Note: I originally wrote this months ago as a review on Amazon

The Race Between Education and Technology epitomizes everything that is wrong with social science. The modus operandi is to pull together a series of charts showing correlations, assume that the correlation is due to causation, and ignore any discussion of alternative explanations of the trends.

Goldin-Katz spend the bulk of the book hammering away on two points that everyone already knows: years of schooling on a national level correlates with industrialization, and years of schooling on a personal level correlates with income. Goldin-Katz spend precious few pages actually dealing with the causation issue, and never address any of the best arguments against their thesis. Nor is there any attempt to actually talk to people working in technology in order to understand more deeply why the correlation exists.

Let's examine in detail some of the flaws.

a) Goldin-Katz's base hypothesis is that years of schooling should continuously rise over time, as technology increases. But the very definition of technology is that you get more output for a given amount of input. Thus we should not expect a proportional increase in education to take advantage of new technology. Indeed, this is what we see on the ground. As a web programmer in 2009, I no longer need to learn a huge amount of information that my father needed to know. For my job, I do not need to assembly language, register hacks, memory allocation, pointer arithmetic, etc.

b) Goldin-Katz's hypothesis is at odds with the experience of all the recent college graduates I know. No one believes that education teaches job skills. A quick check of the top 10 most popular college majors shows that these majors have little to do with technology. Clearly if there is an income bonus from college education, it cannot be from teaching technology, because colleges do not actually teach technology.

c) Goldin-Katz's hypothesis is at odds with the life experience of most engineers I know. If you ask the typical, engineer, "How many years would it take, starting from the beginning of high school, and working efficiently, to reach an amount of knowledge where you could be a productively employed?" the answer is usually something like 1 to 3 years. If you look at the actual skills to do high tech jobs, you simply notice that very few require 8 years of full time schooling. You'll also notice that engineers universally deride schooling, and that they learn most of their skills by avoiding school work (this is especially true in high school). For more details Google the essay "Why nerds are unpopular" by Paul Graham.

d) The standard government economic growth statistics have so many methodological problems that's it's impossible to draw any conclusions from them (for more details, Google "Economics needs a divorce" ). It's unclear both a) that growth has actually been declining and b) that the decline has to do with lack of technological innovation ( it might have a lot more to do with the increasing portion of the GDP taken up by bureaucratic sectors that are impervious to technological change - like the education sector itself!). Chinese, Japanese, and Korean mercantilism have also played a great role in the decline of America's technological-industrial base. Never do Goldin-Katz address either of these points.

e) I do agree that 19th Century America derived great benefits from its strong primary schools and high literacy rates. But I believe this is primarily a threshold effect. After students have the tools to find books and self-educate, further formal schooling has diminishing returns. So I might agree that 19th century America derived an advantage from averaging something like 5 years of schooling rather than the 0-2 years of schooling that was common in other countries. But it does not follow that modern America would derive an advantage from raising the average years of schooling from 13 to 15. In fact, 13 is almost certainly above the point where opportunity costs exceed returns to schooling.

Goldin-Katz never address any of the competing explanations for the correlation between industrialization and education or income and schooling:

a) Richer countries can afford more years of schooling. The experience of my peers and I in college is that college is primarily a luxury good.

b) Academics have greatly increased their influence on politics in the past century, first with the Wilson administration then with FDR's brain trust. Prior to 1900 academics had neither involvement with politics nor control over policies. Today, virtually all major policy advisers are academics. Not coincidentally, there has been a concurrent increase in government money spent on schooling and on total years of schooling. Thus part of the rise in education over the last century was likely simply two unrelated but concurrent events - the continuing industrial revolution, and the increasing political power of the academic class.

c) On an individual level, selection effects play a major role in creating the link between college and income. Completing college requires a threshold level of intelligence and diligence. Colleges select for people with high earning potential, because such people are more likely to make money, and donate it back to the school. I was talking to my friend who does hiring for Bain Consulting: "Bain likes to recruit econ majors from top schools, but because they learn anything valuable in the major, but because it means the person is smart and care about business." I hire programmers at a startup, and I care little about the degree, and a lot more about how smart the person is and what they have done. This does correlate with college and major, but the actual knowledge gained in the college major is a tiny portion of what is needed to be a successful engineer.

The selection/signaling effect is even more important considering the that the 1971 Griggs Supreme Court case made it illegal for employers to use IQ tests for hiring purposes. As a result, companies have to rely more on educational attainment as a proxy for IQ.

d) Finally, and perhaps most importantly, Goldin-Katz completely ignore the impact of credentialing laws. There are now legal degree laws for professions such as: lawyers, architects, doctors, teachers, civil servants, military officers, nurses, and education administrators. These professions receive relatively high salaries because they have either direct government subsidies, or they have monopoly rights to perform certain tasks (prescribe medicine, defend the accused in court, etc). Yet there is no evidence that requiring a degree is a credential is a greater indicator of ability than simply using a test or requiring apprenticeship. Most architects of the 19th century learned via apprenticeship, yet the quality of the buildings was much higher back then than today.

Searches of the book for "signaling", "credentials", "credentialing", "Spence" return zero hits. To write a book about the school about the education wage premium and not discuss these issues is completely egregious. In a just world this failure alone would be enough to ruin the reputation of Goldin and Katz as being serious scholars and to impugn the reputations of the academics who offered such fawning reviews.

Goldin-Katz's book is fundamentally about policy. It is about how to manage a countries economy to maximize technological growth. You would think that the first thing that anyone would do when writing such a book, is to talk to dozens of people in high technology. You would talk to engineers, entrepreneurs, workers at high tech firms, current college students, recent college graduates. Yet Goldin Katz do none of this. They sit in their ivory tower, plot some regressions and engage in chart-ism of the worst sort. Their statistics add nothing to the stock of knowledge that already exists about the correlations between education and income. And they ignore addressing all the possible arguments against their case. This book is only interesting the way that a car wreck is interesting.

Of the many articles I've read about the financial crisis, the following ten have been the most informative.  Read them all, and I think you will have a very solid understanding of what is going on.

1)  The Financialization of America A broad overview of how 1) insanely profitable Wall St. became in the past two decades and 2)  this profitability was due to implicit government subsidization of risk.  This includes the "too big to fail policy" and the "Greenspan put".

2)  The Global Pool of Money (MP3) - An hour long podcast from NPR about the selling of subprime mortgages.  Hear the story of hustlers, smooth talking sales guys, fast cars, and big money.  It's like something out of a movie.

3)  Triple-A Failure: The Ratings Game by Roger Lowenstein of the NYTimes.  You may ask, who was buying these securities that were so obviously shoddy?  Government regulations mandated that certain investors - mutual funds,  insurance companies, pension funds - could only buy bonds rated as investment grade by one of the three official rating agencies - Fitch, Moody's or S&P.   But these rating agencies were for-profit companies that earned more money by giving banks higher ratings.  This conflict of interest resulted in systematically underestimating risk.

4)  How regulation breeds complex financial products and Why Lax Regulation Did Not Cause the Crisis by Mindles Dreck.  The author works in the investment banking industry.  He relates how the industry had actually seen a dramatic increase in regulation as a result of Enron and the Patriot Act.  But the effect of regulation was not to make finance less risky, but rather regulations encouraged the creation of more complex financial products that outsmarted the regulators and gamed the system.

5)  Fannie Mae's Golden Goose - A Lesson in Moral Hazard - The author, Bill Burnham, has worked as a Wall St analyst, venture capitalist and hedge fund manager.  In the mid-90's he consulted with Fannie Mae for a year.  He tells the story of how Fannie Mae abused its implicit government backing to make very risky loans at low interest rates.

6) Commodity Hysteria - An Overview by Nick Szabo, a former programmer, now a law school academic.  He explains how the simultaneous rise in price of dozens of diverse commodities is best explained by rising inflation expectations due to the financial crisis.  As inflation increases, more people buy ETF's and commodity index funds. Additionally, producers have no incentive to pump more oil, as oil in the ground is worth more than a dollars in the pocket.

7)  Record Central Bank Financing Continues by Brad Setser, an academic economist.  Setser notes that foreign central banks are buying up massive amounts of American debt. Foreign countries have deemed the U.S. government too big to fail: "Sometimes I think the US should drop the façade of auctioning off Treasuries and just negotiate private placements with the People’s Bank of China and the Saudi Monetary Agency."

8)  How Stocks are like Baseball Cards by Mark Cuban.  Mark Cuban is famous for selling Broadcast.com for billions during the dot com bubble.  He explains how the decline of dividends has turned stocks into purely speculative collectibles, rather than ownership shares that earn the investor money.

9)  How the Fed lowered the reserve ratio and caused a decade of inflation and asset booms - In 1995 the Federal reserve created special exemptions allowing banks to keep 0% reserves in many cases.  This lead to an explosion of the broad money supply, and successive bubbles in the stock market and housing market.

10) Maturity transformation considered harmful: an unauthorized biography of the bank crisis by Mencius Moldbug, a semi-retired software engineer who's spent the past two years studying history and economics full-time. He traces the roots of the financial crisis to a fundamental flaw in our banking system that has been around for 300 years. He proposes a solution to fix things up and prevent these crises from ever happening again.