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Why Education Is the Next Economic Bubble

Here we go again. A recent New York Times op-ed points out that even as Americans can't pay their bills, struggle to find work, and live in cities too poor to light the streets, American colleges and universities are raising tuition and launching huge expansion plans.

I'm calling it the education bubble.

What's caused this bubble? Companies that are lousy at predicting who will be good at their job. In many cases, we rely on brand association to do the critical thinking for us. "You went to what college? You have what degree? Oh, then you can do this job." Or even "You should be fast-tracked to senior management." When the person fails to do the job, we tell our bosses how surprised we are because of where he or she went to school.

The same manager, when feeling overlooked for a promotion, obtains "proof" that he or she has what it takes by paying for one of the "right" graduate degrees from one of the "right" schools. (In fairness, some of the rise in tuition is coming from underfunded state schools needing to raise money, but the big privates, awash in cash, are joining in.)

Like all bubbles, this one has an "emperor has no clothes" element to it. In the real estate bubble, it was heresy to say, "This situation is nuts, and I'm not participating anymore!" But as soon as enough people started to think it, then whisper it, and finally to yell it from the roofs of their overpriced houses, the painful return to reality could begin.

In the education bubble, we think that we or our families are at a disadvantage if we don't play this game of chasing education brand affiliations (i.e., degrees and schools). As a result, Americans are lining up to pay the increased tuition for private undergraduate or graduate education. After all, isn't education the best investment? Sure, it is: but only if companies are discriminating buyers instead of brand-chasers. As long as hiring managers are as enchanted by the educational brands as the rest of us, the bubble will grow.

So what do we do about this bubble?

Managers at companies need to create a new obsession: finding and unleashing talent and passion in positions uniquely created for individuals. This approach needs to replace the current method many companies use: "Hire 10 Ivy League MBAs, and we'll see who survives the first year."

In many cases, the most brilliant people don't have the "right" educational brand affiliations but, in the end, make better leaders because they don't feel entitled. It's hard work to find individuals with talent and drive, because they don't wear T-shirts emblazoned with "Great Potential Employee" -- or even, in many cases, with the name of a top university.

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