Monday, April 07, 2008

Three Cheers For Charles Miller

By Richard Vedder

The Establishment is upset. Charles Miller, Spellings Commission Chair, wrote a letter to Gaston Caperton, President of the College Board (and former liberal Democratic politician), blasting the erroneous propaganda that the College Board puts out that says college graduates earn a million dollars more, in present value terms, than high school ones.

Sandy Baum of the College Board acknowledges that the million dollar figure is an overstatement, and that she (author of the relevant report) does not really claim that figure is true. Then why is that figure in the report? Why put out a figure that is knowingly an overstatement? Let me be perfectly clear, as Richard Nixon would say: I am 100 percent on Charles Miller's side in this debate.

In a previous blog, Thomas Ruchti and I argued that the income premium associated with a college degree is overstated by the College Board --perhaps by a factor of four. Huge numbers of entering students do not graduate from college. A large proportion of those who do graduate take five or more years. The cost of college is more than the College Board uses in its calculations.

Sandy argues, with considerable validity, that academic studies consistently show that higher education has a high rate of investment return to individuals going to college. Those studies, however, sometimes assume entering students complete a degree, and tend to downplay or ignore the attrition problem. But even if the rate of return on higher education is high to individual students, it is not necessarily high to society as a whole. Most of the Higher Ed Establishment argues that their sector exudes positive economic externalities --spillover effects. The evidence that I have seen and trust suggests that negative spill-over effects are larger than positive ones, which suggests the social rate or return on higher education may be low even if the private rate of return is acceptable or high. More specifically, enhanced state appropriations for higher education do not bring higher economic growth --and indeed may well lead to lower expansion in incomes.

As a practical matter, one can predict whether an 18 year old kid will succeed in college with a fairly high level of reliability. Kids in the top one-fourth of their high school graduation class and a composite SAT (forgetting the near worthless writing component) score of 1300 and an ACT composite of 28 are very likely to make it through college, and for them, college is usually a good private investment. Kids who were below average students in high school with a 900 SAT composite and a 17 ACT score likely are not going to succeed in college. That suggests the average rate of return on college for them on average is very low, maybe even negative. At the margin, these are a large proportion of the kids that politicians are talking about when they call for more access, higher enrollments, and greater equity. Investing heavily in these students is not a paying proposition on average, Sandy Baum, Gaston Caperton and all the other establishment types notwithstanding.

Lost in all the discussion is the economist's critically important concept of opportunity costs. When a person goes to college --she not only uses resources provided by society, but she fails to produce goods and services that she would have if she were not enrolled. Those opportunity costs rise relative to the long run earnings benefits when a student simply does not graduate. The College Establishment, isolated from the Real World, simply does not see the opportunity costs of attending college, or they choose to trivialize them.


Ken D. said...

Those who use the income differential as an argument for attending college are confusing correlation with causality.

Just knowing that college graduates on average have higher lifetime earnings than non-graduates in no way proves that any income differential is a product of college attendance.

For the college graduates, whatever characteristics facilitated college completion would in all likelihood have led to higher earnings for those same individuals, even had they not chosen to attend college.

John Champagne said...

I think that the people who attend college generally have greater opportunity to earn income. So, if we use general tax revenue to fund tuition or student loans, we have all taxpayers, (which includes some low-income people), subsidizing people who will more likely be in the higher-income group. This is not a proper function of government, I think.

On a somewhat unrelated topic, (but one that involves an attempt to internalize economic externalities), I have a complaint:

I responded to some professors' call for academic papers that bring ideas from different disciplines to bear on solving environmental problems. I was told that my outline was along the lines of what the conference organizers were looking for, that I should elaborate my ideas and maybe my longer paper would be published in the conference proceedings.

What I was proposing was a system of fees assigned to those activities that deplete resources and degrade environmental quality. The fees would be high enough when most people surveyed said that there was not too much pollution or too-rapid depletion of natural resource wealth. (In other words, we would know that the fees are high enough when most people feel that industries are putting the appropriate effort into reducing pollution and other environmental impacts.)

The fees would act as a sensory nervous system for Earth, causing a reduction of environmental damage and tending to maintain a healthy ecological balance, (like an autonomic nervous system for Earth).

AFTER spending significant sums on travel and lodging, and sending additional fees to the organizers and then attending the conference, I was told that what I proposed was "too radical", that it was weakened by "leftest tendencies" and that it would require "changes in human nature".

If the conference organizers were concerned that my proposal was too radical or that it was of the wrong political stripe, (and if they were honest), they would have warned me away from attending the conference at all. They could have seen that this was a radical proposal from reading the summary/outline.

So, I must conclude that the reviewer's assertion that this proposal would require "changes in human nature" was decisive.

(I do not agree that this is the case. I think that this proposed paradigm is MORE respectful of human nature as it is than is the current system. It would require changes in human culture, not in human nature)

If changes in human nature would be required before we could implement a fee system for those who take or degrade natural resource wealth (and give the proceeds to the people), I would like foe those who hold this view to say WHAT changes in our nature would be required. Surely the conference organizers could offer the courtesy of a reply to my request for clarification, if there is any substance behind their assertion that there is a human nature conflict. (Or, they had no intention of publishing a "radical proposal" and induced me to spend money on conference fees, etc., on false pretenses.)

Are these professors extremely discourteous in their refusal to explain the substance underlying their objections, or are they guilty of fraud?

Who cares?

(My guess is that anyone who is interested in the possibility of ending grinding poverty in the world and getting a handle on our environmental impacts in an efficient, fair and democratic way might care. But does anyone care enough to join me in asking these professors to explain the basis of their decision to not publish this proposal?