Moody’s Investor Service periodically assesses the financial health of America’s universities, and recently they issued a more optimistic report, rescinding their overall “negative” outlook for schools and replacing it with a “stable” one. Universities are improving financially for multiple reasons. First, growing Covid-19 vaccinations are contributing to a decline in the health threat from the novel coronavirus. Second, this means schools are moving cautiously away from remote instruction toward traditional in-person learning. College kids are happier because, in addition to more and better learning experiences, there will be more drinking and fornication than in the period of Covid-19 austerity. Never underestimate the socialization dimensions of college. Third, all this means enrollments are likely to stop falling and possibly even increase a bit, and that revenue producing dormitories and cafeterias will resume more normal operations. Fourth, colleges have cut their spending substantially.

Adding to the growing optimism is the extraordinary amount of federal largess. Universities have received generous amounts of direct federal support, but additionally, have benefited from gargantuan federal aid payments to state and local governments, many of which have surprisingly robust tax revenues during the pandemic; people are buying at the local home improvement store and paying sales taxes rather than traveling to foreign destinations. The stock market is at a near all time high so universities heavily dependent on endowment income or alumni donations are benefiting as well.

But I am an economist, and a somewhat contrarian one at that, and Thomas Carlyle was perceptive when he called economics “the dismal science.” I see a high potential for a lot of doom and gloom in coming years, in part a consequence of policies designed to get us out of the pandemic-induced slump in output beginning a year ago. My pessimism has both a macroeconomic and a college-specific dimension to it.

First, there is notable unprecedented expansion of monetary aggregates resulting from Federal Reserve policies, raising the specter of rising inflation and a return to 1970s style stagflation. Accompanying this is what historically would be viewed as totally irresponsible fiscal policy by both recent Republican and Democratic Administrations, crowned by the recent $1.9 trillion stimulus package.

Second, many of the pre-pandemic fundamentals regarding colleges were negative, and I see no reason why the easing of the pandemic will ease those conditions. Specifically, enrollments have been falling some rather continuously since 2011. Alternatives to traditional universities are gaining some traction, such as coding academies. During the Trump era boom 2017-2019, the earnings of college graduates rose less rapidly than those with lesser education. In general, the rising high school-college earnings differential of the late 20th century has ended, making increasingly costly colleges a less obviously good value proposition.

Moreover, the colleges have not helped themselves by trying to show how militantly woke and progressive they can be, appeasing campus constituencies but turning off mainstream Americans who populate the colleges and universities. The contempt shown for traditional American values demonstrated in the changing of building names and even the removal of statutes of famous individuals disturbs some, as does the Cancel Culture. The vibrant “marketplace of ideas” characterizing American higher education is somewhat tarnished.

If that is not enough, there is an inconvenient demographic truth as well as an arguably more ominous inconvenient economic one. Many of this coming fall’s college freshman class were born in 2003. There were fewer babies born in the U.S. that year than in 1960—over 40 years earlier when the overall population was vastly smaller. Yet it gets worse. In 2019, there were over 340,000 fewer births than in 2003—the Birth Dearth continues. The pool of Americans on which schools draw students will be shrinking more as Americans have decided that having kids is not something they want to do. Moreover, immigration (foreign students) is proving less promising as other nations like Australia and Canada are now successfully competing with the U.S. for college students.

Finally, college is expensive, but economic growth can reduce that burden. But annual economic growth has declined dramatically in recent times, from the three percent or more level in the 20th century to well under two percent today. Our ability to pay rising college costs is not growing like it used to. Therefore continued pessimism seems justified to me.