It is accepted as dogma by many that creating more college graduates translates into superior economic growth. This theme was discussed in the desperate state of Michigan recently:
Lou Glazer of Michigan Future, a non-partisan agency advocating for a knowledge-based economy, showed a list of the 10 states with highest per-capita income. He emphasized the high correlation between the number of college graduates and the higher incomes in those states.
Glazer’s “supporting evidence,” however, is sloppy and lazy. Michigan’s Mackinac Center responded in kind with some more thoughtful analysis on the issue:
However, Glazer uses only snapshot views of what the per capita personal income or economic output is in a state right now. He ignores trends….Between 2005 and 2008, the 10 states that grew their graduate base the most performed no better than the bottom 10 states in per capita personal income growth: The average income growths for both groups was 14 percent. So much for growing the economy by growing graduates.
Government-“investment” advocates play into the fallacy of focusing exclusively on the ‘production function’ theory of economic development. As Florida State economist Randall Holcombe wrote:
Economic theory was developed through increasingly complex mathematical models. The economics profession supported those changes, believing that a more scientific understanding of the economy could produce better policies and even more prosperity. In mathematical terms, an economy’s output could be depicted in a production function, where output is a function of inputs such as land, labor, and capital. More inputs produced more output, and the production function was able to show in clear mathematical terms the relationship between inputs and outputs. …..
Thus, economies could grow more rapidly if they increased their inputs.
The exclusive focus in such inputs – like an educated workforce – blinded economists to the more important role of the incentive structure put in place by public policy.
Inputs are necessary to produce output, but without the right incentives, it is too easy to combine inputs in a way that makes the final output less valuable than the original inputs…..
Public policy need not be concerned with the production of capital, the incorporation of technology, or the development of a skilled labor force if that conducive environment is created. The economy will attract investment and provide the incentive both for workers to obtain marketable skills and for the adoption of more advanced technology. The right environment will attract the right inputs, but providing the right inputs will not create the right environment. If growth policy focuses on producing an environment of economic freedom, growth will follow. Without the right environment, growth will not occur, period.
In short, an educated workforce becomes useless as an input without the right environment – an environment that allows the market process to work unfettered from government intrusion. Sinking more taxpayer dollars into subsidizing college degrees will not spur economic growth – liberating market participants from oppressive government restrictions and distortions will.