Arnold Kling  

Economics of Higher Education Subsidies

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I discuss the economics of government subsidies to higher education.


The end result is that even though government subsidizes higher education, and even though most economists believe that higher education enhances productivity, the government subsidies do not result in higher productivity. Simply throwing money at higher education has the effect of enriching the over-educated (faculty and administrators) while providing little or no benefits to the under-educated and to society at large.

For Discussion. Economists tend to think that subsidies to sports stadiums produce private benefits, not public benefits. Are state universities also a boondoggle?


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COMMENTS (9 to date)
Mike writes:

The under-educated and society at large benefit from the synnergy between higher education and elementary and secondary education. Research has shown that K12 students learn more when they have bright teachers and that bright college graduates are more likely to go into teaching when they can get provisionally certified to teach within their four years of undergraduate learning. In addition, college graduates are much less likely to go into public service and hard to fill occupations such as social workers and nursing when the monetary investments made in college are so high. These issues alone suggest a role for at least some public support of higher education. While the argument in favor of other types of spillovers from investments in higher education are hard to buy (e.g. a more informed electorate, etc.), the economic impact of the university enterprises on their communities, the role that research and development plays in all citizens' lives and the public service mission of the Land Grant Colleges and Universities needs to be understood before one condemns the flow of public monies into public higher education.

As it stands, public subsidies account for less than half of the operating expenses of public higher education institutions today.

An efficient economic model of higher education finance that would satisfy my above comment would be one where colleges were allowed to perfectly price discriminate and then have the government provide loans and grants on a future income contingent basis. I recall reading that there is a move toward this model in Australia.

Lawrance George Lux writes:

State Universities are a boondoggle in that they are always a cash cow for State Contractors. You have this cash cow connected to a bureaucracy of administration, with a custodial staff which is the envy of the White House. Somewhere in this mess lies the concept of education, run usually by a Board of Regents or Directors, another very expensive sinicure of honor.

One Sports studium built for a University had a Alumni skybox which cost more to build than it did to run the University for a year. Education does produce productivity, but Educational funds do not fund simply education. lgl

Rick Stewart writes:

I have complained for years that Iowa millionaires, including myself, get to send our children to state universities at unbelievably discounted prices. No one has ever attempted to explain why this is a good idea.

State universities should be forced to prove their worth by covering all of their costs in the same manner as private universities (tuition, grants, gifts). If there remain 'poor' students in the state, unable to afford state university tuitions, the state can then provide scholarships using some credible need-based criteria.

I predict decreased attendance and increased learning.

Arnie Kriegbaum writes:

Education is one of a few quality-of-life influences that have a butterfly effect in all first-world economies (religious freedom being another). The small improvements in the education of all citizens at the k-12 level because they have teachers that have had 5 years of university study does improve the k-12 experience, leading to an improvement in achievement, but also in creativity.

As a high school teacher, I feel that post-secondary education variety of choice allows students to find the experience that only they know will be the best for them and ergo, best for us all. Most universities are funded by some version of federal assistance even at the private universities. So, it may be overpaying, but it is not totally wasted.

Sam Jew writes:

The point is not to deliver education in the most cost-effective manner. The point is maximum prestige, regardless of cost.

For people enamored with the former, there is the Internet where all may bask in the brilliant glow of my intellect for free. (or community colleges for the conservative)

But for those of us who paid the piper that is the complete bullshit of the K-12 education system, we have every right to demand better food, jacuzzis, and rock climbing walls at taxpayer/parent expense.

It seems to me only fair.

Mcwop writes:

To add to what LGL stated - What happens to the massive amounts of money generated by college sports? Duke basketball must generate that school a pretty penny. Is it used for scholarship? To build new classes? Or just plowed back into sports?

Mike writes:

To address MCWOP's point - very few college athletics programs make any money at all. For those that do, many of the profits from big time basketball and football are used to support "fringe sports" and those that exist largely to satisfy title IX. What you should be concerned about are the 99% of athletics programs that lose money, requiring subsidies from the general education budgets just to survive (i.e. from tuition, state appropriations, endowment payouts, etc.)- or relying on donor money that could have been put to more productive use elsewhere.

Timothy Curtin writes:

Like all economists who have ever writen on financing of higher education, contributors here appear to ignore the impact of the higher earnings that are obviously associated with college graduation (relative to earnings of non-graduates) on taxes payable to federal and (to a lesser extent)state governments. In fact evidence exists (on my url) showing that graduates' proportionate contribution to government revenue is at least double their proportion of the taxpaying population. That is why intelligent governments find it worthwile to subsidise colleges because the cash returns to THE GOVERNMENT on its subsidies from this extra tax yield are so rewarding.

Nicky writes:

This isn't the first time the benefits of education investment have been questioned. Lant Pritchett of the World Bank found that:

Cross-national data on economic growth rates show that increases in educational capital resulting from improvements in the educational attainment of the labor force have had no positive impact on the growth rate of output per worker.... the estimated impact of growth of human capital on conventional nonregression growth accounting measures of total factor productivity is large, strongly significant, and negative.

the full report is here:
http://econ.worldbank.org/files/301_wps1581.pdf [2.23 MB]

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