Home > modeling, musing > The multiple arms races of the college system

The multiple arms races of the college system

October 25, 2013

I’m reading a fine book called Nobody Makes You Shop at Walmart, which dispels many of the myths surrounding market populism, otherwise described in the book as “MarketThink”, namely the rhetoric which “portrays the world (governments aside) as if it works like an ideal competitive market, even when proposing actions that contradict that portrayal,” according to the author Tom Slee.

I’ve gotten a lot out of this book, and I suggest that you guys read it, especially if you are libertarians, so we can argue about it afterwards.

One thing Slee does is distinguish between different kinds of competitive and power-dynamic systems, and fingers certain situations as “arms races”, in which there are escalating costs but no long-lasting added value for the participants. They often involve relative rankings.

Slee’s example is a neighborhood block where all the men on the block compete to have the nicest cars. Each household spends a bunch of money to rise in the rankings just to have others respond by spending money too, and at the end of a year they’ve all spent money and none of the rankings have actually changed.

One of Slee’s overall points about arms races is that the way to deal with them is through armament agreements, which everyone involved needs to sign onto. Later in the book he also talks about how hard it is to get large groups of people to agree to anything at all, especially vague social contracts, when there’s an advantage to cheating, something he calls “free riding.” (as a commenter pointed out to me, free riding is more like someone who gets something for nothing, like a worker who benefits from the work of a union without being in the union and paying dues. This is just cheating.)

I’d argue, and I believe the book even uses this example, that education can be seen as an arms race as well. Take the statistics in this Opinionator blog from the New York Times, written by Jonathan Cowan and Jim Kessler, and entitled “The Middle Class Gets Wise.”

It describes how much more money the average high school graduate, versus two-year college, versus four-year college, versus professional degree graduate makes. In other words, it describes the payoffs to being higher ranked in that system. The money is real, of course, and everyone is aware of it as an issue even if they don’t know the exact numbers, so it is very analogous to the car status thing.

Cowan and Kessler describe in their article how, in the face of recession, lots more people have gone to college. That makes sense, since many of them didn’t have jobs and wanted to make themselves employable in the future, and at the same time people knew the job climate was even more rank-oriented since it has become tighter. People responded, in other words, to the incentives.

There’s a feedback loop going on in colleges as well, of course, and paired with the federal loan program and the fact that students cannot get rid of student debt in bankruptcy, we’ve seen a predictable (in direction if not size) and dramatic increase in tuition and student debt load for the younger generation.

My reaction to this is: we need an armament agreement, but it’s really not clear how that’s going to all of a sudden appear or how it would work, considering the number of entities involved, and the free rider problems due to the cash money incentives everywhere.

From the point of view of employers, rankings are great and they can be sure to pick the highest ranked individuals from that system, even if that means – as it often does – having Ph.D. graduates working in mailrooms. So don’t expect any help from them to add sanity to this system.

From the point of view of the colleges, they’re getting to hire more and more administrators, which means growth, which they love.

Finally, from the point of view of the individual student, it makes sense to go into debt, with almost no limit (to a point, but people rarely do that calculation explicitly, and if they did there’d be intense bias) to get significantly higher in the ranking.

In other words, it’s a shitshow, and possibly the only real disruption that could improve it would be widespread and universally respected basic and free-ish education. At least that would solve some of the arms race problems, for employers and for students. It would not make colleges happy.

The authors of the Opinionator piece, Cowan and Kessler, don’t agree with me. They have a goal, which is for even more people to go to school, and for tuition to be somehow magically decreased as well. In other words, up the antes for one feedback loop and hope its partner feedback loop somehow relaxes. Here’s the way they describe it:

So what can we do? Anya Kamenetz, the author of “Generation Debt,” has put together some excellent ideas for Third Way, the centrist policy organization where we both work. Let’s start by reducing the number of college administrators per 100 students, which jumped by 40 percent between 1993 and 2007. We should demand a cease-fire to the perk wars in which colleges build ever-more-luxurious living, dining and recreational facilities. Blended learning, which uses online teaching tools together with professors and teaching assistants, could also help students master coursework at less cost.

There are 37 million Americans with some college experience, but no degree. So pegging government tuition aid to college graduation rates would entice schools to find ways of keeping students in class. And eliminating some of the offerings of rarely chosen majors could bring some market efficiencies now lacking in education.

That really just doesn’t seem like a viable plan to me, and pegging government money to graduation rates is really stupid, as I described here, but maybe I’m just being negative. Cowan and Kessler, please tell me how that “demand” is going to work in practice.

Also, what’s funny about their idealistic demand is that they also think of a couple other things to do but dismiss them as unrealistic:

The most commonly discussed solutions to the problem of income inequality seem unlikely to get to the heart of the problem. Yes, we could raise additional taxes on the wealthy, but we just did that. Bumping up the minimum wage would help, but how high would lawmakers allow it to go? We should look instead at what Americans are already doing to solve this problem and help them do it far more successfully and at less cost.

Am I the only one who thinks raising the minimum wage would help more to address income inequality and is easier to imagine working?

Categories: modeling, musing
  1. Jason Starr
    October 25, 2013 at 7:49 am

    I would like to challenge your assertion, “That would not make colleges happy”. Colleges are made up of many individuals, and I think universal subsidies of higher education would make many of us *very* happy. It used to be that the majority of spending in higher education in the United States was for public colleges, and much of that spending came from government subsidies: state tax dollars directly allocated to colleges. That has largely been undone recently, and this has certainly contributed to escalating college costs.

  2. FogOfWar
    October 25, 2013 at 9:02 am

    A market proponent might ask why students aren’t choosing colleges that charge lower tuition and have reduced spending on bloated administration departments (both size and salary) and luxurious living & entertainment but still provide top-quality actual education?

    FoW

    • October 25, 2013 at 9:03 am

      US News & World Reports.

    • SamChevre
      October 25, 2013 at 9:45 am

      Because fundamentally, students aren’t buying an education; students are buying a credential and a social network.

    • Guest2
      October 25, 2013 at 9:50 am

      Cathy answered this — it is because it is an “arms race,” i.e., a status competition for prestige. It also depends on where you live (convenience), how much your parents earn, and where your friends are going. The market proponent is blind-sided by things she doesn’t understand.

    • October 25, 2013 at 4:13 pm

      There aren’t any such schools to choose from. Virtually every campus has massive infrastructure projects going on. Administrative bloat is universal. They think that now is the time to take advantage of low long term debt rates. Large “debt service fees” are passed onto students, even at public universities where “tuition” is frozen.

      • FogOfWar
        October 26, 2013 at 8:26 am

        Aren’t any or aren’t many at all? Asking for PA, not general interest. Surely there are a few institutions out there who haven’t followed this path, aren’t there?

        But I can’t think of one off the top of my head…

        FoW

  3. Joshua
    October 25, 2013 at 9:25 am

    As a potential employer, I’m willing to take a diploma + transcript from a solid high school and a college acceptance letter from a solid university in lieu of a degree from said university as part of a job application. As you suggest, a lot of jobs don’t really require whatever one learns in a 4 year degree, but the signalling/screening based on who is accepted is helpful.

    Also, I think the book misuses the phrase “free rider” (if you are quoting accurately). What you described is simply cheating. Search, for example, “OPEC quota cheating.”

    A free rider gets benefits from something to which they don’t contribute. Imagine a boat full of people rowing to shore, but one lazy person just sits and doesn’t help. Of course, you can throw them out of the boat! In general, these problems arise when some people have strong preferences (thus are willing to bear the cost) while others still want the benefit but don’t care as much. This is really common in families (why does one person consistently do the dishes or laundry or whatever more than the others).

  4. SamChevre
    October 25, 2013 at 9:44 am

    I think I disagree here: the only real disruption that could improve it would be widespread and universally respected basic and free-ish education.

    That’s ignores the definitional problem with arms races: there’s no “good enough” in an arms race.

    I would attack the problem from three directions, were I emperor of the world.

    The first, and hardest, is that there need to be “enough and good-enough” jobs for people who didn’t go to college. (I think a minimum wage increase would be harmful to this; these need to be “grown-up jobs”, and pay better than “high-school student jobs.”) I’m not sure how you get there, but I am inclined to agree with Murray that complexity of rules is a hindrance.

    The second is that there is no reason that student loans should not be dischargeable in bankruptcy (and preferably be charged back to the school in that case); that would at least encourage colleges (who should know more than students) to limit the amount of student loans extended to students who are making economicly poor decisions.

    The third is to actively encourage other forms of credentialling–MOOCs, test-based certifications, and so on–and treat these the same as college degrees (including counting them as non-discriminatory) for government purposes. (If a government job will hire equally with innovative credentials, that will spill over to the private sector.)

  5. Guest2
    October 25, 2013 at 9:46 am

    It’s good to see the socio-cultural turn re: markets. Economists routinely under-socialize and under-institutionalize their work, so this is much needed.

    In regard to the “arms race” (as with owning latest model cars, in my neighborhood, it was a bright green John Deere riding mover) in education, this was best described in Randall Collins’ The Credential Society (1979). He openly talks about credential inflation, and the fact that government pours so much money into higher ed without much care about quality, as a kind of middle-class welfare plan: it keeps students OUT of the job market. Just imagine all those college students suddenly trying to find work, what that would do to the unemployment rate!

    Add the following chart to the discussion. It shows that MOST of the unemployed have had some college.

    http://news.investors.com/article/611887/201205171857/most-unemployed-are-college-grads-dropouts.htm?src=IBDDAE

    And now, they carry the student loan debt that never leaves.

  6. October 25, 2013 at 12:02 pm

    Cf. this blogpost, which touches on the educational arms race (among other things): http://michaelochurch.wordpress.com/2013/09/15/exploding-college-tuitions-might-be-a-terrifying-sign/

  7. amy
    October 25, 2013 at 11:14 pm

    Yeah. Kessler and Cowen disagree with you because they’re from an investment-banking/venture-capitalist organization masquerading as a think tank. Check their organization’s trustees. I can’t imagine why they’d encourage people to go back to school and take out, um, modest debt to do it.

  8. BadMommy
    October 26, 2013 at 6:13 am

    You have just described in a nutshell what is so incredibly evil about Third Way. Some of it sounds progressive, and then you get enthusiastic support for something stupid and evil that is an administration position/Trojan Horse for further destruction – like tying government subsidies to graduation rates or “eliminating some of the offerings of rarely chosen majors could bring some market efficiencies now lacking in education.” Because clearly, this isn’t about education – it’s just a market! And we all know markets should be perfect, if we just eliminate those pesky inefficiencies.

    My children are not a commodity being fed into a market, and if I have my way, they will be extremely “inefficient.” Might have to emigrate to manage it.

  9. October 28, 2013 at 1:57 pm

    The ‘market’ cannot work for healthcare, as we have known since at least 1962 when Kenneth Arrow’s paper was published. A 2009 interview is here.

    Higher education similarly cannot be described in any kind of plausible way as a ‘free market’. Cowen et al will of course obfuscate this, as Amy says, since their income depends on their not understanding it. Venture capitalists see big money in education, if only they can destroy public education.

    To my mind most of the perverse incentives in our higher education system are caused by government subsidies and loan guarantees, provided without adequate regulation of education providers. For a while I worked on the IT systems for California student loans and federal reporting of those loans. It was appalling to see the fees charged to naive teenagers for certificates in hair care and similar vacuous qualifications. Far far better to provide the subsidies directly to state universities as in the old days, and probably cheaper too.

    Tom Slee’s book is beautiful, I wish more people could be brought to read it.

  10. October 29, 2013 at 9:54 am

    The beautiful thing about raising the minimum wage is that it both
    –decreases the cost of college as a percentage of the average income
    –it also decreases the returns to college as a signaling device

    Because if you are going to be paid a living wage for the many jobs where your performance is not tied to college-learning, then there is less need to pay 100k+ for the credential. It’s worth remembering that finance used to be such a field–Michael Lewis’ book Liars Poker has a nice description of Salomon Brothers culture, which was stacked with guys that got into the mailroom (without PhDs!) and scrambled their way up.

  11. bobbbert
    January 23, 2014 at 8:00 am

    there is a simple solution:

    have a ringfenced government backed system of higher education. no government funding for undergraduate tuition in any form to institutions outside the fence. gov funded HE would be free or effectively free, but with a centrally defined number of places apportioned to different fields of study and qualifications (4 year degrees verus shorter diplomas). my personal vision is a much reduced proportion taking 4 year degrees (between 10-20%), with far greater “uptake” of 2 year vocationally oriented qualifications

    of course, real reform needs to extend to secondary education, taking the far more rational german system as the model…

    the drawback is, of course, that this may have welfare losses, in that funding hinges on the planning and priorities of a central decision making body. but when the alternatives are so poor, and do such a terrible job of matching students to an appropriate training course, this is only a minor caveat. one obvious weakness is that the majority now receive a very focused education, not much use if their chosen industry cannot accommodate them, only a weakness if you

    what is terrifying is that the uk seems desperate to emulate the truly dysfunctional state of affairs in the us. politicians see harvard, stanford and other, but not the scrapheap they are perched on, and figure that (quasi) competition all underwritten by the government will create an equivalent. that’s a generous interpretation

  12. January 27, 2014 at 12:12 pm

    Addressing Income Inequality continues to be a common theme of this blog and economic pundits in general. Here is a model provided by Peter Norvig which dispels/confirms many theories currently circulating. ( I always prefer a math model over a “mouth in a suit” )

    http://nbviewer.ipython.org/url/norvig.com/ipython/Economics.ipynb

    http://en.wikipedia.org/wiki/Peter_Norvig

  1. November 16, 2013 at 2:14 pm
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