(Note: In a series of posts running until around the New Year, and maybe beyond, I plan to rampantly speculate on new jobs and career tracks that might emerge in the next years and couple of decades. Straight from my fevered brain to VC!)
The higher education bubble – both undergraduate and professional education – has raised issues of whether the academy has priced itself out of the earnings power, now and into the future, of its customer base. The basic phenomenon has been described at length, on both supply and demand. Federal subsidies accrue mostly to universities to raise prices rather than subsidize and lower effective prices to students; the shift to loans, however, meant in large part that the federal government became not a subsidy so much as an intermediary that subsidizes the higher ed cartel on the front end, but in the end largely intermediates the cost as future loan payments by consumers. One has to wonder whether the inability to discharge student loan in bankruptcy, if properly priced as a regulatory adjustment on the risks and interest rate of a loan, might swallow any remaining implicit federal subsidy to students, at least for important sectors.
Beyond the funding subsidy and federal intermediation, numerous articles and analyses have appeared seeking to quantify the earnings power of various degrees, career tracks, etc., set against the costs of such education. These studies are important in raising the social issue of the “four c’s” of financial bubbles: conflicts (of interest), complexity (of pricing information), complacency (of easy money) and, not least, cupidity. They raise the questions of social over-investment in higher education – over-investment for several possible and overlapping reasons (it will be seen that I am focusing on the liberal arts, not the technical fields of math, science, technology, and engineering, which raise separate issues):
- First, because higher education has come to fail on the supply side of imparting skills of value in the future job marketo (outside of the technical skills areas of math, science, and engineering), i.e., it fails to impart skills in reading, writing, basic quantitative skills, and analysis, in the way traditionally sought from the humanities and a liberal education – even on the assumption that such “generalist” analytic skills continue to be in demand in the job market.
- Second, because easy money today has raised higher ed prices in the present far beyond a reasonable expectation of future earnings, even if the quality of the education for purposes of the job market is assumed to be good in teaching skills such as writing, analysis, and the stuff of the traditional liberal education.
- Third, to the extent that commodification of services takes place globally, downward pressure is put on wages accruing into the future for these “generalist” skills. I don’t just mean actual outsourcing of services here, but also much more importantly, downward wage pressure within firms as they compete with global firms with equally good middle management possessing generalist skills at lower wages. The premium that American, and generally Western industrialized, firms held in managerial skills – and not, let’s be clear, merely in technology and science, but specifically management in a world of markets – during the 1990s is fast eroding as others develop such skills. Some of those skills involve management within the firm and its productive organization, and others involve the connection of the firm to the global markets whether capital or distribution or supply chains or what have you – but those managerial skills are rapidly becoming commodified services.
- Fourth (hard to disentangle from the third but perhaps still more scary), the productive possibilities of the US domestic economy turn out to be on an internally “new normal” path, not only on account of global competition but on account of poor policy choices by US policy elites ( at least seen from the national view and not merely that of the elites themselves, who have been careful to manage national incentives to ensure that they either benefit or have little skin in the game). What might once have been a reasonable investment today in skills for future earnings through higher education turns out to be unreachable as the returns to investment that are actually available in the future US economy. This partly describes the rise of rational decisions to forego higher education because the available range of jobs turns out to value skills that offer less return. Hence it is more rational for individuals to save their capital at the front end, even on the assumption that the skills are “real,” because the jobs requiring them do not exist or else compensate at too low a return to make the investment worthwhile. Even if you are brilliant and the skills taught are real, there is little point to acquiring the skills of a nuclear engineer if the only available jobs are subsistence agriculture. At the extreme, of course, this is the Industrial Revolution in reverse, or Zimbabwe if you cannot emigrate.
We could add more, particularly such as credentialing, but I will leave them aside – some of them for other posts. I’m sure I have not been alone in feeling somewhat dissatisfied with the current aggregate analyses that propose to answer such questions as what income you would have to earn in order to justify a college education or law school or business school, etc. The circumstances of individual students are so heterogeneous that the aggregates are not helpfully predictive. For example, we can talk about the pointlessness of a “liberal education” in the humanities – on two different scenarios, one in which no actual skills in reading, writing, and analysis are conveyed, and the second in which they are.
The second is the more interesting, because a student has by definition acquired something of value – the question is how much value and how much should one be willing to pay for it. (The first is also interesting, of course, because it raises the crucial question of how much one should be willing to pay for a credential as such, skills aside – and, to judge by the competition for the top schools, a lot – even though my assessment as an academic is that the dirty secret is that, with few exceptions, the higher value the credential in the liberal arts, ie the more highly rated the school, the easier it is in non-technical courses.)
But the problem of valuation is fiendishly difficult for individuals. For example, I might study philosophy – and acquire our set of “generalist” skills at a decently high level. But it would not pay off, or not very much, unless I were going to follow up with a professional JD or MBA degree. In which case, the philosophy degree serves as the premium payment to enter a bet on the value of the JD or MBA; if I am able to leverage the philosophy degree into a high credential professional degree, then it pays off handsomely, but otherwise, it might be a very poor investment and I should have studied a practical terminal subject, such as nursing. These valuation issues become crucial, of course, because the universities have priced themselves right to the margin in the pre-crash economy, and over that margin if one assumes a sustained low growth “new normal.”
So here is the job prospect in the new economy. Become a consultant who advises individual families on how to price the financial prospects of the senior high school student or college student contemplating law or business or medical school. Come up with methods for doing this for individual students in their individual circumstances in ways that can assign probabilities and come up with individually tailored educational ‘business plans’, if you like to think of it that way. But the truly rich don’t care, and neither do the truly poor. You have to be able to price this service to the middle and upper middle class. Can it be done? Is it possible to offer a genuinely useful valuation service that, in effect, provides a business plan for undergraduate and graduate education? I suspect there might be a market among families.
Okay, let me concede that any individual circumstance might be too contingent to be provided with useful advice. Although that tells one something, since – whether there is a method of not – individuals have to make precisely these choices. So I’ll add that even if you reject the proposition that this could be a new career path for “educational business plan” advising for a fee, is there something useful to be said in going through the exercise of trying to create a decisional tree for the valuation method? What would it look like, if the intent were to bring it down to a rational process for individuals to decide these things? Or is the best we can say that it is beyond rational planning many steps in advance and simply must proceed opportunistically?