In defence of government funded tertiary education

As a young child I was told repeatedly that education was a right, and that society should pay for it – not just at the primary level, not just at the secondary level, but at the tertiary level as well.  Being an argumentative child I disagreed repeatedly.  In I make a point of still disagreeing whenever I run into my mother.

If I was to boil down my argument I’d say “the individual benefits from their education with higher wages and the satisfaction involved”, I would then go on to say that “we should only fund the public benefit associated with education – which is shown to be lower than the current level of funding”.  This would lead to the reasonable conclusion that we should be cutting funding to tertiary education, not increasing it.

Now this was all well and good when I was a young impulsive lad, but as I’ve grown older I’ve become unhappy with the idea of reaching conclusions.  As a result, I find it a bit uncomfortable that I would find this solution “obvious” – and with a few seconds of thought I’ve realised why.

The argument used above is very “partial”, I am solely looking at a market and the given externalities associated with that market.  If a conclusion COULD be based solely on efficiency considerations this would be fine – but they can’t, we need to take into accout “equity”.

This brings me to the idea of “equality of opportunity” – something every single person on the politicial spectrum seems to agree with.  A great article here discussed that issue.

When looking at tertiary education, it is all well and good to say “if capital markets are working, people will borrow on the basis of expected future earnings from their qualification, and so we have equality of opportunity in the tertiary setting”.  However, is this really true.

Now – before asking if there is an issue, I’m stating that I will not use an argument about stupidity here.  I disagree that this is an issue of “stupidity” or people “not thinking about future earnings” – I will never sell a policy on the basis of “expected dumbness”.

However, there is a fundamental issue – the difference in endownment.  Someone with wealthy parents is not that much worse off following a failed attempt at education, while someone with poor parents IS a lot worse off.  The costs of failure are different, while the benefits from success are the same – so on average, people with wealthy parents will invest in more education.

With the state funding a larger chunck of tertiary education funding, they are leveling the playing field in terms of the “cost of failure”.  By doing so, they ensure that we do face true equality of opportunity.  This sounds like a good argument for defending funding levels greater than the normally measured total “social benefit”.


So what was the point of this post?  Do I even believe it?

The point of this post was to illustrate (especially to myself) the idea that it can be too easy to rely on “faux efficiency” arguments to reach conclusions – they are great, hell essential, for describing trade-offs … but you need to include an analysis of the endownment of resources and what “fairness” is before you can ever really reach a conclusion.

Do I believe the argument I wrote in the post?  Sort of, but mainly not.  I don’t think its the states roll to redistributes peoples endowments that they chose to build up (eg stocks of wealth to pay for their kids education) – and I think that teritary education is sufficiently about the “individual” to warrant self-funding.  I would suggest that funding should be based more on student performance – although that is something that never would have worked in my favour 😉

2 replies
  1. Paul Walker
    Paul Walker says:

    What exactly is the “cost of failure” and how do you measure it? Also doesn’t the “cost of failure” differ for people in all activities. If my parents are wealthy and I go into business isn’t my “cost of failure” less than a person from a “poor” background? In which case shouldn’t the government subsidise “poor” people going into business?

  2. Matt Nolan
    Matt Nolan says:

    @Paul Walker

    The cost of failure is the loss of lifetime satisfaction associated with the failure.

    In terms of outside options, if someone takes on a big debt and they have a poor endowment of resources, and they end getting the wrong end of the risk involved, they will undeniably be worse off then someone who has the resources to pay off that debt. Why? Well, they may be sacrificing the same amount of income – but that income will be relatively more valuable in terms of what they can buy.

    Yes, individuals are different, but as a value judgment (which this undeniably is of course) it seems relatively fair on average.

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