Monday, October 26, 2015

Why Government Trying to Provide "Free" College for All Is an Exercise in Futility

Presidential election cycles are great opportunities to pick up on gaffes, idiocies, and poor public policy. As nice as it would be to criticize other candidates' policy platforms, Bernie Sanders simply provides good material for me to analyze. In his latest piece in the Washington Post, which he entitled Make college free for all, Sanders writes his opinion piece on why the government should provide universal college education for all. He opines that education is both good for personal wellbeing and national wellbeing. I'm not going to argue with that. Education is one of the single most important factors of determining professional success. This, however, is not sufficient reason to have the federal government pay for tertiary education for all.

In his opinion piece, Sanders lists some examples of where government-sponsored tertiary education has been implemented. On the international level, Sanders lists Finland, Denmark, Norway, Sweden, Iceland, Ireland, Germany, and Mexico. Germany is an even more peculiar case because it provides free education not just to its own citizens, but international citizens. First, let's bring up the fact that the education is not free. Like any other good or service, someone has to pay for it because we live in a world of scarce resources. Rather than fund it directly through tuition, tertiary education is indirectly funded in the form of higher taxes. Second, with the exception of Finland, the United States  has a higher tertiary education enrollment rate than any of the other countries that Sanders mentioned. The third point has to do with tertiary education completion. According to the Organization for Economic Cooperation and Development (OECD) and its most recent publication on education statistics, the United States has a higher percentage of adults with a tertiary education than any of the countries that Sanders listed as exemplars (OECD, 2014, p. 44). For the 25-34 year old demographic, only Norway and Ireland outpaced the United States on percent of adults with a tertiary education (ibid.). These statistics undermine the pro-free tuition argument in two ways:

  1. Levying higher taxes in order to fund college does not guarantee universal education on the tertiary level. 
  2. Countries can and do have a higher level of tertiary-educated adults in comparison to countries that provide free tuition or free college for everyone, which is to say that having the government levy heavier taxes for tertiary education is not necessary.

Maybe it doesn't work so well in other countries, but Sanders also did mention the G.I. Bill as an example of how the United States government funded tertiary education in the past. Sanders cited two sources (Olson, 1973; Stanley 2003), claiming that these "scholars say that this investment was a major reason for the high productivity and economic growth our nation enjoyed during the postwar years." What's spurious about Sanders' claim is that the scholars he cited did no such thing. Sure, they pointed out that it spurred some college enrollment growth, but the cited studies make no claim that the G.I. Bill spurred higher productivity or economic growth. Even the Stanley study says in the abstract that impacts of GI Bills were "apparently concentrated among veterans from families in the upper half of the distribution of socioeconomic status." Even this research paper from the National Bureau of Economic Research (Bound and Turner, 1999) show modest and ambiguous results on college enrollment growth. Sanders also mentioned the state of California,  but failed to mention that during the late 1950s, the UC school system expanded from two universities to eleven, which would help explain why California was unable to fund tuition-free university so easily. Even in the link that Sanders provided about New York, it admits that economic reality got in the way of being able to continue with funding free college.

Having the government pay for community college or to enact student loan forgiveness show the same level of economic naïveté, not only because such policies ignore certain economic realities, but also because they do not touch upon major issues within the postsecondary education system in the United States. For those who are in favor of Sanders' proposal for providing free college education for all, let me bring up some food for thought:

  1. One of the cornerstones of Sanders' presidential platform is that of income inequality. A study from the centrist Brookings Institution earlier this year found that free college tuition for all would not mitigate overall earnings inequality. If your goal is to reduce income inequality, why advocate for such a policy?
  2. In July 2015, the Federal Reserve Bank of New York (FRBNY) released a study showing that for every dollar the federal government pays in federal student aid, it causes a 60¢ increase in college tuition. Why would doing more of the same contain costs?
  3.  The FRBNY also found that the underemployment rate for recent college graduates is over 40 percent, not to mention a 41 percent dropout rate. Additionally, many of the fastest growing occupations over the next decade, according to the Bureau of Labor Statistics, require an Associate's Degree or less. A study from Georgetown University also shows that the relationship between popularity of a major and salary is almost non-existent, i.e., R=-0.0009. Given these signs that the demand for a college education is artificially high, how does further increasing the number of college enrollees help with making sure that we don't have an excess of overeducated workers or deal with the increased demand of work not requiring a Bachelor's degree?
  4. Education is an investment in human capital, and serves the primary function of developing skills to be more marketable in the workplace. What would a system with free college tuition do differently to encourage people pursuing careers in higher-demand fields? How would this policy address credential inflation? I ask this in light of an FRBNY study showing that a high-subsidy, low-tuition policy has a disincentive effect on human capital acquisition. 

Once again, Sanders assumes that the solution to a problem is to increase taxes in order to pay for a government service, as if the sole problem were a lack in government funding. "Free" college is not really free: it's simply a different framework in which one can pass the costs on to the taxpayers, many of whom do not even have a college education. Sanders' policy idea does nothing to address the quality of education in this country. As we have seen with other countries, high tertiary education subsidies do not guarantee a higher percentage of adults with a tertiary education, nor do they really do anything significant to improve the state of income inequality. While we can craft education or labor policy that focuses on root issues, what I can conclude with is that a facile approach of throwing more tax revenues to try to provide more "free" college education isn't going to solve anything.

2-11-2016 Addendum: A recent paper released by the National Bureau of Economic Research shows that government policies account for 78 percent of the hike in college tuition between 1987 and 2010. Add that to list of how government subsidizing college education causes price hikes.

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