Economist Vernon Smith, 2002 Nobel Laureate (and my thesis advisor) said in "Trust the Consumer!" in today's WSJ:

Health-care costs doubled over the decade ending in 2004, in fact reaching an all-time high measured as the share -- 16% -- of GDP; and they continue to greatly outpace inflation. Similarly, education costs from primary levels up through college continue to grow faster than other categories of national spending. Why?

Here is a bare-bones way to think about this situation: A is the customer, B is the service provider. B informs A what A should buy from B, and a third entity, C, pays for it from a common pool of funds. Stated this way, the problem has no known economic solution because there is no equilibrium. There is no automatic balance between willingness to pay by the consumer and willingness to accept by the producer that constrains and limits the choices of each.

I am not sure that an education subsidy is a bad idea. The nation's take from higher tax revenues from graduates may well cover the cost at the margin. Graduates earn $25k/yr more than non-graduates mid career. If we can get the health industry to extend work life, a subsidy might be justified there too. But paying 60% of what the service costs instead of a 20% co-pay or a politically-set tuition would surely create a higher quality, lower cost product.

While it was true in the past that " Graduates earn $25k/yr more than non-graduates mid career", will that apply in the future?

Remember that the past data is from a time when college admission was more difficult to obtain and was likely fairly strongly correlated to the upper end of the bell curve. Thus already smart people plus college education equalled financial success.

It is not clear that any person plus college education will result in the same financial success, particulary with both the ideological biases and associated lowering of quality that has overtaken many of our college campii.

How much is earning potential or work motivation reduced by students being told by Marxist professors that they live in a doomed, evil country filled with wicked, amoral corporations bent on world destruction at the hand of the Cheney Puppet Chimpy W. McHalliburtion. Even upon gradution, their minds are filled with false economic models that will inhibit their decision-making.

Furthermore, the laws of supply and demand hold. Has the demand for college graduates increased sufficiently to absorb the extra capacity without lowering the amount paid for those overabundant qualifications?

Additionally, since the education cost is largely paid by others, the consumer-student is not motivated to choose an education which will result in potential financial rewards. They would tend to keep this in mind more if they had to pay their own costs.

It may be that such efforts are a poor investment, society wise.

I suspect that given supply and demand, it would be more profitable to go into the skilled trades, particularly in building trades where automation is not taking it's toll. Thus electrician, plum8ers, a/c techs, etc. might be the more profitable jobs in the future, and those less likely to suffer disruption mid career due to white-collar downsizing and outsourcing.

Median income difference is maybe only $20k a year http://money.cnn.com/2004/10/18/pf/college/college_costs/. Doc may be an unusually good picker for a trade, but what if robot builders, poured or manufactured homes or a massive world-wide building bust ensue? The statistics show that a college education is better than a highschool diploma. For a country that has bonds at less than 5%, and taxes at 28%, that $20k a year for 40 years capitalizes as roughly $400k for the economy and $112k for the federal government.

People without a college education often do well (Gates certainly skews the statistics personally.)

From http://www.bls.gov/cex/1990/aggregate/quintile.pdf

income quintile populations vs. education
low high
High school (9-12)...46 | 53 | 49 | 42 | 24
College..............30 | 31 | 43 | 53 | 74

Back in 1990 education got you an average quintile of .73 higher. There are low income college grads and high income non college grads, but threre are 2-3 times as many high income college grads and low income high school grads respectively.

> Graduates earn $25k/yr more than non-graduates mid career.

Yes, but half of all college students become non-graduates (dropouts).

Today, college graduates do many jobs that could easily be done by non-graduates. Does a degree in French literature make someone a better salesclerk? Does the average French lit graduate really earn $25k more than a non-college graduate? If he does, it is it really because of what he learned in French lit, or could it be because he had more native ability and would have earned more with or without the degree?

Registered nurses come from degree programs and non-degree programs. If you required non-degreed RNs to get college degrees, would their incomes automatically rise by $25k/year? Would the quality of care they deliver increase by the same amount?

What about the nurse's aides? Would our economy benefit by giving all of them college degrees? We could do it, if we wanted to. Of course, every time we expand the number of people getting college degrees, we have to lower the standards.

What matters more than a degree is marketable skills. There are a lot of college graduates who have little in the way of marketable skills. If a high school diploma qualifies someone to ask, "Do you want fries with that?", a college graduate without skills is qualified to ask, "Do you want a muffin with your latte?"

I have a brother who dropped out of high school, got his GED, and went on to become a master machinist and welder. He earns more than I do with two masters degrees (software engineering and space systems management) and deserves it. Over 10 years ago, a computer company in our hometown was looking to open a CAD/CAM prototype lab. They were looking for someone to run the lab and the job requirements was a masters degree in engineering and 6 years of experience. They knew that my brother had done almost all of their prototyping for years and said to him, "But you'll do." He did the job very well for a couple years until taking another job for higher pay.

He did have one demand before taking the job - when he wasn't busy on prototyping work, he was allowed to use the lab to build parts for his drag racing motorcycle. He was ranked as high as 2nd in the nation in his class at the time.

Some anecdotal evidence:

http://www.nypress.com/19/8/news&columns/weinstein.cfm

"The instructor (not professor) had to publish and carry a full load of teaching, which includes grading papers and consulting with students after class. Candidates had to have a “doctorate from an accredited university” and “demonstrated excellence in teaching.”?The salary started at $35,031

Another job posting offered a position that required a bit less education:?plumber. The qualified candidate had to know how to repair pipes and have five years of experience.

The salary began at $77,483. "

My grandfather always said I should learn pidgin English so I could get a job as a day laborer.
I always won Milton Bradley's Life by going to college.
Clearly picking majors plays a role here, but education comprises $20 trillion of our human capital in the US. http://www.transterrestrial.com/archives/005087.html

Which of these anecdotes is based on statistics?

Doc, the PhD market is particularly messed up since in a lot of fields, the only employers are the universities themselves. And the only use for PhD's (aside from "research" which doesn't bring in money for the fields in which this is a problem) in these areas is to teach undergraduates (good work, but work for which a PhD isn't necessary) or bring more graduate students into the thing. It's the academic version of the pyramid scheme.

How many of you have gone through a big stack of resumes and found the PhDs to be some of the least qualified of the bunch? A friend told me a long time ago it's best to get years of actual experience before getting an advanced degree; otherwise, you price yourself out of the market. As mentioned, in the computer field, many people without any degree at all command a larger salary than those that have.

It's not just that it's a subsidy, it's a variable subsidy of a value that is mostly opaque. That's why vouchers are so powerful, they put that value in a tangible form. Whereas now, people (parents, tax payers) hardly know how much money is being spent on their kids and how much money they're paying.

Personally, I'd like to see more l0ans and lines of credit for medical care and education expenses, even for K-12 education. That in combination with a more transparent voucher-like system would help a lot.

Although one thing that we should already be doing everywhere (rather than just in some places) is allowing children to transfer from/to any public school in a metropolitan area. In some sense this is a way to distribute tax revenues, but it also adds a degree of competition. And, unlike the debate over vouchers, it's really difficult to come up with a good argument against this.