Comment by yummyfajitas | Hacker News Reader

Comment by yummyfajitas | Hacker News Reader

One possible way to mitigate this problem is a Pigouvian tax on signalling (perhaps compensated for by a reduction in income tax).

Signalling is a lot like standing up at a baseball game. It gives you a great view, at the cost of having your legs get tired. Once everyone else starts doing it, your view is no better than before, and everyone is a little more tired than before. But no one can sit down, because they don't get to see the game.

A tax on signalling might reduce the benefits and thereby reduce the amount of resources wasted. Additionally, the people who don't engage in signalling would enjoy reduced taxes.

To begin, I'd propose an education tax, since education seems to be our nation's most expensive form of signalling. You want an education? Fine, but be prepared to pay an extra $5-10k/college year to compensate the people who don't get a job as a result of the degree inflation you cause.

(Obviously, ending subsidies for higher education would also be a good start.)

The problem with a fixed cost is for plenty of poeple an extra 10k/year is meaningless but for others it's a huge deal. A possibly better approach would be a 1% increase in your income tax (for life) if you get a Masters/MBA/etc. The net effect is similar (3 mil lifetime earnings = 30k in extra tax). But it scales with income so it attacks the value of signaling.

The harm to society is also fixed, so charging a % of profits is a strange way to tax. Think of degree inflation as being a form of pollution.

Now think directly about pollution taxes. Emitting 1kg of pollution to create an iPod is not a bad thing - iPods are more valuable than having 1kg less pollution in the air. Emitting 1kg of pollution to make a sandwich is bad, however, since the value of a sandwich is much lower than 1kg less pollution. The end goal is to pollute only while making iPods, not sandwiches.

Charging as a % of profits or revenues would not create this incentive.

Similarly, the goal of an education tax is to create a disincentive for acquiring a degree for people who won't gain a lot from the degree.

"The end goal is to pollute only while making iPods, not sandwiches."

Actually, the end goal would be to reduce the total amount of pollution.

Why?

Pollution has a cost and production has a benefit. If $BENEFIT - $COST > 0, we want more pollution.

The problem is that since pollution is an external cost, the producer/consumer has no incentive to accurately make this calculation. As long as $BENEFIT > 0, the producer/consumer will pollute, and society will pay $COST.

The point of the Pigouvian tax is to give the producer/consumer an incentive to make this calculation correctly, and to compensate the rest of society for the costs they impose.

"The harm to society is also fixed". No it scales with the amount of productivity lost during that time period. A football player that get's a masters before going to the NFL has a greater cost and a lower benefit than a teacher that get's a masters before teaching high-school English.

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