Bryan Caplan’s The Case Against Education lays out a strong argument that the financial returns to schooling–which have been increasing dramatically, year after year–are about 80% returns to signaling rather than returns to actual skill-building. In their new book, Cracks in the Ivory Tower: The Moral Mess of Higher Education, Georgetown University philosopher Jason Brennan and Independent Institute economic historian Phillip W. Magness carry this a step further and look into the incentive structure of higher education (I discuss it here).

With every passing day, I come to be more and more persuaded that signaling explains a lot of the return to schooling. Even if it isn’t 80%, I’m pretty sure it’s substantial–at least substantial enough to inform higher education policy. Here are three pieces of evidence from informal classroom surveys persuading me that the return to schooling is mostly signaling rather than skill-building.


Discounted Present Value. Albert Einstein is alleged to have said that compound interest is the most powerful force in the universe. People graduate from high schools around the country without understanding compound growth or its close financial cousin, discounted present value. Quite simply, a dollar today is worth more than a dollar later, and we can use interest rates to discount future payments and find out how much a future payment is worth right now. The sum of the discounted present value of future cash flows–or just future benefits, adjusted for risk–is an asset’s value.

What’s a 1040? I asked my students who remembers having filled out a 1040 as part of a school assignment. Figuring out how to do your taxes seems like a pretty straightforward skill. I was fortunate enough to have a “career” unit as part of 8th grade, and I remember filling out a 1040, looking at the parts of a W2, and other stuff. It surprises me that an enterprise claiming to provide its customers with actual skills doesn’t include a unit on taxation.

Foreign language requirements. As I have argued, and again following Caplan, foreign language requirements don’t make as much sense as a human capital model would suggest. Most Americans would have to travel hundreds of miles to find somewhere where they aren’t surrounded by native English speakers. The return on investment in foreign languages just isn’t that high, even though it is useful as a consumption good.


If schooling is signaling, then we are throwing good money after bad by subsidizing it. Signaling basically means that schooling is an arms race, which means it’s pretty easy to have too much. Schooling is conspicuous both for what schools teach and for what they don’t, and as much as I love learning, I’m pretty sure it is not a public good that is worthy of public subsidy. In preparation for a trip to Denmark, we got the fancy premium family version of DuoLingo a few months ago. The benefits almost all accrue to us, and it would be rather presumptuous to forward my DuoLingo receipt to you for reimbursement. It’s time to arrive at the same conclusion about schooling.


Art Carden is Professor of Economics & Medical Properties Trust Fellow at Samford University, and he is by his own admission as Koched up as they come: he has an award named for Charles G. Koch in his office, he does a lot of work for and is affiliated with an array of Koch-related organizations, and he has applied for and received money from the Charles Koch Foundation to host on-campus events.