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Source link: http://archive.mises.org/11842/do-subsidies-for-universities-grow-the-economy/

Do subsidies for universities grow the economy?

March 3, 2010 by

A new paper published by the Adam Smith Institute says that we should look at the unseen costs of tax-funded higher education. The argument is a good one.


Jonathan Finegold Catalán March 3, 2010 at 3:23 pm

This is something I have been wondering about for a while; how badly has state-subsidized higher education distorted the division of labor?

Seattle March 3, 2010 at 3:51 pm

It’s not really an answerable question, given we don’t know with certainty what the division of labor would look like without the intervention. Though I will say that degrees have lost their value considerably since the State began meddling. It’s been taking more and more years of publicly-funded education to qualify for the same skill-level jobs for quite a while now.

Also, has anyone noticed the huge influx of blog posts since the switch to Wordpress? Perhaps our authors are experiencing the “Ooh, shiny!” ;p

Jonathan Finegold Catalán March 3, 2010 at 6:08 pm

Well, obviously an exact figure couldn’t be calculated. But, I always wondered how much faster I would be able to work as an economist, if my credibility wasn’t based on whether or not I could pass a biology class.

Renegade Division March 3, 2010 at 6:13 pm

I call it messing with the supply and demand of educated labor. India saw massive unemployment over the decades (before the economic libralization of 1990s) because of this. People holding bachelor degrees in mathematics, commerce, and other skilled fields working as construction labor. funding higher education by taxes kills the capital available to start new businesses. Its only after the economic liberalization and outsourcing from US this excess labor was put to use somewhere.

Bogart March 3, 2010 at 6:31 pm

I have been thinking about this since I checked my University and it charges an estimated $40000 per year for a student. That is a whole lot of money for not a lot of education that others could provide cheaper.

My problem with the government financed mess called higher education is that it has crowded out the much cheaper form of training people which is apprenticing. Prior to the 20th century, apprenticing was the more common method of training people. Prior to the giant government redistributions of wealth, apprenticing was in direct competition with university education. And the result was predictable, people could go to universities like the one I attended part time and work the other time for businesses. This was especially true for professionals in architecture, engineering, medicine, law, etc. Universities have formalized this with this Co-OP concept that is really a poor substitute that still has the University with a paying student trapped until they get the degree.

I am fortunate enough to be in the software business that is as insensitive to the value of a college degree as you can be in this day and age. My friends working for large corporations or worse directly for the government are not so fortunate.

Seattle March 3, 2010 at 11:14 pm

Wanted for hire:

Programmer with at least 15 years of Scala experience. Resume shall be ignored and interviewee will instead be asked irrelevant trick questions in the form of riddles. Must not have fear of Orangutans. Don’t ask why.

Steve R. March 3, 2010 at 6:51 pm

Good post. The obvious answer clear cut definitive answer “YES” and “NO”. Clearly and educated populace is beneficial to society. But I have to mostly agree Mr. Stanfield. Of course, he is writing from the perspective of someone in the UK. Regretfully, I don’t know much about higher education in the UK, only in the United States (US). As an overall summary, I would agree with his premise that subsidizing higher education distorts the pricing system and leads to tuition inflation.

By coincidence the New York Times ran on February 3, 20010 <a href="http://roomfordebate.blogs.nytimes.com/2010/02/03/rising-college-costs-a-federal-role/?scp=1&sq=fiancial%20aide&st=cse"<Rising College Costs: A Federal Role? My take on that article can be found here.

Anther valuable observation made by Mr. Stanfield is that subsidizing higher education has led to: “Combining and confusing academic, professional and vocational education.” However, in the US, the following points made by Mr. Stanfield do not seem to apply.
• The widespread rationing of university places
The US has moved to let everybody in and to make college “affordable” to everyone.
• Restricting private investment from home and abroad
The US seems to have encouraged “fly-by-night” schools.
Just think of the value of having a degree from the University of Phoenix.
Hardly a form of investment restriction.
• Crowding out for-profit institutions and entrepreneurial talent
Profit institutions seem to be doing quite well with the “free” government money they get.
• Restricting competition and innovation throughout the sector.
To bad we don’t have less competition. (Oh, sorry I mean higher quality schools.
Can’t have too much competition that would be blasphemy.)
There are to many “innovative” schools teaching marginal topics.

Steve R. March 3, 2010 at 7:11 pm

First let me fix my reference to the New York Times article: Rising College Costs: A Federal Role?.

Second I had the Washington Post up, but I had not yet made it to this article: 17 states to fight dismal college completion rates. According to the WP article: “About one in every two Americans who start college never finish, said Jones, who founded Complete College America, a Washington, D.C.-based nonprofit, last year.” I have yet to hear a valid examination of how many people really want to or need to go to college. At a certain point our educational system needs to recognize that there a limits.

Álvaro March 3, 2010 at 7:34 pm

If the universities train marxist economists, those subsidies may actually “shrink the economy” (whatever that means…)

Bruce Koerber March 4, 2010 at 10:17 am

The State Grows ‘Ignorant Education.’

It is difficult to imagine that there is a net positive ‘growth’ resulting from ‘ignorant education.’ It is like the billions and billions spent on space exploration yielding ‘Tang’ instant drink mix or some other off-shoot. Without misallocating those resources what would have really been discovered.

Education that accepts and even promulgates atheism and perverts the human sciences by institutionalizing empiricism is ‘ignorant education.’ The two greatest powers are science and religion and ‘ignorant education’ perverts one and dismisses the other.

Does the State and its necessarily tainted participation in education grow anything other than itself? Now we know its true motive!

billwald March 4, 2010 at 1:57 pm

Three factors are at work. First, the high schools are doing a miserable job and many of our children need 2 years of junior college in order to get a high school education. 80% of the available jobs only require a decent high school education. The high schools need to go on a two track system, a business/trade track and a college track for those with the will and the ability to absorb a higher education.

Second, in this new economy, half the people who graduate with a 4 year degree (which now takes 5 years because of factor #1) and college loans will never break even. Why? Because 80% of the jobs are routine blue collar/white collar jobs with blue collar/white collar pay scales. Now that most Americans are to . . . educated . . . to join a labor union people with college educations are competing for low pay jobs in our race to the bottom.

Third, as long as employers can hire high school grads and college for same wage the college grad will be hired. This devaluates both groups. A 4 year degree has become a dime a dozen. The employer now requires a college degree merely to cut the number of applicants.

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