"Go West, young man, and grow up with the country." This quote was made popular by 19th-century American newsman and politician Horace Greeley.1 At a time when the East Coast was plagued by unemployment and economic stagnation, the West offered plenty of land and opportunity to those with ambition and a willingness to work. Two centuries later, the economies of many developed countries are also plagued by unemployment and economic stagnation. Unlike the American West, however, in these countries opportunity is no longer tied to land but to human talent, productivity, and innovation. It is knowledge, not geography, that will make or break an economy—and a young person's economic future. Universities are by no means perfect and clearly are not the only places a person can acquire knowledge. However, although there is much today's universities need to do to respond to society's new demands, they remain the surest, most effective path for most young people who want to pursue a prosperous and impactful career.
In the United States, concerns about the skyrocketing cost of attending college have led to a wave of criticism in the media. With state support dwindling, public universities have swiftly transferred the economic burden of getting an education to the students. At our university, for example, as state tax revenue appropriations per student have declined by more than half over a decade, in-state tuition and fees have more than doubled, even though our expenditures per student have remained almost flat. Other factors driving tuition inflation include investments in facilities and equipment, increases in long-term debt, and growth in administrative and support services. The result, according to a recent study by consulting firm Bain & Company, is that the average American family now has to dedicate 38 percent of its annual income to pay for a year of college, up from 23 percent a decade earlier.2 As a consequence, students are borrowing more and more to pay for college, and U.S. student loan debt ballooned to nearly $1 trillion in the third quarter of 2012,3 which for the first time is larger than either credit card or auto loan debt.4
These trends have sparked a plethora of arguments against obtaining a college degree. Citing examples like tech giants Mark Zuckerberg, Bill Gates, and the late [End Page 19] Steve Jobs, many analysts and commentators have tried to make the point that one can achieve meteoric success without graduating from college.5 Silicon Valley investor Peter Thiel has gone as far as offering a $100,000 grant for high school students interested in creating a company instead of going to college. "You increasingly have people who are graduating from college not being able to get good jobs, [and] moving back home with their parents," Thiel said recently. "I think there's a surprising openness to the idea that something's gone badly wrong and needs to be fixed."6
Setting aside the fact that Thiel himself has two degrees from Stanford University and that his generous grant is available to only 20 students per year, the odds of getting a good job remain overwhelmingly higher for people with a college degree than for those without one. Schmitt and Jones found that the odds of getting a good job—defined as one that pays over $37,000 per year and includes employer provided health and retirement benefits—are three times higher for college graduates than for high school graduates who didn't go to college. Most importantly, the gap between them has been widening steadily.7
Economists have expressed concern about the decrease in median family income over the past three decades. Our colleague Tyler Cowen has reported that the average American family earned less in 2009 than it did in 1999.8 Whether this worrisome trend can be explained by economic cycles, by our inability to maintain the pace of innovation (as Cowen himself argues), or by our inability to keep up with innovation, the fact is that not every worker is experiencing this wage stagnation the same...