Talent Mercantilists Running Amok In Michigan

A lead editorial this past week in The Detroit News stated that, "Wide consensus exists that if Michigan is to become a top state for jobs and investment, it must develop a stronger talent pool." They’re not alone.

There’s a push to spend more tax money on state universities based on a theory called Talent Mercantilism. It is an ineffective approach to growing the state economy, one whose main effect is to waste taxpayer money.

Mercantilism was the 17th century idea that the only thing a nation needed to become prosperous was to increase its stock of gold and silver. Talent mercantilists just substitute college degrees for precious metals, assuming that more college graduates are evidence of more talent in the economy.

Mercantilism was wrong because there’s more to an economy than the medium of exchange. Talent mercantilists are wrong because many more factors contribute to modern economies than just having educated people around: property rights, entrepreneurial instincts, access to capital, certainty of exchange, etc.

Having smart people is just one piece of the puzzle, not the key to economic growth.

While it’s true that college graduates have higher incomes than those who are not, this does not automatically translate into higher economic growth for an entire state. That can be shown by comparing states that are successful at growing their college graduates with those that are successful at growing their economies. It turns out that the one has very little to do with the other, as I show here.

If the talent mercantilist theory is wrong then policies based on it are flawed. The talent mercantiists would like the state to increase university appropriations. More tax money in state universities leads to more grads which generates more growth, they argue.

But this is a problematic for a number of reasons.

• Just giving universities more tax money will doesn't guarantee that more students will graduate.
• Michigan’s universities are stuck in an apparently perpetual administrative bloat that’s absorbed most increase in university resources. Any additional money for universities is likely to be tied up into ever-expanding administration instead of expanding the capacities to graduate more students.
• Even if more tax money meant more graduates, it’s not clear that more graduates mean a smarter population. Current universities do a bad job measuring whether their students ever learn anything, and there’s evidence that many do not.
• It’s unclear whether Michigan would retain graduates from state universities. College graduates are nomadic — they’ll relocate to where they find an opportunity.

Indeed, if state policymakers wanted to ensure the state would get more graduates from university appropriations, it would subsidize the students instead of the institutions. A tuition grant to Michigan students that included incentives to graduate would be a much more effective way of getting more college graduates in the state.

However, policymakers should first question whether more graduates should be a state policy goal, given that this has not meant more growth for a state.

Taxpayers have little to show for the billions that past politicians have spent on state universities. Today's legislators should be skeptical about spending more.