My friend Chris recently linked to this blog post by a guy named Steve about the correlation between education and lifetime income. It’s a response to this New York Times column by a guy named Michael arguing that what America needs is uneducated entrepreneurs.
Steve’s first problem is that he’s using historical data rather than a forecast model. Michael is arguing that just because people who got degrees in the past make more money now is not a good predictor of how much people getting degrees in the future will make.
Steve’s second problem is that he missed Michael’s argument that education does not cause income but they are correlated because they have the common cause of ambition. To determine if education causes income we would need to control for ambition.
Finally, Michael has a larger point: it is better for the economy if more people are starting businesses, even if many of them fail. Education may lead to higher median income for individuals, but entrepreneurship should lead to a higher mean income for everyone.
Canada’s solution to encourage entrepreneurship is the social safety net: your life will not be that bad if you fail. America’s solution is greed: if you don’t take risks, you won’t be able to afford all that shit you’ve been tricked into wanting.
I think it’s clear that a social safety net is not enough on its own. Since I’m not that interested in material possessions, I’ve never been inspired to be an entrepreneur – I don’t see what’s in it for me. To increase job creation, the governments of both countries have the challenge of maximizing the pay-off for success, minimizing the penalties for failure and keeping society smoothly functioning (which is why winner-takes-all is not a sustainable strategy).