The latest bubble?

By Schumpeter

ON September 2nd 2010 I wrote a mischievous column ("Declining by degree") likening America's universities to its car companies in about 1950: on top of the world and about to take an almighty fall. Since then I have heard the argument dismissed and denounced by the presidents of Harvard, Princeton and New York University. John Sexton, NYU's affable president, even likened me to a member of the tea party, for which there is no more damning condemnation in academic circles.

So I am particularly delighted to read Peter Thiel's latest thoughts on the higher-education bubble. Mr Thiel, the co-founder of PayPal and a legendary investor, has a long history of identifying bubbles. He insisted on striking a deal, against everybody's advice, when the market valued PayPal at "only" $500m, on the ground that the dotcom bubble was about to burst (this was March 2000). He refused to buy property until recently, figuring that the dotcom bubble had simply shifted to housing.

Mr Thiel believes that higher education fills all the criteria for a bubble: tuition costs are too high, debt loads are too onerous, and there is mounting evidence that the rewards are over-rated. Add to this the fact that politicians are doing everything they can to expand the supply of higher education (reasoning that the "jobs of the future" require college degrees), much as they did everything that they could to expand the supply of "affordable" housing, and it is hard to see how we can escape disaster.

Here is Sarah Lacy's summary of Mr Thiel's argument about the safety-blanket role of higher education:

Like the housing bubble, the education bubble is about security and insurance against the future. Both whisper a seductive promise into the ears of worried Americans: Do this and you will be safe. The excesses of both were always excused by a core national belief that no matter what happens in the world, these were the best investments you could make. Housing prices would always go up, and you will always make more money if you are college educated.

Mr Thiel's own solution to the problem befits a man with money and a mission: he is offering 20 students $100,000 scholarships, over two years, to leave school and start a company rather than enter college.

While I'm on the subject of higher education, I'll point to three other bits and pieces that have caught my attention. Paul Krugman has pointed out that, contrary to popular wisdom, expounded relentlessly by the OECD among other august bodies, technological progress may reduce the demand for high-end jobs, not just low-end jobs. Computer software is now employed to perform tasks that used to require armies of lawyers, engineers or highly educated workers.

The belief that education is becoming ever more important rests on the plausible-sounding notion that advances in technology increase job opportunities for those who work with information — loosely speaking, that computers help those who work with their minds, while hurting those who work with their hands.

Some years ago, however, the economists David Autor, Frank Levy and Richard Murnane argued that this was the wrong way to think about it. Computers, they pointed out, excel at routine tasks, “cognitive and manual tasks that can be accomplished by following explicit rules.” Therefore, any routine task — a category that includes many white-collar, non-manual jobs — is in the firing line. Conversely, jobs that can't be carried out by following explicit rules — a category that includes many kinds of manual labor, from truck drivers to janitors — will tend to grow even in the face of technological progress.

And here's the thing: Most of the manual labor still being done in our economy seems to be of the kind that's hard to automate. Notably, with production workers in manufacturing down to about 6 percent of US employment, there aren't many assembly-line jobs left to lose. Meanwhile, quite a lot of white-collar work currently carried out by well-educated, relatively well-paid workers may soon be computerized. Roombas are cute, but robot janitors are a long way off; computerized legal research and computer-aided medical diagnosis are already here.

Of course, the value of education cannot be reduced to dollars and cents, as much as elite universities try to do so. Education is its own reward. But I wonder about the quality of a great deal of higher education, especially in the humanities. The best academics, the Gordon Woods of this world, produce wonderful stuff. But I am regularly shocked by the quality of the books that flow into The Economist's offices from university presses, by the tediousness of the subject matter, the contortions of the prose and the willingness of the authors to bow the knee to various exhausted academic pieties (the various "isms") in the name of challenging conventions (try looking at anything produced by Duke University Press, for example).

I was struck by a recent review in Slate, by William Deresiewicz, of Marjorie Garber's new book "The Use and Abuse of Literature", which begins thus, and goes on to become even more brutal:

Marjorie Garber's new book brought me back to my days as an English professor; I thought I was reading a freshman essay. My marginal comments might as well have been written in red: "What is the point of this paragraph?" "Where are we in the argument—and what exactly is the argument?" "Sloppy thinking." "You need to unpack this." "Again, is there a point here, or just a mass of notes?" "You have to develop your thesis, not just keep reiterating it."The Use and Abuse of Literature purports to be a rallying cry for serious reading by a decorated and prolific Harvard professor, but once you pick your way through its heap of critical detritus—its mildewed commonplaces and shot-springed arguments, its half-chewed digressions and butt ends of academic cliché—you uncover underneath it all a single dubious and self-serving claim: that the central actor in the literary process is, what do you know, the English professor.

And Ms Garber, remember, is a leading professor at America's leading university, or one of them anyway. Imagine what the average exercise in literary theory is like from a professor at a second- or third-division school. It is hard to regard this sort of stuff as a contribution to either knowledge or civilisation.

My third article is also from Slate. This suggests that applications for law school have dropped by more than 11% since last year, in part because students are beginning to realise that it makes no sense to pile up hundreds of thousands of dollars in debt in order to join the legion of unemployed lawyers.

According to data from the Law School Admission Council, first reported by the Wall Street Journal, the number of applicants to law school has dropped a whopping 11.5 percent year-to-year—to the lowest level since 2001 at this point in the application cycle. Some schools are still accepting applications, so the numbers will change in the coming weeks, says the council's Wendy Margolis. But about 90 percent of applications are in, and the pattern is clear.

This fits in with my own observations of what is happening in business schools, which have been relentlessly raising their prices by 6% a year. Middle-ranking schools are seeing a significant drop in demand, which they have masked by taking weaker candidates, but which will eventually force them to start cutting back.

Perhaps the education bubble is already beginning to burst.