Tuesday, 4 October 2011

How to measure if a degree is worth the debt


Jonathan Wolff


When I started studying economics at school, I was delighted to be handed a textbook called An Introduction to Positive Economics by Richard Lipsey. Fantastic! After all, I didn't want any of that negative stuff.

It was only as a graduate student in philosophy that I realised the contrast to "positive" was not "negative", but "normative". Lipsey was going to tell us how things are, not how things ought to be. Economists are straight talkers, not peddlers of values. But curiously, when economists do tell us how things are, it never looks good.

Thomas Carlyle famously called economics "the dismal science". I saw this in action when on a panel, interviewing health economists. We decided to ask all candidates an amusing "unexpected" question at the end: "Which concept from economics should be better known by the general public?"

Any economist reading this will already know how they all answered: "opportunity cost". In judging whether it is right to spend money in a particular way, you should first think what else you could be doing with it. Could you squeeze out a little more value or enjoyment? Health economics is dominated by considerations of opportunity cost. When the government created a new fund for cancer treatments, for example, economists immediately asked what we would have to give up to pay for it.

Worrying about alternatives foregone is fair enough, but also pretty joyless. Imagine living your life under the shadow of opportunity cost. Any time you want to go to the cinema, you'd have to ask whether there is some other way of getting more out of your time and money. If there is, then you'll make a net loss, even if you'd really enjoy your evening out.

Economics didn't start out trying to spoil our fun. A key idea from Adam Smith is "gains from trade", explained to me at primary school. My teacher told us that when we handed over our shilling for a packet of sweets, we were better off because we would rather have the sweets than the shilling, and the shopkeeper was better off because she would rather have the shilling than the sweets. Trade is a little miracle.

Try as I might – and I did try because even at the age of nine I was pretty argumentative – I couldn't find any major flaw in this reasoning. Of course, you might not like the sweets. Nevertheless, the general case that trade makes both sides better off without harming anyone else seemed to be secure, even if there are exceptions.

The notion of gains from trade should be called "positive economics" and opportunity cost "negative economics". A sensible life is probably to be found somewhere in the middle. Life is too short to fixate on opportunity cost and seek out the best all of the time. Good enough, for most ordinary purposes, is good enough.

With this deep understanding of economics, we now turn to the future of undergraduate education. From now on, students will acquire large debts in coming to university, and typically they will start to pay back in their mid-20s and possibly even into their early 50s, depending on how much they earn. In return, they will acquire new skills and knowledge, a qualification to put on their CV, an expanded address book of potential wedding guests, and if they are lucky or subsequently unlucky, have the best three years of their lives.

Writing this column shortly after attending our graduation ceremonies, I'm still convinced that going to university is the right thing for many school leavers, even given the debt they will incur. But I also know that it is not for everyone. At the moment too many school leavers just drift in, and have a thoroughly frustrating three years. Thinking about the opportunity cost of the time and money spent on a degree might well help them to focus. The dismal science, I have to admit, can have its uses.

• Jonathan Wolff is professor of philosophy at University College London. His column appears monthly

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