What’s the potential of on-line education?

About MOOC

The hip term in academia for online education is MOOC (massively open online courses). MOOC’s medium (the internet) isn’t really a new thing, however what is new is the fact that it is free, and that top universities have started to roll out this free content on the internet.  These courses generally have very large cohorts of students, and although the completion rate is fairly low, it is still significantly large in aggregate terms. This logically implies that the average quality of teachers on the web is much higher than the average teacher (assuming the internet picks the best teachers). As MOOCs expand, they offer terrific possibilities for developing countries, the only requirement for this free knowledge is access to internet. A 16 year old Indian who has never been to school could potentially know more math than an MIT graduate. The only real advantage offline courses offer is direct contact with the teacher though this is not necessarily as important as it may first appear; it could be that the forums created will become extensive enough to answer every possible question a student might have (especially with some advanced algorithms we can produce today) but in terms of thesis feedback and supervision, there would be complications, and there are also some limitations on more practical subjects being mastered online.

Economic theories of education

Before discussing online education we must first lay down the ground work for why people get educated.

The first theory is the theory of human capital, which basically says that people go to school or university to improve their skills or knowledge. Improving themselves makes them more valuable to companies, and as long as your value capacity is higher than what the employer has to pay you then you should be able to get a job.

A second theory is signalling, here people don’t go to university or school to get better, they merely go there so that they can prove to employers that they have certain skills. For instance, getting a degree might signal that you are more intelligent or that you work hard, which are traits the employers desire. This theory could imply a limited capability for social mobility since signalling accreditation is not accessible to all.

Finally the third main theory is the status theory; this is people going to Universities because of cultural or societal ranking purposes. This is not very different from attending a church, though this model could imply a networking effect which boosts earnings.

The literature I am familiar with seems to indicate signalling is the more prominent one. The specific measurements seem to indicate that depth of education is secondary to selection criteria and brand value of the university, which both lean towards signalling.

edit: An example of how researchers try to separate human capital from selection is by looking at those who got accepted into top universities but did not attend, some studies .

Generally my ball park estimate for the value found from attending University is something like 80% signalling and a close match between the other two, human capital is probably slightly more important than good status.  This split isn’t the same in all degree types of course, humanities rely more on signalling; technical skills could be more reliant on human capital and MBA programs more reliant on status.

Application to online education

Under all three theories, online education has a place, however its potency differs. Under signalling dominating there is likely to be a wage premium for attending regular Universities since a large portion of their value is their selection criteria which are diluted when there is an online system. However if a shift should occur and human capital becomes more important, that is, people attending Universities to improve their skills, then that spells a bust for traditional universities.

Making online education also appeal to signalling will require a way to make testing credible by being exempt from plagiarism, it might seem plausible to just have screen sharing settings on or webcam active at all times during testing but it’s very hard to say who would watch these, it is perhaps better if an automated process is found. If credibility is attained in online education it may be possible for it to signal things that regular universities don’t, such as discipline, initiative, independence or even entrepreneurship.

Demand and Supply

In my mind there are two main types of demand for these MOOCs, mainly seeking mental stimulation (perhaps old retirees) and career advancement. There are likely to be cases where the human capital model applies for career advancement, as some jobs might offer on-site testing but it’s perhaps better if centers for testing were established that people can just show up for and use their knowledge to gain accreditation and then not have to re-take endless amounts of tests. In any case if the goal is accreditation the cost will generally be higher, but if the goal is the acquisition of skills or recreational purposes, it’s very cheap to provide since no involvement with test centers and diplomas is required.

A special demand market that the flexibility of online education can tap into is people who are full time workers. This pool of people is likely to be gigantic and the talent endless, these people are people who are so valuable to companies that the company cannot afford to let them off for a year to do an MBA or specialist program. Let’s also not forget that this extra choice for students will create competition with Universities, and with competition, there won’t be as strong of ability for Universities to select the very best candidates since the pool of people they will be selecting from will be smaller. This will dilute their selection criteria, and subsequently their signalling value.

On the supply side, the business model of providers this will shift attention to the lecturers, probably significantly cutting down non-lecturer staff of universities. It could be argued that if some of these fields being taught online aren’t expanding(I want to say fields like Anthropology generally evolve slower) enough every couple of years, the maintenance of updating the videos will be very low resulting in very few lecturers being required. For instance it could be that the same videos of mathematics will be watched 100 years from now, essentially killing the market for math lecturers. This could result in a winner take all effect, such as the music industry has witnessed, but not likely to be as prevalent since the language barrier might be important, this is because it is the main source of communication (where as music today barely relies on language).   This winner take all effect could be monetized through textbooks, although the market for textbooks will shrink in aggregate because of MOOC’s (controlling for shifts from developing to developed). This is an inevitable consequence of the winner take all effect, it is likely that successful textbooks will be boosted as the reputation of its author (who is an MOOC lecturer) rises and offers higher brand value to the University hosting the lecturer, which can also be monetized in a number of ways. This also implies much fewer universities being around unless people still value other things about them such as the cultural or extra-curricular aspect, but it is also just possible people meet that demand by participating more in their local clubs.  There are also legal boundaries preventing such supply shifts from occurring, such that you need to be accredited by government agencies and I am not certain how that affects online courses.

Present and future structures

Imagine a moving platform that holds a product and goes through different points to add new elements to the product. Now imagine that those elements are dependent on the previous one’s being properly installed. Well that’s how I view education as it is right now, only the products are people. This method causes way too many defects, and not necessarily by being more efficient either, since the energy expended to make sure each sequential piece was properly placed would be given by the people themselves. So the main cost is the switching cost, the initial cost of change. It doesn’t make sense for someone (regardless of their age) who hasn’t mastered a subject to move on to a more advanced subject that has the un-mastered subject as a prerequisite.  I don’t really need to produce evidence that it’s harder for a child that hasn’t learned the power rule to apply the chain rule.

It seems the easiest step to take in making education more dynamic is pushing it online, students have the ability to rewind, fast forward and pause and really go at their own pace, the Khan Academy model also seems fairly effective, they have a quiz after each concept is introduced, making sure students have mastered a concept by acing a quiz before being recommended to move on, so all students are A students. Not to mention that the world would be much more efficient if degrees were given out for every concept mastered, like that, people would not get over or under educated.

Perhaps the most backwards mechanics we apply is grading on curves that is giving x% of a class an A or a B. This gives no indication of mastered material, and makes the goal to be better than the rest as opposed to learning the material. This relative grading passes on an information cost to employers since they have to employ capital to learn what different kinds of grades mean, to see if they meet an absolute qualification and to see how they fare compared to graduates of other systems. An employer knows very little if an A or a B was received in a curved class and his only way of knowing how much stuff they learned in these classes is by knowing something about the school or university which channels money to the elite who have an already established reputation and costs the employers less. This is in part why it’s good to have national/international wide testing (eg. GCSE, IB, AP etc) that is widely accepted, so we can compare people. However this information cost must still be borne when comparing people who took different types of tests and in the case of Universities, the lack of such test types makes it very hard to compare students.

The structure of education needs to be taken into account, especially in government funding; it could be funneling us to towards some of these theories. For instance the French education system which I previously discussed has government pushing the status and signalling theories, which could amplify inequality. Online degrees probably haven’t had enough time to be able to project degree type value, in the future the mere fact that you have an online education could signal things like discipline and initiative to employers, and may probably offer value in that people can boost their job experience whilst simultaneously boosting their education credentials but these things will likely emerge over time.

As a final note, let’s not forget that online education is today much cheaper, which allows students to more flexibly choose their career, whilst traditional graduates will have to choose things that will repay their loans, even if their career advancement prospects in this given position are limited. However this cannot be properly observed without specific econometric techniques to get rid of the selection bias of people who did not attend regular university.

Economics vs Politics. Is free trade any good?

Economics experts fight over numerous of things, it’s the shame of the profession. The fact is that anything can be proven if you use the right econometric techniques, the right time-period and the right data set. So coherent theories are in fact in many ways more important than empirical evidence. Regardless of the dichotomy in economic debate there is at least one thing that would be in the economic bible and that is Free trade.

Free trade just means allowing products in and out of the country without imposing tariffs. The rationale for tariffs is that you want people to buy products that are made inside the country so that money stays in the country and develops the domestic industry. However from the consumer’s point of view, why should he/she care where the product is made? Since if even if the Japanese car industry thrives, they will export their great cars to your country and raise his/her standard of living. Whilst putting tariffs on their cars would either mean the consumer has to either accept a lower quality domestic car or accept to buy the Japanese car anyway at a higher cost, which either way reduces your standard of living because you either have an inferior product or because you have less dispensable income.

The part the Economics profession usually forgets is the politics aspect of tariffs. The reason you might not want to have free trade is if you believe instabilities between two countries will occur. You don’t want Japan to be providing all your cars for you because if they decide they no longer like you and want to go War with you, they can block all their products from coming into your country and helping you. Depending on how good the environment in the country is for setting up businesses, it is likely that either another country will provide the products or domestic industry will emerge, however if the Japanese industry was dominant chances are that your new supplier will not be as proficient, and depending on the product it could have devastating effects on the economy, such as if the product was food, that domestic workers tried to replace without enough expertise and end up selling toxic food.

So tariff’s are rationalized as a bargaining chip between governments, if you believe that relations with two countries are not likely to fall then then free trade is without doubt the route to go. This would probably be the US and Israel or Cyprus and Greece. So China making everything nowadays is not likely to be problematic, unless one believes that they might one day use it against other countries.