Black Swan Problem: Deflation? Not In Ivy League Schools

Somebody uttered 'deflation'?

Well, definitely not in the tuition fees of Ivy league schools.

This interesting commentary and graph from Bloomberg's Chart of the Day

(bold highlights mine)

``Life on top means not having to lower your prices.

``The CHART OF THE DAY shows how the cost of a year as an undergraduate at Harvard and Princeton has risen through boom and bust. Tuition and fees at Harvard jumped 67.8 percent over the decade; at Princeton, they increased 43.4 percent.

``That hasn’t dented demand. Freshman applications at Harvard in Cambridge, Massachusetts, rose by 60.9 percent over the last 10 years. At Princeton in New Jersey, which started accepting the Common Application standardized form for admission in 2005 (Harvard did so in 1994), demand rose by 47.7 percent.

``The two Ivy League schools haven’t been entirely immune from the recession. Harvard this year reported that its endowment fell an estimated 30 percent; Princeton’s, 25 percent.

``“They say trees can’t grow to the sky, but apparently there’s no stopping college tuitions,” said Jay Diamond, a managing director at Annaly Capital Management, a New York real estate investment trust with total assets of $86 billion, and member of Princeton class of 1986. “It would appear that an undergraduate degree at a place like Princeton is actually a Giffen good. As a prospective college tuition-paying parent -- my kids are in 10th and eighth grades and kindergarten -- I wish that colleges competed on price, but that is certainly wishful thinking.”

``A Giffen good, first observed by British economist Robert Giffen (1837-1910), is something for which demand rises even as its price goes up."

Prices should be seen from a relative and not from an absolute perspective, where some prices (as the above) have been going up, in spite of the recession, while some prices have indeed been going down.

The point is deflation in the absolute sense isn't true.

Like the Black Swan problem, in the generalization that all swans are white, David Hume argues that a ``single black swan is sufficient to refute that conclusion."