Saturday, February 23, 2013

The Problem with Government Programs

I was thinking today about all the things that our government is "trying" to do in the name of helping us and all the programs that the president proposed in his State of the Union address and something dawned on me...when our leaders are going to "get it?"

I know it may be because I teach Psychology, but when are we all going to realize that people don't just function in a vacuum. Human beings are driven by consequences (rewards and punishment). We all have an innate ability to quickly measure a situation and take the actions that will be in our own best least in the short run. So, we cannot just give things to people without it having consequences for those people and everyone else.

Why do we as a society constantly create situations that make people less productive and less happy? This is nothing new...I first saw it in the several unionized jobs that I held where it became clear that because no one could earn a higher pay rate than anyone else, people did the next best thing...they did the minimum amount of work to get by, thereby maximizing their own personal return on investment of their time. I saw it when I worked my way through college as a construction worker and I later saw it when I was a unionized public school teacher. Sure there were a few people who worked hard anyway, but they were the exception. The system just did not reward working harder, so most people won’t.

We see it in many government programs that encourage people to not work. Why should I look for a job when I am on unemployment? Especially when finding a job means I will lose “free” money? We see it in health insurance policies that give us the impression that we can go to the doctor for "free" so we end up going more often than we really need to, which in turn drives up health insurance costs for everyone. An example reported by a CBS station in Pennsylvania showed how a single mother could get over $80,000 in welfare benefits.

We see the entitlement attitude in the endless late night television advertisements by lawyers telling us that we am "entitled" to some sort of settlement for something someone else did to me. I personally see it when I have college students tell me they deserve an “A” in a course simply because they paid their tuition. Or, they deserve an “A” because they came to class. When challenged on this they tell me they always received “A’s” in high school for just showing up to class.

We see it in legislation like the Affordable Care Act (Obamacare), in which our elected representatives voted to spend a trillion dollars on something that the Congressional Budget Office estimated will help 2 percent of the population. We see it in programs like Cash for Clunkers where the government (because of its wonderfully efficient systems) spent something like $24,000 on each clunker it took off the road! And we see it when government auditors estimate that over 40 percent of people getting free government cell phones probably don’t qualify for them. I am sure everyone can cite many more examples of programs with incentives in the wrong place.

So, the bottom line is...people do things because they either pay off, or appear to pay off for them personally. We are just wired that way. It is up to the people designing the system to understand that. Unfortunately our political leaders are primarily interested in doing what pays off for them. Once again it is all about self-interest.

Saturday, February 16, 2013

"Forbes on Fox" segment unfair to Spring Arbor University

The Forbes on Fox panel today talked about the Spring Arbor University Student Loan Repayment program. Unfortunately several of the panelists made comments without full knowledge of how the program works. Those comments were negative and gave misleading information or made incorrect assumptions about the loan repayment program. This is in response to those comments.

Some of the specifics of the program at Spring Arbor University:

-          The student must graduate from the university, therefore the program gives students the incentive to finish the degree and not drop out. If they drop out they cannot use the program.
-          After graduation they must be employed at least ¾ time (minimum 30 hours per week). So, they cannot just “sit around and do nothing.”
-          There are lower and upper income thresholds that give the student incentives to get a higher paying job because they will be farther ahead if they do. It is not an “all or nothing” program like many government give aways.
-          If their income is below the lower income threshold long enough, they will receive reimbursement for the entire amount of loan payments. But remember, it is a reimbursement. So, the graduate is still responsible for repaying the loan. They are just being helped when their income is low, but they must be employed.
-          As income increases to the upper income threshold, the benefit is reduced proportionately and in a way that give them the incentive to get better paying work.
-          Assistance will continue until loans are repaid or income increases above the upper income threshold.

Concerns raised by the Forbes on Fox panel and response to each:

This program will just encourage graduates to not seek employment after graduation (John Tamny). No it will not! To collect the graduate must be employed. They are not allowed to be unemployed. It only helps them if their income is below the threshold. This encourages the graduate to work no matter what the income level and allows them to pursue jobs in their chosen field even if the job does not pay a high wage. It just gives them the freedom to not worry about the loans payback schedule. Currently graduates of college who cannot find a well paying job stay unemployed. This program requires them to be employed in order to get assistance. It would be like requiring people on food stamps to first show that they are taking the initiative to help themselves before they get the food stamps. Or it would be like the unemployment program not allowing the unemployed to wait until they find a job that pays better then the one they lost.

This is just a “Hail Mary pass” for institutions in trouble and who charge too much already.   This was a very well thought out part of a business plan. The plan works based on the principle of an insurance policy and is administered by an organization in exactly that way. It does not increase costs by spreading them across all students because the cost of the program is covered by additional student enrollment in the coming years that will be handled without any increase in staffing at the university. The increased enrollment is due to the program itself and therefore does not have any additional marketing costs attached to it. So, tuition was not increased to cover the program and costs are not increased at the university.

This must have been thought up by the Obama administration. Someone else who went to the school is paying off my loan.  Again, not true. It is covered by an insurance fund which the last time I looked, is based on the free enterprise system. There is no redistribution of wealth as one panelist said. It is an insurance fund that is covered by the university streamlining its processes and staffing and enrolling additional students. In fact, this program is more like a warranty on an automobile which can only be collected on if the owner meets certain conditions (regular maintenance). Graduates are getting a warranty on their education but they only can collect based on certain reasonable conditions.

Go ahead and try it because online education is going to cost less and knock out 50% of colleges anyway. The fact is that online education does not cost less. In many cases online course cost more to deliver and there are many areas of education where online will not work (for example, would anyone on the panel go to a medical doctor who got his/her M.D. online? I would bet not. Or would the panel use a lawyer who did their degree online?) Online education is only effective in certain types of courses and subject matter. The future is an integration of online and classroom education which Spring Arbor is also doing.