, underwriting a lot of the mortgages, and so on and so forth. I wrote it in my book. I think a few people pointed it out, but nobody paid attention. Now we are in a much, much worse situation, and I'm not so sure what the solution will be.

Bethany: Yes. I actually think it's an area for a lot of investigation. A young friend of mine was lured into getting a degree at Penn State. She was homeschooled and didn't have a college counselor, nor a family that understood these dynamics. She took out an enormous loan from Penn State, which made her all the usual promises. We've been trying to get her loan. I had offered to pay it off at some fraction of what it is because otherwise, they've trapped her into a low-end service job, and she'll never be able to pay a dime toward the loan.

The person at Penn State literally said to us, "There are tens of thousands of students in your exact situation trying desperately to pay off their loans at some discount to the face value. We can't let any of you do this because that will impact our ratings with the federal government." They're playing this game because the federal government does keep track of students' ability to repay their loans at specific institutions that then affects those institutions' ability to get federally guaranteed student loans.

I wonder if this is this giant game of let's pretend that not only Penn State, but a whole bunch of other universities are playing, where they just hope that something is going to happen because they're not allowing students to pay off their debt at a discount because they can't, because that will impact their standing with the federal government. All of this is just this giant crisis waiting to happen that not only is wrecking lots of people's lives, but is also a financial crisis in the making.

Luigi: Yes, it reminds me of the great financial crisis, where there were a lot of people with mortgages that were paying very high rate and wanted to refinance, but the Fed was actually owning some of those loans and did not allow them to refinance, which I thought was the ultimate irony. We seem to be in a similar situation.

Bethany: Yes. I don't think it ends well, either on a financial level or on a sociological level. It really does upset me about-- I know your chief villain is universities, and I hear that, and I get it, and I agree, but it really upsets me about corporate America and our investor-driven system, where companies could make changes that would stabilize the system and be in everybody's long-term interest. If all of this does continue to stew, it doesn't end well.

It really upsets me that the people with the companies with the biggest stake in this are exacerbating the potential for upheaval rather than doing what they can to stabilize the system for the long haul. I don't know. I guess your chief villain is the universities. I think mine might be, maybe not even the-- maybe some combination of the corporations in the market.

Luigi: Yes, I know. I hear you. I think that corporations are not particularly interested in the long-term survival of the system that feeds them. I think that that's the fundamental problem.

Bethany: Isn't that? That's a really fundamental problem.

Luigi: Yes, and I think that I'm more and more convinced that the next time will be a change of government, we will have a complete radicalization on the left because there is so much pent-up resentment that we're not going to have a normal alternance. We're going to go from one extreme to the other.

Bethany: Whiplash. Fun.