Education & inflation

Like several economists, I've been sceptical about the effect of better education upon macroeconomic performance. But could this be because  we've been looking in the wrong place? We've been looking for an impact upon GDP growth, when in fact education, in aggregate, pays off by reducing inflation.
That's the claim in this new paper. It claims there are four reasons why a better educated population should lead to lower inflation:
1. Smart people are better at shopping around, so firms are less able to raise prices.
2. Educated people are less likely to suffer from money illusion, so governments and central banks have less incentive and ability to boost growth in the short-term by springing inflationary surprises upon people.
3. Educated people are more likely to understand that inflation does no good, and thus to tolerate the short-run paid associated with anti-inflationary policies.
4. Educated people are more likely to be net creditors (either because of their higher wealth* or because they have longer time horizons and so save more), and creditors hate inflation more than debtors.
Granted, the empirical evidence isn't knock-out; the human capital stock (which is a bugger to measure) seems to Granger-cause lower inflation across a big sample of countries, and in poorer countries, but not in richer ones alone. But it doesn't disconfirm the theory.
And because inflation imposes serious welfare costs, this suggests increased schooling might have worthwhile macroeconomic effects after all.
Just one unworthy question, though: is it education that reduces inflation or IQ?
* This is quite consistent with education not increasing aggregate wealth, if education equips an individual to be a better rent-seeker rather than a genuinely productive citizen.

Comments

[Jez]

I was about to post a whole load of relevant theory but this is more valid: If there's ever a breakthrough on inflation it is likely to be discovered by someone with an education. :)

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Does it make any difference what the people are educated in?

[BGC]

I got diverted by the 'sceptical' link which contained some treasures.

The more I look into it, the more it seems that the most parsimonious explanation of educational differentials in modernizing societies is that both education and signalling are less important than we realize; and that IQ is the major factor with personality/ temperament as an important secondary factor.

To parody, IQ and temperament are destiny (with a high IQ and a conscientious temperament being optimal on average for both status and income). Several longitudinal IQ studies have shown near-perfect social mobility wrt IQ (ie. poor kids with IQ rise to the level predicted by their IQ; rich kinds with low IQ fall).

The picture is modified by the fact that IQ is substantially inherited, and that there are big average IQ differences between social classes.

IQ and temperament predict educational attainment - however, of course, educational credentials are also vital, and add noise to this correlation (no matter how clever and hardworking you are, you can't be a doctor without a degree - but you could still become an entrepreneur).

In the long term, as psychometric testing improves or is all-but replaced by genetic testing - and when the relatively modest effects of education become established - it may be that the amount of time spent in full time education will begin to diminish, and will become much more focused.

[Matt Munro]

Could someone explain what a "rent seeker" is in words of one sylabble ?

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