Economics 101

Here’s a simple economic example. Let’s say that anyone who wants a loaf of bread is given $100 to spend on bread. All anyone has to do to get the $100 is apply and once you get it spend it only on bread.

Now let’s pretend, I am a bread maker. I now know that bread money is available. So what do I do? I might invest in bread making equipment and hire a couple of people to help me make bread. I’d pay real good money to my new staff because I know my profits on bread will be good. Why? Hang on, I’ll tell you. Meanwhile, everything sounds good.

What will happen to the bread market? Well, if you remember your basic economics law of supply and demand it says that when demand goes up, so do prices. And when supply goes up, prices come down. Economist draw nice curved lines on their charts because there is a law of diminishing return where all things in a free market balance out, sort of.

However, in my scenario is there really a free market? I say no because anyone who wants it, can get $100 for bread. Where did this $100 come from? Why the government, of course. And not out of thin air. Yes, taxes baby.

If money for bread is readily available prices will go up and so will wages in the bread industry. Bread becomes more expensive because money is available only for bread. Want bread get $100 and buy bread. Whether it is that $1.99 loaf white bread or that $8.00 organic hand made gluten free mass of tasteless brick, the prices of these breads will go up. And go up radically because people won’t hesitate to buy bread because they have $100. So as the prices increase to $40, $50 and even $100 per loaf, I the bread maker am raking in the dough. (By the way, it is also human nature to demand today and worry about that $100 bread money phenomenon later.)

Time to worry.

Let’s turn to the State of The Union address. The President would like every poor high school graduate and every child of an illegal alien who was dragged to our borders by their parents to go to college. Anyone who wants to go should. And to do so the government provides loans, grants and subsidizes institution of higher learning.

“At a time when Americans owe more in tuition debt than credit card debt”… wait for it, "this Congress needs to stop the interest rates on student loans from doubling in July.” Was this a secret? This just popped up? Smart college kids didn’t know this was going to happen? Shame on them. Remember all student loans now come from the government. Talk about bad lending practices!

“Extend the tuition tax credit we started that saves millions of middle-class families thousands of dollars. And give more young people the chance to earn their way through college by doubling the number of work-study jobs in the next five years” Sounds like bread money.

Have you ever wondered why the cost of a college education continues to rise? It’s because the government is involved in giving money out to anyone who wants to go. It’s the bread money syndrome. And it is damn similar to the government saying anyone who wants a house can get a loan. We all know what happened to the economy when that bubble burst. Now can we just imagine what will happen when the college bubble bursts? Can you say American Spring?

And the President has the audacity to say, “So let me put colleges and universities on notice: If you can’t stop tuition from going up, the funding you get from taxpayers will go down.” The President is speaking nonsense because he doesn’t have a clue as to why the cost of a college education is outrageous. It is because government funding is involved.

But he does add: “Of course, it’s not enough for us to increase student aid. We can’t just keep subsidizing skyrocketing tuition. We’ll run out of money.” DUH