Business reporters and talking heads are tripping over themselves to predict the next bubble. It’s the least they can do after so many of them fueled the dot-com and real-estate booms and busts that tanked the economy and robbed millions of Americans of their hard-earned (or at least borrowed) money. Many have identified higher education as the next Big One. College spending has all the makings of an economic bubble: supply that exceeds demand; a market wildly inflated by government intervention; a return on investment on par with a Tulsa, Oklahoma timeshare; art history.
The doomsayer’s case amounts to this: teenagers take tests, score poorly, apply to safety schools, and borrow tens of thousands of dollars to major in Film Studies, guzzle beer, smoke weed, borrow more money, get into cocaine, pawn the Playstation, discover the concept of gender identity, sleep with anyone accordingly, study little, earn high marks and a quarter-million-dollar piece of paper, apply for jobs beyond their qualifications, settle for jobs that reflect their qualifications, default on their student loans, declare bankruptcy, discover that student loans are the only kind of debt that can’t be discharged in bankruptcy, die, and pass on the debt to their heirs, parents, or taxpayers. And you thought fraternity initiations were cruel.
Yet records for new college enrollment continue apace. Parents, desperately seeking a marquee university bumper sticker to show off to the neighbors, tell their children that college is the ticket to the high life, despite the fact that half of recent graduates are working jobs that do not require a college degree. Politicians bend over backward to boost student loans and keep interest rates artificially low, despite $1 trillion in loans outstanding and default rates that would make Bear Stearns blush. The only thing Americans, Right and Left, seem to agree on is that college is an unquestionable good.
Daring to speak out against the lemming-like charge toward the higher education precipice seems to invite only scorn from reporters in the press, who, like me, are a tad self-conscious about their useless, over-priced, fraudulent, academically bankrupt journalism, communications, gender studies, and poli-sci diplomas.Yet a few men are taking on the challenge. Serial entrepreneur Peter Thiel uses the millions he made from shorting housing to issue $100,000 investments to get promising students out of college and into the marketplace. Mike Rowe, of Dirty Jobs fame, is telling technically minded youths there’s neither shame, nor poverty, in a hard day’s work. Both men should be lauded for their realism about America’s education obsession. But neither Thiel, nor Rowe, nor any college bubble apostle has offered anything but superficial scratches to the well-armored tank that is Big Education. That’s because none has addressed why young Americans are forced to go to college in the first place. Their money and brainpower would be better spent overturning Griggs v. Duke Power Company.
The 1971 Supreme Court decision remains largely unknown, but no ruling of the past forty-five years (except for Roe v. Wade) has done more harm to the American way of life. It changed the way companies hire, pay, and promote workers, ensuring that America would be a country defined by credentials rather than merit. Griggs is why we’re wasting money and time on a dubious good like a B.S. degree—pun intended.
The saga began in 1969 when Willie Griggs, a black man born in the segregated South, decided he was overdue for a promotion. In order to get one, per Duke Power Electric Company rules, he had to pass two aptitude tests and possess a high school diploma. Griggs smelled racism. The tests surveyed employees on basic math and intelligence questions. None of Duke’s fourteen black workers passed. Griggs and twelve others sued the company for discrimination. A district court and federal appeals court accepted Duke’s claim that the tests were designed to ensure that the plant operated safely. Duke bolstered its case by pointing out that it offered to pay for employees to obtain high school diplomas and that white applicants who failed to meet the requirements were also denied promotions.
The Supreme Court wasn’t buying it. This was North Carolina after all. The court compared the tests to Aesop’s fable of the Fox and the Stork, in which a fox offers a dish full of milk to a stork, whose beak prevents it from satisfying its thirst. The implication that black and white workers were of a different species did not strike any of the justices as racist, unlike the objective tests. Griggs found that if blacks failed to meet a standard at a higher rate than whites the standard itself was racist—a legal doctrine known as disparate impact.
“What is required by Congress is the removal of artificial, arbitrary, and unnecessary barriers to employment when the barriers operate invidiously to discriminate on the basis of racial or other impermissible classification,” Chief Justice Warren Burger wrote in Griggs. “Diplomas and tests are useful servants, but Congress has mandated the common sense proposition that they are not to become masters of reality.” Burger may have intended to free America of bureaucracy, but his decision in fact bestowed that title—“masters of reality”—on college administrators.
Diplomas do little to alter the dynamics of innate ability and intelligence—even less so now that institutions have lowered standards. The knowledge gap between college seniors and freshmen is negligible (see: Academically Adrift: Limited Learning on College Campuses). Other studies have found that class ranks at graduation closely mirror testing ranks upon matriculation. If businesses could recruit and screen candidates using testing metrics, it would allow workers to begin their careers earlier, advance quicker, and do it debt-free.
The lie that props up our Big Education regime is that the GI Bill, which paid for World War II veterans to attend college, produced the upward mobility and economic boom of the postwar period. It’s a heartwarming story, the veteran who would have been a dust farmer but for the grace of government generosity. But it just isn’t true. Only one out of every eight returning veterans attended college. The rest, the vast majority, benefited from something even more egalitarian: aptitude testing. The format favors raw talent above all else, allowing companies to hire high-potential candidates from any background and groom them to fit the company’s needs.
These tactics came to commerce from a familiar source.The armed services were forced to process hundreds of thousands of recruits during the war, and in order to filter and assign soldiers, the government developed aptitude tests. Businesses witnessed the U.S. defeat the two most efficient peoples known to man, thought there must be something to this whole testing thing, and followed suit. The chief hiring metric in the postwar era was not whether someone had a degree, but whether he had the aptitude that would enable him to succeed. Every industry from blue-blooded high finance to immigrant-heavy manufacturing employed testing to determine who would rise through the ranks, regardless of lineage, heritage, or education. Testing enabled men who set out to be blue-collar workers to ascend based solely on their ability.
Above all, tests are effective.
“Despite their imperfections, tests and criteria such as those at issue in Griggs (which are heavily…dependent on cognitive ability) remain the best predictors of performance for jobs at all levels of complexity,” University of Pennsylvania Professor Amy Wax has found.
Two years ago I interviewed Den Black, a former automotive engineer at GM supplier Delphi whose pension was slashed to speed up the auto bailout. His backstory interested me nearly as much as his grievance with the Obama administration. A few years before the Supreme Court issued the Griggs decision, he set out to join his brother as a line-worker at General Motors. He hadn’t been the best student, didn’t care much for school, but submitted to the hiring exam. The test revealed that he had an advanced understanding of physics and mathematics. Within a few years, he was given the opportunity to take the entrance exam to General Motors University. After two years at GMU, where he combined shiftwork with education, he emerged an engineer in management. It’s no bachelor’s degree, but judging by the patents he helped generate, it was a worthy investment.
The Griggs decision has made that organic rise through the ranks impossible, as disparate impact left businesses liable for those who failed to pass hiring tests.
“Most legitimate job selection practices, including those that predict productivity better than alternatives, will routinely trigger liability under the current rule,” Wax wrote in a 2011 paper titled “Disparate Impact Realism.”
The solution for businesses post-Griggs was obvious: outsource screening to colleges, which are allowed to weed out poor candidates based on test scores. The bachelor’s degree, previously reserved for academics, doctors, and lawyers, became the de facto credential required for any white-collar job.
By the late 1970s, universities were in crisis mode. The baby boom produced more students than they knew what to do with, but declining birth rates left them with a smaller pool of tuition-paying students. Their new role as the gateway to respectable careers and higher salaries solved that problem. They replaced comprehensive liberal arts education with career-oriented majors that displaced the apprentice, rise-from-the-bottom system that had previously defined the American labor market. Curriculum quality and homework rates plunged, but endowments swelled.
“To keep their mammoth plants financially solvent, many institutions have begun to use hard-sell, Madison Avenue techniques to attract students. They sell college like soap, promoting features they think students want: innovative programs, an environment conducive to meaningful personal relationships, and a curriculum so free that it doesn’t sound like college at all,” academic Caroline Bird noted in her 1975 essay “College Is a Waste of Time and Money.”
Colleges, aware of their newfound utility and the easy money pouring in from student loans and Pell grants, jacked up prices. Education costs, as George F. Will has noted, grew 440 percent in the post-Griggs era. That trend continues today. The Project on Student Debt found that total college loans increased 6 percent annually between 2008 and 2012. The average student today takes out nearly $30,000 in debt to buy a ticket to the good life. They’d be better off taking that money and buying a new Mercedes CLA and faking the good life.
The common sense idea would be to help people avoid this debt altogether. The solution we’ve received from policymakers on both sides of the aisle is to double down, to pour more money into university coffers, and to force more and more kids into an environment for which many are ill-suited. The numbers are daunting for these reluctant fellow travelers. More than three quarters of college freshmen who finished in the bottom 40 percent of their high school class will not graduate in eight years. Four out of ten college enrollees will not graduate in six years. More than 20 percent of graduates defaulted on their loans in the last year, dwarfing the mortgage defaults that spurred the Great Recession. The dropouts lose their ticket to a good job, but get to keep the debt.
No group has been hurt more by this arrangement more than black men, those Griggs was supposed to help. Chief Justice Burger noted in his decision that whites had an innate advantage over black workers because 34 percent of white males in North Carolina had high school diplomas, nearly double that of blacks. The gap remains roughly the same in Bachelor’s degrees today among black and white men, while both groups lag far behind women.
“That so many employers require college diplomas, tacitly or otherwise, means the court decision accomplished very little in blunting biased company hiring practices,” reads a 2011 editorial at the Vault Education blog. “In fact, it’s probably true that it’s only helped make discrimination more rampant. The more the college degree became a standard employee-screening device, the more college degree holders there were vying for jobs of comparable skill level, jobs which weren’t increasing at a equivalent rate. It was really only a matter of time before the bar raised up again, and again, giving employers more factors to discriminate against.”
Which brings us to the next stage of the problem: inflation. The glut of bachelor’s degrees means even the undergraduate diploma is beginning to lose its value. About 17 million college graduates work in fields that don’t require a college diploma. There are 100,000 postal workers, 317,000 waitresses, and 18,000 parking lot attendants with undergraduate degrees. One out of every four bartenders has a diploma, and though they listen to moping for a living, few majored in psychology. Nearly 6,000 janitors have doctorate degrees, like something out of a Twilight Zone Good Will Hunting. College triumphalists brag about the 4.9 percent unemployment rate among graduates—lower than the national average. But, as Ohio University economics Professor Richard Vedder pointed out, that’s triple what it was during the malaise of the 1970s. Workers are acutely aware of the overcredentialing crisis. Nearly 60 percent, including 40 percent of college graduates, told Gallup in 2013 that they do not need a college degree to perform their job.
The indebted former student is not the only one to suffer under the current arrangement. Research has shown that when graduates flood the unskilled job market they hurt the career prospects of their less-educated neighbors. The Ph.D, janitor waiting on the sale of his Great American Novel has displaced a worker without the résumé needed to get any other job. Consider how the gap between high-school and college wages has grown. The 1972 census estimated that over the course of their working lives (ages 22 to 64), college graduates would net $199,000 more than high school graduates. By the late 1970s, college graduates earned 55 percent more per year than their high school counterparts. The gap shot up to 85 percent in 2012. Fear of litigation plays a role. A company that pays based solely on performance could find itself rewarding the “wrong” person. A compensation manager at a leading technology firm told me that an engineer fresh from graduate school simply has to be paid more than a self-made engineer—the Den Black who learned the business over a twenty-year career, rising from basic laborer to accomplished engineer on his own merit. “There’s too much risk in paying a guy without a diploma more even if he is a better contributor,” she said. “God forbid the college graduate is a woman or a minority: They can sue you and claim that they were paid less because of discrimination, so we designed a system to pay people for their education, not their job.” Thus the credential becomes a force of downward mobility for the educated and uneducated alike.
The up-by-your-bootstraps mantra of America wasn’t killed by businessmen; it was killed by the lawmakers and regulators who made the diploma into the bootstrap. So why are the same politicians and pundits who condemn inequality zealously defending credentialism?
Well, for one thing, there’s money in disparate impact for the Department of Labor.
“Essentially it’s a revenue machine for the DoL,” Keith Gutstein, a labor and employment partner at a law firm in Woodbury, New York, said of new federal wage discrimination laws. “In recent years the DoL has started to insist on CMPs—civil money penalties—and that money goes to the government.”
President Obama’s Labor Secretary, Tom Perez, acknowledged this at a confirmation hearing before the Senate Health, Education, Labor & Pensions Committee. He came under fire from the GOP for orchestrating a quid pro quo with the city of St. Paul, Minnesota, to prevent a case that threatened to overturn disparate impact from reaching the Supreme Court. Perez’s deal potentially cost taxpayers hundreds of millions of dollars. Republicans ripped him to pieces for being a poor steward of taxpayer money. The committee chairman, Iowa’s Senator Tom Harkin, stepped in to save him.
“Isn’t it true that applying disparate impact principle, the [Justice Department’s] Civil Rights Division under your leadership has reached settlements totaling over $600 million?” Harkin said.
“Yes, sir,” Perez replied.
The government has made it so that you cannot be paid based on your individual performance. Businesses need to craft ever more narrow metrics that lump all employees together by education, job title, race, gender, sexual orientation, and whatever aggrieved labels politicians award with protected status next. Your negotiations with the company will not reflect your impact on the bottom-line, but your impact on the payroll. MIT summa cum laude or record sales growth may be a big deal where you come from, but in the business world it won’t mean a thing if your salary brings white males too far ahead of the demographics Democrats treat like endangered species.
Workers already suspect that meritocracy no longer governs America’s economy—more than half of respondents to a 2011 Yahoo Finance survey said “office politics” was responsible for how people are promoted, double those who said hard work. And when they say office politics, they’re referring to the illegitimate monarchy installed by government regulations that rewards the man who waltzes into a company with documents that trace his educational bloodline to Yale or Harvard, a lineage that makes him the rightful heir to the management throne. The company obliges, breeding distrust among the workforce.
Not only does the credentialing system undermine office comity, it’s bad for business, too. A number of critics cited the MBA as a chief culprit for the housing bubble and stock market crash. Forty percent of graduates from elite business schools went into finance, rather than traditional businesses, at the time of the crash. They brought the formulas that dazzled in Harvard Business School to Lehman Brothers and Bear Stearns. Those equations never failed in college.
Academics called for more business ethics courses. In the wake of the crash, think tanks said admissions committees should screen out narcissists. Investors said there should be a renewed focus on risk management. Occupy Wall Street called for guillotines.
I’m with Occupy. Occupy thought the problem was the golden parachute, but the most gilded aspect of the advanced degree isn’t the sizable severance check; it’s the access and employment guarantees that come with the graduation cap.
The Supreme Court could resolve many of these issues by beheading disparate impact and the diploma-as-credential. Does Wall Street need humble, ethical young men and women? Then give them tests, start them at the bottom, and let them earn their way up based on merit. Want to teach risk management? Pull students out of the classroom goldfish bowl and put them in the real world.
The real world doesn’t operate in idealized, rational markets. If it did, no one would go to college.