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Tuesday, June 29, 2010

Subsidizing More College Students Won’t Help the Economy

Governments in the United States subsidize college education heavily. State universities charge students very low tuition rates, and the federal government has a host of grant and loan programs designed to make college affordable to most families. (As politicians make those programs more generous, schools have spent more and raised tuitions, thus creating an upward cost spiral—but that’s another story.)

One of the simplest of all economic lessons is that when government subsidizes something, more of it is produced than otherwise. That’s because subsidies upset the natural calculation of costs and benefits that people make. The subsidized thing becomes artificially more attractive to consumers; as they buy more of it, resources are drawn away from nonsubsidized things. Subsidies cause inefficiency.

In higher education, subsidies have  led to a great surplus of young people going to college and a deterioration in academic standards. As higher education has expanded—at the end of World War II less than one high school graduate in ten enrolled in postsecondary education; now about 70 percent do—schools have increasingly drawn in weak and disengaged students. Rather than risk losing such students (and the money they bring in), many colleges have relaxed their admission standards, allowed or encouraged grade inflation, and dumbed down their curricula.

Nevertheless, some politicians and education leaders claim that the nation badly needs to “produce” still more college graduates. In a speech to Congress in February 2009 President Obama declared a national goal of having the world’s highest percentage of workers with college degrees by 2020. One of the nation’s major educational foundations, Lumina Foundation, proclaims that its mission is to get more students through college and maintains that the United States is falling behind other countries in its level of “educational attainment.”

That was the subject of a debate I participated in on February 26.  Arguing for the resolution that the United States needs more college graduates to remain an economic power were former Secretary of Education Margaret Spellings and Michael Lomax, president of the United Negro College Fund. Ohio University economics professor Richard Vedder and I opposed it. If you care to watch the debate, which took about an hour and a half, you’ll find it here.

For those who prefer a synopsis, read on.

The affirmative debaters contended that college education:

  • raises people’s incomes substantially; graduates on average earn nearly a million dollars more over their careers than nongraduates;
  • provides people with the skills they need to succeed in “the knowledge economy”;
  • opens up opportunities for people to advance, especially those from poor backgrounds; and
  • will help America remain competitive with other nations.

Professor Vedder and I took issue with these claims.

First, we contended that the “earnings premium” argument is fallacious. Even though it’s true on average that people with college degrees earn more, that isn’t necessarily true at the margin. That people with college degrees (many of them earned decades ago when standards were higher) have high earnings on average tells us nothing about the next student who gets a degree. Since many people who obtain college degrees today wind up working in low-skill, low-paying jobs, there is no basis for the assumption that college education raises incomes.

Second, we argued that college coursework doesn’t automatically improve an individual’s skills and knowledge. Although some students benefit greatly from their studies, many others enter college with very poor capabilities and graduate with little or no improvement. Most employers aren’t looking for in-depth knowledge that only a college-educated individual could have; rather they are looking for good basic skills and trainability—and they complain that many students are lacking in that respect.

Third, we argued that having a college degree doesn’t necessarily open up any opportunities because bachelor’s degrees are so common now that having one is no distinction. Moreover, there are other and often more effective ways for people to advance than going to college. Many vocational paths are less costly and offer better long-term prospects than a college degree.

Fourth, we argued that since we already have a glut of college graduates in the labor force, adding to it does nothing to make the United States more competitive. Furthermore, there is no causal link between increasing numbers of people holding college degrees and the creation of high-skill, high-paying jobs.

Finally, we argued that putting more and more people through college exacerbates the problem of credential inflation—that is, employers’ insisting that applicants have college degrees to be considered for jobs that don’t require any academic training. Credential inflation already shuts out individuals who don’t have college degrees from many jobs they could easily do.

In response to our case against the resolution, the affirmative side said nothing.

Perhaps I should just leave the matter there, but there is more to be said against the idea of trying to increase college attendance and graduation through government action.

For one thing, the notion that the country would be better off if it put more people through college is cut from the same bolt of cloth as the notion that the country would be better off if it increased the percentage of people who own their own home. That is another noble-sounding idea that politicians tried to achieve through subsidies and manipulations. Eventually, it proved to be harmful to many individuals who were persuaded to take out mortgages they couldn’t pay off. Similarly, numerous young Americans are today struggling to make the payments on their college loan debt out of incomes far below what they were all but promised. Government planning schemes always have a lot of collateral damage.

For another, if we are serious about improving the productivity of the economy, a marginal increase in the percentage of workers with college credentials is a diversion from policies that would actually matter. Like what? Well, governments channel resources away from productive, competitively determined uses and into wasteful, politically determined uses. Governments’ innumerable laws and regulations interfere with efficiency, the minimum wage and occupational licensing being examples. And governments drive away investors and entrepreneurs with high taxes.

Many policy changes would increase the vitality of our economy. Pushing a few more young people through college is not one of them.

  • George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.