Monday, November 1, 2010

One Reason For The High Cost of Education

Matt Ridley in The Rational Optimist provides some amazing figures (emphasis added):
As late as the mid-1800s, a stagecoach journey from Paris to Bordeaux cost the equivalent of a clerk's monthly wages; today the journey costs a day or so and is fifty times as fast. A three-minute phone call from New York to Los Angeles cost ninety hours of work at the average wage in 1910; today it costs less than two minutes. A kilowatt-hour of electricity cost an hour of work in 1900 and five minutes today. In the 1950s it took thirty minutes of work to earn the price of a McDonald's cheeseburger; today it takes three minutes. Healthcare and education are among the few things that cost more in terms of hours worked now than they did in the 1950s.
This is what prosperity is: the increase in the amount of goods or services you can earn with the same amount of work.
It's important not to confuse education with credential. The cost of education - the actual knowledge and skills learned - has been accelerating towards zero, especially in recent years. Ridley is referencing the credential. One of the main reasons for the high cost of the credential is the nature of the good: for just about any other good, the suppliers have plenty of incentive to deliver that good to as many consumers as there is demand for - however, at the individual college level, colleges increase their reputation (which is - any way you slice it - the primary store of value that colleges strive to uphold) by serving fewer consumers while demand stays constant or increases. The value of the credential depends on the number of people who can't have it. Contrast that with healthcare, where value stays constant with each additional person treated.

For these reasons, among others, I believe that applying conventional market economics to the college situation will not necessarily produce the effects desired. It will take some visionary adjustments from those in power, namely governments, to effect real change. One thing I do know for certain is that higher education is very, very ripe for disruption. I hope to write more about that soon.

1 comment:

  1. Brett, you are so right to demarcate between learning and certification. I have educated myself significantly more effectively in the years past graduation, as I was finally not being told to!

    I hope that you keep us abreast of your self-education in the coming months!