Sunday, June 16, 2013

College and Cakes

It was graduation day at UChicago yesterday. Congratulations to everyone who graduated.

Should College Be Subsidized? 

On a related note, Tony (now officially Dr. J. Anthony Cookson) and Xan and Tony again have been getting in on the discussion about Is College Worth It? I want to say a quick about a related issue: Should college be subsidized? There are a lot of theories about college, and in my recent post Cakes, A Parable, I was hoping to illustrate three simplified ideas about college and subsidies.
  1. If benefits of education are private (that is, accrue entirely to the individual getting the education, say through vocational training or consumption), then education should not be subsidized.
  2. If college is just a costly signal, then education should not be subsidized.
  3. If education provides positive externalities (benefits to people other than the individual getting the education not reflected in market prices), then it should be subsidized. 
The Point

There are other theories of college, too, but the point I want to emphasize is this: college can be a very, very good thing, but being a very, very good thing is not enough to warrant a government subsidy. For that, it has to be a good thing for other people in a way that will not be captured by pricing in the market.

So if you think there are large public benefits from college that are not internalized by the student, such as lower crime levels, improved and informed participation in democracy, or just overall better values, then maybe* it should be subsidized. If you think the benefits are mostly private, even if they are large, it should not be subsidized.

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* I say "maybe" because if better values are the main positive externality of college, then isn't college kind of like church in the respect that matters for subsidization? Kind of makes you think twice, doesn't it?

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