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greyenlightenment  investments: META/FBL, TSLA, TQQQ, TECL, MSFT ...  2yr ago (greyenlightenment.com)   3138 thread views

Why the college bubble won’t pop

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The paradigm is broken - the more education you get the less corporate America wants to hire you. You know how the department head guy was always a Masters degreed turd? Yeah it's exactly like a pump and dump crypto. They get you to buy in last to find out NOBODY hires masters degrees.

Some comments. According to Statista the difference between starting salary of people with high school diploma vs college degree is $30k vs $50k. However I think it would be interesting to see also the whole calculation, college degree has a lot of costs, namely tuition plus all the necessary costs of living such as rent, food, books and so forth accounting to around $35k a year. Additionally there is opportunity cost of not earning any money and delaying one's career by 5 years. If we compare apples with apples of somebody who can work and save all the income because all his needs are taken care of by parents, then we really have a difference of fresh college major out of school compared to high-school graduate with 5 years experience with around $100k minimum already put into real estate or stocks, more realistically it would be $200k or more. This difference is even larger if college education was debt financed to large degree (probably the only possibility for child of poor parents). In such a case instead of having 100k+ assets bringing interest you may end up with 200k+ debt with 5% plus interest rate.

Second elephant in the room is also quality of college and one's major. The most popular degree now in USA is "social science and history", these graduates earn around $42k after graduation compared to computer science graduates with $75k. So it would be worthwhile to actually calculate which majors are actually worth it. Of course there are also gated profession like doctors or architects and so forth where college is by law necessary to get the job in the first place. I think these professions should be automatically removed from any comparisons as they literally hold the students hostage. Of course the problem is that in last couple of decades we experienced runaway credentialism where jobs that used to be "free" now require some degree or certification by state, like for instance even simple hairdresser job. The problem with mass college attendance is the classic problem of people standing up to have better view of the game in stadium. Eventually most people will have to stand to view the game with experience of aches and tiredness, while those incapable of standing will be completely cut out not seeing anything. Of course this does not change the calculus of degree being worth it for every individual.

Third, college already counts with some survivorship bias. You mentioned possibility of college dropouts, which is massive - apparently around one third of people do not finish their degrees and will thus count as high-school graduates. So there is risk involved which should change the calculation for any prospective college student. Also college self-filters people capable of adhering to schedule and so forth. If you are a teen with family or drug/alcohol or crime problems, you will not be able to finish college no matter how subsidized it is but you may be able to finish high school. This to me is not a relevant comparison when calculating the benefit of college for individual. Again to have an honest comparison we should really compare college graduates with high-school graduates who are fully capable of finishing college but who decide to go and work right after high school.

Fourth and a major assumption is that all salary advantages are solely the result of college education. As if nepotism, corruption or even plain old social networks that can find a good job for young Ariston do not exist. There is huge correlation between parental income and college attendance. Children of rich parents have high income is of course no-brainer. I would wager that if one did similar comparison of future income of children flying first class on intercontinental flights we would get similar results - however it would not mean that your average schmuck should have his child fly 1st class to Paris every ear in order to improve their chances of good income when adult.

This argument seems to centre around the mutually-consentual nature of the arrangement between students, educators & employers, but I'm reminded of the SSC parable of the society where everyone administers electric shocks to each other all day long and are stuck doing so because no-one has a strong enough local incentive to challenge the system and there's no Czar to put a stop to it from above. Students & employers only play along because defaulting is harshly punished by Mr Market. Even the schools don't love the current arrangement - they mostly remind me a lot more of a failing soviet bureau that everyone is nevertheless forced to use, than ruthless predators exploiting their gatepeer role.

I guess the issues are that

1-the current system has obvious failings and any rando can come up with proposals that might work better (legalize indentured apprenticeships!) but these would certainly have their own issues - not quite the same as 'stop shocking each other'.

2-the current 'Education Czar' is the US Dept of Education, and they are sufficiently captured by the system (and risk-averse to being blamed for alternatives that aren't overwhelming slam dunks) that they are firm electric-shock advocates.

As for the objection that it's not just the US doing this - I daresay that most everyone is just cargo-cult reproducing the US education system for lack of a proven alternative model. (including the US themselves)

I don't see the word 'Griggs' even once in this article.

(Althgough it's not really Griggs itself, but everything else that builds on it.)

in spite of Griggs, the Wonderlic test is widely used, but this has not put a dent in the premium or lessened the importance of college.

Although taken for granted by millions of Americans, the choice to obtain a college degree mystifies economists

Wait, what? Most economists are firm believers in the benefits of college. Even Bryan Caplan agrees that lots of people face a pretty good individual ROI on college. It's definitely not a slam dunk for everyone once you account for the cost, risk of not finishing, opportunity cost, etc. But if anything, most economists are biased towards "more college."

For the bubble to burst would require that one of these fail. Somehow employers would have to realize that they are vastly overpaying. But given how obsessed companies are with profits, makes this even less likely.

Speaking of Caplan, he spends a substantial amount of time in The Case Against Education arguing against arguments like this. Companies do face principal-agent problems, and a manager who knows you might develop some sort of personal attachment. Firing someone because you realized they're not as productive as you first though seems very rare. Firings are mostly for egregious behavior (not working at all, harassment, theft, etc) or because a whole team or division is the victim of higher-level, strategic issues. Also, college need not be a perfect signal to be useful. If getting a more precise signal would be more costly than what it saves in costs, then it still makes sense to have degree requirements. If most of the people who would pass your interview have degrees anyway, then using the degree filter mostly saves you time. Missing out on a potentially good employee is probably less costly than hiring someone mediocre (see above discussion of firing).

It seems obvious to me that the college wage premium has to top out somewhere: Companies can't pay infinite amounts of money for a degree. However, even once we we get there, that doesn't mean the bubble will pop.

Hence it’s not surprising that most good-paying jobs have not embraced certificates or other alternatives.

Again, Caplan also discusses this. He claims it's worse: Employers are looking for conformity, which by definition can't be signaled by something new and innovative.

I do think that making college degrees protected like other things (so you have to proactively show it's relevant) could help, but the big thing is student loan reform. Make them dischargeable in bankruptcy and don't subsidize them. Then private lenders will have to actually evaluate which students are likely to graduate college and get a good enough job to justify the loan, and colleges will have to care about that stuff as well.

He claims it's worse: Employers are looking for conformity, which by definition can't be signaled by something new and innovative.

I remember I read "completed higher education means you can do boring, useless stuff for 5 years without questioning it".

... well, you can make PGS for conformity...

On the wage inflation of degree holders.

Are the figures some sort of average? Because there could be the possibility that those earning disproportionately high (a relatively new thing) might be pulling those figures up. But if we maybe look at the Expected wage with the top x% sliced off (because that might just be impossible for most people to achieve ) the proposition might become a lot worse.

Because I have a suspicion that these numbers are being pulled up by VC funded sillicon valley firms that honestly pay some of their employees out of their ass. I understand that finding good programmers is difficult but I refuse to believe a front end dev is a better programmer than an embedded systems programmer, only one of them gets paid a ludicrous amount.

Among all workers aged 25 and older, the median salary of a college graduate with a bachelor's degree was $1,305 per week in 2020, according to the BLS. That's $67,860 over a 52-week year. So it's not like the average is too skewed by STEM.

In this post I argue that the main driver of higher tuition and demand is the ever-widening college wage premium. It holds for almost all degrees and schools, even low-ranked schools and 'useless' degree. Additionally, college grads have much lower unemployment rates, about half the national average.

An MBA grad today out of college can expect to earn $70-100k/year, compared to $50k in 1975 (in 2021 dollars). This is a huge increase even after adjusting for student loan debt.

Part of this is wage inflation/premium, in my opinion, is attributable to growing size, profits, and influence of multinationals, even adjusted for GDP and since the '80s and especially since 2009, when the financial crisis ended. The past decade has seen the explosion of giant, hugely-profitable firms--companies that were worth $10 billion a decade ago being being worth $100+ billion today (like Broadcom, Salesforce, Visa/Mastercard, Google, Facebook, etc.); start-ups going from $0 valuation to $10+ billion (like Uber, Doordash) or Figma (founded in 2012, acquired by Adobe for $20 billion!) Bigger companies means higher stakes and hence much higher salaries for white collar talent.

Credentialism is still possibly an effective , unbiased (and hence disparate-impact safe), semi-automated filtering/screening method. College, despite supposedly dumbed-down courses, has better-resisted the trend towards grade inflation seen elsewhere (high school 90-100% of high school students graduate).

Covid and remote learning , as well as the 'anti-college movement' online, has not put a dent in the wage premium or demand. Or put a debt in the prestige of top 20 institutions. Admissions for top colleges is more competitive than ever, and I don't see any reason for this to change.

Finally, I'm not a fan of college alternatives (assuming you are capable of graduating), such as coding bootcamps, online learning (like Khan Academy), tutorials (like on YouTube) ,etc. Often, these alternatives are not rigorous enough to confer mastery, or have poor job prospects, or are also as expensive as college (like for bootcamps). Same for various 'hustles' as alternatives or shortcuts to the standard college-to-career route. Crypto is down 70-90% over the past year, stocks down 30+%, etc. ..these was so much hype I remember a year or two ago about those things...people were hoping to retire from crypto or stock speculation, and it all went up in smoke. This sort of stuff happens all the time....some overhyped surefire path to riches suddenly implodes or stops working. There are not enough new people entering to pay off the earlier people for these various hustles or wealth-creation schemes...investments and markets get saturated fast. Society is too competitive and difficult for there to be enough seats on the shortcut lifeboat. If someone figures out that they can arbitrage with Amazon and Alibaba, this may work if only a few people do it, but as soon as word gets out, it stops working as well or at all. College has resisted this unsustainability or saturation seen elsewhere.

Crypto is down 70-90% over the past year, stocks down 30+%, etc. ..these was so much hype I remember a year or two ago about those things...people were hoping to retire from crypto or stock speculation

When the heck was crypto ever considered a college alternative? Seems so out of place with the rest of this.

It was hyped by people who are against college, as a way to make money fast without a degree, such as by creating NFT art, speculating in crypto, trading. etc. James Altucher is one such notable individual who espoused this advice.

small nitpick - the 250k number you quote as being wrong is different from the source you linked. $250k in total spending over 4 years of undergrad seems reasonable if you account for rent and cost of living expenses in addition to tuition (although still a bit high). Your figure is just the total student debt at graduation, which is typically only for tuition. So its describing two different figures.

Yeah. If you're gwern and you drop out of college, good choice. If you're something like 115 IQ, or maybe the median professional programmer in the US, does dropping out materially help you? Probably not.

college alternatives ... coding bootcamps

College is not, if you're smart and capable, a useful way to learn to code in any sense. Much better to just learn yourself playing around and then making things. But coding bootcamps aren't really either, I guess.

College is not, if you're smart and capable, a useful way to learn to code in any sense.

It's possible that a useful conception of "learn to code" is narrower than I'm contemplating here, but for much of the work I'm used to in the tech industry learning to code is a fairly small part of what's taught and what's needed skillwise from a college education. There is absolutely an employment niche for people whose skill is only coding doing fairly deterministic work; web pages still (arguably?) need to be built, UI widgets plugged into backend widgets plugged into backend databases and so forth, but the people I see out of boot camps and the like have basically zero background in even the theory of building large-scale robust software systems that use CPU and memory efficiently. It's that latter group, usually with at least a bachelor's and often advanced degree, who are the ones making a serious career of it.

That probably sounds elitist AF, but as somebody who was arguably the best programmer in my high school I'd still have been a hot mess at any software engineering job without even the unevenly rigorous computer science classes I got at my (otherwise very good) liberal arts school.

That said, and despite that I endorse the value of college coursework for software engineering jobs, I'm still suspicious of the general case of a college education causing better outcomes vs being correlated with better outcomes.

forth, but the people I see out of boot camps and the like have basically zero background in even the theory of building large-scale robust software systems that use CPU and memory efficiently

Bootcamps are much worse than college, certainly, but if the goal is to learn "the theory of building large-scale robust software systems that use CPU and memory efficiently", college really is not an efficient or particularly useful way to do so versus experimenting and reading - if you're very capable in any case. And the most impressive "large-scale robust software systems that use CPU and memory efficiently" that I know personally come from people who were self-taught and then learned by reading, talking to people, and doing.

It seems like there is a growing opportunity for some bright entrepreneur who can figure out a legal way to sort employees cheaply, and hire good people directly from high school (splitting the college premium with them). I wonder how big it would have to get before someone decides to try to exploit it.

Part of the problem is that employers don't want to spend money training employees. They want work-ready people right now, who can fit in to the job with the shortest amount of bedding-in time.

Get a good employee from high school, and the first question will be "Can you use this machine/piece of equipment?" The answer will be no, and in the old days, that was expected: you took on apprentices, or you trained up people. Maybe you waited until the high school graduate then did a year or two in a vocational school learning how to do the basic tasks.

Now, employers want "six years of experience with this, that and the other, must be able to do accounts and plumbing, work from home and fly off to Tunisia week-on/week-off basis as required". College is a short-cut to "yes, X has been trained in to do the job". Maybe X can't do it first thing, but the assumption is that at least X has heard of, or knows about, triple phasic blancmange back-end coding die assembly, rather than taking on Y out of high school and training them how to do that.

Maybe X can't do it first thing, but the assumption is that at least X has heard of, or knows about, triple phasic blancmange back-end coding die assembly, rather than taking on Y out of high school and training them how to do that.

Training someone takes time and and money. Having a degree confers higher IQ, which is correlated with trainability.

Yeah, I agree but I am surprised there isn't some space for pay between entry level and starting plus training would be cheaper than the premium for an already trained employee. Maybe the gap isn't quite wide enough yet, but I have to imagine the rising cost of college isn't purely the college capturing more of the wage premium they bestow.

that would be something like the wonderlic test . Unfortunately, despite the widespread use of the test, it has not been enough to disrupt the 4-year degree hegemony.

People here often bring up legal issues with relying on IQ tests etc but I don't think it's the real problem. The legal issues basically only apply to employers in America, but other countries without those laws are still experiencing the same sort of higher education signaling spiral.

An NBA grad today out of college can expect to earn $70-100k/year

Bad news for you - people who go to the NBA out of college earn a lot more than $70-$100k a year actually!

fixed

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