Saturday, December 11, 2010

Why should a postman pay for your university education?

Proponents of graduate fees and loans justify loading, say, teachers with £50k of debt at the beginning of their careers as fair because the alternative - an income tax funded system - is unfair:

"Why should a postman pay for your university education?"

Paxman asked this question of a student on Newsnight. Perhaps he was expecting a good answer but he didn't get one. A good response is to say:

"Why should a postman pay for the cancer treatment of this middle class woman?"


Unless you are free market libertarian of the most extreme sort, you can surely see there's a good answer to this question.

In fact, unlike that middle class woman's cancer treatment, the postman does get an obvious direct benefit from living in a society in which people are university educated, such as the qualified teachers who teach his children, for example. And, more importantly, his own children will have the opportunity to go to university without being saddled with huge debt.

Being a low paid worker, he of course contributes only a small amount towards getting these benefits (while being no less entitled to them than anyone else). The vast bulk of the cost is met be the better off, proportional to their income.

A university-educated public also gives the rich and big business an educated workforce to exploit. Yet big businesses such as Top Shop, while happily trading here and enjoying the benefits of our educated workforce, won't pay tax here - won't contribute anything at all towards educating that workforce. Perhaps they should? The Green's policy is that big business should be paying for university education. That's another, interesting alternative to current proposals.

Of course the simplest solution to the problem of funding university education is just to raise income tax (which would instantly, simply and economically produce massive revenue, unlike the proposed system which is not only unfair but horribly complex, administratively costly, and won't produce much in the short term, perhaps if ever). The Lib Dems, I seem to remember, used to have a policy of putting a penny on the pound - a one percent tax increase - for education. Yet they now say there is "no alternative" to the current plans. A tax increase is now considered unthinkable. Why? Because the rich would pay the same - the same proportion of their income as everyone else, take the same "pain" as everyone else, and the Tories cannot have that.

Stephen Law
Former postman.

13 comments:

Tim Stephenson said...

Hi Stephen,

You say I realize that the very rich constitute such a small percentage of the population that increasing the amount they pay won't have that much of an impact on the deficit. But that's irrelevant.

Is that irrelevant? Surely the super rich are free to trot the globe and avoid paying any extra tax, which is why they should be taxed just as much as they will tolerate without leaving the country. The problem with a graduate tax is that the government would not see any savings for decades, whereas forcing students to take out a loan for their education eases the financial situation now.
Another issue with a graduate tax is collecting it - there would be a brain drain of graduates to other countries who would have the benefit of the educated workforce and our government would have no tax.

Stephen Law said...

I am proposing not a graduate tax but a general tax increase. That is my preferred option, though I also touted option of a grad tax in previous post as still fairer than what's currently going though.

The issue of collected grad tax also applies to current new system. Either way, you have to chase people round the world to get the money back. The income tax option avoids that, and it is my preferred option.

Graham Bower said...

There is an obvious difference between cancer treatment and education. Your 'middle class woman' may die without her treatment, whereas a prospective student will not die without higher education. So the former's need is greater than that of the latter.

What your argument has not adequately addressed in my opinion is what constitutes a public good, how we define them and where we draw the line.

You make a connection between higher education and teaching, but not all degrees lead to a worthy career like teaching. Should your hypothetical postman be paying for degrees in alternative medicine, for example?

Higher education for its own sake is surely not always a public good, and if its free, isn't there a risk that it will suffer from the tragedy of the commons?

Brendan said...

Health care has to involve cross-subsidisation. If only sick people pay for health insurance it becomes impossible to provide. In order to have any health insurance at all, there needs to be regulation to prevent private insurers poaching healthy customers and ditching unhealthy ones. Whether regulation or government intervention works out cheaper is an open question. In any event, opting for the latter rather than the former doesn't work out as significantly more expensive for the government (i.e. it doesn't have to sacrifice the pursuit of other moral imperatives to fund it.)

The US is an instructive example. Health insurance premiums for the healthy in the US are enormously high, because almost a third of insurance company's expenditure is on overhead - poaching the healthy and denying the sick. Any company that doesn't do this, is forced to the wall by competitive conditions. The Obama healthcare plan, among other things, includes a mandate, requiring everyone to purchase health care insurance. This is the only way to prevent the exodus of healthy insurees when their premiums rise due to the end of discrimination against the unhealthy. But it also has the added benefit of, over time, drastically reducing the administrative burden, making insurance cheaper for everyone. The postman and society are unambiguously better off where there is universal health insurance.

I'm not sure public funding of third level education is the same kind of public good (distinct from the question as to whether a sizeable number of graduates in the population is a public good, which it evidently is.) Some people don't have the aptitude for higher education. Others have skills and opportunities which are better exploited elsewhere. Where these people choose not to go to university they and society both benefit. They don't waste three to four valuable years and free up resources for people who stand to gain more from third level education. Yet we don't try to identify these people and use publicly funded incentives to stop them attending university

As long as finance is available on fair terms, cost shouldn't be an issue in respect of third level education. If young graduates are a public good, then there is definitely a role for government here, in ensuring people with no credit history can have access to such loans. But third level education for most people is the door to higher incomes and a much improved quality of life. If a young person realises that an education is worth more than the value of the loan (in monetary terms alone, before we talk about widened horizons) then it's hard to see why they need an extra financial push from government.

By far the biggest obstacle to entering university seems to be cultural, e.g. where a person grows up in a community or family where education is viewed with hostility and universities as alien institutions. Here young people may end up eschewing university not because they lack the aptitude or because they have better opportunities, but because they lack the mindset required to properly assess the advantages of further education. Here there is a case for more intensive government intervention, but it is clear that simply subsidising them is not sufficient to assist them. Moreover, it isn't clear that subsidies are necessary to assist them.

Brendan said...

Health care has to involve cross-subsidisation. If only sick people pay for health insurance it becomes impossible to provide. In order to have any health insurance at all, there needs to be regulation to prevent private insurers poaching healthy customers and ditching unhealthy ones. Whether regulation or government intervention works out cheaper is an open question. In any event, opting for the latter rather than the former doesn't work out as significantly more expensive for the government (i.e. it doesn't have to sacrifice the pursuit of other moral imperatives to fund it.)

The US is an instructive example. Health insurance premiums for the healthy in the US are enormously high, because almost a third of insurance company's expenditure is on overhead - poaching the healthy and denying the sick. Any company that doesn't do this, is forced to the wall by competitive conditions. The Obama healthcare plan, among other things, includes a mandate, requiring everyone to purchase health care insurance. This is the only way to prevent the exodus of healthy insurees when their premiums rise due to the end of discrimination against the unhealthy. But it also has the added benefit of, over time, drastically reducing the administrative burden, making insurance cheaper for everyone. The postman and society are unambiguously better off where there is universal health insurance.

I'm not sure public funding of third level education is the same kind of public good (distinct from the question as to whether a sizeable number of graduates in the population is a public good, which it evidently is.) Some people don't have the aptitude for higher education. Others have skills and opportunities which are better exploited elsewhere. Where these people choose not to go to university they and society both benefit. They don't waste three to four valuable years and free up resources for people who stand to gain more from third level education. Yet we don't try to identify these people and use publicly funded incentives to stop them attending university

Brendan said...

Part 2:

As long as finance is available on fair terms, cost shouldn't be an issue in respect of third level education. If young graduates are a public good, then there is definitely a role for government here, in ensuring people with no credit history can have access to such loans. But third level education for most people is the door to higher incomes and a much improved quality of life. If a young person realises that an education is worth more than the value of the loan (in monetary terms alone, before we talk about widened horizons) then it's hard to see why they need an extra financial push from government.

By far the biggest obstacle to entering university seems to be cultural, e.g. where a person grows up in a community or family where education is viewed with hostility and universities as alien institutions. Here young people may end up eschewing university not because they lack the aptitude or because they have better opportunities, but because they lack the mindset required to properly assess the advantages of further education. Here there is a case for more intensive government intervention, but it is clear that simply subsidising them is not sufficient to assist them. Moreover, it isn't clear that subsidies are necessary to assist them.

This has somewhat been longer than I intended! In essence the central point I tried to make, albeit perhaps incoherently, is that one can take opposition to your view on the basis of cautious solidarity rather than radical libertarianism. People are good at helping themselves, but sometimes they face insurmountable obstacles in doing so. In the case of health insurance, it's a coordination problem - if we all buy health insurance we are all better off, but we need the government to guarantee that everyone does so. In the case of students, there are particular vulnerabilities. There is a moral case for assisting people with those vulnerabilities - guaranteeing student loans and setting programmes to open disadvantaged students minds to the possibilities of further education. But if that helping hand is sufficient, then the moral case disappears. Why should the postman hand over a straight cash transfer to someone who doesn't need it?

Neurobonkers said...

Great point, my question is why is the government being allowed to sell student debt to bankers who will cream off the profit? http://is.gd/is8X9

jim said...

Hi Stephen.

Regarding this...

"Of course the simplest solution to the problem of funding university education is just to raise income tax (which would instantly, simply and economically produce massive revenue, unlike the proposed system which is not only unfair but horribly complex, administratively costly, and won't produce much in the short term, perhaps if ever)."

Do you know of any good resources which explain the economic problems of the proposed scheme? Particularly with regard to the generation of short term revenue? This is something I am interested in but am finding it quite hard to get a grip of.

Thanks!

richard.blogger said...

I agree with you and had many long, and heated arguments with Blairites about this when tuition fees were introduced. They blocked their ears like the coalition are doing now.

Funding for higher education (both the funding of university teaching and for student maintenance grants) is a tiny proportion of government spending, and since a low income worker pays little tax in absolute terms, it means the actual cash they pay is small. (Perhaps someone with the figures could calculate it?)

Even so, our system (currently) is that low income people get back more from the welfare state and public services than they pay in tax (as it should be). So it is fatuous that anyone could use an argument like "why should a postman pay..." since in fact they have a net gain from public services.

One further point. The low income worker pays taxes which contributes to providing public services. That is their contribution and it is a type of covenant: they pay what is due (what they can) and get equitable access to the services. The postman paying his tax does this so that his children can also have a university education. And it is right that the better off pay for that education.

Anonymous said...

One point about university funding: if universities get all or most of their funding from the government, they will be more or less controlled by the government, too. You may think this is a good thing, increasing democratic accountability; isn't there a danger, however, that some well-meaning but ill-though-out government policy will end up doing damage to our universities? Increasing the amount universities receive from graduate contributions will reduce their dependence from the government and safeguard their intellectual and academic freedom. If the current system of funding student loans remains in place, people won't need to pay off their fees until they're earning over a certain level, so there will be no need for people to be put off studying on account of their background.

Rocky said...

"A university-educated public also gives the rich and big business an educated workforce to exploit."

That's not quite true - it gives them access to plenty of people who have attended a university course of some sort and/or possess a degree, but that's not a guarantee they'll be especially bright/talented etc. In fact, with the ever increasing numbers who have gone to university, it strikes me as quite likely there will be large numbers of academically/intellectually poor people who happen to have some level of university education.

I'd say another it result in is that people no longer feel they have to do many of the more menial and/or low paying jobs that big business offers because they feel having been to university entitles them to higher paying or less boring employment.

Nick said...

Hi Stephen,

I believe that the government plans to cut the state funding to university education and to raise tuition fees instead are misguided, as I think that university education should be seen as an important public good in that it helps to create a wiser, more stable, more progressive, and more economically prosperous society. And that is beneficial to all. However, I disagree about some of the means and aims of the protesters.

I've written a post here:

http://freethinkingblog.blogspot.com/2010/12/student-protests-dialogue.html

Rocky said...

"Of course the simplest solution to the problem of funding university education is just to raise income tax"

Rather than increasing taxes would a simpler option not to be to reduce the number of university places available?

I remember reading this BBC article earlier this year, which states that over 50% of university-aged women in England able to enter university education in 2008 did so.

http://news.bbc.co.uk/1/hi/education/8596504.stm

For males the figure apparently is not quite that much, but still fairly high at around 40%. There is no way that between 40-50% of the population are good enough academically to deserve university places. More to the point, even if they were, is it actually even necessary to send that many people to do higher education qualifications? In my view, no.