Illustration from Wired’s article on seasteading
I don’t agree with PayPal co-founder and early Facebook investor Peter Thiel’s worldview, but I agree with much of what he has to say in this interview in National Review – particularly the section on education:
Education is a bubble in a classic sense. To call something a bubble, it must be overpriced and there must be an intense belief in it. Housing was a classic bubble, as were tech stocks in the ’90s, because they were both very overvalued, but there was an incredibly widespread belief that almost could not be questioned — you had to own a house in 2005, and you had to be in an equity-market index fund in 1999.
Probably the only candidate left for a bubble — at least in the developed world (maybe emerging markets are a bubble) — is education. It’s basically extremely overpriced. People are not getting their money’s worth, objectively, when you do the math. And at the same time it is something that is incredibly intensively believed; there’s this sort of psycho-social component to people taking on these enormous debts when they go to college simply because that’s what everybody’s doing.
It is, to my mind, in some ways worse than the housing bubble. There are a few things that make it worse. One is that when people make a mistake in taking on an education loan, they’re legally much more difficult to get out of than housing loans. With housing, typically they’re non-recourse — you can just walk out of the house. With education, they’re recourse, and they typically survive bankruptcy. If you borrowed money and went to a college where the education didn’t create any value, that is potentially a really big mistake.
There have been a lot of critiques of the finance industry’s having possibly foisted subprime mortgages on unknowing buyers, and a lot of those kinds of arguments are even more powerful when used against college administrators who are probably in some ways engaged in equally misleading advertising. Like housing was, college is advertised as an investment for the future. But in most cases it’s really just consumption, where college is just a four-year party, in the same way that buying a large house with a really big swimming pool, etc., is probably not an investment decision but a consumption decision. It was something about combining the investment decision and the consumption decision that made the housing thing so tricky to get a handle on — and I think that’s also true of the college bubble.
One important difference between the housing bubble and the education bubble is that there was sort of a class aspect to the housing bubble: upper-middle-class people in the U.S. tend to be invested in equities, and middle-class people tend to be invested in housing, so there was a way in which the housing bubble was a way of making fun of the middle class for various sophisticated elites that ran all the way through the housing bubble. It was sort of like, “Look at those dumb people and beatniks in suburban America who are doing this crazy housing thing.” So even though it was a crazy bubble, there was at least a kind of counter-narrative; you had a bit of a dissenting narrative. Education is an upper-middle-class thing, and so something that is not questioned by elites at all, and that’s why the education market is more likely to be distorted.
You know, we’ve looked at the math on this, and I estimate that 70 to 80 percent of the colleges in the U.S. are not generating a positive return on investment. Even at the top universities, it may be positive in some sense — but the counterfactual question is, how well would their students have done had they not gone to college? Are they really just selecting for talented people who would have done well anyway? Or are you actually educating them? That’s the kind of question that isn’t analyzed very carefully. My suspicion is that they’re just good at identifying talented people rather than adding value. So there are a lot of things about it that are very strange.
The Great Recession of 2008 to the present is helping to bring the education bubble to a head. When parents have invested enormous amounts of money in their kids’ education, to find their kids coming back to live with them — well, that was not what they bargained for. So the crazy bubble in education is at a point where it is very close to unraveling.
In early 2009, there was a question of why the stimulus money was not going to infrastructure, and a very large amount was going to subsidizing college loans and encouraging people to go back to school. The argument was that we get a higher return on human capital than on infrastructure. While that’s certainly possible, and I agree that human capital is extremely important, I think we’re not actually measuring the return we’re getting on the human capital. It is, in fact, considered in some ways inappropriate to even ask the question of what the return is. We are given bromides to the effect of, “Well, you know college education is good, but it’s good precisely because it doesn’t teach you anything specific; you become a more well-rounded person, a better citizen, you learn how to learn.” There tends to be an evasion of specificity of what exactly it is that is learned. And so these human-capital intuitions may be very far off in a lot of colleges.
I thought his position on seasteading was interesting as well:
Seasteading was thought up by acolytes of Milton Friedman. The idea is that we need to create competition between governments. If it’s very hard to reform existing ones, we need to create new sovereign states — in the oceans or elsewhere. There’s a technological question about how far away we are from these kinds of things. It’s probably not around the corner. But these technological projects are worth pursuing.
It’s one of the ways in which I see things in the U.S. as having declined from the 1950s, when people had a real sense of the future, and the future was an important subject for public discussion. We thought about being on the moon, or living underwater, and what we were going to do about farmlands and forests and so on. Different ideas about how technology would change in the future played an important role in our society. That sort of collapsed with everything else in the late ’60s and into the ’70s. I want to go back to the future and back to a time when people were thinking about how to use technology to make the world a dramatically better place — not like the present, where technology is largely seen as irrelevant and specifically as bad.
National Review: Back to the Future with Peter Thiel
Trevor Blake recent forwarded me this critique of the student loan debt situation from the right:
Some people have criticized my advocacy of a student loan jubilee by saying that college kids who made bad decisions don’t deserve to be bailed out. Well, as Clint Eastwood said, “deserved” hasn’t got anything to do with it. We need a student loan jubilee to keep the angry, unemployed hordes from storming the Bastille and dragging the royalty to the guillotines. It’s not about what THEY deserve, it’s about YOUR survival. But hey, just keep repeating those mantras of “self-reliance” and “pulling yourself up by your bootstraps” – I hear the grave’s a fine and private place.
January 24, 2011 at 9:29 am
There is no such thing as a future. Any future you consider is imaginary. Most futures turn out to be a repeats of past futures (Hegelian thinking)–like nothing was learned from our losing the Vietnam War–just like nothing will be learned from these chaotic involvements in Afghanistan and Iraq. We are led by fools–including Peter Thiel–there is no middle class in this country–and there is certainly no upper middle class–now only the rich or the poor–and seasteading–anything Milton Friedman came up with is pure economic bullshit–the only future in so thinking is Chaos–I say, welcome to the future–our only hope (and I don’t believe in hope–only faith) is in making order out of Chaos–we as a nation (a fraudulent nation from the beginning) are doomed unless we take care of the NOW…immediate change is necessary (can we have a revolution?)–bubbles are created by hot air (and the banks foisted the housing bubble on us and not vice versa–just like in 1929 and the Florida land bubble that burst)–a lot of excess gas–this country needs to let out a huge fart–hopefully followed by a good long shit–we need to evacuate the bowels of this country. As we stand now we are so full of shit.
January 25, 2011 at 11:54 am
It’s not that the degrees are per se worthless, but if you can convince people that they are, then they won’t demand higher salaries, and will accept lower wages and poorer working conditions. The bosses want to keep more for themselves. Corporate profits are having record highs. They could hire more people and pay everyone more money, but they would rather squeeze them to make more money for themselves. This is at least part of what the “higher education” is worthless meme is about.
This does not mean that I don’t think higher education is extremely overpriced and technically unnecessary since people can self-educate on their own.
Another thing to consider is that people have a choice in what they study. Where I went to university, it seemed like all of the “hard” math and science classes were predominately filled with Asian students.
January 26, 2011 at 7:08 pm
I think that education isn’t a bubble so much as a matter of diminishing marginal returns. Education is paying off less and less on average, but for the outliers, it is doing better and better. The median is seeing less and less from their degrees, but the smartest people in the world are making a greater and greater impact on society and thus creating tons of value back to the system.
Classical economics would say that the time to quit is when marginal returns reach zero. That is when the value that educated people add to the economy is equal to the cost of educating them. As for identifying talented people rather than educating them, I think that is pretty cynical. Whether they do it efficiently or well is more debatable.