THE CASE AGAINST EDUCATION

Education” is one of the Holy Trinity that everyone is supposed to want more and better of (other two: health care and the environment).
• It’s also a rare example of an issue where economists and the public agree that we’re not “investing” enough.
• Standard return to education estimates are pretty high. Economists assume this proves that education “builds human capital.”
Rate of return estimates don’t even count the positive externalities that economists think that education has to have
THE PUZZLE
• When you actually experience education, though, it’s hard not to notice that most classes teach no job skills.
• What fraction of jobs ever use knowledge of history, higher mathematics, music, art, Shakespeare, or foreign languages? Latin?!
• “What does this have to do with real life?”
• This seems awfully strange: Employers pay a large premium to people who study subjects unrelated to their work.
EXPLANATION
• It’s easy to explain these facts, however, using the signaling model of education.
• Main idea: Much schooling doesn’t raise productivity; it’s just hoop-jumping to show off your IQ, work ethic, and conformity.
• Key assumptions:
• (1) differences are hard to observe
• (2) differences correlate with the cost of an observable activity.
• (3) higher productivity workers have lower costs of performing observable activity
In signaling models, the market rewards people who “show their stuff” even if the display itself is wasteful.
WHY SIGNALLING MATTERS
Beauty of the signaling model: It works even if students, workers, and employers don’t understand it.
• Who cares? Signaling models imply that education actually has negative externalities. These can balance out any positive externalities, or even imply that government is subsidizing waste.
WHATS WRONG WITH EDUCATION?
• Question: Who cares if education builds human capital or just signals it?
• Answer: Signaling models imply that education actually has negative externalities.
• Concert analogy.
• These negative externalities can balance out any positive externalities, or even imply that government is subsidizing waste.
• Social return versus private return.
• Note: Signaling ≠ “education bubble.”
OBJECTIONS ANSWERED
•Signaling models are widely dismissed on a priori grounds.
– “We’d just do IQ tests instead.”
– “Employers know true productivity after a few months.”
– “There has to be a cheaper way.”
– “Learning how to learn.”
– “Character formation.”
• Signaling explains some otherwise very puzzling facts, and the a priori objections only apply to the most simple-minded versions of the theory.
It’s rhetorically easier for libertarians to join the pro-education chorus, then insist that the free market will give us more and better education. But the truth is more complicated .