How do you know when a sector of the economy is in a "bubble"? Well, one of the signs is when everyone starts talking about it being a bubble. You might think that the bursting of a bubble is totally unexpected, but usually many people know that some kind of correction is coming-they just don't know how big or how soon.

With education, everyone is starting to figure out that there is a bubble, but I don't think they quite realize the extent of it.

To begin with, there has not been enough discussion about the lower-education bubble. This is the biggest source of the current fuss over state budgets and local government pension obligations and the power of the public employees' unions. For decades, the one politically unassailable way for state-level politicians to spend money was to vote ever greater increases for education, and a lot of that money got sopped up by teachers' pensions and teachers' unions. But the states were spending more and more money without any increase in the quality of the product. (Quite the contrary: ideological indoctrination, such as environmentalist propaganda, has continued to push out real learning.) That spending is unsustainable and has thrown state budgets into crisis.

The bubble that has been getting more attention, because it throws individual budgets into crisis, is the "higher-education bubble." College tuition has been increasing at an unsustainable rate, going up roughly 10% per year for the last ten years, far outstripping inflation. One of the great lessons I've heard people draw from the housing bubble is: if something can't go on forever, it won't. Ten percent annual increases in home values could not go on forever, so they didn't. Neither will 10% annual increases in tuition.

In fact, the higher-education bubble has a lot in common with the housing bubble. Both products are legitimately valuable and have traditionally been an important investment that helps individuals rise up into the middle class and build wealth. All of this gave the huge malinvestment of the bubble years a certain kind of plausibility. In both cases, the government decided these products were so worthwhile that they should be promoted with some combination of subsidies, tax breaks, favorable regulations, and-most potently-government-guaranteed loans. President Obama has taken this a step further, pushing through what amounts to a government takeover of the student loan business.

In doing so, however, the government deliberately disconnected both of these products from their underlying economic base. This is not an "unintended consequences" but an intended consequence. The purpose of government-backed "affordable housing" was to make it possible to buy a home regardless of the size and steadiness of one's income, just as the purpose of government support for higher education is to make it possible for anyone to afford to attend an expensive private college, regardless of their economic means, their personal talents, or their field of study. The purpose of government involvement in education-even more so than in housing-is specifically to detach higher education from any consideration of its economic value.

With housing, the consequence was that home loans were increasingly extended to those who had no credible way of repaying them; the huge extra amounts of money poured into the sector by all of the subsidized loans drove up the price of housing, which in turn drove up the amount of money people had to borrow to buy a home, in a vicious cycle; all of that extra money encouraged a huge increase in spending on luxury items in particular, such as imported glass tiles, fancy multi-jet shower systems, and professional kitchen cooktops; but at the same time it also supported a huge number of marginal, "fly-by-night" producers, who, in a frenzied market, did not have to produce a quality product in order to find customers.

We can see all of the same consequences in higher education. We hear reports of students borrowing $100,000 to get degrees in sociology, putting them "underwater" on their student loans in the same way that other people are "underwater" on their mortgages. The huge sums of money designed to make college "more affordable" have actually made it less affordable by supporting massive year-over-year increases in tuition. The extra money flowing into the universities has gone to build expensive new athletic centers and other student amenities, but has not increased the quality of the instruction. Instead, it has gone to support massive bureaucracies and a whole generation of ideologically corrupt "tenured radicals."

As with housing, the crash back to reality is coming, and it is only a question of how big and how soon.

But there is one respect in which the higher-education bubble may not be like the housing bubble. With housing, we can take some comfort in the fact that the sector will eventually bounce back. Excess inventory built up during the boom years still has to be cleared from the market, and government policy has been designed to prevent this from happening. So housing is already in its own "double dip" recession, and I haven't seen any credible argument that it will recover before 2014. But we can be assured that it will eventually come back, because people will always need a place to live.

People will always need education, too. But here is the difference: people will always need education, but it does not follow that they will always need universities. That is why higher education may follow a different course. Its bubble has been like the bubble for housing-but its collapse may be like the collapse of the newspapers.