I agree with you that there is a market for talent, but I wouldn't call it a free market. I've seen it first hand. I was (briefly) a PhD student at UC Berkele

I agree with you that there is a market for talent, but I wouldn't call it a free market. I've seen it first hand. I was (briefly) a PhD student at UC Berkeley, and I left with a MS. Quickly, I was earning low six figures with stock options to write software that did optimization (linear/nonlinear programming) for a startup. A buddy of mine at Berkeley did the same thing for a professor as a research associate for about 15K a year. The difference? Well, of course he may be passionate about research, I can't rule that out. But you can't discount the visa factor: I have citizenship, and he doesn't (or at least didn't at the time). Maybe he could have left with an MS and still gotten a work visa, but would he have wanted to risk that on a startup? His options are simply more limited. I also heard (sorry, no cite) that UCSF took a hard look at its own PhD programs in response to very long completion times, and concluded that some of these 7 or 8 year PhD candidates were almost certainly being held an additional year because it's very difficult to find someone of that skill level to staff your lab. I suppose a US citizen could finally get fed up and leave - but keep in mind that US citizens actually have turned away from these programs in droves. While the mainstream explanation for this is poor science education in American secondary schools, a RAND study concluded that americans are avoiding PhD programs in the sciences largely because of excessively long training programs, poor job prospects, and low pay relative to the "professions" (MBA, JD, MD, DDS, etc...) I think that if PhD programs truly had to compete in a "free market", the current system would collapse. Right now, I think they have managed to avoid change largely because international students are willing to put up with a lot to get a visa, and the professional schools aren't as accessible if you aren't already a US citizen, so they still have takers.