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Millennials, Seize the Future or Lose It All

The Future Project

Systemic and intractable problems - Part 1

Many of the problems we face are very hard core. Do we declare our problems unresolvable and drag them into the future to continue living with them? Will we survive festering problems that we ignore? This is a four part series, with a researched and out of the box look at working smarter with four problems:

  1. Part 1: Resolving systemic problems with assistance, in the educational system
  2. Part 2: Resolving systemic problems from the medical system
  3. Part 3: Resolving systemic and societal problems in the inner cities
  4. Part 4: Resolving systemic and societal homeless problems

Helping people when assistance drives prices up

One of the problems we face, now and in the future, is, "How do we help people without it backfiring and driving prices up?" It's as if assistance simply develops a new profit baseline for institutions, with little help going to those who need it. Money from the government simply becomes a money grab for the shrewd. I see it happen over and over.

In the 1980s, the government got behind solar energy in a big way. I had solar collectors put on our roof for heating. I worked in a related industry and could assess value. It was obvious to me that we more than paid for them, so at minimum the 50% government contribution was all profit. A huge profit. The parts and installation labor were worth way less than half of what we paid, not counting the government contribution. Those excessive programs soon ended.

In the medical community, the preferred trading circle*1 exists which ignores the patient in the cost paradigm. Government assistance and insurance, guarantee higher prices. The biggest price increase is in administration. In comparison, in the plastic surgery community, the prices consistently go down instead of up.

In colleges, the New York Fed determined that for a dollar in assistance, it pushed the price of tuition up 55 cents. Colleges hire more administrative support for professors (department chairs). Administration is the fastest growing cost in college education, while professors feel underpaid, and teachers assistants are paid poverty wages.

The government started a "Lifeline" program in the 1980s. It's important that people, including the homeless, be able to call in emergencies, and for potential employers to contact them. In 2005, the FCC expanded the program to cellular. It would give out free cell phones with service to those in need. The 2 billion dollar program was paid for by charges to other cell phone users. Suddenly vendors, who got $3.00 for each phone they handed out, began advertising on TV, setting up booths at events, etc. They would fraudulently get phones for unqualified people by using other people's food stamp cards to qualify them, making more money for the vendor. Sometimes the individual was supplied multiple phones by multiple vendors. New rules have since changed that fraud.

So every time big money from the government becomes available to assist people, fraudsters and big institutions greedily rub their hands together and find ways to take it. It comes out of our pockets, and there is only a small gain for those the money was supposed to help.

It isn't just private industry that does this. The government does it also. In the 1990s, the government sued tobacco companies. They won settlements of over $200 billion, that were supposed to go to fund anti-smoking and other smoking related and health care programs. Where did the money go? Well, infamously, one put a sprinkler system in a golf course. The States have irresponsibly used most of the money. It was simply a windfall for whatever politicians wanted, including balancing budgets. There is nothing politicians know how to squander better than a pot o' gold.

It's difficult to know what happens to our money. I laugh when I hear people say, "I designated my funds to go to a special purpose." When an institution looks at a pool of money, including yours, they look at what they want to use the total amount of money for, and divide up the pie. Then they say, "Oh, this person wants to fund that, so put his money in that piece of pie and take others' money out." The total pie remains the same, it's just magic division. The federal and state governments do the same. What happened to all of the money collected by the government from tobacco company law suits, that were supposed to fund medical care? Poof! Temporary windfall diverted to other things.

Profiteering by those in responsible positions is a major problem we have to solve.

Are there solutions?

We need to develop some basic principals for assisting others that don't drive up prices and invite fraud and abuse.

  1. Don't make payments from the government directly to institutions - it becomes a budget "given" based on the number of participants, and drives prices up. Consumers have to make them show their prices for all institutions they are interested in. Prices won't come down right away, but eventually competition will require institutions to be more efficient. Voucher systems can be used to pre-qualify non-emergency funding for both consumer and provider expenses.
  2. Require institutions to meet certain objectives to qualify, for consumers to collect reimbursement. For example, if they keep their price structure at certain ratios of administration to clients, and keep all staff salaries at a percentage of average household salaries, keep extraneous billable expenses below a certain value, and treat every client the same, then they qualify. If they don't qualify then other companies get to provide the same service. That's competitive.
  3. Focus on lifting people up, not giving assistance money to them directly or indirectly. Paying people directly, when done for long periods, creates a dependent class. In later articles, we'll see that a dependent class, or other impoverished style of living, is very difficult to change. Giving them opportunities to attain improved living conditions and skills, boosts them up and makes them contributors to the economy, no longer requiring assistance.

Resolving systemic problems with assistance, in the educational system

What if students could leave college with no more than 30% debt, and often with no debt?

College costs go up with government assistance. The financial aid office is a primary profit center, and counted on for business stability. College isn't exactly a mutually selective process. One student may apply to several different colleges, hoping for acceptance by at least one. Colleges select students by qualifications. The student feels like, "They selected me," not "I selected them." But colleges are the ones providing the service, and students are the ones buying the service. Students are not in a bargaining position. The college does minimal competition for students, and from the graduate placement results of a variety of colleges, their standing is mostly overpriced hype. Business rarely hire on the basis of what college someone went to. Business cares about business results.

"Institutional fit," is an important qualifying factor. At the two extremes: A Harvard family with a certain place in society, tends to stay a Harvard family, or stay in ivy league colleges. On the other hand, people who have minimal exposure to college level people and environments, often feel out of place in any college environment, and their drop out rate is high. College students and institutional fit: A comparative study of student attrition and retention - University of Connecticut.

"Each college student interacts with the institution in which s/he enrolls. The interaction takes place with faculty, student services agencies, policies and procedures, to name several. The degree to which this interaction is satisfying and successful for the student, and the extent to which student expectations of college life mesh with the demands of the institution, create that student's "institutional fit". The better the institutional fit, the greater the opportunity for the student to persist in college." - Abstract, INSTITUTIONAL FIT AND STUDENT SERVICES FOR FRESHMEN AT THE UNIVERSITY OF NEBRASKA - LINCOLN (TRADITIONAL, CONGRUENCE, NONTRADITIONAL, SATISFACTION)

While colleges seem to ignore expenses, college cost it is an important factor in a student's decision to attend or remain at a college. A study found that "Persisters [coming back for a second year] initially had a goal of earning a bachelor's degree, and the reasonable cost and convenient location of the institution were the most important reasons they returned for their second year. Some were considering transferring to another school, but were unsure of this possibility, primarily because of cost." College students and institutional fit: A comparative study of student attrition and retention - University of Connecticut.

Students do choose colleges based on cost. But college costs keep going up. So I have to put my business hat on, and ask, what business environment do for-profit colleges operate in, and what do they hope to control? Businesses are in business primarily to make money, although they may have other important objectives. To be successful long-term, they have to satisfy stakeholders (stockholders, employees, consumers, and even other businesses in their ecosystem). Textbooks and sports are examples of the ecosystem.

Essentially what businesses want is a stable and growing environment, so that their income is predictably certain, and income growth is reasonably certain. Their profit margin is set (20% is typical), along with investor expectations. Twenty percent gives a good ROI. Non-profit colleges sometimes have twice that profit margin.

For comparison: Jewelry stores have a profit margin of around 50%. Retail businesses are around 35%. Automotive manufacturers, 5 to 17%. Oil refineries have historically been around 7%, but in today's world, they may make a dollar on a gallon of gasoline. Supermarkets run 1 to 3% profit. Car repair places run 3 to 5%. Most small businesses run in the 0 to 5% range. So colleges have an elevated position in the world of profit.

Universities identify their place in the market and expect to exploit that place, fending off competitors. As long as they can count on these things for stability, they can increase their profit by offering more products or services. If these things are working well, then costs can be a percentage of sales, which means that each year costs can go up with sales. The cost/revenue/profit margin ratio is typical of business. If investors are happy, and people keep paying, there is no incentive for controlling costs, so costs go up every year.

Profit is revenue (dollars in) minus costs (dollars out). Profit percentage, or gross margin, is profit divided by cost. When costs go up, profit comes down, and vice versa. Same with revenue: goes up, profit goes up. Often businesses look at the profit margin that will please investors, and plan costs based on that. Costs commonly go up hand in hand with revenue, whether they need to or not. If you get into the inner workings of businesses, you see this is what they do.

What would disrupt this system?

Recently the government did change one of the funding methods. Colleges that were expanding like crazy, suddenly had to cut back on remote campuses.

The objective isn't to control what colleges do. If they want to build a new library, they should be able to. The objective is to get them to control costs intelligently.

To make colleges control costs better:


Can a student work during the summer break at a company to get money, career experience and credit, and take an online intensive course for more credit? Definitely.

Can high school students do college level work? Definitely and it is a major benefit in getting more students into college. Taking College Courses in High School: A Strategy for College Readiness. We should be encouraging this. They can also attend during the summer break: Summer College's more than 145 courses allow students to explore, collaborate, and challenge themselves while gaining confidence and meeting new peers. (I did at SIU and then went into that field.)

Objectives and Methods

The objectives would be to get more people into college programs, at a better cost, with a much better cost benefit ratio for government funding, and much lower college debt for students, plus get them career oriented experience for credit and to inform career choice, and shorten college for most people to 3 years for the same education.

The government would offer assistance to all college age students who earn below 200% of the average annual household income (around $50,000.00, which would be earnings below $100,000.00), or who have below $500,000.00 in wealth (excluding home and vehicle). Assistance would not be tied to parent earnings and wealth.

Why should assistance not be tied to parent earnings and wealth? It looks like the earnings for most American households is going to be in the $40,000.00 range. See the McKinsey chart on the impact of automation and future salaries: Four fundamentals of workplace automation - McKinsey & Company

Students could attend institutions if the institutions meet these conditions: They control costs to no more than 1% annual increase (student/cost ratio), keep their price structure at certain ratios of administration and providers to students, and keep all staff salaries at a percentage of average household salaries, keep extraneous billable expenses below a certain value, tuition increases limited to 1% annually, and they financially treat every client the same.

Financial assistance would be in the form of government loans and grants, based on the prime interest rate, but always below 2% interest. This would be our nation's investment in our people and our future. The student could spend grants and loans on tuition, lodging and living expenses, text books and supplies, and education from free high school college level courses, online courses, tests, pass/fail tests, or other colleges. Financial aid would be transparent to the institution, tied to incentives, and consumer oriented. A check voucher system would make sure that it always went to eligible sources, pre-named, and not Friday night entertainment.

A real world example of this type of measure already being applied is: "For-profit models have gained notoriety as revenue-focused institutions that prioritize recruiting students over equipping them for successful careers. If leaders wish to turn that reputation around, they'll have to act quickly, given new regulations to keep the schools accountable for their federal student aid funding, which can constitute up to 90 percent of their operating revenue. Schools where graduates' loans repeatedly surpass 12 percent of their income, on average, are no longer eligible for aid." Why is the University of Phoenix being sold? - Christian Science Monitor

If we can get colleges to control costs, then grants can go a lot farther. Reducing college to 3 years through other study programs, would also reduce the drain on grants by 25%. (Current Pell grants cover around 30% of college expenses.) Repayment, discounts, and waivers on repayments would depend on:

  1. Required to earn 30% of the tuition and living expenses through employment, summer employment, government employment programs, and intern programs with companies. Emphasis would be on getting a wide variety of experience in multiple fields.
  2. Pell Grants would cover one third of the cost of education for up to 6 years.
  3. 30% waiver on graduation for entering and remaining for four years in: the military, national defense research agency, Peace Corps, medical field, teaching field, state or federal government agency employment....
  4. 10% grant for average grades at 3.0 or above.
  5. Additional 10% grant for average grades at 3.0 or above in the sciences.
  6. 5% grant for going into a field with significant employment needs.
  7. 100% tuition covered for job retraining for those who have lost jobs.

No student would leave college with more than 30% debt for his education. Many could leave with 0 to 10% debt. The science fields would be boosted. Colleges would be very incentivized to offer good programs and keep costs down. Financial Aid offices would no longer be the profit center of the college. Students would have the incentive to study hard, and not play too much. Many students entering necessary fields would have their entire college paid. Business layoffs would result in less damage to people, through retraining. The cost could be 70% to the government, as compared to the current 30 to 70% paid by Pell Grants, and would be very fair to all individuals and parent families.

Next article: Resolving systemic problems from the medical system


College students and institutional fit: A comparative study of student attrition and retention - University of Connecticut

Four fundamentals of workplace automation - McKinsey & Company


15 Years Later, Where Did All The Cigarette Money Go? - NPR

Where Tobacco Settlement Funds Really Went - ABC News

Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs - New York Fed


*1 "Preferred trading circle," a term I use often, was a term used by an economics professor and author of a book on economics, at University of Missouri, Columbia, MO. I can't remember his name or the book title. A "preferred trading circle" happens especially in third world countries. What they accomplish is to permanently disengage the employable to ignore a huge pool of poor and unemployed, while keeping the wealthier class and businesses engaged. They are a major problem in third world countries because most people have no way to get into them. We have them in the US as well.