Economic Stratification and College Admission

The recent arrests of actresses Lori Loughlin and Felicity Huffman for allegedly using fraudulent means for getting their daughters into prestigious private universities has exposed a dark underbelly in college admissions, something that will reverberate for a long time. (Huffman already has agreed to plead guilty, which almost certainly will mean some jail time.) Unfortunately, we can assume that Americans will learn the wrong lessons from this scandal. The most important issue is not that people should be more honest when applying to college (although that is a good lesson to learn), but rather that college plays an outsized role in economic matters, and especially elite higher education institutions.

American politicians are demanding that college be free and open to everyone, but at the same time they are helping to create a political economy that demands a college degree even for lines of work that should not require higher education at all. As this country makes the unfortunate transition from an entrepreneurial market economy to one that is becoming increasingly dependent upon political power, college takes on an oversized role. The greatest irony is that higher education in the USA is becoming as important to one’s financial future as it was in the former Soviet Union even outside the so-called professions.

Let me explain further. In the United States, we understand that one receive a college education and beyond if one wishes to be a physician or lawyer, an engineer, or even a nurse. The more prestigious the institution of higher learning, the more one is likely to land a position in an elite firm or medical practice. For example, students who gain their M.D. from Harvard Medical School are likely to seek different professional goals than students who complete their medical training at a place like the University of Kentucky. Likewise, a graduate of Yale Law School is likely to have a more prestigious career path than someone who receives a law degree from West Virginia University.

An economics doctorate from Stanford University will guarantee the recipient a gateway to teach in other prestigious programs where an economics degree from my alma mater, Auburn University, only qualifies one to apply at lower-tier places. Thus, in certain areas of work, where one receives a degree is all-important to one’s career, and it is becoming more important where one goes to undergraduate school as well, and it is not just in the professions.

Two of the wealthiest and most influential men in the world, the late Steve Jobs and Bill Gates, were college dropouts, but that did not stop them from pursuing entrepreneurial ventures. Both men pursued ideas for the sake of profit and few, if any, college professors could have taught them anything that would have changed their business trajectory.

Entrepreneurial skills are internal, and while one can teach about entrepreneurship, it is difficult, if not impossible, to teach someone how to be an entrepreneur, yet those are the skills most needed for a market economy to grow, expand, and prosper. In reality, the success of the professions depends upon the strength of the business sector, which in turn depends heavily upon the success of American entrepreneurs, and yet, entrepreneurship does not depend upon the prestige of higher education.

We compare this situation with that of the old USSR, which had made all entrepreneurship illegal. (Authorities call it “speculation” and it was punishable by death.) Instead, the Soviet Union had a planned economy centrally directed by a bureaucracy of planners that had their doctorates from the most prestigious universities in the country. That the planners were unable to get the Soviet economy to replicate the more prosperous western market economies was irrelevant to people trying to get the best-paying and most highly regarded jobs, and the paths to those employment positions were limited.

For all of the talk about “equality,” the old USSR had a stratified society. Its economy was plagued with shortages and shoddy or poorly made goods, and people stood in line for hours each day at government stores to purchase what they could with their rubles. Regular citizens might wait for years to gain a new apartment in a shabby tenement block. If one was a member of the Communist Party or had an elite job, however, life was much easier. As Logan Robinson, a Harvard Law graduate who lived in what then was Leningrad in the late 1970s to spend a year observing the Soviet legal system noted, elite government employees were paid in Class D rubles. That meant they could shop at the infamous Yellow Curtain Stores where goods were in plentiful supply and the ubiquitous Soviet long lines did not exist — and where they did not accept the ordinary rubles most citizens received for their wages.

Elite workers also had access to vacant apartments, automobiles, and western goods that most Soviet citizens could not purchase. Because their economy was almost entirely administrative and bureaucratic, typical Soviets could not get ahead economically speaking. Their only real hope for advancement either was through political connections or being accepted into a top university.

The U.S. economy has not yet reached the miserable Soviet standard, but as state power over the economy grows, and as more and more Americans demand a socialist regime, we are seeing the emergence of what Florida State University economist Randy Holcombe calls political capitalism. According to Holcombe, political capitalism is defined as “an economic and political system in which the economic and political elite cooperate for their mutual benefit,” and in which “the profitability of business is determined by political connections rather than by the satisfaction of consumer preferences.”

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