The Value Of Education

Copyright© Miklos Szegedi, 2023.

Religions are the most basic form of education. There is a part in the Quran that prohibits taking interest on debt. Our Bible also treats taking interests as a sin, albeit it is more specific with the cases. I have a hobby mapping religious statements to science.

Any bank that borrows on two percent and lends for four percent is going to go bankrupt. Depositors usually assume a risk like one percent of losing the loan amount. Borrowers may assume three percent loss, so they accept a premium of one percent making it four.

Sooner or later there will be a rare event, when borrowers have liquidity problems. This happens in case of the events making up the two percent difference in the risks. When this extra two percent risk difference kicks in the depositor is not paid.

Why? The risk was higher than what they anticipated. The leverage investment is profitable on paper, it is not profitable in the risk space. Derivatives, like swaps, insurance help in such cases. Still, interests and required return should cover default risks.

The banks need to write off their asset, they may go bankrupt. This is why there are regulations to keep deposits. Let’s assume this is ninety percent in cash or equivalent. The rest can be invested in riskier assets that pay more. It can be ten to fifteen percent, including a default risk of five to ten percent. The bank is safer. It may still suffer a loss, but there is less risk of liquidity or Chapter 11 bankruptcy.

Paying for the risk is normal. If one in hundred borrowers may fail in a year, you need to pay more to insure against it. Extra interest or commissions on the other hand limit the supply of money causing lower supplies, less investment, and inflation. It may not be the interest that is the issue. It is the underlying risk to liquidity.

Religions include many similar teachings. Their power is that they were tested by hundreds or thousands of years. They became the behavioral standard in a climate, geography, or continent.

As the population grew, they required more sophisticated rules. I addressed some of these in a few articles. Religions address groupthink, issues that happen when all participants act rationally each, the outcome is still negative.

The eye for eye principle is a nice way for example to teach equality or civility to children in kindergarten. Have you pinched the nose of your mate? Pinch yours. Do you like it? No? Do not do it again then. It is difficult to apply this in case of more serious offenses that are not reversible.

Utilitarian approaches to use value and money as a measure of harm can also have bad side effects. It is a simple way to embrace liberty, and fraternity. Everybody understands the damage to compare. Bookkeeping helps to translate damages to interest rates. It can have detrimental effect on individual liberties on the other hand. An example is when end of life treatments are decided upon.

Egalitarian approach is a step further, especially in case of law. The same events are treated in a similar way regardless of the person. Individuals are not accountable to each other in this case, but they face the state or the society. Measuring risk is very difficult without equality, making the economy fragile.

Justice theories try to embrace individualism, and differences in compensation. Some may accept money after a car accident. Some may use the money for travel or getting education. Everybody treats their different traumatic experiences differently. Transparency may become an issue in such cases. The resulting corruption, depression has detrimental effects on productivity.

Universalism tries to make sure that all aspects are considered in case of a decision. The entire system needs to benefit from a decision. Such decisions are similar to the Harvard Negotiation Model pinning a standard first, and trying to align interests to that standard. Pace is an issue in case of universalist decisions.

Individualism treats the individual as the basis of all decisions. Everybody needs to be knowledgeable to participate in the decisions about their life or actions. Individuals may opt for making the rules better, or they may treat their case unrelated.

The next era will likely give us more time with computers, robotics, and better productivity. This will give us more time to deal with issues in society. Setting the correct boundaries between the individual and the state, and the authority between different parts of the state will probably be the major topic. All these require the right education for all.

Sacrifice is an important part of my Catholic religion. It is interesting for example how society relates to individual sacrifice. I learned that we deal more with personal sacrifice than other religions. It may not be an accident that Christians opted in to do discovery for far away lands.

It is also interesting to research, whether the society that dictates, or is it the individual that follows the standards.

The education system that we have today is deeply rooted in the guilds of the Middle Ages. The resulting secrecy helps to sell education. People are curious, so they sign up and study. In some cases it is a burden. Rational decision-making on choosing a bank, finding a job, assessing property prices all need a level of transparency.

The last millennium was famous of many wars and fights. Tribalism is a negative sum game. Nobody wins wars in the long run. This is why causing harm is punished in almost all religions and legal standards. Racing is fighting, and it is different, than competition. Racing is fun to watch, and it is fun to play, as long as it is within the race tracks. This is why racing drivers and professional athletes are paid so well. Having an opponent can be stressful, and it can be risky. People somehow like to watch failures.

People tend to desire stability, when negative sum games reach their limits. Socialist structures embrace accepting a lower standard. They make sure that this standard can be kept without any risk. The issue with such systems, is that people use the extra time to master the stability. Any disaster, or disruption can have big detrimental effects in such a case. This causes unhappiness larger than what is achieved with stability.

There is also a latent positive sum game that is negative sum game. Constant growth in terms of title is a way to pay for merits. Such constructs are popular by HR at many companies, and sometimes titles replace monetary compensation. This incurs risk in the long run. Systems that are positive sum in terms of titles are similar to crypto currencies, or Ponzi schemes. Disruptions destroy the value of titles, some lose out. People realize that the game was actually zero-sum, relying on diminishing payments when people retire. Wage growth becomes a false view of growth in the system. Zero-sum games are often paired with corruption.

Positive sum games rely on interest rates and inflation to give a feedback on the value created. The core part of this is education, especially elementary education. People do not just watch the needs of their management. They check property prices, they check interest rates, and stock prices. They move if they see an opportunity. Individual income may vary over time, but any disruptions are addressed by individuals in a well known, relaxed way. There is a growth period, where some may gain, some may lose. However, if a promise like a bond is not paid, the taxpayers get the check. If the taxpayers do not pay, the inefficiency slowly dissolves in inflation.

The current education system has three major titles.

Phds master what they do. They do not just know what to do, but also what else was tried, and why it did not work. Startups founded by PhDs like Google tend to be superior in their area of research. They are usually higher cost as well. Continuing research and experiments may fail requiring constant funding. If you choose to be a PhD, you can probably extend your income with teaching during downturns. Sometimes you are expected to educate the generations that follow.

Master degrees are taught not just what needs to be done, but they can also check why. Masters can improve systems using this knowledge, and they can inspect validity.

Higher education usually builds some red brick universities in each country. They have a strong brand identity, that is a promise but also a liability. Lifting some universities is a zero-sum game. However, the extra prestige may help to achieve things making it positive sum. What is their advantage? The main advantage I think is that each generation knows each other well. Some of them can pick prestigious positions. Executives can decide based on existing standards. Alumni on the other hand can ask for advice on the actual practical legal or inspection practice, so they can move further and create more accurate solutions than others.

Professional education is where economies get their scale. Bachelor degrees have the knowledge to do the job, sometimes they may not able to verify the underlying reasons.

PhDs and lifetime learning are rooted in the Middle Ages. Master and Bachelor level education allowed the industrial revolution and the welfare state. Elementary education is the most important allowing the daily decision making of the future.

Professional education lets you set your own time. A good example is the CPA exam. You can study from different sources, but you take the official exam. Professional education sets standards, and the excise tax of licensing allows adjusting wages to an acceptable level.

An ideal education system teaches practical knowledge to earn in a year. If the economy or the market turns bad, the system allows to study another direction. People may study a year of science, manufacturing & construction, medicine, law, management and liberal arts each. Choosing different order and the timing at ages like 18, 21, 27, 36, 48, 63 can help to address downturns and a positive sum economy. Each stage allows switching to an existing skill, but they can also study a new one if needed.