Barry Ritholtz’s Tiny Mistake

“He thinks it’s fundamentally wrong for a society to pin people’s best hope for a better life on something that is by definition exclusionary. “If Harvard were really the best education, if it makes that much of a difference, why not franchise it so more people can attend? Why not create 100 Harvard affiliates?” he says. “It’s something about the scarcity and the status. In education your value depends on other people failing. Whenever Darwinism is invoked it’s usually a justification for doing something mean. It’s a way to ignore that people are falling through the cracks, because you pretend that if they could just go to Harvard, they’d be fine. Maybe that’s not true.”

The question is, why doesn’t Thiel make it possible for anyone who wants to go to Harvard to be able to do it? After all, Thiel has made his fortune disrupting other hidebound institutions. Making it possible for motivated individuals to get the same quality of education that exists at the nation’s best universities without having to attend them would be the kind of disruption that would fit into Thiel’s social views and his economic ones.

We know from past history that highly motivated persons exposed to a quality education system will self-select for success. New York’s fabled City College is only one example.

The mistake that Barry makes here is that he mistakes schooling for education. Signaling theory holds that schooling exists primarily to show employers that one who has been schooled (as evidenced by possessing a diploma) is a superior candidate for employment. The more people that possess a diploma, the more the signal is distorted, and the less valuable schooling becomes. This is basic economics, for if supply increases more rapidly demand, the price will necessarily drop all else being equal. Schooled labor is no exception. If every worker has a Harvard diploma, a Harvard diploma necessarily becomes worth less. And the workers that possess said diploma are also worth less.
On the other hand, receiving a Harvard-level education is desirable. This doesn’t necessarily make it valuable, at least in the sense of getting a better-paying job, but it is desirable nonetheless. The mistake that Ritholtz makes, then, is that he views education as an investment when it should properly be viewed as a consumer good. Thus, the difference between schooling and education, though subtle, is important: schooling is an investment; education is a consumer good.
Within this framework, it becomes easier to analyze whether one should go to school and get a diploma. If one wants schooling, then one simply has to weigh the costs of college (including opportunity costs) against the benefits of college. If one wants education, one merely weighs the costs of college against alternative educational systems. I would imagine that college is the less desirable option in both cases, since college-educated workers are seeing their real wages decline while tuition costs are rising. Additionally, public libraries contain a wealth of information and are considerably cheaper than college.
Education is good, as is schooling. It doesn’t stand to reason, though, that one must go to school in order to be educated. It is likewise foolish to think that the laws of supply and demand don’t also apply to schooling. As it stands, it is generally best to recommend that young people spend more time in the library and less time worrying about getting into college.

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