Does College Still Matter? And Other Freaky Questions Answered… (Ep. 30)

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“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.

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.


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The college study described tells us whether it was worth going to college 50 years ago. It doesn't really tell us anything about whether it's worth going to college today.

Additionally, I'm not sure that it tells us as much as it claims about the inherent differences between college and non-college bound men. A mid-number draftee who went to college might have been more risk averse than a low-number draftee who also went to college.

Michael Parks

I wanted to read the Vietnam paper, but $5 is pretty harsh for a paper that may be educational, or may be a waste of an hour.

Chris Sampson

I lost a lot of faith in Levitt after listening to this podcast. He clings to his free market economic ideals far too religiously... quite irrationally. Health care is certainly nothing like a normal good, and I'm shocked that he thinks this (surely he has read Kenneth Arrow's 1963 paper?).

I'm astonished that he hasn't realised that the USA, with one of the biggest privately-funded health care systems in the world, is also one of the most inefficient. His suggestion that health care should have a marginal cost that is not zero has no grounding in reality.

Get with the times, Steve.

Dave Auerbach

Although I have not at all lost faith in Levitt, I do agree with much that Sampson says. The current health care system is wildly inefficient. It is being gamed, and huge amounts of money claimed by hospitals, insurance companies, pharmaceutical companies, and medical suppliers. The physician and the patient are relatively loss in this battle. Sadly, I have no idea how to cure this. Socialization of medicine is not the answer, but I do not know what is.

Tom Maguire

Colleges With The Lowest Return On Investment

http://huff.to/hEYXVn

Sortable list that includes four year tuition costs for (I think) every school in the country.

P.F. Bruns

I personally hold that health care is a fundamental human right, and that the Mercedes analogy is offensively specious.

Consider: If I cannot afford a $50,000 Mercedes--which is honestly an entry-level example at that marque once financing and options are factored in--I can get a $20,000 Toyota, a $5-10,000 used car, or a $3-500 bicycle. (I can get even cheaper options than that, but in those price brackets, the prices for maintenance outweigh the price break for entry.) Transportation options abound. If I need a $50,000 heart operation, my ability to shop around, especially without insurance, is limited severely. I can't just get a $300 bicycle.

So why is health care a fundamental human right? The UN has basically had to declare it such, because otherwise, we as a species have a disappointingly amoral tendency to let each other die if there's nothing in it for us. Economically, while I don't have metrics, I'd be willing to wager that longer-lived healthier people generate more demand for goods and services, create markets by making new things and inventing new services, and therefore benefit society at large.

The fact that it's just the right thing to do--to NOT ask "What's in it for me?" when a life is at stake, is not economically sound on its face, but longer healthier lives do benefit us all in the long run, I believe.

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Dave Auerbach

It is easy to say that healthcare is a right. Perhaps it is. But if it is then individuals have an absolute responsibility to maintain their highest health, meaning that no one can be allowed to smoke, overeat, not exercise, drink to excess, use drugs, and in many cases contract aids, among other things. In addition to our current progressive income tax structure, a significant excise tax must be imposed on those who, by their own actions, have potentially increased their health costs to society. If they are willing to pay to sin, then they are doing their fair share.

P.F. Bruns

The big economic reason to tie health insurance to employment--a practice with which I disagree overall--is that employers have a vested economic interest in keeping their employees healthy. A happy side effect for those employees fortunate enough to work for larger corporations is that those corporations' buying power helps force health insurance costs down. You or I cannot go to an insurer separate from our employers and get our employers' price breaks--nor can we get the government subsidies our employers get for paying our health insurance costs. (Well, at least not until the new health care laws kick in around 2014, if they do.)

However, for me, the practice of tying health insurance to employment is counterproductive because it has the potential to cause employers to make health a condition of employment. Now, for certain physical jobs, employers have a good point--it makes no sense to give roofing work to a person using a wheelchair to get around, for example, to pick a person with a severe heart condition to do heavy lifting, or to hire a blind person to drive a bus--but in general, it tends to marginalize those with disabilities or health problems. Worse, making employment a condition of health insurance tends to make health care harder to obtain for the unemployed, who often need it the most.

We need to make make health care easily affordable to all Americans regardless of employment status because healthier people buy more stuff. To do this, I believe we must:

1) Require health care providers disclose all prices up front. I want to know how much I will have to pay for any medications (right down to aspirin or antacids), my hospital stay, the procedure, everything. That way I can price-shop in non-emergency cases.

2) Raise taxes and cut other government costs. We're going to have to do that anyway, so we might as well do it to make it easier to provide health care.

3) Do everything economically feasible to lower health costs for consumers. The goal should be to commoditize health care, and make it as simple and as easy to get as buying a toaster.

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Dave Auerbach

Having all costs up front is an excellent idea. And the numbers given MUST be the amount each provider will accept as payment in full, not some specious "master charge" fee that no one expects to receive. This would provide for real competition.

In a somewhat similar vein, there should be different subsidies based on a number of factors. Highly efficient care should be fully subsidized, low efficiency health care have a much higher co pay. Individuals who have made life choices that have contributed to their illness (smoking, drinking, drug use, many cases of HIV, sedentary life style, over weight, etc.) should pay a much higher co-pay than those blameless.

Some type of socialized medicine would be acceptable it immediately allows an increase in physician income due to a decrease in overhead expenses such as billing, malpractice, federal regulation,etc. Allow physicians to practice medicine.

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Erin

Your answer on healthcare confuses me. How is it like a car? I caught an infection at a hospital a few years ago, went into toxic shock and ended up losing one of my legs. Must have cost hundreds of thousands to keep me alive. Very expensive and I would never be able to pay that back without bankrupting my family. Thank goodness for insurance. So what's the answer, let me die? Should medical research just stop because no one can actually afford the advancements that are keeping people alive? Probably you have an economic answer like your one about voting. But imagine your wife was dying in the hospital. Good idea to pullout of the ICU to stop from spending so much money. Or keep her alive to work (and pay taxes) and help raise your children.

Tev Kaber

I remember one job, I had the same job title as another guy who later became a friend. We compared salaries. I had a college degree, he did not. The difference in salary? I made $1/hour more.

A couple years later, we had jobs at different places, and he made much more than me. A couple years after that, we again switched jobs, now I was making more than him.

On getting hired, work experience carried much more weight than a college degree, and negotiation skills can make the difference on salary more that a college degree.

Currently I am at a Fortune 500 company, and while I do no directly hire people, I do read resumes, do interviews, and make a recommendation on who to hire. I do look to see where they went to school, but that's more of a curiosity to me, I am much more concerned with skills, work experience, and actual portfolio work .

If you're wondering, I am a web developer, I do soup-to-nuts front-end and back-end web work (PHP/MySQL/HTML/CSS/UI Design).

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Paul Hewings

I echo the general dismissal of the Mercedes comment in regards the healthcare reform, but I think it is key to understanding why nearly all the comments have been negative. We all listen to Freakonomics presumably becasue we enjoy it and find ourselves agreeing with many of the conclusions drawn by looking at a thing we thought we understood through the spectrum of an economist; don't bother voting: BRILLIANT, anti-social social networking: less so-but still engaging.
The thing with healthcare is that to Levitt it is the same as a Mercedes, to the rest of us, it isn't.
He went on to say that if you took your 150k and you either used it to give your grandmother an extra few years of life or you can pay for your college education with it. Why should college require killing grammy for some people and not for others? No one chooses (unlike a Mercedes) to have an expensively ill grandmother, it is luck or the lack of it.
Apply the same "Someone's got to pay for it, so the end user should pay for the whole cost themselves." argument to policing and you end up with a curious thought experiement. How would I pay for the cost of the investigation of my own murder? I hope I can rely on the rest of you to care just about enough to at least try to find out who did it and punish them accordingly. If not then I'm going to have to be a lot more polite.
He is just an economist and therefore always starts by looking at the money, most of us aren't and so disagree on this one. Not as much a criticism of the conclusion than of the limitations of the thought process. Unlike the excellent discussion on GDP with Martha Nussbaum.

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Justin Gilbert

Can the positive (or negative) impact of scholastic sports be observed? Another words, does the high school football team 'bring the school together' or 'promote teamwork' or 'teach life lessons'? Even at the high school level and below, massive amounts of labor hours and money are devoted to organized sports. It there any data to show if it is worth it (from a freakonomics perspective)?

Ben

Health Care is just like any other good? Do you really believe that?

#1 If you don't buy a Mercedes, you could buy a car for a small fraction of the price that is just as good (for practical purposes anyway, maybe not for "style" or "speed", but it will get you where you want to go in the same amount of time assuming you are following the traffic laws). There is no such economical alternative for most health care costs. I can't say give me the economy cancer treatment, it works just as good right?

#2 Most goods aren't life or death like health care can be. There are a few goods that are like food, water, shelter, heat, but most of these life and death goods are very cheap (and you can predict how much you'll need of each very easily) compared to life and death health care costs which can come at any time and simply bury you. Also, if you really can't afford those life or death goods, the government will generally assist you with them to some degree.

All other goods are "luxuries". I guess the few luxury health care costs shouldn't be covered by insurance (most aren't right now anyway). The overwhelming majority of health care costs are not something that people partake in "for the joy of it". They do it becuase they are told to by their doctor. I'm not going out getting surgeries I don't need because they are free so, why not?

Health care in my opinion is like NO OTHER good. That doesn't mean we have to abandon free market principles altogether, but we do need to recognize that we can't treat it like any other good.

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Miichael

Dr. Levitt clearly has spent very little time in the American health care system. There are no longer 3 or 5 dollar copays for anything. Copays extend into the tens and hundreds of dollars for almost all services and procedures, if they are covered at all.

To extend your Mercedes analogy, what usually happens is that you are told by your personal Car Expert that you need a Mercedes or you will die. You can't afford one, and your Car Insurer says they won't pay for one. So you walk. And you die.