Bryan Caplan  

The Overeducated World: Another Bullet for Libertarians to Bite

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The other day, Tyler Cowen challenged me to name any country that I consider under-educated.  None came to mind.  While there may be a country on earth where government doesn't on net subsidize education, I don't know of any.

On the surface, my failure to answer Tyler's question seems like an outgrowth of my peculiar devotion to the signaling model of education.  But economically literate libertarians should almost automatically agree with me even if they don't take signaling seriously.  Education's a good like any other.  If people refuse to spend their own money for more education, then it's presumably just not worth it, right?  This is especially clear because governments habitually subsidize education.  Libertarians should believe that there's an oversupply of education for the same reason they believe there's an oversupply of sport stadiums: The status quo is desperately dependent on government funding. 

Note further: This analysis holds in the Third World as well as the First.  The fact that Nigerians and Bolivians don't spend more of their hard-earned money on education is a solid free-market reason to conclude that additional education would be a waste of their money.

Most people will naturally treat these conclusions as yet another reductio ad absurdum of libertarianism.  We can argue about whether the First World is overeducated; but how can libertarians deny that lack of education condemns the Third World to poverty?   But I see this as typical cargo cult thinking - a confusion of cause and effect.  If subsidizing domestic automobiles, semi-conductors, and movies doesn't make poor countries rich, why would subsidizing domestic education be any more effective?  Maybe people in primitive agricultural societies get little education because it's a costly investment that fails to noticeably raise agricultural productivity.

Of course, if Third World countries improved their policies and opened up to the outside world, workers might suddenly notice a higher return to education and crack open the books.  But combining standard Third World policies with public education makes about as much sense as cigarette taxes plus tobacco subsidies.  The wiser approach is to repeal, repeal, repeal, and let the market sort things out.

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COMMENTS (32 to date)
Kurbla writes:

"Maybe people in primitive agricultural societies get little education because it's a costly investment that fails to noticeably raise agricultural productivity."

Maybe, but the fact that they live in primitive agricultural society after at least 50 thousand years of homo sapiens sapiens history means that their approach doesn't work well.

FC writes:

You seem to be assuming unrealistically high effienciency in Third World education markets. There are plenty of barriers to entry for both customers and sellers. For a start, sometimes it is illegal to teach in the only language a child speaks.

David O writes:

Not all education is equal. Learning Marxist/juche theory in North Korea is probably not as good as learning Chicago school economics, returning to Chile and influencing policy there. The decisions of policymakers, to say the least, are riddled with externalities. There may be positive externalities in education when it leads to more efficient/more limited government.

Is there a shortage of education anywhere? I'd say there's a shortage of education that would encourage libertarian policies.

quadrupole writes:

It's a margin thing.

Imagine the public schools provide 10 units of education (say at $10k cost to the taxpayers, but zero to parents).

So as a parent, I can get 10 units of education for zero dollars.

Imagine further that private schools can provide 10 units of educations for a cost to the parents of $5k, and additional units of education at $500 each (a nice linear supply curve).

Here's the rub. For $5k as a parent I get zip. Because you are selling me, at $5k zero marginal units of education above what I get for free from the public schools. Perhaps I would be willing to pay $7.5k for 15 units of education for my child, but if I pay the private schools $7.5k, I only get 5 marginal units of education above what I get for free from the public schools, and that's just not worth it to me. Because having my child attend the private school means forgoing having them attend the public school, I have to debit the forgone public education against the education provided by the private school.

So while, I might be willing to pay for more education than the public schools provide, and at a price someone would be willing to sell it to me, because of the opportunity cost of not attending public schools, we can't get to the higher education equilibrium :(

In effect, the good given away for free by the public schools become a cost to be born by the supplier of the private school.

Hugo writes:

In my opinion this is an oversimplification.

I am an engineer and I had enough of this "education". I wont go back or spend more of my money in this "education". But I would gladly spend my money in other type of education, in fact I spend my time reading and educating myself in areas where the "educational" system does not provide.

Therefore its not a problem of more or less education. Its a problem of what type of education. Looking at aggregates its always an oversimplification. I am sure that if government got out, the educational system would become more competent and useful and people would naturally be more interested.

What we have now is a resource squanderer system.

quadrupole writes:


How about going really radical.

At the beginning of the year, cut a check to the parent or educational guardian of the child for the per pupil expenditure.

At the end of the year, test the child. If the child has made adequate annual progress, I don't care where the money went.

If the child has not made adequate annual progress, have the court appoint an educational guardian for the child other than the parents. I strongly suspect that you would see the arising of professional educational guardians, competing on the results they achieve for the court appointments.

It's simple, straightforward, and no one can fail the child for more than one year (unlike the current system, where the child can be failed for 12 years).


Arash writes:

Ever heard of positive externalities? Just because governments sponsor education, this does not imply eduction in oversupply! And certainly education is not just a good like any other. The American Founding Fathers were educated in Scottish and French Enlightenment thinking. Mao obviously not. Look at the difference.

Lode Cossaer writes:

"Libertarians should believe that there's an oversupply of education for the same reason they believe there's an oversupply of sport stadiums: The status quo is desperately dependent on government funding. "

Khoth writes:

Why do you assume that the "right amount" of education is the amount that people would pay for?

In a famine-stricken region, you presumably wouldn't say that people have enough food because they'd buy more if it was worth it to them. Why is that different from education?

Josh Hall writes:

@ Arash.

It is usually a good strategy to read in good faith. Surely you don't think because Bryan doesn't mention positive externalities that he hasn't heard of them?

I'm sure that Bryan did not mention them because most attempts to measure the positive externalities from education find that they are quite small.

To give one example of this literature, see "How Large Are Human Capital Externalities? Evidence from Compulsory Schooling Laws." Daron Acemoglu and Joshua Angrist 2000, NBER Macroannual, pp. 9–59.

And while many of the studies find small positive effects, they cannot distinguish between marginal and infra-marginal external effects.

W.M. writes:

Interesting. The biggest issue I have with this logic, and as other comments have alluded to, is that you treat "schooling" as being synonymous with "education". Ideally, that would be true, but unfortunately, in the world in which we live -- one in which the education of the educators themselves is questionable -- they are clearly not interchangeable. For example, in Chicago, where I live, there is plenty of schooling to go around, yet education remains in short supply.


Rebecca Burlingame writes:

Hugo's remark, "What we have now is a resource squanderer system."

Absolutely. In terms of knowledge alone, countless libraries, book publishers, book authors and especially good non-fiction of all kinds have been marginalized and devalued because of what the few have told the many that they should know. Power to the many to self select education would open markets for learning in incredible ways.

Urstoff writes:

As long as the myth survives that public education continues to perpetuate some shared culture, it will always be viewed as necessary.

Ryan writes:

To me, the question of government education subsidies is a different issue than the question of the value of education. I think any subsidy distorts the market, but for that reason I'd suggest that it's impossible to know whether there is an over- or under-supply of education until the subsidy is eliminated.

I think you may also be ignoring the particular areas of study. Arguably, there is always going to be an over-supply of Music Performance majors, because one need not get a degree in Music Performance in order to be a fully competant music performer (and many do not). But who in their right mind would argue that the world has an over-supply of inventors or medical researchers, for example? Granted, not every invention requires a college degree, but I think it's unreasonable to assume that great advancements in biotechnology would be possible if the world were less educated.

In short, some very necessary kinds of employment require higher education. While I agree with you about the net effects of the subsidy, I think it's more a misallocation/malinvestment problem than it is a true surplus of education.

fundamentalist writes:

I agree. Education is highly overrated in the US. In poor countries there seems to be a divide: women value education highly and would pay more for it but men control the money in the family and men don't value it. This is why the Greeman Bank works only with women. The founder noted that men spend extra money they receive on alcohol, prostitutes, cigarettes and gambling in most poor countries. They will let their families starve in order to have those things. The only way to help children is to help their mothers. That holds for the most part with education. Fathers spend any extra money on their own pleasures and don't pay for schooling for their children while mothers would spend it if they had control of the money.

Steve Roth writes:

I think this post from lesswrong does a good job of explaining why humans may not make rational choices about education, hence why the incentives resulting from government-sponsored education could result in more rational choices and greater overall prosperity and well-being.

Humans are not automatically strategic

"humans are only just on the cusp of general intelligence. Perhaps 5% of the population has enough abstract reasoning skill to verbally understand that the above heuristics would be useful once these heuristics are pointed out."

I would agree. On a scale from ant intelligence to godlike, perfect omniscience, I'd put humans at about 3 on a scale of 10.

It's also worth noting that the heuristics described generally prescribe long-term investment over short-term gains, and the employment of those type of heuristics and priorities is positively correlated with IQ.

By definition, 50% of people have an IQ below 100...

Arash writes:

@ Josh Hall

I rejected the claim that "libertarians should believe that there's an oversupply of education for the same reason they believe there's an oversupply of sport stadiums: The status quo is desperately dependent on government funding". Well, if by "libertarian" we doesn't mean "ideologue", we should allow him/her to check for externalities first. This is what Acemoglu/Angrist do. They come to the conclusion externalities are quite modest at best. I'll wait to see if their result is robust. Education is no homogeneous blob. Some of it is surely signaling. Some of it is clearly in undersupply: a society populated with agents who have some understanding of Hume, Smith, Kant, etc. will perform differently than a society populated with agents who just know their bible/koran. Education is usually the intergenerational transfer of knowledge. It simply matters what you are told about the world you live in. Many studies show that economic and civil progress is also a history of the rise in universities, etc.

Jayson Virissimo writes:

I think it is important to distinguish between education and schooling. Increasing the latter doesn't always increase the former. Sometimes, it even crowds it out!

Two Things writes:

Perhaps Third world subsistence farmers would spend more on education if they had more to spend. Their overlords certainly regard educating
peasants as pointless or even dangerous (to social "order"), so in really poor countries the desultory government schools for peasants are
largely funded by foreigners who get a warm feeling when they see photos of ragamuffins chanting their ABC's. The very few good
government schools are also funded by foreigners, but reserved by the overlords for their own children-- they aren't boondoggles for
poor-country taxpayers, they're examples of working people in rich countries subsidizing rich bastards in poor countries.

FWIW, I don't think really poor people just need "more education" and I'm not advocating more government spending-- by or in any country-- on education. I just don't think the level of "government" (really, foreign-aid donor) spending on education in the poorest countries is a good proxy either way for the amount of education poor people would or should (in the sense of economic efficiency) buy if they had enough money to buy such luxuries.

Seth writes:

"Libertarians should believe that there's an oversupply of education for the same reason they believe there's an oversupply of sport stadiums: The status quo is desperately dependent on government funding."

I believe it. Not only oversupply of 'education', but oversupply of essentially one brand of education. This oversupply has crowded out other types of education that might have emerged and been much more valuable to students and society. If government subsidized Coca-Cola, we probably wouldn't have all of this to choose from to satisfy our thirst.

I do think there's something to your signaling model of education. Seems like common sense. We don't know everything, so having a credential tells us something. Unfortunately, we rely on it more than we should.

I didn't ask my surgeon where he went to school or where graduated in his class. I asked the nurse what she thought of the guy. I'm pretty good at reading body language. The confidence in her answer told me the guy's done it many times and I was in good hands.

Chaitanya writes:

" If people refuse to spend their own money for more education, then it's presumably just not worth it, right? "

You mean those 4 year old children making rational choices to spend their hard earned money on a variety of goods and services, right?

Let's not take this homo economicus b.s. too far now. Parents do not always have the most pristine of hearts and may not be willing to spend money on their children's education - even if the net expected pay-off for the child is positive. They may rather force the child to work on their farm.

This is elementary. I shouldn't have to say it. Time for libertarians to look around for a change.

Tim writes:

Chaitanya makes a great point. All but the most altruistic parents will undersupply education for their children.

The other point I wanted to make is about the external validity of the Acemoglu/Angrist paper. Only having glanced through it, they use the 1960-1980 US Censuses and find modest externalities of education. Obviously the US during that time period is much much different from Third World countries now so it's really difficult to believe that their results hold for these countries that we are talking about. Maybe their results represent a lower bound for externalities in Third World countries, but I would expect that externalities there would be much higher.

floccina writes:

First it is important to separate education and schooling. Education is important and valuable. Schooling not as important. (Education goes on right here, I just leaned what a cargo cult is.)

I saw on PBS the other day a women who was about to pull her young daughter out of school so that should could care for goats. The show treated this as a tragedy but the mother pointed to her older daughters and said see they went to school and they are still caring for goats and they are not any better at it for the schooling.

So what do they teach the schools there if not how to be better at raising goats, the most common profession for the graduates.

IMO education is valuable but most schooling is signaling and so teaches the wrong things.

And why in a society like the one above is it structured the way that it is: Hours spent in school each day. And why can they not find something to teach that is valuable enough to make the people want to go?

I guess that testing/screening/signaling is squeezing out valuable education that could be going on.

Douglass Holmes writes:

There is an entire industry geared to provide education for profit. There are thousands of small businesses that provide music education through private and group lessons. There are martial arts schools. There are education franchises like Mathnasium, Math Monkey, Kumon, Huntington Learning Center, and Sylvan Learning Center. There are thousands of independent tutors and music teachers, businesses that teach foreign languages, sewing, and other skills. There are on-line courses for IT certifications. People pay a lot of money to learn and to have their children learn.

And, on top of that, there are schools (public and private), some of which actually manage to provide a modicum of education.

Shame on you Brian: you missed your opportunity to allude to Mad Max: Beyond the Thunderdome.

Steve Sailer writes:

Nah, I'm mostly with Tyler on this.

The way to synthesize your points of view is to realize that there's an obvious diminishing marginal returns effect going on. Teaching kids to read and do arithmetic is cost-effective for a country if done well. Subsidizing, say, Ed School Ph.d.'s probably is not.

For example, Mexicans in Mexico score far below on average Mexicans in the U.S. on international tests. I don't see much evidence that Mexican-Americans are a highly selected intellectual elite, so I think most of the difference is better education in the U.S.

Steve Sailer writes:

Here's some evidence for Tyler's position from the 2006 PISA international test on Science:

Mexicans in Mexico scored considerably below Hispanics in the U.S.

I don't think this difference can be wholly explained away by selection effect. Mexican immigrants to the U.S. are generally not from the intellectual elite. They probably aren't from the very bottom, either, because it costs money to immigrate, but they seem pretty representative.

Now, the effect of vastly higher educational spending in the U.S. doesn't appear to be huge: the gap between Hispanics in the U.S. and Mexicans in Mexico is smaller than the gap between whites or Asians in the U.S. and Hispanics in the U.S.

But, it does exist, suggesting that Mexico in 2006 was undereducated relative to the potential of its residents.

Tim Starr writes:

I'd give India today as an example of an under-educated country, given that the returns on investment in education are increasing greatly there, and investment in education is increasing. Of course, this is largely a consequence of India's post-1990 economic liberalization.

To be more precise, State-monopolization of education results in a mismatch between education in things for which there is market demand and education in things for which there isn't market demand. We have a shortage of the former, and a surplus of the latter. Both are natural tendencies of monopolization, and beneficial to the State. The State can point at the shortage as a market failure and a justification for its provision of such a badly-needed service as education.

At the same time, it can flood the market for intellectuals with ideologues who can't support themselves on the free market and must rely upon the State's favor to survive. Those lucky enough to be admitted to one of the State's privileged cartels, for which academic credentials are required as a condition of entry, can be trusted to be faithful defenders of the State for life, on average.

Murray Abraham writes:

Following your reasoning, there aren't any under-nourished people.
They don't buy food because they don't want to waste their hard earned money on something they see no need for, and rather starve.

Scott writes:

"If people refuse to spend their own money for more education, then it's presumably just not worth it, right?"

How about: "If people refuse to spend their own money for more food, then it's presumaly just not worth it, right?"

Does that therefore demonstrate that there are no undernourished nations?

That should be sufficient to point out your error.

Wm writes:

An aside for Seth: the government does subsidize Coca-Cola, through the subsidy of HFCS.

Kevin writes:

"While there may be a country on earth where government doesn't on net subsidize education, I don't know of any."

Countries where governments interfere with women obtaining education seem the obvious answer. Women in Afghanistan under Taliban rule were certainly undereducated, and unless you think the men were equally overeducated that had to make the average somewhat low, eh?

You don't purchase your own education, you purchase education for the next generation. The costs are borne by one group, the benefits are enjoyed by another. The two groups are not totally discreet, but still it's more true than not. It's hard to see how a good market mechanism can be in effect when one group pays and the other benefits.

Of course, parents buy or don't buy stuff for kids all the time. But education and perhaps health care are unique, in that it's almost impossible to make up for a lack early on. A kid can grow up in a dirty t shirt and eating cheap noodles and go on to be rich, powerful and successful. He changes his shirt, gets a haircut and he's off to the races. If he never learned to read he's doomed, in a statistical sense.

It's similar to the situation in a college class where the decision as to which book is to be used is made by the instructor and the costs are borne by the student. It's not an effective market, since each student can't evaluate the costs and benefits of a more or less expensive book.

Your argument does hold for schools which one typically pays for oneself; grad school, for example, or vocational school for adults already in the workforce. In those cases government loans and grants do seem to distort the market, especially at the low end. If you're going to Harvard for grad school, you can be expected to repay your loans. If you're going to a vocational school for paralegals such as the one I used to work at, you had a .7 probability of never making more than six payments before you defaulted, and that's not even counting the grant money that was just for free. So that's distorting the market, I agree.


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