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greyenlightenment  investments: META/FBL, TSLA, TQQQ, TECL, MSFT ...  1yr ago (greyenlightenment.com)   2798 thread views

Why the college bubble won’t pop

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Although taken for granted by millions of Americans, the choice to obtain a college degree mystifies economists

Wait, what? Most economists are firm believers in the benefits of college. Even Bryan Caplan agrees that lots of people face a pretty good individual ROI on college. It's definitely not a slam dunk for everyone once you account for the cost, risk of not finishing, opportunity cost, etc. But if anything, most economists are biased towards "more college."

For the bubble to burst would require that one of these fail. Somehow employers would have to realize that they are vastly overpaying. But given how obsessed companies are with profits, makes this even less likely.

Speaking of Caplan, he spends a substantial amount of time in The Case Against Education arguing against arguments like this. Companies do face principal-agent problems, and a manager who knows you might develop some sort of personal attachment. Firing someone because you realized they're not as productive as you first though seems very rare. Firings are mostly for egregious behavior (not working at all, harassment, theft, etc) or because a whole team or division is the victim of higher-level, strategic issues. Also, college need not be a perfect signal to be useful. If getting a more precise signal would be more costly than what it saves in costs, then it still makes sense to have degree requirements. If most of the people who would pass your interview have degrees anyway, then using the degree filter mostly saves you time. Missing out on a potentially good employee is probably less costly than hiring someone mediocre (see above discussion of firing).

It seems obvious to me that the college wage premium has to top out somewhere: Companies can't pay infinite amounts of money for a degree. However, even once we we get there, that doesn't mean the bubble will pop.

Hence it’s not surprising that most good-paying jobs have not embraced certificates or other alternatives.

Again, Caplan also discusses this. He claims it's worse: Employers are looking for conformity, which by definition can't be signaled by something new and innovative.

I do think that making college degrees protected like other things (so you have to proactively show it's relevant) could help, but the big thing is student loan reform. Make them dischargeable in bankruptcy and don't subsidize them. Then private lenders will have to actually evaluate which students are likely to graduate college and get a good enough job to justify the loan, and colleges will have to care about that stuff as well.

He claims it's worse: Employers are looking for conformity, which by definition can't be signaled by something new and innovative.

I remember I read "completed higher education means you can do boring, useless stuff for 5 years without questioning it".

... well, you can make PGS for conformity...

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