Friday, May 18, 2007

Still Thinking about Mark Kleiman's post on Education.

Click the link and read it

Prof. Kleiman says he doesn't know if enrollment in Universities is too high or too low. There are arguments both ways. I argue it is too low below. I admit my evidence is weak so I want to argue in the alternative about what should be done in either case.

The regular reader will not be surprised by my policy conclusions (hint: I always want to soak the rich).

One point is clear from micro data. The private returns to higher education are very high compared to private returns to financial investments "the real rate of return on educational investment (including the opportunity cost of forgone wages) seems to run somewhere between 7% and 10% per annum, which is a healthy rate of return. (Capital-market imperfections help explain this: it's hard for most people to borrow against the future stream of earnings from the human capital they'd like to acquire.)"

Assuming that social returns are equal to private returns, this means that even greater subsidies to education would cause increased GNP. That is, if the only deviations from economics 101 are the capital market imperfections, the policy implication is for the taxpayer to bear an even larger fraction of the cost of schooling.

But maybe sending more people to university is not a good investment for the nation, because they are there to signal and not to learn useful skills. If this is so, a standard argument against progressive taxation -- that it discourages human capital investment -- is reversed. If the quest for high salaries involves waste due to dissipative signaling, redistribution from rich to poor via taxes and transfers can increase economic efficiency. It is easy to write simple models in which such policies cause a Pareto improvement.* If the problem were too high university enrollment, the solution would be to tax high income workers and give the money to people who do not go to university (this could be done with an expanded EITC financed by taxing high incomes).

In contrast, if university enrollment is too low one could cut taxes on high incomes or give cash directly to people who enroll (via increased subsidies). The fact that the return to going to university is much higher than the t-bill rate implies that increased subsidies are a more efficient way to increase enrollment. The present value (to the treasury) of a direct subsidy with equal effect on enrollment as a tax cut is lower, since prospective students discount at a higher rate than the treasury.

Of course another way to achieve efficiency if too many go to university is to cut subsidies raise tuition and use the money for the EITC but the efficiency argument for subsidies as opposed to tax cuts works the other way here as one is pushing the other way here. The USA can achieve the same goal with a big tax increase or a small tuition increase and the big tax increase is better for the deficit.

So I conclude that whatever Kleiman concludes on university enrollment he ought to support soaking the rich either to expand the EITC or to increase public subsidies to universities. In each case the justification has nothing to do with egalitarianism as each policy can increase money metric welfare.

9 comments:

Anonymous said...

Not to know whether American college enrollment is too low and whether college is too costly is to know nothing.

anne

Anonymous said...

Again, not knowing whether school enrollment is too low at any level is always knowing nothing and shamefully knowing nothing. We have forgotten what the explosive growth in public secondary and college education, yes, free college education meant in America. We need to be returning to free or minimal cost public college education and hoping for a bursting of enrollments as in the 1950s.

anne

Anonymous said...

The strength of Chinese education has always allowed the sustained development surge to be understandable, and Chinese education only needs to be strengthened as that in India and Brazil and South Africa. Education is Mexico is shameful, given the possibility. While much of Africa has only begun free primary and secondary education.

anne

Anonymous said...

http://www.nytimes.com/2004/10/24/international/africa/24africa.html?ex=1256270400&en=ec9c815729d47297&ei=5090&partner=rssuserland

October 24, 2004

In Africa, Free Schools Feed a Different Hunger
By CELIA W. DUGGER

MALINDI, Kenya - More than 200 first graders, many of them barefoot, clothed in rags and dizzy with hunger, stream into Rebecca Mwanyonyo's classroom each day. Squeezed together on the concrete floor, they sit hip to hip, jostling for space, wildly waving their hands to get her to call on them. Their laps and the floor are their only desks.

One recent afternoon, the line of wiggly children waiting to have Mrs. Mwanyonyo check their work snaked around the bare, unfinished classroom walls. Girls and boys crowded around her, pressing their notebooks on her. Some cut in line. Fights broke out. Boys wrestled. Girls dashed from the room. Giggles and shrieks drowned out her soft voice.

Mrs. Mwanyonyo pulled a boy in front of her and eyed his attempt to list his numbers. "Can you write 1 and 2?" she asked quietly. His head sank to his chest as he shook it no. While she laboriously graded each child's work, the noise level rose to deafening. "Quiet, keep quiet!" she shouted, her voice on the edge of desperation.

Overnight, more than a million additional children showed up for school last year when Kenya's newly elected government abolished fees that had been prohibitively high for many parents, about $16 a year. Many classrooms are now bulging with the country's most disadvantaged children.

Kenya is not alone. Responding to popular demand for education, it is one of a raft of African nations contending with both a wondrous opportunity and nettlesome challenge: teaching the millions of children who have poured into schools as country after country - from Malawi and Lesotho to Uganda and Tanzania - has suddenly made primary education free. Mozambique will join them in January when it abolishes fees.

The explosion in enrollments has put enormous pressure on overburdened, often ill-managed education systems.

What hangs in the balance is the future of a generation of African children desperately reaching out for learning as a lifeline from poverty, even as poverty itself presents a fearsome obstacle.

Near the end of a school year that runs from January to November, Mrs. Mwanyonyo, an earnest wisp of a woman, is still struggling to teach most of her students the alphabet and basic counting. She knows the names of only half of them. She estimated that 100 of her 250 students - split into morning and afternoon shifts - would have to repeat the grade.

Salama Kazungu, a willowy girl of 12, sits among Mrs. Mwanyonyo's multitudes, her small shapely head rising above those of the 6- and 7-year-olds. She failed last year in the class of another first grade teacher who had 248 pupils. ("If I could have, I would have run away," the teacher confided, relieved he has just 110 pupils this year.)

Not Enough to Eat

It is hard for Salama to learn because her belly is often empty. Her mother sells charcoal but makes too little to buy enough food. Salama never eats breakfast. For supper, she often has only boiled greens foraged from the wild.

On her hungriest days, the child said, she looks at Mrs. Mwanyonyo and sees only darkness. She listens, but hears only a howling in her ears. Yet she is determined to continue. At 12, she has already had her fill of the African woman's lot: fetching water, collecting firewood and carrying it to market on her back like a beast of burden.

"I was always working and working," she said. "I told myself that the best way to get out of this is to come to school and get an education."

In large measure, the idea of free education has gained powerful momentum because politicians in democratizing African nations have found it a great vote-getter. Deepening poverty had meant even small annual school fees - less than an American family would spend on a single fast-food meal - had put education beyond reach for millions.

The abolition of school fees is also owed to the changing politics of international aid. In the 1990's, the World Bank, the largest financier of antipoverty programs in developing countries, encouraged the collection of textbook fees. Its experts had reasoned that poor African countries often paid teacher salaries but allotted little or nothing for books. If parents did not buy them, there often were none.

But evidence began to mount that fees for books, tuition, building funds and other purposes posed an insurmountable barrier for the very poor....

anne

Anonymous said...

Again, I ask, who doesn't know what about whether high school enrollment is what for whom?

anne

Anonymous said...

Interesting about the World Bank thinking that what was needed for Africa was charging for school. Interesting because them there times was the times of William Easterly of the disgraceful "White Man's Burden." Easterly, of course, is still worried even about too many African children in school, let alone building fine African colleges. Phooey.

anne

Anonymous said...

The cost of American public college education is disgraceful, and needs dramatic lowering along with suitable attractive resources in the continually hope of increasing enrollment. And, of course, the public cost is easily affordable by simply thinking of the insanity of squandering $15.8 billion a month on direct spending for Iraq.

anne

Anonymous said...

Similarly schooling from India to Brazil and through Africa must be continually emphasized and opportunites increased and quality improved.

anne

Anonymous said...

Why are we so little understanding of what the New Deal and New Deal legacy meant to America? Education was a critical component of New Deal thinking and planning.

anne