One of the most worrisome economic troubles coming down-the-pipe is the “student debt bubble” which many argue is caused by too many students seeking degrees in higher education as the costs of tuition increase. Because we understand that poverty and economic misfortune are serious barriers to human flourishing, it is very important to try and understand the economics involved in the education market. Dylan Pahman gave a good explanation earlier today about how administrative costs are rising to promote a myriad of diversity-advocacy programs, a process which is clearly affecting the supply-side of the issue. What about the demand side where students are making the decision to go to college?
How is it that so many students are making a seemingly irrational choice? In a post at strategyprofs, Steve Postrel explains here that while it may be true that college degrees may be becoming more common and watered down in the quality of education they represent, that it is also true that high school quality is dropping. This means that college degrees represent a greater increase in knowledge than they used to, signaling a greater value relative to non-college educated persons.
Typical graduate business school education has indeed become less rigorous over time, as has typical college education. But typical high school education has declined in quality just as much. As a result, the human capital difference between a college and high-school graduate has increased, because the first increments of education are more valuable on the job market than the later ones. It used to be that everybody could read and understand something like Orwell’s Animal Farm, but the typical college graduates could also understand Milton or Spencer. Now, nobody grasps Milton but only the college grads can process Animal Farm, and for employers the See Spot Run–>Animal Farm jump is more valuable than the Animal Farm–>Milton jump.
So the value of a college education has increased even as its rigor has declined, because willingness to pay for quality is really willingness to pay for incremental quality. This principle holds true in many markets.
Interestingly, one of the best ways to help lower the cost of college education might to be to improve the quality of education that a high school diploma represents. Understanding why high school education is declining requires us to think beyond a knee jerk “just spend more” reaction and understand that our current public education system is insulated against the processes that wipe out nearly all other inefficient and inferior services: the market.
To effectively help others become productive agents in the market and realize their vocations, we need to advocate for steps that will cause education at all levels to reflect a true added value. School choice seems to be an obvious candidate for improving educational outcomes.