Thursday, July 30, 2009

Positional Externalities strike again

They happen in education, they happen in luxury consumption, they happen in military readiness and technology, and now... they happen in little league!

Positional externalities is the "keeping up with the Joneses" effect. Everyone needs to build a bigger and bigger house (or nuclear arsenal) if their neighbors are doing it, though making your house/arsenal bigger doesn't improve your status in the neighborhood/world because everyone else is doing it.

Similarly, in education, if lots of people get HS diplomas, you need a bachelor's degree to stand out. If everyone then goes and gets a bachelor's, you need a master's to stand out. Education's great and all, but there's a massive opportunity cost in time and money when you start talking post-grad degrees, and when everyone spends lots of money and time and at a certain point, we have too many master's degrees relative to our need for people with them.

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