Fair warning: This article will piss off a lot of you. That was the opening sentence to TechCrunch’s recent article, “Peter Thiel: We’re in a Bubble and It’s Not the Internet. It’s Higher Education.” Earlier this month Peter Thiel, the co-founder of PayPal, told TechCrunch that the housing bubble was replaced by the education bubble. Thiel was in the minority of people who predicted both the dot-com and housing bubbles. Now he and others are warning that most college degrees are not worth the cost.
According to Thiel, a bubble, in this sense, exists when “something is overvalued and intensely believed.” He makes another claim: “To question education is really dangerous ... It’s like telling the world there’s no Santa Claus.” Thiel’s definition is a good one because it accurately describes the frenzy surrounding the dot-com, housing and education bubbles.
I experienced the craziness of the dot-com bubble firsthand while working at a print and computer services shop during the height of the frenzy. Every week, I talked to new people who had dreams of getting rich quickly by taking their start-up companies public. I witnessed coworkers gamble away their $7, $8 and $9-an-hour wages on Etrade, Ameritrade and Datek online. It was a new era where NASDAQ was king, and anyone could get rich by buying stock in Cisco, Lucent, Dell, Yahoo, Apple and Enron. The few bears who took to CNBC and Bloomberg to warn Americans about the bubble were ridiculed and scorned because the majority of people intensely believed in tech stocks.
In two short years, NASDAQ lost almost 80 percent of its value. As the bubble deflated, money immediately flowed into the housing bubble. It only took a few years for the U.S. to enter into another new era where everyone could get rich by owning a home. Those who rented were dumb — wise investors put zero down and took out six-figure interest-only loans on cheaply built McMansions. At the height of this frenzy, I worked retail in a hot real estate market, and almost half of my coworkers worked two or three jobs so they could afford the enormous payments associated with home ownership. Once again, those who warned about the bubble were ridiculed by those who believed the path to prosperity and that financial security was increasing housing prices.
As the housing bubble continues to deflate — prices still have a long way to drop before they reach pre-bubble levels — and faith in the stock market remains shaky, optimism is being poured into education. More money is flowing into higher education because, as Thiel stated, “education may be the only thing people still believe in in the United States.”
In his article, “Higher Education’s Bubble is About to Burst,” law professor and author Glenn Reynolds espouses similar views as Thiel. As Reynolds tells it, the reason why students continue to borrow large sums of money to fund their years at college is “ignorance by students and parents who don’t fully grasp the harsh impact of student loans; and a belief that whatever the cost, a college education is a necessary ticket to future prosperity.”