Tuesday, September 13, 2016

My Posted Comment To Megan McArdle's Bloomberg Article, "Banks and Colleges Are Wasting Our Money"

My posted comment to Megan McArdle's article, "Banks and Colleges Are Wasting Our Money" on BloombergView:
When there are rents and barriers to entry, innovators attempt, sometimes successfully and sometimes not, to develop less costly and/or higher quality substitute products. We get email, text message, Skype, YouTube, Uber, Kickstarter, Makerbot, Bitcoin, Netflix, streaming music services, etc. All are less costly and/or have better benefits than their prior alternatives.

In 1971, the US Supreme Court case of Griggs v Duke Power Co effectively banned employer aptitude testing of applicants. Employers had to resort to other signals about applicants and the college graduation race began. Colleges with their judicially created oligopoly became free to increase tuition without the possibility of employers developing their own alternative applicant aptitude signal. Students left with no other employer signaling mechanism are left with little choice but to pay the higher tuition.

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