Thursday, October 11, 2012

Higher Education

Matt Yglesias:
Summers mentioned that for all the valid complaints that one hears about the state of American college education, there's a clear demand for it on the international stage so we must be doing something right. Many more foreign students come here to study than we send abroad, notwithstanding the generally higher cost structure of the American higher education sector.
 
 I actually think that this can be one of the weaknesses of market signals.  Reputation persists even after fundementals have changed.  The classic example of this, in my view, is the American Car Industry.  If one were to go to Detroit in 1968 and talk about how bad decisions might eventually catch up with them, they would look silly.  But when these decisions actually did catch up with them the damage was very hard to reverse. 

Another example was deforestation on Easter island.  Over the short term, each tree that was harvested was an economically sound decision.  It had an immediate and positive payoff.  But when all of the trees were gone, things definitely were not improved.

So just because an industry looks strong (now) doesn't mean that there are not rising challenges in the future. 

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