Why can’t “the market” get education right?

Adam has a series of posts on the market for education. His latest details a paper by Jim Heckman showing that the availability of GEDs might actual make students worse off by leading them to substitute towards a seemingly worthless product.

In addition, there is no shortage of hand wringing over what appears to be the growing short comings of the for-profit education sector.

We have excellent private schools at both K12 and higher education levels but overwhelmingly they are not for profit.

To make matters worse it seems that the “best schools” do everything wrong. Take Harvard. One gets a job as a Harvard educator not by being talented at or even particularly interested in education. Furthermore, Harvard turns down the overwhelming majority of potential customers and actively discourages millions of others from even attempting to buy its product.

Yet, surprisingly it doesn’t attempt to use this market constriction to wring the highest possible prices from its students (yes Harvard could charge much much more and still fill every class). Instead, it goes out of its way to attempt to make “price not a concern.”

What way is this to run a business? Yet, it seems to be a crackerjack way of running an educational institution. What gives?

Some economists will tell you that its all farce. Harvard doesn’t actually educate you see. It selects. By only allowing in the certain students it is stacking the deck in favor of amazing outcomes. How can your graduates fail when they came in with such stellar test scores?

But there are at least two problems.

1) Economists who study education consistently find that institutions like Harvard do seem to be doing something useful. In instances where random luck determines whether or not a particular student goes on to University, going on seems to make a big difference. Perhaps, this is success by osmosis but it seems difficult to reject out of hand the possibility that the students might just be learning something

2) If the students aren’t learning anything then this poses no less of a challenge to market efficiency. Maybe university is a signal that you can hack four years of tough work. But, then why isn’t hacking four years of tough work, as say a lowly paid or even volunteer probationary worker an even stronger signal.

Maybe Harvard is really just a master selector. Picking out the best and brightest. If a student whose ultimate entrance is determined by luck still gets the resume glow of having been picked by Harvard and hence the subsequent success.  But, then is all of the pomp, the vast research apparatus and the still high, if not as high as possible, tuition bill really necessary. I am sure that some enterprising chaps could provide an excellent search and selection tool for far less than that. Call it Google Worker.


While I’ve heard dozens of theories to explain what the heck is going on in the educational universe, none of them seem really satisfying. Education seem to be important, perhaps crucial to the function of capitalist institutions. Yet, capitalism, that is for profit enterprise, just can’t seem to get education right.