Each year at the end of summer, just before the new school year starts, I make my way to South Bend, Indiana to play a round of golf with two old friends who are professors at the University of Notre Dame. One of the two, recently retired, is a renowned Dead Sea Scrolls scholar. The Dead Sea Scrolls, discovered in limestone caves in the Judean Desert in 1946, are the remnants of biblical manuscripts written 2,000 years ago. My golf partner devoted an academic career to studying them while mentoring dozens of graduate students over the years who had aspirations to do the same.
There is something inherently good about a civilization that supports the study of antiquities, or the arts, or any number of intellectual pursuits that may, on their surface, not seem immediately practical in an otherwise competitive world. But the economic model behind higher education has become tenuous. The annual costs for tuition, room, and board at Notre Dame and Stanford are $71,801 and $71,587, respectively. Student loan debt, second only to mortgage debt, exceeded $1.3 trillion in 2017. The average student in the class of 2016 has $37,172 in school loan debt. A strong argument can be made that college is already financially out of reach for most Americans, but if current costs do not sound an alarm, when students are asked to pay $100,000 per year, the economics will implode.
Housing prices peaked in 2006. About that time, I went to lunch with a friend who wanted to show me a house that he and his wife were considering. It was a nice home, but the $950,000 price surprised me. I knew what he made, and in my mind there was a considerable gap between his salary and a mortgage approaching seven figures. We were close friends, so I was comfortable being candid. I cautioned that there were only so many people who could afford a $1 million home and when it was time to sell, he may struggle to find one. What puzzled me was the fact that he was having no trouble finding lenders willing to offer million-dollar mortgages.
In early 2008, defaults on subprime mortgages began piling up, and on Dec. 30, 2008 the housing index recorded its largest single decline in history. As it turns out, more people were living in million-dollar houses than had the financial means to do so, and the market collapsed. Over $7 trillion of “wealth” evaporated as foreclosures mounted and housing prices came crashing down. While the mechanics of subprime mortgages and bundling of risky loans into tradeable bonds may have been hidden from view, one glaring red flag went ignored. The idea of million-dollar homes becoming commonplace should have scared all of us.
In 2002, the average working family spent $9,200 per year for health insurance (including employer and employee contributions) and out-of-pocket expenditures. By 2016, that number had increased to almost $26,000, growing from 13 percent of total compensation in 2006 to almost 25 percent in 2016. Unless the projected spending trajectory changes significantly, the typical working family of four will spend more than $50,000 per year on health care by 2030, accounting for over 33 percent of their compensation. Many would say that health care is unaffordable for the middle class today, but it is difficult to imagine $50,000 per household being sustainable.
As summer winds down and I prepare to return to South Bend to renew old friendships and to make a few jokes about the Dead Sea Scrolls, I find myself watching my grandkids playing with soap bubbles in the yard. The bubbles float on warm breezes, to the delight of the kids, and then they burst. Like million-dollar houses or $100,000 tuition, sooner or later the bubbles burst. For health care, our bubble may be $50,000 per household per year.
