Just the other day, I posted an article summarizing a listing some counterarguments to the idea that there is an education bubble, and that this is a big problem. While I may disagree (just a bit) I do respect that both of the articles cites were presenting reasonably cogent arguments about the value of a humanities degree (one of the core ideas in this ongoing debate…).
Today, I have a rather different argument to present for your edification.
I suggest that you click in the link and read the article in its entirety, so as to ensure that I am not guilty of inadvertently quoting the article out of context. You see, I consider this to be an actual (quite refined) attack piece, which presumes to tell you that not only is there no education bubble, but you people don’t really understand how good you have it…
Glossed over might be the fundamental information as to how much faster than inflation that college costs have risen, as well as no coverage at all as to the value in gaining a baccalaureate degree in the humanities (which could cost in the range of several hundred thousand dollars…) for new graduates in this economy, as well as no coverage as to whether there is tangible value in post-modernism in the business world (a reasonable extension of the previous points…).
A careful reading of this piece will necessitate careful awareness that the thesis being argued is not about the value of a science, math, engineering and technology degree… (This will be conflated, along with some other straw men…).
Just the two main questions:
1. What is the real value of a traditional liberal arts degree today?
2. Why have college costs gone up so much faster than inflation (for decades)?
What Bubble?
http://www.insidehighered.com/views/2011/06/14/essay_rejecting_idea_of_a_higher_education_bubble
According to Peter Thiel, the founder of PayPal and sponsor of fellowships that pay entrepreneurial-minded students to drop out of college, higher education is the next bubble that will burst in the U.S. economy. The Economist’s Schumpeter blog summarizes his argument this way: "tuition costs are too high, debts loads are too onerous, and there is mounting evidence that the rewards are overrated. Add to this the fact that politicians are doing everything they can to expand the supply of higher education … much as they did everything that they could to expand the supply of ‘affordable’ housing, and it is hard to see how we can escape disaster."
Bubble talk of this sort — and Thiel is hardly alone in his theory — is a great example of abusing the evidence to support a hyperventilated hypothesis. This may sell magazines, but it does not make for good public policy.
The idea that rising demand pushes up price is rooted in a belief that the number of seats available at colleges and universities is relatively static. But the supply of places in higher education is rather elastic. In 1970, 8 million students were enrolled in two thousand American colleges and universities. Today, over 18 million are enrolled in roughly 4,300 institutions. There has been a veritable explosion of places at for-profit and nonprofit institutions alike. To take one example from the traditional nonprofit sector, the University of Central Florida has mushroomed from a startup in 1968 to the second-largest university in the nation.
The number of places at Stanford and Princeton Universities may be inelastic, but if the bubble story is about the elite institutions that serve a tiny fraction of the college-going population then it is of little policy relevance.
If rising demand isn’t the driver of college tuition, what is? There are three reasons why the cost of providing a college education has gone up so much since 1980, and all of them reflect broad economic forces buffeting the entire U.S. economy. First, the costs of employing a highly educated workforce have risen substantially over the past 30 years. This has affected all industries that use a lot of highly educated labor.
Next, the productivity of that highly educated labor has not increased in most personal service industries, and this includes higher education. Universities have not figured out how to double class sizes without negatively affecting quality, and new approaches like distance learning have not yet provided any magic bullet. Lastly, the costs of keeping a college education up to date have increased as new technology filters into the workplace students enter once they leave the ivied halls.
Tuition has risen for two additional reasons besides changes in cost. First, for public universities, states have reprioritized spending away from higher education. Rather than raising taxes, over time state legislatures have allowed tuition increases that shift more of the burden of the college bill onto families.
And lastly, public and private universities alike have pushed up the list price paid by the most affluent families so that they can discount the bill for other students. Tuition discounting can help the least affluent attend pricey institutions, but it is also a tool colleges and universities use to craft the freshman class in other ways. A lot of this discounting is a merit aid arms race that does not create access to college for students who otherwise could not afford to attend.
The bubble analogy simply does not work, and higher education is not the next housing bust. Still, what can we make of Thiel’s three contentions? Does his indictment of higher education stick?
First, tuition costs are too high – compared to what? List-price tuition has indeed risen rapidly over the last 30 years. But the data in the College Board’s Trends in College Pricing show that the average net tuition and fees, accounting for grants and tuition tax credits, actually has declined recently at both public and private institutions. The net tuition picture is not as clear as many people think it is.
Second, debt loads are too onerous – compared to what? Again a College Board study is instructive. In Education Pays 2010 the College Board demonstrates that a typical student with a B.A. will have enough cumulative earnings by age 33 to catch up with a typical high school graduate even if the college graduate had to borrow and pay back every dollar spent on tuition and fees. After age 33 the college graduate out-earns the high school graduate by a significant margin.
The third claim is that the rewards of earning a college degree are overrated. Again, compared to what? The median real earnings of individuals aged 25-40 with a B.A. or higher have indeed shown only scant increases in recent years. But the median real earnings of those with less than a B.A. have fallen significantly over the same time period. As a result, the college wage premium has continued to rise.
