Declining Returns Seen in Academic Sector

In the course of justly reaming Thomas Friedman’s The World is Flat for the Journal of Economic Literature, Edward Leamer delivers himself of a throwaway remark on the declining returns from the academy and what that might teach about the open source movement,

We [academics] are part of a “Self-Organizing Collaborative Community” called the research universities of the United States and increasingly the rest of the world. Unlike contributors to Wikipedia and Linux, we get paid for our work, not by those who consume the fruits of our labor, but by taxpayers and by donors and by our students, all of whom we have convinced are better off by virtue of the research that we do. When it got started fifty years ago, this system worked great, but it isn’t working as well anymore. While we are doing plenty of worthwhile research we are also doing plenty that isn’t worthwhile, and the competition for research talent defined by the fads of the moment is driving up the cost of education to unaffordable levels. Adam Smith would have understood what’s wrong here. It takes sales for the invisible hand to do its magic. Begging in your work clothes when you aren’t working isn’t enough, even though the pastime may be lucrative. On the contrary, the more lucrative is the begging, the more likely is the conclusion that the work is worthwhile. But it takes accurate market prices to tell us what’s valuable and what’s not. Of course, good will and good intentions can carry a collaborative community productively for a while, but financial rewards relentlessly bend the system to their will, slowly perhaps, but inevitably. That’s the invisible hand at work. Thus, open-sourcing has the same problems and the same probable longevity as the communes of the 1960s — they worked great for a while, but the participants chose other ways to live once they got to know the people in the community.

Uncomfortable, but with a ring of truth.

Indeed, I think I heard one of the death-knells for the modern high-priced university this week. Increasingly, even reasonably well-off parents without pensions, people planning to retire off 401(k) plans, just don’t think they can afford it any more.

Incidentally, the entire Leamer review is great stuff and I recommend it.