EDUCATING WITH COVID

Education is not the filling of a pail, but the lighting of a fire. ~ William Butler Yeats

The fabric of education has been ripped apart by the coronavirus. In a different era (before March), the contact-full classroom relationships between students and teachers and the myriad of their daily interconnections served to build knowledge and personal self-awareness, the heart of education. No longer. It is purposefully missing in the now-necessitated norm of online distance-learning (DL) education for this fall’s expected 70.40 million primary, secondary and college students. That’s over 20% of our population.

Education specialists believe that DL in most school districts is not working and that some students are falling behind. A middle-school teacher states, “We know this isn’t a good way to teach.” Black, Hispanic and low-income students are struggling the most, research suggests, according to a NYTimes story.

Dana Goldstein reports the richest and poorest parents are spending about the same number of hours on remote school, but wealthier parents are inevitably able to provide more books and supplies at home, more quiet space, educational toys and often more knowledge of the curriculum. High-income school districts are usually providing strong remote instruction, rather than basic worksheet-like activities. Inequalities often are magnified.

What DL diminishes is the constructive, essential interactive nature of multi-student, classroom-based education – students’ vocally intermingling face-to-face with their teacher and their peers on a continuing basis. It’s something that we’ve taken completely for granted, until recently. Online meeting software like Zoom, TeamViewer or Google Meet allow some simultaneous serial communication, but screens afford a wholly different experience than actual physically-direct collaboration for a classful of students.

So the critics are correct, DL is a threadbare approximation of the education we all remember. It sucks, no matter what grade-level is being discussed. But what do DL critics recommend instead? Mum's the word.

I’ve seen discussions about “split-session” teaching (e.g., having only a portion of the students physically come to classes at any given time), but I can’t imagine how teachers could deal with this possibility – that, in effect, would multiply their required class-time, depending on what the allowed portion is. Also, if “double-time” teaching could be more viable in any context (letting in one-half the class’s students at a time), it would challenge everyone.

Double-timing in-school teaching for the earliest grades, where the students’ education happens in a single classroom and is as much social-learning as academic, would call for schools to “create” twice as many school hours each week in order to comply with state-mandated requirements. California, like 27 other states, requires a minimum of 180 days of formal school instruction each year.

Raise your hand if you’re in favor of a 12-day week (10 school days’ worth of double-time teaching and 2 “recovery, week-end” days; although I think at least 3 recovery days for teachers would be far better after working for 5, double-time days). Or how about daily day and night classes for PK-12 grades? Or mandated home-schooling? What a surprise, I don’t see any raised hands. No wonder local school districts are stymied.

College students face a similar dilemma, but they’re (or someone else) is directly paying for the privilege of being there, unlike public PK-12 schools. At least 100 lawsuits demanding that colleges-universities provide refunds for tuition, fees and/or room and board have been filed so far. The students are claiming that the online DL college experience they received this spring (with the unaccepted, uninvited coronavirus on campus and no “regular” classes) is an academic encounter that is not what they bargained or paid for. The courts have yet to decide whether these students have a legitimate claim for refunds. It’s apparently not a slam dunk for the students. Even if they’re successful, will the colleges-universities be able to provide the reimbursements? According to a person who works for an association representing state higher education programs, colleges’ ability to pay refunds would be “incredibly challenging” due to public education’s sizeable budget cuts and increased costs.

Many colleges-universities are now planning online DL-based education for the fall, including the California State University system, the nation’s largest. Universities are rewriting the rules for on-campus student life in order to avoid a Tragedy of the Campus Commons. Colleges will be demanding their students diligently wear masks, as well as drastically restricting sporting events and somehow curbing social gatherings as well. Will college administrators be able to trust their 18- to 21-year-old undergraduates to follow such decrees? These rules will require behavioral changes that will tax the very being of young immortals. Time will tell.

College is a significant life-event for ever-more people. Thirty-six percent (36%) of US adults now hold at least a B.A. degree, the highest share ever, shown in the chart below. Over 19.64 million people were enrolled in colleges, universities and other “degree-granting institutions” in 2018, 57% of whom were female. This fall, 19.74 million are expected to register. Yet it’s worth remembering that despite the well-deserved praise for our decades-long increase, college degree-holders still represent only a smidgen more than one-third of US adults. At times we may act like a deserving majority, but we’re far from it. 

 Percent of US adults with a BA or higher degree, 1950-2019

 Source: NCES.ed.gov

Thus, even though it sucks, DL is the only practical, nontoxic means of providing public education now. It’s a version of formal education that can nearly adapt to the present, fraught circumstances amidst the scythe of the coronavirus, existing school-university infrastructure and available teachers and staff.

That is, unless I’ve missed a magical, superior education method that remains unmentioned because Albus Dumbledore never disclosed the Hogwarts’ secret handshake. In our current, pre-vaccine, coronavirus-filled world, it’s overwhelmingly online distance-learning, like it or not. And most of us don’t. Economists have a term for such schemes; they’re called “second-best.” At best, DL is a second-best solution, but better than any others.

Almost lost in the dark mists of this pandemic and our cavernous recession are progressives who continue roaring for free college and student debt-forgiveness. Yup, Bernie and Elizabeth have lost the race to be the Democratic Party’s presidential nominee, but some of their backers still actively pursue the provision of much vaster subsidies for college-goers. In the midst of giant, covid-related federal, state and local revenue reductions, adding these policies’ substantial costs ($2.2 trillion) makes little sense for reasons I’ve previously mentioned. Enacting such expensive, flawed plans for free college fade in importance compared to far broader, more pressing human priorities like public safety, adequate food and sufficient housing. Stow it free-college folks; instead seek the secret handshake.

PUBLIC UNIVERSITIES ARE CAUGHT BETWEEN HOBSON AND A HARD PLACE

The whole purpose of education is to turn mirrors into windows. ~ Sydney J. Hams 

These are roiling times for our vast edu-industrial complex – public and private colleges and universities and their attending students. Even the most renowned public universities are being tested, as a new batch of freshman will soon enter their hallowed halls.

The prestigious University of California (UC) system, founded in 1868 in Berkeley, has over 238,000 undergraduate and graduate students going to its 10 universities throughout the state. More than 71,000 freshmen will begin classes at UC later this month and next month. Echoing the formidable challenges facing public colleges-universities, UC President Janet Napolitano said several months ago that because of substantial budget cuts, nearly every state university in the nation had been forced to make a “Hobson’s choice, and they all have reached the same decision: Open doors to out-of-state students to keep the doors open for in-state students.”

Her use of the phrase “Hobson’s choice” to characterize her difficult job is interesting. Thomas Hobson was a 17th century livery stable owner in Cambridge, England who had over 40 horses for rent. Having so many horses made it appear to customers that they had many choices available to them. But there actually was only one choice, because Hobson required his customers to choose only the horse in the stall nearest the door, so his best mounts would not be overused by perceptive customers. Hobson’s choice has thus come to mean a situation in which you are supposed to have a choice but really do not have any choice because there is only one thing you can really have or do.

Thomas Hobson is alive and well at virtually every public college-university. Over the past several decades California and many other states have substantially reduced the amount of public funding they provide their universities – 40 years ago UC received 32% of its budget from the state, now less than 16% is provided.

As usual, legislators wanted it both ways; cut higher education funding and suffer no negative consequences. But there have been predictable consequences, tuitions have risen (to replace the lost public funding) and the composition of students has changed (to increase revenue). In order to garner more income universities have made their Hobson’s choice and raised tuitions and accepted more out-of-state students, who pay far more tuition than in-state students. In the case of UC/Berkeley, the 2016-17 tuition for in-state students is $13,500/yr, out-of-state tuition is $35,850/yr. Unsurprisingly, ever-rising tuition has created headwinds for students, universities and politicians.

In-state students and their parents have been none too pleased that universities have raised tuition and are accepting more out-of-state students – this fall, 32% of UC/Berkeley admitted freshmen are either from out of state or other nations. After a series of public protests California legislators, Ms. Napolitano and the UC Board of Regents had several discussions. UC agreed to reduce the number of out-of-state students and increase the number of in-state students in return for receiving more state funds.

Everyone agrees that US colleges and universities have long produced storied and positive benefits for our society and their graduates. This is why going to college has been an essential ingredient for attaining the “American Dream.” Over the past century the ranks of baccalaureate (BA) degree holders have increased spectacularly, as shown in the figure below. People who have a BA now represent 34% of young adults, more than a ten-fold increase since 1905, when my grandfather graduated from college. Having a BA is fast becoming the new norm rather than the exception for young adults.  In 2013-14 more than 2.7 million adults graduated from a 2- or 4-yr college.

Source:  National Center for Education Statistics.

This dramatic, continuing upsurge in people receiving BAs is creating challenges for more recent college graduates. Their Associate or Baccalaureate degrees may not be worth as much as they were decades ago when just 10% or 20% of young adults earned a BA.

The law of diminishing returns, first posited in the 18th century, applies to college grads as well as other productive inputs. As more of any given input (like skilled, BA-holding workers) are added to the productive work force, their incremental contribution (“return”) to output will diminish. This is beginning to happen for college graduates. But not just the returns from a college degree are weakening.

With ever-more young people (and their parents) demanding a 2- or 4-college education, the costs of attending college have risen significantly, in part reflecting the relative insensitivity of costs to levels of demand. In economic terms, college attendance seems fairly price inelastic, especially for “selective” colleges. Thus, the expense of going to a public college-university has increased 94%, after adjusting for inflation, during the past 15 years; for private colleges-universities the increase is 46%. And yet even with these substantial cost increases, college attendance has skyrocketed to 20.2 million (M) in 2015 from 15.3M in 2000, an increase of 32%. Faced with more demand for their product, colleges are more able to charge what the market will bear.

Recognizing the benefits of having a more educated work force, federal and state governments have long subsidized college attendance, starting with the 1944 GI Bill (formally called the Servicemen’s Readjustment Act) that provided returning WWII veterans with cash to attend college, high school or vocational school, among other benefits. The cost of sending veterans to college paid for itself many times over through increased post-war economic growth fueled by their increased productivity.

In April when I first heard of Bernie Sanders’ free college tuition plan I wondered that if his idea were ever to become law, would it have an effect similar to that of the 1862 Homestead Act ratified about 60 years after the pioneering Lewis and Clark expedition traversed some of the new US territories. Why? Because like promising free tuition in the 21^st century, this Act provided virtually everyone in the US with 160 acres of free land in the mid-19th century.

The US wanted its citizens to inhabit its then very sparsely-populated new western region, so it offered free land to incentivize its settlement. Similarly, when the government wanted to improve the US labor force in the mid-20th century, as service men and women were returning from the WWII, it began subsidizing college education with the GI Bill.

The Homestead Act distributed 270 million acres of federal land (nearly 10% of all the area of the US) to 1.6 million homesteaders (about 4% of the US population). One consequence was that many people who didn’t know much about farming, moved to the Great Plains (where the climate was not benign at all) and beyond, claimed their 160 free acres and had difficulties being successful. Only 40% of the land-grant applicants who started the process were able to complete it and obtain title to their homesteaded land. Despite this low success rate, the Act served to populate the American west.

The timing of now offering a 100% subsidy for public college tuition is very different than the Homestead Act, because one-third of young adults have already “populated” public universities, paid for that education and has college degrees. In addition, it will be challenging for some new students (like the Homestead Act’s new farmers), who are enticed by free tuition but not completely prepared to successfully graduate. Who will be responsible for their success? This job would probably become another potentially significant indirect cost borne by public colleges-universities. Even without a free-tuition incentive, only 52% of incoming college students actually graduate within 5 years (and just 25% from for-profit colleges). This percentage may further fall when more students show up.

Other than offering political enticement for young people to vote for Democrats, is there a broader rationale for spending billions per year on a federal free tuition plan? I don’t think so.

Receiving a BA degree has intrinsic and realized value for each graduate. Every college student and her/his parents understand the value of graduating from college. It is far from zero. Two ways of measuring it are: $610,000 and 2.2%. Over their entire working life, the typical college graduate will earn $1.19 million. This is $610,000 more than the lifetime earnings of a typical high school graduate and $335,000 more than that of a typical associate degree graduate. The national unemployment rate is 4.9%; for high-school graduates it is 5.4%; for young adults with a BA it is 2.7%, 2.2% less than the overall unemployment rate. College graduates both earn more money and have an easier time finding a higher-paying job.

This college earnings premium has existed for a long time, but has not increased recently. According to the Pew Research Center this leveling of the premium is due in part to the reduction in annual real (inflation-adjusted) earnings for high-school and 2-year college graduates since the 1980s, rather than actual gains in college graduates’ salaries. The Pew report found that the median annual real earnings for young college-educated workers was $45,500 in 2013, compared to $28,000 for high-school graduates — a premium of $17,500. College graduates’ real earnings increased only 1.8% between 1986 and 2013; but high-school graduates’ real earnings decreased 7.7% between 1986 and 2013. A Goldman Sachs’ assessment found that students who graduate from universities that rank in the lower 25% of college rankings (often including lower-cost schools like 2-year community colleges and less selective 4-year colleges) enjoy no salary premium at all, and earn less than high school graduates.

More and more college graduates are entering the US work force as macroeconomic growth has dissipated. In 2015 the US real GDP increased only 2.4%; in 2016Q2 annual growth was a meager 1.2%. Thus, with increasing supply of college graduates and lessening demand for their services, more are “underemployed” in jobs that do not require a college degree or are working part-time when they want a full-time job. In July, the Economic Policy Institute found that 12.6% of college graduates were underemployed, much higher than 9.6% in 2007 during the Great Recession.

With more than one-third of young adults now gaining BAs, having an undergraduate degree is becoming a standard, not the exception. Markets, including the employment market for college graduates realize this. Despite increasing costs, college-based wage premiums will diminish because of the pending “normalcy” of having a BA. But, as pundits have stated, what’s more expensive than going to college? Not going to college.

This disquieting trend has prompted some analysts to say that the nation has reached a point of diminishing returns from increased work force educational attainment (referring to college graduation). Harvard economist Dale Jorgenson and his co-authors state that increasing the quality of the US work force through higher educational attainment may no longer provide the same, prominent benefit as a source of US economic growth that it has since the 1950s.

At this point, the US economy may have all the college-educated workers it needs. Jorgenson instead argues that getting low-skilled (non-college educated) workers who have exited the labor market – and thus are not counted as being unemployed – back into the labor force, together with increased private investment, will revive higher growth more than producing more BAs.

And yet the politics for spurring college attendance are inescapable. Hillary Clinton has largely usurped Bernie Sanders’ proposal to dramatically lower the costs of attending college by providing students who attend public universities and colleges with “free” tuition. Unlike Bernie’s original plan, hers wisely caps the provision of free tuition to families who make less than $85,000/yr now, rising to $125,000 in 2021. Nevertheless, such a huge, new subsidy would disproportionately benefit more well-off families than others because as family income rises, so too does college attendance. Only about 20% of children from the poorest 2% of families in the country attend college. For the richest 2% of families, who are far more likely to attend higher-cost, more selective colleges, around 90% of children attend college.

From an individual student’s perspective, it is worth remembering that free tuition does not mean free college. Tuition is a sizeable piece of total college costs, but represents only a part of all college-associated expenses that include living expenses, books, ancillary fees, and room & board in addition to tuition. For the 8 colleges and universities that my family members attended, tuition accounts on average for 51% of total college expenses, according to the College Board.

About 73% of post-high school students going to college attend public colleges-universities. If implemented (and that’s a very large IF, given the political composition of Congress and the cost of such a subsidy), a free-tuition policy will dramatically increase the demand for publicly-funded tertiary education, despite the aforementioned relative price inelasticity of demand for college education. Nothing beats free. Such a free tuition policy will undoubted unleash a lecture hall’s worth of unintended consequences, in addition to diminishing the college earnings premium.

Clinton's plan will not increase the capacity of public colleges-universities to meet the augmented attendance. For several reasons her plan may place public colleges-universities between the rock of satisfying larger numbers of students and the hard place of not having a way of meeting this increased demand. A possible consequence may be that her plan could perversely lead to increased tuition levels that may have to be covered by the federally-funded program. A direct federal subsidy of college tuition would likely increase the already all-too-weak incentives of universities to reign in tuition, unless forced to limit their increases.

There are a plethora of calculations for how much the Hillary-Bernie free-tuition program may cost. My round-number guesstimate of Hillary’s income-capped plan is at least $60 billion per year. For some perspective, this potentially-worthy tuition subsidy cost is about 3 times as much as farm subsidies and almost 2 times as much as the oil and gas industry’s principal subsidies. Mrs Clinton’s overall plan to make college more affordable will cost $350 billion.  

In this time of historically-low growth and missing-in-inaction, Republican austerity-flavored Congressional economic legislation to promote economic progress, it may be that the supply of college-educated people is rising more than demand for them. Promising billions of federal and state dollars annually to zero-out public universities’ tuition may be politically advantageous, as demonstrated by young ex-Bernie acolytes. But by itself it will not help that many people. Certainly not the majority of young (and older) workers without BAs, whose job prospects and wages have dissolved as employers require college degrees for more and more jobs. Moreover, nations like Germany, Finland and Brazil that offer free college education have lower levels of post-high school educational attainment than the US does now. Norway, another free-tuition nation, has a slightly higher level than we do.

Better ways to reduce college costs would be to increase the number of Pell Grants and the grants’ allowable maximum amount, increase the availability of federally-guaranteed Stafford loans and increase federal and state direct funding of colleges in return for their agreeing to stringent limits on allowable increases for in-state tuition. Make all public and private loans’ payments based on the student’s post-graduation income level and increase the payment period from the standard, too short 10 years to at least 20 years that is common in other countries. Also, simplify and consolidate the loan process, such as Jeb Bush, of all people, has suggested.

Qualified students would receive a single line of educational credit and take what they need each semester. For every $10,000 you borrow, you turn over an additional percentage point of your income each year for 25 years. It’s prorated to the exact amount of what you borrow, so that if you have a debt of $28,000 you would be paying 2.8 percent of your income after graduation. The payoff term runs out in less than 25 years if your total payments hit 1.75 times the amount you originally borrowed. Borrowers would pay through payroll deduction or quarterly payments, as they now pay estimated taxes. This would reduce the number of people who are behind or in default (11.6%), often because they are not aware of the confusing array of income-driven repayment programs that already exist.

The media’s fixation with the “student loan crisis” is unduly focused on a tiny fraction of exceptional situations, not the circumstances facing the vast majority of BA holders. The median monthly student loan payment is $203, or about 4% of earnings – roughly comparable to an average household’s monthly expenditures on entertainment. 

Progressive politicians need to recognize it’s no longer the 1960s or 1970s when only 10% of young adults got BAs. Promoting piecemeal policies like free tuition sound admirable, but have drawbacks. Less inviting but more appropriate programs such as simplified, expanded college loans and more direct public funding of 4-year (and especially 2-year, vocationally-focused) colleges-universities will be much more cost-effective for increasing the educational attainment of our young adults. Thomas Hobson needs to be dismissed from academia’s ivory towers. 

THE FALLACY OF FREE HIGHER EDUCATION

Cauliflower is nothing but cabbage with a college education. ~ Mark Twain

Forget college football, we are now entering the peak of college applications season, when high-school seniors decide where they want to spend the next several years of their lives. The ever-rising cost of going to college is a prominent factor for many applicants. In May, Sen. Bernie Sanders introduced legislation to make 4-year public colleges and universities tuition free. He said, “We live in a highly competitive global economy. If our economy is to be strong, we need the best educated work force in the world. That will not happen if every year hundreds of thousands of bright young people cannot afford to go to college and if millions more leave school deeply in debt.”

His plan, reputed to cost $750 billion (B), would replace what public colleges and universities now charge in tuition and fees. It would also overhaul student loan programs to reduce their cost in part by eliminating any accrued federal profits on the loans. After Sen. Sanders’ noteworthy announcement, Hillary Clinton produced her own plan to reduce the cost of going to college by providing $350B in federal money to states over 10 years, so undergraduates would pay tuition at public colleges “without needing loans.” If Sen. Sanders’ or Hillary’s plans somehow become law (a very unlikely prospect with Republican majorities in Congress), far lower (“free”) college costs will dramatically increase the demand for higher education.

Both plans embrace the idea that a college degree is the new high school diploma. Although a growing number of people believe this, I think it’s exaggerated and not self-evident. Holders of BAs still receive a sizeable 60% premium in wages over high-school diploma holders. Sanders’ and Clinton’s proposals would essentially expand the long-established norm of free K-12 public education and offer free K-16 public education. To say that’s a big change in government educational policy is a PhD-level understatement. From a market perspective, the concept of lowering a service’s price a lot (a college education) in the face of notably escalating demand poses many challenges.

According to Dept. of Education statistics, 81% of high-school age students now graduate with a diploma, 34% of young adults now have a BA, and 44% of young adults have either an Associates or BA degree. Interestingly, 81 years ago, in 1934, 34% of adults had a high-school diploma, the same percentage that now holds a college degree.

Both Sen. Sanders’ and Hillary’s ideas to remove the expense of tuition when going to a public college is a leftish shibboleth that will cost a ton of taxpayer money[1] and put the post-high-school education (PHISE) market in a precarious, unbalanced position. It will significantly increase the number of students demanding an Associate or BA degree without increasing PHISE capacity to actually educate them.

Beyond these consequences, tuition-free college isn’t likely help that many young adults because of subsequent greater “degree-inflated” job requirements imposed by employers and probably most important, insufficient incentives for colleges to produce graduates more effectively and efficiently.[2]

I doubt that highly-selective colleges will increase their educational capacity much, but other private and public colleges, 2-year and online colleges might expand to meet more demand. However, such expansion will only occur if additional public funding for more facilities and faculty is made available to public universities and community colleges – something that neither Sen. Sanders’ nor Hillary’s plans directly address. Increased funding also flies in the face of many states’ contracted fiscal support for their public universities and community colleges during the past decade. This is why low-overhead providers of online PHISE services (such as MOOCs) will see this policy change as a significant opportunity. The need for more bricks-and-mortar classrooms (and of course administrators) may be partially avoided via online means. Whether online college education is effective remains an open question.

At first blush a “tuition-free college education” sounds quite appealing; everyone likes “free” – especially if you’re a young adult or the parent of one contemplating college – but has as much veracity as a driverless car. This idea has some merit from a generationally-based subsidy perspective. More public subsidies for young adults might begin to balance the far more sizeable subsidies offered to old folks through Social Security and Medicare/Medicaid expenditures, but I’m not really sure it’s truly equitable. After all, a university education’s principal benefit goes to those who graduate with a degree that traditionally has been rewarded by getting a much better (higher-paying) job than young people who don’t have a BA. Such wage premiums might continue, although I have serious doubts as ever-more students enroll in (and hopefully graduate from) college.

The valuable collective, social benefit of having more college graduates accrues from having a better educated more knowledgeable and productive population. This social benefit explains why subsidies are available to college students via government-guaranteed and -subsidized student loans and education tax credits. These fiscal mechanisms reduce the cost of attending college and are among the few directly helping young people.

I’m all for having more young adults graduate from college. But the market for educated labor in the US, like every market, has two sides to it – supply and demand. If the supply of young adults with college degrees rises significantly, as Sen. Sanders hopes, their salary prospects may not. Unless employers’ demand for educated labor also increases a lot, the price of such labor (their wages) won’t increase, it could even decrease. Such reductions in the wage premium for college graduates won’t be greeted with enthusiasm. With a “free college tuition” policy in place, maintaining the college-educated workers’ wage premium will require increased macroeconomic growth to spur employers’ hiring of more such workers. And it probably will further degrade the wages of lower-skilled high-school graduates. Despite its virtues, designing and implementing policies to advance macroeconomic growth remains a quixotic quest for economists and politicians, especially when Republicans decrease publicly-funded research, infrastructure expenditures and investment incentives.

Also, a sustained, large increase in folks who have PHISE degrees is likely to reduce the marginal value of such degrees, as reflected in reduced expected wages, even with economic growth. The law of diminishing marginal returns applies to holders of 2- and 4-year college degrees with respect to salary prospects simply because having such a degree will become less distinguishing.

No one wants to consider this possibility – and certainly no politician will say it, especially during the unending election season. Because it’s contrary to our long-established, personal hopes that more education provides better economic prospects. Middle-class citizens’ “American Dream” is founded on this hope; they hold it as a keystone of their children’s brighter future.

This is the fallacy of espousing unsystematic policies that can change only one part (the supply) of the market for highly-educated people. Such policies will produce an imbalance for college-educated workers because policy-makers don’t consider about how employers (the demanders) of BA-holding people will react to the consequences of their policies.

Other nations have adopted policies which reduce the cost of higher education, usually involving significant public expenditures and subsidies. Of the 15 countries listed, the nation with the lowest 2010 college costs (tuition, books and fees) was Denmark – Bernie’s favorite? – with annual costs of only $530. I can’t even count that low. The US college costs were $24,700 (private) and $7,123 (public). As a percent of median household income Denmark’s college costs were 2.3%, the composite US cost was 51.3%. According to a recent OECD report, 15 of the 33 nations had higher college (tertiary-level) graduation rates than the US, including Denmark. How does Denmark achieve such low college costs and elevated graduation rates? In part by having its citizens pay higher income taxes – a 71% higher average income tax rate than the US.

Our nation has a long and pricey way to go if we want to significantly lower the expense of getting a college degree and increase our national college graduation rate. Lowering college expenses for students is only one part of a possible solution, which will only be effective and beneficial if college education policy is systematically implemented, covering both the supply and demand sides of the market.

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[1] Actually a lot more than a ton. One billion George Washington $1 bills weigh about 1,100 tons. So Sen. Sanders’ free college plan would weigh 825,000 tons of Georges. That’s about the weight of 8 huge Nimitz-class aircraft carriers, the largest US Navy ship. And something that Sen. Saunders would no doubt be very happy to trade-in for more college students.  

[2] Effectiveness is doing the right thing; efficiency is doing a thing right (in economics, doing it with the least opportunity cost).

MORE YOUTH-FULL THAN EVER

The foundation of every state is the education of its youth. ~ Diogenes   

Humanity remains young, despite all the talk and time devoted to how old we're getting. There have never been so many young people alive as are now. The earth's 1.8 billion young people, between the ages of 10 and 24, according to a recently-issued UN report, represent 25% of humanity. Most of the people living on this planet today have yet to reach age 30 and are transforming the present, let alone the future. But adult policy-makers around the globe are not supporting youth's fundamental needs and thus aren't doing much to take advantage of the economic and social potential of this sizeable portion of humanity.

Our youth population isn't equally dispersed across the world's 196 nations, as 9 out of 10 young people live in less-developed countries. Six nations' populations ,including Israel, are "youthening" rather than ageing, meaning their median age is actually declining. In Afghanistan and 15 countries in sub-Saharan Africa, half the population is under 18. Other nations – most of them richer and developed – like Japan and Germany are fast growing older and will soon experience the travails of insufficient working-age/younger people.

China is an interesting example of a rapidly aging country. Principally due to its one-child policy, within 5 to 6 years the world's most populous nation will become older than the US. Because of China's highly sex-selective abortion rates, it will have 96.5 million men in their 20s in 2025 but only 80.3 million young women. This imbalance in its near-term demography will present many challenges for the Communist Party elders.

Each nation has unique population characteristics that can differ markedly from other countries. Figure 1 illustrates 3 demographic attributes of the 20 most populous nations on Earth, which together account for slightly more than 5 billion people and 70% of world population. These attributes are the nation's median age, youth (ages 15-24 years) population proportion and youth unemployment rate.

 

 Based on this information, Germany and Japan are the most "mature" of these countries. In contrast, the most "youthful" are Ethiopia and the Democratic Republic of Congo, followed closely by Nigeria. Half of these 20 nations have youth unemployment rates greater than 13%. Unsettlingly, in 4 of them – Indonesia, Egypt, Iran and France – youth unemployment now exceeds 20%; Egypt has the highest, a dreadful 35.7%. The unemployment rate for US teenagers (16-19yrs) in October is a distressing 18.6%.

Another measure that represents the youth or maturity of a nation's demography is the Potential Support Ratio, which indicates how many working-age (15-64 years old) people there are for each post-65 year old person. The higher this ratio, the greater the economic potential for the nation, and the more likely the nation can afford the higher retirement and health costs of its oldest people. Thus a lower ratio is detrimental with respect to future growth or fiscal sustainability. More economists now believe that "secular stagnation" is caused in part by fast-aging populations where the working-age population is shrinking, like in Japan, Germany and other nations.

Figure 2 shows the Potential Support Ratio for these same 20 nations. As illustrated, the more mature nations' Potential Support Ratios are much lower than the youthful nations. Japan's ratio is a mere 2.4 – meaning there are 2.4 working-age people in Japan to support each 65+ year-old person. The US ratio is now 4.6; by 2050 it is forecast to be 2.8 when all the baby boomers will have blown at (perhaps even blown out all) 65 candles on their birthday cakes. By contrast, the Congo and Nigeria now have more than 18 working-age people to support each post-65 person. The 8-fold difference between Nigeria's and Japan's Potential Support Ratios illustrates just how dramatically dissimilar population characteristics can be between nations.

 

These 2 figures illustrate why Africa is the most youthful continent and Europe (especially Southern Europe) is the most mature.

It's not mysterious what types of support young people need from their governments in order to thrive. Spurred by youth, the working-age population is expected to more than double in the least-developed nations, especially in Sub-Saharan Africa. All nations, but especially those with significant youth population, must invest in youth-oriented health care, education and labor (HCEL) policies to support their continued development and growth. Such policies can increase the likelihood that these youthful nations can benefit from their up-coming Demographic Dividend.

The demographic dividend is the accelerated economic growth that may result from a decline in a country's mortality and fertility rates and the subsequent change in the age structure of the population. With fewer births each year, a country's young dependent population grows smaller in relation to the working-age population. With fewer people to support, a country has a window of opportunity for rapid economic growth if the right social and economic policies are offered and public and private investments made.

In the past, this dividend has been realized by many nations, including the US (with us Boomers in the 1960s and 1970s), and later the Asian Tigers (Hong Kong, Singapore, South Korea, and Taiwan). Realizing this demographic dividend, however, is never a certainty for any nation. The 5 most youthful nations shown in Figures 1 and 2 (based on their median age and youth population percentage) – Congo, Ethiopia, Nigeria, Pakistan and Philippines – have expended less than two-thirds as much on education and on health care as the other 15 most populous nations. This lack of spending on key HCEL policies means realizing the dividend is more unlikely for these countries. These 5 most-youthful nations have over 123 million young people.

Americans don't need to travel to Ethiopia or Pakistan to see the effects of such lack of spending in youth education and health care. You can visit South Dakota's Pine Ridge Indian Reservation or any of the mostly-forgotten, poor under-invested inner-cities of America to witness a glaring lack of HCEL infrastructure that doesn't require a passport to behold.

Young people in Congo, Ethiopia, Nigeria, Pakistan, Philippines and other nations, as well as in places closer to home like Pine Ridge, require substantial health care and education funding to thrive and to capture the benefits that accrue from realizing their countries' demographic dividend. Unfortunately for the world's 1.8 billion young people, where this needed funding will come from remains a mystery.

EDU DISCONNECT

Education is not the filling of a pail, but the lighting of a fire. ~ William Butler Yates

Social, cultural and educational forces have reinforced the idea that success and a college degree go hand in hand. College is the academic coda to the American Dream, since in many people's minds college graduation can make the Dream inter-generational. In 2010, 5.9 million Americans between 25 and 34 years old have post-secondary degrees. Looking forward, however, I'm not so sure this educational mantra will remain true for every high-school student now considering college.

President Obama, like every politician worth his salt, rightly states that getting a good education (with emphasis on a college education) is a ticket to a brighter future. He's correct in many ways. Currently, US unemployment is a historically-miserable 7.7%. However, for folks with a BA or more, it's half the national number, 3.8%; and for those with less than a high-school degree it's a wretched 12.2%. College graduates earn during their working lifetime, on average, nearly $1 million more than people who don't go to college.

However, the popular perception that a BA creates an ever-increasing monetary bonus is no longer true. Over the past decade, the wage premium from receiving a BA has been a steady 60% more than people without a BA. Impressive and meaningful, but this premium has not grown as it has in the past; it's been constant. The BA wage premium has been maintained in no small part because the wages offered to people with only a high-school degree or less have actually decreased.

It's hard to expect that this premium would now increase as more and more young people receive college degrees. Between 1992 and 2008, the number of BAs awarded increased by 50% to more than 1.6 million. However, the wage premium provided to people with advanced degrees (masters, professional and PhD's) has progressively increased. Because of the increasing supply of graduates with BAs, those with advanced degrees are as distinguishing now as BAs were in the 1970's and 1980's. Nevertheless, our increasingly well-educated citizenry has broadly benefited our nation and its citizens, not only with income growth, but in many other equally-positive, important ways.

But for all too many recent 2- or 4-year college graduates, their post-graduate world has collided with the reality of the nation's extended economic doldrums. Just ask any graduate who's waiting on restaurant tables and/or living with his/her parents to save money to pay off student loans. About two-thirds of BA recipients take out loans to finance their education. Student loans now total more than $1 trillion (more than credit card debt), and one in 6 student borrowers are in default.

During our continuing labor market weakness employers can afford to be much pickier about what they require of applicants, who they hire and how much they offer as starting wages. A recent article illustrates this "up-credentialing" trend, where more employers now require a job applicant to have a college degree that didn't in the past. For example, 65% of ads for claims adjusters now state that a BA is required, only 48% did in 2007. The dream of achieving success through a BA is starting to seem chimerical for more graduates.

Underemployment of college graduates – in jobs that require a BA, but do not need college-level knowledge or skills – has spread widely. This expanded "trickle-down" of a prerequisite BA makes it even more difficult for job entrants without a college degree to now find meaningful work. I believe this is part of an educational disconnect perpetrated by the educational industry.

Yet not just college students and graduates are dealing with changed financial circumstances. The fiscal challenges facing colleges and universities themselves are manifest. Colleges have heavily borrowed over the past decade, following the edifice complex, to upgrade their facilities. College debt levels have doubled – now at $205 billion – in the decade ending 2011; but their pledged gifts and investments received have dropped by more than 40%. Here are a few telling statistics that show how colleges have allocated their thinning financial resources: long-term debt at US nonprofit colleges grew 12% per year from 2002 to 2008; interest costs (on their debt) increased 9% per year. Instructional costs increased only 5%. 

Despite underemployment of perhaps 50% of college graduates, an increasing number of media articles mention the "skills gap" that employers bemoan makes it impossible to hire as many skilled workers as they have need. Although there are undoubtedly firms that can't find workers with needed skills, skills that often require STEM knowhow (Science, Technology, Engineering and/or Mathematics), other firms lamenting a lack of employable workers continue to offer these skilled jobs at rock-bottom wages – starting salaries around $10/hr. If there's truly a "skills gap" in our labor market, then common sense (and extensive historical data) argues it can be lessened by raising wages/salaries to attract more qualified applicants. Why would a high-school or junior-college student with nascent STEM skills apply for such jobs that pay $10 to $15/hr when a McDonalds shift manager can make about $14/hr, and does not need any STEM knowledge? Good question.

A more fundamental question is: are high-schools and colleges producing graduates with skills needed in today's economy? When it comes to non-college-attending high-school graduates and manufacturers the answer seems to be, not really. Far too few people graduate from high school knowing the basic technical, math and science skills that more and more firms (including modern, heavily computer- controlled manufacturers) need.

Not enough newly-minted graduates have gained the skills to lay claim to the expanding job opportunities in modern manufacturing, modern science, modern engineering and modern quantitative analysis jobs. Why are job opportunities increasing for skilled, quantitatively-trained people? In part, because the average age of high-skilled factory workers is now more than 55 years old. And because quantitative methods have become necessary and expected in more and more jobs as on-line systems collect and assemble ever-more Big Data that needs to be properly analyzed and assessed.

For several reasons, today's labor market – that supplies workers to employers who hopefully demand them as employees – seems increasingly dysfunctional. This is not really a skills gap in the labor market; it's a really supply shortage of skilled workers coming into the labor market from schools, a lack of interest by students to learn such skills and a reluctance of some employers to increase wage offerings for higher-skilled workers.

First, various employers seem unwilling to understand that if they want workers with relevant skills they have to pay more than $10/hr to attract them. Second, students and potential workers must understand that in order to gain jobs in today's economy they will increasingly need skills beyond general studies and liberal arts. Although education in the liberal arts remains a necessary foundation for understanding modern society, quantitative, STEM-based skills are fast becoming necessary for a far broader array of jobs.

Finally, educational institutions that now seem disconnected from job market needs must up-date and revise their curricula to reflect these evolving needs in the labor market. This is especially true for high-schools whose non-college-attending graduates find themselves with no readably employable skills.

Basic economics explains a fair amount of this new state of affairs in the education labor market. This disconnect may result from being stuck in "the good old days" when having a college degree was truly exceptional, no matter what you majored in. It still is, but much, much less so. Now, your choice of college major makes an ever-larger difference in finding a worthwhile job.

I grew up in the 1950's and 1960's in a household where both my mother and father were college graduates. I didn't realize how unusual that circumstance was until recently. It seems in the 1960's only 3% of US households had both parents being college-educated. In fact, when my mother and father completed college in the heart of the Great Depression, less than 1% of females received a BA and less than 4% of all young people had college degrees. They were truly exceptional. In those times, as well as into the late 1960's when I graduated from college, having a BA remained very distinctive. In 1970, 11% of people over 25 years had college degrees. In 2012, for the first time 30% of young adults report having a college degree. In April, the Bureau of Labor Statistics reported that 68.3% of high-school graduates were enrolled in colleges or universities.

The difference between 11% and 30% may not seem that large, but over the past 20 years the promotion of college as one's ticket to (especially financial) success has been persistent and widely adopted. With more and more young people graduating from college having a BA remains distinguishing, but much less so than in the past – especially when combined with the effects of a slow-growth, high-unemployment macroeconomy. Yet understandably demand for post-high school education remains very strong and quite price inelastic, especially at so-called "selective schools." In my view, this continued growth in demand for tertiary education has lessened the incentives for colleges to modernize their curricula.

During the past decades, as the supply of young people in colleges and receiving degrees has significantly increased, the economic "law of diminishing returns" has become relevant. The return from receiving a BA probably has diminished compared to a decade or two ago; prompting articles with titles such as "Is college a rotten investment?" [This article's unsurprising answer: no, it's not a rotten investment. But some schools offer much lower returns – specifically on-line and for-profit – than others.] In other words, college-graduates' expectations about striking it rich just because they've got a BA needs some revision. The college return increasingly depends on exactly what skills/courses graduates gain, not the BA diploma itself.

What's happened with US education, relative to the rest of the educational universe? Perhaps most significant, over the past several decades US education has fallen from its top-tier perch of educational performance relative to other nations. After WWII, the US led the world in broadening and improving its citizens' educational attainment. This broadening was founded on passage of the 1944 G.I. Bill that sent ex-soldiers to college and on the Sputnik-inspired 1958 National Defense Education Act, which increased Federal spending on schools at all levels and created subsidized student loans for post-high-school education. Later legislation, like the 1997 Taxpayer Relief Act, further broadened tax breaks and subsidies for college education. Gradually other nations saw the wisdom of such policies and eventually either caught up or surpassed us. US education now badly needs to catch up.

By 2010, 21 OECD nations (out of the 37 member countries) have high-school graduation rates higher than the US, including the Czech republic. In 2010 the US ranked 9^th in university-level education entry rates among OECD nations. In 2011 US high-school students fell behind 31 countries in math proficiency and behind 16 countries in reading proficiency. The US ranks a grim 43^rd in the world, right behind Morocco, when comparing public education expenditures as a percent of GDP. This mediocre performance of our students bodes ill for our continued ability to compete against ever-stronger international rivals.

The US needs to counter this slipping performance if we want to benefit to our citizens and grow our economy. Here are 4 actions I suggest the US education system needs adopt to improve and become less disconnected.

1.       High schools and employers must start talking together and re-emphasize vocational education as a viable option for 18-19 year old people interesting in employment directly after graduating. Such communication, together with specific programs, has begun closing the gap between education and employment, has shown promise. I'm not talking about dusting off the shop benches and auto repair facilities that were shuttered long ago when vocational ed was swept under the educational rug and pre-college academics was put on its pedestal. We seem willing to forget that even now at least one-third of high-school graduates don't enter college and their job prospects have never been less likely or less rewarding. Many of these graduates may do better through vocational-technical-apprentice programs in high-school and 2-yr colleges. These programs have worked in the past and can again, especially when affiliated with employers who need skilled workers. These programs need to become far more practiced and widespread. The costs of providing vocational ed are declining through the use of technology that effectively inter-connects students and teachers.

2.       High-schools should mandate that all graduates must master two basic skills; writing cogent, well-constructed expositional prose with word-processing software, and knowing what I call "practical mathematics." Practical math refers to knowing how to use algebra, knowing how to graphically represent algebraic formulas, knowing how to use computer spreadsheets and understanding introductory statistics. Every graduating high-school senior needs these skills in order to be employable.

3.       Junior/Community colleges must augment these writing and math skills so graduates with associate degrees entering the workforce can be understood and can easily deal with numbers and data that surround virtually every new non-minimum wage job.

4.       Colleges and universities have been stultified into thinking no substantive changes in their curricula or programs are needed due to the ever-increasing tide of applicants. After all, students keep knocking at their front doors, almost begging to be admitted, why do anything different. Such colleges proudly display single-digit acceptance rates with tuitions and fees dutifully raised. That thinking is misguided and unsustainable for 2 reasons. (A) Although 68.3% of high-school graduates are now enrolled in colleges, only 56% of college students complete 4-year degrees within 6 years, and only 29% of those who start 2-year degrees finish them within 3 years according to a Harvard study. US college dropout rates remain distressingly high.[1] (B) US failure to graduate rates are highest among any of the 18 nations tracked by the OECD. In other words, too many US colleges aren't terribly good at what the purport to do – produce graduates. Has such mediocre performance caused a re-assessment in college presidents' compensation? Apparently not. A NYTimes article states that the number of presidents earning in excess of $500,000/yr more than tripled to 157 over the past 8 years.

What can be done at the college level? First, start by being honest with applicants and explicitly saying that gaining a BA is not a ticket for guaranteed financial and personal success. It requires significant work. It's education, not a job card. Getting a BA will involve studying hard and making strategic choices. A BA may be necessary for all too many jobs (at least half of which really don't require college-level thinking), but it's not sufficient.

The motivation for going to college needs to include interest in gaining a range of knowledge per se, not simply (or only) mastering the rec center's climbing wall and getting hired by the likes of Google, Apple or Genentech. I know, going to college to gain and expand one's knowledge may be so yesterday. But for decades college administrators have sold their service as if it were a credential for success. Middle-class families, employers and most importantly federal  and state governments have swallowed this hook, line and sinker. In this educational variant of the American Dream, governments have continuously expanded subsidized loan programs so more students can afford college, which in turn has lessened the need for colleges to moderate their ever-escalating tuition and fees. Virtually everyone by now knows that the cost of a college education has followed a ballistic trajectory over time: rising 4 times as fast as all other goods and services since 1995.

Federal and state governments should leverage their large power of the purse to force colleges to adopt 3 needed, transformative changes. Colleges can receive continued financial and research support from the government only after they accomplished the following. (A) Higher education must create publicly-available standards of academic quality. These standards, which do not exist now, would be applied to colleges' degree programs allowing prospective students and others to assess a particular college, relative to the standards' norms. (B) Numerous colleges need to enter the 21^st century by vacating the 19^th through modernizing both administrative and educational fiefdoms. Too many colleges have as many administrators as instructors. The current management, operational and administrative structure of colleges (as well as K-12 schools) hasn't really changed in ages and all too often contains bureaucratic inefficiencies. By their nature, such bureaucracies will be reluctant to adjust. The carrot and stick of government funding may make them see the "value" of modernizing and improving.

 It goes without saying that Harvard is an exceptional university and practically without peer academically. Like many colleges, Harvard has heavily invested to maintain its exalted position; debt has increased $7.4 billion in the last decade (the largest increase in the nation). It graduates 97% of its undergraduate students within 6 years. And yet, this university seems a decent example of a bureaucratic mausoleum. Harvard comprises 11 separate academic units and 10 faculties—that teach 6,700 undergrads and 3,900 grad students. It offers 46 undergraduate majors, 134 graduate degrees and 32 professional degrees. In other words, even exceptional colleges will likely benefit from modernizing their operations and realizing efficiencies that private industry has practiced for generations.

(C) Colleges must adopt and use modern educational technologies that support MOOCs (massively open online courses) and other innovations that can reduce cost and improve efficiency, flexibility and accessibility. I expect MOOCs and their associated infrastructure will exert a disruptively positive, broadening and re-connecting force on tertiary education.

With these changes more young people will receive more value from their high-school and  post-high-school educational experiences. Education will become more connected and more effective, for everyone's benefit.

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[1] The dropout (or failure to graduate) rate for private for-profit colleges is an astonishing 78%; for private nonprofit colleges it's 35%, for public nonprofit schools it's 45%.