Knowledge Is Essential
I have long been an advocate for learning and education. I come by it naturally. My father used to say, “Beauty fades dumb is forever – get an education.” The tone was not inspirational, it sounded to me and all of my siblings more like a threat. So out of the six of us, we possess three doctorates, six master's degrees, and eight bachelor's degrees.
My first draft was challenged. It was, “Yeah, I agree with you, but move this argument from opinion to some trends and facts and share your biases.” Here I go.
Clouding My Perspective
My first confrontation with educational choice was as an adult for my four children. I wanted our children to go to public schools, and she wanted private schools. I attended an excellent public school system north of Chicago. My wife addended excellent private schools in Iowa and Arizona. Looking back, at the same time, around 25 years ago, some dear and utterly mad friends suggested I run for the local elementary school board. After attending three elementary public school board meetings at the last meeting, I had enough of their idiocy. At the fourth meeting, I asked too many questions and pointed out that while they are looking to raise money, the buffoon of a treasurer has lost $995,000 in the last two months because of their failure to file two one-page forms, one with the county and one with the state. I was told I was being disruptive (I was). The school board members called the police to have the disruptive me removed. Thankfully, I worked with the police on financial crimes, and when the officers arrived, they laughed at me, told the school board they should listen to me, and left. It was a rough evening, and I was not even home yet. Coming through the front door, my wife asked why a police sergeant called and said, "She needed to get a martini ready for her husband” That’s me.
I looked at her and shared the evening’s events with her and agreed that it would be private schools for the children. I was also thankful for the martini ordered in advance by some fine men and women of our local Police Department – friends always.
The tone is set at the top. I do not know how often I have heard or read that phrase in studies on fraud and corruption. A board of buffoons set the tone at the top of our local public elementary schools. How does it go better as you dig deeper? Twenty-five years ago, I was optimistic that it might be better. 25 years later, I am a realist. It does not get better. If anything, it gets worse.
As we watched our children grow, we noticed the ever-increasing division between the curiousness and aptitude of the children in private and public schools. It started as cracks, widening every year until 8th grade. In four years of high school, the difference became a chasm. We did struggle to pay tuition, and yes, we had help with tuition from 3rd party organizations. We could not have just “written the check.” Each semester we had to work hard and be very creative.
So what has happened in 25 years? The sea change of computers and the internet. Hundreds of readers will read this post on six continents roughly simultaneously. Could that have been done in 1997?
- In 1997, 2% of the world’s population used the Internet. Now, it is close to 70%.
- In 1999, Broadband was the thing with a 56K dial-up modem. (I still remember mine)
- In 2003, man created more information than in the entire history of man. In 2004 we doubled that. In 2010 we did that every two days.
- In 2014, one megabit per second (Mbps) was considered highspeed home services.
- 2023 I have 25 Mbps with an option to buy up to 1 Gigabyte per second.
Since 1997 the world has experienced a content, knowledge explosion, and interconnectedness across cities, states, and countries. We think nothing of live video and audio feed across the globe from a handheld device to a handheld device.
How has education changed?
Not so much. Sure, we have computers in the classroom. Yet the school year in the US revolves around a 150-year-old agricultural calendar. Classes begin in the fall after harvest. The fall break is tied to winterizing the farm and preserving the last bits of food for the winter and spring. The winter break is religious and addresses the reality of traveling to and from school in winter conditions. Spring break is for planting and calving or lambing. Summer break is for running a farm when cops must be maintained and animals tended to.
We can interact on live video across the globe, yet our schools are running on a 150-plus-year-old school calendar.
Change Is Coming
In 1991 Wisconsin started its low-income school voucher program. The point of the act of school choice was ostensible to level the playing field between the poor and the wealthy while using the cudgel of competition to prod public schools to improve their performance. With choice, voucher supporters argue that low-income families have the same access to presumably superior private education as the wealthy. The pushback was immediate. The pushback argued: where is the accountability and that the consumers will have a hard time evaluating the schools. They might even be wasting taxpayer money and ripping off the public, the parents, and the students. In short, the intonation of the arguments against vouchers was that parents were too stupid to know what is good and bad for their children. It should be left to the state.
Voucher advocates have always been untroubled by these arguments. Voucher advocates contend that the marketplace is a sufficient measure of a private or charter school’s performance. Schools that do a better job for their children’s education will draw growing numbers of students. Those schools that don’t meet expectations will find themselves by the wayside as parents vote with their minivans.
The K-12 Education is a State Monopoly.
The K-12 education monopoly rests upon a foundation of unionized teachers running state schools. From the beginning of 1991 to this day in 2023, the teacher’s unions recognized the real threat to their administration of the state monopoly of public schools presented by vouchers. From The American Experiment April 08, 2022.
Politics over members’ needs
The National Education Association, NEA the country’s largest teachers union, spent twice as much ($66 million) on what it self-reports as “Political Activities and Lobbying” compared to “Representational Activities” from Sept. 2020 through August 2021. Another nearly $118 million was spent on “Contributions, Gifts, and Grants.” A good amount went to political organizations, including groups that funnel donations to support Democratic candidates.
Of the union’s $374 million budget (excluding investment purchases and fixed assets), political activity spending accounted for 18 percent, and “contributions, gifts, and grants” totaled 32 percent, according to an analysis of the numbers by Americans for Fair Treatment.
Only nine percent went toward representational activities.
The NEA has long since ceased to be a union. The NEA is a full-throttled voice to quash vouchers once and forever more. They are buying votes and opinions to keep their monopoly in place. Where are the students in this posturing?
It is clear to all observers that enforcing the union lock on state monopoly education is more important than “member representation needs.” Mind you, representing members is why unions were formed. The unions also know that if the monopoly breaks, there will be fewer unionized schools and few dues from members.
The unions need to keep the state monopolies in education in place. They are doing everything they can, from supporting their candidates in elections to funding ligation to reverse or cripple voucher programs. The choice made available by vouchers directly threatens the survival of the teacher's unions.
It is also rich in ironies as the teacher's unions fought hard to keep K-12 schools closed while private education and charter schools opened as soon as they could. The longer schools were closed, the greater the learning losses to their student. The closure disproportionately impacted lower-income and disadvantaged students.
“Of all the COVID policy blunders, the most unforgivable — which will have by far the longest-lasting negative effects — is the closure of schools.
Almost three years ago, education officials and politicians started to put padlocks on the school doors.
Harvard was the first domino to fall. The vast majority of public schools soon followed suit.
The result — as we predicted at the time — was a disaster.
One study found that closure at the end of the 2019-20 school year alone will be associated with 13.8 million years of life lost, as educational attainment has a well-established relationship with income and life expectancy.”
The teacher’s unions' obdurate behavior is accelerating the trend away from the K-12 monopoly on which the unions survive.
Marxism is the philosophy that crushes choice (even school choice) and requires you to serve the state. Communism and Marxism are responsible by 1997 for 113 million deaths.
Now it is closer to 130 million. This is what the teacher unions and educational associations across the country espouse. No hyperbole here at all. The Colorado Education Association proposed a full-blown Marxist resolution, which members voted on and approved. This is not soft Marxism, this hardcore statist, virulent anti-capitalism, anti-free markets, and anti-choice. See for yourself and read the text of the resolution.
The tone is set at the top.
You have now no doubt seen the political advertisements on how vouchers are taking money away from “our schools.” This is correct. Money is leaving state schools and going to private or charter schools as the funding follows the students, not the schools.
Higher Education is an Oligopoly.
The oligopoly is held in check by the accreditation process. Starting a school and submitting to any accreditation process is extraordinarily time-consuming and expensive. All courses and degree programs must undergo accreditation. Each new class must be submitted to accreditation before the course can be added to an accredited curriculum. This process sets up enormous barriers to entry as well as barriers to innovation and adaptation. This is intentional. It has less to do with quality and more to do with a barrier to entry into the higher education marketplace. Using the burdensome minutia of the accreditation process has been effective in keeping the “higher education guild” as the only place to receive an education. Further, many governments and employers will only reimburse tuition and tuition expenses if the school is accredited. As they say on the informational, “Wait, there is more.” A student can only apply for and receive student loan financing if the school is accredited. Free choice?
In 1997 admission to schools was primarily based on merit. The harder the school, the more qualified a student had to be to survive the academic rigors of a four-year degree. The “brand” of the school mattered. Harvard, Yale, MIT, and Stanford were top brand names. The top schools retained some of the finest professors, researchers and thus attracted some of the most brilliant students. There were exclusive campuses, exclusive professors, researchers, and students. You had to physically go to the school’s campus to get the education. The brands had cachet.
How much cachet? Parents bribed schools with donations and admissions officials with cash to get their children into the top branded schools. This was the entire disaster of Operation Varsity Blues. Roger Meiners, Andrew Morriss, and I drafted a paper on Operation Varsity Blues that was published by BYU Law Review.4
From the conclusion
“The lack of transparency in university admission standards makes selective colleges ripe for corruption, as exposed in Varsity Blues. Even the head of the College Board calls for stopping “the madness that has arisen around college admissions.”
From 1997 to 2023 too many regulations were passed on what schools required to do to stay accredited and comply with new laws and regulations. It is estimated by many that 40-50% of a university’s budget is dedicated to compliance. The accreditation bodies have also changed the rules on accreditation in that schools must wholly embrace the anti-meritocracy of Diversity, Equity, and Inclusion (DEI) in both the admissions process and in shaping behavior on the campus. It is no longer about a student’s inner merit and mettle – it is all about the student’s crust and the adherence and adaptation of a work Marxist mindset. While you may think giving others a handout as opposed to a hand-up is a good thing, imagine someone who does not possess the mental rigor and fails to graduate. They owe a great deal of money in student loans from which they cannot escape. Does that seem fair? No, it does not. The jilted students agree. There is a growing trend of students suing schools under the premise, “You admitted me. Now you need to graduate me.” Woke social justice is a descendant and outgrowth of Marxism.5
In short, appearance and adherence to ideologies are more important than merit. To repeat appearance and adherence to ideologies are more important than merit. There is no more clear example of the Yale campaign against free speech. The meltdown of Yale students disrupting a free speech event was so disheartening.
The little Trotskys cannot handle a civil discussion unless it conforms to their ideology. Would you hire anyone of those students?
The attitudes and behaviors of students and future graduates have consequences. According to an executive recruiting firm I advise, many of the client employers are “blackballing” (specifically excluding) graduates of several universities from consideration for employment. Employers have found that graduates from blackballed schools have large gaps in their education and possess poor work habits. They are intolerant of dissent, easy to offend, and refuse to speak up. The last is the worse. They are afraid to speak up. They learned in college that if you speak up and your words are not ideologically correct, you get hammered down – so they stay quiet. The graduates are self-censoring because of the very real ideological trauma that they have undergone as students in these schools. These students are paying for a branded-name education delivered by top professors and instead are leaving the schools under-educated, traumatized, and deeply in debt. The graduates of these schools are under a condition of adverse selection as they have been severely and tragically damaged.
The tone is set at the top.
Unlike K-12, Universities have more severe economic pressures. The pool of potential students is shrinking, and the competition is increasing.
“Nationwide, undergraduate college enrollment dropped 8% from 2019 to 2022, with declines even after returning to in-person classes, according to data from the National Student Clearinghouse. The slide in the college-going rate since 2018 is the steepest on record, according to the U.S. Bureau of Labor Statistics.”
Did I mention that the internet has happened? The impact on higher education has been predictable and richly illustrated by the COVID-19 lockdowns. A student no longer needs a classroom. A student still requires a community of fellow students and professors to discuss and debate points of learning. But now that can be and is addressed with video conferencing.
Distance education courses and programs provide students with flexible learning opportunities. These became especially important in the spring of 2020 when the coronavirus pandemic began to disrupt education in the United States.2 In fall 2020, some 75 percent (11.8 million) of all undergraduate students were enrolled in at least one distance education course, and 44 percent (7.0 million) of all undergraduate students exclusively took distance education courses. The number of undergraduate students enrolled in at least one distance education course was 97 percent higher in 2020 than prior to the pandemic in fall 2019 (11.8 million vs. 6.0 million). The number of undergraduate students exclusively enrolled in distance education courses was 186 percent higher in 2020 than in 2019 (7.0 million vs. 2.4 million).
Today, students can receive an accredited branded degree from just about anywhere. I teach a “Business Street Smarts” class for Hayek Global College’s Master of Business Administration. The school is headquartered located in Brazil, and my students have come from five continents.
I am biased, but the education received is better than most USA-based master's programs. We don’t use canned academic scenarios. We pick real, live, and current business scenarios, and students and professors work the problems together.
Also, don’t think the professors are happy with the climate. When the new school the University Of Austin, was proposed, they received over 1,700 unsolicited applications from professors wanting to teach at the University of Austin.
So, what does this have to do with investing?
The trend of the privatization of education has been sloping up since 1991. Private schools have held at about 5% of the student population. From 2019-20 to 2021-22 school years, enrollment jumped 20% to 7.5% of students. In states with more liberal voucher systems, such as Arizona, 21% of the students are enrolled in Charter Schools.
It is a good play for those companies offering charter or private school K-12 education. The trend will accelerate legislative session by legislative session, state by state. The charter or private schools must also be prepared to be attacked by the teacher's unions or teacher union shills.
This is a more nuanced play. State schools will always be part of the higher education landscape. Some education pursuits just cannot be outsourced, such as the sciences that require extensive laboratory work to learn your skilled craft, the performing side of the arts, and others. However, many degrees could and are going online.
What does this mean for the investor? In time, the large for-profit schools that have aped the large public university model will be in trouble. It is a dated, flawed, and failing model.
Our cost approach to our education predictive model would have implied that more would enroll in community college, earn an associate degree, and move on to another school for a bachelor's. The model is wrong. Community College enrollment from 2010 to 2022 fell by 40%. Part of this is students shifting to focused accreditation/credential programs; the other has been the shift to online education.
Students are not finding what they want at community colleges, and they are hard-pressed to afford what is being fed to them by traditional colleges and universities. The continued shift from the traditional educational model to online is powerful and irreversible. It is dominated by private, non-profit, and for-profit institutions that graduate 2 to 3 students for each traditional school trying to teach online.
This leads to temptation for the large schools to cuts costs and the online schools to overreach for more students. A large, branded university can take a white-labeled degree program from a 3rd party online school and offer the program through the branded school. The branded school charges students as though it comes from the branded school and is one of their own in-house courses taught by their recognized professors, yet it is not. Branded schools like larger margin online schools like the low effort to increase enrollment. This is fraud. You are paying for a branded education, and you get something else. Its a bit like counterfeit watches. If you pay the money to buy a designed watch, it better be that designer watch – not a knockoff. This fraud is occurring across all higher education.
While one cannot trade the shares of state schools, one can trade the shares of those schools participating in the frauds. Stay tuned as we share a story of a publicly traded online educator participating in delivering knock-off courses through branded schools.
- Traditional colleges and universities, with rare exceptions, will contract violently in the next 5 years. Look on the short side of traditionally based higher education.
- Students and faculty will shift to exceptional private schools such as the University of Austin and to online schools that offer what they want at price points they can afford. Look toward private schools that have managed to avoid traumatizing their students
- Schools offering credentials will expand. Credentials for entry-level careers and higher-level certifications within professional disciplines. Look on the long side or those offering credentials.
- Online private education will rapidly expand across most all disciplines. The public schools are too burdened with rules and regulations to adapt in time or in a meaningful way. Watch for schools with authentic professors, support their students, and good student reviews. Yes, the students matter – that is the point.
- Look for old-school properties that will be sold for redevelopment.