Monday, November 07, 2011

The Education Bubble

The link above is to a relatively thoughtful and thought-provoking article from the AP on the current expansion in higher education & higher ed financing during this financial crisis. Much of this is only to be expected when people lose high-paying manufacturing jobs that aren't coming back and look to tool-up for something comparably paid but quite different in the future. But there are, as the article points out, some signs for a little bit of worry about this new wave of college attendees and the debt they are accruing.

Perhaps the least interesting part of the article is Peter Thiel's fellowships. The $100,000 awards handed out to young people *not* to attend college are great headline fodder, but they're pretty meaningless to the typical high school student. Did someone look at your business plan and hand you 100K? Then you might not need to go to college to succeed. In fact, since college can be rather time consuming, it might be better to concentrate your attention on a big idea that has already inspired people to lay down some big money. Otherwise, you might want to remember the single biggest indicator of class divide in most of the country: a college degree or lack thereof.

And while you are at college you might even, like Mark Zuckerberg, stumble on that big new idea.

Peter Thiel's big complaint with higher education is that it gets in the way of entrepreneurship. But the vast majority of 17-year-olds have little or no entrepreneurship to get in the way of. They are not destined to be 22-year-old Internet millionaires. In fact, even in some dreamed of future of constant innovation, most people are going to work for someone else, doing something that is not insanely great or startlingly innovative. Basing education policy on fostering future Peter Thiels is like basing it on fostering future Powerball winners. The winners are going to be few and far between and your education policy will have little to do with fostering them or with increasing their number.

What education policy *can* do is provide those entrepreneurs with employees with some basic knowledge of how business finance works, or how to market their product, or how to do basic accounting, or how to hire and fire without getting sued, or how to read a report, understand what it is saying and ask some pertinent and challenge questions of its authors, or how to write the code that actually does the insanely great things would-be entrepreneurs dream up.

That's what education and education policy is for: to create competency and to build the groundwork for excellence. Education and education policy do not exist to foster the very, very small percentage of young people who actually have salable ideas. We rely on those folks to fend for themselves, as they have already demonstrated they are able to do by coming up with these ideas in the first place.

Which brings me to a second point about the education bubble: there is one, but not for the reason Thiel thinks. Thiel's line of thinking tends toward the notion that higher education is irrelevant in some "new world" of constant innovation and entrepreneurial thinking. Actually, it isn't a world, it is simply a small class of young people who have opportunities that outweigh the advantages of higher education. But the this kind of millenarian thinking (everything has changed! We need to change our approach to everything to comport with the new reality!) goes on everywhere and seems particularly resonant these days. Actually it was a big contributor to several of our recent asset bubbles. (Who can forget the 1990s?)

But the real reason there may be an education bubble is that, like entrepreneurship, higher education is relevant, but only if you are in a position to take advantage of it. The expansion in college attendance and higher ed financing largely represents a new cohort to the groves of academia. Their parents didn't complete a college degree and, crucially, they are themselves poorly prepared, academically, socially & emotionally, to succeed at college. 

As I was suggesting earlier, if Thiel were to succeed and got society to foster a significantly larger cohort of young entrepreneurs to develop their ideas, we would quickly start reaching a population of people who didn't have the ideas, the maturity or the personal traits to succeed as entrepreneurs. Traditional higher ed is already at that point: the expansion we're seeing now is reaching a lot of folks who can't succeed in reaping the true benefits of higher education. Largely because our primary and secondary educational systems have served them so badly, but also because their parents have not prepared them to succeed on their own. At anything.

The financial risks here are not really harrowing, and, who knows, there may be enough good bets in this wave of new college attendees to outweigh those who are wasting their (and our) time & money. But, from what I've seen, I'm dubious. And I say this as someone who, like this new crop, had parents who did not graduate from high school and who had to borrow heavily to attend college.