I attended a social gathering this afternoon with a lot of folks whose children had recently graduated from college. The kids had gone to lavishly funded Massachusetts public schools or expensive private schools, soaking up at least $200,000 in funds for their first 12 years of education. Then they’d spent at least $300,000 in parental money and opportunity cost (not working) for four years of college. Each child, therefore, represented at least $500,000 of investment. What was the return on that investment? Nearly all of the kids were unemployed and living at home with their parents.

Consider the alternatives. The $500,000 could have been invested in Pizza Hut franchises in China, mobile phone towers in India, or supermarkets in Brazil. With a 10 percent return on investment, not atypical in these high-growth countries, the money spent to educate an American child could be yielding $50,000 per year in income. http://en.wikipedia.org/wiki/Personal_income_in_the_United_States shows that this is about the same as the average American with a master’s degree earns. Of course, our uneducated children would still be able to perform some paying work, so their total annual income would be well in excess of $50,000.

Just as we’ve produced a health care system so expensive that we’d be better off without doctors and hospitals, we’ve managed to create an education system so expensive and ineffective that we’d be better off not sending anyone to school.

[Note: We would not have to have invested in foreign countries to come out ahead; http://www.moneychimp.com/features/market_cagr.htm shows that had we put money into the S&P 500 starting 16 years ago we would have realized a 7.8 percent annual return on investment.]