On Inside Higher Ed today, University of Rochester economist Michael Rizzo has an excellent essay in which he questions the wisdom of President Obama’s idea that the nation needs to regain the world’s number-one spot with regard to college completion by 2020. He observes that the connection between formal education levels and economic progress is not as tight as Obama and most politicians assume. “Hong Kong,” he notes, “became one of the wealthiest regions in the world before it began any substantial investments in education.” I’d add that you could say the same thing about the U.S. Our economic growth led the world back in the 19th and early 20th centuries, when college was mainly for the training of the clergy.
Is there any evidence or reason to believe that there was a human-capital shortage in the U.S. prior to the time when the role of the government in education was limited to hardly more than ensuring basic literacy? I don’t think so. Self-interested people seldom miss the opportunity for gain for very long. They’ll invest in new skills and knowledge when it appears profitable to do so. For example, America had many brilliant lawyers long before it was customary (and later obligatory) to graduate from a three-year law school program. They learned their lawyering skills on the job, and that’s still where most of it comes from, not from law-school classes.
I don’t think there is any market failure in the acquisition of useful knowledge and skills, but there is abundant evidence of waste when government undertakes to subsidize formal education. It turns into a very costly credentialing process that feeds off, rather than adds to, economic growth.