For instance, government support for higher education is often viewed as enabling the children of the poor to go to college, and thus is viewed to have a positive redistributive impact. But, on closer examination, children of the middle- and upper-middle-classes are more likely to avail themselves of a higher education and whatever government support for it they can obtain. Thus the net benefits accrue disproportionately to the children of middle- and upper-middle-class individuals, and in this perspective, state support appears to be regressive. Moreover, it is not clear that parents’ income provides the appropriate focus of attention; the beneficiaries of education are not the parents but the children; it is the children who will receive higher wages as a result of the increased level of education.
This is from “The Analysis of Expenditure Policy,” Chapter 9 of Joseph E. Stiglitz, Economics of the Public Sector, 2nd edition, 1988.
This is yet another example of Stiglitz’s clear thinking about government policy. Notice in the 2nd and 3rd sentences how he makes the standard argument that many economists have made. The first place I saw this point made was in a 1960s article by, I think, Burton Weisbrod and W. L. Hansen of the University of Wisconsin. Interestingly, William F. Buckley, Jr. made this argument before a New York college audience while running for mayor of New York in 1965. Buckley writes about it in The Unmaking of a Mayor.
But then Stiglitz goes even deeper, the way Armen Alchian did in his article “The Social and Economic Impact of Zero Tuition,” New Individualist Review, Winter 1968. Stiglitz points out that since the recipients of college age are typically adults, the income of their family isn’t that relevant. College aid will go to people whom the aid makes wealthy.
Stiglitz almost gets to where Armen Alchian got. Alchian focuses on wealth and points out that just as owner of land sitting on a pool of oil is wealthy even before he has drilled it, someone capable of getting through college is sitting on an untapped pool of wealth in his brain.
This is my third post on Stiglitz’s textbook. The first two are here and here. I’ll have a few more Stiglitz posts and at some point I’ll explain why I was rereading a 30-year-old book.
READER COMMENTS
Thomas Hutcheson
Dec 26 2020 at 5:52pm
Yes. It odd that venture capital firms have left this market unexplored. True, the 13 Amendment does interfere with certain kinds of mutually beneficial contracts, but lawyers ought to be able to find away around that. Maybe universities themselves would be in a better position to bear the risk of the students’ future incomes, as they would be investing in a portfolio of students and would have both better information on the value each was getting from the education and to some extent perhaps influence it.
robc
Dec 27 2020 at 12:03pm
Some universities are doing what you suggest, Purdue is probably the biggest.
One of the Ivies, Princeton?, tried it in the 70’s.
Matt Gilliland
Dec 28 2020 at 2:51pm
In addition to the colleges robc mentions that are trying it, there are some VC-backed startups trying things as well. Lambda School is a programming bootcamp using Income Share Agreements (ISAs) that take a small percentage of income for a number of years (capped at a fairly reasonable amount).
Gerardo
Dec 27 2020 at 11:22am
Stigler / Director address this question, as well. I actually dusted this off and gave it to my class this term in the context of the median voter theorem. There is a table therein that has some crude but decisive breakdowns of college attendance by family income in California.
Stigler, George J. “Director’s law of public income redistribution.” The Journal of Law and Economics 13.1 (1970): 1-10.
Hans Rentsch
Dec 29 2020 at 8:14am
Krugman may be less “politicised” than Stiglitz, but would you expect the following quote from Krugman? Here it is:
«If there is a secret to Asian growth, it is simply deferred gratification, the willingness to sacrifice current satisfaction for future gain. That’s a hard answer to accept, especially for those American political intellectuals who recoil from the dreary task of reducing deficits and raising the national savings rate.»
Source:
Krugman, Paul (1994): «The Myth of Asia’s Miracle. A Cautionary Fable». In: Foreign Affairs, Nov/Dec 1994, Vol. 73, Iss. 6, page 73.
Ike Coffman
Dec 29 2020 at 10:11am
For a website blog that has such a large representation of college professors it is surprising to me that the articles and comments that specifically deal with education do not draw more upon personal experience. There are a number of potential positive outcomes from going to college, but in my experience the largest benefits go to those who work the hardest to take advantage of those opportunities, and for reasons that include government policy and funding priorities the ability to get our students to work hard has been (and is being) eroded. A focus on whether or not the benefits of financial aid accrue to upper class, middle class, or those from poorer financial circumstances misses the point entirely. The net effect is that we have lowered the bar for college attendance and completion, and everyone (students themselves and society in general) suffers as a result.
The problem lies in balancing the reduction of financial barriers for college attendance while maintaining some level of performance standard and in general government does a pretty poor job maintaining that balance. If we could somehow make students work to earn the right to go to college I would be happy.
David Henderson
Dec 29 2020 at 3:53pm
You wrote:
I think you meant this as a criticism, but I take it as a compliment. One of the worst things one can do in reasoning about millions of people is to take one’s own experience as a guide when one knows that one’s own experience is two or three standard deviations away from the mean.
I sometimes talk to fellow academics who get misty-eyed when they talk about their college experiences. I get misty-eyed too. It was a great experience. But it’s not a guide to what college is about for the vast majority of people who go there.
Now, if college professors talk about their experiences with hundreds or thousands of students, those data are much better data for getting a handle on what the payoff from college and experience of college are like.
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