The Problem with College for All
Updated: Apr 19
The average four-year degree will squeeze you for an unaffordable $120,000. No wonder 44 million Americans owe an average of $34,000 on student loans.
Meanwhile securing a four-year seat in the White House will cost you an eye-watering $2 billion. No wonder ambitious senators are looking for a way to play those costs against each other. Witness Elizabeth Warren’s proposal to provide a free college education for everyone and cancel up to $50K of outstanding student debt.
If you elect her president, of course. Sort of a you-scratch-my-back arrangement with American tuition sufferers.
Unfortunately Senator Warren’s plan is dreadful public policy, a layer-cake of misunderstanding and corruption.
The Woebegone Fallacy
As everyone knows, college graduates on average earn more than non-graduates. The reason is generally assumed to be that you learn something in college that makes you more productive, something valuable enough for employers to give you an 80% raise.
If that’s the case, the benefits of the senator’s plan would make a certain amount of sense. Of course we’d want everyone to go to college so everyone could be more productive. We’d benefit from more national output for a given number of hours worked, and as a result higher standards of living. Not to mention skinnier welfare rolls, better-educated voters, and a higher caliber of tweet.
But could it really be that easy? In a few fields like computer science the Thing you learn that’s useful on the job is easy to identify. But in most majors it isn’t. Math, economics, and English majors study tend to take jobs in fields unrelated to their degrees. So what is the Thing? Why wouldn’t high schools simply teach the Thing earlier? If the Thing is so job relevant, couldn’t you pick it up on the job even faster and cheaper?
In fact research shows the Thing is mostly myth. Finishing college has value not because it taught you something but because it teaches employers something: that you’re the sort of smart, persistent conformer who makes it through college. Intelligence, persistence, and cooperativeness are all useful traits in the workplace, so college makes you more hireable. But if you have those traits at graduation, chances are you had them back when you enrolled.
Industry must choose job candidates from a stack of resumes from a million young adults. A college diploma gives them a convenient filtering signal. And if your name is on it, it helps you make their shortlist.
In other words, college’s value is primarily in testing and certifying your virtues rather than adding to them. That uproots Senator Warren’s proposal completely. If everyone had a degree, it would no longer filter. Employers would have to find a different way to identify the best candidates, and a degree would no longer mean higher earnings.
Employers are searching for above-average candidates. Job seekers want to signal that they’re above average. Senator Warren is peddling a “transformation” to a world where everyone is above average.
Of course it can’t work, just from the math of it. Once everyone has a bachelor’s degree, you’ll need to get a master’s in order to stand out. Many people are already staying in school to get one.
Once everyone has a master’s…well, you get the idea. On this course, the PhD will be the new high school diploma, and 8-year-olds will be trying to pack in more extracurricular activities to pad their resumes.
The Barista Bubble
$40K in debt wouldn’t be crippling if you were making a six-figure salary. But a lot graduates can’t find professional work and end up steaming at Starbucks. We have a word for when investment prices get bid up beyond reasonable hopes of a return: a bubble.
Like the housing bubble, government played an active role in inflating the college bubble. It poured taxpayer money into state-run colleges, tuition subsidies, and research grants for universities.
What happened next was the normal supply and demand dynamics they teach in a college economics class. As demand rose, colleges raised prices and expanded enrollment.
Now the college market is demonstrably out of sync with the rest of the economy. Too many people are getting degrees relative to industry’s appetite to hire them. And they’re overpaying for them relative to the premium industry is willing to pay.
Washington should be looking for ways to deflate the bubble, or at least stop pumping it up. Instead Senator Warren wants to puff it big enough to cover the whole country.
Too Big to Fail?
Remember those big banks that got bailed out at taxpayer expense? Senator Warren was as mad about that as the rest of us, yet here we go again.
Harvard University markets itself as a school, but with $36 billion of assets under investment, it’s also the world’s sixth largest hedge fund, which happens to operate a $1.5B college on the side. Public schools are not far behind; the University of Texas leads the pack with a $24B nest egg.
They’re not failing yet, but neither are they knocking it out of the park. While they’re turning out waitresses conversant in Nietzsche and abstract algebra, corporate America still complains of a talent shortage. Over 7M jobs are unfilled. The tech sector chafes under H1-B visa caps that limit companies' growth, and the eye-popping salaries they offer demonstrate they’re not making it up, they’re in real pain.
This is not a success story for colleges. To the extent their economic function is filtering job candidates, their seal of approval is hit-or-miss, only loosely correlated with employability. That undercuts their value to employers and therefore to students.
To the extent their value lies in their teaching, they’re in even deeper trouble. Here’s a bold prediction: Any day now someone will invent a way for people to learn new subjects without needing to be physically present in a classroom. Perhaps online videos available at low cost — or even free? — without needing to change out of one’s pajamas.
Between the low ROI on a degree and the dawn of much more efficient ways to learn, colleges are heading for a big crisis in the next decade or so. More sharp teenagers will find cheaper, faster ways to get careers started, employers will start looking deeper than the college GPA, and the bubble will pop.
What a convenient time, then, for President Warren’s bailout program. She’ll rescue deans and trustees from the darkening skies of the market by turning college into another entitlement program. Entitlement programs never go away. And once tuition is free, people will have less reason to question the value of their product. They’ll be able to coast on historical prestige for at least another couple generations.
The benefits always exceed the costs…
…if you exaggerate the benefits and ignore the costs.
It is customary to sell government programs on vaguely-alluded real-world benefits like a better educated workforce and to talk about costs only in dollar terms, if not dismissing them outright. “Pays for itself” is a common refrain.
So let’s talk about the costs.
First there’s the monetary cost. Senator Warren wants a 2% wealth tax on anyone with assets over $50M. The rich aren’t real people with real rights to their property, so there’s nothing morally objectionable to that, but practically speaking the economy is an interconnected ecosystem. Just like the government reaps multiplier effects by putting stimulus money in consumers’ hands, it creates divisor effects by taking money out, even from the rich. It doesn’t matter which end you drain the lake from, it kills the same number of fish.
To get a glimpse of how that will work, suppose your net worth is $100M. Warren’s proposal would amount to a fine of $1M per year until you get it down to $50M. You’ll have a huge incentive to open bank accounts in the Cayman Islands, offshore your factories, sell your US apartment buildings to buy assets overseas, maybe simply move. The US will lose jobs, and Washington will lose the revenue that was supposed to pay tuition. President Warren will be forced come after a broader swathe of taxpayers. College subsidies are regressive.
Meanwhile, the costs will explode. Not only will many more people attend, cost per student will rise steadily. Colleges will enter the grim twilight of other government programs like bus systems and school districts and Medicaid and food stamps: perpetually increasing budgets yet perpetually underfunded, and signaling that to voters by providing the bare minimum quality of service.
And the credential race will just advance further. Your free community college degree won’t open the door to an above-average job. If you want to stand out you’ll need to sink more of your productive years chasing advanced degrees, and still take on debt to do so.
Money in Politics
Whoever makes or offers to make an expenditure to any person, either to vote or withhold his vote, or to vote for or against any candidate…shall be fined under this title or imprisoned not more than one year, or both; and if the violation was willful, shall be fined under this title or imprisoned not more than two years, or both.
If Senator Warren were offering you $50 out of her own pocket in exchange for your vote, she’d be headed to prison.
How, then, can it be okay for her to offer you $50,000 in debt relief, which she’ll force taxpayers to fund?
This is the essence of the senator’s proposal: a naked but sadly traditional offer to buy your vote. And a tempting one: how can any voter be expected to uphold the public good against the enticement of $50,000?
It certainly does not serve the public good to blow more young people, years, and dollars into the useless degree bubble. Senator Warren apparently realizes this, as the Roosevelt Institute study she cites shows that college is primarily a credentializing race that benefits employers at students’ expense. And her own announcement is very muted about any benefits from more people attending college; her emphasis is firmly on debt relief.
Senator Warren rails against the corrupting influence of money on Washington politics. She’s not wrong.
In fact she’s demonstrating the problem right before our eyes. How can any senator be expected to uphold the public good against the enticement of looting taxpayers’ wallets to buy her way into the White House and history?