Friday, 11 March 2016

An Economist-to-be Responds

The other day, blogger Isaac Morehouse published a post titled 'The Two Great Secrets of Higher Education' where he quite viciously attacks the idea of pursuing higher education - or, more correctly, emphasises that there are better ways of achieving their purpose. His case is neatly given as an introduction:
1. Tuition is paid for one reason: to buy a signal.
2. That signal is not worth the investment compared to what you can create elsewhere. 
Moorehouse accepts that University Degree is a signal for prospective employers that this person is smart enough, disciplined enough and mentally able to go through a university degree. He then compares this to the countless opportunities available for people to create similar signals elsewhere, and lay the foundations for a great career anyway.

I'm pretty sympathetic to this approach, and I do believe that University is a waste of time for the majority of students who'd be better off, financially, emotionally and career-wise to have pursued their interests via different routes or have them as hobbies, while working other jobs. It does indeed amount to conspicuous consumption on the part of many students.  Nevertheless, his point is not as general as he seems to suggest, and I wanna show just why.

First off, he single-handedly discards the countless of studies showing that university graduates perform better in pretty much any setting (I link to some studies in my PhD post, and Noahpinion has some reasoning on that).
Everyone is thrilled to show you charts and graphs and statistics about the correlation between degrees and earnings.  None of that matters. It doesn’t matter because aggregates are not individuals and because data can never show causation. What happens to the average of some aggregate does not determine what course of action is most beneficial for an individual.  The average Ferrari owner earns a lot more than the average Honda owner.  No one assumes this means buying a Ferrari is a great way to improve your earning potential.
Apart from that he argues that the immense opportunities available online, learning coding or building websites, creating products or interning for free at a business provides more concrete and powerful signals than university degrees do. And he uses the quite absurd example that students are "happy when class is cancelled".

While it is true both that "aggregates are not individuals", and that inductive reasoning is less strong than deduction, it does not nihilistically follow that we can't show anything. His Ferrari analogy only works because there is very limited (if any) potential for causal relationship running from Ferrari to earnings (unless you're using it for high-end sightseeing). Whereas there is a whole lot of reasons for why university degrees improve future earnings: skills, discipline, method, ability to rationally find, acquire and use information available or follow detailed instructions.

As for the Cancelled Class point, insofar as it is accurate, it means nothing. People make decisions on the margin rather than entire quantities at once. In a time-consuming environment with lots of reading requirements, two additional hour's worth of study time is worth a lot -> on the margin, perhaps even more than the average tuition fee paid for that one lecture.

Beyond this I wanna give five more reasons for why Morehouse's conclusions are mistaken, most of them real-world issues. The fact that employers conceptionally could act in a different way, choose to evaluate different signals for instance, makes little different when they aren't acting that way.

Not viable for most professions:First, while I agree with his suggestions for alternative routes for many students, there is a plurality of fields in Academia and for some (most?) fields his suggestions are simply not an option. For aspiring nurses, doctors, biology researchers, economists, physicists, engineers etc., there are very few options to "work alongside a successful entrepreneur" or learn similar skills online. Indeed, the entire Moorehouse Alternative seem to deal with entrepreneurial, administrational tasks or softwares, web design, coding or sales - areas very few people pursue at universities anyway.

Align incentives and improve discipline:
Secondly, it is true that Morehouse could move to a college town, attend lectures, parties and societies and get all the benefits of "being at college". But the key here is discipline: if rigorous knowledge in an academic field is what you're looking for, the element of financial discipline is useful. Having the financial burden in the back of your head is a constant reminder of why you are at uni in the first place, why your are wasting the best years of your 20s at a desk. A guilt-inspired shove in the right direction is sometimes useful. The same mechanism applies for most employees where the monetary gain induces them to do more work and provide a better service than they otherwise would have done.

Studying takes time and requires funding:
Studying takes time. And during this time you have expenses that have to be financed, either by part-time or full-time work or through taking on debt (if you, like most of us, don't have assets to run down). Insofar as you are working to sustain yourself, you are taking effort and time away from your main dedication and making it so much harder to achieve. The stakes were just raised a bit. Moreover, there are very few institutions that grand unsecured debts to prospective students if they are not formally enrolled in a University. This could potentially be solved in some utopian future where firms start to sponsor the studies of prospective employees - but in our current world that is not a common option, and so ultimately the achievement of "moving to a college town" just became a whole lot harder.

Proxy Elimination:
As Morehouse points out, employers "use degrees as an early proxy to eliminate some chunk of applicants". Even if that practice is in decline, and other options for sorting become available, insofar as this practice is occurring, it makes sense for prospective students to go though University and so not be initially eliminated. Regardless of your other achievements, if they make a rough elimination based on University degrees, you don't even have the chance of showing all your amazing skills from web design and products and interning before you are eliminated.

Quantifying and comparing different skills:
Again, it is true that smart students who went to Harvard, in an alternative scenario where they took Morehouse's alternative routes, would still be smart and valuable to prospective employers. But even if the Harvard stamp provided nothing more than the prestige attached to it, insofar as employers appreciate that prestige, your value as an employee is higher having gone through a Harvard education. Even if Harvard didn't teach the student a thing (or even negative knowledge such conformity etc), employers still believe there to be a benefit, which amounts to the same thing. Moorehouse says that employers
... use degrees as an early proxy to eliminate some chunk of applications [...] but they only use them in absence of a better, clearer, more powerful signal. When one exists, it trumps the academic credential.
Problem with that reasoning is, of course, that in order for your employer to appreciate that amazing powerful signal, they need to know about it - which they probably only do if they actually process your application rather than discard it because it lacked a university degree. Besides, there is no such "clearer, more powerful signal" for employers to use, whereas an undergraduate degree in a particular field conveys expectations of what kind of work and skills that employer can provide. Having built a website or interned at a company is largely incomparable to other such achievements, whereas university credentials give the employer a quick-and-dirty comparison right off the bat.

Overall, opening up more opportunity for students and showing non-college routes are important points. Having said that, Morehouse's points are pretty weak and there is still a case to make for university degrees.

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