
Peter Thiel’s Graph of the Year - marchustvedt
http://m.washingtonpost.com/blogs/wonkblog/wp/2013/12/30/peter-thiels-graph-of-the-year/
======
Someone
That graph is a bit of a lie. Student debt is summed over all students, so it
grows if the student population grows (which it has; 2013 saw a decline, but
that will not factor much in this data yet). It also integrates over many
years. That makes the total debt look more threatening.

It would be more reasonable to show a per-year, per student debt (people
graduating in year X had an average debt of $Y; people leaving without
graduating had an average debt of $Z)

Such a graph probably still looks bad (median income has dropped, after all),
but it will be more informative.

~~~
spikels
We can argue about the details but the underlying story is accurate: the cost
of higher education has gone up a lot while the income of college graduates
has been flat or declined slightly. This is not news[1a][1b].

The big question is will collage graduate wages rise in the future so that
these debts become manageable - many are concerned they won't and these debts
will consume many years of their earnings. And nobody is predicting college
inflation will decline anytime soon so college may be even less affordable in
the future.

BTW - Undergraduate and graduate enrollment was up only about 25% (flat since
2010)[2] while total student debt tripled since 2003. Average student debt
probably nearly doubled since 2003 (up 58% 2005-2012[3] do the math to
estimate 2003-2013 - up about 92%).

[1a]
[http://www.businessweek.com/the_thread/economicsunbound/arch...](http://www.businessweek.com/the_thread/economicsunbound/archives/2009/09/earnings_of_you.html)

[1b] [http://theatlantic.tumblr.com/post/24693728700/dont-fall-
for...](http://theatlantic.tumblr.com/post/24693728700/dont-fall-for-this-
misleading-graph-about-college)

[2] [http://blogs.wsj.com/economics/2013/09/03/number-of-
students...](http://blogs.wsj.com/economics/2013/09/03/number-of-students-
enrolled-in-college-drops/)

[3]
[http://www.forbes.com/sites/halahtouryalai/2013/01/29/more-e...](http://www.forbes.com/sites/halahtouryalai/2013/01/29/more-
evidence-on-the-student-debt-crisis-average-grads-loan-jumps-to-27000/)

~~~
cperciva
_the income of college graduates has been flat or declined slightly_

Except that's not exactly true either. The _average_ income of newly minted
college graduates has been flat or declining, but the set which is being
averaged is expanding -- and expanding downwards. Unless you think that
college education is the _sole_ determinant of income, it is unreasonable to
compare the "average" college graduate from 30 years ago against the "average"
college graduate today -- who would very likely not have been admitted to
college 30 years ago.

The same fallacy is applied in the opposite direction by colleges who are
seeking to increase their student numbers: "The average graduate earns $X more
than the average non-graduate." True, but it ignores the fact that the
_average_ graduate is quite different from the _marginal_ graduate.

~~~
spikels
Good points!

There must be a law of diminishing returns in education just like in almost
everything else. As the opportunities to get more education have greatly
expanded, the quality of both the students and that education have probably
suffered. This at least partially explains the decline in the average income
of college graduates. While we are probably better off as a society overall,
it does mean the net benefit of education is narrowing.

And the margin is where we should focus. A basic law of decision making (in
economics, business, public policy, engineering) is to always look at the
marginal impact of decisions as that is where the impact will be.
Unfortunately this analysis is very difficult in this case (forecasts,
discounting, preferences, controls) and the results will not be very
comforting: for some people, some subjects and some professions the costs will
not be justified by future earnings. I don't see our society rationally acting
on this kind of information. So the trend will continue or even exacerbated
with more lending and subsidies. This is similar to the problems we have
dealing with healthcare or global warming.

However the cost of college has increased by about 7% a year inflation-
adjusted for over 30 years. This doubles the real cost every decade! Meanwhile
median incomes of college graduates have been flat or declining since 2000.
This clearly cannot go on forever and something that can't go on forever
won't. But it is not clear to me how this will end.

My hope is that technology like MOOCs can bring down the cost of education and
that incomes increase as the benefits of both that education and globalization
are finally realized. Then we would have both a better educated and richer
society. Alternatively more people may decide higher eduction is simply not
worth it - probably resulting in negative outcomes for some. Or something more
messy such as mass loan defaults and university bankruptcies resulting in even
more negative outcomes. This may take a vey long time to fully play out.

------
ForHackernews
That's his chart of the year?

How about this one: [http://cdn.static-
economist.com/sites/default/files/imagecac...](http://cdn.static-
economist.com/sites/default/files/imagecache/290-width/images/print-
edition/20130601_FBC699.png)

From this article: [http://www.economist.com/news/briefing/21578643-world-has-
as...](http://www.economist.com/news/briefing/21578643-world-has-astonishing-
chance-take-billion-people-out-extreme-poverty-2030-not)

~~~
nazgulnarsil
Because that isn't the chart of the year, it's the chart of the century.

~~~
adamnemecek
Also it does not support his narrative.

~~~
pessimizer
Also, it depends on setting an arbitrary poverty line (which in this case
seems to be $1/day circa 1990, adjusted by PPP. Why $1? Probably because it
sounded good and it was a round number. Since above/below the line is an all
or nothing proposition, if you changed the line to $2, the graph could very
well end up flat.

edit: You could argue that that's clearly an improvement in circumstances, but
I would argue that it's clearly an improvement of people making less than $1
against PPP. Only a subsistence subset of the items used to calculate PPP
would be relevant to someone who makes less than $1 a day, and the prices of
those items (food, heating fuel, etc) could very well have tripled or
quadrupled during that same period without a direct effect on PPP
measurements.

~~~
spikels
The $1/day figure was actually the estimate minimum survival income calculated
for a number of poor countries then averaged and rounded. It's not perfect but
not arbitrary either. In fact it is now usually quoted as either $1.25 or less
frequently as $1.20. Wikipedia has a pretty good article on some of the
complexities involved[1].

If you use a $2/day threshold (aka "moderate poverty") instead, the declines
are not quite great but still pretty damn good - down 41% - from 69% below $2
in 1981 to only 41% in 2010 (calc from data here [2]). It is not flat! And it
is also not an all or nothing proposition - the entire distribution has
shifted! The distribution was graphed in Economist article above.

The issues with PPP are more complex but everyone involved is aware of the
issues you mention[3]. While biases can occur it is not generally considered
to be a problem for the global aggregates. Dig into the World Banks's ICP
website for the details on PPP in poor countries[4].

[1]
[http://en.wikipedia.org/wiki/Measuring_poverty](http://en.wikipedia.org/wiki/Measuring_poverty)

[2]
[http://www.worldbank.org/en/topic/poverty/overview](http://www.worldbank.org/en/topic/poverty/overview)

[3]
[http://en.wikipedia.org/wiki/Purchasing_power_parity](http://en.wikipedia.org/wiki/Purchasing_power_parity)

[4]
[http://siteresources.worldbank.org/ICPEXT/Resources/ICP_2011...](http://siteresources.worldbank.org/ICPEXT/Resources/ICP_2011.html)

~~~
nazgulnarsil
thank you for taking the time to explain this.

------
w1ntermute
I think these trends are largely irrelevant to the Thiel Fellows. After all,
most of them come from elite universities and could easily find a high paying
job after graduating. If Thiel wants to put his money where his mouth is, he
needs to find a way to solve the problem of the bottom 50% not finding a job.
And I don't think that spawning more startups will help - just look around the
startups you know - how many of the people there would have been unemployed if
they hadn't joined a startup?

~~~
seanflyon
I don't think that that is the right way to look at it. Yes those people
employed by startups would be able to find work elsewhere, but if they did
would they take a job that would otherwise go to someone else? Also the
startups that succeed employ more people. If we have a shortage of jobs, more
jobs sounds like a good thing.

~~~
w1ntermute
> if they did would they take a job that would otherwise go to someone else?

No, I don't think they would. For example, the demand for developers is sky
high right now, and yet we have very high unemployment rates. Not everyone is
cut out to be a developer - jobs in the knowledge economy aren't so simply
interchangeable.

> Also the startups that succeed employ more people. If we have a shortage of
> jobs, more jobs sounds like a good thing.

Yes, it's great when there are more jobs. But we're talking about a
_completely different order of magnitude_.

At their zeniths, each of the Big Three automakers employed hundreds of
thousands of employees. How many does Facebook (a startup that has most
definitely suceeded) employ? Not even 6000. Snapchat, supposedly worth
billions, has less than 30 employees. Instagram was acquired when it had only
13.

We have to realize and accept the fact that these startups just aren't. going
to provide the sort of broad-based employment that's going to put the American
people back to work.

------
ntoshev
That chart compares median income with total student debt. Also the scale for
median income is not zero-based. The point is still valid, but this widespread
use of misleading charts is awful.

~~~
JoeAltmaier
Agreed. In an actual journal graphic competition, that one would not even be
admitted to the contest. A time series with misleading scales? Its dis-
educating people, not informing them. It correlates nothing; it scares folks
with the exaggeration (student loans went from about par with annual income,
to about 40% over; yet it looks like its 10X higher).

------
pmarca
Compare and contrast:

[http://www.bls.gov/emp/ep_chart_001.gif](http://www.bls.gov/emp/ep_chart_001.gif)

Summary for the graphically challenged: unemployment in the US is low (<5%)
for people with bachelor's degrees and up, and high (>5%) for people with less
than a bachelor's degree. Unemployment rises directly in proportion to how
little education one has.

------
jmathai
The cost which bothers me the most about the current university landscape is
the amount of potential we as a society waste.

So much of our population goes straight from high school to a 4 year college
program. That's while they're between the ages of 18 and 22.

Unless you're studying to be a doctor, lawyer, nurse, engineer, etc. then
that's 4 years of lost productivity.

I think most professions could be trained for in under a year + on the job
training.

Even if the argument is that college is largely social growth for the student
it's insanely expensive if we need 4 years to do it.

~~~
rayiner
Another way to look at it is that we're so rich as a society that we can
afford for most of our young people to take a four year vacation where they
sex it up and dabble in underwater basket weaving.

Yet another way is to look at as the result of a shrinking job market and job
pipeline clogged by boomers who won't retire. If there is no work, and there
isn't, reducing eveyone's working life by 4 years isn't unreasonable.

~~~
tompagenet2
This is the lump of labour fallacy. It's largely regarded as fallacious now;
there's a decent Wikipedia article on the topic if you're interested.

------
pwang
This is a bad visualization because it is hinting at a visual congruence that
isn't there. When plotting things with two Y axes, you have to be _really_
careful and honest about what you're trying to look at.

When you use a _line_ graph, visually, you're displaying a trend (in the most
naive way possible). When you have two Y axes, then you need to ask, "What is
a valid way to compare two trends?" Remember, a trend is _intrinsically_ about
slope. If you arbitrarily adjust the min/max axis value, then you can
arbitrarily adjust the appearance of the trend.

Here is a fixed version that shows the actual numbers on full, 0-based scales:
[http://i.imgur.com/xiS2OZq.png](http://i.imgur.com/xiS2OZq.png)

Hopefully this shows you how deceitful Thiel's plot is, even though the axes
are "clearly labelled". Iconic perception trumps reading numbers.

Here is a year-over-year plot:
[http://i.imgur.com/diDVNeE.png](http://i.imgur.com/diDVNeE.png)

An alternative, more meaningful visualization, would be to show % change from
a baseline, in this case the 2003 value. That would be far more honest and
informative. And here it is, as a bar plot, which is more effective for
comparing values along a common scale. (Since we have computed percent change,
we have a common scale.)

[http://i.imgur.com/TQd2u22.png](http://i.imgur.com/TQd2u22.png)

*Note: I just read the numbers off of Thiel's plot and don't have the source data, so this plots are approximations. I can share a simple IPython notebook of this if anyone really cares.

------
001sky
uni is a binary [0,1] with several tiered exceptions. value to the degree is
primarily as a sorting / funnel. as a result, its not really going to be
linear. The problem with the current pricing is that what was once a "hack"
(using the degree as a legal iq proxy) is now so far out of wack with the
information content of the degree itself. After all, the distribution of iq
doesn;t really change. so nobody is in aggregate all that better off by paying
more for an iq test. there is sureley some productivity gains by "better"
educaton over time (and these accrue to both students and to economies), but
again...the rents are extracted from this production by people in structural
positions of power (ie, not "productivty" in the normal sense; these are
people who have the ability to get paid for not destroying value), long before
they accrue to the more productive economic agents.

This disconnect between marginal productivity and actual wages for marginal
work is evident in other data, eg

[http://www.nytimes.com/2013/12/30/opinion/america-
in-2013-as...](http://www.nytimes.com/2013/12/30/opinion/america-in-2013-as-
told-in-charts.html)

------
guard-of-terra
This is a failure of middle class.

Why people go into higher ed? Because that's how you keep in the middle class.
Why do they want to be in it? Because it's either this or poverty. Why do debt
rise? Because they are desperate. Why are they desperate? Because there is
less and less jobs in middle class and even worse and worse condition outside.
When the music stops most of young people won't have a chair to sit on. At
least in the USA.

------
JunkDNA
I learned a long time ago from Edward Tufte to be wary of the two axis graph,
especially when different scales are used. One can manufacture just about any
point using one of these and still be telling the truth.

------
dpierce9
Not to pile on, but even if you disaggregated student loans on a per-
individual basis, this graph would still be misleading because it does not
include a line for the median wage of non-bachelor holders over the same
period. In general, to know whether something is a good investment you must at
least consider the next best alternative.

Even this suggestion wouldn't be that great. To make a simple apples to apples
comparison, we would need the graph of salaries of representative samples of
comparable bachelors and non-bachelor holders. I don't really know what
'comparable' means in this context but it might be something like comparing
the salaries of kids who graduated from college with kids who didn't go to
college but could have (and maybe received comparable on the job training).

One might also think that college affects, for instance, your likelihood of
getting a job but we wouldn't want to get too complicated.

------
dsundstrom
The graph is misleading.

The implication is that a bachelor's degree is costing more and generates less
income, but what the graph shows is "total student loan debt" not the "cost of
a bachelor's degree".

Technically this graph could be a good thing if we could graduating
significantly more people who make more than someone without a degree (but 10%
less someone who earned a degree 5 years ago), since more people would be
better off.

Other things to note: The time period is arbitrary and mostly shows the impact
of the recession over the past 5 years. The graph shows total student load
debt which includes everything from vocational programs to PHD students in
public and private institutions. The graph has two independent scales so the
slopes are arbitrary.

~~~
InclinedPlane
That could be something the graph might be intended to show, but it's
unnecessary.

What it does show, quite clearly, is that the burden on society as a whole
from people pursuing (and attaining) college educations is growing out of
control while whatever benefit that is providing is insufficient to bring up
median incomes.

Maybe that's because a lot of people drop out and don't get degrees, whether
that's true or not the ultimate facts still remain: a lot of people are being
screwed.

------
ontheinternets
As long as the lifetime earnings are substantially higher, you should be
willing to put up the NPV of your annuity (income). As long as you make even
one dollar more than you would, you are better off.

If you compare the entire education investment to the return during year one
in the workforce, it isn't going to look good.

If you compare the entire education investment to the impact it has on that
person's lifetime, e.g. lower unemployment, easier time getting into grad
school if the economy goes sour, easier time retraining, and just general high
earnings, then the investment makes a bit more sense. I assume if this were a
business, Thiel would wonder why education is underpriced.

------
lzhou
Aside from the total debt vs median wage issue - the chart also doesn't
mention that THE recession that happened. What happens in a recession? 1)
parental wages and/or job security are lower [ie, more debt needs to be taken
on] 2)median wages coming out are lower. That may be partly the cause of the
relationship.

Median wages dropped (starting in 2007) because of a recession, and we are
still in the adjustment process of that (ex. on the wage side). We notice that
post popping of the 2001-2002 bubble, the median wages actually _increased_
into 2007.

I don't have all the facts, but the chart is misleading.

------
wch
In addition to the _total_ debt vs. _median_ income issue that others have
mentioned, this is a classic case of how 2 y-axes on a graph can mislead. Or
it can be used to tell any story you want. Thiel's graph "shows" that debt is
taking off and way exceeding income. Here's a different version of the same
data which "shows" that debt and income are converging:
[http://i.imgur.com/OBCyfVb.png](http://i.imgur.com/OBCyfVb.png)

------
bonemachine
Lies, damned lies.. and charts with not only non-zero, but _mismatched_
baselines!

------
mathattack
I like the story of the graph a lot more than the graph itself.

The two things I would like to see are:

\- Per capita debt per person who attended college. (Or perhaps who graduated
college) This would answer an implied question of "What if we're just getting
more people going to college?"

\- The salary legend should start at 0. This would put the relative movement
of salary in a more accurate context.

I don't think fixing these changes the story of "The long term cost of college
is going up, while the short term benefits are going down." but when I see
tricks out of "How to lie with Statistics"[1] my BS detector goes up.

[1] [http://www.amazon.com/How-Lie-Statistics-Darrell-
Huff/dp/039...](http://www.amazon.com/How-Lie-Statistics-Darrell-
Huff/dp/0393310728)

------
gejjaxxita
I don't really agree with the people saying the income axis should be zero-
based. The income drop is not tiny, it's 8%, and a zero-based axis wouldn't
show that.

------
kayoone
While the underlying message might be true, this chart is constructed to look
fatal.

1) Income scale is not zero based and makes a small change seem enormous

2) Student debt should be per person per year, not a total sum which is
influenced by the number of students and numerous other factors.

------
safeerm
Wrote a little followup [http://www.underageinvestor.com/the-american-middle-
class-an...](http://www.underageinvestor.com/the-american-middle-class-and-
intellectual-economy-in-jeopardy/)

------
ecocentrik
This trend of overlapping unrelated data sets into a single 2-axis graph is
completely disingenuous. At least this graph doesn't mix logarithmic and
linear scaling for values on the y axis.

------
JeffL
It might be interesting to see the same chart, but just for the subset of
people getting STEM degrees. (Science, tech, engineering, and math.)

------
michaelochurch
People are attacking this graph for the difference in scales, but the US
population didn't increase by _that_ much in 9 years (2003 to 2012): only
about 10%. It's a shame that people are missing the forest for the trees here.
If there were a 10-15% rise in student debt, that would be reasonable in the
context of US population growth. But it's 200%.

Yes, the axes have been chosen in such a way to exaggerate the (still valid)
point. This isn't any different from a visual model of the solar system that
downplays the (vast) differences between the planets, relative to their sizes.
Is it "misleading"? Only if it's presented and interpreted as a scale model.
In this graph, the axes are clearly labelled, informing the reader of what's
going on.

Thiel is right that there's a problem. The Satanic Trinity (housing,
healthcare, tuition) that is killing the middle class is fundamentally
extortive at this point, and extortionists are known for rapidly ratcheting up
their demands. What's happening is that, as the middle-class breaks down,
people are panic-buying the credentials and connections that might keep them
alive in this game of musical chairs.

I don't support Thiel's solution (as an aside, he's an investor in Knewton,
one of the most pro-establishment ed-techs out there) but he sees the problem
with a clarity that few do.

