NY Fed’s Bogus Estimate of Return on College and the Neglect of the Intellectual Commons

Yesterday, the New York Fed released a new report by Jaison R. Abel and Richard Dietz, Do the Benefits of College Still Outweigh the Costs? which is getting good coverage in the mainstream media. Its major finding is that despite the fall in wages to college graduates due to the crappy economy, a college degree is still worth the expense because wages of high-school graduates have fallen too, keeping the wage premium of a college education high while reducing the opportunity cost of staying in school.

But the conclusion that is getting the most notice is its study of four-year versus two-year technical or “associate” degrees. The authors found, based on comparing results in public schools, that the returns on both were similar, roughly 15%, which they argued made higher education an attractive investment. And even the much-derided liberal arts degree showed a good, but lower return, at 12%. In fact, the text repeatedly describes liberal arts degrees as a poor investment, when the data actually indicates that it is a classic low-risk, lower-return strategy: you won’t do as well as specialists, but you have markedly less unemployment downside exposure:

Chart of return on various college degrees

However, I am skeptical of the analysis and lack access to the underlying data. The assumption of the study is that education is an investment, and compares returns to stocks and bonds. However, except for children who have money of their own and the freedom to invest it, this is a spurious comparison. A proper analysis to look at the free cash flows and discount that by a risk-adjusted discount rate. There are two ways of doing that. You either deduct the financing costs from the cash flows and discount the resulting amount by an equity cost of capital, or you take the gross cash flows and discount them by a weighted average cost of capital. It would also need to allow for what happens when students don’t find work and wind up paying higher interest rates (as in it would have to calculate those scenarios and weight them by the frequency of occurrence, for instance, 17% for engineering grads versus 8% for architecture grads).

Instead of performing a proper NPV analysis, the authors used internal rate of return. We’ve debunked that at length in a previous post, and even McKinsey hectored CFOs for relying on it precisely because it tends to overstate investment returns. Emphasis ours:

Maybe finance managers just enjoy living on the edge. What else would explain their weakness for using the internal rate of return (IRR) to assess capital projects? For decades, finance textbooks and academics have warned that typical IRR calculations build in reinvestment assumptions that make bad projects look better and good ones look great…the most dangerous problems with IRR are neither isolated nor immaterial, and they can have serious implications for capital budget managers. When managers decide to finance only the projects with the highest IRRs, they may be looking at the most distorted calculations — and thereby destroying shareholder value by selecting the wrong projects altogether.

But let me turn briefly to a much more important issue, which is the perverse nature of thinking about education as an investment. This is yet another manifestation of the degree to which citizens are inculcated to view the social order through the lens of markets.

Now the sad reality is that students who don’t have rich parents do have to think about college in mercenary terms. That’s due to the radical restructuring of labor markets over the last two decades. It used to be that unemployment levels generally were at not all that high and the bad periods were relatively short, plus new college graduates were sought after as high energy and relatively cheap workers. So if a college graduate did well in school, was presentable and had a decent personality, they were pretty much assured of finding paid work, even if it wasn’t their dream job.

But not only are current and recent graduates facing previously inconceivable levels of unemployment, but companies are focusing more and more on candidates who require minimal training. Before, it was assumed that most entry and low-level hires would get on-the-job training. Now, with job tenures short, bosses no longer seem employees as assets, worth investing in because they get a payoff in terms of a loyal and competent workforce. They’d like them to be as much as possible like disposable parts. That desire is unrealistic, of course, but it’s led employers to prefer candidates with specialized skills directly applicable to the job at hand. But as the first chart illustrates, more specialized skills, generally speaking, result in better payoffs for those who find work, but put one at greater risk of not getting hired at all. Or as one of my investor buddies liked to say, “specialization of diet increases the odds of extinction.”

Another troubling issue is the failure to recognize the role of education, including college education, in creating shared norms and knowledge. The punditocracy regularly wrings its hands over increasing political discord in the US, and that is at least in part due to the neglect of the intellectual commons. I recall reading that around the time of Locke was the last era when it was possible for someone to master what was considered to be the main elements of human knowledge in their lifetime. That would now clearly be a ridiculous aspiration. The implication is that various experts and validators determine what is considered to be knowledge and competences worth acquiring, and what gets treated as secondary or irrelevant.

After the first successful experiment with large-scale propaganda, in World War I in the US, there was a bit of a backlash when the public realized how easily their beliefs had been manipulated. Some of the participants in that effort, such as Walter Lippmann, argued that the complexity of the modern world meant that experts would need to distill for the ordinary person what was important and not important; they couldn’t be expected to master the needed expertise. Lippmann clearly meant this as well intended paternalism, but the implications were troubling.

Yet despite the uncomfortable recognition that social and information consensuses were increasingly managed, there remained a generally shared consensus about the value of education, and of what the major elements were, like having read Shakespeare, Milton, Goethe, knowing the major elements of the history of science, at least a smidge of philosophy, and a good grasp of the history of the West. A great deal of this was probably inertial: there was no obvious reason to reject the traditional canon, only to add to it. And mass media also reinforced broadly shared cultural values. In other words, even though the elites were shaping opinion in Lippmann-esque ways, part of the objective was to maintain a social consensus and inculcate positive values (the fact that these would support the status quo and hence the current social order was assumed to be virtuous). When I was a kid, there were only three major broadcast networks, and two major news magazines that had mass influence (Time and Newsweek).

Now with media fragmentation and political strategies that focus on inflaming voters on narrow hot-button issues, the idea of cultivating an intellectual and social commons isn’t just quaint, it is seen as irrelevant to the interests of those at the top of the social order. The perception that higher education is justified only as a means of getting better paid work (or from the employers’ perspective, of getting at least somewhat trained candidates) is a manifestation of a much bigger form of neglect, of a lack of willingness to make investments for the betterment of the citizenry, independent of immediate payoffs.

The only bit of hope is that social values have changed radically in the last 30 years, which means they can be reshaped. But people under 35 have only experienced the march of neoliberalism and its framing of individuals as isolated consumers. And citizens of all ages are under much greater economic pressure than ever before. Nevertheless, identifying the various commons that are being taken away from us is the first step in trying to regain them.

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  1. Skeptic

    Why is Education always considered good? Isn’t there bad Education and Education of Bad People? Would we be better off without Harvard Business School? Would we be better off not Educating Quants? Do we really need more Educated Predators to take up their positions in the Predatory Economy?

    Like Science, Education, is always counted as positive. There is no downside, no negative. There is certainly a significant Negative to Education but the analysis is never done.

    As for “the betterment of the citizenry”, the free means are available to the citizenry if they would only utilize them.

    1. Yves Smith Post author

      Did you read the post? This is not about graduate education.

      As for MBA programs, they are a combination of a trade school and an employment agency.

  2. John

    The whole education mindset is geared towards that expensive college degree. They fail to promote practical trades, like auto mechanic, for instance, for many high schoolers.

    In reality colleges do a bad job in preparing students for the real world.

    Companies the world over are doubling down on offering lower salaries to new recruits. I see this happening as the norm.

    1. Yves Smith Post author

      I disagree that education should be to “prepare students for the real world.” If that was the aim, parachute them into Somalia with a machete.

      I agree that vocational education for those who don’t aspire to go to college is neglected, but that is outside the scope of this article. And with cars being loaded up with even more computers chips, and thus capable or more self-diagnostics, I wouldn’t bet on car mechanics being such a hot career choice.

      Education should give people skills like literacy, critical thinking, computational skills, at a minimum. As James Heckman has found through considerable research, schooling is also important for developing social skills and personal self discipline. GEDs, even though they in theory know as much as high school graduates, perform much less well in the workplace. And I see value in helping students consider, whether through literature, philosophy, or history, issues like social organization, the nature of evidence, and the nature of human existence.

      You seem to regard the purpose of education is solely to produce better wage slaves. I reject that and I hope readers do as well. And there are public universities, notably Berkeley, that deliver education on a par with private schools.

      1. Moneta

        We could turn our goal from a leisure society to an education society. But that would mean a huge change in our material way of life. The other issue is that I am not sure that there are that many intellectuals out there. If people did not need to study to get a job, something tells me colleges and universities would be empty.

        1. JEHR

          For me, education (BA in English Literature) was a way to learn how to be a better thinker and a better human being. My family was too poor to be able to pay full tuition for my education for four years (when it cost about $800 a year) so I went one year on a scholarship and one year was paid for through borrowing. I finished my degree about 10 years later when I knew that I really wanted to read all the literature that I could get my hands on. I think my education helped me to be more curious and to work harder to understand things that I did not know. I will always be thankful for my education even though I never received a paycheque that would have enabled me to support myself.

          There is no other way that I would have understook Shakespeare’s genius if I hadn’t had to understand how his metaphors worked in “Timon of Athens” which I had to make a report on. I struggled mightily to understand this work. I read and re-read and read it yet again. I grappled and wrestled with that play. After much thinking and floundering, I literally had an epiphany late one night which stayed with me for a long time. I made associations inside that work which has helped me look for connections and relationships in life and in history. My education was worth much more than any amount of gold!

          1. bruno marr

            …you got the prize! Many don’t.

            It takes diligence, fortitude, and the “ah ha” experience to become a knowledgeable, self-aware, being.

          2. sleepy

            As another English major, I agree (of course) lol.

            Perhaps like a lot of 18 yr olds, when I was that age I wanted to know what made people tick, what their motivations were, what their personalities were, what caused them to be who they are, etc.

            So naturally I veered off as a freshman to psychology. I quickly found that it taught me very little about human beings, but an excessive amount about the academic discipline of psychology, its definitions and categories.

            I switched to English lit., and it was there I found the broadest possible exposure to human good, evil, ambition, pride, courage, heroicism, guilt, and redemption, in every conceivable context.

            Far more than the social sciences, imho.

      2. jrs

        As James Heckman has found through considerable research, schooling is also important for developing social skills and personal self discipline. GEDs, even though they in theory know as much as high school graduates, perform much less well in the workplace

        The causation is weird here. Many have gotten GEDs because they can’t stand the pecking order nature of high school.

      3. bluntobj

        I agree with your statement that education’s true purpose is not to make better wage slaves, Yves. I personally think it should be viewed as an entrepreneurship tool; a person’s life is their business. When viewed from that perspective, it is important that investments made enhance or increase a person’s capital, in whatever form, such that they can run the business of their life with a positive NPV.

        Most people skip that last step, and don’t make the connection that the improvements they make in their life need to be connected to a long term goal or purpose. Most simply float along with no history to anchor them, and no plan for their life to guide them. These are easy to direct into wage slave traps by the systems that will farm them like cattle.

        That idea alone points to the uncomfortable truth that is becoming more apparent; education as it exists today is not worth what most students pay.

    2. Working Class Nero

      In California, the two main universities for undergraduate architecture are UC Berkeley and Cal Poly San Luis Obispo. These two universities have totally different outlooks (or at least did in the late eighties). At Cal Poly they tried to prepare their student for the real world, they would learn how to draft properly, learn about codes, and when they had design studios they were critiqued on how realistic their projects were. In fact a Cal Poly graduate was very employable, they could immediately step into an architectural office and start producing on day one.

      UC Berkeley had a totally different approach. Their attitude was that you could learn all that boring practical crap later on the job (if you ever got one). University was the time to really learn how to think. At the end of the day, architecture is all about solving problems. So in the design studios, the emphasis was on developing a concept and then translating this concept into a building (actually a wood model). No one gave a shit whether your designs were really buildable. The key was to be able to think critically; to climb above a problem and to see it from above, from a distance, and to be able to discern the essential patterns. In our structural and thermal performance classes we got such a strong conceptual basis that just the other day I was analyzing a problem and mentioned to my colleague that a concept I learned in a class 25 years ago was the key my being able to solve the problem.

      Really the difference between Berkeley and Cal Poly was the difference between planning strategically and reacting tactically.

      The problem is that the world only needs so many generals. For the most part education has always been about preparing foot soldiers to follow orders. Even at Berkeley while thinking critically was emphasized, we inevitably divided into two tribes: the design fascists and Christopher Alexander’s contextualists. Each side had their uniforms, the fascists were in all black and Alexander’s acolytes all dresses liked geology students (in other words they were less than cool). I fell in with the design fascists and tribal loyalty definitely came before critical thinking. But luckily I took the idea of critical thinking seriously enough that I always tried to analyze where Alexander had strong points and I was lucky enough to be tolerated when I mentioned the design fascist tendency to turn the university into a cult of personality for Le Corbusier. So in response to my complaints once a month we got a lecture on Giuseppe Terragni.

      So it’s a mixed bag. The power to think critically can be more dangerous to elites than the right to bear arms.

      After graduation the saying goes all the Cal Poly grads immediately get jobs but ten years later they are all working for Cal grads. Luckily at Cal we had learned to make kick ass basswood models so several of my friends and I did eventually get jobs. But the truth is that very few of my university friends went on to careers in architecture. The corporate office that I went on to work for only hired people from theoretical universities – I never saw a Cal Poly grad there. They figured if a person was bright enough to go to the top universities they would be able to adapt to whichever tasks they were assigned. They felt the students with the ability to think critically would be more flexible and be able to take on any of the challenges they were presented with.

      And I totally agree with your point about technical education for people not going to university.

      1. bruno marr

        Well, Cal(ifornia) Poly(technic) State University, SLO has, of course, a technical orientation (Its motto is: Learn by Doing.) and, much like MIT, has a focus on the applied arts & sciences (of which Architecture is but one). While Cal (Berkeley) has an architecture program, it is modest, and not nearly the size as Cal poly, SLO. Both programs have quality instruction, but if you want exposure to a large group of motivated architect wannabe’s (students), you choose CPSU,SLO.

        The liberal arts component in the curriculum is first rate, as well.


        1. Working Class Nero

          Cal’s architecture school never seemed small to me so I looked it up and Cal Poly has 800 students while Cal has 750 — in other words not much of a difference.

          That said Cal Poly is certainly one of the best schools in the CSU system. I just thought it helped illustrate the contrast with Cal between the “real world” and critical thinking approach.

      2. James Levy

        “if a person was bright enough to go to the top universities they would be able to adapt to whichever tasks they were assigned.”

        That’s where I can’t follow you. I am a really bright and well educated man. But I am as inflexible as hell. I can think creatively but when it comes to doing things, I like order, rote, routine. If I had to let the chickens out before I took the dog out, it would vex me for hours. The military historian Mark Grimsley talks about generals whose emphasis is on control versus those who like to “mix it up”. Meade won the Battle of Gettysburg because he kept the situation under control and never lost his head. Such men can be very effective but they have an upper ceiling on what they can do (Wellington being perhaps the best control freak of all time, but most great generals prefer a looser style that allows them to improvise and exploit the other guy’s confusion and the mistakes you force on him by acting quickly and decisively while he’s still feeling out the situation). So, I don’t think it’s a matter of intelligence, but of temperament. Meade was as intelligent as Grant, but he lacked the temperament for decisive action. And McClellan was by all accounts enormously intelligent, but was more interested in not losing than in winning. In all these cases, raw intelligence is not the key variable in determining outcomes.

        1. Yves Smith Post author

          Agreed. Formal measures of intelligence has not much to do with street smarts and don’t capture “EQ” or emotional intelligence, either.

          1. jonboinAR

            Totally. I’m quite intelligent in the formal way, intelligent enough to have realized a long time ago that “Intelligence” is not all there is to intelligence, by a long shot. For example, in important ways, especially in certain social aspects or, as you said, “street smarts”, I’m quite stupid, in fact a bit retarded, I think. Without exposure to any of these topics everyone writes about on here except for here where I read it, in other words, zero in my professional day or social life, I can understand it fairly well and it interests me. But I can’t explain it to anyone I know nor convince them that any of it is important because I completely lack the ability to make it interesting to them and am also fairly terrible at persuasion. Well, that’s frustrating. But, as someone fairly high in the traditional, critical reasoning form of intelligence, I will tell you for sure there are many forms of intelligence and testing at a particular level in one form is no predictor in how you will test in another.

            1. Moneta

              Not long ago, I explained to my 12 year old daughter that she’ going to have trouble persuading people if she sticks to facts because people have to feel their decisions. She was appalled:” But isn’t that a form of mind control? That’s horrible!”

              I tried to convince her that it was only horrible if she had nefarious motives behind it. The reality is that some people like to control others and some people are laisser vivre. Persuasion is and art that not everyone feels comfortable performing.

        2. Working Class Nero

          I meant bright much more in the sense of clever, agile, and resourceful than I did necessarily in the sense of having raw intelligence. Really what it means is being able to master a new challenge with minimal preparation, in both an intellectual and social sense. Remember, I was talking about the subset of people who go to architecture school, and although I cannot prove it, I am convinced that if we accept the hunter (ADHD) to farmer (Aspergers) continuum; architects surely are more clustered towards the hunter side of the spectrum. Every day is different, often multiple problems have to be solved at the same time, the social side of it (convincing others to follow your lead and /or being able to obtain the critical information from others) is just as important as the intellectual side, etc.

          One exception would be for specification writers who surely tend towards the farmer side!

          So what I meant was that from the company’s point of view, since the tasks that may arise were so varied and unpredictable, they really didn’t look for people pre-trained for specific tasks. For example back in the day knowledge of Autocad was not a requirement (although nowadays the do like Revit people pretrained). It quite often happens that someone is put in charge of an area they have never worked on before and real quick they have to get up to speed on it. They figured the people they were hiring would figure out a way to rise to at least most of the challenges thrown their way.

  3. lolcar

    So you want us to imagine the worst, most socially useless courses of study we can, then equate them with education as a general concept. That doesn’t work for me.

    1. lambert strether

      No, I’m sure it doesn’t work for you, but that’s hardly the point. For many years — until a corrupt adminstrator ticked him off — the University of Maine’s largest donor was Stephen King, from the much maligned English Department.

      Say, did you major in Agnotology?

  4. Carolinian

    While I confess to a BA, I’m probably in the great minority around here for thinking some of the country’s current situation is due is too much higher education. The problem with those “shared values” learned in university is that they can also be shared assumptions taught by people with only a tenuous connection to the world outside of academia. After all, isn’t that part of what’s being talked about in Econned? Of course we need specialist knowledge–the MITs, the great medical universities–but I’d say the humanities are on shakier ground given what it costs now to attend.

    Being educated is not the same as being smart or being wise. L. Frank Baum once had fun with this by having the Scarecrow turn into a genius on being handed a diploma. It’s satire, but the cult of credentialism is in full force in modern America.

    Gore Vidal never went to college and once left Yale boy William Buckley sputtering and threatening violence during a debate. Edward Snowden didn’t even graduate from high school and was considered so indispensable to the NSA that they gave him the keys to the kingdom.

    Interestingly both of these examples show a tendency to “think outside the box.” Perhaps we should start to wonder whether American higher education is just a vast engine of conformity. This country’s great strength was always in its diversity, both ethnically and in ways of thinking. The biologists would say we had a “rich gene pool.” Lately the thinking at the top has a distinctly calcified quality. It’s undoubtedly simplistic to blame this just on higher education but it could have a role. It used to be said that you went to college to “learn how to think.” These days–particularly given the costs-seems it’s more that you go to learn how to make money and how to become part of the system.

    1. fritter

      You’re reading too much into it. 18 year olds aren’t devising some evil master plan by going to college. They go because their families and friends said that was what they should do. Most of them have no idea what they want to do when they get out. Academia is insulated from the realities of the job market to some degree. they most likely think they are preparing students for their future careers in the best manner possible.
      There is far less group think in college than in the workforce. Equating education with the machinations of the 1% is a little silly.
      Snowden had family connections in the industry and lots of drive. You might as well advise high school kids to go to the NFL or NBA as a career. No education needed and look at all the money you can make!

      1. Carolinian

        I think you are the one reading too much into what I said. I’m not claiming some kind of conspiracy on the part of the educators, but more a kind of organic result of a late stage largely middle class society.

        That said, if you think higher education and particularly the Ivies are doing such a great job then just look around. The country’s leadership gives all indications of being profoundly incompetent or corrupt. There was a time when something like the trillion dollar financial bailout would have been considered astonishing. The country has changed, although there have always been debates about “the best and the brightest.” There was a time when the Harvard boys thought Vietnam was a great idea too.

        And I wouldn’t begin to advise young people what to do. But I do think colleges with their high fees are increasingly taking students and their parents–and the government backing all those loans–for a ride.

        1. Moneta

          Especially when so much goes into brick and mortar. For most disciplines, you don’t need high end infra to learn… yet colleges and universities keep on building ever more expensive buildings.

          Here in Canada, universities have participated in the real estate bubble and they are trying to make the students pay for their bad bets and excesses.

          1. JEHR

            Moneta, when you say such things in a wide sweep like that, I will not believe you until you give me a definite example. Do you have an example of a university gambling on its buildings and making the students pay? In fact, such a statement needs many examples.

            1. Moneta

              If you go to Montreal, you will notice that universities have been developing a lot of real estate over the last couple of decades…. some of them have been building pavilions in other municipalities competing against other established universities.

              Interestingly, that goes against the demographic data showing a drop in student population coming our way… I guess they are counting on educating immigrants who will pay 2-3X times more. In the mean time, their budgets are deficient and they are trying to get tuition fees increased so current students can pay for their long-term bets.


              “En outre, cela signifie que le développement du parc immobilier est devenu une orientation budgétaire marquante, laissant en plan des activités essentielles comme l’enseignement”

              the end of the day, a large chunk of education could happen over the net. Maybe not all of it but a big enough percentage where our need for new campus development should subside instead of grow.

              Once again, it’s a demonstration that our economy is obsessed with hard assets. And I am sure there is some of this happening in the US.

    2. GlassHammer

      “While I confess to a BA, I’m probably in the great minority around here for thinking some of the country’s current situation is due is too much higher education.”

      To be fair, the process of “memorize, test, and forget” shouldn’t be called “education” but that is what most students go through.

      1. JEHR

        “To be fair, the process of “memorize, test, and forget” shouldn’t be called “education” but that is what most students go through.”

        If this is true, it is the saddest thing I have read today.

        1. GlassHammer

          Just talk with a few graduates and see if I am wrong. Many will openly admit that most of what they studied went in one ear and out the other.

          1. JEHR

            But, you see, a student has to apply himself/herself. Even in the worst classes I took (one professor just read his thesis to us), I managed to get a great deal out of the books he assigned me to read. Application has its own reward. If you choose not to think or learn then you are being educated in something other than higher learning.

        2. ScottS

          I memorized a list of cations and anions in college and immediately forgot them after I finished chemistry. Sorry to disappoint you.

          As for the original thrust of the argument:
          1. IRR of education is IRRelevant since education should be free, therefore have infinite (or perhaps undefined?) return on investment.
          2. Education leads (for us 99%) to loans, which, like mortgages, make us obedient wage slaves.
          3. I’m afraid of the country “pivoting” towards more vocation education since that’s currently a cesspool which would not be improved by any Obamacare-like individual education mandate forcing kids to chose a private vocational school from an education exchange.

          1. GlassHammer

            So many financial formulas, accounting rules, tax laws, etc… are now totally lost to me. The ones I still remember are the ones I need/use the most.

        3. nony mouse

          it is true.

          that, and looking at a Prof’s powerpoint (sometimes provided by the textbook publisher), while the Prof stumbles around trying to give meat to what is listed on their via their own expertise, also while trying to make it entertaining enough to keep some in the back from falling asleep.

          these, plus reading propagandized textbooks over and over, which want to relay and replay 9/11 from the perspective of their own particular discipline (and not in any very detailed way, which makes it obvious that it IS propaganda). somehow, every chapter in the textbook is a miraculous 30 pages long, no matter the subject. it cost you $150, and it is written like you are literally 12 years old and just finished learning how to read, so makes every subject, however interesting, sound dumb and ‘too easy’.

          I would go back to deciphering Aristotle & Kant in a heartbeat! at least then, when I threw the book against the wall, it wouldn’t be in disgust but frustration with my own inabilities.

    3. F. Beard

      This country’s great strength was always in its diversity, both ethnically and in ways of thinking.

      Besides a Constitutional Amendment separating government from private money creation, perhaps we need one separating it from education too with a generous BIG allowing every family to choose themselves how their children shall be educated?

      Could it be worse than the present system? I doubt it.

      1. Carolinian

        Hope you aren’t enlisting me in whatever it is you’re advocating. I’m totally in favor of public education and think it is the best place for that civics commons that Yves talks about.

        The country’s strength has been in its diversity that is then unified to a common purpose through democracy. The mechanism may be getting quite creaky but it still exists.

        The problem, I’d argue, with some of the current higher education scene is that it is less about common purpose and more about class stratification. Universities (mine, for instance) have often become like luxury resorts. I’m not offering any solutions for this….it’s just an observation.

      2. OIFVet

        Far too many people already believe that Jesus and the dinosaurs were contemporaries. You might think that families should be free to use the Flintstones as a syllabus but that infringes on MY quality of life and on MY right not to be surrounded by idiots spouting creationist BS.

  5. James Levy

    ” no obvious reason to reject the traditional canon, only to add to it”

    My observation as a 19 year insider in higher education reflects this sentiment of Yves beautifully.

    The four year degree was created in the 19th century for a different student population than the one we have today. What we really need to properly educate young people is more time and fewer distractions. Also, the smorgasbord system of each student picking their own classes and groping towards a major should go in favor of clear courses of study and a few electives. And that course of study should start with a mix of courses largely in the perspective major (to show the students what they are presumably getting themselves into), but keep the “big idea” surveys for junior year (the liberal arts intros are largely wasted on Freshmen who are too bewildered by the new environment to get the most out of them).

    The best courses I ever took were Studies in the Novel (two semesters with Dr. Susan Lorsch, god bless her), Beethoven, and Intro to Astrogeology. They had nothing to do with my career, but the teachers and the subjects were fantastic. They made my life better from the day I first sat in them until today. What better investment could I have made than adding happiness to my life?

    1. lambert strether

      I think you’re confusing who’s supposed to be “happy.” And remember: Always express “Gross National Happiness” as an average…..

  6. Ed

    While the issue of using IRR instead of NPV in these calculations is a good and novel point, I’m also interested in which cohort of graduates is tracked for these reports. What should be tracked is one graduating class, the class of 2004. If you track a class which graduated later, you capture alot of students in grad school and internships and at best are tracking how well college gets your toot in the door. If you track a class which graduated much earlier, you are tracking generational cohorts that are entering completely different job markets. I suspect these reports also inflate the monetary return of higher education by including earlier cohorts who graduated during periods where higher education gave higher returns. As people increasingly realized or were told that higher education would boost their employability, and participation in higher education increased, along with tuitions, we would expect the advantage of higher education to disappear. That’s how it works in other markets.

    1. Yves Smith Post author

      I don’t know where you’ve been, but the criticism of IRRs is the absolute antithesis of “novel”. Anyone who has an MBA or finance degree was told repeatedly NEVER NEVER NEVER use IRR, it is an indefensibly lousy way to measure returns. This was true when I got an MBA and it continues to be true. If you used IRR to make a return calculation on an exam, you’d get a failing grade.

      But I agree with the rest of your comment. The paper tracked returns for earlier years, that’s how they came up with their estimates.

      And I didn’t make one point clearly enough in the post: it is clear that the researchers modeled returns ONLY for people who found employment. That’s bollocks. They need to calculate risk adjusted returns and incorporate the risk of unemployment, including for those who have student (meaning the impact of rates kicking up into the punitive delinquency interest rate levels). That would make engineering, with its high unemployment rate, look way less attractive and could even make it less attractive than a liberal arts degree (the bias in IRR likely makes the return premium for engineering degrees larger than it really is).

      1. H.Alexander Ivey

        They only looked at employed graduates?!? WTF is that! Their entire article can be round-can immediately, no need to read it – except for propaganda purposes.

  7. Ed

    I’m finding I’m increasingly looking at workplace issues from the perspective of living in a “Player Piano” scenario, where increased technology and a rapid population explosion has created a situation where most people just can’t be profitably employed.

    This seems to have been handled in two ways. The first is an explosion of make-work or what David Graeber calls “bullshit jobs”. The second is by essentially barring large categories of people from the workforce. When the employment to adult population ratio was in the mid 50s in the past, the situation was handled by barring people from the workforce based on who they were, eg their gender and race. Now what gets you thrown out is behavior, which is arguably fairer, though the rules and their enforcement are very arbitrary.

    So a situation where you need a college degree even to look for work fits this strategy in two ways. First you can bar more people from the workforce, everyone who can’t or won’t get through the higher education gate, and the people in the process of getting a degree. Plus much more make-work is created within higher education. The make-work aspect is why something more straightforward, such as just requiring a very expensive employment license, is not done instead.

    1. jrs

      And you keep everyone out of the workforce for an additional 4 years at least. I’d rather lower the Social Security age or better yet work sahre, but let’s double down on this miserable messed up society instead.

    1. lambert strether

      I’m not sure transplanting a German apprenticeship program to South Carolina is going to work for workers unless the mittelstand is transplanted as well. I note that the SC BMW plant is not unionized, so are you sure this isn’t another bottom-feeding union-busting scam by Nikki Haley?

      1. Carolinian

        I’m not doing PR for BMW or the ridiculous Nikki (who came along long after BMW). I just think the German idea of professionalizing blue collar work is interesting. And I wouldn’t be so sure that BMW is opposed to a union. You’ll note that Volkswagen was more than willing to sign with the UAW in Tennessee. It was the state politicians who were opposed. It’s probably the same here.

        The Boeing play in Charleston is completely different. Clearly they are trying to stick a shiv in their union. Nikki’s fingerprints are all over that one.

  8. Justicia

    “…the idea of cultivating an intellectual and social commons isn’t just quaint, it is seen as irrelevant to the interests of those at the top of the social order.”

    An intellectual and social commons isn’t just important for the elites. Without it, anyone can assert their own version of “the facts,” all evidence to the contrary notwithstanding. The spurious “debate” over climate science is possible because most Americans don’t understand the nature of scientific inquiry.

    In the realm of political discourse, the failure to teach civics in most US schools or to make it a requirement for a BA means that too many of our fellow citizens lack basic knowledge about how our Constitutional system is supposed to work, leaving them with no antidote to the poisonous revisionist history that’s pumped out on hate-talk radio. (When Scalia re-wrote the 2nd Amendment and overthrew over a century of judicial precedent to arrive at the notion of an unfettered individual right to bear arms, most people in this country had no idea just how radical this was.)

    1. jgordon

      That is a fanciful and erroneous reading of the Second Amendment you have there. If you do a Google search of things the author of the Second Amendment, James Madison, is recorded as saying with regards to the individual right of citizens to keep and bear arms you may change your opinion of what it actually meant. Although I’m guessing you fancy yourself at greater expert as to the meaning the amendment than the author of the amendment. It’s ironic that you lament the lack of an intellectual commons not one paragraph prior to your rant.

      1. James Levy

        Hamilton hated your guts (you know, the mob) and wanted you to have no real power. That’s also a fact. From the 1930s for decade after decade the 2nd Amendment was not seen as an individual right to own weapons–the stress was on well-regulated. The idea that we must believe what Hamilton or Washington or any of the other elitists and slave-owners who wrote the Constitution is a joke. Or should we all be issued muskets and Pennsylvania rifles, since that was the original intent? What we have is the text, and the text states that the reason for having a right to bear arms is so that we can have a militia to defend the state. The militia no longer exists. So what you are left with is an incredibly badly worded statement that is nothing but a Rorschach Test. And nobody thinks it means what you imply it does, or we’d all have the right to real militia weapons like M60 machine guns and hand grenades. Or do you really think we do?

      2. lambert strether

        I guess one of the things they teach the students at Gun Nut U is how to get others to do the research work they themselves should be doing. All done by the Agnotology Department, which supplies a number of helpful templates like “Just Google for quotes from ____ and you’ll see what I mean.” Graduate level coursework, I need hardly add.

    2. jrs

      If one wanted “an intellectual and social commons” it wouldn’t be restricted to university grounds (which would be imperfect in the best possible case and in the actual case are as aflood in corporate money as anything else – yes state schools even get corporate money – the UC system and Monsanto etc.). The “intellectual and social commons.” would be far more widespread than just the university if it was really going to work well, an overall WELL READ society would frankly be better overall than more and more and more advanced degrees for some. But it doesn’t work because society is too messed up. There are too many distractions (media, internet, etc.). But also the fight for survival is just way way too hard and time consuming and stressful and exhausting. A good society can’t be built out of some ivory towers that attempt to mitigate the greater economic reality. I vote for taxes to fund the state schools and WILLINGLY don’t get me wrong, but to produce that kind of idealistic stuff, to even aim for it, you need social change, not more schooling.

  9. Justicia

    Also, want to give a shout out to Yves for keeping the discussion of the “value” of higher education on the front burner. The NYT’s David Leonhardt had another bogus story yesterday touting a paper from Brookings that claims to show that the student debt burden of households led by a person under 40 is manageable. Ergo, no problem.

    The readers’ comments skewered this shoddy piece of “research,” pointing out that student debt is a major obstacle to household formation. Consequently the Brookings’ paper overlooked the young adults living under their parents roof — the “Boomerang kids” featured in another NYT magazine article that says 1 in 5 Americans in their 20s and 30s are living with their parents. (http://www.nytimes.com/2014/06/22/magazine/its-official-the-boomerang-kids-wont-leave.html?ref=magazine%29)

    One reader also noted something Leonhardt didn’t choose to disclose — that the lead author of the Brookings paper “has received several research grants from conservative organizations, including the Smith Richardson Foundation, the the American Enterprise Insitute, and the Lumina Foundation, where three former Sallie Mae directors are board members.”

  10. Alejandro

    IIRC, the initial concept of a “university” was a place for the exchange of ideas and the “structuring” of “universal” knowledge, hence the word “university”. This was centuries’ b.b.b. (before big biz). Somewhere it became overly “taxonomized”, effectively killing the synergy and becoming a collection of “knowledge” with no purpose. Not seen is how the ‘esoterically initiated’ use the bulk then stake claims on a couple of details, via IP, just prior to “THE” “MARKET” intro. My rub is, if no single mind functions in total isolation, then how can so much be attributed to any single individual? Why should any individual be allowed to “enclose” and appropriate so much? IMHO, the issue is more about disproportionality than it is about inequality. Also at play are the concepts of property, ownership and the never rehabbed addiction to cheap labor.

    We have accepted the idea that “Education” is training to serve the powerful. Power that is mostly unaccountable with no quid pro quo. Is that the meaning of education? Is that the purpose?
    IMHO, it is about conditioning the mind to acquire knowledge and understanding that empowers agency. It’s about developing skills that give meaning and purpose to your day. In short it’s not about “institutions”, it is about agency to think critically and use the synergy of collective imagination and creativity to change things for the better, for everyone.

  11. cripes

    I have to wonder if there is a big element of correlation/causation fallacy at work in this study. Unless other factors have been controlled for, like parental income, place of residence etc., then the effects of credetialling on income are likely to be exagerrated. And the new regime of barring entrance to employment except to degrre holders of course, is probably more relevant than the questionable skills acquired in most bacchalaurate programs, surgeons excluded. Although even there, its the apprenticeship that really males a surgeon. Maybe it makes more sense to compare the earnings of lagacy brats like the bushes, et al to arrive at a useful financial metric. Or maube the entire exercise is bullshit: 70% pf american adults have less than a bachelors degree and are a huge well of talent and productivity that needs to be integrated into our economy. We will never have an economy that needs or supports a 100% college-certified workforce. Praise god.

    1. Yves Smith Post author

      Please reread the post. The study was based on kids who went to PUBLIC universities and in three states, so you’d have similar incomes (as in all in-state residents as degree candidates) and presumably very few children from wealthy backgrounds. But you are correct to imply that the kids who chose the two year schools in some cases did it out of economic necessity, meaning they came for lower income households on average. I’m just saying give the use of public schools, the impact would be less pronounced than if the study included private schools.

      1. cripes

        Without seeing the data and protocols, I am not persuaded that simply selecting public universities will control for income, family composition, social capital, residence and other factors that highly influence selection of people who enter or complete college–even public ones.

  12. cripes

    (Please excuse misspelling/typos above, too difficult to fix on tiny android cellphone screen)

  13. Jon

    This is a BIG problem. I expect that, within another 40 years or so, we’ll see free public education expand through a full four-year degree. The implications are staggering, both potentially positive and negative.

  14. impermanence

    Anybody who has been to college knows its value…very little. But, it’s not the value of such an education that people are outraged over, but instead, the price, which is perhaps the poster-child for the institutional/professional class rip-off of this era.

    It has been said that the true measure of a society lies in how it treats its children and its poor.

    Strike one and strike two.

    1. Yves Smith Post author

      Speak for yourself, I thought my college education was enormously valuable. Among other things, it taught me how to write and how to think critically.

      1. John Yard

        Right on, Yves. I graduated from a small mid-western college in 1971 with a BA. The emphasis was on critical thinking – every exam was an open book problem-solving essay. I did manual labor for 10 years trying to find a right profession. I stumbled into computer systems programming. I didn’t take a single math course in college, but I think my BA was critical to my success because I learned how to learn and to do projects. The degree was worth every penny , and I owe my parents who paid for it more than I can say. And so a college degree in this case was extremely valuable.

  15. Pepsi Girl

    Matt Bruenig has written some good stuff about the transformation of universities from Athens style well rounded citizen democracy partipator-creators, into alienated market actors, in fevered hateful response to the student movement of the 1960s. At least I think he has, hopefully I’m not misattributing. Google is failing me.

    1. jrs

      Of course many of the movements of the 60s were aiming at the same thing, “free schooling”, many alternative schools. They were aiming to teach democratic participation at the early grades. I doubt it would work in all situations. But it aimed at precisely that.

  16. Wat Tylerj

    When I graduated from NC State the joke was : “Four years ago I couldn’t spell engineer. Now I are one.”
    Lots of truth in that sentiment – almost completely math and science with ,as I recall, one English and one economics class and very few electives. I were trained not edukated.


  17. Geoff

    In related news yesterday, the NYT has this very dishonest article written by Chingos and Akers
    Get the history on these shills here:
    and check out this analysis of their subterfuge:

  18. Banger

    Very thoughtful piece by Yves and pretty good discussion. Part of the subject here concerns something that interests me very much and that is the basic “canon” of Western Civilization that fueled discussions back in the day about “cultural literacy” centered around E.D. Hirsch. Income from a background where the classics and the ideas of people like Mortimer Adler were important–certainly the classics were important for me and inform my views to this day.

    There are to important components of Western civilization that need to be emphasized and that is compassion and critical thinking skills, not that other cultures don’t have those features but as Westerners that is what we have to work with. We abandon the canon at our peril as can be seen from what our culture has become. Believe it or not we are fast becoming the character of Bluto in the great and prophetic movie Animal House without a grounding in or at least a respect for this canon. Even the great non-white elements of the canon refer to it, e.g., Ralph Ellison’s Invisible Man is, for me close to the ultimate expression of that spirit.

    But her is the thing, the university as a guardian of that spirit is dying and, as Morris Berman has suggested, perhaps we need to see that the true treasure houses of our culture may well have to go underground into virtual monasteries, perhaps in places like this one. I think schooling from k-12 and postsec has become mainly a credential in machine not a place of learning. The key evidence for that is that educators largely ignore what we know about learning to a degree that is almost stunning not just in the methods but also the subject matter which hasn’t substantially changed in a century. Just one really obvious example, in the 1940’s some ideas now labelled cybernetics and systems theory created a meta-discipline yet it is rarely taught when it is clearly more useful than algebra, not that algebra shouldn’t be taught. How, for example, can you begin to grasp things like climate change without using a systems approach?

    The action, in my view, is outside the classroom where what we want to learn can be learned through the best method that we can use given our learning style using the latest understanding of how our brains work in general and how our own brains work in particular. All that info is out there but there is, as yet, no framework built up around these findings and universities are not interested, for the most part in those things–they just want to make money, frankly and should be avoided.

    1. H.Alexander Ivey

      Banger, as an educator putting together a talk on what, precisely and accurately, is teaching and learning, I can assure you that we know about learning (“educators largely ignore what we know about learning”). But there are more than the two voices of the teacher and the student in the classroom. There are also the school admin, the parent, the gov’t, and the businesses providing employment voices. It is these other voices that seem to have the stage right now.

      1. H. Alexander Ivey

        And for those keeping score, there is, unfortunately, yet another voice in the classroom – the fraudster, interested in only the money to be made in that environment. In today’s world of “money first”, that voice is loud and clear.

        In a world where governments refuse to do their duty, the fraudster’s presence should be assumed and identified.

  19. John Mc

    In a March, 2014, truthdig article, recently controversial author Chris Hedges interviewed Oxford Professor (economic historian) Avner Offer about neoclassical economists. Here is the link: https://www.truthdig.com/report/item/suffering_well_you_deserve_it_20140302

    Anyhow, one of Prof. Offer’s major points involves the gap between predicted/estimated experience (or the domain of neoclassical economists) and the reality of the lived world. In his view, as many others, we should be getting as close to real lived experience as possible (away from models which distract or provide cover for a false experience). I agree with this as a far reaching aim of most scholarship in a neoliberal, world of production, self-promotion, and academic clutter, but this has particular salience with this article.

    The lived reality principle when applied to higher education concepts like:
    1) the value of education for young adults,
    2) the opportunity costs/debts/and steered choice for young adults
    3) use of resources during 18 to 25 years of age
    4) alignment of education with job market (and paying for this education)

    blinkers the surface of a richer discussion of real experience. Many college students come and go in the pursuit of a degree (caught between the relevance, poor job market, and increasing expense). This is its own little profit center for universities (the stop-start students, who enroll one semester, but do not the next). Second, the social construction of college over the last few decades has sold the “good time” party bus culture to both high school graduates and those who have been downsized and need further training or credentialing. Sporting events, Segregated Greek/social party communities and College getaways like spring break are the symbols of college fantasy (deeply rooted in the excuses for tuition increases) is seen by privileged youth as a respite from the working world and something to consume (often at unknown costs to be paid at a later date or something their parents will take care of).

    This is in complete contrast to the culture of the debt-funded students, who in many cases work their way through college on raman noodles and Kraft macaroni and cheese just to be a part of the larger economy which is producing crapifying low wage jobs and placing stressors on families’ resources at prices that would have made 1970’s Ivy league provosts blush. Lastly, this is bracketed by the well funded marketing campaigns of the “sub-prime” privatized for-profit, online education sector. Various crapified vendors really do a disservice to the notion of lifelong education and face-to-face learning using technology as cudgel.

    The lived experience for many is how to balance paying for an expensive, uncertain product that is being force fed an entire generation at three times the cost – without the being able to discharge these debts if the job market, training or individual path gets off track. But if you are bored with this narrative, focus on how fun the dorms are and other commodities on campus. Its a shopping mall model. And when you consider the professoriate, we have to acknowledge that students are paying inflated prices for mostly adjunct professors (part-time), because the corporatized demands being placed on tenured faculty privilege grants, research benefitting corporate or state policy, and academic entrepreneurship.

    You would think with all our universities, the rise in tuition and the number of people being educated each year that our productivity would reflect this in our society. Instead, it is a microcosm of a similar problem of increased inequality as a business model to exploit those who do not know what they are committing to and find out later, they are on their own and the belief that there is no alternative was completely wrong.

    Given Proctor’s and Schiebinger book on Agnotology, we should embrace the spirit of educating oneself over a life time (arts, sciences, language, history, relationships etc.) but we should be resisting the dialogue of whether it is worth based on a few factors and get back to what is really happening (which is much worse, the crapification and commoditization of education).

  20. F. Beard

    The bottom line per Scripture re education:

    The words of wise men are like goads, and masters of these collections are like well-driven nails; they are given by one Shepherd. But beyond this, my son, be warned: the writing of many books is endless, and excessive devotion to books is wearying to the body.

    The conclusion, when all has been heard, is: fear God and keep His commandments, because this applies to every person. Ecclesiastes 12:11-13
    New American Standard Bible (NASB)

  21. kevinearick

    Syzygy: Ownership, Extortion, & Collusion

    Feudalism, breeding on natural resource control, and consumer confidence, talking feudalism up, is the same thing, a biased perception of the past projected upon the future, with media built for the purpose, the status quo process.

    Some preferred college graduates make more than most high school graduates, because their purchasing power, credit preference, has fallen less precipitously, which means that you now need a college degree to get a janitor certification. Keep cycling down and expect something other than war across artificial borders.

    Absentee owners – public, private and non-profit, in a circle of families, have land locked up, and fracking is better than burning on the way out, because health cannot be grown for generations. By protecting the automaton artificial health industry, they have now exposed the feedback loop between export/import banking and infrastructure spending to examination.

    Critters competing to drive up the price of real estate common, as a retirement fund, under a self-biased assumption of scarcity, has locked up productive utility. They must have rent to pat the tax tribute, but the renters are priced out, so RE inflation, compounded into every layer, is eroding purchasing power right up the income chain, globally.

    Now, Germany, with relatively low ‘homeownership’ GDP consumption, is entering the black hole, triggering the next round of financial experimentation. Trading natural resources for real estate inflation is a geopolitical consideration, and the circle accepting debt slavery as consideration will not stop shrinking.

    A 2% target for inflation is only the stated heat under the pan boiling the frogs. By the time readily available surplus is gone, legacy has replaced evacuating labor with the lower middle class, eliminating the discounting function and triggering the chain reaction. Labor is not a commodity.

    Focus on building an opportunity cost algorithm for your life, not to fix the past, but to build the future. By the time the blind leading the blind realize that you have moved the mountain, you have already moved the next two. That’s what makes the economy go, you.

    If you can’t work on your car, you don’t own it; it owns you. The garages must collude to maximize extortion tribute, or others will. Under civil law, cartel licensing, the only option is to compensate by applying extortion upstream. If you control credit, cars are a dime a dozen.

    If you can read a wiring diagram, make a ladder diagram and read a meter, you can bypass all the extortion but land. You can teach yourself to build, but the bank is going to ensure that you can only rent homeownership, with inflation, monetary and tax tribute policy under FILO. That’s why the old-timer gives you a leasehold reversion.

    Disconnect power to the circuit. Replace the motor return line beginning at the service panel and on to the motor return terminal. Always begin at the beginning, the end, always. Then replace the power side, beginning at the motor power terminal, going to one side of a switch. Add final wire from the other side of the switch to power side of service panel.

    Add or remove devices/controllers/amps, beginning with a fuse in each sub-circuit, until stable. A thermostat is just a conditional switch, in a feedback loop with a meter. Making a ladder diagram from the wiring diagram helps you to see and test multiple conditions in the circuit.

    The economy is very much a circuit, with duration sub-circuits requiring duration resonance, nR equilibrium from the other perspective, and life is work. Begin at the end. You are somewhere between a self-defined (-) and a peer-defined (+) duration sub-circuit event, directing the current by discounting.

    The consumers can’t govern themselves, let alone producers, but that never stops them from building a bipolar police state for the purpose, failing to replace the power of imagination every time, with debt assigned to children, stealing their toys on a habitual path of diminishing return.

    It rains in Seattle, a lot, and it’s on water, so why do you suppose it controls State water, and is taxing the rain as it comes down? Do really think that landslide, or climate change, is an Act of God?

    Developing your unique talent is always the best investment, because it is the best currency, the State majority can’t take it, and you don’t have to defend it. Legacy and the middle class can position themselves anywhere they want. What happens at the end / beginning of the circuit is what matters, and, by no coincidence, is where you will find talent, distilled for the purpose.

    What sense does it make to pay someone else 5 or 500 times your income to solve your problem? Corporate personage, peer pressure empire, is just a distillation process, an extension of gravity, which you can adjust at will. “Faith looks for its answers beyond that which is seen” or broadcast, growing experience, instinct.

    The Fed is keeping the American middle class slightly above water by collapsing the global middle class, with the very same RE inflation and purchasing power bait and swap, debt slavery, in another dress. You can spend your life ruling out the wrong answer, ruling out the right answer, and billions have. When in doubt, pick a current to swim against, preferably at random, and build your skills.

    Where did your city manager go to school? Who does he/she really work for? In case you haven’t noticed, they begin by replacing semi-retired peace officers with more pliable youngsters. The only person you can change is yourself. Be about your business and everything else will take care of itself.

    Does it get any more ironic / ignorant than a free Tibet sticker on an Audi sports coupe driven by a By Area moron in a small American town?

  22. run75441


    I just finished reading both Beths and Matt’s paper “Is a Student Loan Crisis on the Horizon?” which was based upon the Fed’s detail and as before they make light of the issue with student loans. Toss in with them Jason Delisle of The New America Foundation and we have the three amigos of conservative origin telling main stream America there is no problem with student loans. I have problems with their origins and we are not just talking attending a conservative university. Their backgrounds reads like an up and coming who is who of conservatism who are getting their experience at more liberal orgs only to join AEI or Heritage down the road.

    – Ms. Akers spent 2007/8 as “Staff Economist, White House Council of Economic Advisers (2007-2008).”

    – Mr. Chingos has been the recipient of support from the “Smith Richardson Foundation, the American Enterprise Institute, and the Lumina Foundation, where three former Sallie Mae directors are board members.”

    – Mr. Delisile was “a senior analyst on the Republican staff of the U.S. Senate Budget Committee, where he played a key role in developing education legislation. From 2000 to 2006 he was a legislative aide in the office of Rep. Thomas Petri (R-WI).”

    Yet the three of them write for organizations which I would term as centrist (am I wrong on this?) organizations. What am I missing here???

    This is nonsense:

    “The basis for this theory is that, unlike physical capital, human capital—or the skills that one obtains through education—cannot effectively serve as collateral for a loan. This makes student lending inherently risky, because a lender cannot foreclose on a student’s education the same way it can foreclose on a borrower’s home if he goes into default. More generally, the federal loan program ensures that all students have access to higher education, regardless of their ability to pay.

    and this too:

    “Unlike the loans offered in the federal lending programs, private lenders offer loans with interest rates that reflect a borrower’s likelihood of default. This means that borrowers from low-income households or borrowers attending colleges with lower completion rates are likely to face the highest rates. In addition, private student loans carry less generous repayment terms than federal loans, an important distinction given that both federal and private student loans are more difficult to discharge in bankruptcy than other types of consumer debt.”

    What Beth and Matt leave out is the inability of students to discharge student loans in bankruptcy. Students with a simple signature on a piece of paper, check into a proverbial ‘roach motel” to which there is no escape except by death or disability, portions can be done away with through public service, or wait 20-25 years on an Income Based Plan to escape the balance of the loan only to have it appear as income from the IRS. There is no default and neither can it be discharged through bankruptcy. The government with either Federal Direct Loans or with the equivalent Sallie Mae, etc. will garnish your payroll wages, your Social Security, your disability income to secure the money loaned to you. These outcomes are conveniently left out by the three of them.

    When you look at Student Loans in this manner, what risk whether determined by NPV or IRR are we talking about here? The Department of Education has decades of history on student loan returns. Student loans make more money when the students quit paying on them and as Alan Collinge pointed out for every $1 loaned an unpaid loan through default makes $1.20, far greater than what Geithner let banks and investment firms off the hook. Why do student loans have to be measured according to risk when there is no escape from them and they make a return when paid back or in a technical default status. CBO Director Elmendorf would change to Fair Market Valuation in the blink of an eye except he is tied by law. He has done the calculation both ways and has reported on it previously. Nothing new there and again the CBO Director has shown his partisanship.

    Yes people with college degrees make more money when compared to high school graduates with falling household income due to the over abundance of them and a lack of jobs requiring just a high school degree. At the same time, entry level jobs for first time college grads have experienced similar declines just not to the same extent as high school grads. Over the life time of those who did not have student loans compared to those who did have student loans, the ones without loans accumulated more wealth and income.

    “Based on its projections, the indebted household will suffer a lifetime wealth loss of nearly $208,000, compared to “baseline” of the debt-free household. Nearly two-thirds of this loss ($134,000) comes from the lower retirement savings of the indebted household, while more than one-third ($70,000) comes from lower accumulated home equity; because of the two withdrawals from savings later in their lives, the liquid savings gap is just $4,000. The gap in retirement savings is particularly large because the household with student debt was forced to save significantly less for retirement early in their working lives while paying back their student loans, a gap which was exacerbated because of the significant compound interest that would have been earned had they been able to save the same amount as the household without student loan debt. Some of this gap in net assets also comes from the higher lifetime income of the household without student loan debt; though the indebted household begins their careers earning more, their income falls behind that of the debt-free household by its early 40s, and earns significantly less during the peak earning years of the mid-50s.” http://www.demos.org/what-cost-how-student-debt-reduces-lifetime-wealth “How Student Debt Reduces Lifetime Wealth”

    I am with you Yves.

  23. Fool

    “But let me turn briefly to a much more important issue, which is the perverse nature of thinking about education as an investment. This is yet another manifestation of the degree to which [**]citizens are inculcated to view the social order through the lens of markets[**].”

    If I may…take it from an English major: it is mistake to conceive of Capital in a strictly financial sense — this presupposes that markets can only be conceived of in a strictly financial one as well. Invested capital in the exchange of goods (i.e. a “market”) has various non-financial forms: intellectual capital, social capital, cultural capital, etc. (hence the exchange of “soft currency!”). To educate oneself is to invest in one’s future. By this token, an academic background in social psychology or anthropological evolution as expressed in adaptive mating strategies prepares one better for the Singles Market than does a background in, say, engineering or computer science.

    I don’t regret not having been an econ major — which, from my alma mater, comes with an auto-$xxx,xxx after graduation — as I believe that the sublime benefits of Shakespeare, over the long run, can be leveraged far greater than a proficiency in doing DCF’s. Having said that, the tragedy with public universities today is that outside of a select elite (e.g. Virginia, Michigan, Berkeley, UCLA), normally qualified undergraduates are at a competitive disadvantage in the eyes of “elite” employers. I know with certainty that this was not nearly as insurmountably so for my parents generation (40 years ago…).

    To reverse this trend is a noble effort (especially in the face of privatization and its efforts to totally destabilize public education — and with that, as your readers know, any notion of democratized opportunity). Pragmatically speaking, it is only possible if students can get jobs after graduation; or put differently, if the taxpayers’ investment in the next generation’s future (via public education) is paying off. This simply has to take precedence. However much a tragedy it may be that less students will have read Hamlet — no pun intended — It has survived over 400 years precisely because it is so deeply ingrained in the Collective Unconscious; let us worry now about a collective well-being.

  24. lambert strether

    The university as an instituton has existed for what, at least a millenium? Surely it’s a testimony to the virulence of neo-liberalism that we see the university — not just individual universities, but the institution as such — on the brink of destruction.

    And exactly when we need critical thinking and creativity the most.

    1. Carolinian

      I suspect the university is about to undergo profound change, not so much because of neoliberalism as from the disruptive technology we are using right now. But that’s perhaps a whole other avenue for discussion.

      Great thread NC…so many smart people here at the “water cooler.”

    2. MyLessThanPrimeBeef

      We need our universities for football and basketball.

      I hope they don’t become extinct :(

  25. just_kate

    The way in which this system has evolved makes me so sad – so much talent undeveloped, misplaced and/or completely wasted. I went to college at a pretty good UC school and I had no idea what to focus on (too many interests!) so I just picked a major my junior year based on earned credits and getting out in 4 years because I was paying my own way. Most of the jobs I’ve had required a degree to be hired but in no particular discipline and really only for the critical thinking and communication skills.

    The company I currently work for requires a 4 year college degree for our entry level call center reps which is clearly to reduce the pool of applicants. And the critical thinking skills I see are almost non-existent and the professional communication skills are what I consider to be pretty poor. I work with one guy who just finished his graduate degree and has been a call center rep with us for 7 years – no critical thinking skills at all. How does this happen?

    I would make a great doctor or vet or some other kind of medical practitioner, it’s taken me a long time to figure that out and now it’s practically impossible for me to pursue that kind of career change. Too bad since I have so many more years to contribute to society and would not be in it for the money.

    1. JEHR

      If you want to be a doctor, go and get educated to be one. Don’t let your age or anything else hold you back.

  26. Teredo Navalis

    They know what they’re doing, deriding history, philosophy, and norms. If too many people knew how to think, Washington and NYC would be pyramids of human skulls. Though the touchy-feely organizational theorists admit that tolerance of ambiguity is vital to managers, the conflict between liberal education and managerial training is sheer dissociative culture shock. When you’re bouncing managerial ideology off Mill and Epictetus and Lao-Tse, you’re worse than useless to the indoctrinators. Got called a smartass for my most heartfelt thoughts, flunked exams in fits of outrage, took to undermining lessons with subversive questions. Had one professor ask me, ‘Don’t you believe in America?’ To this day I don’t know if he was pulling my leg. Great deadpan, if he was.

    My terminal degree in Clawing Your Way to the Top had a positive NPV, but the greatest gift of my education was profound alienation that saved what passes for my soul as I spent a decade or so furiously working the system to escape it. Now I can plot to destroy it all at leisure in relative comfort.

  27. Lexington

    Post secondary “education” is now mostly about credentialing rather than imparting a body of knowledge and the associated communication, critical thinking and research skills to make use of it. It doesn’t matter if you didn’t really learn anything in university, the important thing is you have a parchment, which is a negotiable instrument in a labour market in which employers are demanding university degrees for jobs that were previously staffed by high school graduates. Our society’s normative preference of “high education for all”, when combined with a chronically weak labour market, creates a situation in which people choose between going heavily into debt in order to be underemployed or face the prospect of not being employed at all. And hype notwithstanding this problem extends to the STEM subjects: with R+D following manufacturing offshore how many engineering graduates are in fact glorified sales people (though not conventionally counted as “underemployed” since this is usually evaluated by income rather than vocation), and how many people with four year science degrees are now filling jobs like lab assistants that used to be done by someone with a two year college diploma? The conventional wisdom now is to plan on getting a graduate degree in order to secure decent employment, but under the present circumstances an increase in the supply of job seekers with graduate degrees only leads to a future in with lots of MSc lab assistants.

    Then there is the question of what students are actually getting for their money. I refer interested readers to Arum and Rocksa’s Academically Adrift: Limited Learning on College Campuses, reviewed here.

    First, the authors in their own words (all emphasis mine):

    Over four years, we followed the progress of several thousand students in more than two dozen diverse four-year colleges and universities. We found that large numbers of the students were making their way through college with minimal exposure to rigorous coursework, only a modest investment of effort and little or no meaningful improvement in skills like writing and reasoning.

    In a typical semester, for instance, 32 percent of the students did not take a single course with more than 40 pages of reading per week, and 50 percent did not take any course requiring more than 20 pages of writing over the semester. The average student spent only about 12 to 13 hours per week studying — about half the time a full-time college student in 1960 spent studying, according to the labor economists Philip S. Babcock and Mindy S. Marks.

    Not surprisingly, a large number of the students showed no significant progress on tests of critical thinking, complex reasoning and writing that were administered when they began college and then again at the ends of their sophomore and senior years. If the test that we used, the Collegiate Learning Assessment, were scaled on a traditional 0-to-100 point range, 45 percent of the students would not have demonstrated gains of even one point over the first two years of college, and 36 percent would not have shown such gains over four years of college.

    I will add this insightful comment from Sarah Igo’s review, linked to above:

    The study’s greatest strength may be in its demystification of higher education, the “system” if you will, for those within it. In this way it is reminiscent of Anne Matthews’s more ethnographic Bright College Years, which, chapter by chapter, chronicled the contemporary university through the eyes of different constituencies, revealing the fundamentally different orientations among various parties ostensibly sharing the same institution. Academically Adrift similarly dissects the working pieces of higher education to reveal a jumble of “stakeholders,” with each group—students, faculty, administrators, parents—pursuing its own agenda. Each gets something different out of the equation. But—and here is the crux of the matter—all collude in their studied neglect of undergraduate learning. Students and faculties develop informal “treaties” wherein faculty offer low expectations in exchange for glowing course evaluations; administrators concentrate on building upscale dorms and gyms; parents get the degrees they want for their children. Long-term goals, the territory of no one in particular—whether democratic citizenship or global competitiveness—have little traction compared to short-term incentives: obtaining tenure and other professional benefits, lifting specific institutions in the rankings, or obtaining workforce credentials with the least amount of pain. In other words, everyone games the system. It is only those on the outside, private-sector employers and legislatures (neither the favorite audience of academics), who are applying pressure on the question.

    To really get a handle on this issue we need to return to first principles: what is the purpose of higher education, what audience is it intended to serve, and what is the best way of delivering it?

    1. Jim in SC

      Charles Murray, in his 2012 book ‘Coming Apart,’ about the collapse of the white working class in America, notes that in 1955 or so, the IQ of the average college freshman was about two points lower than the average Harvard freshman. Today, it is probably twenty five points. This is partly because so many people are going to college, and partly because Harvard decided to become more meritocratic. Today Harvard turns down enough valedictorians with perfect SATs to fill the whole freshman class. My point is that ‘Academically Adrift’ might have reached far different conclusions if its study had been done in 1955, as the average college student was both brighter and more oriented towards learning.

  28. KnotRP

    Yves, I think his point was “value” (i.e. the price relative to the gain) is less of a good deal than when you got yours.

  29. craazyman

    I received a letter today from my dear friend the Chinese economist F Yoo regarding the job market and higher education and attempted to post in the P. Gallery for general review, but sadly it was lost in the “Delete-It” algorithm. Oh well. It’s funny how that works & I consider myself lucky.

    In the meantime, all this stuff got me thinking about these lyrics from Gilbert & Sullivan. Actually, this is the kind of guy who could run your company — possibly into the ground — but probably not work for it, unless tthere was a big office

    If everybody has a big office, then who’s going to do the work?

    I Am the Very Model of a Modern Major General

    by Gilbert and Sullivan

    [Pirates of Penzance]

    I am the very model of a modern Major-General
    I’ve information vegetable, animal, and mineral
    I know the kings of England, and I quote the fights historical
    From Marathon to Waterloo, in order categorical

    I’m very well acquainted, too, with matters mathematical
    I understand equations, both the simple and quadratical
    About binomial theorem I’m teeming with a lot o’ news
    With many cheerful facts about the square of the hypotenuse

    With many cheerful facts about the square of the hypotenuse
    With many cheerful facts about the square of the hypotenuse
    With many cheerful facts about the square of the hypotepotenuse

    I’m very good at integral and differential calculus
    I know the scientific names of beings animalculous
    In short, in matters vegetable, animal, and mineral
    I am the very model of a modern Major-General

    In short, in matters vegetable, animal, and mineral
    He is the very model of a modern Major-General

    I know our mythic history, King Arthur’s and Sir Caradoc’s
    I answer hard acrostics, I’ve a pretty taste for paradox
    I quote in elegiacs all the crimes of Heliogabalus
    In conics I can floor peculiarities parabolous

    I can tell undoubted Raphaels from Gerard Dows and Zoffanies
    I know the croaking chorus from the Frogs of Aristophanes
    Then I can hum a fugue of which I’ve heard the music’s din afore
    And whistle all the airs from that infernal nonsense Pinafore

    And whistle all the airs from that infernal nonsense Pinafore
    And whistle all the airs from that infernal nonsense Pinafore
    And whistle all the airs from that infernal nonsense Pinapinafore

    Then I can write a washing bill in Babylonic cuneiform
    And tell you ev’ry detail of Caractacus’s uniform
    In short, in matters vegetable, animal, and mineral
    I am the very model of a modern Major-General

    In short, in matters vegetable, animal, and mineral
    He is the very model of a modern Major-General

    In fact, when I know what is meant by “mamelon” and “ravelin”
    When I can tell at sight a Mauser rifle from a javelin
    When such affairs as sorties and surprises I’m more wary at
    And when I know precisely what is meant by “commissariat”

    When I have learnt what progress has been made in modern gunnery
    When I know more of tactics than a novice in a nunnery
    In short, when I’ve a smattering of elemental strategy
    You’ll say a better Major-General had never sat a gee

    You’ll say a better Major-General had never sat a gee
    You’ll say a better Major-General had never sat a gee
    You’ll say a better Major-General had never sat a sat a gee

    For my military knowledge, though I’m plucky and adventury
    Has only been brought down to the beginning of the century
    But still, in matters vegetable, animal, and mineral
    I am the very model of a modern Major-General

    But still, in matters vegetable, animal, and mineral
    He is the very model of a modern Major-General

    1. just_kate

      CM, you are such a treasure! Your post reminds me of so many (really – so flippin many) conversations/debates/arguments I had with my late father in law. Just months before his passing he finally shared some of his life story with me – he actually summarized it all saying that everything just sort of fell into place for him. One specific thing he said in that vein was how just after he finishing training to be deployed for the Vietnam war the war ended.

  30. Jim in SC

    I was fortunate to attend a remarkable liberal arts college thirty years ago. There was no pretence at there being any connection between what we studied and future job prospects. Nevertheless, most people found something to do with their lives. Today students at the college still seem very bright, and they retain the ardor for learning that was present in our day, but they also have an anxiety about how they’ll make their way in the world and how they’ll pay back their loans. (It was remarkably cheaper when I was a student). When my classmates and I return to campus at Homecoming, we often participate in career discussions with panels of students. While we certainly want to help, the whole process seems odd to us: even the idea of a panel was so out of step with our own experience. We’d much rather talk with them about their essay topics. The world of work is constantly changing. It’s hard to give advice that is relevant to the present.

    I knew an African American gentleman when I was young who had attended Tuskegee Institute during segregation. At Tuskegee, they studied both academic and vocational subjects, and he had majored in English but had also learned to be a tailor. He eventually got a masters in English and taught high school for many years. But after retirement he opened a tailor’s shop and continued working. I always thought there was some wisdom in the Tuskegee approach from his era. It’s as if to say, ‘Study the beautiful, but develop technical skills to make your way in the world.’ He was a fine man. It was a pleasure to be in his company.

  31. kimsarah

    There must be a neoliberal playbook out there that wants colleges to churn out non-critical thinking wage slaves. Just like health care, education is being turned into a for-profit industry.
    Since when have we had this debate? One by one, our institutions are being pulled out like rugs from beneath us.

  32. Jim

    Thanks for adding this post to the ever-growing literature on the neoliberal myths about college, and specifically about STEM degrees. The angle about the higher risk of getting more specialized STEM credentials was one I had not heard before. It goes a long way in explaining a New York Times article about students dropping STEM majors early in their college career (http://www.nytimes.com/2011/11/06/education/edlife/why-science-majors-change-their-mind-its-just-so-darn-hard.html?pagewanted=all). The theory was that those college-level courses are not only very difficult, but they’re also taught very poorly…both true statements. However, the possibility exists that shrewd students, realizing the risks involved, have reasoned that, unless they ace these “weed-out” courses, there’s no reason to continue. There simply won’t be employment at the other end, if they decide to gut out the brutal slog of getting a STEM degree. In earlier times, many students would stick out these courses for years, in the hopes of getting a job in those fields, which, while never easy, were easier to obtain in the past.

  33. Ed

    I just got caught up on some of the later comments in this discussion. This was an excellent discussion, but I do think that two issues with higher education are being confused.

    The first issue is how society does education, with the attached issue is the role of higher education within society.

    The second issue is the role of actual secondary institutions in the US, which as I noted is right now to be used to provide credentials to enter the job market, to keep people out of the job market entirely (barrier to entry), make them pay to essentially be able to look for jobs, and to provide employment for the people working at the schools.

    Because universities have gotten so tied to the second role, I’m not sure if they can be used anymore for actual education. One effect of a basic guaranteed income would be to destroy much of the secondary educational system in this country, by removing the need to enter the job market and therefore to pay the excessive costs to graduate from a university. The ability of this measure to destroy all sorts of parasitic instutions is what makes it valuable and is why it will be resisted. If society comes to value education again, the methods may well have to arise organically from outside the current university system.

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