- That the current salaries of recent college graduates represent their probable average output over their lifetime. This is absurd for reasons that I hope I don't need to explain to all you startup founders.
- That the salary of a graduate is a total representation of that person's value to society (and, transitively, of their education). This is wrong even if you think the total value of an education is in employment. Economics teaches us that for all voluntary economic transactions there are producer and consumer surpluses. It must therefore be the case that an employed person's value to their employer is at least the salary the person is paid. And as cynical as I am about college education sometimes, even I don't believe that the complete value of the education is in its utility for the labor market.
- That there is a reliable way to make a ten percent return on investment overseas. Not as far as I've been able to find, and if you can find it you could probably make a lot of money selling the information to a big player in the American bond market.
- And that the normal personal investment into a college education is really $300,000. This is anti-factual. It is probably also wrong that each marginal elementary schooler costs $200,000, but I can't say for sure about that.
As rhetoric, this article plays well. As honest observation of the American educational system, it's a miserable failure.
What this article does successfully through hyperbole is to remind us to add opportunity costs into evaluating the value of an education. Your quibbles about the obviously rough numbers don't subtract much from that key point. It obviously doesn't make sense to abandon education, but it also obviously doesn't make sense to pay $500k for it.
"That the current salaries of recent college graduates represent their probable average output over their lifetime."
It doesn't represent that at all. It is saying that the value due to education can be roughly approximated by the starting salary. The gains from there are then more based on experience/work, not the education. Of course, you ignore the money made while you would have been in school. You also ignore the periods of unemployment.
"I don't believe that the complete value of the education is in its utility for the labor market."
The fundamental question though is how much we should pay for it. I could read books, do "home work", and watch MIT lectures on the internet for a lower price. Many people are looking for ROI.
"That there is a reliable way to make a ten percent return on investment overseas."
A rough number, but definitely too high. The world is over-invested anyway as a result of too much money having been created.
"And that the normal personal investment into a college education is really $300,000. This is anti-factual. It is probably also wrong that each marginal elementary schooler costs $200,000, but I can't say for sure about that."
I don't think it says personal investment, the distributed cost counts too. It costs about 20k per year here for elementary school and 25k for high school, to be conservative. You don't need to look at the marginal costs here, because they are your costs.
"That the current salaries of recent college graduates represent their probable average output over their lifetime." It doesn't represent that at all. It is saying that the value due to education can be roughly approximated by the starting salary. The gains from there are then more based on experience/work, not the education. Of course, you ignore the money made while you would have been in school. You also ignore the periods of unemployment.
That is indeed what it says, but that reasoning is wrong.
He's commenting that most of these expensive kids are unemployed and therefore make nothing. That is due to the economy. However the first job they get is likely to be at a higher salary than non-college students, and a college degree enjoys a permanent advantage throughout life in getting jobs and getting raises.
Even several years out of college, many employers will look at the presence of a degree when hiring. And it is an advantage again if you need to switch careers. (Which is becoming very common.)
And it [a college degree] is an advantage again if you need to switch careers. (Which is becoming very common.)
But where's the educational correlation between a degree in a specific discipline and a change to what is presumably a different discipline? If I have a degree in Literature, I'm an editor at a publishing firm, and I get fired and then get a job in, say, the biological sciences, how is my degree intrinsically an advantage other than as a barrier to entry (a weeding-out tool) to the professional class, which is not purely educational in nature?
You've put your finger on an important issue. For the person with a degree, there is an advantage in passing that barrier to entry. But why is that barrier to entry there?
From the point of view of the employer, a degree indicates that the possessor has, among other things, a certain level of intelligence, literacy (not a small deal in a country where over half the country is functionally illiterate!), experience in learning, general background, work ethic, and socio-economic status. It is therefore a somewhat useful filter to apply for many professions.
Of course most of those traits have nothing to do with what you actually learned in university. And there certainly are plenty of successful people with all of those traits who did not bother with university. So even though I believe that for most people, education is worthwhile to that person, I'm far less certain that society as a whole benefits much from all of the money spent on higher education. (And I become even less certain when I look at how wasteful the process has become. Costs have been going up faster than inflation for decades, with no apparent reason than that everyone in the process knows that they are free to raise costs by that much, and it is always easier to spend more money than it is to spend less.)
You're right about the article itself, but you're missing the context. Greenspun has had a long series of nuggets of cynicism that make up most of his blog posts. Together, they paint a picture that gives more excuse for his cynicism.
- Public employees make up an ever growing percentage of the workforce, which still has to be paid for by the private sector.
- Many public employees have large unfunded pension obligations that are very hard to cut.
- As such, new graduates need to have lots of earning power to keep the whole country running.
- His experience with college graduates both in the computer field and the in the context of flight school and his reviews of curricula imply to him that students actually learn very little, and are no more prepared than non-U.S. students to generate lots of value.
- His exposure is mostly to Boston area students, who on average pay a lot for school, or someone else does via scholarships.
So I don't think he means the blog post literally, but in context he's just offering another data point that supports his thesis that the U.S. in economic trouble in the medium to long term.
I made this point under another parent: $300k includes opportunity cost. Adding four years' salary (even with only a high school diploma) to four years' $40k tuition and living expenses, $300k doesn't seem so farfetched.
Of course, that definition of opportunity cost neglects the pleasures (both intellectual and hedonistic) of spending four years on a campus rather than a job site.
Most colleges do not have $40k in tuition, and most people would not be able to make $50k at eighteen years old without a college degree. That's my point. The actual average cost of college is probably overstated by a factor of two.
I feel like this article conflates individual cost/opportunity with economy-wide cost/opportunity and then comes to a very wrong and dangerous conclusion.
-The individual case: First, the average graduate with a bachelors earns $50k and the average HS graduate earns $30k (1). So, let's take the worst case scenario, namely that you decided to go out of state without any financial aid. Your opportunity cost is $120k and your out of pocket expenditure is going to be roughly $160k for a total of $280k, which will take 14 years to amortize. I personally came out of college with $4k in debt, and worked p/t and in the summer to pay for rent and food (probably $10k/yr), which I would have had to pay for anyway, so if we adjust the opportunity cost accordingly, that's $80k + $4k = $84k which will take me 4 years to bring to parity. Not to mention, I'll probably enjoy the college educated work quite a bit more. Further, the opportunity cost issue doesn't take into account the fact that I got to spend four years studying abroad, partying with gorgeous coeds, etc.
-The economy-wide case: The key point to note here is that educated workers contribution to the economy is vastly greater than just their salary. If you work at Apple, your work is worth $1.3 million per year (2), and if you work at Matrixx Initiatives your work is worth $3.4 million per year (3). Now, let's say that the $500k figure is accurate. If you're a Matrixx Initiatives employee, in just one year, you justify the entire education of seven people. Of course it's all way more complicated than that: these employees probably have more than bachelors, if they'd started work at six or seven years old in a factory, they would have an extra fifteen or so years of income, etc., but if everyone went to the factories instead of school, our economy would probably look more like Vietnam's.
I paid out the ass for my undergrad and graduate degrees, for neither was the primary benefit economic.
What is the ROI on reading literature, or listening to music, or doing puzzles or making art?
He is right, though, education has inflated at a ridiculous rate, it is a giant bubble, in part fueled by cheap debt.
For those of us that spend most of our income on education and also live in hip urban areas that have seen so much inflation in real estate, our overall inflation rate has been >10% / year for the past decade.
- That the current salaries of recent college graduates represent their probable average output over their lifetime. This is absurd for reasons that I hope I don't need to explain to all you startup founders.
- That the salary of a graduate is a total representation of that person's value to society (and, transitively, of their education). This is wrong even if you think the total value of an education is in employment. Economics teaches us that for all voluntary economic transactions there are producer and consumer surpluses. It must therefore be the case that an employed person's value to their employer is at least the salary the person is paid. And as cynical as I am about college education sometimes, even I don't believe that the complete value of the education is in its utility for the labor market.
- That there is a reliable way to make a ten percent return on investment overseas. Not as far as I've been able to find, and if you can find it you could probably make a lot of money selling the information to a big player in the American bond market.
- And that the normal personal investment into a college education is really $300,000. This is anti-factual. It is probably also wrong that each marginal elementary schooler costs $200,000, but I can't say for sure about that.
As rhetoric, this article plays well. As honest observation of the American educational system, it's a miserable failure.