For many, the solution to an increase in inequality is to make the tax structure more progressive—raise taxes on high-income households and reduce taxes on low-income households. While this may sound sensible, it is not. Would these same individuals advocate a tax on going to college and a subsidy for dropping out of high school in response to the increased importance of education? We think not. Yet shifting the tax structure has exactly this effect.
Commenting on their article, Will Wilkinson, guest-blogging for The Economist, writes,
Bryan [Caplan] argues that university diplomas mostly function to signal prior competence, and that time and money spent in school is largely wasted. If he's right, Becker and Murphy's emphasis may be misguided, and I suspect Bryan may in fact be right, despite the fact that he's never won a Nobel or Clark prize and wears shorts in the winter. In which case it strikes me that there is a huge entrepreneurial opportunity for whomever can come up with an alternative scheme of credible human capital certification.
Read Will's whole post.
My views on these topics:
1. If all of the "college premium" represented a return to the investment that students make in going to college, then progressive taxation would indeed be perverse. It would indeed be a signal from government that you should not invest in yourself.
2. If all of the "college premium" represented a return to ability, rather than a return to investment, then someone wishing to play God might favor progressive taxes. In fact, one might favor especially high income tax rates for college graduates, just as one might favor higher income tax rates for tall people.
3. I don't believe the signalling story, because of the point Wilkinson makes. If it costs $200,000 for a person to go to an elite private school, and this does nothing other than provide a signal of the individual's ability, then there is a whale of an unexploited profit opportunity sitting out there.
My current view of college is that it is a bundle of services that is fairly difficult to unbundle. Some of it is education. Some of it is selection/signalling. A lot of it is social--people aged 18-22 clustering together.
Mostly, though, I think of going to college as a cultural ritual, like a Bar Mitzvah, a confirmation, or a wedding. These rituals allow parents to impart tribal values and tribal loyalty to their children. Participating in the ritual reinforces your membership in the upper and/or upper-middle class tribe. With all of these rituals, including college, it is the parents, even more than the children, who are focused on conformity to peer expectations.