Should we subsidize higher education?

 

It is remarkable that most of the debates we have in today’s society are but constant echoes of our past. We have become the proverbial hamster running in a wheel. The same issue of whether to subsidize higher education was alive and well in this 1985 video that I viewed today courtesy of the American Enterprise Institute in which Milton Friedman has a conversation with students and continues to pose the simple questions to them of, “How do we justify the education welfare state? Why should I be forced to pay for your college education?” I appreciate how Friedman turns this pointedly into an issue of whether we should have welfare for students, dispensing with euphemisms such as “society should support higher education” and turning this into a debate about whether we think it is appropriate to have such a regressive form of wealth redistribution from low income to middle class and wealthy individuals. He pointedly asks the question of if this logic applies to education, why does it not apply to welfare transfers to those that start businesses irrespective of their income level? What is it about education that it requires income transfers from largely lower classes to the current or future upper echelons of society? Friedman makes this point in the video when he states that, “there is no other governmental program that so clearly takes from the low income groups and transfers it to high income groups as education.” When challenged by one of the students that society desires broad education as a goal, Friedman’s retort is a masterfully succinct, “societies don’t have goals, people have goals.” The implicit and unanswered question is why should we be forced to subsidize the individual student’s goals and future income?

Fast forward to the current day, I think Friedman could have accurately predicted today’s higher education malaise – tuition rising much faster than income or inflation growth, bloated administrations, colleges that constantly clamor for more funds while simultaneously  binge-building, unaccountable and tenured faculty that focuses more on research and publication than teaching, misaligned and misallocated resources that fail to connect to economic outcomes of the degree and so on. This is the predictable outcome of heavy government subsidization and regulatory involvement as seen in other rapid increase cost decoupled from quality outcomes industries such as healthcare that also have their fair share of government intrusion. Thus, the primary challenge of the rush by the Bernie Sanders crowd to fund college education as “free” for everyone is the simple fact that this doubles down and exacerbates the challenges – colleges would in turn have no incentive to focus on innovation, the needs of consumers, the creation of programs that align to the economy at large, and perhaps most perniciously, devaluing higher education entirely. To borrow a line from the villain Syndrome in The Incredibles, “when everyone’s super, no one will be.” In other words, mass production and a sharp increase in the supply of college graduates due to obfuscation of the pricing mechanism of higher education will only serve to muddle and devalue a college education at large, and the result will be those that still want to send a signal to the market of their higher worth relative to everyone else will still be willing to shell out more money for masters degrees, doctorates, and other forms of specialized training. We will have created a system full of more challenges that is further away from the moderating influence of market signals and fueled more cost increases while doing nothing truly in the name of equal access – which is a utopian and unfulfillable fantasy.

As an aside, one neat component of this clip is a young David Brooks, now a fairly moderate voice of reason at the New York Times. I hope you enjoy the video, if for nothing else, Friedman’s manner of speaking and his mannerisms always give me a chuckle.

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5 thoughts on “Should we subsidize higher education?

  1. I wouldn’t have been the ideal college graduate. Art school, evenings, was more appropriate. In Germany there’s trade school for those without an academic ability. But affordability is no criteria either. Legacy admissions and wealth privileges perpetuate an inequity in a nation founded on a premise of freedom and equality? Worse still is the idea that higher education is essentially a “jobs program”.

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    1. The challenge in America has been the narrowness of a college degree being a singular path to the middle class. I would love to see a greater proliferation of diverse models and paths like you describe. It may take some time, but I do think massive open online courses will help change things at the margins.

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  2. what I would love to know is why Milton Friedman is not debating this with people of his caliber and experience. This is an asymmetric and biased debate. The debate is simple, would you rather have a society filled with poor ignorant people or poor educated people? I sure rather be among educated people even at a cost. He is basically mocking these ‘kids’ for their lack of experience and knowledge. I would like to see how he would his argument would have done against someone with his experience and knowledge.

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    1. In fairness to Milton Friedman, he spent a tremendous amount of time putting himself out there on national television doing just what you described – debating people on PBS and holding court at the University of Chicago debating government officials, other economists, business leaders, and journalists on his theories. Given that, I would give him credit for taking the time to spend debating students, after all, by 1985 he had achieved essentially celebrity status in the U.S.

      And the debate is not as simple as you describe. You are making the giant leap to assume that if the government (or in direct terms, us the taxpayers) did not subsidize higher education that it would somehow vanish, as if the free market would not see value in the creation of knowledge and be interested in investing in that knowledge. There is a cost for everything, and the government subsidizing is no different. Take into consideration of the opportunity costs of those dollars currently being used and what the possibilities are of giving them back to the taxpayer and the individual choices and expenditures individuals would make. Perhaps some would love to spend it on education, but perhaps others would prefer to invest it in a viable business that creates jobs. Why is it appropriate for the government to create a regressive tax to fund education? How do you answer the charge that Friedman makes that this is a tremendously regressive form of wealth redistribution? Should not the direct beneficiaries of a college degree pay for it either outright in the form of loan payback that is not subsidized of through more innovative models such as an investor taking an equity stake in your future income?

      A similar fallacious argument that government has to be involved in education or demand will somehow vanish is just as falsely made with housing and food, as if we must have home ownership or domestic agriculture to thrive and that the government must in turn expropriate money from taxpayers to redistribute it to those that consume education, housing, or that produce food. I am certain that if the government completely removed themselves from subsidizing student loans, that there would be plenty of innovative options on hand from the private market to fund those that are willing and ambitious enough to attend college. Such a world would have the benefit of forcing individuals to evaluate their options, take into consideration the actual costs, and apply it with the Return on Investment in mind. Since government grants are not on hand for graduate courses and doctorates, this is the calculation thousands of people make to improve their knowledge capital without government involvement. Is a B.S. special that it is singled out for government subsidization? Private lenders and charitable institutions that are no longer crowded out by the government’s low cost of capital (obtained on the moral hazard that they can always fleece the taxpayer in the event of a bind) would be able to fund education. This model would have the added benefit of not fueling a bubble that bursts leaving the taxpayers to pick up the tab ala Fannie and Freddie Mac.

      I anticipate that the next market bubble to burst will be coming waves of student loan defaults based upon the artificial demand generated, the impact of moral hazards, and the obfuscation of the pricing and cost signal from the return on investment.

      On GM, I doubt Friedman would have supported in any way bailing out a car company to serve Auto Union interests while sticking losses to creditors. The whole point of a free market is the creative destructive process in which companies that fail to use their assets effectively give way to those that will. A government picking winners and losers arbitrarily and using taxpayer dollars to do so is the antithesis of the Friedman creed.

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