Higher Education and the Stratified Society

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by William L. Anderson: Obama's
Progressive Goal: Make Us Poorer By Any Means Possible

 

 
 

In a recent
column, Paul Krugman called for more federal aid
to college
students because students are finding it hard to pay tuition. At
the same time, he bemoaned the fact that many college graduates
today cannot find jobs at all:

You've probably
heard lots about how workers with college degrees are faring better
in this slump than those with only a high school education, which
is true. But the story is far less encouraging if you focus not
on middle-aged Americans with degrees but on recent graduates.
Unemployment
among recent graduates
has soared; so has part-time work,
presumably reflecting the inability of graduates to find full-time
jobs. Perhaps most telling, earnings have plunged even among those
graduates working full time — a sign that many have been forced
to take jobs that make no use of their education.

College graduates,
then, are taking it on the chin thanks to the weak economy. And
research tells us that the price isn't temporary: students who
graduate into a bad economy never recover the lost ground. Instead,
their earnings are depressed for life.

While I doubt
that Krugman would be able to appreciate the irony of his statements
— that taxpayers should be forced to pony up to finance sending
more young people to college even though they cannot find work afterwards
— there is a larger economic lesson here that most people don't
understand. Higher education in modern times has been a massive
malinvestment that cannot be sustained.

I say this
as a college professor (and I suspect I will get a few thousand
emails pointing out that fact) whose livelihood depends upon more
and more students showing up on campus each year, but I also am
an economist and an Austrian economist at that. While I find myself
to be part of a Grand Malinvestment, nonetheless I made the choice
to be part of it and if I am caught up in a greater liquidation
down the road, I bear the consequences of my choosing.

Several months
ago I was having some work done on my car, and as I watched the
mechanic do work on my auto's tailpipe, I realized that the economy
needed a lot more people like him than people like me In fact, as
Austrians point out, government intervention has created a number
of huge structures of malinvestment in the economy, which means
that there also is an imbalance of workers in various occupations.
Austrians note that an economy is a complex structure in which the
choices by consumers for consumption goods will determine what factors
of production should be used in production and where they should
go.

The Austrian
Business Cycle Theory holds that when governments through central
banks attempt to expand credit and force down interest rates below
market levels, the new money created by the monetary and banking
system tends to go into lines of production that cannot be sustained.
Sooner or later, these malinvestments are exposed and a crisis
ensues and these worthless "investments" must be liquidated
or directed to other uses compatible with the choices and time preferences
of consumers.

What does that
mean regarding higher education, and why do I mention a stratified
society? After all, according to Krugman and others, sending more
young people to college means that they can find higher-paying jobs,
so college always should be a good deal for society, right? Not
right.

When one says
that college graduates go into higher-paying work than people who
just finish high school, what is meant is that the factors needed
for the particular work require someone with certain credentials,
and the payment to these factors is higher than are payments to
factors of labor without such credentials. Now, in a free-market
economy consumer choice ultimately would decide the value of factors
of production, including labor services.

Instead, however,
it is the "credentials" of the laborer that decide the
value of the labor in the modern, government-regulated marketplace,
not the actual ability of the labor in question to satisfy what
Carl Menger and Ludwig von Mises described as "human needs."
While some describe higher education as the enhancement of "human
capital," nonetheless we need to draw a distinction between
actual occupational learning that is meaningful and actions that
simply involve the "punching of a ticket" in the activity
of someone gaining legal credentials.

Many of these
credentials are gained in the process of one's earning a certification
that comes from a government board (which usually is dominated by
members of the profession or people whose employment is in the education
process by which one gains certification). Furthermore, many of
these particular professions have limited access in order to help
maintain the high incomes of those who are seen fit to qualify for
a particular license.

People like
Krugman immediately would object here, claiming that the licensing
boards and the necessary credentialing that goes with it serves
as a "quality check" on a particular line of work. After
all, they would argue, would someone want a butcher to be a surgeon?

While the rhetoric
sounds good, one should remember that incompetent surgeons already
exist, along with incompetent people in every licensed profession,
which means that a lot of people are able to slip past the supposed
"quality control" apparatus that governs numerous professions.
But it goes even further than that.

The other day
I was driving past an oil-changing shop where they also do brake
work. I have fixed the brakes on my own car, including changing
the rotors and pads and doing repairs to the slide bolts and brackets,
something that would be costly at a shop. Yet, just because I can
fix brakes does not mean that any shop that fixes brakes would be
willing to hire me because they can find people who can do what
I do in their sleep. (The first time, I helped John Sophocleus do
brake work and learned a few tricks of the trade from him.)

Occupational
licensing and other state-sponsored "quality" checks would
have nothing to do with their hiring practices. This shop would
need someone who was competent if for no other reason than if they
were not done right and the mistake was responsible for an accident,
that the shop and its managers would be hung on the line. In part,
it is the fear of the ancient tort system that helps drive quality
control there, not government credentialing. (I am not sure how
the government of Maryland is involved in such matters, as I believe
that shops need to be licensed, but not individual repair workers.)

So, if an auto
repair shop is concerned about the quality of its repair personnel,
why does one think that a hospital or surgical group would hire
the first clown that walked through the door? In fact, I suspect
that without the fig leaf of a government board license, the medical
firms that would be hiring someone might be tempted to look more
closely into an applicant's background than they do now, if for
no other reason than the government no longer would be doing the
background checks.

We should remember
that the emphasis upon credentialing has not arisen because of issues
of quality control or continuing trends toward more incompetence,
but rather has come about through the legacy of the Progressive
Era. During that time, Progressives believed that in order to create
more "respectability" for various lines of work, having
government set lofty requirements through licensing would mean that
practitioners of the profession would be able to be trusted and
competent.

Nowhere is
this more apparent than in medical care, and much of the current
emphasis upon using the state as a quality control device originated
with the 1910 Flexner Report. Murray N. Rothbard wrote:

…the roots
of the current medical crisis go back much further than the 1950s
and medical insurance. Government intervention into medicine began
much earlier, with a watershed in 1910 when the much celebrated
Flexner Report changed the face of American medicine.

Abraham Flexner,
an unemployed former owner of a prep school in Kentucky, and sporting
neither a medical degree nor any other advanced degree, was commissioned
by the Carnegie Foundation to write a study of American medical
education. Flexner’s only qualification for this job was to be
the brother of the powerful Dr. Simon Flexner, indeed a physician
and head of the Rockefeller Institute for Medical Research. Flexner’s
report was virtually written in advance by high officials of the
American Medical Association, and its advice was quickly taken
by every state in the Union.

The result:
every medical school and hospital was subjected to licensing by
the state, which would turn the power to appoint licensing boards
over to the state AMA. The state was supposed to, and did, put
out of business all medical schools that were proprietary and
profit-making, that admitted blacks and women, and that did not
specialize in orthodox, “allopathic” medicine: particu larly homeopaths,
who were then a substantial part of the medical profession, and
a respectable alternative to orthodox allopathy.

Thus through
the Flexner Report, the AMA was able to use government to cartelize
the medical profession: to push the supply curve drastically to
the left (literally half the medical schools in the country were
put out of business by post-Flexner state governments), and thereby
to raise medical and hospital prices and doctors’ incomes.

In all cases
of cartels, the producers are able to replace consumers in their
seats of power, and accordingly the medical establishment
was now able to put competing therapies (e.g., homeopathy) out
of business; to remove disliked competing groups from the supply
of physicians (blacks, women, Jews); and to replace proprietary
medical schools financed by student fees with university-based
schools run by the faculty, and subsidized by foundations and
wealthy donors.

When managers
such as trustees take over from owners financed by customers (students
of patients), the managers become governed by the perks they can
achieve rather than by service of consumers. Hence: a skewing
of the entire medical profession away from patient care to toward
high-tech, high-capital investment in rare and glamorous diseases,
which rebound far more to the prestige of the hospital and its
medical staff than it is actually useful for the patient-consumers.

As Dale
Steinreich noted
, the "reforms" put into place post-Flexner
severely limited individual access to medical care while at the
same time enriching physicians. Not surprisingly, medical schools
were able to charge higher tuition (with for-profit medical schools
being legislated out of business) with the end result being that
today medical schools essentially "capture" the economic
profits of individual physicians, as most come out of med school
carrying hundreds of thousands of dollars of debt.

Furthermore,
doctors and their state-enforcement bureaus will protect their territory
at all costs, even if that protection harms people who need medical
care. One example was the prosecution of Jesse Maloney, the wife
of a mine worker in eastern California and a licensed practical
nurse. The area where the Maloneys lived was very remote and the
one doctor under whose supervision she worked only came to the various
towns sporadically, as he had to travel by his own private, single-engine
plane.

Maloney was
the person called when there were medical emergencies and she ran
the doctor's office, and at times gave "prescription"
medicine to people who needed care. The people of her town thought
her to be a godsend, but California authorities had her arrested
and put on trial. A jury acquitted her, much to the delight of people
in her community. (I suspect that today, a jury would convict because
prosecutors and judges would order them to do so and everyone knows
that government regulations always result in higher quality. The
affair was made into
a movie
starring Lee Remick. Not surprisingly, the highly-Progressive
Los Angeles Times, which rarely meets a government regulatory
edict with disapproval, didn't
like the movie
.)

Unfortunately,
occupational licensing and state-ordered credentialing are not limited
to medical care. Progressives long have dreamed of "professionalizing"
nearly everything, which means that in order to find work that is
legal, people need to impose all sorts of costs of education upon
themselves.

Even the vast
coercive power of Progressives, however, cannot overturn laws of
economics, and even with all of the education requirements needed
for modern employment, an economy in depression cannot employ people
whose skills are not needed by consumers. Thus, Krugman and others
of his ideological stripe have a plan: have governments "create"
new positions within the bureaucracies and pay for these jobs with
newly-borrowed or printed money.

At the same
time, Krugman demands that taxpayers pony up to pay even for tuition
for students while simultaneously funneling more tax dollars to
colleges and universities. Why? Well, college costs are increasing
and Krugman and others believe it is unfair that given the stratification
of our economy due to various state edicts, more students cannot
go to college.

If one finds
a disconnect in the "logic," that is because there is
a huge disconnect. As in medical care, third-party payments along
with increased federal regulation placed upon colleges and universities
have driven up costs, so Krugman essentially is claiming that the
"solution" to putting out the fire is throwing more gasoline
on it.

Moreover,
when a highly-decorated economists believes that creating more "jobs"
in the bureaucracy via the "magic" of inflation somehow
is good for the economy, it tells us just how out-of-touch with
reality mainstream economics has become. The U.S. economy does not
need more bureaucrats; it needs fewer bureaucrats and more entrepreneurs
seeking economic profits.

Instead of
creating opportunity, Progressives through their forcing people
to gain education that they don't need have created a stratified
society that destroys opportunity after opportunity. Such policies
lay burdens upon people that are reflected in the huge post-education
debts that have risen to the trillion-dollar mark.

Not only is
this madness, but it is unsustainable madness at that. In the name
of creating economic opportunities, Progressives like Krugman destroy
the very thing they claim to be saving: our economy.

May
12, 2012

William
L. Anderson, Ph.D. [send him
mail
], teaches economics at Frostburg State University in Maryland,
and is an adjunct scholar of the Ludwig
von Mises Institute
. He
also is a consultant with American Economic Services. Visit
his blog.

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