The latter part of yesterday’s post spoke about the importance of small groups, and how to go about forming them. I mentioned how the process isn’t clear at all, and about how you might have to iterate until you get the right groups for most people concerned.
But a supplementary question is, well, all right, we have the groups. Now what. As in, what do these groups do?
The beauty of a group lies in the fact that a well-knit, cohesive group that shares certain traits but also has diverse skill sets is able to accomplish so much more than an individual ever can.
So asking the group to just help each other learn achieves – nothing. Not only will it be the case that the group will achieve the goal of learning better fairly quickly, but worse, it will stop being challenging.
But, on the other hand, if you ask the group to apply what they’ve learned – ah, that’s where the magic has a pretty good chance at beginning.
Or, as Seth Godin says: ship, dammit. Not, to be clear, in those exact words, but the point he’s making is that learning all you’ve learnt isn’t worth a damn thing until you’ve put it out there in the real world.
Put what out in the real world? Anything! A blog, a podcast, a vlog, a write-up, a website, a dashboard – anything at all. But unless you use what you’ve learnt to create something, and unless that ‘something’ is up for people to see, like, love, hate and criticize… it doesn’t count.
For example (and this is the point of today’s post), go visit this page. It is a page that hosts a podcast called “The Undismal Paradox”. This is a podcast started by nine FYBSc students at the Gokhale Institute of Politics and Economics (GIPE), which is where I teach.
Mondays is a podcast about the rise of China (and related issues), Wednesdays is about the electricity sector in India (ditto) and Fridays are about understanding how consumption habits have changed because of the pandemic (ditto^2).
This podcast was started by the students themselves, with the gentle encouragement of a colleague of mine – Saylee Jog – from the Institute. I was roped in to help in any way I could, but honestly, both I and my colleague have ended up not doing all that much.
We put a basic structure in place, created a basic workflow, and put in place simple rules to follow about minimizing errors. After that, we just stepped back, and watched these nine students learn more about economics than a class could ever have taught them.
The learning happened, make no mistake. The colleague I mentioned has taught them a course in Principles of Economics and Microeconomics-I. But learning while sitting in a class is different from learning in order to teach other folks. Plus, the pressure of shipping your work to a fixed cadence, and that too, shipping something out to the world at large, is a much better incentive to learn than the threat of an examination at the end of the semester.
The podcast is about to take a hiatus in a bit, because they have exams (oh, the irony), but it will be back in one form or the other in late August/ early September.
My personal hope is that when it will be back, I and my colleague will have to do even lesser than we did this time around. Maybe these nine students can recruit others, and the podcast will end up taking on a life of its own.
But that, to me, is a concrete answer to the question, what exactly do small groups do in an online course? They apply what they’ve learnt, and make their learning available to the world at large.
Without having shipped a product on the basis of what you’ve learnt, an education simply isn’t complete.
There are problems with this, to be sure:
It by definition doesn’t scale well, because the job of the teacher/college is no longer to just teach, but also to mentor each group
It is also to guide this group through a variety of stages: the formation, the inevitable adjustment pangs, the pressure of shipping, the disagreements that will crop up. Again, this isn’t a scalable thing, and so costs will rise.
Getting the number of students in each group, and the number of groups in each class right will always be a challenge.
Some groups will not work out, especially online. Devising fallback measures and alternatives is important.
Setting up these groups, and setting up the systems associated with these groups is hard work, but hopefully, it will be a one time thing.
Tackling the inertia of the education system, and convincing it of the merits of ship-the-work is hard!
But, all that said and done, it still is worth it. Because what you learn by doing simply can’t be replaced by what you learn by memorizing.
Small groups, and shipping your work is the only way online education will work.
In addition, Aadisht had a great comment about optionality and higher education, which really deserves a post in its own right – but you can click on the link in this paragraph and scroll to the bottom to read it for now.
All that being said, today’s post ties together the thoughts and deeds of three people whose thinking I try to follow very carefully when it comes to online education.
The role of community in education
Let’s begin with this tweet from one of them, David Perell.
Both the thread of which 4. is a part, and the Twitter thread referenced in 4. are worth reading.
But today, I wanted to focus on the community bit.
A quick reminder: my thesis is that college sells you three things. The education itself, the access to peer networks and the credentialing. If there is to be an online model that will work for colleges, it must successfully provide all three (and more) at the same price (or less) as college does today.
When it comes to peer networks, can they ever be as successful online as they have been offline?
That begs the question: have they been successful offline? And that is really two separate questions.
About Peer Groups
Are peer groups worth the effort in the first place?
Is there something special about peer groups you form in college?
With regard to the first, I’m going to take a pass on answering it in depth for at least two reasons. First, I know nowhere near enough sociology to be able to speak about this sensibly for any length of time. And second, isn’t the answer obvious?
About the second question, you might want to read this essay – a part of which is excerpted below:
As external conditions change, it becomes tougher to meet the three conditions that sociologists since the 1950s have considered crucial to making close friends: proximity; repeated, unplanned interactions; and a setting that encourages people to let their guard down and confide in each other, said Rebecca G. Adams, a professor of sociology and gerontology at the University of North Carolina at Greensboro. This is why so many people meet their lifelong friends in college, she added.
The entire essay is worth your time, but the crux of it is those three points above: proximity; repeated, unplanned interactions; and college life.
Two of the best years of my life were spent while studying for my Masters degree at the Gokhale Institute in Pune. There was a fair bit of reading/learning involved, but most of those two years were spent in just hanging out with a group of people I am still close friends with.
And of the three things that Gokhale Institute gave me when I purchased a Masters degree from it, it is this group of friends that I value the most. Then comes the degree, and the least important – as it turns out – was the learning itself.
Don’t misunderstand me – learning was and is important! It’s just that for me, sitting in a class and listening to professors talk wasn’t the best way to learn. I have learnt much more by speaking one-on-one with some professors, arguing heatedly and passionately about random topics with friends, and by reading/listening/viewing to stuff on my own time.
But therein lies a dilemma.
How to reconcile online education with forming your college gang?
Random bike rides, conversations at three in the morning sitting on a ledge on the hostel terrace, giggling at a joke while sitting towards the back of a classroom is not just an important part of college. In my personal experience, this pretty much was college.
And not just during the pandemic, but even beyond, the key challenge is to figure out ways and means to achieve something approaching the same experience in this brave new online world of ours.
What might be an answer to this conundrum? That brings me to the second person whose thoughts about online education matter to me, Tyler Cowen
Small Group Theory, via Tyler Cowen
If you are seeking to foment change, take care to bring together people who have a relatively good chance of forming a small group together. Perhaps small groups of this kind are the fundamental units of social change, noting that often the small groups will be found within larger organizations. The returns to “person A meeting person B” arguably are underrated, and perhaps more philanthropy should be aimed toward this end.
Small groups (potentially) have the speed and power to learn from members and to iterate quickly and improve their ideas and base all of those processes upon trust. These groups also have low overhead and low communications overhead. Small groups also insulate their members sufficiently from a possibly stifling mainstream consensus, while the multiplicity of group members simultaneously boosts the chances of drawing in potential ideas and corrections from the broader social milieu.
If you are going to run an online course, or are going to be a student enrolled in an online course, the most important thing you can do is think long and hard about forming groups.
If you are the person running the course, you need to make the process of forming a group as friction-less as you possibly can. Without these groups, not only are drop-outs more likely, but the groups themselves are perhaps the bigger point!
Here’s Tyler Cowen again, in a separate post:
Remember Lancastrian methods of education from 19th century England? Part of the idea was to keep small group size, and economize on labor, by having the students teach each other, typically with the older students instructing the younger.
The post I quoted from is about how college might reinvent itself in the era of the pandemic, but the larger point he is making – or at any rate, the point I choose to take away – is about how learning in small groups is better than classrooms.
And on a related note, the third person whose thoughts on online education I choose to take very seriously, Seth Godin:
Great guy. Chip and I went to business school together. He was the third youngest person in the class and I was the second youngest person in the class. He got five of us together and every Tuesday night, we met in the Anthropology Department for four hours. We brainstormed more than 5,000 business ideas over the course of the first year of business school. It was magnificent. It wasn’t official, it wasn’t sanctioned. It was just Chip said let’s do this, and we did. And he picked the Anthropology Department because he knew someone there and could get the conference room.
That is from an episode from Tim Ferriss’ podcast, in which he interviewed Seth (the whole episode is well worth your time), but the point that I remembered was about small groups.
Anybody who is going to try and do education online is going to have to get small groups going. Without it – in my opinion – it simply will not work.
But how do you form these groups?
I’m still thinking about the how, and the more I think about it, the more it seems as if there is never going to be a perfect answer. Forming groups is hard, and I think we need to make peace with the fact that groups may not always work out.
People won’t get along, people will drop out, quarrels will take place even among groups that develop close bonds – there are many, many things that can go wrong. But it doesn’t matter how long it takes and how many times groups have to be formed and re-formed – it is unlikely that you’ll get an education worth the name without the formation of a group, or community.
And what do these groups do?
… will be the topic of tomorrow’s essay, for I was part of an experiment that tried to answer this question – and I really liked the answer!
I wrote an essay yesterday about unbundling college. You might want to read that first before tackling this essay.
In today’s essay, we’re going to decide how we’re going to judge the efficiency of college. What framework should we be using and why?
A Framework for Judging the Efficiency of College
Efficiency is actually fairly easy to define: maximal output for minimum input.
And input is also fairly easy to define: minimum resources to be used in terms of time and money.
It is the output bit that is rather more difficult to specify and define.
What is the output of a college? Here are some candidates:
The number of students who graduate in a given year
The marks these students score
Particularly in the Indian scenario, the placement record of the college
Number of seminars/workshops/outreach programmes conducted by the college
Research output of the faculty/students in the college
Let’s work our way through each of these, and highlight the problems that present themselves:
Number of students graduating per year:
Do large classrooms – that is, classes with a very large number of students in them – work well? The obvious reason I ask this question is if you’re going to graduate more students, the number of students per class must go up. There is a large amount of academic research on the subject, if you feel like going through it. I haven’t read all of the papers on the subject, but the consensus seems to be that larger classes are necessary from an economic viewpoint, but don’t work as well as small classes would. Key points being, there ideally needs to be some sort of an opportunity to have a discussion with the professor, and that doesn’t necessarily work out well in a large class. I’ll speak of my own personal experience in this blog post, rather than cite academic studies. The largest class I have taught included 250 students, while the smallest included just two students. Neither of those extremes is ideal: 250 is more of a speech than a lecture, while two students is economically infeasible. My personal preference would be for a class size of not more than thirty. More students graduating per dollar spent by the university isn’t a great way to judge the output, or the educational outcome, of a college, because students don’t necessarily learn better in a large classroom. And in any case, if you are going to use this is a measure, online classes have offline classes beat!
The marks these students score:
Here’s a Hindustan Times article for your reading pleasure. .. .. I quote: “Compared to last year, the number of students scoring 95% and above has increased by 118.6% and those getting 90% and above by 67.48% this year in the Central Board of Secondary Education (CBSE) Class 12 results announced on Monday. A total of 38,686 students have scored 95% and above marks in aggregate of all subjects, up by 118.6% from 17,693 in 2019. As many as 1,57,934 students have scored 90% and above, 67.48% higher than last year’s tally of 94,299.” .. .. Are students this year twice as good as they were last year? If so, why? If not, are we just giving more marks this year than we did last year? Personally, I don’t think this year’s cohort is any better (or worse) than last year’s. It is quite likely that marks have been given more liberally this year than they were the last year. You can work your way through to what the equilibrium will be, but here’s my assessment: grades become mostly meaningless in the long run. Especially when they’re being handed out like this. Judging the output of a college by taking the average marks scored by the graduating batch doesn’t make for a great outcome either.
Placement record of the college:
I should state at the outset that I am the faculty-in-charge for placements at Gokhale Institute.
Colleges, in an ideal world, should have skin in the game. Is learning a means to an end in itself, or is it the means to an end? If it is the means to an end, and that end is gainful employment, then should college not be paid only if the end is achieved? Income sharing agreements are, you might argue, a natural next step in this regard. But that being said, there is a part of me that dies a little when I think about the whole means to an end thing. Yes, employment matters, and yes, colleges should be held to higher standards than they are right now in this regard. But I would hate to live in a world where you go to college only in order to get employed. There’s surely more to life and education than that!
Number of seminars/workshops/outreach programmes conducted by the college
But this raises an important, and potentially problematic issue. Change is worth pursuing if what is new is objectively better than the old. But as it turns out, we find ourselves unable to settle on an objective measure by which to differentiate between the old and the new!
Consider the range of services that a college provides:
There are four outcomes you get from college: grades, placements, peer networks and the degree. Of the four, we have spoken about and discarded grades, placements and number of degrees awarded as useful/appropriate measures of outcomes in education. That leaves peer networks, and this is perhaps even more nebulous and difficult-to-measure than the other three.
Of the lot, employability and the quality of peer networks are (to me) the most important. But the latter is literally immeasurable, and the former ought to not be the only benchmark for judging the outcomes from education.
There is, as it turns out, a problem waiting to be solved, and it is a fundamental one.
I, along with the rest of the universe, came across this meme the other day:
Today’s post is about explaining what is wrong with this image, but also why thinking about it really, really matters. Let’s begin:
Electricity and Education: More Similar Than You’d Have Thought
This Friday, I’ll be launching a new YouTube series on India’s electricity sector. Stay tuned for further details.
The reason I bring this up right now, is because one of the points we cover in that first episode is about how the electricity sector in India became much better after generation, transmission and distribution were “unbundled”.
And thinking about that point helped me frame a question about the education sector in India. I have written about this before, but I’ll expand upon that thought in much greater detail today: unbundling college.
The Typical College Bundle
What does the typical bundle in college look like? Something like this:
A student writes the entrance exam and gets in, attends classes, makes friends, writes internal examinations, gets an internship, gets placed, writes the semester end examination, gets the degree. And next year a new batch comes in, and we rinse and repeat. That, in a nutshell, is the higher education sector, at least in urban India.
One point worth emphasizing here: when I say peer networks, it is actually much more than that. Well, at any rate, it should be much more than that. Mentors, in particular, are best discovered in college.
You really should read the article in its entirety, but here’s the quick takeaway: some firms, like Apple, are vertically integrated. Everything, right from deciding which kind of screw should be used in the construction of the latest iPhone, to the OS (that is, the software), to the in-store experience – everything is controlled by Apple. Hell, they don’t let you change the number of icons in the dock! It is a vertically integrated firm.
Other firms, such as Netflix, are horizontal. You can watch Netflix on Chromecast, on the Firestick, on your laptop, on your tablet, on your phone – Netflix honestly doesn’t care where you watch it, so long as you pay them their monthly fees. In fact, they will go out of their way to make sure that you can watch Netflix no matter what device you own. Netflix is a horizontal firm.
And that’s one way in which the forward I received the other day is wrong. Every other service on that forward is a horizontal firm. But Harvard? Entirely vertical. They control who gets in and how, they control what they’re taught and how, they control who gets the degree and how. They don’t even need to control the peer network: the Harvard alumni network is one of the reasons getting into Harvard is worth the effort, so naturally the alumni themselves will work to maintain the exclusivity. Entirely vertical!
Now, the reason that forward exists, and the reason that forward became as popular as it has, is because there is more than a grain of truth to it, especially in the year 2020.
Take a look at it again:
Most students in most colleges the world over are asking a very simple question: if we are to sit at home and watch videos, why restrict ourselves to what our college professors have to say?
Hell, for that matter, why should I bother coming up with a teaching plan when all I have to do is point students towards all of these resources?
And as the forward asks, or at least implies: if that is indeed the case, then why pay tuition fees this year? Not just Harvard students of course – every student is asking this question.
So What’s the Answer?
Well, microeconomics 101: a good place to begin is by asking what you’re paying for when you pay those tuition fees. And as I wrote in a blog post a while ago, you’re paying for much more than classes:
Now, the problem of education: when you buy a degree from college, you’re getting all three things. College is a bundle: education | credentialing | peer networks
Harvard is not charging you money to teach you stuff you can learn elsewhere. Those guys – the people who run the place and the professors who teach there – they’re pretty good, y’know. They know you can learn that stuff elsewhere.
You are paying your local college an obscene amount of money for the other two things. Coursera might be able to give you a better econ prof than your local college, but Coursera can’t yet give you a certificate that carries as much weight as does the one from your local college. This is much more true if you sub in Harvard for your local college.
Or put another way, Coursera existed since before the pandemic. Yet enrollments happened in colleges, did they not?
Enrollments happened because people weren’t buying lectures.
They were buying access to the peer networks, and they were buying the certificate.
And Harvard – and most other colleges the world over – are effectively saying that the certificate is still as valuable in 2020 as it was in 2019. Arguably more so, and so no discounts.
OK, But What About Peer Networks? Surely A Discount There?
Um, well, no. And for two reasons.
First reason, this excellent argument from Tyler Cowen:
Perhaps the logical conclusion is that both the “social connections/dating” services of Harvard and the certification services of Harvard are strong complements. If you are certified by Harvard, but live on a desert island, or carry a contagious disease, that certification is worth much less. So it is hard to unbundle the services and sell the certification on its own, without the associated social networks. Nor is it so worthwhile to sell the social connections on their own. Harvard grads are socially connected to their dry cleaning workers as it stands, but that does not do those workers much good.
Peer networks develop best when you go through intense, shared experiences. Both adjectives matter: just hanging about in a college without going through the same grind that everybody else is going through doesn’t cut it (skin in the game). And that grind must be intense, it can’t be an optional, laid-back thing.
So sure, the grind is going to be online this year, but it still is shared, and it still is intense. That’s what helps with the bonding, and that bonding is valuable enough for Harvard to get away by charging you USD 50,000.
Peer networks developed online can be an extremely valuable resource, by the way. Ask David Perell or Seth Godin, to name just two people.
Second, those peer resources stay with you for life. You develop them now, but they get even better with time than does wine! As your peer group grows and matures, the number of connections they open up increases exponentially. So even if you can’t meet your peer group in a physical sense, it still is an investment worth making.
Tyler Cowen again:
Keep also in mind that the restricted Harvard services are probably only for one year (or less), so most students will still get three years or more of “the real Harvard,” if that is what they value. And they can use intertemporal substitution to do more networking in the remaining three years. It’s like being told you don’t get to watch the first quarter of a really great NBA game. That is a value diminution to be sure, but there will still be enough people willing to buy the fancy seats. Most viewers in the arena don’t watch more than three quarters of the game to begin with.
If anything, Tyler Cowen’s analogy is slightly off the mark. The people who watch the NBA game in the stadium are never going to get in touch with each other twenty years down the line, much less depend on them for jobs or references.
So no, no discounts for reduced peer network benefits in 2020, sorry.
So far, Harvard can still justifiably charge you USD 50,000 – and they will.
So What Next?
Well, think of many vertically integrated colleges, all offering more or less the same kind of services:
… and ask yourself how we could introduce horizontal services into this structure. LinkedIn and Coursera attempt two separate models:
But the real way, if you ask me, to think about how to unbundle college is by expanding our framework a little bit more:
This is a blog post, not an academic paper, much less a book. And therefore, forgive me for using catch-all terms here. By recruiters, I mean literally anybody who will work with graduates in any capacity: colleagues in start-ups, government, think-tanks, and yes, recruiters.
But the point of the framework I shared above is this: it will help us understand where change will come from, if at all it must.
Put another way, do you think $50,000 for Harvard (or whatever amount for whichever college) is too expensive? Then you need to explain how you can get the same things (or more) that a bundled college degree gives you for a lesser price with a different model.
How to get, that is to say, credentialing, peer networks and learning (and maybe more) for less than USD 50,000. That’s the million dollar question. And even if we come up with an answer, you’ll be up against the following:
Colleges will be unwilling to change for two reasons.
Why change something that isn’t broken? And college isn’t broken, from the perspective of the college.
Firms such as Coursera and LinkedIn will struggle to replicate the “full-stack” experience that college has right now. And a piece-meal horizontal replacement will never be as valuable.
Government will be unwilling to change the way college is structured right now
Because of lobbying by colleges themselves
Because too radical a change is a risky move, with unpredictable upsides and more than a little chaos in the short run
Parents and students will not want colleges to change far too much, because the system as it stands right now is what enables jobs to come by.
And that, finally, leaves recruiters. Or as I explained above, it is us: society. Until we (society) acknowledge the fact that college as a bundle has become too sclerotic, too expensive and too rigid for its own good, we can’t begin to change it.
And so, it ultimately comes down to this: we need to prove the inefficiency, and therefore the relative expensiveness of college as it stands today to society, before we can begin to talk about reforming it.
Well then, let’s get to proving the inefficiency of college as it stands today. That’ll be next up!
“Accordingly, antifragile systems and organisms tend towards a common theme: bottoms-up decision-making, rather than top-down decision making. Antifragility requires real options, and real options are low-cost. Antifragility is only successful if you can actually detect, react, and grow in response to deviations from your present state in real time; the only way you can feasibly do this is for disorder detection and response to take place at a small enough resolution, and tight enough turnaround time. Top-down systems have a hard time with antifragility, because for them, all options are costly.” .. .. I’m late in posting this, having read this a while ago, but a useful essay by Alex Danco on how to think about anti-fragility, the term coined and popularized by Taleb. There are a lot of very useful ways to think about anti-fragility, but this essay explores immunity and how to think about our bodies immunity from the prism of anti-fragility. I found it especially useful to think about our bodies (which are at risk from the virus) and our governments (which are supposed to help us protect ourselves against the virus) and ask which is more anti-fragile, and why. .. ..
Kevin Kelly (a man worth learning more about) recently posted “68 bits of unsolicited advice“. Each advice is worth reading – here’s one that is easy to understand, difficult to implement on a sustained basis. Ask me. I should know. .. .. “Being enthusiastic is worth 25 IQ points.” .. ..
“Grades destroy curiosity. Too many kids learn for the sole purpose of raising their GPA because that’s what the system incentivizes. From an early age, I observed that my success in school depended more on my grades and less on how much I learned. In college, even though I wrote essays on my own and worked as an intern in New York City for companies like Skift, I was almost kicked out of my fraternity because my GPA was below 3.0. Likewise, my college counselors evaluated me on two metrics: grades and SAT scores. Neil deGrasse Tyson once said: “When students cheat on exams, it’s because our school system values grades more than students value learning.”” .. .. Read this essay by David Perell. Please. Read it. .. ..
This link came to me via Recommendo, which is a newsletter I have subscribed to about a month or so ago. Worth a ponder, it is about the art of critical thinking.
Great visualizations, as always, from the NYT. This one is about the spread of the coronavirus in the USA.
Tyler Cowen had shared this link on MR a couple of days ago, and I really liked this blog post for two reasons: one, a great framework that I can use in the coming semester for teaching Principles of Economics (more about the framework in a bit), and two, it speaks about higher education towards the end of the post.
Let’s get started:
“Due to the impending COVID pandemic, businesses, except for essential ones, simply had to shut down. People were essentially forced to stop buying things they actually wanted to buy.” .. .. It almost sounds trite put this way, but us economists are so used to thinking in terms of whether it is a “demand-side” problem or a “supply-side” problem that it makes sense to remember this: this one is neither! Folks are (more than) willing to supply, and folks are (more than) willing to buy – in most cases. We’ve imposed on ourselves, as a society, restrictions that prohibit such exchanges from taking place. .. .. There will be knock-on effects, some of which are already visible. And that will then take us into familiar territory (supply shock, demand shock etc). But a crisis due to a pandemic is fundamentally different! .. ..
First is the distinction between purchases of what I’ll call “Snap-Back” goods and services and those that are “Gone Forever.” In the Snap-Back category are things that we couldn’t buy during the heaviest COVID lock-down period, but these purchases were simply delayed. .. .. Simple frameworks are such lovely, beautiful things. I think all of us in India experienced “Snap-Back” goods – and to a lesser extent, services – with the winding down of the nationwide lockdown. The number of Amazon deliveries in my own household is proof enough for me. Of course, services such as the ones offered by The Urban Company, for example, is another story altogether – but still, the point remains. “Snap-Back” goods ought to be a thing, especially in 2020. .. ..
““Gone Forever” goods and services, in contrast, are just like the term suggests: gone forever. Like me, you may have foregone several haircuts during shelter-in-place because you didn’t want to get (or give) coronavirus to your barber.” .. .. Anybody who knows me will know that haircuts isn’t the most appropriate example! But enough of splitting hairs, the point is well taken. There are certain goods and services (am I wrong in thinking that it will be mostly services) that will be “gone forever”. .. .. That being said, the nomenclature chosen here is slightly unfortunate. One might get the impression that the good or service in question will not be provided at all, except that is of course not true. It is just the case that business for the barber in question was bad during the lockdown. Fingers crossed, business will return to normal once things get back to normalcy – whenever that may be. And of course, if things open up without a vaccine/cure, business will be lower than would otherwise have been the case. But it still will not be “Gone Forever”. .. ..
“Economic booms and busts cause average incomes to rise and fall. As a result, businesses that sell a good or service that people purchase during good times and bad, like haircuts and toothpaste, are more insulated from recessions. Businesses that sell the Fountain Powerboat 32 Thunder Cat speedboat (see below, retail price $400,000), and other goods whose sales depend on people having a lot of money on their hands, fare poorly in a recession.” .. .. Tyler Cowen himself had made the point some months ago that certain business will probably not outlast this recession, and mentioned how that may not, on balance, be all that bad a thing. I’m paraphrasing, see the exact quote here. Would the world be worse off if we produced less Fountain Powerboat 32 Thunder Cat speedboats in the years to come? .. .. To be clear, I do not at all mean to suggest that Bruce Wydick will lament the potential passing of these speedboats. I am simply suggesting that some luxury goods not being produced may not be the worst thing ever (and yes, I am well aware of the macroeconomic implications). .. ..
This, above, is the simple framework I was referring to at the start of today’s blog post. 2×2 matrices are far too prevalent in management schools, and not prevalent enough in economic textbooks, and this was therefore very welcome indeed. But not just because of that! It really does help clarify my thinking. .. .. I need to note that Bruce Wydick has explained what income elasticity of demand is before showing this figure. I haven’t, but a simple Google search will help you learn what the income elasticity of demand is. Alternatively, click here to read about it, or watch this video. .. ..
First things first: it is interesting that all of the upper left quadrant is services, and not goods. In fact, I’m hard pressed to think of a single good that would fall in this bracket. Maybe seasonal fruits that you won’t get again until the same season comes back next year (mangoes being a classic example in India, of course). Can you think of any other goods that are “gone forever”? .. ..
And now onto higher education. .. .. “Enrollments in higher education are typically thought of as a normal good, and estimates of income elasticity are typically slightly inelastic (slightly greater than 1.0), meaning that for each 1 percent increase (decrease) in income, enrollments increase (decrease) by about 1 percent.” .. .. That’s from this link, which I got by reading the blogpost we’re taking notes for. Worth keeping in mind for what follows. .. ..
“What this means is that the data show college-bound kids keep going to college even in recessions.” .. .. That quote is in the context of the income elasticity of education. I have two points to raise in this context, though:
First, as Bruce Wydick himself explains earlier on in the blogpost, this year is an example of supply and demand being willing, but markets still not clearing. That is, this time is different. Under normal circumstances, sure – but enrollment may drop because of other factors than change in income.
Second, bundling! When you buy an education from a college, you’re buying the signal that you have learnt, you’re buying the learning itself and you’re buying the peer networks you develop because you attend college. The current pandemic means that you need depend on college for only the first of these three goods: learning itself, if it is to be online, can happen through multiple online providers, and peer networks in the physical sense is unlikely to happen at least through 2020.
Combine the inevitable drop in nationwide income with the fact that only one out of the three “goods” from a college being up for sale, and you reach the conclusion that enrollment will likely suffer this year.
The reduction will of course be different for different countries, and different once again for colleges within the same country. But at the margin, my model of the world tells me to expect either a lower number of applications, or a lower number of enrollments – or both.
But this article is worth a read and a bookmark for the framework alone!