An Interesting Thought on State Universities

Some interestingly counter-intuitive thoughts on the UC student protests against rising tuition from David Henderson of EconLog:

Taxpayer funding of higher education is a forced transfer to the relatively wealthy

Socialist author Robert Kuttner once called Proposition 13, California’s 1978 property-tax-cut initiative, the revolt of the haves. The latest opposition by UC students to a 32% increase in tuition is a revolt of the “will-haves.”

Milton Friedman used to remark that the California government, with its state funding of higher education, taxed the residents of Watts to pay for the residents of Beverly Hills. I think Friedman exaggerated substantially. Even though the California’s tax system relies heavily on sales taxes, which probably makes the state tax system on net somewhat regressive, it’s still the case that a given Beverly Hills family pays much more in taxes than a given family in Watts. But Friedman also focused on family income of the student, and that’s misleading.

What Friedman could have said, and Armen Alchian did say in a classic 1968 article, is that state subsidies to higher education are a subsidy to the relatively rich.

I don’t have strong opinions on this particular instance one way or the other (though with the state of California being close to bankruptcy, I don’t see but what they have much choice to get more of the cost of running the UCs from the students) but it does strike me as interesting that providing more subsidies for college level education is often seen as a way of helping the poor and working class. The idea is, of course, that they don’t have much money to go to college, so subsidies will allow them to go when they otherwise couldn’t, and thus to improve their financial condition later in life.

The potential issue with this, as I see it, is that given that only 40% of those in the US earn a college degree, and given that those with college degrees earn a good deal more (on average) than those without, taxing everyone in order to help those who are able to graduate from college to do so with less personal debt is essentially a wealth transfer from everyone to the people who will make up the top 40% (roughly) in incomes in the long run anyway. So while there are lots of deserving people from low income backgrounds who would benefit from lower college costs, most of the time it would turn out that:

a) If they go to college and do well, they’ll make much more money in the long run, and thus be in a position to pay off college debts themselves.


b) If they aren’t actually able to do well in college, luring them in with lots of encouragement and cheap tuition won’t actually achieve much other than landing them with a sense of failure and a costly delay on getting on to doing work which they would be good at.

So while as a “give everyone a chance to succeed” kind of guy, I certainly want to see everyone who needs it get the chance to go to college — I’m also fairly comfortable with people financing their college educations through student loans, since they are, after all, the ones likely to reap significant earnings benefits from having gone to college.

The alternative, human side to all this, of course, is the plight of those who take out a lot of loans to go to college and then find, for whatever reason, that they don’t make very much. The question would seem to be: is this group large enough and/or problematic enough for it to be worth while for society to heavily subsidize university tuition at public colleges, or not?

5 Responses to An Interesting Thought on State Universities

  1. Blackadder says:

    Henderson’s point isn’t limited to state funding of higher education (although this is a clear example). Lots of programs that are ostensibly about helping the less well off are in fact regressive. Social Security, for example, is funded through non-progressive payroll taxes. Since the rich tends to live longer and start work later, the net result of this is that the rich receive a proportionately greater benefit from Social Security, and pay a proportionately lower cost. I believe the same is true for Medicare, although the case is somewhat murkier.

  2. Ryan Haber says:

    Hilaire Belloc writes something to this extent in “The Servile State.” Capitalism, he believes, is not good. Socialism, he believes, is no better. Capitalism “mitigated” by socialism will be a nightmare. He reasons that the clever will be able to wile through the system and take advantage of it, whereas the dense or otherwise disadvantaged will be unable to keep up with its complexities. Moreover, as they get ensnared and ground up by the capitalist system, the safety nets that “save them” will only entangle them further, and lead ultimately to a situation where many of them will be permanently or indefinitely on the bottom, working for the benefit of those on top.

  3. Art Deco says:

    The problem is dismounting from the tiger:

    1. Secondary education, which was once fairly rigorous in metropolitan areas, has been allowed to rot (read Thomas Sowell on the quality of instruction he received at a certain high school in Harlem ca. 1946 and the quality his niece received there just 12 years later);

    2. The labor market relies on gradations of extent and selectivity of higher education as indicators of generally desirable qualities for employment;

    3. Vested interests prevent improvement of primary or secondary education;

    4. Vested interests prevent alternatives to higher education as indicators of desirability (case law on ‘equal employment opportunity’ effectively prohibits written examinations for employment;

    5. Absent ready alternatives to higher education as an indicators, later cohorts will be at a disadvantage to earlier cohorts in the labor market as higher education contracts;

    Optimally, nearly all educational institutions would be incorporated philanthropies whose trustees were elected by locally resident alumni; public higher education would be limited to training academies for the military, police, and civil service; public primary education would be limited to schools for incorrigibles run by sheriffs’ departments; and public secondary education would not exist. Primary and secondary education would be financed by state-issued vouchers and private donations (not tuition) and higher education would be by tuition and private donations, and nothing else. Enough of the edifice of ‘civil rights law’ would be demolished to permit employment examinations. Most people would begin their adult work life at 19.

    And we will never get to there from here. Too many people’s careers are bound up with the craptastic system we have now. Our president wants to make it possible for ‘everyone’ to go to college (so we can push the onset of adult life from 23 to 26? Argh).

  4. Art,

    I agree that there’s really no changing the percentage of people who go (or try to go) to college at this point, even though that would arguably be a good thing all around.

    It does, however, stike me that it might be appropriate to expect public universities to get the vast majority (if not all) their funding from tuition, donations, and their endowment rather than from the state budget. If that meant raising tuition enough that graduates ended up with more student debt, that would seem like a relatively fair loan against one’s future.

  5. Micha Elyi says:

    …it might be appropriate to expect public universities to get the vast majority (if not all) their funding from tuition, donations, and their endowment rather than from the state budget.–Darwin Catholic

    And after a reform like that, what would make what you’re calling “public universities” different from other universities open to the public – other than meddling by politicians?

    Privatize the lot of ’em. Silicon Valley owes more to private Stanford University than to the five political appointee-operated universities elsewhere in the Bay Area – 2 UC and 3 CSU campuses – combined. The private, operated “in the Jesuit tradition” University of Santa Clara has also punched above its weight in supplying top Silicon Valley talent.

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