Going: to College is Selfish: LET'S STOP PRETENDING EDUCATION IS A PUBLIC GOOD.

• Author: Caplan, Bryan

IF YOU'VE ALWAYS been a strong student, spending your time and money on education pays well. The evidence is overwhelming. Even after scrupulously correcting for ability bias--the brains, discipline, and other advantages you'd possess with or without school--formal education provides a big career boost. At an individual level, investing in your own education often compares favorably to not just corporate bonds, but long-run stock market returns.

Since individuals' investment in their own education is personally rewarding, you might infer that government investment in society's education would be socially rewarding. But this is a classic "fallacy of composition." If one person stands up at a concert, he sees better; it does not follow that if everyone stands up at a concert, everyone sees better. The same goes for education. Yes, schooling is selfishly lucrative--at least for strong students. On a societal level, however, it is shockingly wasteful for students weak and strong. Federal, state, and local government spends far too much money educating Americans.

The conventional case for government subsidies assumes that all of education's career gains come from building what economists call "human capital." A worker gets more education; his productivity and income go up. A nation gets more education; its productivity and income go up. If human capital is the truth, the whole truth, and nothing but the truth, education is a path to individual and national prosperity: Education makes the pie bigger, so every worker can enjoy a bigger slice.

Unfortunately, human capital is far from the whole story. Most of the personal benefits of education arise not from improving on-the-job productivity, but from convincing employers that your on-the-job productivity is already good. Economists call this "signaling."

The truth is mixed, of course: Education as it actually exists blends crucial training in literacy and numeracy, which yields real skills, with thousands of hours of hoop-jumping to impress future employers. Selfishly speaking, this hoop-jumping pays. But socially speaking, it's a waste. Only one worker can look like the Best Worker in the Country, and only a quarter of workers can look like the Best 25 Percent.

When education isn't making the pie bigger, bigger slices for some necessarily mean smaller slices for others. As signaling's share of the value of education rises, education becomes an incinerator that burns society's money, time, and brains in a futile attempt to make everyone look better than average.

SOLID SELFISH BENEFITS, MODEST SELFISH COSTS

AT FIRST GLANCE, education's selfish financial benefits look enormous. High school grads outearn dropouts by 30 percent, and college grads outearn high school grads by 73 percent. But the true benefits are smaller than they look: High-ability people spend extra years in school, and the labor market independently rewards ability as well as education. As a result, some of what we call the "rewards of education" are disguised "rewards of ability." My best estimate is that just over half of the apparent premium is genuine.

Of course, that's just over half of a big number. But merely enrolling in school is no guarantee you'll capture it. About 25 percent of high school students fail to finish in four years; about 60 percent of full-time college students fail to finish in four years; and about half of advanced degree students never finish at all.

This is a vital caveat, because most of education's payoff comes from graduation--the so-called "sheepskin effect." If you spend three years in high school but then drop out, the labor market treats you only modestly better than someone who never started high school; if you spend three years in college and then drop out, the labor market treats you only slightly better than someone who never started college. Of course, the stronger your academic ability, the more likely you are to cross the finish line and win the prize.

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