Saturday, February 19, 2011

Why does college cost so much?

At Marginal Revolution, Tyler Cowen puts up a post titled Why does college cost so much?

This is a common right-wing meme, aimed at generating discontent with the intellectual class and used as an excuse to review all the normal libertarian ways of blaming any problem on government. And you can tell, because Tyler and his claque ignore the obvious facts about the market.

First, we know there is a huge market failure because statistics have always shown that the increases in lifetime earning AFTER a college education more than pays for the costs of the education. In an efficient market, the marginal cost of an extra degree should equal the marginal increase in lifetime earnings. That's why it is efficient for society to pay even for the education of the mentally challenged, if you view the expense of caring for them to be reduced by education. We probably should be spending significantly more on education because ignorance is the costly alternative.

Second, the assaults on the middle class and increased demand for highly educated workers have, if anything, made this market failure even larger by continuing to reward education with increased lifetime earnings.

Third, we expect the price to increase until it reaches what the market can bear. That's why private colleges charge such enormous and increasing tuitions.

Fourth, the education market suffers from other fundamental market failures which keep it dominated by non-profit institutions at almost all levels except nursery schools and trade schools worldwide. We've seen innumerable for-profit educational enterprises attempted and fail. It's not "barriers to entry" worldwide. And it's not "barriers to entry" in the USA: private non-profits are started successfully at all levels all the time. State universities, state colleges, and community colleges have enlarged tremendously.

While I often get something interesting out of Tyler's posts, I think of him as employed to keep feeding a steady stream of libertarian propaganda through his blog. Much of the time, all he has to do is point and his commenters complete the task for him. And that's what we see here.

8 comments:

Joanna Liberation said...

Mike, you repeatedly fail to understand that correlation is not causation. College educated people may well earn more just because they are more intelligent. Then even if we assume it does financially benefit individuals, you keep forgetting wages are determined by capital productivity only. Obviously, people have to learn more to operate technologically advanced tools, but it's just a cost to society, education never increases average wages, capital accumulation does. Historically, this is precisely what has happened, college education ratio always follows increases in GDP per person, not the other way around. But college education benefits specific individuals only as long as there are still individuals without degree. In other words, if everyone had a degree, noone would reap financial benefits of college education.

Hence, investments in education investments should be only as big as to allow employees to operate technologicall advanced tools, no more, no less. Only free market in education and lack of state subsidies guarantees that. Otherwise investments in education become economically inefficient.

Mike Huben said...

... education investments should be only as big as to allow employees to operate technologicall[y] advanced tools, no more, no less.

You are a beautiful exemplar of your idea: you know enough to post on a computer, but don't have a clue what you're writing about.

The bump in earnings due to college has been shown to be due to causation in many economics papers. There's plenty of economic theory to explain it, such as signaling theory. Your arguments are just assertions you pull out of your ass.

Education that lets individuals be more productive is an investment in "capital productivity" just as much as investment in equipment is, and as such will increase average productivity. This increases average wealth.

The problem is that "average" has several meanings. As capital is concentrated, so too are the earnings. So while the mean increases, the median may well decrease depending on the market power of the capital owners.

You need to learn some basics of real economics.

...if everyone had a degree, noone would reap financial benefits of college education.

You just make this stuff up, don't you. Everyone would be more productive, so average productivity would go up. Somebody has got to benefit. And indeed, that's what's happened in all first world nations as average education has been increased. Everybody now has primary education. The vast majority now have secondary education. And a growing number have college education. Productivity has been expanding with and because of this increase in education.

... education investments should be only as big as to allow employees to operate technologicall[y] advanced tools, no more, no less.

And this impoverished ideological view of workers is exactly why libertarianism will never be popular. Workers are not simply factors of production for capitalists to rent. They are people every bit as much as the capitalists, with their own ambitions and interests. And of course they will resent being told their station in life by ideologues like you. You're just as offensive and stupid as if you told them to get barefoot, pregnant, and back in the kitchen.

Strelnikov said...

Mr. Huben, I think her idea about a degree's worth comes from a warped view of the scarcity value concept, so the fewer people who have degrees the more valuable they are. Or is this a veiled jab at Woman's Studies degrees?

I agree with the "offensive" part; she reminds me of every unpleasant or illegal factory setup I've ever heard of, whether it was a Chinese sweatshop, a jute mill in the
1880s, or a German muntions plant staffed by Russian slave labor. I've noticed that when it comes to labor relations Libertarians prefer the "take what I'm giving or leave" model.

Joanna Liberation said...

The bump in earnings due to college has been shown to be due to causation in many economics papers.

For individuals, yes.

Education that lets individuals be more productive is an investment in "capital productivity" just as much as investment in equipment is

Employee productivity is always in fact workplace productivity. Schools never teach how to produce a car a minute using just bare hands and scraps of metal. Schools teach how to use tools to produce a car a minute. No capital, no employee productivity, no matter how much you invest in education.

Productivity has been expanding with and because of this increase in education.

Real wages of shop clerks have increased manifold over the last century. Do you seriously believe their productivity has increased because of better education? If anything, they require less and less education. Now they don't even need to know how to count, all they need to know is how to point price scanner. Yet, their productivity keeps increasing.

Workers are not simply factors of production for capitalists to rent.

This is actually the most accurate definition of workers there is.

Mike Huben said...

Yup. Offensive and stupid. And incoherent and full of shit.

Capitalists do not own society, but they sure talk like they do. If they want a privileged position in society with their wealth, I suggest that we auction those positions to them annually, rather than give it to them for free. There's no reason society should support concentration of wealth for free.

Joanna Liberation said...

Chinese sweatshop

Libertarians were happy to see double digit annual rises in chinese worker wages over the last decade. Sweatshops have finally done what socialism could never do.

a jute mill in the
1880s


Is that one of the luddite fairy tales where feudal-like farmers were supposed to be better off than factory workers?

German muntions plant staffed by Russian slave labor

Government aggression always ends the same.

Kevin Wayne said...
This comment has been removed by the author.
Kevin Wayne said...

A Consensus Statement on Sweatshop Abuse and MIT’s Prospective Actions in Pursuit of International Labor Justice