Josh points out that many folks in DC highly prize a PhD as it serves to separate individuals from the masses--those who may have been more willing to spend half a decade or more to fulfill the
Dan has probably faced way too many folks who seek graduate degrees as stamps on their list of qualifications rather than the pursuit of knowledge. An MA is a professional degree for the policy-maker but most PhDs are not that. They require patience, analytical rigor, the ability to think theoretically, to be open to criticism, and so on. So, he has seen those who are in it just for the stamp flounder and fail. Josh has seen too many people who have an extra credential that does not really give them extra qualification.
The problem is that both are right--the system is gamed to provide incentives for folks who otherwise would not want to spend a few years developing skills and then applying them to a particular question while facing a barrage of criticism along the way to go through this experience. So, we get people who should not be pursuing PhDs doing so because the particular job market makes it seem logical.
This should not be all that new to us--we who study politics often see incentives that lead to sub-optimal behavior, whether we are game theorists or not. Job markets are not efficient in these areas. As I have blogged before, even where there are huge amounts of dollars at risk and significant amounts of expertise deployed to discern quality in the hiring process, mistakes are made all the time. If NFL teams often make poor choices, it should not be surprising that policy employers (think tanks, lobbyists, whoever else exists in a national capital to affect public policy) rely on inexpensive (for them) but unreliable shortcuts for sorting job candidates, such as the PhD merit badge.
So, I really do not see Dan and Josh being in disagreement. They just exist and work in different parts of the process and see the dysfunctions from different angles.