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03/14/2011

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Tajit

What is Krugman exactly prescribing? Prosperity through perhaps alternate means of higher education (other than university) or prosperity through a dumb but unionized workforce? i.e. another one of his perpetual prosperity machines of wealth through lower incentives to produce?

Jack

Krugman incessantly "worries" about the loss of our middle class.......... as do many participants and observers.

The college "payback" equation is taking a beating these days by college costs soaring much faster than inflation or wage growth.

Hacker and Pierson's book "Winner Take All Politics, for example posts a table showing what wages would be had there been the "rising tide that lifted all the boats" since 1979.

The third quintile, where we'd expect many college grads paid $75,000 in 006 which is $10,000 less than it "should be". The 2nd quintile of $35,000 perhaps starting pay for many college grads "should be" $10,000 higher and the middle fifth of $52,000 is $13,000 lower than the "rising tide" would indicate.

Twenty five years of $10,000/year more pretty well covers even today's soaring college costs.

endorendil

"But it may be that the greater value of college lies elsewhere: in providing association with people of above-average intelligence, in imbuing young people with general work skills (discipline, working under supervision, following directions, being evaluated, basic writing and speaking skills, some foreign language proficiency), in fostering ambition, and in providing information to future employers about job applicants that enables better matching of workers with jobs."

It's a lot easier than that. First, going to college is seen as an entry requirement to the upper wage brackets. Even though it is no longer enough, you're not going to get anywhere without it (statistically speaking - unbridled talent, luck or an inside track can still get individuals there). So if you're not going to college, you've resigned yourself to a life of hard work with little chance of improvement. Second, going to college provides association, but not necessarily with smarter people, just with people that come from the upper social strata. Impressing them or just enabling them is a good way to get hired by these people later on. Because of the stratification of society, college is the only place where you this kind of mingling still happens. If you don't get the right contacts in college, you'll have to make it through hard work afterwards, but because of the hollowing out of the wage distribution, this is much more difficult than it used to be.

In summary, college is still important because it's almost a prerequisite for high paying jobs, and it's a way to get to know the right people (which are usually not the smart people). The fact that it provides you with the right skill set to do a job is less important, because most skills that you could learn in college won't actually get you very far.

Curt Doolittle

I am pretty sure that Sowell has fully articulated the reasons for increasing tuition, and that no one else has provided any further or more relevant insights.

I am pretty sure that Becker is right, and our failures in education, especially among males, is occurring in 5-12th grades. I am pretty sure that failure is an artifact of feminism and fallacious attempts at equality. Boys and girls are not equal, because they are not equal in rates of maturity, and because they have preferences for empathy and dominance, verbal and spatial, that must be exercised differently, and at different ages.

But it doesn't matter who is sure, if the perverse incentives in education are a resistance to change.

Jimbino

To bad we can't experiment on the value of a college education by allowing the brightest to skip those boring college classes and gain a B.A. by testing out.

That would show up the fact that those bright folks that Harvard proudly "educates" at a cost of hundreds of thousands would do as well if they just skipped Harvard and moved overseas to work, eat and drink better, learn foreign cultures and languages, make friends at carnivals, bars and FKK beaches, and emerge after four years richer by some $300,000 in financial terms alone.

Why would you want to college to make American friends when you could meet and marry an Italian or German, automatically gaining the right to live and work in 28 countries instead of a single dying one?

Kopfschlaeger

The benefits of college (except prestige and connections and association with persons of high intellect) are available to those who attend junior colleges. Informational and skills training benefits are there in abundance.

There are also too many colleges and "universities" teaching things that require little research on the part of faculty and find a proper home in junior college. Communications, leadership, computer science that focuses on the use of computers and programing, etc. really don't belong in a full-time college or university with high-paid faculty, charging high tuition. Hence, the intellectual benefits of college or universities are diluted as is the intellectual core of the student body.

Lacking from the picture of higher education are prestige and money for good junior colleges, probably private and not-for-profit. Improve on this and you lower the cost of higher education and produce a more effective and creative work force.

Sean

"In summary, college is still important because it's almost a prerequisite for high paying jobs, and it's a way to get to know the right people (which are usually not the smart people)."

Agreed. The question is whether college SHOULD be a prerequisite for many jobs which, although "higher paying," do not involve the application of any specialized knowledge or tangible skills acquired in college. Requiring a four year liberal arts degree for certain administrative jobs is an inefficient use of societal resources. As the OP stated, the benefit of the degree is mainly the socialization experience. There are more efficient ways to provide this benefit in many cases.

Another point: The question isn't whether college education, on the whole, is worthwhile. The question is which areas of specialization society needs. It's unlikely that many engineering majors end up ruing their investment in college.

Daniel Chai

I think you understate the possibility of the market being wrong in regards to education. This is almost certainly happening in China - many college graduates are finding that there aren't enough jobs for them, and they're stuck in menial labor jobs that hardly require a college degree. Their benefits don't justify the cost of their education, yet millions of people continue to go to college. If I were to guess their reasons, I would say that it's because 1) so many of their peers are going to college, they feel obligated to as well, and more importantly 2) even if going to college isn't "worth" it purely on an economic basis, it represents to many people the only real hope of a better life. The alternative, even if it's in all probability a sound financial decision, means giving up hope of anything better, and people frequently make bad financial decisions for the sake of hope. That's the basis of all lotteries.

I'd argue that something similar is happening in the U.S. I personally don't think that the high tuitions at certain universities are worth their cost in terms of raising lifetime earnings. But hope is so built in to the American psyche that I doubt that saying how a college education isn't worth it for some will make much traction, no matter how true it is.

In short, I'm not sure we can trust the market here.

NEH

What is a College Degree worth? Perhaps we need a decent definiton of "Worth". The article seems to base it on its "Dollar value" in the marketplace. The current economic conditions and actions, seems to indicate, "not much". Especially, with all the cost cutting in the Federal and State Budgets at the moment targeting Education, Teachers and Students. Not only at the Post Secondary level, but also the Secondary and Primary levels. In order to solve this severe Economic shortfall, perhaps the U.S. ought to return to the days when the Eighth Grade was the highest academic achievement most Americans achieved. Think about the cost savings. ;)

Perhaps a more adequate definiton for "Worth" would be, "that quality of a person or thing that lends importance, value, merit, etc. and that is measurable by the esteem in which the person or thing is held". Such appears to be the definiton held by our forbears when they made the requirements for the creation of Secondary Education and then finally the sponsoring of the various Land Grant Colleges and Universities in the latter half of the Nineteenth Century (never mind the fact that the Progressive Movement was in full swing, unlike today). Which pulled the Nation and the Public into the Modern Age and setup the extensive growth and flowering of the National Economy, the Arts, the Sciences, etc.. The GI Bill and other forms of scholarships and subsidizing and sponsoring of Education? What a waste. ;)

Professor Lembach

There is no "market" for colleges. A great number of people go to college because that's what you do after high school, unless you're an idiot or loser. Very, very few people, children or adults, do a cost-benefit analysis of a college degree, much less a certain major. The primary concern is usually getting into a "good" school(i.e., one with "brand" appeal) and paying for it, not whether they should be going at all.

Oh sure, they bitch about the cost and assume there'll be a great benefit at the end, but it's approached like everything else in American life, with haphazard hope and conformist confidence.

While it's possible to develop "discipline, working under supervision, following directions, being evaluated, basic writing and speaking skills, some foreign language proficiency" after high school (although most of sound like things you should've learned in kindergarten), it's highly unlikely at modern American colleges, where it's quite possible to design a not-too-demanding schedule that doesn't require one to get out of bed before 1 pm. Paradoxically, the way to develop those schools in the less organized environment of college is to already have those skills in abundance.

The problem everyone is dancing around here is far more worrisome and difficult to solve: there just aren't enough jobs for everyone to survive on, regardless of education, and that's not getting any better in the future.

Xavier

I was blown by Krugman’s column. He is, as usual, way off base. His prescriptions are not just “pathetic,” they are representative of what ails increasingly large parts of the US. Judge Posner and Prof. Becker are on the mark. Both allude, although not explicitly enough to the real problem. Krugman doesn’t because he lacks the imagination to come out from inside mathematical formulas that I am sure he handles like a true Nobel Prize pro.

But mathematics is not enough. I know. I was there. You also need the imagination to go beyond them, look at the world in new and different ways. The latter more so because it is changing continuously and all the time requires new solutions to new problems. Dealing with new problems requires an education, and not just higher education but also continuous learning. And therein the problem with education in the US and the average American student, although by no means all or perhaps even the majority of students.

The problem is the quality of the product; not the quality of the material offered but the quality of the learning process. The problem, and I have degrees from the very best universities, is that it fails to understand and work with students, and students lack the attitude required to really learn. As Exhibit A I give you the dedication of foreign students in American universities as compared to the easy going attitude of their local counterparts. Learning the social niceties is important but should come second to becoming prepared to deal with the challenges of increasingly complex societies, challenges that arise and must be tackled beyond fancy formulas or social gestalts. The latter are important, very important, but by themselves can’t solve those challenges.

For long periods I was based in the US, but I worked my whole career in emerging countries and interacted daily with their professionals. I was struck by their professionalism and eagerness to learn. Before coming to the US I used to be impressed by how Americans were more inquisitive than their emerging country counterparts. That still seems true in general. However, as I reached into the echelons of the more educated I detected a remarkable difference, although I will repeat that this is not true across the board, and the better Americans are still the best in the world. Still, far too many took education for granted. By contrast, emerging country students, and particularly those coming from the middle and lower classes, exhibited boundless eagerness to learn and do better.

I suspect Prof. Becker and Judge Posner don’t see this because they are at one of the best universities, their students are among the more select, and they haven’t worked abroad like I have. The other problem that may be just as difficult to perceive is that the US is quickly falling behind, and that it is happening precisely because the US is not producing as many professionals, like particularly engineers, as emerging countries. And it is not just in China. I personally inspected massive projects in the Amazon where all of the work was by extraordinarily competent and highly motivated Brazilian trained engineers. Indeed, in Brazil they call their project leaders “kamikaze de projetos.” They are so dedicated to the project that by the time it is completed they are totally exhausted and are given six months R and R with full pay to recover for the next one. I am sure Posner and Becker have seen that among many of their foreign students at Chicago.

My bottom line is simple. For a US that no longer has the dynamism that propelled it to its present heights, a US that will lose its prominence in world affairs, a US that is declining relative to many of the newly emerged societies, Krugman is right, there will not be sufficient demand for, or supply of, the kind of professionals that are required by a country that wants to lead. Then, yes, a nanny state that takes care of those below and in the doughnut hole may be necessary. In fact, what currently ails the US may actually be the beginning of a vicious cycle fueled precisely by Krugman’s proposed nanny state, a cycle that may be leading its people to lose even more motivation.

If, on the other hand, the US wants to continue leading then Judge Posner and Prof. Becker are right except that their formulation is incomplete. Colleges and universities need to work closer with their students; they need to go to a student centered approach, not the current teacher centered education. There are already good examples of the former in some universities and even high schools like the Thomas Jefferson High School for Science and Technology in the Washington DC suburbs. But it has to start in K-12 and parents at home also have to do their part.

A US that leads will badly need a much larger supply of highly motivated students and professionals with a good higher education. If this happens then all of them and many more will form and enjoy a much larger and fruitful middle class, Krugman notwithstanding.

Jack

Lots of good comments!

One more perspective? As our economy is 70% dependent on consumer spending, which is to say that mostly we're a mature economy of taking in each other's laundry and making lattes for each other, suppose fewer kids went on to college and paid those (curiously) soaring costs; what then would we do with those providing the service?

One more? Many who take a degree in music or other arts go on to teach the next generation. If, in a world that values accounting and WS thievery much higher than it values music and art, the economic "returns" are irrational, is that a reason to "save" by no longer "wasting" our scarce resources in the art department? (Something that generally HAS taken place in K-12)


And a comparative? More and more states are legalizing gambling, all forms of which are a "zero sum" game if played at home, but commercially the fleecing of the rubes requires labor, along with maintaining costly facilities, etc. As casino gambling, due to overhead, has more losers than winners the "happiness" quotient would seem to be negative, so no product of any worth is produced.

Soooo, as we dive into the "cuthabudget" "save" mode (that Haha! WAS exactly what "conservatives" of 1930 prescribed!) it seems the real need is that of deciding what is rational investment and maintenance expenditures going forward.

Sadly those claiming to be "conservatives" and "businessmen" seem to have it precisely backward, though most in leadership positions not only graduated from college, but have been in positions of increasing responsibility for several decades, yet can't discern the difference between an unaffordable and unnecessary tax cut from wise investments in the future of the world's richest, most powerful and most stable nation.

Aaah, as St Patrick's Day nears .......... 'tis a puzzling world.

True Religion Outlet

A life, a fulfilling life, a rich life includes ups and downs, includes pain and getting up again, includes failure and getting up again.

Jack

Xavier: A few thoughts: I'm wonder what Krugman said that blew you away?

As for foreign students "working harder" wouldn't it be the case that they'd be some of the topmost students from their nation, which you are comparing to the bell curve -- average -- US college student?

As for "engineers" I know some, good, young college grads in engineering who're "underemployed" due to a lack of jobs for them. Seems "we" hire a project engineer and core staff who then subs-out much of the work to India. One has gone back to school to become a computer gaming developer. Might work out OK, as our film biz is the largest in the world, and computer gaming is yet larger.

"Nanny state?" Where has Krugman favored such? The big concern here is that of Congress giving away the ranch to those of the top 1%. Are you using "nanny" in regard to them?

Increasingly complex challenges? Seems every generation has some of these, but Ha! Volcker recently quipped that the ATM was only real improvement in the financial sector in decades. But there are indeed challenges, like re-instituting the safeguards of depositor's savings and stockholder's equity that served us well for nearly a century.

As for lacking dynamism? Perhaps, though in a mature economy what are we expecting? That our oil behemoths will lead us out of being overly dependent on their product? Or that insurance parasites will loosen their chokehold on H/C delivery? Or that a consortium of airline companies and auto mfg will through in together to build out the modern rail systems you've likely seen in other nations?

And K-12 education? It seems they've identified a need and strong payback for pre-school to prep kids for K, and especially so in areas where the educational challenge is greatest, but! alas it appears that it's those doing the most handwringing about "failing schools" and "falling behind" that are also the most resistant to its universal implementation.

As for maintaining a "fruitful middle class", incomes have stagnated for decades despite there being more college grads in the workforce. With our workforce both educated and not so educated being pitted against a nearly infinite supply of similar folk who work for a tenth as much, I don't see a lot of hope for reversing the trend toward further consolidation shown in these graphs:

http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/

In the Soviet era workers used to say "They pretend to pay us so we pretend to work". Not much dyanamism.

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Sato in Hong Kong

Dear Americans:

If you want a standard of living that is 5 times the world average, as it is for today’s Americans, you have to be 5 times more productive. The European-like redistributive dis-incentives of social-democracy, that you seem to be embracing, coupled with the homogenizing and innovation stifling central planning that typically accompany this collectivist approach, will simply not get you there.

Thus the US inevitably downgrades to an endemic European-like average 1.5% annual growth rate and American prosperity loses the superiority most Americans take for granted, at a rate of 3% every year in a world that grows by 4.5% on average (1.5%-4.5%=3%). As the 3% relative slide compounds every year, the predetermined mathematical outcome of this process is US economic marginalization on the world stage.

NEH

Sato, Be glad that the West has a 5% over and above the World's average. It is what has driven the Asian Economic Miracle by consuming the products produced and exported by Asia to the West via Offshoring and Outsourcing of Western Productive Capacity utilizing the principle of Global Labor Arbitrage. As for Productivity comparisons between emerging Industrial Development and established Industrial operations, it is not an Apples to Apples comparison, but more like an Apples to Oranges comparison. You see, within various General Systems (in this case, industrial operations), a fundamental rule is at play, called, the Law of Diminishing Returns. The gist of which is, for every input into the system, there is a diminishing return from the input. That is why there seems to be a greater productivity increase within emerging Industries than there is from developed Industries. So that difference between the Asian productivity gain as opposed to the Western gain will eventually balance via the Law of Diminishing Returns.

As for the economic health and wellbeing of the Nation, it's time we decoupled ourselves from Asian Mercantilism by imposing Tariffs and Duties and setting up a rigorous Customs procedure that brings production and the goods and services back into the Nation and provides employment oppurtunities to the Public. In other words, its time that Asia learns to stand on its own two feet economically and become a Consumer based economy. Instead of being subsidized by the West through the consumption of the underpriced product which Asia Produces.

J. Kumar

Sato in Hong Kong is absolutely right. America’s self suicide is by far the overriding event unfolding in our times.

Wake up Americans and smell the coffee: European complacency begets European decline.

There is no way for a society to prosper by decreasing incentives to produce. It is asinine to think that after many-many attempts by other nations over many centuries, Americans are now the first ones to have just discovered that you can actually prosper faster based on lower incentives to produce. You are simply confirming American naiveté. What better proof that America has finally reached the point of decline than an electorate that believes that lowering incentives to produce will have little effect on worldwide economic competitiveness.

Amazing how clear a nation’s destiny looks once you get a bit away from it.

So keep at it Americans, make mediocrity more comfortable, nothing to worry, productivity and competitiveness will not be affected, all other nations for sure will mess up even worse. Keep dreaming. You will still have a standard of living five times higher than the world average in 20 years. Sure...

NEH

Kumar, A you ready to stand on your own two feet and carry your own load as opposed to being subsidized by the West? Welcome to the Neo-Global Economy due to the controlling of Global Labor Arbitrage?

The business of America is Business and its control in its own self interest...

Jack

Dear Hong Kongians - Sato - Using your figure of the US having "five times higher standard of living" and only a 1.5% annual increase against your, claimed, 4.5% for "others" I'd point out that 1.5% of Five is a better return than is 4.5% of 1. .075 units vs .045.

Not sure what our industrial capacity usage percentage is just now as in the "new" economy it's not easy to know, but! with 18% underemployed along with other clues I'd hazard a guess in the 70% range so I'd warn against assuming that 1.5% is a constant.

BTW HK looks a bit crowded, here one could buy industrial land close to major highways, rail or even seaports for a couple thousand/acre or rent existing space for $2/sf/month with an able and willing workforce nearby. How would those costs compare to HK?

Jack

Kumer??? I awoke, admittedly a bit late, this morn to the aroma of a particularly fine blend of Sumatran coffee. I checked around for creeping disincentives to produce which we surely should guard against but found primarily a lack of demand much of which I attribute to

A. high un and underemployment

B. "Middle class" and lower wages that have stagnated for several decades. The top 1% who've taken virtually all of the productivity gains can only consume so many of the products we mfg. and, I should add, so many of those mfg by the nations of which export is crucial to their current well-being and future growth.

NEH does a fine job of explaining Diminishing Returns. I'd only add that were our neighboring Mexico to attain the 5% growth of their $1 trillion economy that I'd wish for them it would mean only $50 billion worth of stuff the rest of the world could easily absorb. Were we to add 5% to our $14 trillion economy our sales force would have to place some $700 billion worth of product.

As for "European complacency", I think many here look with a certain longing to the Frenchman dallying over a long lunch and taking three times the number of days off as do Americans (driven half nuts by the Puritan work ethic and an insane rat race?) but still matching US productivity per hour worked while enjoying a higher std of health and longer life.

Lastly as for "mediocrity" in two of our big ticket items it appears our "lazy" UAW lads are again building top-rated autos and trucks, and though it was a bit "unintentional" we've built a couple years worth of excess housing inventory. Even if the stagnant wage trend continues as it seems it will, being able to buy a home costing $250,000 to build for $150,000 or so at record low interest should improve the living standard of many for years to come. And Ha! the act of NOT building them over the next few years will lower our GDP and make it look like we're not doing so well.

BTW would you list some of the "disincentives" you'd like to warn us about?

Jim

"These are pathetic prescriptions. Unionization spurs automation by making labor more costly relative to capital..."

It does? Who do you attribute this fantasy to? Automation, if anything, makes labor less costly. As an example, the west coast shipping companies have reduced labor costs dramatically over the last two decades, while implementing automation at every chance. The net result are profits so high for shipping companies that their wage and benefit layouts amount to less than 1% of their unionized workforce. And their unions are some of the highest paid in the nation.

Paul H

Posner means that by driving labor costs higher, unions prompt businesses to turn to automation. Consumers worldwide increase their standard of living by lower production costs.

Xavier

Jack, re Krugman, easy: his negativity. You’ve heard me on negativity before. He accepts that the US has lost its dynamism: instead of trying to figure out how to recover that old energy that was so American he now proposes to engineer social outcomes. That blew me.

Re foreign students: There are more Chinese studying science and engineering in the US than Americans.

Re nanny state and Krugman, did you really read his column: “So if we want a society of broadly shared prosperity, education isn’t the answer — we’ll have to go about building that society directly. [Wow! Really? Marx? Lenin? Stalin? Heard of them?] We need to restore the bargaining power that labor has lost over the last 30 years, so that ordinary workers as well as superstars have the power to bargain for good wages. [Huge trusts are okay for unions, trusts that buy politicians?] We need to guarantee the essentials, above all health care, to every citizen. [How you do it matters. Safety nets are okay. Government run healthcare not. If you don’t believe me read the law itself.]”

K-12, I know from first hand experience, including TJ in the DC area. Check it out. The first year it produced many more merit scholars than the whole metro area combined, and they weren’t being picky, they couldn’t that early in their existence. As to not wanting to change the system, my wife was a teacher, she wanted to change, the union not.

As to the middle class stagnating, come on, did you really read my post? The whole thrust of it is that with the whole economy stagnating of course the middle class will stagnate. If you can get the economy going again, really going, then you will be able to reconstitute the middle class. Or do you want everyone to be an assembly line worker for ever? Let’s move on to something else but the Chinese, Brazilians, others are doing it instead.

My offer stands. Let me know your email and I’ll send you a paper I wrote on precisely this and how to get the economy going again. I like to be positive, offer solutions. I worked hard on them. They may be way off but at least I tried. I could post the conclusions but without the science behind them many will think them political. They probably would anyway. (The rationalism of the Enlightenment has instead become a license for ideological sharp shooters who are too lazy to scratch below the surface.)

Xavier

Oops. Re Chinese studying in the US, I meant foreign students.

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