This is a “sister post” to a discussion on the adult community education market over at the Education Directions blog.  Dave Guerin has substantially more knowledgeable about the industry then I do, and his comments are well worth reading.  I offered to do a small post discussing the “benefits of ACE” which have been bandied about.

Eric Crampton also takes the report to task here.

The post

In a report the is often used to justify ACE spending, the net benefit of adult community education (for 409,000) was stated to be between $4.8bn and $6.3bn annually – giving a total return of $54-$72 per $1 invested (see page 48).  Wow, really – if I could get that sort of return I would be investing in adult community education for sure.

Of course, if we were to view the report in this way would provide the wrong conclusions.

So lets ignore the weaknesses in their survey (self-reported mental health? not clearly defining the “counterfactual” for those they surveyed – some would have had work or other changes in their life without the course), the use of the highest estimates of variables from arbitrary foreign sources to define the possible benefits of this spending, and the fact that they ignore the opportunity cost of GETTING the tax to spend on these schemes in the first place.  Instead of all these weakness (which are still important mind you) I will focus on one issue: what is policy relevant.

Why look at this?  Well the report is often used to justify a high level ACE spending.  The numbers can only be used to justify spending if they are “policy relevant” – namely if they can define true “social costs and benefits” that aren’t taken into account in the market for ACE.

Now the factors that are policy relevant are NOT private benefits – these help determine the market price.  They are benefits that stem from some third party, uninvolved in the transaction, gaining some benefit from the individual taking an adult community course.  And they are not “fiscal externalities” (ht Offsetting Behaviour).  So the policy relevant factors are:

• Increase in direct income:  No
• Savings in government benefits:  No
• Marginal increase in individual income:  No
• Increase in income from self-confidence:  No
• Reduction in family violence:  No
• Savings for health:  No
• Savings from crime reduction:  Potentially, partially
• Increased community involvement by individual:  No
• Higher income taxes:  No

So some part of $171m-$254m can be seen as a positive externality, a pretty indirect one but lets be generous.

Taking the “possibly policy relevant” factors, and accepting the seemingly artificially inflated numbers (they state that it HALVES the chance of these 400,000 odd people being involved in a crime over their lifetime – see page 57), then the average return per dollar invested is about $2.  Furthermore, that is an average not a “marginal” amount (contrary to the claims of the report mind you – see page 5).  The marginal return (the amount of social return we will get if we increase spending by a small amount) is likely to be well below $1 per dollar.

Given what I feel has been a generous interpretation of the marginal social benefit, the suggestion would be that we should cut back on public funding for adult community education.

Conclusion

These numbers should not be used to justify policy, as they don’t provide directly policy relevant information.  Anyone who uses the numbers to justify policy and is aware of these flaws should have nothing to do with policy anymore.

To be fair on the authors, they are asked to provide the “value” that is created, not talk about corresponding costs.  However, the bit where they state “giving a total return of $54-$72 per $1 invested” is misleading for that very reason.

My criticism is not of the report per see, although I have no doubt we could all argue about some variables and valuations.  My criticism is of the use of the above figure to justify policy – it is inappropriate, and we must be very careful.