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Education's Economics Of Scarcity

All across the United States, nay all around the world, the message about higher education is uniform: More people should go to university. President Obama has repeatedly stated on record that "by 2020 America will once again have the highest proportion of college graduates in the world." The Lumina Foundation is working to increase the proportion of Americans with degrees to 60% by 2025. That would be a huge increase because currently less than 30% of adults in the United States have a degree. The demand is not limited to the United States alone: According to UNESCO, India could build a new campus every two weeks until 2025 just to account for the demand.

During the short seven months I spent at college, I, like so many other college freshman, took Economics 101. I may not be able to explain a giffen good, but I do recall one thing about the economics of scarcity: As you create more of a commodity it becomes less valuable.

Gold is valuable because it's scarce. Remember when we humans used to use seashells as currency? We stopped doing that because someone discovered they could just walk down to the beach and get more shells. Once the commodity was abundant it lost value.

Colleges are beaches. People are walking and picking up degrees like seashells. As we hand out more and more degrees, each degree becomes less and less valuable. I'm amazed no one has pointed this out.

A few countries are starting to catch on. The Economist reports that South Korea's president is now discouraging young people from going to college. In South Korea, over 82% of high school seniors go on to college—the highest rate in the world. Just as in America, students in South Korea go to university expecting a job to be waiting for them upon graduation. Then, like many graduates here, they find themselves unemployed. The president is pressing South Korean firms to hire people without degrees—two South Korean banks are taking this seriously and reserving 13% of new jobs for those without degrees.

Of course, less than 30% of American adult have a college degree, so the market isn't quite saturated. But if 60% have degrees by 2020 or 2025 we'll have to reevaluate the meaning of saying "I'm a university graduate." Many business use diplomas as a screening tool—and that won't work when 60% of adults have college degrees. The more people who go to college, the higher they raise the bar. Pretty soon you'll need a PhD in burger-flipping to work at McDonald's.

I'm exaggerating, but your employability does depend on the subject of your degree: The unemployment rate for nursing graduates is 2.2% while clinical psychologists face a 19.5% unemployment rate.

China has a solution: The Wall Street Journal reports they are cancelling degree programs in which 60% or more of the graduates fail to find employment within two years. What's interesting is that China is doing this before they experience a glut of graduates: Only 8.9% of adults in China have a college degree. This Chinese hand is not invisible, but it is certainly one Adam Smith would recognize.

What does this mean for students in college? Unless you're in China, don't expect your art history department to close down, but do realize that your college degree is worth less as more college graduates walk the stage. This reality is not cause for alarm: Degree holders will likely have an edge over their credential-less peers for another 10 years. But if we meet Obama's goal and 60% of adults obtain degrees by 2020, don't count on your degree to get a job, or even your foot in the door. You'll have to prove that you're more than an important-looking piece of paper.

Dale Stephens was homeschooled and then unschooled. Now he leads Perigee/Penguin will publish his first book about hacking your education in early 2013.

[Image: Flickr user aigle_dore]