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Comment on each of the following statements.

a) Given the work-life cycle of the "traditional" woman, it may be rational for women to invest in less human capital than men.

b) An economic recession tends to stimulate college enrollment.

c) The age-earnings profiles indicate that people with more education earn more than people with less education; therefore personal spending on education is always a good investment.

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Yusra Anees
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28 Sep 2019

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The opportunity cost of going to college is almost never discussed, yet it is quite high, so high that it is seriously impacting the broader American economy. For non-economists, “opportunity cost” is one of the most important concepts in economics. Because of scarcity we only have limited resources, and when we use those resources to do something like go to college, we cannot use them for other things that we also believe are desirable.

By far the most important resource we use in producing goods and services is labor or “human capital.” Based on what we pay owners of resources, we can say that roughly two-thirds of all production of goods and services is attributable to direct human effort – work. When kids go to college, they forego entering the labor force in a major, full-time manner. When six or seven percent of the entire American population is in college, that means a significant reduction in work effort occurs because otherwise highly productive persons in the physical prime of their lives are only lightly utilized in making things or providing services.

Today, only slightly over 59 of every 100 Americans of working age actually work, down from almost 66 in 2000. If we had the employment-population ratio of 15 years ago, we would have at least 16 million more working Americans today – an increase of over 10 percent. Our output would be probably the better part of a trillion dollars higher. The push for “college for all” is one reason we have less work effort today (to be sure, the modern welfare state has also lowered work incentives a lot for other reasons).

The college for all crowd says higher education augments one’s human capital, and we forego output today from working to bolster output tomorrow from more productive workers. And, no doubt, that is sometimes true. We have many productive engineers and accountants who gained important skills in college, for example. But is that necessarily true of all college graduates, particularly when Arum and Roksa tell us that graduating college seniors typically have only marginally better critical reasoning skills that freshman? And when over 40 percent of those entering four year colleges fail to graduate in six years? What if millions of those who do graduate take jobs similar to those without that college education? What if the debt incurred to pay for the college leads many to delay marrying, delay buying houses? There is evidence that to some extent the push for college has led to all of these unintended consequences.

The Federal Reserve Bank of New York has published great work showing that there is a very severe underemployment problem amongst college graduates, and other equally good research demonstrating what many of us have been saying for years: the student financial aid programs such as subsidized student loans, have pushed up the cost of college. Now a sister Federal Reserve Bank, namely Philadelphia, is jumping into the act.

The Philly Fed in a new study shows that high student loan debt is preventing young potential entrepreneurs from starting new businesses – they cannot afford the necessary debt. Opportunity cost again: if I borrow a lot to go to college, I cannot afford to borrow to start a business.

Enrollment in all forms of higher education today are up roughly 50 percent or seven million from what they were in 1990. What if enrollments had only risen proportionate to population growth – we would have three or four million fewer enrolled in college today. Would our nation be better or worse off? No one knows for sure, but the continued rise in the proportion of Americans with a college education has been accompanied by a sharp reduction in the rate of economic growth. I bet we would have fewer underemployed recent graduates. I bet we would have less than 17 percent delinquency rates on college loans, and far less than a trillion dollars in loan debt. I bet we would have a higher rate of labor force involvement and entrepreneurial activity among the young. And I bet we would be spending tens of billions less on higher education, and at least a little bit more on capital goods investment, highway construction, et cetera. In short, I suspect we would have been better off as a nation.

Richard Vedder directs the Center for College Affordability and Productivity, teaches at Ohio University, and is an Adjunct Scholar at the American Enterprise Institute.

Question :

This is a short article discussing the concept of opportunity cost and college. Provide your views on this topic.Do you agree/disagree with the article? Why? What are your thoughts on the current employment landscape of college graduates? Provide any insight on this topic on a specific industry, your own experience, or the experiences of people that you know who have already graduated.

What does this article suggest to us about how people should go about to truly maximize their level of utility from their limited incomes?

Can Money Buy You Happiness?

It's true to some extent. But chances are you're not getting the most bang for your buck.

New research is suggesting that happiness is determined not by how much money one earns, but rather, how one spends it. University of British Columbia associate professor Elizabeth Dunn explains why. Photo: Getty.
By

Andrew Blackman November 10, 2014

It's an age-old question: Can money buy happiness?

Over the past few years, new research has given us a much deeper understanding of the relationship between what we earn and how we feel. Economists have been scrutinizing the links between income and happiness across nations, and psychologists have probed individuals to find out what really makes us tick when it comes to cash.

The results, at first glance, may seem a bit obvious: Yes, people with higher incomes are, broadly speaking, happier than those who struggle to get by.

But dig a little deeper into the findings, and they get a lot more surprising and a lot more useful.

In short, this latest research suggests, wealth alone doesn't provide any guarantee of a good life. What matters a lot more than a big income is how people spend it. For instance, giving money away makes people a lot happier than lavishing it on themselves. And when they do spend money on themselves, people are a lot happier when they use it for experiences like travel than for material goods.

With that in mind, here's what the latest research says about how people can make smarter use of their dollars and maximize their happiness.

Experiences Are Worth More Than You Think

Ryan Howell was bothered by a conundrum. Numerous studies conducted over the past 10 years have shown that life experiences give us more lasting pleasure than material things, and yet people still often deny themselves experiences and prioritize buying material goods.

So, Prof. Howell, associate professor of psychology at San Francisco State University, decided to look at what's going on. In a study published earlier this year, he found that people think material purchases offer better value for the money because experiences are fleeting, and material goods last longer. So, although they'll occasionally splurge on a big vacation or concert tickets when they're in a more money-conscious mode, they stick to material goods.

But in fact, Prof. Howell found that when people looked back at their purchases, they realized that experiences actually provided better value.

What we find is that there's this huge misinformed forecast, he says. People think that experiences are only going to provide temporary happiness, but they actually provide both more happiness and more lasting value. And yet we still keep on buying material things, he says, because they're tangible and we think we can keep on using them.

Cornell University psychology professor Thomas Gilovich has reached similar conclusions. People often make a rational calculation: I have a limited amount of money, and I can either go there, or I can have this, he says. If I go there, it'll be great, but it'll be done in no time. If I buy this thing, at least I'll always have it. That is factually true, but not psychologically true. We adapt to our material goods.

It's this process of hedonic adaptation that makes it so hard to buy happiness through material purchases. The new dress or the fancy car provides a brief thrill, but we soon come to take it for granted.

Experiences, on the other hand, tend to meet more of our underlying psychological needs, says Prof. Gilovich. They're often shared with other people, giving us a greater sense of connection, and they form a bigger part of our sense of identity. If you've climbed in the Himalayas, that's something you'll always remember and talk about, long after all your favorite gadgets have gone to the landfill.

And, crucially, we tend not to compare our experiences with other people so much. Keeping up with the Joneses is much more prominent for material things than for experiential things, he says. Imagine you've just bought a new computer that you really like, and I show up and say I've paid the same amount for the one with a brighter monitor and faster processor. How much would that bug you?

In experiments he has run, it bugs people a lot. But when people are told to imagine they've gone on vacation to New Zealand, and someone else has had a slightly better vacation, it bothers people somewhat, but you still have your own experiences and your own memories, and so it tends to trouble you less.

In a recent paper called Waiting for Merlot, Prof. Gilovich and colleagues showed that we also get more pleasure out of anticipating experiences than anticipating the acquisition of material things. People waiting for an event were generally excited, whereas waiting for material things seemed to have an impatient quality.

Don't adapt to what you buy.

One of the main reasons why having more stuff doesn't always make us happy is that we adapt to it. Human beings are remarkably good at getting used to changes in their lives, especially positive changes,says Sonja Lyubomirsky, a psychology professor at the University of California, Riverside. If you have a rise in income, it gives you a boost, but then your aspirations rise too. Maybe you buy a bigger home in a new neighborhood, and so your neighbors are richer, and you start wanting even more. You've stepped on the hedonic treadmill. Trying to prevent that or slow it down is really a challenge.

One approach that can work, she says, is consciously trying to foster appreciation and gratitude for what you have. The process of adaptation, after all, comes from taking what you have for granted, so you can slow it down by reminding yourself of why you value what you have.

It could be as simple as setting aside time every day to follow the traditional advice of counting your blessings. Or you might want to keep a daily journal or express your gratitude to other people. The key is to find a way to remain conscious of everything you own and avoid simply adapting to having it around.

Because you're working against your natural inclination, Prof. Lyubomirsky acknowledges that feelings of gratitude and appreciation can be very difficult to sustain. If your journal or daily list becomes just a stale routine, it will no longer have much effect. You might have to keep switching techniques.

Increasing variety, novelty or surprise can also help you to enjoy your possessions more. When things become unchanging, that's when you adapt to them, Prof. Lyubomirsky says.

If you keep a painting hanging in the same spot on the same wall, for example, you'll stop noticing it after a while. But swap it with a painting from another room, and you'll see each of them with fresh eyes, and appreciate them more. Try sharing your possessions with other people, too, and opening yourself up to new experiences, she says.

This could even mean depriving yourself of your possessions for a while, perhaps by lending them or sharing them with someone else. Elizabeth Dunn, associate professor of psychology at the University of British Columbia and co-author of the book Happy Money, recently conducted an experiment where she sent people home with a big bag of chocolate, telling some of them to eat as much of it as they could and others that they were forbidden to eat it. A third group could choose how much to eat.

The result? The people who had been forbidden from eating chocolate were able to enjoy their next chocolate bar much more than those who'd either eaten a lot or consumed their normal amount. Giving something up temporarily can actually help to preserve our capacity to enjoy it, Prof. Dunn says.

Try Giving It Away

The paradox of money is that although earning more of it tends to enhance our well-being, we become happier by giving it away than by spending it on ourselves.

That's the finding from a series of studies by Prof. Dunn. She began by handing out cash to students on campus and telling some to spend it on themselves and others to spend it on someone else. Those who spent money on other people were happier than those who treated themselves.

Prof. Dunn has since repeated the experiment in other countries across the world and has extended it to look at whether people were still happy when giving away their own money rather than free money handed to them by a professor. She found that in countries as diverse as Canada, South Africa, and Uganda, giving away money consistently made people happier. This was even true when people were giving away their own money, and even when they themselves were relatively poor.

She also worked with economists to analyze survey data from 100 countries in the Gallup World Poll, and found that people who donated money to charity were happier, in poor and rich countries alike.

The fact that we were able to observe the same effect that we'd seen in Canada in places like South Africa and Uganda was probably the biggest surprise of my career, she says. A lot of us think we'll give to charity one day, when we are richer, but actually, we see the benefits of giving even among people who are struggling to meet their own basic needs.

What moves the needle in terms of happiness is not so much the dollar amount you give, Prof. Dunn says, but the perceived impact of your donation. If you can see your money making a difference in other people's lives, it will make you happy even if the amount you gave was quite small.

Be Sure to Buy Time, Too

It's also important to consider how what you're buying will affect how you spend your time. That big house in the suburbs may seem like a good idea, but a 2004 study by Alois Stutzer and Bruno Frey of the University of Zurich found that people with longer commutes reported lower overall life satisfaction, all other things being equal. They calculated that you would need a 40% raise to offset the added misery of a one-hour commute.

Use money to buy yourself better time, says Prof. Dunn. Don't buy a slightly fancier car so that you have heated seats during your two-hour commute. Buy a place close to work, so that you can use that final hour of daylight to kick a ball around in the park with your kids.

Another way to buy yourself time, Prof. Dunn says, is by outsourcing tasks you dislike. Whereas hiring personal assistants used to be the preserve of the wealthy, it is now easier and more affordable to hire freelancers and virtual assistants online to help you with either regular administration or just individual tasks.

She's currently doing research on how people actually spend the time they save by outsourcing tasks and whether it makes them happier. The preliminary findings, she says, are that most people do become happier by buying time for themselves, but only if they use the time in the right way.

Our hypothesis is that people will be much more likely to derive an emotional benefit if they think of it as windfall time and use it to do something good, rather than just taking it for granted, she says.

But while buying time is a good idea, putting a dollar value on your time may not be. In another piece of research in progress, Prof. Dunn is finding that when people think of their time as money, it makes them less likely to spend even small amounts of time on things that are not financially compensated. Seeing time as money may have a number of destructive consequences, she says.

Money Only Brings Happiness Up to a Point

When looking at all of these research results, there's an important caveat to bear in mind. Those in the field divide happiness into two components, and you need to have both parts working together to be truly happy. But only one of those components keeps improving the more you earn. The other tops out after a certain point.

The first measure of happiness is evaluative. Prof. Lyubomirsky defines it as a sense that your life is good, you're satisfied with your life, you're progressing towards your life goals.That's the measure used by economists Justin Wolfers and Betsey Stevenson, who have conducted extensive research comparing economic data and happiness surveys across the world. We found very clear evidence that in just about every country around the world, rich people are happier than poor people,says Prof. Wolfers. And people in rich countries are happier than people in poor countries.

The other component of happiness affective looks at how often you experience positive emotions like joy, affection, and tranquility, as opposed to negative ones, explains Prof. Lyubomirsky. You could be satisfied with your life overall but you may not actually be happy at the time, she says. Of course, happy people experience negative emotions, just not as often. So you have to have both components.

Daniel Kahneman and Angus Deaton of Princeton University found that when they looked at affective measures, happiness did not rise after a household reached an annual income of approximately $75,000. (They did, however, find a consistent rise in overall life satisfaction, matching the results of Profs. Wolfers and Stevenson.)

The bottom line: When you don't have much money, a little extra can go a long way, because you have more essential needs to fulfill. As you accumulate more wealth, however, it becomes more difficult to keep buying more happiness.

Don't Get in Over Your Head

Finally, although much of the research in this field is on spending money rather than saving it, the researchers agree that spending more than you can afford is a route to misery. Taking care of your basic needs and achieving a level of financial security is important.

Prof. Gilovich says that although his research shows that life experiences give more happiness than material goods, people should of course buy the essentials first. His findings hold true across a broad range of income levels and demographic groups, but not for people with very low incomes. Those people don't really have discretionary income; it pretty much all has to go on necessities, he says.

Some studies, meanwhile, have shown that debt has a detrimental effect on happiness, while savings and financial security tend to boost it. A survey of British households found that those with higher levels of debt reported lower happiness, and a separate piece of research on married couples showed that those in more debt had more marital conflict.

Savings are good for happiness; debt is bad for happiness. But debt is more potently bad than savings are good, Prof. Dunn says. From a happiness perspective, its more important to get rid of debt than to build savings.

So before you go out and spend all your money on a dream vacation, make sure you've taken care of the basics, paid off your debts, and have enough money to shield yourself from the worst of life's troubles.

Financial advisers are actually right, Prof. Howell says. The first thing you should be doing with your money is building up a safety net. If you go into debt to buy these great life experiences, the stress you'll feel when the credit card bill comes in will probably wipe out the good that you got from the experience.

Mr. Blackman is a writer in Crete. He can be reached at [email protected].

WRITE a one-sentence summary of each paragraph!

The False Income-Inequality Narrative

BY JASON L. RILEY

Published in the Wall Street Journal on Sept. 29, 2015

An enduring theme of the Democratic presidential race has been income inequality, coupled with an enduring belief that America's affluent reached their status at the expense of the poor and the middle class.

Bernie Sanders speaks of little else on the stump. And when not busy dissembling on her handling of email correspondence at the State Department, Hillary Clinton will tell you that the deck is still stacked in favor of those at the top. If Joe Biden gets in, expect more of the same. The vice president is said to be contemplating a 2016 bid in large part because struggling middle-income families may have trouble relating to Mrs. Clinton on inequality given her high living since leaving the White House.

This theme, in any case, seems to resonate with voters, which is no huge shock in the sixth year of an economic recovery. Envy and resentment fuel class warfare and lackluster economic growth throughout the Obama presidency have made people less optimistic and more inclined to fault others for their circumstances. A Wall Street Journal/NBC News poll this week reports that four-in-five Americans “were either angry because our political system seems to only be working for the insiders with money and power or anxious and uncertain. After all, the economy still feels rocky and unpredictable or both.

Liberals want to address income disparities through wealth redistribution by taking money from more productive people and giving it to the less productive in the name of fairness as the left defines it. They want to raise income taxes, expand the welfare state, lift minimum wages, and strengthen the bargaining power of unions. Mr. Sanders has been the most explicit about this, even going so far as to propose a wealth tax. Our economic goals have to be redistributing a significant amount of [wealth] back from the top 1%, the senator said in July.

In reality, the left has overstated the problem. And all the focus on divvying up existing wealth instead of creating more risks making matters far worse for the people they are trying to help and the country in general. To the extent that the expanding welfare state allows more people to live without working and therefore without earning income or developing their own human capital—supporters of the welfare state are contributing to the very income disparities they so much decry, writes economist Thomas Sowell in his new book, “Wealth, Poverty and Politics.

Mr. Sowell is the author of more than 30 books over the past four decades, many having to do with what drives different social and economic outcomes among different groups in the U.S. and elsewhere. In his latest tome, he draws from this well of research to do what he has done so well for so long: question basic assumptions behind public policy and follow the facts where they lead him.

One common assumption is that proportionate or random outcomes are the natural order of things and that gaps or disparities are evidence of something wrong. In fact, huge disparities are the norm, not the exception, because the demographic, cultural, and political factors that influence the development of the human capital that makes people productive also tend to be unequal.

In 2013, only 9% of U.S. women with college degrees who gave birth were unmarried, versus 61% of women who were high-school dropouts and unmarried. Harvard's Robert Putnam reports that children from professional families will hear 19 million more words than their working-class peers before the first day of kindergarten.

These children don't have the same prospects. Equal opportunity, in the sense of being judged and rewarded by the same standards as others, cannot possibly mean equal life chances for children born and raised in these very different settings,writes Mr. Sowell. The fact that life is unfair is not the same as saying that a particular institution, or a particular society, is unfair.

The argument that social mobility is a thing of the past in the U.S. also is disputable. Longitudinal studies by the IRS and others that measure the progress of individuals over time show that the American dream is alive and well. One such paper, published by the Pew Charitable Trusts in 2012, measured whether a person has more or less income, earnings, or wealth than his or her parents did at the same age and concluded that the vast majority of Americans had higher incomes, while 50% had greater wealth.

In other studies, Pew has found generational stagnation but the authors have noted that it didn't apply to immigrants. If low-income immigrants can rise even when the native-born don't, writes Mr. Sowell, that strongly suggests that American society continues to offer opportunities to move up economically, but that not all groups make the same use of these opportunities.

Mr. Riley, a Manhattan Institute senior fellow and Journal contributor is the author of Please Stop Helping Us: How Liberals Make It Harder for Blacks to Succeed (Encounter Books, 2014).

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