How College Has Killed Wealth Creation
College is not necessary for most people. It never was. In fact, the preoccupation with college has left America bereft of its former ability to create wealth.
An unhealthy cultural myth has flourished that says everyone must go to college and get an advanced degree, even if it’s something for which there is virtually zero market demand. Meanwhile, below-market interest rates and government-backed loans have lured a couple generations of Americans down the road to higher education.
Further, the kind of education colleges provide — indeed, all of American schooling from kindergarten onward — doesn’t produce innovators, entrepreneurs and job creators.
In a recent article for The New York Times titled “Will Dropouts Save America?” Michael Ellsberg writes:
- “American academia is good at producing writers, literary critics and historians. It is also good at producing professionals with degrees. But we don’t have a shortage of lawyers and professors. America has a shortage of job creators. And the people who create jobs aren’t traditional professionals, but startup entrepreneurs.
- “No business in America — and therefore, no job creation — happens without someone buying something.”
Wealth is only created when value is added (You didn’t think it was when money was printed, did you?) The Austrian school of thought reminds us that value is subjective. People, ultimately, buy what’s worth buying to them with the money they’ve earned.
We cannot put too fine a point on this. It doesn’t matter what the seller thinks the item is worth. It doesn’t matter how much time, energy and material went into making the product or service. You can waste a lot of time, energy and material producing something no one will want to buy. The buyer determines the ultimate value…and whether he will part with his money for it.
There can be misallocations of resources. And when the central bank and government get involved, these allocations can grow very large and go on for a very long time before violently correcting.
So it is that, increasingly over the past couple of generations, there has been a gross misallocation of time and resources into higher education, aided and abetted by the central bank and the federal government.
Millions have been misled into pouring their young adulthood into endeavors that won’t pay off…and going deeply into debt for it. The federal government has encouraged this higher “education,” much like it did home “ownership.” The central bank made the borrowing easy with low interest rates — which powered the real estate bubble as well as the higher education bubble — while government entities backed the loans.
Now the education bubble is bursting. The bubble’s start can be traced to the GI Bill, whereby the government got into the business of shoving more people into college than the market would bear. Over time, the same easy loans and guarantees got extended to most of the population.
Over time, some bad notions gained traction. College came to be seen as the ticket to the good life as opposed to something that people already destined for greater things might undertake to help get them there. As often happens, causation became confused with correlation.
In the last 30 years, higher education has come to be viewed as a human right, something that governments are obliged to guarantee. Lost is the notion that a higher education is a path for the exceptional, particularly those exceptional people going into the hard sciences.
Of course, this doesn’t do anything to change the essential ability of the people now being shoved through the system. All it’s done is water down the quality of what’s being offered so that everyone can join in.
Exceptional people still become scientists and engineers. Everyone else gets a master’s in some field that was recently invented to meet the artificial demand for advanced degrees, for people who couldn’t be scientists or engineers, but who had a head full of misguided notions and a boatload of borrowed money.
Worse, this “education” came to supplant things like entrepreneurship, initiative, the willingness to take risk, to accept and learn from failure. As Ellsberg says in his article:
“But most students learn nothing about sales in college; they are more likely to take a course on why sales (and capitalism) are evil.”
Indeed. We hate to keep turning to the Occupy movement, but it is full of the poster children for this. They came out on the other side of the system unemployable and in debt. They feel lost and angry, unable to think of life past the burden of their student loans. And many of them (not all) feel that “capitalism” is somehow to blame, that the world of profits is somehow divorced from the well-being of people.
It’s criminal when “profits” are doled out to banks and “too big to fail” businesses by the government, with money taken from the taxpayers. But what about the real profits — not stolen goods — in which entrepreneurs take risks and business people add value, when the profits are the reward for serving people’s needs?
So the bamboozled have taken to the street. They would like their student debts to be wiped out, that “the people” be bailed out like the bankers and crony big businesses were. Or even worse, they get it in their heads that all higher education, henceforth, should be paid for by the government. It doesn’t matter whether there is a market demand for expertise in a course of study or not.
Here at the Whiskey Bar, we often rib today’s grad students for having expensive but, essentially, financially worthless degrees in things like transgender studies. We’re often accused of right-wing/conservative close-mindedness for it, too…
But we joke to underscore the point. We’re not disparaging such courses because of cultural bias, but because of economics. We suspect that without the inducement of easy money from the central bank, and the channeling of debt expansion into wrong-headed zeitgeists, the price of a course of study would reflect its inherent economic value. Art history and gender studies would be a lot cheaper to acquire expertise in.
A system has grown up that encouraged enormous debt for nonperforming assets, namely, schooling in things that won’t pay off. People are still falling for it. But markets aren’t mocked forever. There has to be some painful write-down in central bank-distorted asset values before the economy can regain solid footing. This is just as true for higher education as it is for real estate.
It won’t be pretty. We’re not sure how this will play out for those who’ve misallocated their time and energy based on false signals, and with nothing but debt to show for it. But the stories that we told ourselves about what’s valuable were built on distortions that are now coming to an end.
Reality is asserting itself. And the reality is that entrepreneurship is what drives wealth creation, not going into debt to be taught that wealth creation is secondary to cultural studies or worse, that wealth creation is downright evil.