Handbags and gladrags
By I have a piece on how the market for college and postgraduate degrees resembles that for Veblen goods.
The whole point of paying thousands of dollars for a Louis Vuitton bag is that other people can’t. If they could, the bags would instantly lose almost all value in the eyes of those who buy them. Hence, the more such things cost, the more desirable they become.
In economic terms, higher education is a positional good: It is valuable to have a college degree because other people don’t have one. It is also to a significant extent a Veblen good: Sending one’s children to college, and most especially a prestigious (meaning expensive) college, is a way of signaling social status via the conspicuous consumption of a luxury good.
All of this helps explain why college tuition has increased three times faster than the cost of living over the past three decades. University administrators have discovered that, to a remarkable degree, the more they charge for what they’re offering, the more people will want to buy it.
. . . Expanding on some points not touched on in the article:
(1) Obviously higher education can and often does have value that can’t be monetized, which means that an analysis which treats it strictly as an investment in pecuniary terms is going to be incomplete.
(2) There is probably no such thing as a pure positional or Veblen good. The key question, from an return on investment perspective, is the extent to which the enhanced earning power associated with higher education is a product of ameliorating structural un-and-underemployment via enhanced human capital, as opposed to that increased earning power being a product of a positional good signaling pre-existing abilities on the part of those who acquire it. The education lobby proceeds from the axiom that substantially all of the investment value of college degrees is a product of the former effect rather than the latter. This is clearly false, and it has an invidious effect on education policy.