Will Caitlin get a better college education at Oberlin or Concordia? Should Johnny try for an Ivy League school or take the badminton scholarship from Podunk State? Is the business climate better in North Dakota or South Dakota? Are conditions for high-tech business growth better in Minnesota or northern Virginia?
Who knows the answer to these questions? I don’t, and I doubt any other economist does. But human nature is such that news stories ranking anything, be it liberal arts colleges, “competitiveness,” social justice or quality of life, are perennially popular with readers.
But do such rankings really provide valuable information? Should household decisions, such as where to live or to which college the children should apply, be based on some ranking in a weekly magazine? Should business owners use ratings or rankings in deciding where to build a new plant or open a new sales office? And should legislators take this information into account when hammering out education budgets or business taxes?
The simple answer is yes, but not too much. If economists have gained any important insight in the last 20 years, it is that information is usually scarce and frequently valuable. Poor information is a much more frequent reason why markets fail than the old bugaboo of monopoly power. So more information is usually good.
But as military intelligence analysts know, not all information is equally reliable. Separating useful knowledge from chaff or noise is not always simple.
U.S. News and World Report has turned the ranking of colleges into a cottage industry. The annual college review issue, due out in September, is to U.S. News as the swimsuit issue is to Sports Illustrated. Both sell more copies and bring in more ad revenue than any other.
But an article in the September Washington Monthly by the former research director at U.S. News says that the criteria that U.S. News uses to rank colleges “defies common sense” and is misleading.
Amy Graham, who supervised the college ranking project for two years, says the U.S. News tabulation “pays scant attention to measures of learning or good educational practice.” The ratings primarily reflect a school’s wealth, reputation among administrators and the SAT scores of the students it admits. The level of a college’s alumni donations, for example, carries a large weight in the magazine’s formula.
Here in Minnesota, there was a flurry of attention two years ago when the Milken Institute, based in California, ranked the San Jose area as the nation’s best area for high-tech firms. The Minneapolis-St. Paul area was far down the list. University leaders and state officials engaged in a lot of breast-beating about the economic future of the region.
A few weeks ago, a similar study at the University’s Humphrey Institute, using different criteria, concluded that Minnesota ranked much higher in high-tech industry, and it argued that things are hunky-dory.
Last fall, the Chicago Federal Reserve looked at different studies of the Midwest and Michigan. One industry group study, focusing on electronics, ranked the two near the bottom. Another, sponsored by two Michigan institutions, put that state and the Midwest much closer to the top.
What can we learn from this controversy?
First of all, take any study with several grains of salt. Ask questions. Does the sponsoring group have an ax to grind? Minnesota business groups have repeatedly found that South Dakota has a more favorable “business climate” than Minnesota, largely because of lower taxes. But Minnesota’s economy, employment and family income continue to climb faster than that of our neighbor to the west.
Read the small print until it is clear which criteria received which weight. If a college has a low student-to-faculty ratio, it may mean that your child will have more direct contact with teachers than at another school. But a high level of alumni donations might only reflect that this school traditionally has catered to wealthy people. It may not have any better instruction than a state school or one that depends on money from a religious denomination.
Think about factors not mentioned in the ratings study that logically might be important. Studies by environmental groups criticized George W. Bush’s environmental policies because Texas firms emit more pollutants than those in other states. But Texas is also home to much of the country’s refining and petrochemical capacity.
Studies that rank different schools, metropolitan areas or states can provide useful information. But decision makers in households, companies and governments should use these rankings carefully and not ignore other sources of information that may be more relevant.
© 2001 Edward Lotterman
Chanarambie Consulting, Inc.