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Accelerated Learning Would Add Trillions of Dollars in Wealth

Thursday, March 21, 2013

If students could complete their education a year faster, the many benefits would include increased personal wealth, decreased government spending, and more sustainable entitlement programs.

Political discussion today is dominated by a pessimistic tone about government deficits, taxes, and our aging population. But, surprising as it may seem, a drastic overhaul of the nation’s education system could fix many of our problems. Such changes would create a variety of benefits: decreased government spending; more sustainable entitlement programs; greater equality; and a better-disciplined younger generation; not to mention an end to the mumbo jumbo that dominates academia and policy debates today.

Some much-debated solutions to our country’s problems include increasing the retirement age, raising taxes, diminishing Social Security benefits and other entitlements, and attracting qualified immigrants. But what if students could complete their education, including undergraduate study, in less time by a year or even two? Or, in the case of community colleges, three or four fewer years? Consider first a “Fermi” calculation about the monetary consequences of such a change:

There are at least 16 million youngsters enrolled in post-secondary education, with approximately 4 million graduating every year. Assume that from now on, each year, 4 million students join the labor force a year earlier. Each generation would stay one year longer in the labor force. How much annual income and how much wealth would this generate?

Assume that after graduation the average salary would be just $20,000 and remain there. With 4 million students finishing one year earlier, this would add $80 billion to the national income during that year. Or at an average annual income of $40,000, it would add $160 billion. Assume now that the additional $80 billion in national income would be compounding at 7 percent over the next 40 years. This would then amount to an additional $1.2 trillion of wealth – for just one generation of 4 million students joining the labor force a year earlier at a $20,000 salary. At $40,000, this would amount to $2.4 trillion by the fortieth year – again, for just one generation of 4 million people joining the labor force a year earlier. The added wealth depends on how rosy one makes the assumptions about salaries or compounding rates. Add 10, 20, or 30 generations, each starting to work a year earlier, and the numbers run into the tens of trillions of dollars.

The indirect impacts may be as significant. One or two years of additional, compounding earnings could do a lot to shore up entitlement programs, with a more positive impact than requiring people 65 and older to stay in the labor force much longer: the magic of resulting compounding would start earlier.

Israeli undergraduates’ stellar performance suggests that completing undergrad studies in three years does not mean less education.

Also, having to finish one’s studies in fewer years will make it clearer to young Americans that they are in competition with hundreds of millions of young Chinese, Indian, and Latin American peers, previously held behind by the Iron and other dictatorial curtains. These foreign students do not have, and will not have for decades to come, the luxury of combining their education with too much fun and leisure over too many years, financed by either parents or taxpayers, as U.S. students got accustomed to during the last few decades. A new awareness will bring about greater discipline, less boredom, and fewer vices in American students.

Israeli undergraduates’ stellar performance suggests that completing undergrad studies in three years does not mean less education. It is true that Israeli youngsters arrive at the university two to three years older and are more mature than Western counterparts because of two years service in the army for women and three years for men. But this implies that young Americans should gain discipline and experience, not that they should stay longer in schools. The fact that such experience counts more than formal studies in preparing youngsters to solve problems is also reflected in Israel’s having become the “start-up nation” — Israel has the biggest concentration of high-tech companies outside of Silicon Valley. The country, with a population of about 8 million, has the third-largest number of companies listed on the Nasdaq, after the United States and China.

This brings us to execution: How should the educational sector encourage accelerated schooling and better prepare students to create start-ups in the United States? After all, the best way to pay down debt is to build up equity more quickly.

The Swiss and Israeli school systems provide insights. After primary education (grade eight), students are sorted according to their abilities, and some go to high schools (with streams in science, math, and the humanities), while others go to trade or vocational schools that collaborate with related businesses. This dual system does not close the doors for late bloomers: If some youngsters change their minds and want to become engineers and go to universities, they can pass a few exams later and apply. Adolescents whose talents and interests are not in general studies are not forced to prolong their schooling – that has been a recipe for decline in educational standards the last few decades, and has created larger, more expensive school administrations.

Various studies have shown that increased spending on educational institutions in recent years has not led to measurable improvements in learning. Using data from the 2010 Digest of Education Statistics, Eric Hanushek of Stanford University analyzed student enrollment and teacher and staffing levels at K-12 U.S. public schools between 1980 and 2008. He found that staff and teachers grew roughly twice as fast as students over this period. Yet while school staff increased 52 percent and student enrollment by 21 percent, students showed no additional learning in Hanushek’s achievement tests.

Universities show similar trends of increased administration personnel and costs without greater learning, as documented in Richard Arum and Josipa Roksa’s recent book Academically Adrift: Limited Learning on College Campuses. So can the education budget be drastically cut by slashing bureaucracy in government or the education system and not impact students’ education at all? It would seem so.

It’s well-documented that American kids are bored and spend hours watching TV and playing video games, and that their skills in mathematics, reading, and writing have been declining. However, the most important implications of these observations have not been drawn, particularly that accelerated learning and a redesigned student selection process would greatly improve our education system.

How Our Education System Fell into Decline

Sixty-three percent of employers said that recent college graduates don’t have the skills they need to succeed, the Association of American Colleges and Universities found in 2010. A separate survey showed that 25 percent of employers say that entry-level writing skills are deficient. What went wrong?

Some simplistically attribute the decline in our public education system to the drain of skilled students by private schools, but far more significant events were at work.

Public schools worked well in the United States, France, and other countries until about the 1970s. In fact, until that time, French public schools provided far better education than private ones. It was the underperforming students who were thrown out of public schools and went to private ones.

A prominent reason public schools did well was that many highly qualified women had few options for working outside the house other than being teachers or nurses. They accepted relatively low pay, difficult working conditions, and gave their very best.

Having such a large supply of talented women restricted to these two occupations meant that society could pay less for their services. Women’s liberation opened up new professional opportunities for women, and, over time, some of the best left teaching as a career option, bringing about a gradual decline in the quality of schooling.

Also around that time, regulations, government, and unions came to mandate pay, prevent adjustments, and introduce bureaucratic criterion for advancement. Large education bureaucracies and unions came to dominate the landscape, confusing activity with achievement. Bureaucrats regularly rewrite curriculums, reshuffle "innovative" papers about theories of education, and require ever more administrators. The end result has been that, after all the spending, students in Western countries (including the United States) have worse math and reading skills than both their foreign peers and earlier generations spending far less on education – as all the accumulating evidence now documents.

Another factor in our education system’s decline was the large expansion of universities after the passage of the 1958 National Defense Education Act, a reaction to the Soviet Union’s success in sending Sputnik to the skies. The quick, large amounts of money thrown at universities led to a rapid expansion of student body and faculty – the latter having had to be hired at greater compensations than at their previous jobs. Typically, what was meant to be temporary funding became ongoing. This, combined with the hiring of people who were not particularly interested in teaching, led to the decline of studies at universities, which were then judged by their numerical output in diplomas granted and articles published – words, jargons, and papers, rather than actual learning.

Do students specializing in accounting really have to spend four years as ‘business undergraduates’?

With this influx into universities of accidental tourists and, later, their mediocre apprentices, and with a critical mass of female talent fleeing the pre-university institutions, the vitality of both declined. The results came to be reflected in the quality of schools’ and universities’ textbooks and courses, in the discipline being imposed, in students’ respect for their teachers and learning, and elsewhere.

The respect toward teachers and faculty declines because smarter students can quickly see the mediocrity of most teachers and textbooks, and become bored to death. How can one expect the quality of schools to improve when, at present, teachers may be just one lesson ahead of students, teaching history one year and mathematics the next? How can such teachers even be expected to inspire students? In the vastly expanded "education departments" in universities – in some of them this is the largest department – most of the education majors’ four years is dedicated to studying abstract, jargon-laden “theories of education,” and relatively little is spent on subject matter. This has gradually led to an emphasis on promoting “self-esteem,” a fad not backed by any concrete knowledge and that has brought about much narcissism at best, and venality at worst.

Since education bureaucracies are measured by how many students graduate and what grades students get, no wonder that students graduate with top grades and little knowledge. As a result, whether students graduate has long stopped signaling selection of smarter, harder working, more ambitious kids. As Arum and Roksa put it, gains in critical thinking, complex reasoning, and writing skills have either been “exceedingly small or nonexistent for a larger proportion of students,” with 36 percent of them experiencing no significant improvement in learning whatsoever over their four years of “learning.”

Can these trends be reversed by hiring people who would be dedicated and inspiring teachers? Can education be drastically shortened and have far stricter selection, with smaller faculties and administration and fewer universities – all without reducing this country’s ability to truly educate and prosper? The answer would seem straightforward.

Accelerated and Selective Learning

It is not difficult to further illustrate that restructuring post-secondary education would not affect the quality of learning. Consider this: in many years over the last few decades, accounting is among undergrads’ top choices at business schools. Do students specializing in accounting really have to spend four years as “business undergraduates”?

Accounting is a trade that one learns by practicing, rather than by passing multiple-choice exams. Until the 1960s, one could become an accountant (or a lawyer, another trade) by working, rather than studying at university. In fact, it makes little sense for 18-year-old kids to enroll in four-year business programs to start with. What does it mean for them to take courses in such topics as “management,” “strategy,” “organizational behavior,” or “the psychology of organizations”? And such topics are taught by lecturers who, more often than not, have zero experience in ever managing, executing, financing, or marketing anything. Many of these kids have hardly worked, and some would not know how to manage and organize their own rooms even if their allowances depended on it.

Imagine if lecturers in medical schools never operated, but wrote many papers on “Optimizing Procedures in Operation Rooms.” The above pattern holds true for most business undergrad studies: At worst, they can be offered in three years with impunity, but at best they would not exist. Yes, students could learn the vocabularies of finance, accounting, and economics – but these would be complements to some “non-trade” studies.

You can change class sizes and spend billions of dollars on computers, but neither will change the distribution of talents.

Thus, it may not be accidental that with the release of the 2007-08 Federal Reserve minutes, it appears that Richard Fisher, the head of the Dallas Federal Reserve and the only Fed board member with wide experience in the various segments of the financial sector, also seems to be the only one who grasped back then what might happen. But he was silenced by the academics and the bureaucrats, who appear to have been absolutely clueless. Then–New York Federal Reserve President Tim Geithner was prominent among the latter group (no surprise for anyone who has read about his interventions during and after the crises in Sheila Blair’s book Bull by the Horns).

How did J.D. Salinger put it in The Catcher in the Rye? “All you have to do is say something nobody understands and they’ll do practically anything you want them to do.” This reads as if Salinger correctly anticipated not only the hormonal angst of bored teenagers, but also the macro-economic rationalizing policies – the jargon disguising self-interest or ignorance, take your pick – of the last few decades, too.

This brings us back to the point about selection and the implications for inequality: “Selection” was once the main idea upon which high schools and universities were based. No matter how good and dedicated teachers might be, if students are mediocre and below, they will stay mediocre and below. You can change class sizes and spend billions of dollars on computers, but neither will change the distribution of talents. Brilliant students will benefit from access to the subsidized technology, and they will do brilliantly even if their teachers are mediocre. And the brilliant ones raise the above-average students’ performance – just like a Wayne Gretzky or a Michael Jordan raises the performance of an average sport team. Having stricter selection, closing down a good fraction of high schools, colleges, and universities, and directing students toward various technical skills with which they may be well-matched, does not imply that such students will end up earning less money, or will not be well-versed in history and arts (if they decide to study such topics during their leisure time).

In fact, the much discussed increasing inequality in the United States and other Western countries might be partly explained by the fact that governments so extensively subsidize high schools and universities. After all, the best and brightest benefit the most from these subsidies. On the other hand, if someone is not thrilled about studying in school, but gets excited tinkering with cars or computers, and wants to open a garage or a small business, the government offers him no subsidy. It’s the bright kid who gets the subsidy when studying math, engineering, biology, or medicine.

The consequences are predictable: Inequality will increase and the distribution of wealth will become more skewed. The talented youngster, using his education, may be compounding the $500,000 educational subsidy in high school and university and turning it within, say, 20 years at just 4 percent compounding interest, into a $1 million addition to his wealth. Meanwhile, from a young age, the grocery store or garage owner paid taxes as either an employee or a small business owner. Add to this the fact that the lower-skilled employees and even the mediocre ones face increased competition from the rest of the world, and the much decried inequality becomes even more pronounced. It would appear that stopping the heavy subsidies to schools and universities would mitigate inequality worldwide (which is rising, in part, due to the unexpected political innovations of the last 20 years), in addition to all the beneficial effects outlined above.

Do not be misled by many statistical studies of the last few decades showing that people in Western countries who stay longer in schools or go to universities secure higher incomes. The erroneous inference has been that necessarily longer education is the path to greater income and social mobility. But these studies were done during a period that coincided with the expansion of government bureaucracies, which employed graduates knowing little but jargon. Until the late 1980s, the resulting compounding costs were covered, in part, by the flow of capital and talent to U.S. shores from communist countries. That world is gone with the wind, though many of its ideas remain. And, to paraphrase one of Warren Buffett’s favorite sayings: You discover who is naked when suddenly waves recede.

To summarize: Can the drastic restructuring of education achieve all that was suggested at the beginning of this article? It would appear so. Will it be done?

The timing seems right: In politics — as in business and private life — bankruptcy, or fear thereof, is the mother of invention. Western countries are getting closer to such an approach. But don’t hold your breath: Many interest groups, relying on endless subsidies, will slow down change and rationalize the status quo.

Reuven Brenner holds the Repap Chair at McGill University's Desautels Faculty of Management, serves on the McGill Pension Fund, and is a member of its investment committee. The article draws on his books Force of Finance and Educating Economists, as well as a series of articles on education.

FURTHER READING: Reuven Brenner also writes “Eurozone Bonds: Learning from Pre-Nuptial Agreements” and “The 1930s All Over Again?” Taryn Hochleitner discusses “Upgrading Teacher Evaluation.” Mark J. Perry blogs on “Administrative Bloat in U.S. Public Schools” and “The Staffing Surge (‘Educratification’) in America’s Public Schools.”

 

Image by Dianna Ingram / Bergman Group

 

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