“Because their borrowing to live is an investment into their future earnings – just like a mortgage on a house?”

“Why should a poor family in South Auckland pay for the booze expenses of some rich kid from Remuera?”

Since the payment for the student allowance comes from tax money, I don’t think that poor families will be paying it – as they tend to receive net positive transfers from government.

I agree that the student is “investing in human capital” 100%. In this case shouldn’t this be captured by the student loan they pay on their course fees, not on their income for living?

Ultimately, I am trying to understand why we are willing to pay someone to do nothing all day but we are unwilling to provide the same “citizen wage” to someone who is studying.

If it truly is the case that we expect students to have higher future incomes (a point which I agree with you one MikeE), then we can either get this back by taxing incomes (which we do) or by having a universal loan scheme – either way, I think all students should be treated equally.

“I’m not willing to pay someone to do nothing all day:)”

Ahhh, there in lies one of the important considerations.

Do we as a society believe that everyone deserves a certain minimum living standard, independent of what they do – or do we believe that a security net should only be there to capture those that are truly unfortunate – not the lazy.

Even if we did believe in the second type there is a trade-off – if we want to punish the lazy, more unfortunate people will fall through – where do we draw the line.

It might be the wild untamed communist under my beard, but isn’t part of modern society the willingness to give everyone, no matter how lazy, so minimum means of survival. Isn’t that part of what we as a society wish to purchase with our greater level of technology which has given us all greater wealth?

I am a recent graduate, and still a graduate student myself (I have a massive student loan, and probably an even larger one if I pursue a phd) but I can see the huge number of problems this would cause.

The reason there shouldn’t be a student allowance is that students will be earning more when they graduate, and will therefore be able to pay off their student debt. They are borrowing to invest and the return on that investment is their future income. The costs to study are not just fees but also the cost of living. The student themselves should do the cost benefit analysis and then make the decision about whether this is worth it.

Another reason is that education should be a commitment (and investment), not a lifestyle. The problem with a universal student allowance is that it creates the wrong incentives. A person who has finished high school, (or any unemployed person) but can’t find a job or doesn’t want a job knows they will be supported if they enrol in education. Yet they may not want to be there. The success of education requires a desire to actually be educated. If one does not pay for that then they do not treat it with its real value. Therefore those who enrol to get a student allowance would not necessarily even attend classes, yet live for free off the tax payer. Further the student may enroll in invaluable qualifications, because it gets them the allowance, yet creates no economic value for New Zealand. Creating a universal student allowance will mean some legitimite students are excluded from tertiary education (because university instutions limit student numbers). It creates extra costs, which are wasted, because many of those who enroll are not committed to their education.

A better system would be that the Student allowance is in the form of a scholarship. Then it could be targeted to specific types of students i.e. at specific jobs that these students would be doing such as Engineers, lawyers or other specific occupations. There would be specific levels of achievement targets for students. Students would also be bonded to the country for a specific period of time following completion. This would mean the allowance was not simply a lifestyle choice, but a commitment by the student to create economic value for the country and hence a return on the taxpayers investment

– I would even suggest that this went one step further, that students pay international level fees, but the government would use existing tertiary education funding to offer fee scholarships similar to above. We would end up with the best and the brightest, creating real value for NZ. We would have a higher quality education system, and more students staying in New Zealand.

Minimum level for the unfortuante (and I use this term very broadly) yes, for the lazy no. Unfortuantely this isn’t easy to implement.

Presumeably any externality is accounted for by the negative real interest rate you pay on your loan. If a negative real interest rates doesn’t cover the exrternality genreated, then maybe we should use a universal student allowance for this purpose.

If it’s not because of the externality, and students get a benefit in the form of higher future income, I’m not sure I have a problem with students needing to borrow.

It’s interesting that this policy has been floating around for years form the likes of the Alliance, Progressive and the Greens (I think?) yet labour has never tried to implement. Most definitely an election bribe.

“Minimum level for the unfortuante (and I use this term very broadly) yes, for the lazy no.”

Really, I’m disappointed

“If a negative real interest rates doesn’t cover the exrternality genreated, then maybe we should use a universal student allowance for this purpose”

I think the negative interest rate is more unfair than a universal student loan – it is a terrible thing.

“If it’s not because of the externality, and students get a benefit in the form of higher future income, I’m not sure I have a problem with students needing to borrow.”

Neither – although students should be treated equally (at least, inter-discipline), surely.

“If you don’t need the support why should you get it?”

How can labour be voluntary if people cannot say NO to work and still live. If labour is not voluntary – then how can we say that the reservation level an employee with take is voluntary. If the reservation level does not resemble something is voluntary then how can we truly call the trade between the capitalist and the worker voluntary

Have you not read Marx

“Ultimately, I’m just pissed they didn’t have a universal student allowance when I was at uni!”

When I was at uni I wanted a universal student loan – as I was on the student loan given that I couldn’t get income detail off my parents (damn it!).

Now I have mellowed, and moved more towards the position that I want a greater integration between the benefit/education/employment systems.

“Neither – although students should be treated equally (at least, inter-discipline), surely.”

I think ultimately if we have it it should be non discriminatroy, I’m jsut not sure we should actually have it

“I think ultimately if we have it it should be non discriminatroy, I’m jsut not sure we should actually have it”

Fair enough.

However, we have to look at it in the same relationship as employment and benefit policy.

If we are willing to pay people to do nothing, and we are willing to pay people while they work, why are we unwilling to pay people who study? It seems like a disconnect to me – given that all three bits are fundamentally part of the labour market.

Now, if we don’t want to give people working for familes, and we view the benefit as only a security net, then we should also have a universal student loan instead of an allowance. I agree with that.

However, I am just trying to figure out what societies underlying preferences are, given that it has revealed some information by doing things like working for families and giving long-term benefits to people who don’t want to work (although it can be a bit inconsistent in this case).

Ultimately, I’m just asking for policies to be consistent with some fundamental “social contract” that treats individuals in the “same way” (in some broad sense) regardless of them being an employee, unemployed, or in training.

“So what you are saying is that you approve of this policy because, at the very least, Labour is being consistent in their nanny-statism?”

Most definitely

“One difference between the dole and the student allowance? Being unemployed can happen to anybody. Study is voluntary.”

The comparison I’m after is voluntary unemployment – people who just don’t want to work. We implicitly still pay them to live, even though it is their choice to spend all their time consuming leisure.

“The expected level of free-loading from students is much much much higher than the expected level of free-loading from the rest of society.”

Huh, how? And even if students do “free load more” is that because of the failure of other institutions or because we are compensating students in other ways – if either is the case we should just change the institutions/stop compensating students in those ways

Fundamentally, I am presuming that New Zealand is a society that does want to set itself up as a “nanny-state” given the things people fundamentally value.

I’m assuming this as we are willing to pay people for not working, pay them a transfer for working and having a family, and even the “centre-right” party wants to pay people for working who don’t have children. As a result, it seems our society has a revealed preference for doing this.

As a result, it seems inconsistent that we don’t do the same thing for students – in fact, not doing it for students acts as a dis-incentive for people to get education. If we are willing to tax and transfer to everyone else I do not think students should be left out. Once we transfer to these groups equally, then the decision about whether to be out of work, in work, or in training will be made on the basis of fundamentals – which is the best way for things to be.

Ultimately, I think that our benefit, welfare, and education systems need to be mutually consistent – as they are all part of the labour market.

People who are unemployed should be able to just walk into the education system and upskill – now, does this imply that we should have a universal student allowance, or that people who are unemployed should have to borrow the benefit (excluding those who are unable to work). Either way, I think they should be treated consistently.

“It doesnt so much show our preferences as it does the politicians”

Why do we keep voting for them then if it doesn’t represent our preferences. Remove ACT and you still have 97.5% of people voting for parties that have put down policies associated with state dependency – that is one hell of a revealed preference

“The people recieving the bribe really appreciate it, but the people ultimately paying for the bribe rarely even notice it.”

That sounds utility maximising to me – as the increase in pleasure is great but the increase in pain is small

Matt, you keep saying that we pay benefits to the voluntarily unemployed, but the welfare system is designed so that we don’t do this (whether it succeeds or not is another matter). I think the revealed preference is quite clearly that we only intend to help people who are either incapable of helping themselves or are making a genuine effort to find work but are temporarily unable to.

As I’ve said to you before, welfare systems are analogous to an insurance system. You can get insurance against involuntary unemployment or sickness, you can’t get insurance against the possibility you decide to go to university (although thesis extension insurance might be popular ).

“That sounds utility maximising to me – as the increase in pleasure is great but the increase in pain is small.”

In the short term, yes. But if the system was expanded, if it was given more time to run, the outcome is almost always bad. Inefficient allocation of resources, or something silly like that.

Probably some of that asymmetric information bollocks, too.

Quotes: 3) guess who

“In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.”

“Taxpayers fund nearly 75% of tertiary education, that’s a lot more money for a student that a beneficiary.”

Indeed – students should have to pay the full funding cost of their tertiary education (independent of externalities of course). However – once they are doing this do we think it is fair for them to pay to live? If we don’t then we should have a universal student allowance, and then work towards increasing course fees.

The course fees and living cost components fundamentally cover different bits (although I agree with some commentators that for the individual, these should cumulatively equate to the “cost” of this investment). If we believe everyone deserve a minimum income (an assumption I am making explicitly, that people could more than justifiably disagree with) then it seems apt to give a universal student allowance.

“Quotes: 3) guess who”

Frederic Bastiat, go google. It sounded a bit like Veblen

“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

Indeed, the “dynamic” impact of a policy is something a good economist will look at. But it is also something a bad economist will hide behind in order to push there own agenda

There is definitely a cost to universal student allowances. The money has to come from tax (or lower spending elsewhere), it incentivises education in the short-term, reducing the supply of labour, and the benefit – higher education levels – may not even increase production very much.

My justification does not stem from efficiency per-see, but from what I am presuming is a revealed preference that we as a society want everyone on a minimum income.

This is the KEY assumption – and as CPW pointed out it does not necessarily hold. However, if this is something that you believe, it follows that a universal student allowance makes sense. If this is a value judgment you do not hold – then they don’t make as much sense.

The goal of all this is to make that assumption transparent – so that each side can see where the other is coming from.

I am sold on the idea of increasing fees to full cost and providing an equivalent of the unemployment benefit to students. Make it so.

Hi Steve and Kimble,

Ultimately it is not about strictly being sold on an idea – I can understand why people may never agree with any of this sort of thing. It is ultimately about making the value judgments we make when supporting/attacking policies transparent. I am glad that we are doing this

Hi mavxp

“Bribes to unproductive sectors of NZ cost. In the long run NZ will be the poorer for it. Those few who can avoid the poverty trap of living in NZ will do so.”

Remember, production is not the only thing we value. Government is a institution which hopefully represents the preferences of its constituents. If this is the case then the redistribution of resources in an “unproductive” way is of social benefit.

As a result, the question is – what trade-off are we willing to make in society between what we perceive is “fair” and what gives us the greatest level of material wealth.

Also note that with what I constitute as fairness in this post, students would pay all of their fees – as compared to the current situation where they only pay a third. This provides a separation between the “private investment” and the social belief that everyone deserves some “minimum income” as a member of the New Zealand “community”.

Even with redistribution in NZ, I think calling the place a poverty trap is a little excessive

Now we need a commitment to index the student allowance or just have it at the same level as the benefit, the really shameful thing is that it has been declining in real terms for years.

Hi Dave and Ebolacola,

Yes the student allowance gets abated – but it does so in the same way as the unemployment benefit. As a result, if we think the abatement rate is too high (eg is disincentivises work) that is a problem in both schemes.

If the problem is that the allowance is “too low” then that is a problem with both as well, as the student allowance sits at about the unemployment benefit level.

These discussions are surrounding the “level” of any such allowance – or minimum citizen income – that should be received by people. This is a value judgment that has to be made, but not one that I have an opinion on.

I agree that it is near impossible to live anywhere near, say Wellington, on $150 a week. However, if this is the minimum income that society wants everyone to be on, then when someone makes the DECISION to be a student they know they will have to borrow or scrounge up money in some other way to make do.

I worked long hours at the Warehouse, and for a while I worked two jobs to get income together to do it – ohh well, I made that choice because I valued the investment in my human capital.

So I have the impression that you both agree that people deserve some minimum income – but the level of income you support may be different to what other people are after. These varying assumptions are important to lay down.