College and Benefits

The Becker-Posner posts speak of the benefits of college albeit the rising costs. They state:

As Posner discusses, tuition and other college costs have risen greatly during the past 30 years. So too have the many benefits from college, including the greater earnings, health, and even marriage rates of college graduates compared to high school graduates. Moreover, the return on a college education has also increased, as measured by the higher benefits of college net of the increase in college costs. As a result, college is even a better deal than it was 30 years ago for most of the students who can afford the higher tuition.

 This I find impossible to believe. Take 1963, fifty years ago. Two numbers. The cost per year at MIT was about $1,250 Tuition. Back in those days tuition equaled room and board. Today room and board is a fifth of tuition. Now look at starting salaries. Then it was $9,600 per year. That is 8 times annual tuition. Now the tuition is approaching $60,000 and to my knowledge we are not seeing students getting starting salaries of $480,000. Just a reality check for the Profs.

So why does someone go to college. If you are not a Trust Fund Kid, TFK, you go to get a job. Yes, that is right a job. You do not go to learn English, Fine Arts, or even History. You learn Chinese to be a translator, Accounting, Engineering, Biology, or possibly Chemistry. Fine Arts majors will have a tough job, unless they are just gritty and connected.

Now what type of job do you get educated for? Simple. One that earns money, for a while. For how log, well just look at the last few decades, Chemists have seen mass reduction in demand, why?, because their job has been automated. Chemical Engineers however have remained steady. Civil Engineers are also in demand, not great, but there is a demand to build things. Electrical Engineers and Computer Engineers still have a future, unless Chine gets all the jobs. Biotech is a hot area but more than half the new papers are from China also. So will those jobs remain here?

Thus if one looks at the risk factors and one does a discounted cash flow, even with a zero risk for cost of money the added risk due to the market will discount the future earnings dramatically. That means the "value". net present value if one desires, of a college education is highly problematic.

If one were an economist, or teaching at a business school, or say a legal scholar in the economics area, one would have used a DCF approach. In this case the DCF would have a risk discount factor in double digits, percent wise.

Thus, despite the dramatic reduction in initial salary from fifty years ago, and despite the dramatic discount factor, we see these folks saying the sky is not falling, even as chunks of it are hitting our heads!

Then the author states:

Increased competition for better students has gone hand in hand with greater competition for better faculty. Just as returns to college have increased more for better students, it is likely (there is little quantitative evidence on this) that returns from college have also grown more from an education with better faculty and a more effective education program. In any case, the stronger competition for college faculty has been one important source of the growth in college costs since faculty is by far the dominant cost of a college education.

Back fifty years ago the better students were very hard working street kids who were the top 5-10% of the US graduating High School classes, remember not all went to college.  But the instructors were also pretty good, just look at the literature. Yet they were not paid as highly and the schools did not have monuments they had to feed and Administrative overhead that provided just added loads and no benefits.

Reality seems to contradict the Professor in this case, and a reality that I suspect he should have considered. Perhaps being an electrician would be better. I can always go back and renew my license, PhD not withstanding.

In the corresponding Posner post he discusses costs and then MOOCs. He states:

I see hope, however, in the MOOCs—massive open online courses, which offer enormous potential cost savings and quality improvements for colleges. They can eliminate most of the living expenses associated with college (students can live at home, presumably cheaply) while enabling a reduction in faculty size (because there is no limit to the number of students in an online course) coupled with an increase in average faculty quality, since there is no limit on the number of students that a superb teacher can teach online. The MOOCs are not a panacea, but they are the most promising response to the problem of the high costs of a college education in America.

I am still not convinced with MOOCs. They lack the student inter-communications, and often are dominate by anonymous blather. Also the problem I have is that the software is still a bit messy. When they first came out it was a disaster. Now, say with MIT's 7.00x, it almost is there but it still has some problems. Perhaps the kids brought up with the approach will do better, I still like paper to scribble on and the hand, eye, keyboard screen efforts still face a challenge.

As to costs, Posner states:

The causes are various. They include the enormous—I am tempted to say the stifling—increase in legal and other regulation of colleges (and universities, but for simplicity I’ll use “college” to denote all higher education), the decline in financial subsidies to state colleges, the increased cost of scientific equipment, and the expense of computerization and other electronics. But another important cause,paradoxically, is the increased cost of college education, which tilts the student body toward richer kids—and rich kids and their parents expect superior amenities in the way of housing, food, athletic facilities, and police protection. Such students expected to be treated as consumers, rather than as kids with no rights or representation (the situation of students at Yale in the 1950s; there was no student government, and no appeal from expulsion). 

Again I disagree, looking at the MIT and Harvard costs, especially MITs, I see the explosive burden of overhead on massive construction. The maintenance costs are excessive. The second is the Administrative burden, we now have Deans for everything. Frankly all we need is a Dean of Science, Engineering, and well Business, kind of. So what  are the other Deans for, overhead!