Higher Education Pays for itself

After the American Century

The OECD has released a report today that concludes, in part, as follows:

On average across the OECD countries, a man with a tertiary level of education will generate  $119 000 more in income taxes and social contributions over his working life than someone with just an upper secondary level of education. Unhappily, women make somewhat less, due to the continuation of wage inequality and the persistence of the glass ceiling. But women graduates nevertheless do generate more income than it costs to graduate them.

This means that  investment in post-second education more than pays for itself, generating a surplus. The report also found that university graduates have a lower unemployment rate than the population as a whole. "Unemployment rates among people with a tertiary level of education have stayed at or below 4% on average across OECD countries during the recession."

Moreover, the OECD report only tells us how much more university graduates pay in taxes than it costs to educate them. It does not calculate the value of their inventions, for example, or how much their labor contributes to better exports, more appealing tourism, more effective public service, and so forth.

  

Denmark comes out well in the report, which finds it sixth in terms of the percentage of its population getting advanced education. However, it does trail the world's leading country,  Finland, with Iceland number two. Norway, the Netherlands, and Sweden are close behind Denmark at 9, 10, and 11. 

Denmark needs to improve in the vital area of internationalization. Overall, the total number of international students in the world has doubled to 3.3 million from 1995 until 2008. Yet Denmark has a smaller cadre of foreign students than many counties, and it looks particularly weak in the all-important area of advanced degree programs. Fully 84% of Danish advanced degree students are Danes, compared to 54% in the UK, 55% in Switzerland, 60% in France,  61% in Canada or 66% in Austria. (Figures for the US and Germany were not available, but they do have large numbers of foreign students, without question.)

Danish parochialism is most pronounced in the PhD programs in the Humanities, where almost all students are Danes, plus a small number of permanent residents married to Danes. This is not a healthy or competitive situation. Things are better in the sciences and medicine, but not up to the level of nations that the Danes usually compare themselves with.

The United States lags behind in these statistics, with little more than a third of its population receiving tertiary education. Of course, it still has the world's strongest universities that regularly top the league tables, regardless of whether they are complied in Europe, Asia, or the US. Harvard remains number one, with Yale, MIT, Stanford, Berkeley, Johns Hopkins, Princeton, Columbia, and all the other great universities that have long been dominant among the top 50. However, if one looks at the population of the US as a whole, its educational level is not rising as rapidly as elsewhere, and the ability of the people as a whole to compete internationally may be expected to suffer accordingly.

A Greek Crisis Should NOT be A Euro Crisis

After the American Century

When my neighbor down the street goes on a spending spree, no one thinks all the neighbors should chip in and pay for his extravagance. The neighbor has to learn to live within his means. The same applies to nations. Greece has for years been living far beyond its means. It has allowed people to go on pensions at an earlier age than they can in other nations. It has not collected taxes from some of its citizens. It has allowed its public sector to grow and grow. It has routinely had much larger deficits than are allowed in the European Union.

Now the bill is coming due, and suddenly the world's stock markets see this as a crisis of the Euro. It is not. There is no reason for Germans to work a year longer before retirement so that Greeks can retire early. There is no reason why British home owners should pay higher interest rates because the Greeks have not lived within their means. There is no logic to the idea that the Euro will be stronger if other countries pay Greece's bills. Rather, it is logical that the Euro will be stronger if its nations enforce fiscal responsibility and prudence.

It sounds harsh but it is only fair that, if the Greeks cannot pay their bills, they must find their own solution to the problem. Greece is not a poor nation. It has many wealthy people. It has not suffered an earthquake or some other unforeseeable natural disaster. Greeks saw the problem for years and failed to deal with it. Greeks have to take responsibility for their own fate, rather than expect the International Monetary Fund or the other EU counties to pay their bills. Loans to Greece are fine, but only if they are going to be paid back.

People seem to think it terrible to contemplate Greece defaulting on their national debt. Yes, it is terrible, but it is even more terrible if other countries pay their bills. The Germans are quite right to resist loaning the Greek government money before they demonstrate that they can bring their economy into balance. The banks should have been equally hard on Greece years ago. International investors have over-extended credit to profligate nations, and they want others to pick up the tab. Sorry, but that is not how things are supposed to work.

Ah, but we are told, the poor Greeks will suffer under the austerity of budget cuts. Indeed, they will. That is the logical consequence of fiscal irresponsibility.  The Greeks as a whole are not poor,  and if they really want to they can invest their considerable wealth in government bonds, and then, as voters, make sure they get their money back. The Greek pension funds could be heavily invested in the Greek national bonds.  Or the Greek's could hold a massive telethon and get their own citizens to buy ten year government bonds at 5%. That would inject some reality into the situation. If Greeks don't want to buy their own debt, then why should anyone else?

Beware of Greeks demanding gifts. Beware of investment banks wringing their hands and saying the Euro is at risk, when it is their  poor judgement that led them to keep loaning money to Greece. And stop this nonsense of thinking that if Greece goes bankrupt due to a lack of political integrity and national will, somehow that means that the Euro itself is weak or that Germany or France or Sweden suddenly are not good places to do business. It should be just the opposite situation. The reluctance to pay the Greek bills should signal that the EU nations as a whole are sensible, that they will not be stampeded by incautious bankers into paying someone else's bills.

If all this seems a rather harsh argument, consider that other common market, the United States. The 50 individual states each has its own budget, and some of them at times get into trouble. California has overspent and under taxed itself into a corner at the moment. But that is California's problem, and it does not mean that the dollar is suddenly a bad currency.

California's economy is larger than that of Greece. Time to get some perspective on this issue.