Thursday, August 28, 2008

Externalities in Higher Education

by Andrew Gillen

Arnold Kling reviews the positive externality argument of education and isn't buying it:
the positive externality is the benefits that accrue to me from your education. I think that those benefits tend to be pretty small. You get a higher income, and most of those benefits flow to you. I get some of the benefits, because you are more likely to pay taxes and less likely to require government transfers, so that my tax obligations can be correspondingly reduced.

In other words, he's arguing that the externalities associated with a college degree are pretty small, implying that the subsidy should be pretty small as well. But he goes on to note that the externalities may be negative, which would imply that higher ed should be taxed, not subsidized:
If the higher income that you get from education is due to its signaling effects, then that is a classic negative externality. The investment in the signal is wasteful, and your investment forces others to make a wasteful investment.
On the whole, the case for taxing education rather than subsidizing it is really quite plausible.

For those of you not familiar with "signaling," it is the idea that a degree is useful because it signals that you have a set of desirable characteristics (good work ethic, punctuality, creativity etc.) that are not learned in school, as opposed to being useful because it certifies that you learned X, Y and Z in school. Since people with these characteristics are more likely to get a degree, the value of a degree comes primarily from signaling, and because signaling is costly (tuition, usually subsidized as well), and encourages others to spend resources signaling, higher education has negative externalities. If that is the case it should be taxed.


capeman said...

By this kind of reasoning, we shouldn't have publicly subsidized higher education, we shouldn't subsidize education at all. In fact, kindergartners should be taxed for going to school instead of entering the labor force!

When one's reasoning leads to this kind of demented conclusion, should one not perhaps consider whether the reasoning is simply cockeyed, and start over?


"good work ethic, punctuality, creativity"

are not taught in colleges and universities?

I look at the callow, ignorant, immature students -- not through their fault, they are 18 year old high school products, we were all one of them once -- who come in at the beginning of our pipeline, and compare them to our graduates at the end -- who are going on to productive jobs in technology, to medical school, to science Ph.D.'s -- and I just have to laugh.

Tanveer Iqbal said...

In a world in which computer networks are involved in nearly every facet of business and personal life, it is paramount that each of us understand the basic features, operations and limitations of different types of computer networks.

Lenny said...

I agree Capeman. Then again isn't that the good doctor's true end game--a complete end to all state and federal support for higher education and the destruction of our nation's great flagship public universities.

In Vedder's dream world, there are private colleges for the privileged and for-profit trade schools and in-house corporate training centers for the rest of us.

All his talk about "accountability" "teaching" and use of endowment funds and the like are merely populist smokescreens to gain credibility for his underlying radical agenda.

capeman said...

Lenny, I don't presume to read the Doc's mind, but I think you could well be right.

OK, some things should change in higher education, I have my own list. But these guys are earth-scorchers, nihilists. Educating the populace becomes a drag on society, something to be taxed. I wonder how many of their own kids are encouraged by them to go on to trade schools and burger flipping? Not very many, is many reckoning, and observation.

Lenny said...

I wonder how many of their own kids are encouraged by them to go on to trade schools and burger flipping? Not very many, is many reckoning, and observation.

Naaahh, they're all sent off to Wabash College ;).

I like the nihilist analogy.

"We believes in nossing, Lebowski. If you don't ruin the flagship universities which refuse to hire us, we come back and cut off your johnson."