Tuesday, April 24, 2007

Posner Beats Becker

By Richard Vedder

I am writing this from the home of the Pope Center and the John Locke Foundation in Raleigh, NC, where I spent a marvelous day conversing with a variety of business persons, faculty and, above all, students, mainly from North Carolina State University. Roy Cordato invited me, and our Pope Center colleague and friend George Leef was not only was gracious (as were others like Jane Shaw,Rick Stroup, Roy's wife Karen, and Dave Riggs), but also gave me a copy of the latest Becker-Posner blog. Gary Becker and Richard Posner are both great economists and first class minds. But I think Posner has it right and Becker is wrong in evaluating the returns to higher education.

Becker points out that the college-high school earnings differential has widened, and that college graduates benefit in other ways as well --they are healthier, more law-abiding, etc. He argues that even controlling for attributes of college kids(being brighter than average, for example), graduates of higher education institutions earn more and lead longer lives.

Posner is skeptical. Posner poses the possibility that higher ed may be a good private investment for most students, but evidence does not "suggest that it is either a particularly good social investment (it does improve matching of employees to employers, but at great cost) or that its value has much to do with the institution's education program." Later he opines, "I am skeptical that it should be a national priority...to increase the number of people who attend or graduate from college."

Amen. If Becker were right on the economics of higher education, one would expect spending on colleges by governments to positively impact growth rates. The work I am doing, now in conjunction with Tony Caporale and Whiz Kid Jonathan Leirer, convinces me that spending on higher ed by state governments has, at the margin, no positive growth effects whatsoever, and probably even negative ones. As to the other dimensions, do college graduates smoke less (and thus live longer) than non-college graduates because of what they learned in college, or because they are smarter and more disciplined? The evidence of Charles Murray on IQs and earnings, correcting for education, may be disconcerting to some, but it is real, and it needs to be considered.

If James Bryant Conant, former Harvard president, had gotten his way, we would today have perhaps five or at the very most 10 percent of the adult age population with college degrees. Would we be poorer, less healthy, etc.? Maybe, but to me the evidence is very far from clear. As Posner notes, many studies on these issues were based on K-12 results, and the marginal benefits of subsequent education may be quite different than that associated with basic literacy and numeric skills.

Why is it that more spending on higher education by state governments seems to have very little impact on the proportion of the population, 10 or 15 years later, who have B.A. degrees? Follow the money. I have, and the indications are that the marginal spending on higher education in recent times has had little positive impact.

By the way, if I were an employer, for jobs for which I want to hire bright persons but ones who will learn on the job most of the important work-related things, I would have as a job requirement a B.A. degree, or a letter of admissions acceptance from a US News and Report top 50 school, plus a high school transcript and ACT/SAT scores. I would offer the latter group a bit less than the B.A.s, since they are younger and arguably less mature, but I would save money and get bright kids cheaper than if I rigidly held to the B.A. requirement (in this, I agree with Financial Times columnist James Altucher).


Parentalcation said...

Why even have the letter of acceptance, since the letter of acceptance is going to based on the grades and test scores anyway.

Harsh Pencil said...

Every company in America has had the ability to do exactly what you recommend for years, but they choose not to do it. Do you really think you are that much smarter than the heads of nearly every company that you need no explanation for this other than they are too stupid to have thought of it? You are, in effect saying "I know more about how to hire for business A than its owners" even though day in and day out, they are actually running the business.

If college is just a signal, it must be signaling something more than you can get in. In formal theory, the only way a signaling model can work is if there is no other way than taking a costly action to communicate to an employer that you have a desirable characteristic.

Parentalcation said...

A college degree can't have that much added value...

Marilee Jones, the dean of admissions at the Massachusetts Institute of Technology did a pretty good job, and she never earned her degree.

The story kinds of lends credence to the theory that College doesn't actually add value, but just serves a tool to vet for intelligence and diligence.