Economics

Home/Economics

Is Education a Waste of Time and Money?*

Those of us in higher education have become used to criticisms of our work.  Recent polls have shown decreasing public confidence in the value of education and even the recent tax reform bill had provisions that were implicitly critical of higher education.  But some of the recent criticism comes from a surprising source: inside the academy itself.

Bryan Caplan, a George Mason University economist, has written a book whose title succinctly describes his criticism: The Case Against Education: Why the Education System is a Waste of Time and Money.

This criticism is particularly surprising coming from an economist because one of the most robust research results in economics is the positive impact education has on earnings for individuals and on GDP growth for countries.  (See here  and here  and here)

Caplan’s basic argument is that a college degree serves primarily as a signal to employers of the types of traits a potential employee will bring, such as “brains, work ethic and conformity,” rather than providing any real skills that will be useful on the job.  Caplan writes that, “the only marketable skill I teach is ‘how to be an economics professor’.” In short, Caplan believes there in little value added in higher education.

Caplan starts from a pessimistic and ungenerous premise about students.  “Most kids are philistines—they are that way deep in their souls.”  Therefore, he asserts, education is wasted on them.

While not every 18 year old is worldly and cultured when they enter college, surely they should be allowed the scope to grow and develop intellectually, emotionally and spiritually.  Education is all about hope and possibilities.  The transition from childhood to adulthood is a powerful and important time in the lives of most people, and a four-year college experience is often an important part of that transformation for young people.

This lack of confidence in education also comes from Caplan’s view of education as a rote process.  He says, “Most of the stuff [students learn], right after the final exam, they’ll never need to know again.”  Needless-to-say, this is not how most faculty approach their subjects or their interactions with students.  While students invariably forget specific details from courses, most faculty would argue that education changes the habits of mind and skills of students. Education can improve critical thinking skills and research skills, as well as writing and communication skills – all widely applicable in the job market and providing a payoff over a lifetime.

Caplan focuses almost exclusively on what happens between the professor and student while paying little attention to the significant learning that takes place outside the classroom.  Athletes, student journalists, musicians, student senators and volunteers all gain valuable skills through their extracurricular activities.  Furthermore, the informal interactions in residential settings also provide students with opportunities to learn from peers who have had other kinds of experiences or upbringings or hold different worldviews.  The ability to listen and learn from others clearly benefits both the individual and ultimately society as a whole.

Are we in higher education successful in transforming all students equally?  Of course not.  Could we improve our teaching and add more value?  Certainly.  But to suggest that the whole educational enterprise is just a charade, that clever students “go through the motions” and cynical faculty play along simply to signal job readiness to narrowly self-interested employers is an assessment that is deeply at odds with the experience of most educators and students I know.

I suspect that most students with college-educated parents will pay little attention to criticism such as Caplan’s, having experienced within their families an educational reality that is rather different from what he describes.

I worry most about another group who may hear criticisms such as Caplan’s. He sends exactly the wrong message to those students and families who have not had the experience of college in their past.   For students who are capable and ambitious, not attending a four-year college prevents them from achieving the well-documented economic benefits that accrue to degree holders over their lifetimes, to say nothing of the many other personal benefits of higher education.

Caplan’s general thesis is certainly a view to be considered and some of his criticisms are fair, but I trust an application of sound critical thinking and some informed research will persuade students and their parents that a college degree is still an exceptional investment.

*A version of this post was published in the St. Cloud Times on February 25, 2018.

Reflections on a Liberal Arts Education: Part III

What Google Learned

Among the tech companies, Google is probably the most famous for its rigorous hiring process.  As Cathy Davidson, the author of The New Education: How to Revolutionize the University to Prepare Students for a World in Flux, writes:

Sergey Brin and Larry Page, both brilliant computer scientists, founded their company on the conviction that only technologists can understand technology. Google originally set its hiring algorithms to sort for computer science students with top grades from elite science universities.

Obviously this algorithm would fill Google with STEM graduates at the entry level and presumably those employees would eventually become the successful mid level and top management in the organization.

True to its DNA, Google decided to use data to analyze how well its hiring algorithm was at producing successful employees.  Davidson writes:

In 2013, Google decided to test its hiring hypothesis by crunching every bit and byte of hiring, firing, and promotion data accumulated since the company’s incorporation in 1998. Project Oxygen shocked everyone by concluding that, among the eight most important qualities of Google’s top employees, STEM expertise comes in dead last. The seven top characteristics of success at Google are all soft skills: being a good coach; communicating and listening well; possessing insights into others (including others with different values and points of view); having empathy toward and being supportive of one’s colleagues; being a good critical thinker and problem solver; and being able to make connections across complex ideas.

This list is very much like the skills and experiences that are touted by residential liberal arts colleges: critical thinking, communication, living and learning in a diverse community, and synthesizing ideas. I’d also note that some of the Benedictine values we emphasize at Saint John’s University and the College of Saint Benedict map nicely onto this list: respect for individuals, hospitality and the importance of community.

Google did further research in 2017, employing anthropologists and ethnographers, and found further support for the importance of soft skills:

Project Aristotle analyzes data on inventive and productive teams. Google takes pride in its A-teams, assembled with top scientists, each with the most specialized knowledge and able to throw down one cutting-edge idea after another. Its data analysis revealed, however, that the company’s most important and productive new ideas come from B-teams comprised of employees who don’t always have to be the smartest people in the room.

Project Aristotle shows that the best teams at Google exhibit a range of soft skills: equality, generosity, curiosity toward the ideas of your teammates, empathy, and emotional intelligence. And topping the list: emotional safety. No bullying. To succeed, each and every team member must feel confident speaking up and making mistakes. They must know they are being heard.

As a result of its research Google has broadened its hiring model with the goal of including humanities majors, artists, and even MBAs, candidates that the STEM-heavy organization had previously viewed with skepticism, at best.

None of this is particularly surprising for fans of the liberal arts.  The philosophy behind a broad based curriculum emphasizing exploration of the humanities, arts, natural sciences and social sciences is that such an education both makes students more successful in their major field of study and better prepares them for the diverse and changing world they will live in.

What Google’s research suggests is that even technology and science companies that embrace the liberal arts find themselves more successful and better at understanding the needs of their customers and the changing marketplace.

This worldview is shared by another highly successful tech company that is a neighbor of Google’s in Silicon Valley.  Steve Jobs famously said of his company, “It’s in Apple’s DNA that technology alone is not enough — it’s technology married with liberal arts, married with the humanities, that yields us the results that make our heart sing.”

Tax Reform and Higher Education

Now that the Tax Cuts and Job Act of 2017 has been passed it is possible to examine the implications for higher education.  The tax reform bill is of particular interest to higher education because from its earliest drafts, Congress, and the House of Representatives, in particular, seemed to target higher education in ways that would raise costs for families and students.  This apparent objective flies in the face the increasing need for investments in human capital for young people (see here and here) and of vocal concerns about the increasing costs of a college education (see here here and here).

The initial version of the tax reform included the taxing of tuition benefits for employees, graduate students and employees dependents.  It eliminated the deduction for student loan interest, as well as tax-free financing for private college and university capital projects.  The bill also proposed a 2% tax on endowment returns that would have affected about 250 institutions (Saint John’s University would have fallen just outside the original threshold).  These provisions naturally spurred institutions, students and families to lobby Congress, arguing that the proposed changes would make it harder for students to afford what is increasingly becoming a required credential for the middle class and for institutions to hold down tuition costs.

In the end, the outcome was not as dire as first feared, as the Senate bill, which was largely the basis for the final bill, was not as punitive toward higher education .*  The taxing of tuition benefits was removed from the final bill.  The deductibility of student loan interest was retained and only with refinancing of capital projects does the interest become taxable.  The endowment tax remained but was dropped to 1.4% of investment returns and the endowment per student threshold was raised to $500,000, which dropped the number of institutions affected to approximately 32.

From the perspective of the academy and economic research that emphasizes the importance of investment in human capital for long-run economic growth, good sense mostly prevailed.

Yet three questions remain.

    1. Why would Congress punish private institutions?  The endowment tax will only apply to private institutions despite the fact that many public institutions also have billion dollar endowments.  One of the strengths of the American higher education system is the diversity of options available to students: 4500+ institutions of higher education, of which 2200+ are four year degree granting institutions.  Private institutions range widely in size, program offerings and the nature of the student experience.  They are also among some of the world’s finest schools and draw many thousands of the best international students in the world to the United States.  While private institutions do benefits from some government grant and loan programs, they do not directly seek government revenues in the way public institutions do.  Anything that would weaken this sector seems to be cutting off one’s educational nose to spite one’s growth-focused face.
    2. Why tax endowments?  While endowments certainly confer prestige and have a significant impact in some rankings, they serve a very important role in providing financial stability in uncertain times and allow institutions to make a long run reputational/quality promise to students and faculty.  Endowments also, in normal economic times when market returns are at long-run historic levels, allow for institutions to do some combination of: covering costs that rise usually rise faster than inflation (labor costs), moderating tuition increases and increasing programming, research activity or educational quality.  In short, endowments provide an important source of revenue that allows institutions, at least potentially, to control tuition while maintaining institutional quality.  Taxing them makes this less possible. In addition, the gifts that schools used to build their endowments were given with the understanding that the returns would be untaxed, as colleges and universities are non-profits.  This new provision obviously violates that understanding and potentially impacts future giving.  Furthermore, it opens the door for taxing any charitable institution’s endowment, from less well-off schools to foundations of any kind.  This change represents a fundamental change in the way charitable organizations are treated in tax law.
    3. Have Congressional and public attitudes toward higher education changed?  This last question strikes me as the most important one.  Some commentators have observed that the provision targeting higher education are primarily political.  The Minding the Campus blog argues :

      Public attitudes toward universities have distinctly soured in recent years. What the public perceives as outrageous student behavior, feckless university leadership, and excessive tuition fees has combined with a growing hostility by Republican lawmakers angered over the large political donations and public criticism that academics have made attempting to oust them from office. Lawmakers are growing tired of feeding the mouths that bite them. Revenues raised by taxing colleges can modestly help fund other tax reductions that lawmakers want to make, which are probably economically beneficial to the well over 90 percent of the population living outside the Ivory Towers of Academia.

This hypothesis does not address why the provisions in the new tax law focus on private institutions (recall incidents at Berkley and Evergreen State), but it is consistent with the current contentious political environment.

If this interpretation of the tax provisions is accurate, the question for higher education and the public is whether these views are temporary or represent a fundamental shift in attitudes. There is very strong evidence that a well-educated populace plays an important role in long-run economic growth (for example see here and here ). There is also evidence that the changing role of technology in the economy is requiring a more educated workforce. All of which suggests that higher education has and will continue to play a central role in the prosperity of individuals, their families and the country as a whole.

To let politics get in the way of educating young people, either on campuses or in legislative bodies, will leave us all poorer.

*One other provision in the final version of the tax law that is likely to impact colleges and universities is the doubling of the standard deduction, which will cause the number of itemizing taxpayer to drop from about 30% of taxpayers to 5%. Though this change was largely aimed at tax simplification rather than targeting higher education and other charities.