In Salon.com today there is a reviewGeneration Debt: why now is a terrible time to be young by Anya Kamenetz (a subscription is needed to view this without ads).

In the book and in the review the discussion is about how increasing burdens of school (mostly college but also professional and graduate school) debt, as well as easy credit plus low wages and benefits, are creating a “trap” for young workers today.

As both a young (well relatively - 31) worker myself and as someone writing a book on economics, I was greatly interested in this review (and will add the book to my large growing pile of books to read).

I was given a great gift by my parents, the same gft which my mother had been given by her parents, namely I was given the opportunity to go to college without incurring a significent (really any) debt load. Even though I did not finish that degree (I’ve posted more on this at my personal blog - Searching For the Moon) the experience in many ways shaped my career and future.

But by having been given the opportunity to attend college without incurring debt, in a similar manner to what my mother had been given, I was able to start my career and save money immediately. This in turn gave me the chance to buy instead of rent very early in my career, and later on to have the ability to take the risk of starting my own company instead of remaining as an employee of another firm.

But I am definitely an exception, and to do this my parents had been saving for my college education since almost literally when they learned that I was going to be born. The fact as well that both of my parents had successful careers all through my childhood most certainly also helped.

In the book and review/interview, the author suggests that the solution might be to change how education is funded, from our current method of incentives to banks to write student loans to direct student loans from the federal government along with increased grants.

While I don’t disagree with her general points, I think that both the problems and the solutions are more complex than she depicts.

First, there is a fundemental problem many people (and companies) face in valueing and leveraging people. Our business models today and what people accept (individually and as groups) as both wages and prices are out of whack.

In my book on Economics I will be exploring the implications of thinking of all of economics as fundementally being about networks. From this perspective, value is determined through the network around that which is being valued - whether it is housing, food, big screen TV’s, or the value of a person’s time and mental (and physical) energy.

Credit is a very complex matter. The modern age is in large part a result of the increase fluidity and flexibility of credit - the ability to aggregate and consolidate resources from millions even billions of people, pool them, and then use them in ways large and small to provide credit is a powerful capability. Without it global trade would slow considerably, perhaps stop alltogether (even in the 16th century credit systems existed, often tied to family connections of diasporas such as Armenians or other merchant communities who managed complex credit and trade around the globe).

Credit on a personal level can be thought of being a way of capturing the future, defining it, establishing boundries around it and when a large set of parties agree to this, making use of it in the present.

What do I mean by this?

Take the example of a personal line of credit - say a credit card. What a company is saying when they issue a credit card is that they are confident that the person they issue the card to will over time have the capability to repaying those funds with interest.

At least that is the theory.

But today, an increasingly large number of people (and the businesses issuing the credit cards) are assuming not the capability of paying off debt completely after some defined period of time, but rather an essentially endless capacity to continue to pay some minimal ammount into the foreseeable future.

And as the mortgage and second mortgage markets have gotten more liquid and flexible, this trend has continued into the housing and “asset” backed loan markets as well. More and more loans are being looked at not from the perspective of whether or not via having the funds today the person receiving those funds will be able to take steps that allow for the repayment of those funds (plus interest) in the future - but rather at looking at whether or not the person will be able to sustain some stream of minimal payments on an ongoing basis (interest only mortgages for example where the focus is almost entirely on the month payments, not on ever repaying the principle of the loan).

In theory, a loan for college should be thought of in similar terms to a small business loan, it should be an investment in the short term to create something which can both repay that investment with interest and then result in an ongoing, productive and valuable addition to society. In the case of an education, the theory at least, is that via an investment of money and usually four years of time, a person increases their earning potential into the future, and can thus out of that increase in earning potential pay back loans with interest which funded the cost of that education.

As a society we may want to look at the structures around our educational systems and think seriously about how and if this pattern has changed and how it might need to adjust in the future.

Consider the network around a private school.

The school as an entity could be defined as starting with its endowment, usually this includes both the real estate and facilities of the school, other physical assets, and often significent investments (we’ll leave aside for the moment the network implications of how those investment assets are managed and themselves held).

The physical plant of the school both requires ongoing costs (staff, heating, maintance, ongoing investment) and generates some income (leaving aside tuition for the moment - income from housing payments from students, rental fees from outside organizations, rent paid by oncampus retailors, income from sporting facilities, campus bookstores, etc). Some of this income itself requires other costs - suppliers and staff for the campus bookstore for example.

The school then has a large and mostly well known (at least internally) cost structure for staff and teachers - with tenure comes a fairly well trackable cost for those faculty members. However the costs of faculty are not just payroll, they are also benefits and research facilities, costs and resources. Every year the library has to buy so many books and magazines, the research facilities cover various costs etc.

In theory (and frequently in practice) each faculty member or department is required to find funding sources for these research efforts, these sources can be the federal government through a wide range of grants, or they can be other sources who award fellowships, grants and research dollars to researchers at various universities.

For some schools out of this research can come additional opportunities for revenue - licensing and royalties from pattents or other IP that are created. Other schools can create revenue streams from publications (though more often these are money losing or at best break even ventures) or other means of revenue generation from content creation (syndication of content, audio/visual content etc).

Many schools also have other minor revenue streams - museums on campus for example.

Then there is student tuition - students both undergraduate and graduate (and returning as well as professional schools) make up a large portion of the incoming steams of value for most academic institions (though for most they are not the only stream).

At the graduate level (non-professional) much of the tuition payments are counterbalanced by similar payments out by the institution in the form of fellowships and forms of payment, some grants, and some payment in exchange for labor such as teaching or being a researcher, or assistant.

At the undergraduate level, while there are payments out from the universities, at many schools (though as Anya mentions some of the best funded schools like the Ivy League are changing this policy) the majority of students and their families are asked to first incur debts and/or pay down assets before any grants or other awards are given.

These funds then are used to cover the multitude of costs associated with a university - of which by no means at all are all directly associated with the cost of education - some are for the salaries of teachers, research libraries, educational facilities, but as well there are costs inherent with housing, feeding, and entertaining the thousands (or frequently tens of thousands of students at the university. From the cost of coaches for atheletic teams to the costs of on campus entertainment these costs are also built into the cost of attending a major school.

After the four years of undergraduate education are completed, the theory is that the degree as well as the relationships and contacts formed while at school (and to some extent through the ongoing future assocation with the school) will help that individual in obtaining an income (or resources in some other means) that will allow for the repayment of the debts incurred while at school.

Unfortunately, this is where it has increasingly been breaking down. The relationship between college education and ongoing careers has changed, with a college degree no longer being a garuntee of a specific level of income, with it being to some extent just the bare minimum to get in the door (for some types of employment) and not a factor at all for many others.

With a very large school, the ties between alumni are not particularly strong, there are exceptions (Yale, Princeton, Harvard come to mind as exceptions) but the ties for a school like, Ohio State, are weak at best.

There has clearly been a number of changes in the career paths for Americans (and to a large extent workers around the world).

There is a path that goes something like: college, summer internships, recruited job after college (for 2-3 years), graduate school/business school, summer jobs (highly paid), career.

This is, however, though depicted by many as the path of success (with a similar yet different path for people who are on the doctor or lawyer path), a relatively rare and unusual path for most people.

Instead, most people have a path of random/odd jobs typically starting sometime in high school and continueing with little stop while in college. Then they while they may have some interviews while on campus have trouble finding employment that related directly to what they studied in college, more typically they fall into a career path (or as Anya depicts no path at all) and work at a range of fairly random jobs and careers.

In the “trades” or “trade schools” there are more clearly defined paths forward - from culinary schools to other specific career schools - and while not usually a path to dramatic major life altering wealth, they are a path for a generally predictable career. Here the investment in the future is likely more measurable and easier to calculate - while at the same time frequently financially lower (though not always) then more traditional college.

There is also a very large (and many people, myself include, would say unfortunately too large and growing) group of people for whom college starts at the junior college level, is taken often at night classes while working full time, and is seen as a path out of a dead end career into a somewhat better life. Whether this is a realistic view or not is an open question, but this is one of the groups that for-profit colleges such as the University of Pheonix have been having a great deal of success supporting.

So lots of open questions but I would suggest that looking at the networks surrounding schools as well as individuals (and employers) is a productive and useful approach. It offers a way to look at how the many entities are interconnected.

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