Schumpeter and the Higher Ed Bubble

One of the most important features of the later stages of capitalist civilization is the vigorous expansion of the educational apparatus and particularly of the facilities for higher education.
JOSEPH SCHUMPETER

Joseph Schumpeter is famous for the economic idea known as "creative destruction." Basically, capitalism destroys old ways to make way for the new. For instance, vinyl gave way to CDs. CDs are giving way to mp3 files. Record companies are going out of business, and bands have to get off their asses and play concerts to make a buck. Some people may think this sucks, but it is why geezer rock bands are able to put aside their differences and play some gigs.

One of the famous predictions Schumpeter made was concerning higher ed and white collar work. As education became cheaper and more available, white collar work would no longer command a premium relative to blue collar work. Essentially, blue collar workers would end up making more money as their supply decreased while white collar workers would make less as their supply increased. If you doubt such a thing could happen, consider airline pilots and aircraft mechanics. I've Googled both, and airline pilots have a median annual salary of $30,000 while jet mechanics have a median salary of $70,000. These are rough estimates as I have looked at various sites with differing info. But they are clear on the fact that airline mechanics make more than airline pilots.

The reason for this difference in incomes is obvious. People would rather fly the plane than turn a wrench. Being a pilot is glamorous. Being a mechanic is not. This results in more people pursuing the pilot job while fewer pursue the mechanic job. It is simple supply and demand.

A similar thing is certain to happen in other industries. Blue collar workers have been decimated for decades as factory work has been outsourced. Jobs that can't be outsourced have been vilified. The result is shortage in skilled labor. The blue collar jobs that have remained have gained in pay relative to white collar jobs. These would be diesel mechanics, pipefitters, bricklayers, and others.

The higher ed bubble has produced a glut of college graduates who can't find work except as baristas at Starbucks. Now, libertarians like myself are very aware of this bubble, and we lay the blame with the government for creating it. But even if the government had not created it, the marketplace would be decimating this sector of the economy anyway much like the internet has been destroying old economy record companies. This is because white collar work is ultimately information work. Information is now very cheap. Even seemingly impregnable careers in law and accounting are being overtaken by software and websites. Plus, blue collar workers are getting smarter and more sophisticated using computers for just about everything from machining to warehouse inventory to logging miles for tractor trailers. If automated manufacturing replaced the factory worker, clearly, automated systems will replace the information worker.

The jobs that retain their earnings and even increase them will have certain features. The first is that they will be physical. They will deal with objects in the real world. These will be objects that cannot be mass produced or subject to scalability. An example would be a brick wall in front of a home or the construction of an office building. Repair work also fits this description.

The second feature is that these jobs cannot be outsourced. The cars might be made in Japan, but they still have to be fixed here. You can't outsource garbage collection, home construction, or janitorial work.

The third feature is these jobs will require skills. They will not require a Ph.D. in physics, but they will certainly require more than flipping burgers at the local McDonald's. These skills will be a combination of theory, manual dexterity, and common sense.

The fourth feature of these jobs is that they will be dirty, dangerous, and unglamorous. People prefer a comfortable office to being on their hands and knees in the basement of a home or being in a cherry picker dealing with high voltage lines. Working conditions are an aspect to job selection, and people will prefer the cleaner job over the dirty job. This preference will extend so far that people will be willing to take less money for the cleaner job.

The higher ed bubble has exacerbated a trend that was already in place before it even happened. Too many people go to college in hopes of getting white collar jobs that aren't there. Eventually, companies will recognize that they are overpaying for their current white collar people, and the salaries of those workers will decline in response. The bubble will pop, but the result will be lowered tuition costs and even more attending college. The internet will also help to drive down the costs of education. Plus, much specialized information will be available at your fingertips.

The internet and information technology has already eliminated certain white collar jobs. The secretary is virtually extinct. Travel agents are gone. Insurance agents are certain to follow. Stock brokers have been replaced with online trading. This creative destruction will continue onwards. Meanwhile, the blue collar workers will remain unscathed in this destruction.

This prediction seems ludicrous, but I thought it was ludicrous that pilots would make less than mechanics. But it happened. Schumpeter saw these trends in his day, and I see them now. Knowledge and information are as common as dirt and will carry that value going forward. Tenured professors will be replaced with adjunct faculty. Traditional universities will be replaced by online learning. The price of all this will decline dramatically. Online testing will become the new credential. Self-taught people will be able to demonstrate their learning and receive credit for it. Layers of management will disappear as information technology makes those managers obsolete. We can go on and on with the various things that will happen. But in the future, you will still have to call a plumber to fix that leaky pipe. The auto mechanic may use a computer to diagnose your engine problem, but the wrench will still have to be turned by hand. The robots in the factories of tomorrow will still need repair techs to fix them.

People love to denigrate the blue collar man. They have no clue how they sound like such utter snobs on this shit. It is endemic in the culture and society. Blue collar people are stupid. But tell me, do you know how to wire an entire house? Do you have the skills to install a hot water heater or renovate a bathroom? Do you know what that funny noise is on your car? Can you weld a steam pipe so well that it doesn't explode under high pressure? When you consider that the people who know how to do those things are now dwindling yet remain as necessary and as vital as ever, you can safely predict that they will command more pay as the demand increases relative to supply. Blue collar people are becoming undervalued.

I don't like making economic predictions because they are almost always wrong. But it is clear to me that the glut of unemployed college grads who aspired to white collar careers can only diminish the value of those professions. Currently, starting lawyers lucky enough to get a job make nothing like a good plumber who has learned his trade over a similar time period. Factor in the student loan debt, and a career in law looks like a really dumb move. Will the lawyer decide to switch careers to plumbing? Obviously, some will do this. But I think they will remain lawyers no matter how bad the pay is or becomes.

The college degree is an oversold product. The trades are undervalued. Like pilots and mechanics, salaries will be reversed between white collars and blue collars. Creative destruction is occurring as we speak. The paradigm is shifting as Schumpeter predicted.

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