The Biggest Commodity: The College Degree and Academic Inflation

The College Degree

When we hear the term “valuable commodity” we might think about oil or gold. Yes, these are undoubtedly commodities (though their value has fluctuated over time), but many other less concrete objects are also considered commodities in our society today. A commodity is defined as “A raw material or primary agricultural product that can be bought and sold, such as copper or coffee.” But the second definition is “a useful or valuable thing, such as water or time”.

College DegreeBased on the second definition, one of the most valued commodities available in modern society is a college degree. While it may sound odd to refer to a diploma as a commodity, there’s no denying that a college education is a “useful and valuable thing” in today’s society. As our economy continues to struggle and the job market is fiercer than ever, a college degree is one of the most valuable assets an individual can hold.  See: How much difference does a College degree make in the unemployment level?

That being said, there is considerable concern over the topic of academic inflation and grade inflation in the world of higher education today. Credential Inflation: College Graduates Just Not Sizing Up

As our economy has continued to struggle, the issue of [Read more...]

The US’s Education Bubble

By Doug Hornig and Alex Daley, Casey Research

In the world of finance, there is always talk of bubbles – mortgage bubbles, tech stock bubbles, junk bond bubbles. But bubbles don’t develop only in financial markets. In recent years, there’s been another one quietly inflating, not capturing the attention of most observers.

It’s an education bubble – just not the one of student debt that has graced the pages of the New York Times and so many other publications in recent months.

The problem is not that we are overeducating ourselves as many would have you believe. Rather, it’s that we are spending a fortune to undereducate ourselves.

The United States has always been a very educated country. But it is becoming less and less so, especially in the areas that matter to our individual and collective economic futures. Our undereducation begins with a stubbornly high dropout rate among secondary education students. About a quarter of those who begin high school don’t finish.

In an educational system where graduation from high school at a minimum level often means no grasp of mathematics beyond basic arithmetic, no training in basic personal finance, and no marketable professional skills, this is an obvious problem We can and should do more to prepare high school graduates for the world they now live in. [Read more...]

How Does Inflation Affect You?

When people go the the grocery store and see ever higher prices they know how inflation affects them. But when they are feeling more philosophical they might reason that if all wages and prices increased at the same rate it would all balance out in the end right?

Well theoretically yes but in reality it never works that way. Prices of various items all increase at different rates so some people are benefiting while others suffer. Those on fixed incomes suffer the most because the cost of things they are buying increases but their income stays the same.

This is where COLA or “Cost Of Living Allowance” comes in it is an adjustment that is made to compensate for the increase in prices due to inflation. [Read more...]

Is a Stock Market Crash Inflationary or Deflationary?

Recently a subscriber asked me the question above, he gave quite correct arguments about how the stock market is “a zero sum game” in other words for every buyer there is a seller, so overall everything should stay in balance.

But as I’m sure you know there are at least 3 ways to measure money supply M1, M2 and M3. Each one includes increasingly broad definitions. From just cash equivalents up to including all sorts of time deposits and Government debts. But what they don’t include is stock valuations, however if the price of your stocks increases you feel richer and are more likely to spend money from your other accounts because you know if you need the money you can always sell your stocks.

So if you buy a stock at $10 and it goes to $20 you feel twice as rich. Has anyone bought that stock from you at $20? No! but it shows up on the credit side of your balance sheet nonetheless. So your net worth went from $10 to $20. and if you multiply that by the billions of shares floating around you have Billions of dollars created out of thin air! [Read more...]

Credential Inflation: Bachelor’s Degree Not Enough

In today’s tumultuous economic climate, when we hear the term “inflation” we think money and a failing economy our minds immediately turn to expenses, debt, and money woes. Rarely, however, do our minds turn to college degrees and job prospects. On July 22, 2011 Laura Pappano from The New York Times published an article titled The Master’s as the New Bachelor’s. Introducing into the public mindset the concept of “credential inflation” and “degree inflation”, this article has caused quite the hoopla in the academic world and many a panic attack among 20 somethings throughout the country.

Pappano suggests that there is a certain amount of credential inflation occurring throughout the job market today. College graduates are not finding the positions they would have in the past because those same jobs are now seeking candidates with more educational experience. So, 20 somethings entering the job market with their newly earned bachelor’s degrees and a pocket full of debt are told they have to double that debt in graduate school before they can hope to earn the money to start paying if off. Sounds like good reason for a panic attack. While this is obviously a problematic mindset for our young and qualified job-hopefuls to hold, is it actually based in truth?

[Read more...]

Inflation vs Consumer Price Index – Do you know the difference?

Many people are confused by the difference between Inflation and the Consumer Price Index. The Consumer Price Index is as its name implies an index, or “a number used to measure change”.

The Consumer Price Index (CPI-U)

The government chose an arbitrary date to be the base year and set that equal to 100. Currently that date is 1984. (Or more accurately the average of the years 1982-1984) previously the base year was 1967 (they change the base year every once in a while so you don’t notice that there has been over 2000% inflation since the start).  See Cumulative Inflation Since 1913.

Every month the Bureau of Labor Statistics (BLS) surveys prices around the country for a basket of products and publishes the results as a number. Let us assume for the sake of simplicity that the basket consists of one item and that one item cost $1.00 in 1984. Then the BLS published the index in 1984 at 100. If today that same item costs $1.85 the index would stand at 185.0 of course a group of items would work the same way. If you have 100 items each would account for 1% of the total index.

By itself that does not tell us what the current Inflation rate is. We must do some calculations using that index to tell us the Percentage of increase or decrease in the level of prices. [Read more...]

What is Core Inflation and Why Doesn’t It Include Food and Energy?

I frequently receive this question in one form or another: Why doesn’t the government consider food and energy, and just tracks core inflation?

The core inflation rate is frequently quoted in the popular press and this gives the general public the impression that the “government” doesn’t care about (or track) the rise in the prices of food and energy.

Actually this isn’t true.  The core inflation rate is simply a component of the overall inflation rate. It is used by economists because often seasonal factors will skew the inflation rate.

For instance a drought might cause fruit crops to fail, causing fruit prices to rise. But this rise actually has nothing to do with inflation (i.e. price inflation caused by an increase in the money supply). It is simply a result of the forces of nature.

Another example of forces of nature causing price increases is when a hurricane causes refineries or drilling rigs to shut down. This might cause a temporary decrease in oil supply and if supplies are tight it could result in a temporary increase in oil prices. [Read more...]

What Is the Real Inflation Rate?

I recently received the following question:

Please explain to me how my cost of living can increase by 10-15 percent, grocery bills, fuel, energy, clothing, etc. yet my income only increases about 2-3% which typically matches inflation.  I have talked to many people about this and a lot of folks feel the same way, how can inflation only be 2-3% when the cost of living keeps going up 4-5 times that number. I am a college student, but only in my first few years so please explain this in basic terms so that I may understand.

Thank you tremendously,


This is a common question– often it is phrased as “What is the real inflation rate? Who do I believe?” [Read more...]

Inflation, Oil and the Environment

I recently received a great question from a 6th Grader on Inflation, Gas Prices and the environment all rolled into one. It isn’t often that 6th graders think about these issues so I would like to share my response with you…

To whom it may concern,

My name is Sam and I am a 6th grade student at (deleted) Middle School. I love traveling. Whenever I go places I see lots and lots of poverty. I think to myself why? Than I look ahead of me and see the outrage sky high prices for food, gas and many other things.

You may be wondering why I’m telling you this .I’m doing a project on one of the things that you know a ton about. My subject is inflation of consumer and gas prices. As I think about the fact that gas is so expensive. I also think about why.

Than I remember that they are destroying habitats for animals. As the thoughts run through my head I wonder how can I stop this. This is my whole point of my project. I also realize that the demand for gas is very high. But the bigger demand the more wildlife is cut down and the higher the prices go. If this cycle keeps going on than the some people wont be able to offered to heat there homes or drive too work or even feed there family. Please send me as much information as you can so I can complete my project.

Thank you,


Dear Sam,

Thank you for the well thought out letter. It is good that you are thinking about inflation, Oil prices and the environment. Unfortunately it is a very complex subject so I will start with inflation. [Read more...]