A recent column by James Altucher that ran in The Financial Times touched off a debate between two of America’s most prominent intellectuals. Their argument on the benefits of a college education is worth investigating.
First, the column. Entitled “Why investing in education should pay off,” Altucher’s piece would seem to suggest that going to college is a smart move for young people. But that conclusion would show the folly of judging a column by its title, since the author begins by writing, “As far as I am concerned, college is a waste of time. Instead of going to college, I wish I had worked.” Years of taking classes don’t actually teach you much about life, Altucher suggests. Furthermore, he contends, “it is unclear whether costs of $200,000 – plus opportunity costs by the time all is said and done – are ever made back from your future cash flows.”
There’s a strikingly contrarian opinion – but why then does he say that investing in education should pay off? The answer is that Altucher is talking about making financial investments in companies that provide higher education. He believes that the for-profit higher education sector is poised to make serious inroads into the traditional non-profit higher ed sector, both private and government-run colleges and universities. Their costs are very high and their educational value often questionable. Companies that figure out how to give students more educational bang for the buck will profit handsomely. Invest money in them, Altucher suggests.
Now, the intellectuals. Altucher’s column was read by Gary Becker, professor of economics at the University of Chicago and Nobel Prize winner in 1992. Professor Becker has a blog with another University of Chicago luminary, Richard Posner (more on him later) and on April 22, Becker posted a comment sharply critical of Altucher. He wasn’t attacking Altucher’s investment advice, but rather his poor opinion of college education. “Altucher does not know the subject he is writing about,” wrote Becker dismissively.
To support his point, Becker presented some well-worn statistics on the earnings premium that the average college graduate enjoys over someone who doesn’t get a college degree and says, “the average person who does go has far better prospects for earnings, employment, and occupation than the average person who stops schooling after finishing high school.” And on top of that, those with college educations are better off in many other respects – they’re healthier, have stronger marriages, smoke less, commit fewer crimes, and handle their finances with more savvy.
“Should not such high returns have induced most persons who finish high school to go on for a college education, and encourage additional boys and girls to finish high school?” Becker asks. Good question. If a college degree is just about a sure-fire investment, why is it that many Americans pass it by? Isn’t that like spotting a wad of money on the sidewalk but not bothering to bend down to pick it up? Becker admitted that he doesn’t have a good explanation for this apparently foolish behavior.
Becker’s blogging partner is Richard Posner, a leading intellectual in the field of law and economics, a professor at Chicago’s law school who also finds time to serve on the Seventh Circuit Court of Appeals and write books. He’s written more books than most people own. Posner began by conceding that Becker had presented strong evidence of the correlation between higher education and numerous personal gains, but observed that, of course, correlation is not proof of causation. “Suppose what are increasing are not the returns to education but the returns to intelligence, and suppose that people with high IQs both enjoy education more than other people and are more likely to be admitted to college or a graduate or professional school….” Posner writes.
Since getting a college degree is very costly, shouldn’t we expect that a large number of highly intelligent people would just by-pass it (like Bill Gates) and go directly into their working lives? The explanation why so few do, Posner maintains, is that colleges (and graduate and professional schools) provide both a screening and certifying function. Having earned a college degree signals to prospective employers that you are probably more trainable than is someone who hasn’t, and it isn’t legally possible to get into many lucrative fields (such as law and medicine) unless you have obtained the required educational credentials. Posner thinks that this is a very inefficient means of sorting people into various career paths, but argues that “employers naturally prefer to shift a portion of the cost of screening potential employees to colleges and universities.” (I think that what he meant to say here is that the cost is shifted to those who have to pay the colleges and universities.)
Another benefit of going to college is that it enables people to get into important social networks. Such networks are certainly beneficial, but Posner notes that they don’t necessarily have anything to do with the educational program. Again, the college experience correlates with higher earnings and employability, but the actual causation may have little to do with all the courses completed, books read, and material studied.
Becker had approvingly cited a recent article in The Wall Street Journal in which the author made much ado about the fact that some other countries are surpassing the U.S. with regard to the percentage of the population that earns at least a bachelor’s degree, but Posner doesn’t see that there is anything to worry about. “I am skeptical that it should be a national priority, or perhaps any concern at all, to increase the number of people who attend or graduate from college. Presumably the college drop-outs, and the kids who don’t go to college at all, do not expect further education to create benefits commensurate with the cost,” he writes. A very good point! Posner realizes that students are not fungible; just about all of the really bright ones go to college and beyond and the ones who are left are academically marginal. Although Posner does not say this, it may very well be the case that at least some of those kids who choose not to attempt college have learned from friends or family members that just getting a degree is in fact no guarantee of good employment. The U.S. is full of young college graduates who coasted through to easy degrees at lackluster institutions and now work at simple, low-paying jobs. As that knowledge spreads, it is bound to deter more and more marginal students from enrolling in college. Posner is not troubled by that.
So is a college education a good investment? In the sense of the personal payoff from education, Posner has the better of the argument. I suspect he’d agree that American higher education has been greatly oversold.