New Freakonomics Podcast: Does College Still Matter? And Other FREAK-y Questions Answered

Freakonomics Radio

“Does College Still Matter? And Other Freaky Questions Answered”: In our second round of FREAK-quently Asked Questions, Steve Levitt answers some queries from listeners and readers.

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Our latest podcast is another attempt (here’s the first) to answer some of the questions you’ve asked us on the blog. (You can download/subscribe at iTunes, get the RSS feed, listen live via the link in box at right, or read the transcript here.) Here’s how it begins:

 

DUBNER: A reader named Jonathan Bennett asks, “Is it true that college education is no longer a factor, or [is] even a disadvantage, when it comes to employment?” Levitt, what say you?

LEVITT: [laughs] I think that never has anyone made a statement more false than Jonathan Bennett’s statement that education would be no help or a disadvantage in the modern economy. Of all the topics that economists have studied, I would say one we are most certain about are the returns to education. And the numbers that people have come up with over and over are that every extra year of education that you get will translate into an 8 percent increase in earnings over your lifetime. So someone who graduated from college will earn about 30 percent more on average than someone who only graduated from high school. And if anything, the returns to education have gotten larger over time. They’re as big as they have ever been.

Measuring something like gains to education is necessarily tricky: how do you sort out the effect of education itself when the college-going population is likely very different from the non-college-going population? To that end, Levitt describes a clever study that found a way to isolate the impact of education:

LEVITT: So back in Vietnam, men were entered into this draft lottery.  And if you got a very low number, it meant you were likely to go to Vietnam.  If you got a very high number, it meant you were safe. There was a way, however, to avoid service, which was to go to college.  So what happened was, the men who were unlucky and got bad draft numbers, many more of them went to college than did the people who got high draft numbers.  Now they wouldn’t have gone to college otherwise.  They went only to avoid going to Vietnam.  So what the economists have done is they’ve compared the people who got kind of medium draft numbers.  So they weren’t sure if they’d be drafted or not, but in the end they ended up not being drafted.  But many of those men still went to college.  And they compared that group of people, who were identical in principle to the people who were lucky and got really high draft numbers.   And those high-draft-number people — they didn’t have to go to college to avoid Vietnam.  So many fewer went to college.  And consequently, if you follow them through their lives — the people with the medium draft numbers, who didn’t go to Vietnam, but many more went to college — and you compare them to the people with the high draft numbers, who neither went to Vietnam nor went to college, and you see returns to education.

Another reader wanted to know Levitt’s view of healthcare reform:

LEVITT: Well, my friends in the Obama Administration aren’t going to be very happy with me, but I really, I don’t think it solved any of the important problems that we’re facing with healthcare.  So virtually every economist will tell you that there were two things you needed to do to healthcare reform to materially improve the situation.  The first was to break the link between the provision of healthcare and employment.  And that is just an archaic element of our healthcare system, which really makes no sense.  And yet because of tax subsidies, it’s the way most people get their healthcare — through their employer.  It shouldn’t be.  There’s no good economic justification for it.  And yet, if anything, I think this healthcare reform bill actually strengthened that link.  … [Healthcare] is virtually the only part of the economy where I can go out and get any service I want—cancer treatment, open heart surgery, have a wart removed, whatever it is—and I pay $3 for it or $5 for it or nothing, even if it costs $50,000 or $100,000.  I mean, imagine if you had the same situation with automobiles.  Where I could show up at the car dealership and I could say, ‘I want the Mercedes for free.’  Well, people say, ‘You can’t have the Mercedes for free.  You have to pay $50,000 for it.’  You say, ‘Why not, I have an inalienable right to free healthcare.  Right?  Why don’t I have an inalienable right to a free Mercedes?’

Note to Levitt: I don’t think your friends in the Obama Administration are the only ones who won’t like your views. Smiley face.

Finally, Levitt also addresses a listener’s question about how recent drug busts in the slums of Rio de Janeiro will affect crime there. For his take on that — you may be surprised — check out the podcast. Thanks, as always, for your questions. They were excellent, and we’ll keep answering them in future podcasts.

Audio Transcript

Does College Still Matter and Other Freaky Questions Answered

 

Stephen J. DUBNER: What kind of questions do you think we're gonna get here?  Do you think they'll be like life advice, stock advice, or more like you know, boxers-or-briefs kind of questions?

Steven D. LEVITT: Ummm...

ANNOUNCER: Freak-quently Asked Questions from Freakonomics Radio.  Here’s your host, Stephen Dubner.

DUBNER: So, you know, I'm just a writer and a radio host.  But my Freakonomics friend and co-author, Steven Levitt, he's a genuine PhD-holding research economist at the University of Chicago.  So once in a while, I like to drag him in front of my microphone to field some questions from you, our listeners and from readers of the Freakonomics blog.  We call it Freak-quently Asked Questions.  In our previous installment, Levitt talked about, among other things, the value of voting.  The economist's take?  Voting just isn't a rational way to spend your time and  energy.  Not surprisingly, quite a few of you objected pretty strenuously to Levitt's message.  I'm guessing today's program will upset just as many of you, if not more.  If I had to predict which answer is mostly likely to set you off--predicting the future by the way is impossible, but we human beings can't help ourselves.  That's actually the theme of an upcoming radio hour we're making now.  But anyway, if I had to predict which answer from today's episode is most provocative, I'd say it's when Levitt assesses the recent healthcare reform bill.  He also talks about whether college education is as valuable as it's made out to be.  And does increased policing in Brazilian slums actually help stop crime?  We sat down together in my office a couple of weeks ago.  Uh, Levitt, how do you feel about this prospect today?

LEVITT: Never been more ready!

DUBNER: Mmm, I like the confidence.  Confidence bordering on cocky.

LEVITT: You know me.

DUBNER: Alright, we’ll begin.  Levitt, here’s a question for you.  Something I’ve heard you talk about a lot.  Interestingly.  You’ve done some research yourself on gains to education.  So a reader named Jonathan Bennett asks, “Is college education no longer a factor, or even a disadvantage when it comes to employment?”  Levitt, what say you?

LEVITT: I think that never has anyone made a statement more false than Jonathan Bennett’s statement, uh, that education would be no help or a disadvantage in the modern economy.  So of all the topics that economists have studied, I would say one we are most certain about are the returns to education.  And the numbers that people have come up with over and over are that every extra year of education that you get will translate into an 8% increase in earnings over your lifetime.  So someone who graduated from college will earn about 30% more on average than someone who only graduated from high school.  And if anything, the returns to education have gotten larger over time.  They’re as big as they have ever been.  And I think it makes sense that the returns to education now are higher than they’ve ever been because of how the economy has changed.  It used to be that with a low education, you could get a good manufacturing job, lifetime employment.  But now with the Chinese competition for instance, almost all the manufacturing jobs are gone, because there are Chinese workers willing to work, who are able to do these jobs at wages that are one-fifth or one-tenth of what an American worker would demand to do it.  So, I tell you, I was in a taxicab a couple days ago, and this is a story that really exemplifies how the economy is changing.  Over the two-way radio, the dispatcher’s voice comes, and he says, “Gentlemen, I’m looking for someone to pick up one extra shift on the night shift, a new taxicab driver.  If you know someone, they need to have experience.  And I also need a college education.”  And I thought to myself, “If you need a college education to drive a cab in this country, what job don’t you need to have a college education for?”

DUBNER: Well let me ask you this.  How does an economist or anyone go about measuring—so the gains to education that you talked about.  When you talk about a relationship between an extra year of college, or graduating from college and future income, how do you know that you’re not just measuring that people who go to college are more motivated, smarter to start with, and how do you tease that out in the data?

LEVITT: Yeah, that’s a great question.  Because so much of what we do in Freakonomics, SuperFreakonomics, is all about distinguishing correlation from causality.  And what you worry about is the people who would have earned money already are the ones who get more education.  So the trick is finding what I would call an accidental experiment.  So what you need is a way in which two seemingly identical people, because of some quirk of nature or fate, one ends up getting much more education than the other.  So maybe the best example, though somewhat of an old one, comes from the Vietnam draft lottery.  So back in Vietnam, men were entered into this draft lottery.  And if you got a very low number, it meant you were likely to go to Vietnam.  If you got a very high number, it meant you were safe. There was a way however to avoid service, which was to go to college.  So what happened was, the men who were unlucky and got bad draft numbers, many more of them went to college than did the people who got high draft numbers.  Now they wouldn’t have gone to college otherwise.  They went only to avoid going to Vietnam.  So what the economists have done is they’ve compared the people who got kind of medium draft numbers.  So they weren’t sure if they’d be drafted or not, but in the end they ended up not being drafted.  But many of those men still went to college.  And they compared that group of people, who were identical in principle to the people who were lucky and got really high draft numbers.   And those high draft number people, they didn’t have to go to college to avoid Vietnam, so many fewer went to college.  And consequently, if you follow them through their lives, the people with the medium draft numbers, who didn’t go to Vietnam, but many more went to college, and you compare them to the people with the high draft numbers, who neither went to Vietnam nor went to college, and you see returns to education of those kinds of numbers I mentioned before.  About a 30% increase in earnings, by virtue of going to college versus stopping at high school.

DUBNER: So that’s pretty fascinating.  But also what’s interesting to me is that for these guys who got a really bad Vietnam draft number, that actually turned out to be a really good thing for the outcome of their lives, in that a lot of them went to college who might not otherwise have, and therefore resulted in a—I mean, it’s a very strange, unintended consequence of the Vietnam War draft, yeah?

LEVITT: That’s right.  They earned a lot more money.  Now, economists don’t always want to say just because you have more money, you had a better life.  Now these guys had to suffer through college.  These were guys who didn’t want to be in college, and maybe, just possibly, they would have been happier living a life where they earned less money and had those four years to go ride around, you know do hippie stuff or something like that.  So who knows if they’re really better off?   They certainly earned more money.

DUBNER: Coming up, Levitt shares his opinion on healthcare reform.  And it will not make his friends in the Obama administration very happy.  Also, a look at Brazilian policing.

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[UNDERWRITING]

ANNOUNCER: From WNYC and APM, American Public Media, this is Freakonomics Radio.  Here's your host Stephen Dubner.

DUBNER: Let me, let me play you another one here.

LISTENER: Hi, my name is Tabby Lei.  I'm from Denver, Colorado.  I have a question for you.  What do you think of the healthcare reform passed in 2010?  Thank you.

LEVITT: Well, my friends in the Obama administration aren’t going to be very happy with me, but I really, I don’t think it solved any of the important problems that we’re facing with healthcare.  So virtually every economist will tell you that there were two things you needed to do to healthcare reform to materially improve the situation.  The first was to break the link between the provision of healthcare and employment.  And that is just an archaic element of our healthcare system, which really makes no sense, and yet because of tax subsidies, it’s the way most people get their healthcare, is through their employer.  It shouldn’t be.  There’s no good economic justification for it.  And yet, if anything, I think this healthcare reform bill actually strengthened that link.  So I think that’s very disappointing to economists in that regard.

DUBNER: Just explain why that’s a bad idea.

LEVITT: So people say, “Why doesn’t it  make sense to have healthcare tied to employment?”  Well, I think  I actually want to turn the question around and say, “Why in the world, if you’re starting from scratch, would you link it to employment?”  I think there’s no good reason.  I mean, for one thing, many people don’t work.  And so you’re left with this situation where there are people who work who get healthcare through their employer.  And there are people who don’t work, and they don’t have an employer, and so you have to have these dual systems.  There’s no intrinsic reason why your employer should provide your healthcare, other than the fact that we started doing it a long time ago and there are enormous tax subsidies to doing so.  It leads to what’s called job lock.  It’s difficult to change jobs.  And it leads to circumstances where we have to have these overlapping systems which are inefficient.  Why is your auto insurance not tied to your employer?  I mean, no one in their right mind would say, “Well, my automobile insurance should be tied to my employer.”  Well then, why would my healthcare insurance be tied to my employer?  It’s just, there’s no fundamental reason why it should be that way.

DUBNER: And what does it do to employers to make them have to be the people who dish out healthcare?  In other words, there are all these large firms that are supposed to be good at one thing.  Making software, making cars, or whatever.  But then also they need to devote an increasingly large share of their resources and their bandwidth to running an insurance program for their employees as well.

LEVITT: I think that’s exactly right.  That you would think that if you had firms whose specific jobs were to provide healthcare insurance, that they’d be better at it than having Frito-Lay or GM or whoever it is.  I mean, they’re good at making chips, and they’re good at making cars, but why should they be good at making healthcare?

DUBNER: So that’s one piece of why you didn’t like the healthcare reform.  Because it did nothing to weaken the link between employment and healthcare.  What’s the other reason?

LEVITT: An even bigger problem with healthcare today, which was not addressed at all in the reform bill, is that people aren’t paying for the services they get.  It’s virtually the only part of the economy where I can go out and get any service I want—cancer treatment, open heart surgery, have a wart removed, whatever it is—and I pay $3 for it or $5 for it or nothing, even if it costs $50,000, $100,000.  I mean, imagine if you had the same situation with automobiles.  Where I could show up at the car dealership and I could say, “I want the Mercedes for free.”  Well, people say, “You can’t have the Mercedes for free.  You have to pay $50,000 for it.”  You say, “Why not, I have an inalienable right to free healthcare.  Right?  Why don’t I have an inalienable right to a free Mercedes?”  And to me it just makes no sense.  That healthcare is just like any other good in the economy.  And because we aren’t charging people for it, what it costs to produce, people are inefficiently consuming it.  They’re making the wrong choices.  And you can tolerate that if it were a small part of the economy.  But now that healthcare is 15%, 20% of GDP, we have to start treating it like what it is, which is another good.  Now people hate to talk about this trade-off between health and life and money.  But the fact is that, if not today but sometime in the not-too-distant future, we’re going to have to make trade-offs, such as my grandmother is in a vegetative state, being kept alive by machines pumping her heart, and instead of the state paying for that, they’re gonna say, “Well, look.  You gotta pay for some of this.  You can either take the $150,000.  We’ll keep your grandmother alive.   And use it for that.  Or you can put your kids through college.  Your choice.”  And people are going to have to start making those tough choices.  And they won’t be pretty. And they won’t be fun or happy.  But it is just—you know, economics is the study of scarcity.  And in a world where healthcare becomes more and more costly, the scarcity is going to be more and more binding.  We’re going to have to make those tough choices that are imbued with this moral element.  But nonetheless, it’s an economic choice when you get down to it.

LISTENER: Hi, this is Ricardo Castro calling from São Paulo in Brazil.  At the end of 2010, Brazilian army and the Brazilian police went out into the slums to fight drug dealers.  They took a lot of weapons and drugs from them.  Some say they lost millions of dollars over a period of two days.  And what happens?  Should we expect crime to decrease because of all the police repression?  Or should we expect crime to actually increase, because drug lords are trying to refinance--robberies, a lot of crimes?

DUBNER: Best regards, Ricardo.  What do you say?

LEVITT: Actually, Ricardo, I think neither or your predictions will come true.  I think a third prediction will come true.  My perspective is that the drug dealers who are selling drugs in these favelas have a tremendous incentive to keep those areas safe.  Nobody wants to go buy drugs in a place where people are getting shot, or where they’re afraid of getting mugged.  And so far more than the police, who don’t really have that strong an incentive when you think about it to keep crime low, the drug dealers need law and order.  And so I actually think two things will happen when you crack down on the drug dealers.  Well, really three things.  First, sure, you make it a lot harder on the drug dealers to sell drugs.  So you will have that effect of reducing the number drugs that are sold.  My guess is, though, if you go back to these neighborhoods, you will find that the amount of crime will have gone up dramatically after the police come to them than before.  And that’s both because the drug dealers will no longer have the incentive to keep things clean and safe and protect the buyers, because they’ll no longer be selling the drugs there.  Number two, the violence that surrounds drug dealing is all about the property rights.  It’s about the drug dealers fighting with other drug dealers to find a place where they can sell their drugs.  If you make it impossible for these drug dealers to sell drugs in the favelas they’ve already established in, then they’re going to go find some other place to try to sell drugs, and that’s going to lead to conflict between gangs.  And I think there’ll actually be a spike of violence as they sort out trying to figure out who’s going to have the rights to sell drugs in the new place that they’re selling drugs in.  So I think in the short run definitely you’re going to see more crime rather than less crime associated with the police coming into these areas.  Even more so, because these are, remember are Brazilian police and Brazilian police are not well-known for their honesty and dedication to duty.  In fact, I wouldn’t be surprised based on what I know in talking to people who have studied Brazilian police, that indeed many of these police officers who are now guardians of favelas are quite familiar with these areas, because the standard job of many Brazilian police officers when they’re off duty is to work for the drug dealers in the favelas, serving as security guards.

DUBNER: That does it!  Our second installment of Freak-quently Asked Questions.  We'll probably do another one sometime.  Thanks to everyone who sent in questions, and sorry we could only get to a few of them.  Freakonomics Radio is a co-production of WNYC, American Public Media, and Dubner Productions.  Subscribe to this podcast on iTunes and you'll get the next episode in your sleep.  You can find more audio at FreakonomicsRadio.com, and as always, if you want to read more about the hidden side of everything, please visit our new, improved blog at Freakonomics.com.

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COMMENTS: 46

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  1. BackOnEmployersHealthplan says:

    I am guilty. After over 8 years of carrying my own health insurance, I finally jumped back on to my employer’s plan.

    Why now? My personal plan started at $170/mo. in 2002 (single male, non-smoker, age 40). Even though it was being paid after taxes, it was still within a few bucks of my cost for the plan at work, and it was a better plan. That was the pattern for 5 years or so, until I hit an age milestone and my rates jumped from $190 to $270+. By that time my employer had arranged for a much better deal on better coverage.

    For the past two years I have eaten the extra $150/mo cost (excluding tax advantage), thinking for some reason that it was better for me to carry my own insurance. Silly boy. I sat down with the company accountant to discuss going back on, and he said I was a fool to NOT be on the company insurance, even though it will cost my employer over $300 (his share of the monthly rate). So, starting in June, I will be paying under $170 before taxes rather than over $350 after taxes.

    I have to agree with Levitt – that’s screwed up. Everybody should get the tax break on insurance premiums, or nobody should… There is no economic reason to give the employer the economic incentive.

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  2. Danny says:

    I think a good follow up question about the health care thing is what then as a society do we do with the less privileged individuals who end up needing catastrophic care? It makes many feel like good health then becomes a commodity of those who can afford it.

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    • Dave Auerbach says:

      The assumption is that health care makes a difference. It certainly does in specific instances–an individual with some types of cancer, most trauma cases, among others. However, studies have shown that increasing the amount spent on health care does not increase life span, or improve infant mortality. The current American health care system has enormous amounts of waste. I would consider much of the 14% insurance companies report as administrative expenses among this waste. Surely no one should die because of a lack of health insurance, and currently no one in need of medical care can be turned away for lack of money. So exactly who is currently suffering from lack of access to medical care?

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      • Danny says:

        well Dave, I think what you have to figure out is how to tell the country that if without insurance and someone gets cancer or has heart disease, how do they choose between 50,000 in treatment/operations or death?

        Sure there’s waste and there’s unnecessary care going on in many instances, the fact is that people are drawn to the idea that survival from catastrophic illnesses simply depend on how well you save money for the case of emergencies.

        The truth is that health care as an aspect of society has come a long way and can go even further. There has to be a method better than what we got. What I want to hear is what Levitt has to say about choosing between personal treatment and death. Because it’s one thing in his example to say whether or not to spend the money on putting grandma in a situation to prolong her life. It’s another to say, “this underprivileged person has stage 1 cancer of some sorts, and since the person can’t afford it, it’s going to develop into stage 4/5 and then death.” That’s a question that economists have to answer to the greater population in order for the argument to take strength.

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  3. John says:

    The remarks about the value of a college education are quite interesting. This is the first time I’ve every heard of anyone actually taking the question seriously and trying to disentangle causation from correlation.

    Thanks for that, but I’m still very skeptical. A college education is extremely expensive, especially when once takes lost wages into account. It is also very difficult for anyone to reconcile something which is stated as a verified fact when it does not track with day to day experience.

    How can it be true that a college education is a financially profitable endeavor when one, as I certainly am, is surrounded by un- or under-employed college grads on the one hand, and reasonably to very successful non-graduates.

    Some possible reasons:

    Bias defense: Having made very large investments in the degree people feel obligated to defend the sunk cost. Try asking an un-employed college grad about this and you’ll usually hear a defense of the decision even though it has not worked out.

    Changes in the population and business world since the 60s. Perhaps the value of a degree has declined as they have become more common?

    Insufficient specificity: Perhaps some degrees are very profitable and the rest are not. I believe I read that the average salaries of college professors are inflated by a few very highly paid professors and researchers in medicine.

    Another factor which may not be taken into account is that for many of us who have college degrees they are superfluous. How do they account for that in the statistics. I have a college degree, and I probably have slightly higher than average earnings compared to those who do not… but the two facts are, on another level, correlation not causation. My degree has nothing to do with my career and never has. As a matter of fact, I have discovered that most, perhaps all of my hiring managers were not aware that I had a degree. How common is that? Anecdotaly it is very common, but who can say.

    I have not yet read the paper, mea culpa, but do these 8 percent and 30 percent numbers take into account the lost wages and costs of college? I know a young man who earned $0 before the age of 30. Call it 12 years of lost wages, interest on student debt, etc. Sure, he’s now, at about age 35 or so making very good money indeed, but how long does it take someone to dig out from under that kind of deficit?

    Last of all, there’s the question of uncertainty. Even if college does average higher returns, that doesn’t make it a good investment. Some of the winners are very big winners indeed, even within a certain field, how can one be sure to “win” that particular “lottery”?

    In a nutshell, the cost of college is a certainty. The benefit, if not non-existent, is at least uncertain. If nothing else, that’s not an obvious decision to make.

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    • caleb b says:

      As my wife has a law degree from a good Midwestern school, so I know the following very well: A law degree is NOT worth the cost for the majority of students. Having a law degree was actually a detriment when she was trying to find a job. She wasn’t in the top 10 percent of her class so no law firm wanted to hire her, and any job that didn’t require a law degree wouldn’t hire her because she was “overqualified.”

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      • John says:

        Yes, a few years ago my wife and I were on our way to a movie, and stopped in to have dinner at a burrito place nearby. There we ran into the younger brother of one of her friends from high school. We chatted for a while and he told us how he’d finished his law program, passed the bar, and finally gotten a job in his field.

        “But, ” he said, “then I decided I really wanted to be able to afford a car, so I’m working here at night.”

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      • raybansonmyface says:

        Your wife’s situation is due to the extreme surplus in the lawyer labor pool. This problem has been persistent since 2007. There are hundreds of thousands of law graduates released into the labor market every year. This eventually led to a legal labor surplus.

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      • Dave Auerbach` says:

        The wall street journal says 40,000 grads each year. But your point is well taken.

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    • raybansonmyface says:

      You should compare your anecdotal evidence to those unemployed workers without a college degree. Do the research, and you’re going to find some funny results that debunk your argument.

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      • caleb b says:

        Of course someone with a college degree will fair better than someone without. My point is this…..

        High School Degree for most LS grads

        Put it this way, we graduated from college in the same year. She went to law school, I went to work. If you add up the missed 3yrs of work AND the 150k in student loans, that decision will NEVER beat my college degree only. Trust me, I get it, there are too many lawyers out there so no one is crying for me. But if the question is “is college worth it,” the answer is yes. If the question were “is a law degree worth it”, the answer is NO. Most of here 2010 graduating class went on to work for 30k–40k a year. That’s not anecdotal, that’s fact. That’s really like 20-30k after student loans and I made 20k my last year of waiting tables. You tell me if a law degree is worth it.

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  4. Jash says:

    As far as college education is concerned, it really depends on your area. Mine is software engineering, and I realize that I actually probably use an year’s worth of material for work. The other 3 years comprised of stuff that’s under the hood, so to speak. Trouble is that not only is it unnecessary, it actually turned some people away into ‘easier’ majors. The analogy I like to use is that everyone needs to know how to drive. Only the enthusiastic want to know how the internal combustion engine works. Looking back, I’d rather have spent the 3 years actually working on projects and honing my skillset as a programmer, rather than knowing stuff I don’t use, and hence won’t remember.

    While, I don’t have any personal experience, I believe the same can be said about a lot of other majors. Marketing, advertising, business – these are things that come from experience, not from sitting in a classroom.

    In short, college is not about learning stuff. In the age of the internet, learning is quick, easy and accessible. College is about skills, because they take time to develop, and you need constant feedback for improvement. And there are only so many skills you will need at your employment. For most majors, it can be done within 2 years instead of 4.

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    • Pramod says:

      I couldn’t agree more with you. I feel colleges should provide more flexible and customized programs based on the student’s need.

      Most colleges assume that all students wants to be a PhD in the major they’ve opted for instead of finding what every individual student wants to do.

      Your experience reminds me of an article in Freakonomics last year comparing the education provided in a school/college to a public radio.

      We need more Podcasts and less public radio!

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  5. john says:

    OK, so I read the linked article. Unless I’m missing something it doesn’t say what you imply it says. Fearing that I missed something I did searches in the paper for the words: pay,salary,compensation, money, dollar, etc.

    The only substantial hit was this footnote:

    “Angrist, Joshua D. and Alan B. Krueger. “Estimating the Payoff to Schooling Using the Vietnam-Era
    Draft Lottery.” National Bureau of Economic Research Working Paper No. 4067. Cambridge, MA:
    NBER, May 1992.”

    Perhaps you meant to reference that paper?

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  6. Kevin says:

    I agree with the sentiment that the tax breaks should be given to everybody or nobody. There is no reason to justify subsidizing one buyer of health insurance over another. However, employers, particularly large companies, have more bargaining clout with insurers and can negotiate cheaper group rates. Do you think these economies of scale lend some justification to the employer-provided health insurance, at least at bigger companies?

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    • Dave Auerbach says:

      Kevin, your two comments are unrelated. The tax subsidy for health care is only available to employers. That is why so much health care is employer based. It has nothing to do with economies of scale. In fact, a full 60% of employer based health insurance is self-insurance by those companies themselves. The insurance companies only administer the plans, they do not provide the insurance.

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  7. Max says:

    A large employer can negotiate group rates for health insurance, but so can other groups, like unions, alumni, and honor societies.

    Insurance companies offer different insurance plans. Some plans just have fixed copays, but place a lot of restrictions. Other plans have fewer restrictions, but have 10-30% coinsurance, and higher premiums and deductibles. Having to pay 20% of the covered expenses and 100% of the non-covered expenses and deductible does encourage shopping around, but shopping around for healthcare is not like shopping around for a car.
    First, you can usually see the car’s price before you buy it, but you usually do NOT know the price of the test or treatment before you buy it. Just to find out the procedure code (CPT), you have to pay the AMA.
    Second, it’s a lot easier to choose a cheaper and less fancy car than to choose a cheaper and less effective treatment.

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  8. Julie says:

    Regarding “free” health care vs a free Mercedes:

    Before I start, a caveat: I’m Canadian and not completely familiar with the American system. That said, the number of stories I’ve heard about people bankrupting themselves or needing to take out second mortgages due to health reasons lead me to believe that health care in the U.S. is far from free. If you don’t have insurance, as I believe many Americans don’t, health care can be very, very expensive.

    And even if health care *were* free, I don’t see that as a bad thing. A Mercedes is a luxury; I think just about everyone can agree on that. If you don’t have a Mercedes, you’ve still got plenty of options, chief among them being to drive a cheaper car. If you don’t have your health, your options become far more constrained. Moreover, someone with a chronic or acute condition is not in the best bargaining position and could easily be exploited. I’m asthmatic. I don’t want to walk into a hospital only to be told, “Sorry, we don’t care that you can’t breathe. Either pay us or get out.” Ditto if I happen to break my arm. Or get hit by a car.

    There are plenty of chronic conditions out there where cures are available but expensive for the individual who needs them, especially if that individual is unable to work, but could potentially work if they were getting treatment. It’s a vicious cycle then, because without money, they can’t afford treatment, and without treatment, they can’t get money.

    I will grant that there are plenty of elective medical procedures that should be up to the patient to pay for. Plastic surgery for cosmetic reasons. Liposuction. IVF fertilization for women over 40. And, similarly, there are cases where acute care may not be the answer, such as very elderly patients who may be better treated in palliative care than an ICU (so long as palliative care did not mean ceasing other medical options). These are discussions worth having.

    But I think that everyone deserves to have basic access to medical care. I think the idea of leaving health care to only those who can afford it is barbaric in an industrialized country. Health is not a Mercedes.

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    • Dave Auerbach says:

      Julie, you are correct in that, in an ideal society, everyone would have the health care that they need. The problem is, who is going to pay for it. Basically, everyone wants all the health care they desire for free. 50% of americans pay no income tax. What do you think they would say if I went up to them and said: “It is barbaric for you to be denied health care that you require. However, it is totally unreasonable for those who make more than you to pay for your care. Therefore, here is the deal. Pick a name from this list of the wealthy. In order to receive free health care you must provide 10 hours of service to them per week. Mow their lawn, watch their kids, wait for a couple of hours for them to get their tire changed, shovel their walk after it snows, whatever.” For the life of me, I see nothing unreasonable about this. And yet I am sure that almost anyone being offered it would scream SLAVERY.

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