15 Oct 2011

Twin Spin From Silas Barta

Economics, Humor 25 Comments

Silas Barta is not so sure he trusts the White House committee that decides which Americans will die based on criteria that are classified, and so he has created a Do Not Kill list.

On a more serious note, Silas has an interesting suggestion for those who take seriously the signalling model of education:

You might have heard about the so-called “Signaling model of eduction”, promoted by Bryan Caplan at GMU (among others!), and it’s something I find plausible.

First, some background: The problem is to explain why people who get a college education are more able to get jobs, and better paying ones. The traditional explanation is that colleges provide you with knowledge skills that allow you to be more productive. (This has always seemed suspicious to those of us who have remarked, throughout our education, that “I’m never gonna use this stuff” … and been mostly right.)

The signaling model, in contrast, says that completion of college simply reveals your possession of good traits for hiring that you already had before, but could not convincingly claim to have until you completed college, since a college degree indicates some combination of intelligence, willingness to do boring stuff that doesn’t make sense, and capacity to be indoctrinated into and conform with a group (I’m simplifying a bit). These things are hard to test in a job interview, or, in the case of intelligence, usually illegal to test for.

A few years ago, I pointed out (HT: Bob Murphy [1]) that one usefully testable implication of the signaling model is that you should be able to earn big profits by running a business that provides high school graduates with the same “signals of good qualities” that a college provides, but at significantly lower (monetary) cost to them, simply by “cutting out the fat” — all the stuff that doesn’t help to signal the student’s ability. You would just set up some school that filters students by IQ, and then puts them through hell, gives them difficult assignments, poor living conditions, etc. No way an unemployable person could survive through that kind of regimen, right?

So there’s your idea: you make students just as employable, but they don’t have to take on nearly as much debt.

To put this in terms that Bryan Caplan would appreciate: If the signalling model is correct, then why don’t we see all kinds of much-cheaper alternatives to college? Don’t tell me accreditation is screwing things up: That’s the beauty of this test–it shouldn’t depend on government standards at all (if Caplan is right), or if anything, accreditation should make it even easier for Caplanesque businessmen to earn a profit from jumping in. Everybody else in the industry is under the impression that employers want kids who actually know stuff like algebra and The Raven, but no they don’t–the employers just want a reliable signal about the intelligence and work ethic of potential new hires. There should be a humongous opening here for businesses to fill this niche in between cost of development, and the $20,000+ per student charged at some “institutions of higher learning.”

So what’s going on, Bryan? Why don’t we see such businesses? Why don’t you take your advance from Parents Don’t Matter and start it yourself?

(NOTE: Silas was not being sarcastic in his idea. Silas is open to Caplan’s theory about the purpose of education in today’s world. I am open to the idea too, except when it is promoted by Bryan Caplan.)

25 Responses to “Twin Spin From Silas Barta”

  1. Brian Shelley says:

    The universities have strong reputations that they have cultivated over many many years. Silas is right, and I have pondered how this can be done, but I don’t have any good ideas yet of how to start small. Perhaps Mises/Peter Schiff could collaborate on an Austrian “Investor’s Degree” to work as brokers.

    • Bob Murphy says:

      Brian, your lack of faith is disturbing. You keep coming back to “employers want training.” No they don’t (if Caplan is right). Peter Schiff and the Mises Institute don’t have anything to do with this. A personal trainer at a gym is more likely to be the answer. “Yeah, I made that guy do situps till he puked. Great discipline.”

      • Daniel Kuehn says:

        I haven’t read Caplan on this in detail. Does he promote a pure signaling theory of education? Signaling is usually presented as one of many components of a return to education – the big one being, of course, the skills bundle you get.

        Not that I’d put it past Caplan to offer something extreme like a pure signaling theory… I’m just don’t know personally if he does.

        • Major_Freedom says:

          I’m with Daniel on this one.

          Pure signalling can’t be right, because then you would see electrical engineers seeking brain surgery graduates for apprentices, “because they went through hell for 12 years and have shown themselves to be mentally disciplined.”

          There’s got to be a combination. Skills/productivity AND signalling, among other factors.

          Silas’ statement “This has always seemed suspicious to those of us who have remarked, throughout our education, that “I’m never gonna use this stuff” … and been mostly right” seems to be more of an anecdotal argument than anything substantive. Sure, maybe if you’re a mathematics undergrad and you aren’t going for your PhD, but rather getting a job right after your undergrad, then you probably won’t be using your newly learned skills on the job.

          I think the impetus for all this discussion is that there is, IMO, an education bubble (financed by cheap credit and backstopped by the government). This has created an economy where people who really wouldn’t or shouldn’t go to higher education, are going to higher education, “just because everyone else is too.” Kind of like investors buying MBSs during the housing bubble “just because everyone else was too.”

          If the theory that education is in a bubble is true, then we should see more and more high school graduates going to university and college, as opposed to trade’s schools and learning on the job (naturally), but with the side effect of leading to an alteration in the valuation of education, from learning actual skills in order to be productive, to generating more of a signalling valuation as well.

          It’s kind of like an investor during the housing bubble soliciting various hedge funds and equity funds with which to invest, and he’d make the judgment about some firm: “Hey, your firm isn’t investing in any MBSs! Everyone else is investing in them! You must not be “in the game”! I’ll go somewhere else with my money.”

          Employers are faced with a similar thing. Education is becoming more and more a “check in the box”. I can imagine recruiters acting similar to mortgage loan robosigners during the housing bubble. Just put a check in the box and move on.

        • Silas Barta says:

          @Daniel_Kuehn and Major_Freedom: Caplan doesn’t endorse that pure of a model, and would agree that of course a trade school, and most of engineering degree programs, teaches job-relevant skills.

          But this does not explain the earnings benefit to ~90% of college grads.

          By the way, a lot of the explanations being given here contradict the part of my post that Bob didn’t quote: that the military already taps a large fraction of the market for this kind of service, since it has low monetary costs, administers an IQ test (ASVAB), puts you through hell, conditions you to obey orders, and makes you more employable.

      • Brian Shelley says:

        Sorry Bob. I was taking Silas’ comments as a joke and assuming he wanted to create an alternative model to the signal-laden university system.

  2. TGGP says:

    I think Caplan already addressed this. He said doing something unusual marks you as “weird”. Normal people go to college.

    • Bob Murphy says:

      OK and that’s why the premise behind Moneyball is dumb then, right? And we need anti-discrimination laws, because no business would want to look weird by hiring highly productive and underpaid minorities.

      (I’m criticizing Caplan’s response, not you TGGP–I hope you have fairly characterized his response.)

  3. jjoxman says:

    Not for nothing, but why do you have a hard-on for Bryan Caplan?

  4. jjoxman says:

    There’s a reason that banks and financial institutions largely hire people with finance degrees, and it’s not signaling. It’s because they are partially trained in the language and skills needed for specialized work.

  5. Brent says:

    I don’t think it is not wanting to look “weird” that explains it, although that is close. I think it is reasonable to smart, employable young persons (and their smart, employed parents) really do think colleges are supposed to provide knowledge and even some usable knowledge. Employers, for practical reasons, may in fact use college degrees as signals, but if it ever became clear (people saw through the huge college propaganda campaign) that college was mostly about signalling as far as employment was concerned, then something like Silas proposed could take its place. But I think it would look more like apprenticeships and internships at younger ages then what Silas suggested (tongue-in-cheek)!

  6. Daniel Kuehn says:

    Part of what a degree from a brand new university signals is that you are not conforming to existing, institutionalized practice. I suppose that’s not a good signal in a lot ways. PARTICULARLY if you happen to think that institutions persist for a reason: because they’re functional. A willingness to flaunt or question not just what is normative, but what is highly functional, is perhaps not the best signal to send.

    And an asymmetric information problem (how do you know if this particular start-up university is genuine and good?) probably prevents a lot of potentially good schools from getting started in the first place. We could even think of this asymmetric information problem as introducing adverse selection – you’d suspect that the people who do build start-up universities are precisely the people who flaunt institutions and functionality, and so they’re going to be precisely the places you don’t want graduates from.

  7. Daniel Kuehn says:

    Part of me wants to ask Silas to put me on his list, just to see if he’ll refuse out of spite.

    Part of me recognizes that I want a competent, civilian controlled military anyway that doesn’t give a damn about Silas’s list and recognizes that due process for military engagements is not the same as due process for criminal cases and that the fact that those two are different does not give them a blank check.

    Ah well – I rest easy knowing I could really care less about what Silas thinks of me, and that our military – though not perfect – at least approaches that level of professionalism.

    • Major_Freedom says:

      Part of me wants to ask Silas to put me on his list,

      ::Joke alert::

      Well, if he doesn’t, and you unfortunately do end up getting assassinated, then there will be a silver lining. It will lead to your family spending money, which will “stimulate” the funeral home and casket industry (or the furnace and urn industry if that’s how it will go). This will have the effect of boosting spending and GDP. I surmise that with enough assassinations, and enough spending as a result, then just like in WW2, we will finally get out of this persistent recession once and for all.

    • Silas Barta says:

      Part of me wants to ask Silas to put me on his list, just to see if he’ll refuse out of spite.

      Daniel_Kuehn, I believe that all people, even those I disagree with, are entitled to the kind of protections requested by the DNKL.

      Did you miss the part about how these killings are secret, targeted, and not subject to judicial review. Even from your bizarre usage of the concept of “due process”, you should be opposed. This is not a case of “you can sue the government, but they will just point out that they declared a war and this dude was taking up arms on a battlefield engaged by the enemy, so you’ll lose the suit.”

      Rather, it’s “if you sue the government, they’ll ask for the suit to be dismissed on the grounds that they can’t say why this dude is being targeted for killing, except that he’s bad.”

      Do you want to be on the list?

      [1] In standard usage, enemy soldiers in a declared war do not get due process. It is a novel, procrustean use of the term to say, as you do, that “Enemy soldiers get due process, and that due process is being shot at by US soldiers.”

  8. Cody S says:

    Plus the additional gdp Free Advice readers will generate with the labor freed up by not arguing with you in the comments section!

    • Bob Murphy says:

      I realize you are just making a joke, Cody S, but it’s the other way around since we’re in a liquidity trap. In fact, if the government passed a law requiring all commenters to double check their grammar, it would reduce unemployment.

      • Cody S says:

        My bad. Forgot that zero bound again.

  9. Tel says:

    To put this in terms that Bryan Caplan would appreciate: If the signalling model is correct, then why don’t we see all kinds of much-cheaper alternatives to college?

    I’m tempted to mention Oracle University here, but note carefully that “cost” is a very personal metric, it might include components of time spent, convenience, networking opportunities (or lack thereof), etc.

    I suggest that if Goldman Sachs started an online accreditation system for economics and accounting that was built around a similar model to Oracle University, they would do pretty well out of it, Of course, they would be needing some top gun programmers and server admins, dunno where to find those… 😉

  10. joeftansey says:

    Attending and completing college means that you’re a conformist, and are willing to put up with mindless and meaningless tasks for a LONG period of time. This perfectly mirrors most jobs.

    A low-cost short-term grind school would succeed in signaling ambitious, self reliant, highly intelligent individuals. There is not a large (in terms of volume) market for these traits. They are most desirable in really specialized fields which you have to go to college to get a degree for anyway (both because the training is useful, and because specialists require licenses).

  11. Bestquest says:

    Using a “much-cheaper alternative to college” will send a signal that your parents don’t love you, or they were too irresponsible to save for your education, or they raised a child who is too dumb to get into college.

    What will their neighbors think?

  12. complexphenom says:

    Is the “major in employability, earn your bachelor’s degree in three years” ad on the top left from Westwood college supposed to be a joke?

  13. Marcus H says:

    As a current college student I can tell you that from my own personal observations, many (dare I say a majority) of the students at the two schools I have so far attended (two rather large state funded schools) are simply in college because everyone else is doing it. They are here to have a good time and eventually graduate with a degree in 5-6 years. Most of these students are getting degrees in business or social sciences, but none of them really care or are passionate about the majors they are pursuing. They don’t care much about the world around them and the future of the country (well if they understood the impact it had on them they might pay a bit more attention). These students are simply here to explore themselves as it were. I am among them in that sense because I have yet to find a college course that has really sparked my interest and made me think “I could do this day in and day out as a career, I’m going to pursue this as a possible career path.” Unfortunately, whats wrong with the college system and in fact the whole education system that preceeds it is that students aren’t encouraged to endeavor into what they think interests them. If its not math or science based its not important. Anyways, here I am at college, spending money that I thankfully do have because my parents saved, but I can’t go on like this forever. If I haven’t found something I am passionate about or at least able to tolerate, in a year or two I wil be out of money and become like many of my friends and start taking student loans.

    the National Institute of Inflation or inflation.us put a documentary video on youtube called “Why College is a Scam?” and they are absolutely right, it is the most over-priced thing in the world. Essentially a college degree is a way to exemplify that you are indeed employable, you can finish a task that is rather mundane and sometimes challenging. What the documentary fails to explain is that if you do want to get a job in most industries its standard to require some sort of bachelors degree or work experience. Unfortunatly you cannot get work experience without getting employed and if you don’t have work experience then you absolutely need a bachelors degree. Because we as a society have no put so much emphasis on a college degree it basically acts as justification for the rediculous costs we see for this silly piece of paper, because without it you can’t get a job in the field you want to be employed in!

    now to step back from all of this for just a second, I’d like to acknowledge how far our beliefs and ideas about our own society has changed since the great USA was formed. Capitalism and encouraging entrepreneurship has been swapped for corporatism and an outcry for JOBS JOBS JOBS! Everybody is whining because they can’t get a job, well the interent age has made it easy as hell to research and learn about things. You may not get a fancy certificate or a degree that says your smart, but you sure as hell can learn about how to create a business and start your own business venture. If more people would swallow their pride and work at McDonald’s for a few years while aquiring the capital and knowledge it takes to run a succesful business, they might find that ten years from when they started they might be taking in more money from their business then they could ever achieve on that yearly salary given to them by corporate america.

    Well, I know that what I wrote probably contradicted itself and didn’t have much of anything to do with the article we all just read, but thanks for reading anyways haha!

    PS – If I am wrong about something, let me know so I can investigate more into my own ignorance and correct it.