“Is there an MBA bubble?” (the cost of education part 6)

Continuing this belabored series on the costs of an MBA and “is it worth it”: here’s an important consideration (or not) for all you Brave Supplicants that’s been bandied about in the hallowed halls of academia of late:

Is there a bubble in bschool education?  (blog post on Harvard Business Review from Professor Michael Ryall at Rotman in Toronto)

Besides the disturbing admission in that blog post that the professor did not know the cost of an MBA at the school where he teaches, it otherwise raises some interesting points about the actual education you get from an MBA these days. (We completely discount his mention of two graduates working in “low-skill jobs” — c’mon, this is Rotman. And Canada. No offense Prof Ryall — or perhaps that’s exactly his point…?) The main argument: there may be a bubble in MBA tuition, and if there’s a bubble, it implies that the bubble will burst.

We’re not economists so we don’t claim to fully understand bubbles and all, but wouldn’t that be a good thing?

The bubble bursting in MBA education would happen when there’s LESS DEMAND. Meaning, less of you Brave Supplicants going for the golden ring of the Harvards/Stanfords/Whartons of the world. But that is highly unlikely, in our uneducated opinion.

For one, those three schools have made no indications they are going to increase enrollment. They’ve all maintained — or even REDUCED — enrollment over recent years. They are not launching new programs for new tracks of MBA (or EMBA, in the case of Wharton) students. So they are not contributing to oversupply, and, as the elite of the elite, it’s unlikely that they will have trouble filling their classrooms each year. Harvard has been getting more applications each year, bumping it to almost 10,000 apps in the 2009-’01 admissions season (data from last year is not yet available). It would take a really dramatic decrease in applications before they’d start to have any trouble with finding well-qualified candidates. People want to go to Harvard. It is highly likely they will be able to maintain the price of their education just where it is.

And, employers value the Harvard MBA. This is unlikely to change. As long as graduates get $100k+ jobs coming out of HBS — which they did even in the trough of the recession (2009) — the school can justify a $150k tuition or whatever it costs when you show up on campus (remember that the numbers reported by most schools are PER YEAR, or in actually, PER NINE MONTHS, since they don’t count the three months during the summer where you’re off on your internship).

Stanford’s Dean Garth Saloner responded to this talk about “bubbles” (both bschool ones and tech ones) in an interview with The Economist. He’s not worried. He’s saying basically what we’re saying here.

OK fine. So we’ve established that the cream of the crop will survive unscathed from any possible downturn in the market for Brave Supplicants. (The ones at the top pretty much always do though don’t they?)

Apparently a whole book has been written on the bschool bubble. Rethinking the MBA. We haven’t read it. It’s by two Harvard guys. Our impression is that they’re saying that demand for the MBA from a lower-tiered school (anything other than the top 15) has fallen, and a “rebalancing” must occur. That doesn’t sound like a “bubble” to us but whatever. Apparently they say that more demand for the best-of-the-best and less demand for the lower tier is bad (??). But isn’t that just how any free market for goods and services is supposed to work? Clearly we do not understand.

Another reason we’re not concerned about this is that book was WRITTEN in the throes of the recession. The book was PUBLISHED in May 2010. They started their research in 2008, when things were not fully shaken out yet, and likely did the bulk of it in 2009, when things were really bad, and when the whole world was reeling. At the time, most everyone thought that things would have to change. That the status quo was upended and there would be reform and new morals etc.

That has not happened. It’s back to business as usual on Wall St. They’re hiring. Recruiters are recruiting. IPOs and deals are in full swing. Bonuses are in the stratosphere again. There are no disincentives to pursuing one of these plum jobs. They pay well. There will be plenty of Brave Supplicants to go around. The machine has recovered and is grinding away again.

We end this post more than a little confused. Are these people really talking about a bubble? And what is a bubble in the context of bschool education? Does it mean that tuition is too high (per Professor Ryall) or that there’s “too much” demand (whatever that means) for the schools at the top of the food chain (our crude attempt at stating the supposed premise of the Rethinking book)? Or something about the quality of the education (which we don’t think has anything to do with “bubbles” per se)?

It could just be that the media is enamored with the idea of “bubbles” and is looking for them where they might not exist (or calling some other worrisome phenomenon “a bubble” because it’s convenient).

What do you think?

PART 7 POSTED HERE