6/10/2013: Betsy Hammond reports that only 61% of Oregon HS grads go on to college, vs. national average of 68%.
6/7/2013: New work by Michael Greenstone and Adam Looney shows the returns to higher education are dramatically higher than stocks, or anything else, even for those who get some college but then drop out. This comes from a combination of higher wages and lower unemployment. (Watch out for the selection effect of course). Figure from the NYT:
Update: And, rather amazingly, here’s a brand new story on America’s most famous dropout, and his recently discovered ability to do percentage calculations:
I guess UOMatters is hosted by an economic illiterate. There is no such thing as a widely accessible investment that pays 19.3% annually on average, If college was such an investment, most college graduates would end up with tens of millions of dollars.
How could you post something this obviously fallacious?
I think high schools should teach economic literacy to all students, so we don’t end up with professors with Ph.D.’s who believe such nonsense as this.
Thanks Bernie, but I’m not sure you understand percentages. If you don’t want to go to college, this explanation is pretty good: https://www.khanacademy.org/math/arithmetic/decimals/percent_tutorial/v/describing-the-meaning-of-percent
Apparently our interim Provost is hiding behind a new name. You and your percentages, Jim. Funny.
hah hah, and I guess UOMatters doesn’t understand the concept of annual compounding.
Statistics like these on the return of college vs. other investments are pretty common. It’s surprising how many people don’t see the obvious fallacy.
It shouldn’t take an econ Ph.D. to understand a scam like this.
Mr Madoff makes a good point, but as it happens economists have been thinking for a long time why arbitrage does not happen. One simple reason, inability to finance higher ed. Good reason to direct more resources to higher ed and means-tested scholarships.
It would appear that the return calculated for higher ed is based on the concept of a fixed investment equal to amount spent for the education. The calculation assumes that annual returns are paid out and cannot be reinvested as other investment vehicles allow. Also, I wouldn’t be surprised if the effects of inflation on the returns were included so that investment return is exaggerated by comparing inflated dollars earned later in life to dollars originally invested. Excellent deceit. Uses standard investment nomenclature to describe a non-standard calculation and then comparing the non-standard calculation to the returns of other investment vehicles calculated in the standard way. Good manipulation.
Last Anonymous June 08 — you understand it well. Especially — how specious to compare the “return” on education to the return on stocks, which can be continuously reinvested.
Anonymous, you might even qualify to become a UO econ prof!
Let me know if you’d like me to write you a recommendation — I have plenty of time for that kind of stuff these days.
Higher ed is not a Ponzi scheme, and all these returns have been calculated in real dollars.
But my good friend and cellmate Bernie is correct that you cannot reinvest your earnings from college in more college (at least beyond a point). So you cannot compound that 15% real rate of return.
You can go to college and then invest part of your lifetime of higher earnings in the next best investment, corporate stocks. Of course those earnings will compound if you keep reinvesting them.
This is exactly what smart people do. They get as much high yielding higher education as they can, and then invest in stocks. I recommend sticking with something like the Russell 3000 basket, which Vanguard sells. That’s got almost no expensive management fees, and you won’t be taking the risk of dealing with some sort of fraudulent stock picker.
Actually, you can compound, sort of, by investing part of your higher income in education for your children.
As I always used to say, “There’s no such thing as a free lunch.” I’m sure Bernie and Charles would agree.
Isn’t it interesting that it took a ganof like Bernie to see through the preposterous — or at least misleading — claims of this article? I guess if you want somebody to read the books, it helps to have someone whose done some good cooking.
Gary, it was great when we were at the University of Chicago together, but things have changed a lot since then. Have you looked at what they’re charging for that place now? And they have plenty of company.
If I was still in a position to be dispensing advice, I’d probably say go to a state school — U. Illinois is not too shabby — unless one of those snooty places gives you a really good deal.
What’s misleading about it?
Actually I’d go farther – the government should borrow at 1.5% and spend the money on free college for everyone who can get in and pass their classes.
Sounds like a radical plan, but it sure worked well for my vets on the GI Bill, and I don’t recall the country going down the tubes over it. Actually, the Treasury was then able to use the higher tax payments from the college educated vets to pay off the t-bills, and in fact the entire cost of WWII.
Your humble in house physicist reminds us of Einstein’s dictum: “The most powerful force in the universe is compound interest”
And I’m really ‘in-house’ so let me remind you of P.T. Barnum’s dictum: “There’s a sucker born every minute.”
Yup, Greenstone’s figure really should have a bar just for those suckers who have been voting against having the government sell T-bills and invest the money in financial aid for low-income students. But suckers is too kind a word, because they did it to our children, not themselves. I think the other word for them is Republicans.
If yours is the kind of investment advice Congress is getting, it’s a good thing the Republicans aren’t buying it.
Even I never got away with offering a 19.3% annual return, I would have been caught a lot earlier if I had.
I dare say the problem Lincoln is supposed to have would stump most UO students — even with calculators — I wonder if most UO econ majors could do it? math majors? lol!