I’m a not a fan of bubble type explanations, but the question remains whether individuals are over-estimating the returns to (higher) education? In the US context Glenn Reynolds thinks so.
Something that can’t go on forever, won’t. And the past decades’ history of tuition growing much faster than the rate of inflation, with students and parents making up the difference via easy credit, is something that can’t go on forever. Thus my prediction that it won’t.
That is a fairly straight-forward bubble story – Reynolds doesn’t suggest a mechanism why education can’t go on forever.
The answer lies, I think, in a series of myths and illusions that surround public involvement in areas like education and science. In his 1996 book Frontiers of illusion: Science, technology and the politics of progress Daniel Sarewitz sets out a series of myths. One of those myths – the myth of infinite return – explains education bubbles. The idea that any amount of money spent on education is ultimately self-financing can’t be correct. There must be, at some margin, a diminishing return to education expenditure. (In one sense this can be seen by the relative returns to having a Masters as your highest qualification to having a PhD as your highest qualification.) Of course, the returns to education are high and, as Bill Clinton once suggested, the cost of not being educated even higher.
The point is, it is possible to over-capitalise in formal education as opposed to on-the-job experience and learning. Educational business models that rely on an ever-increasing number of people paying ever-increasing fees are not viable in the long-run. Australian universities are not as vulnerable to this as, say, US universities but still face the same issue.
A related problem is that many in senior management positions and in industry lobby groups are still locked into public funding model modes of thought. The rhetoric of the public finance funding model is also that of infinite return – while the experience is actually quite different.
As an aside I highly recommend Michael Oakeshott’s little book The voice of liberal learning for those who want to read a fresh and challenging view of education – reviewed in the 100 Great books of Liberty.
(HT: Mark Perry)
Bill Clinton has it right — this is because there are really two points you need to consider, the cost to the individual and the overall cost. Even if more education was not adding much productivity to the workforce overall, that doesn’t mean that the individual getting the education wouldn’t benefit compared to others.
Also, just complaining about it is one thing, trying to say where these two points might lie is really the hard question.
conrad
10 Aug 10 at 7:07 am
100 000 AUD for an “executive MBA”?
Puh-leeze. They only degrees worth this are medicine, a MQF or an articulated law degree to which 100 000 is only paid for one of them.
Otherwise it is simply consumption. You might pay a lot for a well regarded fine arts degree (and it may well lead to your actual paying job which requires a well to do upbringing n most circumstances anyway) but they have more of a “tournament” style of risk and return.
.
10 Aug 10 at 7:20 am
“Puh-leeze. They only degrees worth this are medicine, a MQF or an articulated law degree to which 100 000 is only paid for one of them.”
Mark commences his career as a central planner in education!
I suspect that the public interest ends at grade 12 and that we can safely rely on self-interest to supply enough Uni grads. For welfare reasons a reasonable number of Commonwealth scholarships should be available plus a HECS type scheme to help pay full fees.
pedro
10 Aug 10 at 7:36 am
Higher education is massively over-inflated. None of the arguments in favour of the status quo stand up for scrutiny. bullet points.
* MBAs are an attempt to create a cartel at the top of the business community. It’s money for entry into elite level.
* lots of peple do degrees because the government pays most of the cost. Many degrees would almost disappear in a user-pays situation.
* there’s an argument that it “signals” to employers who’s worth hiring. This argument is not only specious, it is absurd. It effectively means that people waste 3 – 4 years of their life, and the government spends billions of dollars, to help recruiters do their job for them.
* the distribution of courses is distorted due to external funding with more entrants in interesting courses and fewer entrants in difficult (but possibly useful) courses.]
* there’s no standardisation so that quality of the course is unknown. Second rate institutions are coasting on the perception, built decades ago, that all univesities operate in good faith and provide quality outcomes.
* the large numbers of students must mean that there are more lower quality students. This causes a slower downward drift in quality. Everybody knows that coures are less rigorous than they once were, less demanding, and teach you less stuff.
daddy dave
10 Aug 10 at 8:12 am
“there’s an argument that it “signals” to employers who’s worth hiring. This argument is not only specious, it is absurd. It effectively means that people waste 3 – 4 years of their life, and the government spends billions of dollars, to help recruiters do their job for them.”
People always say this, but the alternative is that graduates are better than non-graduates. If it was really true that graduates were no better than non-graduates, why wouldn’t employers just get non-graduates who are inevitably cheaper to employ?
conrad
10 Aug 10 at 9:51 am
People always say this, but the alternative is that graduates are better than non-graduates.
No, that’s not the alternative. I accept that graduates are better than non-graduates for most jobs, on average.
What this means is that the unviersity system has increased the effectiveness of the hiring process by a modest amount.
However, what’s the cost of that gain? Billions in expenditure.
Worse, much worse… several years where our youngest, most able, were unproductive.
please keep in mind, I’m not saying that universities provide no benefit. I don’t want to spend the rest of the thread repeating the fact that I agree that universities add value to individuals. However, the marginal benefit highly outweighs the cost when it is applied en masse. As a niche service for a little slice of the population, which it once was, about 50 years ago, it was fantastic.
daddy dave
10 Aug 10 at 10:00 am
I recommend we all study maths, hard science, law, economics and finance.
The other stuff is without a shadow of a doubt interesting and useful but without the above, the rest is lacking direction and analytical skill.
.
10 Aug 10 at 10:07 am
the question is, are there easier, cheaper ways to figure out who the best job candidates are, without sending them off to university for 3-4 or more years at government expense? I believe there are.
daddy dave
10 Aug 10 at 10:10 am
Uni needs to be cheaper and we need something closer to user pays, equity issues can be separated.
At the same time, research needs more funding.
Personally I believe universities are grossly mismanaged.
.
10 Aug 10 at 10:14 am
There is a parallel being drawn between the housing bubble and the higher ed bubble, in the USA over at http://isteve.blogspot.com/ that echoes Sinclair’s point.
Still don’t know how to embed links, sorry.
Mt Isa Miner
10 Aug 10 at 10:18 am
“Still don’t know how to embed links, sorry.”
There’s a link on the right hand side of catallaxyfiles called “Some basic html.” That should help. But as you’ve figured out if you past the url, it converts to a link anyway.
daddy dave
10 Aug 10 at 10:28 am
“However, the marginal benefit highly outweighs the cost when it is applied en masse.” and “Second rate institutions are coasting on the perception, built decades ago, that all univesities operate in good faith and provide quality outcomes.”
Says who? I work at an average university, and SD works at an even worse university (at least in terms of ENTER scores). The average salary a first year graduate makes from my univesity if I remember correctly was around 55K, or around the average wage of all Australians, and no doubt RMIT is probably similar. That’s a pretty decent benefit for only being a tiny bit better than the average 21 year old that doesn’t have a degree, and going to an average university.
conrad
10 Aug 10 at 10:37 am
I thought it was the discounted lifetime expected salary increases…
.
10 Aug 10 at 10:39 am
That’s a pretty decent benefit for only being a tiny bit better than the average 21 year old that doesn’t have a degree, and going to an average university.
Like I said, the graduate has an advantage over the non-graduate.
1. This is a very, very expensive way to choose between two candidates for a job;
2. several years of productivity have been lost.
daddy dave
10 Aug 10 at 10:49 am
Plus, I don’t believe that the increased starting salaries of graduates are driven by value add. Their driven by this: there was a job for $55k sitting there and they had to fill it. If degrees didn’t exist (for that domain) they’d still fill it.
Value add of that degree to the economy? Zilch.
daddy dave
10 Aug 10 at 10:50 am
as a case in point, take journalism. Now, everyone has to have a degree to get into that industry whereas once, they didn’t.
Value add of everyone having degrees in journalism = zero.
daddy dave
10 Aug 10 at 10:52 am
I agree. Bring back cadetships where ever possible. Universities subsidise knowledge capital firms at the expense of taxpayers.
.
10 Aug 10 at 11:00 am
The alternative way to view this is that “here was a job for $55k sitting there and they had to fill it.”, an since there were no graduates with the skills they needed, that industry ended and moved to China instead where there are lots of gradutes.
“take journalism. Now, everyone has to have a degree to get into that industry whereas once, they didn’t. Value add of everyone having degrees in journalism = zero.”
I don’t know anything about journalism, but seeing as media itself has got vastly more complicated in the last decades, I imagine the value of having a degree in journalism is learning how to use lots of technologies you otherwise wouldn’t have.
conrad
10 Aug 10 at 11:08 am
Of course employers take advantage of this big, fat subsidy and you can’t blame them. If I’ve got 2 people to choose from, it makes sense to take into account any study they did.
The simplest solution is to just take away government subsidy or at least reduce it. Whole departments would vanish overnight.
Conrad’s and Sinclair’s jobs would be safe as they teach stuff that is actually useful.
daddy dave
10 Aug 10 at 11:09 am
“Everybody knows that coures are less rigorous than they once were, less demanding, and teach you less stuff.”
I think this is an understatement.
boris
10 Aug 10 at 11:12 am
Conrad, I’m not sure if you disagree with my core position or not.
That is,
1) the government is subsidising a lot of study that adds nothing to the economy or future employers.
Not all, of course! that would be straw-man extreme position.
2) Second, the overall quality of higher education is on a remorseless downhill slide due to various unfixeable factors.
daddy dave
10 Aug 10 at 11:12 am
Conrad:
“I don’t know anything about journalism, but seeing as media itself has got vastly more complicated in the last decades, I imagine the value of having a degree in journalism is learning how to use lots of technologies you otherwise wouldn’t have.”
What next – a degree in blogging?
boy on a bike
10 Aug 10 at 11:52 am
Hey, thanks Dave, funny thing, in the 3 years I’ve never once looked at that part of the side column!
Mt Isa Miner
10 Aug 10 at 12:10 pm
I, obviously, WILL be signing up for the degree in blogging.
Mt Isa Miner
10 Aug 10 at 12:11 pm
DD,
I agree with both of them, but it’s very hard to tell what “adds nothing” to the economy. The Wiggles, for example, have degrees in early childhood education, and they seem to have used them to the benefit of the economy. Given that their act is entirely structured to appeal to kids of the age group they are appealing too (as an adult, I find them almost unbearable), I’m sure they must have learnt something. The same is true of the Telletubbies (although the guy responsible for them has a degree in speech and hearing — a degree in trouble in Australia due to to few people wanting to do it to make it economically viable).
I also don’t agree about what would disappear if things were privatized. Some would be important, and the reason is obvious — the average 18 year old doesn’t think about what is good about well. This is why there are, for example, far too many degrees in journalism and forensics and not enough degrees in podiatry and speech and hearing — because university marketing is better than reality.
conrad
10 Aug 10 at 12:13 pm
Some would be important, and the reason is obvious — the average 18 year old doesn’t think about what is good about well.
Maybe.
Indeed at the moment in America there’s a plethora of liberal arts colleges that people pay for out of their own pockets; but these are at the centre of what Reynolds says is the Higher Ed bubble.
Basically, in the short run, if everyone wants to do journalism and forensics, they can (if on their own dime); but in the long run, that will create an oversupply and the market will punish those degrees.
daddy dave
10 Aug 10 at 12:36 pm
1) the government is subsidising a lot of study that adds nothing to the economy or future employers.
Not all, of course! that would be straw-man extreme position.
I personally feel that there are some scenarios that are wasteful, regardless of the discipline, such as – where someone completed, say a science bachelor degree, and then found that working in the field of science was a bore, and then went back to Uni to do a Master in finance. Two degrees paid for, but a whole set of skills that would never be used (not to mention, the ‘applicant’ would be looked favourably upon during the recruitment process, having a Master of Finance, while another applicant with a Bachelor of Finance probably has more core knowledge than the latter). I think that a user-pays system for 2nd degrees could be looked into, to discourage frivolous use of the HELP system, but I still think its important for people to have access to all areas of higher education (in a wide array of disciplines), particularly as it would keep us competitive on an international level.
2) Second, the overall quality of higher education is on a remorseless downhill slide due to various unfixeable factors.
Have to agree with you there – the amount of times I have met students at my university who barely speak English, do not understand the course, and cheat in their assignments, and they somehow pass their subjects. I don’t get it.
dorinny
10 Aug 10 at 5:27 pm
“I also don’t agree about what would disappear if things were privatized. Some would be important, and the reason is obvious — the average 18 year old doesn’t think about what is good about well.”
A lot of it too is that the education system makes no attempt at all to guide kids into actual useful degrees, instead maintaining that they are all equally useful, which ends up with so many kids in virtually useless degrees like business and arts, and a shortage in things like Engineering and Geology.
Yobbo
10 Aug 10 at 5:33 pm
1. If they did pure maths they’d end up as a quant or a trader.
2. Fuck em. They’re here to earn a degree in English. We’d be failing them by not failing them.
.
10 Aug 10 at 5:34 pm
Yobbo…careers advisers are overpaid semi retired gits.
.
10 Aug 10 at 5:35 pm
Fuck em. They’re here to earn a degree in English. We’d be failing them by not failing them.
They really aren’t. They are here to buy a migration visa and everyone knows it, which is why coursework is irrelevant.
Yobbo
10 Aug 10 at 5:46 pm
I have more experience with the ones that bugger off and need a “prestigious Australian degree!”…
.
10 Aug 10 at 5:50 pm
dot/dd
Australian universities are increasingly phasing out undergrad Law degrees, and rebadging using the US nomenclature JD (Juris Doctor). At the moment, at the countries top universities – Sydney, Melbourne, UNSW, ANU, UWA, only 50% of JD students are offered a CPS place. The other 50% (25% locals, 25% internationals) have to pay fees. A cool $30,000 per year, or $90,000 for an Australian law degree!
Peter Patton
10 Aug 10 at 7:55 pm
English should not even be taught at university level. If you can’t read books in your own language by the time you are 18, you should be shot.
Peter Patton
10 Aug 10 at 7:58 pm
I think we have discusssed the pros and cons of government funding for HiEd thousands of times. It is an interesting subject but that’s not the topic of this post.
The topic is the bubble. To set it sharply, let’s consider the US and assume (roughly) that everyone pays full fees. Will there be a bubble? Will the bubble burst?
I am not sure. Maybe cheap alternatives will gradually be created to cater to those who need education (rather than connections in high places or badge of elite club) to smooth things out.
Boris
10 Aug 10 at 9:53 pm
I vote bubble. Monster bubble.
Here are my reasons in bullet points.
* The “signalling” argument, ie finding good employees, is shot through with holes; I’m prepared to debate if people think that it serves a good purpose to society, but a 3 year induction is an excessive price for a signalling system.
* historically, a small elite went to university.
* historically, the 1 percent of people who went to university really were a smart, well connected elite. That image has yet to pass. The signalling works because of this historical legacy.
* the quality of university learning outcomes is declining across the board. therefore, their value is being eroded
* universities have morphed into job preparation centres, but there are only a small number of professions for which they have a natural and enduring competitive advantage in terms of job training. (I’m thinking medicine, engineering, law, and science).
* private suppliers are already nipping at their heels and if you talk to people in those industries they believe that universities are dinosaurs;
* universities have a monopoly on generalised accreditation. that is, they accredit young people with a general stamp that says “employable.” However that monopoly is not secure.
* finally, look around. Believe your eyes. Universities are bloated, shambling, ridiculously ineffectual, massively funded things that are slow to change; while they have some premium products their shelves are stocked with trash; they never deliver what they promise. Look at them and tell me they’re not over-rated.
daddy dave
10 Aug 10 at 10:23 pm
The biggest problem with mcdegrees for me is this:
I couldn’t give a shit if someone wants to waste 4 years of their life and countless thousands of dollars getting a degree they don’t need.
What pisses me off is that the aforementioned useless degrees are required if you want to get a job in another country. And in actual fact that’s the only thing they are really useful for.
Yobbo
11 Aug 10 at 7:10 am
What pisses me off is that the aforementioned useless degrees are required if you want to get a job in another country. And in actual fact that’s the only thing they are really useful for.
Well, actually, the academic transcripts do make it easier for me to choose between job applicants for positions in my firm. Have to agree with daddy dave there.
dorinny
11 Aug 10 at 9:16 am
Why couldn’t they just give everyone a 3-hour IQ test like they used to then Dorinny?
Thats how they used to select people for the public service. Now they make them do a 3 year degree in management or women’s studies.
Yobbo
11 Aug 10 at 10:26 am
dd said:
* private suppliers are already nipping at their heels and if you talk to people in those industries they believe that universities are dinosaurs;
Yes, but this is an evolutionary process. It starts with things like IT and only slowly progresses to other disciplines. There are also natural barriers like accreditation etc. All this will evolve in a natural way, but I don’t see it bursting abruptly and time soon.
Boris
12 Aug 10 at 1:40 am
Yobbo, you have a valid point. But I don’t think useless degrees are completely useless. They teach you write essays, use library and internet resources, computers etc. Team work, competition etc. Some social skills.
The actual subject may be completely useless but the process is useful.
It is not worth 3 years but it is not zero.
Boris
12 Aug 10 at 1:43 am
“They teach you write essays, use library and internet resources, computers etc. Team work, competition etc. Some social skills.”
Most people learned those things in High School or even Primary school.
Personally I knew how to use a computer by the time I was 8 years old. I had to write 3 essays in 3 hours to graduate from year 12.
And I think you are overestimating the degree to which degrees teach you these things. I passed more than 1 university course where I did not turn up to anything bar the final exam. I paid $100 to get someone to do an assignment for me, and attained a credit pass.
That’s because the subject was trivially easy revision of something I learned in high school.
Yobbo
12 Aug 10 at 2:25 pm
And let me point out the subjects I passed were non-optional first year subjects of a business degree.
Specifically the 2 I am talking about were Economics (identical to year 11/12 TEE economics) and Introduction to Computer Technology – A basic computer skills course designed for morons, with such taxing questions as “Which of the following is not a piece of computer hardware? A: Mouse B: Printer C: Table” etc.
Yobbo
12 Aug 10 at 2:29 pm
[...] to home, Sinclair Davidson argues that while Australian universities are not as vulnerable to such irrational exuberance, it [...]
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