Educational Austerity and Progress Studies

Excerpt from *The Case Against Education*

When I started writing The Case Against Education, I expected to confront a massive research literature claiming that education definitely has a massive effect on economic growth: “If you want progress, generously fund education.” In response, I thought I was going to have to repeatedly shout, “Reverse causation! Reverse causation!” Lavishly funding education doesn’t cause countries to become rich; being rich causes countries to lavishly fund education.

Imagine my surprise, then, when I discovered that — despite overwhelming pro-education bias — the massive research literature on education and growth hadn’t found much of anything. Contrary to conventional stories about the positive externalities of education, mainstream estimates of education’s national rate of return were consistently below estimates of education’s individual rate of return. Just as the signaling model predicts. One of my favorite figures from my book:

Note that typical estimates of individual’s return to education are around 10%, so even the highest numbers in this figure imply that education has a much smaller effect on national income than personal income.

Since many fans of Progress Studies have recently been losing sleep over the dire long-run costs of cutting spending on higher education, now is a fine time to excerpt a relevant portion of my book. Enjoy!

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Economic growth. New ideas are the root of progress. People today live far better than they did in 1800 because people today know far more than they did in 1800. Earth in 1800 contained all the materials required to make an airplane or iPad. But until the right ideas came along, the materials lay fallow. Why did mankind have to wait so long for the right ideas to arrive? Part of the answer is that ideas, once created, are cheap to copy. As a result, innovators glean only a sliver of the value they create.[i]

These truisms lead straight to a stirring sermon on “Education, Foundation of a Dynamic Society.” While most students are not creative, heavy K-12 investment fertilizes society’s creative potential by giving everyone the mental tools to innovate. Heavy investment in colleges and universities, similarly, brings top students up to the research frontier and provides innovation leaders with employment and funding. If consistently investing 10% of national income in education elevates the annual growth rate from 1% to 2% without any further benefits, the social return is a hefty 11%.[ii]

Unfortunately, this stirring sermon is wishful thinking. Chapter four already reviewed research on the national education premium.[iii] While the evidence is messy, education seemingly does less for countries than individuals. At the national level, it’s not clear that education increases living standards at all, much less that education makes countries’ living standards increase at a faster rate. If you can’t tell if your machine moves, you may safely assume it’s not a perpetual motion machine. Researchers who specifically test whether education accelerates progress have little to show for their efforts.[iv]

One could reply that, given all the flaws of long-run macroeconomic data, we should ignore academic research in favor of common sense. But what does common sense really say? “An educated people is an innovative people” sounds plausible — until you recall the otherworldliness of the curriculum. In high school, students only spend about a quarter of their time on math and science. In college, about 5% of students major in engineering, 2% in computer science, and 5% in biology and biomedical science.[v] “Giving students the mental tools they need to innovate” is, at best, an afterthought. In the modern world, moreover, the brightest minds often end up as university professors, applying their creativity to topics of academic interest rather than commercial value. True, ivory tower self-indulgence occasionally revolutionizes an industry. Yet common sense insists the best way to discover useful ideas is to search for useful ideas — not to search for whatever fascinates you and pray it turns out to be useful.[vi]

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[i] See Jones 2005 and Simon 1996 for a review of the evidence, and Caplan 2011b, pp.126-129, for general discussion.

[ii] Consider two income streams, one that starts at 100 and grows at 1% annually, another that starts at 90 and grows at 2% annually. The discount rate that equalizes these income streams is approximately 11%.

[iii] Chapter 4, pp.172-180.

[iv] See Krueger and Lindahl 2001, pp.1124-1129, Pritchett 2001, pp.379-81, Jones 1995, and Pack 1994, esp. p.60.

[v] As of 2008-9. (Snyder and Dillow 2011, p.412)

[vi] On the disconnect between academic science and technological innovation, see e.g. Niskanen 1997.