21 June 2010

education-as-investment and education-as-consumption

WSJ.com | Moshe Milevsky | Think Smarter About Risk

Recall that the dividends you receive from your human capital are not solely the result of hard work, innate skills, fortuitous parents or sheer luck. Rather, these dividends can be traced to the investment of time, money and effort during your student years. The skills you acquire in your late teens and early 20s set the stage for the value of human capital. Surgeons who spent more than 10 years as undergraduates plus medical school and then internship and residency invested in their human capital. They were not consuming time. They were investing time.

Therefore, in my opinion—and this might get me in trouble with my academic colleagues—too many students (and some parents) view education as a consumption good. They immerse themselves in a liberal-arts degree and study dance or literature or dance literature, without any regard for how this might influence the future dividends of their human capital.
Hat tip to my buddy D.R. for passing on this article about considering your human capital when thinking about your asset allocation and diversification.

I like these paragraphs in particular. I think this gets at some of the disfunction of the Higher Education Bubble. We subsidize college degrees without regard to how productive they actually end up being, maintaining a sort of willful fiction that all education is equally valuable to society.

I think we need to stop thinking about subsidizing education and start thinking about education-as-investment and education-as-consumption.

I'm all in favor of people dedicating time and resources to consumptive education — I chose to go to Notre Dame largely because I could take art and history and film and philosophy classes while getting an engineering degree — but I'm not so sure why we should be asking the rest of society to subsidize what amount to educational luxuries so highly.

~ ~ ~ ~ ~

Usually when I write things like this my friends who studied humanities get sort of offended.  Dudes: I am not slagging on your majors.  I think that stuff is valuable.  I just think we need to rethink encouraging people to take on mountains of debt pursuing it, asking the rest of society to help people take on that debt, and all the while telling kids that a college degree is the ticket to success regardless of what the degree is in.


  1. Hear hear! Education may make you a more intellectually well-rounded individual, but it does not necessarily make one more productive. This is why while I roomed with a pair of theology/classics majors, I thought they were crazy for spending money on those degrees. I always looked at college as a stepping-stone to a career - if it doesn't make financial sense to invest in the credential, then don't. If you don't need the actual sheepskin, you can learn 80% of what you want to on your own with a good set of books and some diligent study.

    BTW, your educational experience sounds much like my own - I went to Valparaiso University for my undergrad in large part for the opportunity to replace a bunch of stupid GenEd requirements with philosophy and theology courses I wanted to take alongside my engineering.

    1. Hey, I am curious. Has your perception changed regarding people who take classics or theological studies? Is it still a waste of money? Why? Thanks. Lucas.

    2. My opinion hasn't changed, no. I think those are excellent things to know about, but they're not the basis of a productive career. No, a career is not the be-all-end-all of life, but let me put it this way: How many 18-year-olds would spend $1000 out of pocket on a week-long seminar to learn about Ovid or Augustine? I don't know of any. But I do know thousands who spend >$100k and half a decade to study those things. If you wouldn't spend a small amount of money and time pursuing a thing, then don't spend a large amount time and money pursuing it.

      I think knowing classics or theology is great. I read philosophy in my spare time. But that doesn't mean I would recommend that someone go deep in to debt to pursue this. There are a ton of things that make your life better, and are free. I think young people are better off learning plumbing and getting heavy use out of their library card than majoring in classics, etc. without having another, marketable major to recoup the cost of student loans.

  2. Education as being a consumer good trivializes education overall, it reduces emphasis on humanities and sciences, it drives up grades and drives down rigor, and it inflates tuition costs.