Dear God, he even gets this wrong

This new work breaks ground by emphasising more than financial capital, and that is important because many forms of capital drive growth. In the process it also emphasises vulnerabilities: mineral resources don’t last forever for example, whereas high human capital is associated with high growth.

No it isn’t. The currently rich countries have high human capital. The currently poor countries have low. The poor countries grow faster than the rich.

The association is that high human capital is correlated with past economic growth, not high future such.

It gets worse of course:

Measures are useful for three reasons. The first is comparison. The second is comprehension. The third is as the basis for decision making. What this says is that the best investment in the world is in people. And questions immediately follow, not least as to why so many barriers to education now exist in the UK in the form of student debt, and why have we been so opposed to student migration?

The World Bank’s measure explicitly excludes years of schooling as a measure. Instead:

Human capital wealth is measured for the first time as the present value
of the future earnings of the labor force using household surveys for 141
countries. Human capital is often interpreted to include, among other factors,
the years of schooling of the population, the actual learning taking
place in school and after leaving school, and health investments. In this
book the measure of human capital is based on the present value of the
expected earnings of the labor force, a measure that is consistent with the
concept of capital used for other assets. This measure factors in not only
the number of years of schooling completed by workers, but also the earnings
gains associated with schooling (which implicitly factors in the quality
of the learning taking place in school) and how long workers can work
(which implicitly accounts for health conditions through life expectancy,
among others).

The capitalisation of the extra income stream from the education, not the years of it. And given that an arts degree for a male in the UK, on average of course, is a net loser in income for the student that means that a healthy chunk of university education in the UK subtracts from national wealth.

Which is why we have a loan system to fund it. In the hope that the 18 year olds will have enough nous not to do degrees which lower their lifetime income.

51 comments on “Dear God, he even gets this wrong

  1. the present value
    of the future earnings of the labor force

    Depends on location. A plumber in Sunderland has lower future earnings than a plumber in London, despite having the same skills / knowledge / etc.

    Whatever the World Bank is measuring, it isn’t human capital alone, but some combination of capital and the alignment thereof with demand.

  2. ‘What this says is that the best investment in the world is in people. And questions immediately follow, not least as to why so many barriers to education now exist in the UK in the form of student debt, and why have we been so opposed to student migration?’

    One of his more eloquent ‘Gissa job’ pleas? I’m guessing attendee numbers must be down for his lectures……

  3. @”In the hope that the 18 year olds will have enough nous not to do degrees which lower their lifetime income.”
    Why not just reduce the number of courses until it becomes a good idea again?
    That would be a lot quicker.

  4. who has been opposed to student migration? As far as I can see, all the universities and colleges have expanded massively in the last 20 years to take in more students. I suspect there is a bubble forming now that there are even companies that specialise in building student accommodation

  5. so this new work breaks new ground by inventing totally useless and spurious statistics….it’s hard to know where to start when you see such an oupouring of idiocy. Eg schooling is surely not as important as training, is it, when it comes to guessing future earnings?

  6. Small point. If you choose an arts degree, you will be less rewarded than if otherwise qualified, but would you be less well rewarded, pursuing the same career, without one? Hmmm…. I think probably not (though there is the actual and opportunity cost of the degree, of course). But that doesn’t detract from the general point that they’d be better off doing something else.

  7. It’s 20 years since we last had a PM without a degree. Not sure what that says. I wonder how many CEOs and top partners have no degrees

  8. “Which is why we have a loan system to fund it. In the hope that the 18 year olds will have enough nous not to do degrees which lower their lifetime income.”

    If we had a loan system that made everyone who went to uni had to pay back the cost of their education, regardless of post uni earnings, then we’d have system that incentivised students to pick their course wisely.

    As it is we have a parallel tax system that basically allows you to have a free pop at 3 years at uni, and if you’re just as unemployable when you come out as when you went in, there’s no penalty whatsoever.

    Hardly an incentive to pick wisely………

  9. “The currently rich countries have high human capital. The currently poor countries have low. The poor countries grow faster than the rich.”

    Could be a nice graph there – average years of education in a country vs GDP growth. I suspect it would be a bell curve – up to a point education increases growth, after that it becomes a cost that rich countries can afford.

  10. Diogenes said:
    “I wonder how many CEOs and top partners have no degrees”

    A lot fewer than there were, because for over 30 years it’s been very difficult in most organisations to get onto that career track without a degree. Most of the people now working at the top would have come in on some sort of graduate training programme.

    When I started off in a big accounting firm, I worked for their last non-graduate partner. Apparently sed to be lots of them when he started, because people went into an accounting firm after school and trained on the job. But by the ’80s they were mostly taking on graduates, and that’s the intake that are senior partners now.

    Will depend slightly on industry; the law firms went over to mostly graduate intakes earlier than the accountants; big commercial companies were more varied; investment banks were still taking on school-leavers in the 90s. But increasingly anyone in a top job in a big organisation will have a degree, not because it’s given them any necessary skills but because it was an entry requirement when they were in their late teens.

  11. RichardT am degree is an entry requirement even if you work in a primary school these days. And for all those bloviating about arts degrees, not everyone reads the natural sciences. Thatcher probably the only PM with a science degree. Even mining and oil companies are increasingly run by people without engineering or geology or metallurgy degrees

  12. Diogenes:

    “I wonder how many CEOs and top partners have no degrees”

    At this point only some firm founders and perhaps hand picked assistants and juniors the founders chose when the firm was growing.

    After that bureaucracy sets in and often eventually kills the firm.

  13. I’d guess that a large proportion of the current crop of CEOs and partners also have MBAs, because they are of a generation where that was also expected.

  14. Certain professions have recently reintroduced direct entry for non graduates – from memory law and accountancy?

  15. @ Diogenes
    It says that all the veterans of WW I are dead and nearly all of WW II veterans.
    Churchill, MacMillan and Jim Callaghan were non-graduates and weren’t the worst PMs we’ve had.

  16. @ Fred Z
    It’s not *just* whether they have degrees, it’s whether they think that’s important or whether the company’s work is important. One of my college friends was sent to Oxford to learn engineering (slightly naive choice by his father as Oxford wasn’t as good at engineering as Imperial College) because his family ran a steel and engineering firm, but he also had a stint on the shop floor. After his father died (probably of overwork) he helped the company survive and even, moderately thrive, until he too died in his 50s (heart disease, presumably overwork).
    The rot started at ICI when they appointed a non-scientist as Executive Chairman.

  17. My accountancy firm takes non-graduates, and trains them up to join ACA.

    Put another way: school leavers round these parts wanting to be business advisors have a choice:

    1) go and study under my friend the accountancy lecturer at the local university, and spend 3 years incurring debt in order to acquire some intangible assets which may or may not prove useful

    2) come and work for me, and spend 3 years being paid to acquire intangible assets which definitely are useful.

    For some reason my mate at the uni thinks that choosing (1) demonstrates that you have a commercial mind-set… 😉

  18. Ritchie’s latest piece is “We don’t need an interest rate rise. We need an increase in the inflation target”. Presumably to about 1000% to prepare for people’s quantitative easing…?

  19. Bloke in North Dorset said:
    “I’d guess that a large proportion of the current crop of CEOs and partners also have MBAs, because they are of a generation where that was also expected.”

    Oh God, capitalism really is on its last legs.

  20. Pellinor the vast majority of ACAs do not have accountancy degrees. What else is a chemistry or geography graduate, or even a linguist going to do?

  21. MacMillan might not have completed his degree, however he did attend Balliol College and got a First in the first two years of Lit Hum. One of those arts degrees

  22. BraveFart said:
    “Certain professions have recently reintroduced direct entry for non graduates – from memory law and accountancy?”

    Pellinor said:
    “My accountancy firm takes non-graduates, and trains them up to join ACA”

    Interesting; I knew that was possible again, but thought it was still very rare. My impression was:
    – for solicitors, extremely rare (although they are changing their qualification process, so it may become more common);
    – for ACA, still rare;
    – for ACCA, quite common to start the process, but a massive (>50%) drop-out rate before qualification.

    I’d be interested to know if that’s no longer correct.

    Will be interesting to see if there’s a lot of non-graduate partners in 20 years time, or if it just splits the profession and the graduates still keep a strangle-hold on partnership status.

  23. @ Diogenes
    He got an Exhibition in Classics to Balliol, so one of the brightest of the bright, but Winnie wasn’t stupid, just didn’t like schoolwork and Jim was bright enough, but too poor, to go to university. My point was not that the three were stupider than Blair, Brown or Wilson (none of whom were anywhere close to Mac in intellect or wisdom) but that a degree was not an infallible guide to wisdom or intellectual ability.

  24. “What this says is that the best investment in the world is in people.”

    Dunno. If I’d picked up $100 of bitcoin when they cost less than a dollar a time and sold them @ $20,000 I’d consider that a better investment than just about anyone I can think of unless you’d been able to buy Steve Jobs at birth as a slave.

  25. @Jim, February 8, 2018 at 2:30 pm

    If we had a loan system that made everyone who went to uni had to pay back the cost of their education, regardless of post uni earnings, then we’d have system that incentivised students to pick their course wisely….

    +1 I agree – actions should have consequences be they good, neutral or bad. Current system excludes bad.

  26. Are we agreed that valuing intellectual capital is impossible and, because of the uncertainties, pointless?

  27. Or at least should have a low score or weighting in any analysis. Obviously it is important but it is difficult to state how in empirically certain ways

  28. @ Andrew C
    If Steve Jobs had been a slave, he would not have achieved what he did. Why did the theoretically far superior Soviet system fail in everything except warfare while the UK and USA succeeded although our systems are theoretically bad? Oh, and before anyone points out that Stalin spent more than a million lives to defeat a German army numbering less than one-third of that number for his victory at Stalingrad, Stalingrad was a victory because the lives of peasants don’t matter to lefties.

  29. @ Diogenes
    No, we are not agreed. It is very difficult, because it involves forecasting the future.
    What we NEED to say is that “there is this valuable commodity which is worth between X and 100X: think about it”

  30. @john77

    My comment was more about Spud’s comment about people being the best investment v investing in Bitcoin rather than the merits of slavery.

    Besides, I favour the Roman model. Steve could have earned and bought his freedom. Had I bought him as a baby for a few thousand, I’m sure I would have cheerfully allowed him to buy his freedom for a few hundred million. Thus a better investment than Bitcoin, albeit an abnormal return on a slave. Roman slaves couldn’t technically own anything but in practice were allowed “their” wealth by their master. Obviously wealthy slaves were few and far between but then so are the likes of Steve Jobs.

  31. There were lots of very clever people in the USSR, Sakharov, the space programme etc. How much did that capital count for the wellbeing of the nation?

  32. @ Diogenes
    Apologies – I flicked back onto the thread and forgot my earlier comment that you were replying to it, so I misunderstood what you were saying.
    My opinion is that a degree is not a sine qua non for intellectual ability or achievement. In my youth, a degree was a sufficient but not necessary condition to demonstrate intellectual ability – only a few % attended university and the best teacher I had didn’t have a degree because he spent the War in the RAF. Valuing intellectual capital is difficult even with hindsight because there are other factors whose impact it is difficult to measure and it is even more difficult before the event *but* the uplift in salary offered to a guy/gal with a decent Oxbridge (or Kings, London or IC) degree is a measure of what people think that it is.

  33. Lynn and Verhanen did a study about 20 years ago – analysed about 12 factors in the prosperity of a nation, from memory, years of education, size, military spending, natural resources that sort of thing. The top 2 predictors were IQ, and extent of market economy, with IQ being way in front.
    The eugenicists are quite fond of the study – they want a market system to promote higher IQ, or to say it with a little nuance, they want to remove those non-market government interventions that promote breeding by those of lower IQ.

  34. @ Diogenes
    posts crossed in the typing – this is my response to your 9.56
    The USSR managed to divorce their scientific achievements from what we regard as the well-deing of the nation because the Kremlin’s view of the well-being of the nation differed from ours.
    The Russian Academy of Science was headquartered in Leningrad but had a secondary centre in Novosibirsk which was largely filled with political dissidents/those not fully signed-up to the Party Line and believing Jews – some of them were definitely very clever, a lot cleverer than I (many more may have been cleverer than I but I’m saying that I could see in a brief conversation with a few they were obviously cleverer than I and I only expected that at home or Oxford),.
    Most of them did contribute to the well-being of the nation, despite the Kremlin but they would have contributed far more if the Kremlin hadn’t interfered.

  35. @ Andrew C
    See my latest reply to Diogenes. How could you have estimated Steve’s potential when he was not free and, if you had been able to do so, how could he have bought his freedom?
    The optimum solution for you would have been to invent a “Steve Jobs Corporation” when he was 10 or 11 with joint ownership but UK and US law don’t allow that.

  36. And all those mathematics olympiads had lots of high achievers from the Eastern Bloc…. But that intellectual attainment was not allowed to transfer into social achievement. So how much weighting should go to education? I still think it should be a binary thing. Maybe weighted by some kind of standard. But I don’t think it is the greatest determinant of success.

  37. @ Bongo
    Yeah, but we don’t want to be Stalin or Giap who cheerfully threw away a ,million lives to win a battle that had a PR but no strategic significance.
    I have a “higher IQ” and I assume that if my wife, who has a Cambridge degree, ever took an IQ test she would also be shown to have one, so I can say that a higher IQ should NOT be a prerequisite for being allowed to have children. Virtue is not the same as IQ: there are many people who are better citizens, and just generally better, than I who have lower IQs.

  38. @ Diogenes
    The mathematics Olympiads were either after my time or hidden – I shouldn’t have reached the final but I should have heard of them – but it appears that the results were doctored (one of my wife’s college friends was living in Moscow with her English Communist parents and won a place in the Olympiads but was denied it because she was English).
    Of course education isn’t the greatest determinant of success – if it was I should be a millionnaire! You need determination, hard work, and selling yourself and sometimes those of us who are not starving (and saints who are starving) say “I’m not going to do that”!
    I’m not trying to say that Steve Jobs ever compromised his principles but that some of us lacking his special talents have chosen principles plus a modest/moderate income in preference to a much larger income without principles.

  39. The eugenicists of today don’t want a permit system to have children. They want people who want children to pay or otherwise provide for children themselves, rather than insisting 0.5 million people ( round numbers )* get taken to court every year in order to pay for them.
    *Wild estimate based on 1.5m people getting taken to court every year for unpaid council tax, and 1/3rd of your council tax going on children’s services.

  40. @john77

    I’ve already explained this. Using the Roman model. Steve Jobs would have carried on exactly the same way except I would have owned him. Acting as a wise and beneficent trustee of the wealth he was creating. But it would have been tacitly understood between the two of us that whilst I technically owned everything including him, there was a portion of the wealth that was ‘his’. Part of that wealth that was his would be used to buy his freedom. Plus I would keep perhaps a portion of the shares in the company I had set up and sign over the rest to him.

    I could no more estimate how much he would be worth when I bought him than I could guess how much Bitcoin might increase in value. That’s the risk in investing.

    But to repeat. I was postulating that Spud’s comment that people were the best investment wasn’t necessarily true. Bitcoin was a better investment than an investment in most people.

    I wasn’t suggesting slavery as a viable economic investment in any serious way.

    Think Swift and a Modest Proposal. Don’t take everything written here quite so literally!

  41. @ Bongo
    That isn’t a description of Eugenics – it is allocating breeding rights by income, which is far worse because it does not even have the excuse that the proponents believe that they are improving the human race.
    You are confusing the horrendously incompetent Child Support Agency with a Licensing Authority for siring children and imagining that involves some test on the mother’s IQ. ER?!?

  42. @ Andrew C
    There is nil evidence that the Romans used the model you postulate and I was pointing out that even a practical slavery that was not a nominal slavery destroys entrepreneurship. But
    I suppose that in your alternate universe a Steve Jobs born as a slave in your house could make you unfathomably rich .

  43. I think the least that can be asked of a sensible policy is that it not be actively dysgenic. There’s a difference between “allocating breeding rights by income” and not subsidising the feckless. Otherwise you may as well say, vacuously, that we allocate the rights to a Maserati by income.

  44. Well, let’s go back to the system where if you’re on a low income you get the use of 2 free houses ( if a 40yo grandmother, daughter, child unit breaks up )
    But if you’re just out of range of benefits then you get nothing.

    Under a market system, people are doing the allocating. I’m not, and none of the eugenicists will be allocating anything. And what you do with the income and resources you can draw on is up to you.

  45. Sadly along with stuffing Higher Education with numbers, the quality of the provision has gone down. You can mock the Polytechnics all you like, but in Engineering they offered an education that was longer and more intense than most Universities, and provided an education AND training that meant that graduates really had something to offer. Having taught HND and Degree courses in the 1970s, I can tell you that a 4 year MEng at most places isn’t as rigorous as an HND was 40 years ago, and in those days staff and students alike moaned at the odd course in ‘Liberal Studies’ but now that’s the majority of the content.
    As well as PMs with no degree, Camm, Mitchell, Bishop and Chadwick didn’t have degrees, but I’ll bet they went to nightschool. Plus, of course, a basic school education was generally better in the past than now.
    I personally think that there is a place in an educated society for the Arts: the point is, just how many Arts qualified people do we want.

  46. and in those days staff and students alike moaned at the odd course in ‘Liberal Studies’ but now that’s the majority of the content.

    As memorably depicted in the “Wilt” books, he was a “Liberal Studies” lecturer at Fenland Polytechnic, wasn’t he?

  47. Using the Roman model. Steve Jobs would have carried on exactly the same way except I would have owned him. Acting as a wise and beneficent trustee of the wealth he was creating. But it would have been tacitly understood between the two of us that whilst I technically owned everything including him, there was a portion of the wealth that was ‘his’.

    Isn’t this how the Murphy’s of the world see the relationship between the State and individuals?

  48. Diogenes – some elements have been omitted from the model in the interest of clarity 🙂 (I read chemistry at first, then philosophy & psychology, for example).

    RichardT – I don’t know the overall shape of the sector, but I do hear that the Big 4 are taking on some non-graduates. I suspect it’s more common at the smaller end, though. Ours seem to do pretty well: there are some bright sparks in there.

    Not having a degree, or even accounting qualifications, isn’t a barrier to partnership either – our most recent partner is an Accounting Technician, but a bloody good accountant and an excellent business advisor.

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