Inflation Part 1 - A Rant

Inflation's become a buzz word recently, especially in the context of economics. With interest rates hovering around zero, inflation is rearing its ugly head. Central banks, the IMF, and investors around the world are scared at what many see to be an inevitable period of hyperinflation, when prices will skyrocket for both consumer and industrial goods.

There are many reasons that inflation troubles anyone who has to deal with money (which includes you if you’ve ever bought, sold, lent or borrowed anything in your life). Inflation, in its simplest form, is defined as an increase in prices (or put another way, a decrease in the value of currency). Two of the key problems with inflation are that it causes devaluation of money and that it creates financial instability in markets, because it becomes difficult to value things, as one has to account for an often unobserved level of inflation.

Inflation is hardly a problem isolated to finance. It is just as pressing, and nearly as concerning, a problem for our education systems, where grades are being inflated constantly. Just as with money, when grades are inflated it devalues them.

How bad is it?
To see how bad the problem really is, I performed an analysis of how bad the problem really is at Dartmouth, my alma mater, which places the median grades for all courses online (see: Median Grades at Dartmouth). Out of 450 classes analyzed the unweighted average was 3.33 and the average weighted by class size was 3.18. This problem is seen in further light when you note that out of 450 classes, 268 of them (i.e. over half) had A- medians or higher, with 48 (10.6% of the total) having A medians.

Consequences
Because grade inflation is so common, employers, who often lack the time to do an in-depth analysis of grades, may simply ignore the grade that a student has worked hard to earn, even if the student’s school does not grade inflate. This is especially hurtful to students graduating from non top-tier institutions, as employers assume that the institution is inflating grades, so an A from that institution will mean nothing. Hence, a student graduating from a good state school with excellent grades may be passed over in favor of a Stanford graduate, as the employer is unable to compare grades and must resort to using educational pedigrees in discriminating who to hire.

While graduate schools are often more savvy in terms of separating good students from bad, they too find it difficult to separate between a “good A” and an “excellent A.”

A Final Word
It is interesting that we are so concerned about inflation in economics as it hurts our investments, and yet, we are so unconcerned and unwilling to act on protecting our grades from devaluation. Those same grades, which we have spent hundreds of hours of studying for, tens of thousands of dollars investing in, and nearly two decades of in school, to obtain. A significant investment, indeed, but not one protected from the devaluating effects of education.