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September 20, 2014Richard Epstein's Faulty Case for Intervention
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Frequently Asked Questions
Last week, Bill Dickens critiqued the signaling model of education, and I replied. Here's Bill's rejoinder:
Bryan has said a lot nice things about me in this space. Let me take this opportunity to return the favor. There are many different types of friends. One of the best is someone who has a completely different and well thought out view of the world - someone who consistently comes up with ideas that surprise you. Bryan notes I was his Econ 1 teacher, but at this point it would be hard to say which of us has learned more from the other. Besides being someone with whom I share a number of recreational interests, Bryan is one of those very valuable friends who disagrees with me about a lot, but never lets the disagreements get in the way of our friendship. I'm very proud to be "sitting on his shoulder" and grateful for the opportunity to discuss these issues with him on his blog. Also, I'm impressed by the names I see commenting on this blog. Bryan, you have a distinguished readership. Congratulations.
As I understand your position it is that private returns to education mainly reflect inefficient signaling. That is that employers are willing to pay for schooling not because students learn very much, but because completing schooling signals some traits (intelligence, perseverance) that are hard to observe otherwise. Further, you must believe that there is a more efficient way to solve the problem of figuring out who is fit for what type of job than running them through the educational gauntlet. I take it from your reply you think less schooling and more work is the way to accomplish this.
My position is that students actually learn things in school
that are valuable and that that accounts for the vast majority of the private
return to education. In addition, I believe that increased wages are only part
of the benefit of education to the individual (the private returns to
education) AND that there are social returns to education above the private
returns so that the total value of education to society exceeds the individual
returns and considerably exceeds the increase in wages we observe.
There is a third position, and I will claim it as my fall back position. That most of the return to education is due to it signaling desirable characteristics, but that there is no more efficient way to sort the capable from the incapable. If that is true then what we have is the best we can do even if school produces no value other than information about people's innate abilities and dispositions.
In your reply you stated that education's value added was maybe 20% of the private returns to education. Does this mean that you think fully 80% of the value of time and other resources spent on education are wasted? Wow! Given how much we spend on education and how much time we spend in school that is an enormous inefficiency! How is that possible? The strongest argument for either of the two positions I'm defending is that if there was a much more efficient way to do whatever it is that education does, somewhere some society would have found it and we would all be trying to copy them. Here in the US we've now had at least 50 to 100+ years of experience with mass education and we haven't been able to find a better way? (I say 50 to 100+ since universal grammar school has been around much longer than cheap large scale higher education.) Not only are other countries not developing radically different models, they are sending their children to this country in droves for this supposedly useless education. Bryan, I hope you appreciate the irony here. In our first public debate you are taking the side of widespread market failure while I'm defending the ability of private ingenuity to work its way around whatever problems the world throws in its way - the reverse of our usual roles. I must say I'm enjoying being in this position because I normally grant that it is the person arguing against efficiency who has the burden of proof.
Let me take a guess how you would shoulder this burden based on your response. Misguided government policies of subsidizing the sort of education that teachers like locks in a major competitive edge for the public education model. It's not worthwhile for businesses to set up their own screening mechanisms as long as the state is doing it for them and private education has to mimic public education for credibility. Further, to the extent that education is supported by charitable giving there still is little accountability for outcomes. Finally, any attempt by the private sector to find a more efficient way of screening would be subject to adverse selection (you said only losers would apply to your "quickie tech"), and besides, anyone who went to an alternative school would be branded a weirdo. I'm not buying it.
First off, if inefficiency is of the magnitude I believe you are claiming then public support of the system wouldn't be near enough to keep it in place. We typically figure that roughly half the cost of education is the time cost of those attending and that is not normally subsidized. So assume we are talking about free public education. If 80% of the total value of education is inefficient signaling and government is paying the monetary cost, but not for people's time, that means that an efficiently functioning private alternative could still save people 60% of the value of their time (private expenditure of time is 50% of the total cost, of that 30% is being wasted on inefficient signaling so 30/50=60%). That is a lot more than a $20 dollar bill lying on the street. It's more like a stack of cash several stories tall. Why isn't anyone picking it up? But of course the private incentives to find a more efficient solution are even stronger than that. There is a thriving private sector. Many of these institutions survive almost entirely off tuition. And you argued in your response that the current system isn't very efficient at producing the 20% of value that it does produce (or in doing the screening that it does).
So why doesn't the private sector respond? You seemed to imply that any attempt to do the screening cheaper would be subject to adverse selection (your indictment of Quickie Tech) and would also have reputation problems (graduates are weirdoes). I don't think it takes much imagination to get around the first problem and I don't think the second problem is real.
To begin with, you don't have to jump all the way to the most efficient possible system in one leap. A small innovation that gives you a slight advantage should be enough to allow a private institution to prosper and shouldn't cause a big adverse selection problem as so many factors go into college choice. I work for Northeastern University which has for decades distinguished itself by offering "co-op education." Students spend about a year during their time at the university working in jobs related to their field of interest. NU does OK (we have a niche market), but we aren't revolutionizing the way universities do business. If work was so much more productive at teaching what needs to be taught you would expect we would have a real leg up on other institutions. From what I can tell, our graduates don't do much better or much worse than other universities for time spent.
And if experimental schools are ruled out because they signal that the graduates are weirdoes you would hardly know it from the very large number of experimental schools of all sorts - private and state funded - at all levels of education. In particular there are all sorts of experiments integrating school with work through co-ops, apprenticeships, shared facilities etc. None has shown itself to be particularly better than the standard curriculum as far as I know. BTW, I'm one of those weirdoes - I got my BA at Bard College at a time when it was known as an "alternative" college. For every person who thinks you are weird for going to an alternative school there is someone who thinks you are interesting. Same goes for funders. Bard has raised a ridiculous amount of money from private donors over the last 35 years precisely because of its reputation for innovation (including running an "early college" - Simon's Rock - that allows students to skip their last year or two of high school and go straight to college. Simon's Rock neither seems to neither falter nor flourish but does seem to have found a niche).
But why not an instant jump to a much more efficient format? Instead of "Quickie Tech" why not "Elite Accelerated Tech." "We teach you all the material in half the time. We hold our students to the highest standards, but if you've got what it takes you can make it through and demonstrate to the world that you are one of the elite." Since you think that most schools are way too soft on students shouldn't this work?
So why haven't an army of elite accelerated techs taken over the market? I have an explanation. As you point out, the existing school system is really very bad at screening in that standards and expectations are much lower than in the world of work. Some of the very highest reputation private schools are known for being very forgiving of less than optimal performance and aren't very demanding in terms of the amount of work they expect students to do. That is a terrible way to run a screening system, but exactly how you want to run an education system! As you know, Bryan, I moonlighted as a flight instructor for several years. People most certainly don't know how to fly airplanes when they start flight training, but a few months to a year later they do. If you work for an airline you're going to be bounced out of service if you get an airplane into an unusual attitude. But if you do it to your flight instructor during training you will likely get a laugh and be told to try again (maybe with a little less left rudder). When you are teaching people you give them a lot of slack and then give them feedback on how well they are doing so that they can find out what works for them. As you know from my original post, what I think people are mainly learning in high school and college is work habits that allow them to function well in the sorts of jobs they will get. I think schools are more forgiving of less than optimal performance than work because they are teaching these characteristics. If they were sorting to the degree that you believe they are then they would be more demanding.
Are they effective? Robin Hanson has noted how businesses in countries with less well developed school systems complain about how undisciplined the workers are. This is often cited as one of the major reasons why labor in the developing world doesn't attract more investment despite wages that are a fraction of the developed world. Would this really be a problem if the vast majority of the population is just needed to signal their ability to work in factory jobs by attending high school? Also, why was the business community so interested in establishing the system of public education in the form it was set up (see Bowles and Gintis, Schooling in Capitalist America p36-44)? You might argue that the American education system envisioned by the progressives of the early 20th century looked more like a screening system than the one we have now as the ideal was to enforce tougher standards with greater discipline. Yet instead of moving further in this direction, both the public and PRIVATE education sectors have moved away from it. If this has made our educational system much less productive you wouldn't know it from the rate of productivity growth in the economy. And again, our system of higher education attracts enormous interest from abroad.
Your main indictment of my argument that education produces value was that work could better teach the sorts of skills that I was claiming schools taught. Back at you brother! The same could be said for screening. I would argue that screening could be done at much less cost, relative to education, in businesses. If it really does take 4 years of HS to make a good blue collar worker and then another 4 years of college to make a good white collar worker that would be a lot of expense for a business - even if they could cut that down to 2 years. Having to find roles for marginally competent people where their mistakes wouldn't hurt the business while they were learning would be difficult. But if all you have to do is screen out the 15-40% (depending on which state you live in) who don't have the stuff to graduate high school, you ought to be able to do that relatively cheaply. You have argued yourself that schools aren't very good at screening, so why couldn't businesses take over the job? They should be much better at it than schools for precisely the reasons you stated (schools aren't screening for the same skills and have lax standards). If the problem is signaling - getting people to reveal their true type - then businesses could offer deals where people start off receiving very low wages (or even paying the business tuition for training) while demonstrating their ability. The pay off would be a great high-paying job once one has shown one's metal. If you are right, Bryan, this would be an enormously more efficient way to do things. While it is true that public education is subsidized, and therefore pays a good fraction of the cost of providing the signal for some people, there is a thriving private education sector (particularly for higher education) that survives largely on tuition. Why wouldn't businesses team up with these institutions to set up apprenticeship programs or the like if that was so much more efficient? Your argument that innovation is impossible because of adverse selection is untenable in the face of massive amounts of innovation in the educational system everywhere.
That's my case for my main line of argument, but I don't want to seem to be giving up on my arguments that a lot of the curriculum in higher education is directly applicable to work and that the cultural aspects of the curriculum help to extend our language and provide large network externalities by doing so. I don't have the time right now, but one of us should go through the courses taken by students in different majors and figure what fraction directly relevant to their work. Engineering, physics and math courses taken by engineers or people going on to graduate work in the hard sciences would have to be counted. So would math courses for people going on to graduate work in economics (and maybe even some economics courses). Wouldn't we count business and stat courses for business majors (and maybe others as well)? And what about professional schools, are you counting them in the 20% of actual value added? Since engineers and pre-med students tend not to take many arts and literature courses, and since artists don't tend to take many math courses, that also cuts down on the amount of "wasted" course work. I would be surprised if you wouldn't agree that way more than 20% of the courses taken by college students do teach them things they need in their work. Personally I would say that close to 100% of the courses I took in college get used in my professional work (the research, not the teaching part).
I know, you and I are special cases - nerds who by spending our whole lives in (or close) to higher education are different from nearly everybody else. Let me toss the "E" word at you; Elitist! The ubiquity of literary references in popular culture says that there must be a lot of people who get it (I doubt I could count the number of times I've seen references made to Yeat's "The Second Coming" in the last couple years). Not necessarily the average person, but a lot larger fraction of the population than those who have Ph.D.s. Lady Gaga videos are full of classic film references - is she trying to endear herself only to film professors?
No, I don't suppose that the average college grad could
explain the categorical imperative, but in my time in government, and in my
time in policy making circles I would guess that nearly everybody I met there
could define it and discuss its shortcomings (I didn't deal much with
congressmen so don't think I'm referring to them, but I am referring to the
majority of the people advising those congressmen and the people I dealt with
in the executive branch, in think tanks, and in the press). There are a lot of
words in the dictionary that the average person probably never uses. That
doesn't mean that it isn't valuable to know them. You're going to see a lot of
them if you endeavor to be involved in civic or cultural life at an above
average level. It's not just an analogy. People learn a lot of vocabulary in
So Bryan, ready to do some back tracking? I think you've got
to at least admit that the educational system is a lot more efficient than you
originally claimed. Otherwise I think you have gotten yourself out on a limb
that won't support the weight.