Wednesday, September 8, 2010

Is the Party Just About Over for Mankiw?

Havard Prof Greg Mankiw is author of the number one best selling college economics texts. The cash register never stops ringing for Mankiw.

Mark Perry thinks that may change. He writes:

A direct partner in the "higher education bubble" is the unsustainable "college textbook bubble," captured graphically in the chart above. To put the textbook bubble in perspective, consider that the unsustainable housing bubble started in the late 1990s when home prices started appreciating much faster the consumer price index, and the housing bubble peaked in 2007 when median home prices had increased by a factor of about 4 since 1978. By comparison, increases in the price index for educational books and supplies have outstripped rises in the general price level for the last three decades, and are now more than 8 times higher than in 1978. Simply put, the textbook bubble displayed graphically has inflated to more than twice the size of the house price bubble.

Prediction: Just like the unsustainable housing bubble eventually peaked and crashed, the textbook bubble is likewise unsustainable and is set to crash. As Michael Barone wrote about the higher education bubble, "The people running America's colleges and universities have long thought they were exempt from the laws of supply and demand and unaffected by the business cycle. Turns out that's wrong." I think the exact same thing can be said about the people running today's college textbook companies.
It should be noted that the textbook bubble is a direct result of government redirection of funds to the education sector. Many smart players are shorting the education sector believing that the government will not be able to sustain the money flow that it is currently directed at the sector.


  1. How would you be able to short the education sector? WOuld it be centered around only for-profit education companies, or non-profit public universities? Or is it more around the businesses that spin off the education sector?

    Everyone should realize that the cost of an education is out of control, and influenced very heavily by Unions and bureacratic ineptitude.

    Example: While attending one University, I noticed a program manager for student activties had two secretaries. Her hours in the office were very limited, and the secretaries were not students...

  2. I'm surprised the CPI prices of college textbooks has risen. The hedonic adjustments for all the "quality improvements" such as glossy photos should have taken the prices down, as they did for cars, computers, televisions, etc.
    Could the reason for the rise be the lack of market prices for college textbooks in the first place?