Another Perspective

Six Degrees of Preparation

The degree glut calls for the taxation of students, not more spending.

By 3.24.08

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Little fuss has been made about the Democratic presidential candidates' views on higher education spending. The Higher Education and Lifetime Learning Act -- proposed last year by Democrats Evan Bayh and Rahm Emanuel and now mired in Congressional committees with other pieces of political profligacy -- is a helpful harbinger of their agenda.

Under the Act, an additional $1,000 tax break would be given to college students. Clinton and Obama strongly support these measures, even though the federal government already spends around $68 billion on education every year (more than inheritance and gift taxes put together), including close to $20 billion on post-secondary education.

Education is a "motherhood" area, like health, where sensible analysis is difficult and moral outrage is easy. After all, who doesn't want our kids to get a good education?

But whether policies affect inquisitive "youth" or endearing children, public spending requires sober analysis. Such analysis, however, is generally not to the liking of the indiscriminately-caring, who like to foist the cost of their pet projects on others.

In fact, economic arguments for additional education spending are hard to make. Rather, a total withdrawal of federal subsidies and a tax on college students may be the best way forward.

THE OLD ARGUMENT for spending public money on education goes back to Adam Smith, who noted in 1776 that "the state derives no inconsiderable advantage from educating the common people." Left to their own devices, people would not get enough schooling. Even Milton Friedman conceded that in a "stable and democratic society ... a minimum degree of literacy and knowledge" might leave a role for government.

A literate, numerate, and civic-minded population will yield a public dividend of lower crime rates, enhanced democratic participation, and higher labor productivity. Indeed, since Smith's time state subsidy and compulsion of education has helped pull the vast bulk of society from inert ignorance to 99 percent literacy in the U.S. today, up from around 50 percent at Independence.

However, private incentives to read and write have strengthened considerably since mandatory education was imposed in the U.S. in the mid-19th century, even among the poor. Back then, the state interfered with poor parents' desire to send their skinny children to work. Today it is difficult to succeed at the supermarket, let alone find a job, without basic literacy.

I doubt whether all today's "poor" parents would avoid educating their obese children if government did not insist, especially if income taxes extracted from the working classes were cut by an amount equal to total federal and state education spending, about $600 billion, or $13,000 annually for each of the poorest 40 percent of U.S. households -- child or no child.

Nevertheless, for children of the very poor or very careless, state compulsion and provision of basic education remains necessary even today, if only to ensure the truly brilliant among us are not hampered by an unfortunate birth. Smith's and Friedman's arguments carry weight for primary and secondary education.

BUT DOES THE OLD public benefit argument apply equally to college education? In my experience, university students fall into two broad camps, the studious and the typical. The former go to increase their own earning potential and study diligently, often in vocational fields like law, medicine, engineering, or accounting. They don't need any subsidy. The latter go to enjoy themselves and delay finding a job, often stumbling through alcohol-fueled semesters in search of the next party or conquest, and reading the occasional book on the side.

Maybe the studious deserve a subsidy for their determined efforts and higher future tax payments. But frankly, where is the public benefit of middle and upper-class children writing their desultory, unoriginal thoughts down twice a term, and drinking themselves silly for four years (and let's not kid ourselves about the demographic whose children make up the bulk of typical college enrollments)? The only public dividend these students provide flows directly from alcohol and nightclub companies to private stockholders. Yet public money is poured into the education and maintenance of both.

But this analysis surely neglects the intangible benefits of a less vocational college experience. After all, college years offer the chance to become self-aware, to experience diversity and engage, to be empowered, and learn how to use a library. Can we value these benefits?

It's difficult, but we can easily value the costs. Having the equivalent of Australia's entire labor force, around 11 million American adults, idle on college campuses around the country, "studying" subjects of dubious vocational merit at public expense, results in significant waste.

The U.S.'s 146 million-strong labor force generates almost $8 trillion of income every year. We could theoretically increase U.S. annual income by up to $600 billion dollars (Australia's approximate annual income) by transferring idle college students into the workforce.

To be fair, this is illustrative and extreme; only about 60 per cent of bachelors degrees and half of masters degrees are vocationally useless. You might find this lenient, and I encourage you to visit Tables 254 and 255 of the Department of Education's annual Digest of Education Statistics and construct your own proportions.

Of course, college attendance entails not only lost income, but forgone tax revenue. If six million full-time U.S. students were working rather than studying, on $40,000 a year income and a total average tax rate of 30 percent, U.S. governments would gather an extra $72 billion a year in tax in the short-run, enough to fund the entire Departments of Justice, the Interior, Commerce, and Energy.

Reasonable people can quibble with my exact figures, but not the general message: Having an enormous full-time college population has significant economic costs in terms of forgone national income and tax revenue, in fact far greater than the accounting cost of subsidizing the costly pursuits in the first place.

ACADEMIC TRADITIONALISTS might take issue with my apparent disdain for non-vocational fields, such as classics, history and philosophy. But far from heralding their demise, a withdrawal of public subsidies would reduce enrollment in these fields, leaving only the keen and bright. Academic standards would recover, and their pejorative, public dismissal as "soft-options" would fade.

Of more concern is the rapid growth of trendy, inherently useless fields, for which a cut in subsidies may prove fatal. The fastest growing majors for both bachelors and masters degrees are gender studies, communication studies, visual and performing arts, and fitness studies, all up by around 25 percent since 2000.

Is it fair to question whether some disciplines are more deserving of public money? Well, let's take gender studies. Recent publications in the field include "Negotiating Anal Intercourse in Inter-Racial Gay Relationships in Hong Kong," and "Beyond the Vagina-Clitoris Debate -- from Naming the Genitals to Reclaiming the Woman's Body," appearing respectively, for your reference, in scholarly journals Sexualities and Women's Studies International Forum. Hardly topics to be sniffed at, and doubtless deserving of funding, but public funding?

In others words, should we use the coercive powers of the state to take individuals' property to fund research into location-specific intercourse, of any sort, or to deconstruct the apparently raging vagina-clitoris debate? One might also question the utility of fitness studies, whose popularity has been matched by obesity itself.

SO WHY, THEN, if much college education is useless, do so many still attend? Including masters and PhD students, close to 18 million students attend college in the U.S., and their numbers have grown at twice the rate of the U.S. population since 1970.

Such a rapid increase should surely have initiated a labor productivity revolution, yet nothing of the sort has emerged. On the contrary, U.S. productivity growth slowed dramatically in the 1970s, before resuming normal levels in the 1990s. In fact, top Yale economist William Nordhaus has observed that productivity growth was no faster after 1995 than before 1973.

Economics Nobel-prize winner Michael Spence suggested an explanation for growing enrollment in 1974: A person goes to college to send a signal to employers that she is smarter than someone who didn't go, even if she doesn't actually learn anything vocationally relevant. But now that everyone is trying to signal, we are back to square one, except with millions of people pointlessly hanging-around on campus for four years before doing anything productive. Highly intelligent or dedicated students can end up hanging around for a good ten years, doing degree after degree just to make a point.

If this process results in janitors requiring masters degrees in cleaning technology, the educational race to the top will have become a serious problem. To avoid this, government should withdraw subsides completely from college courses that do not add productive value to the economy. Cultural Studies professors would not be thrilled: Foucault's witty musings on sexual identity would not get the same subsidy as the general principals of accounting and engineering, for instance. But these are the hard decisions we elect politicians to make.

In time, government could scale back higher education subsidies altogether. If time spent at college continues to spiral out of control, a lump-sum tax on college students of a few thousands dollars might be warranted. Brilliant and dedicated students from all backgrounds, in whatever discipline, would still percolate to the top of the academic tree owing to elite public and private scholarships, but the labor force, national income, and tax revenues would expand.

A tax on students may well prove too provocative, yet platitudes that colleges and their students are under-funded should get short shrift. A college education is a fine ideal, imparting both vocational and abstract benefits, but the costs should be borne privately.

Adam Smith wrote that "the more [people] are instructed the less liable they are to the delusions of superstition, which, among ignorant nations, frequently occasion the most dreadful disorders." But wait did Adam Smith have a PhD? Actually, he didn't, so perhaps he's not qualified to comment... One of our contemporary superstitions is that blank checks from the public to colleges and their students are productive and justified.

Adam Creighton is a Commonwealth Scholar at Balliol College, Oxford, and in 2007 was a summer research fellow at the Tax Foundation, Washington D.C.

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About the Author

Adam Creighton is a Commonwealth Scholar at Balliol College, Oxford. He is Australian and lived in Sydney for 25 years.