Econ One-Oh-One

I heard an estimate today:

“If we take pre-tax income gains in the top 1% in this last decade and redistribute them evenly to the remaining 99%, every person in this bracket would see an $8,000 (pre-tax) bump. However, let’s say we apply the lump sum of top 1% gains toward ensuring that everyone in the 99% completes a college degree. Under this provision, total societal gains in pre-tax income for the 99% average out to a $20,000 increase in pre-tax earnings per individual.”

I’m not questioning the link between education and earning potential, nor do I think American jobs and American workers are locked in a zero-sum game. But, regardless of controls that went into this estimate, might we be overstating the link? To be sure, influx of qualified individuals will expand existing industries and likely create new ones. Economic growth and job creation frees us from zero-sum flirtations. But we have to mind the social optimum in a free (labor) market. A rapid increase in college graduates will not realistically be matched with equal increase in jobs for graduates. Graphically (Econ 101 yo), the supply curve shifts significantly outward while the demand curve remains (relatively) the same, leaving us with a new equilibrium where labor is supplied at lower prices (wages). Intuition: Labor supplied exceeds labor demanded. If everyone on the supply side held a Bachelor’s, then this degree simply won’t be worth as much to employers as when only a third of laborers held the degree. In other words – if everyone passes the test, they’ll just make the test harder.

I believe in striving for equality of opportunity. Redistribution is necessary when capitalist economies do not account for pluralist societies. We need government incentives and mandates to correct market failures. But the statement, “If everyone had a college degree, we’d all be x amount richer” rests on a false assumption about the function of markets. Believe it or not, the market is a place of competition. My milkshake can bring all the boys to the yard, but not everyone gets to drink it. The line is back there, u kno wut i mean?

(For simplicity, I avoided discussing demands in different markets for four-year vs. associate’s vs. technical vs. clown degree, and for Bachelor’s in English vs. Electrical Engineering vs. Defense Against the Dark Arts.)

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