President Barack Obama traveled to Tennessee to propose that tuition at community colleges and most public vocational-technical schools be made free for everyone.
Skeptics observe that this was empty grandstanding on his part, since there is no way the current Republican-majority Congress would create yet another entitlement program, even if patterned on one created by a Republican state administration, Tennessee, touted as a model by the president.
Regardless of its political chances, the president’s proposal, and the Tennessee policies, raise interesting economic questions.
Education is not purely a “private good” like a jacket or a hamburger. The benefits derived are not all captured by the person acquiring it. Some of the benefits spill over to society as a whole.
However, neither is education a pure “public good,” like a tornado warning system of radars and sirens. The benefits of such a system meet economists’ criteria of being “nonrival and nonexcludable.” The fact that I am warned of a tornado does not diminish the ability of the system to warn others. And there is no way to exclude anyone within range of the sirens from getting the warning.
National defense, navigation aids to water and air transport and public safety services like police and fire protection also are close to being pure public goods. Government must act to provide them or society will be worse off. The economy will be inefficient. For any given amount of natural and human resources available, there will be a lower level of satisfaction of human needs and wants.
Education is more complex. Many of the benefits are “internal.” The person who gets the education captures much of the benefit. Better skills translate to higher earning potential and more meaningful jobs. (Simply being educated may allow one to get more out of life, although that is debatable.)
However, some benefits of education do spill over to society. An economy is more productive when all people can read and write and have basic knowledge of key subjects. Businesses can find more productive workers and spend less on training. Democracy functions more effectively.
Economic history shows that countries that invest in broad-based education of their citizens achieve higher economic growth than those that don’t. This is true from the Netherlands in the 1600s to Korea and Taiwan from the 1950s onward. Indeed, success in implementing near universal primary and secondary education is what sets the Asian tigers apart from countries like Brazil that also showed great economic promise.
In general however, such spillover effects benefitting the economy as a whole taper off as the level of education increases.
The spillovers are large for primary education, somewhat less at the secondary level and so on. At the doctoral level, the spillovers are small. There are differences between majors. Medicine has greater societal spillovers than history, engineering more than studio arts.
A common and rational response has been to make lower levels of schooling mandatory and free. Higher levels may be subsidized, but the degree of the subsidy tapers off as the educational level rises.
The cut-off line for compulsion and free provision is inherently arbitrary. In our country, school is usually compulsory to age 16 and offered free through 12th grade.
Historically, after high school there was no broad subsidy, although the Morrill Act of 1862 provided an in-kind federal subsidy to states to establish land-grant colleges and many states set up teacher’s colleges to turn out instructors for local schools.
Many states did have high levels of subsidy for students attending state institutions. My tuition and fees, including health insurance, at the University of Minnesota in 1971 came to $366 a year.
The state of Minnesota picked up a far higher fraction of the cost of my education than of those studying today.
Only with the GI Bill after World War II was there broad subsidization of individuals to pursue college-level studies. The impetus that gave to economic productivity reinforced the lesson that there are significant spillovers to education, even after 12th grade.
Since our dependence on technology continues to grow, it might seem logical that we rethink the now century-old cut-off of fully subsidized education after 12 grades. That seemed true to the Republican administrations of Tennessee that instituted the free community college policy that Obama wants to become a national one.
But there are many complications.
If post-12th-grade education has significant beneficial spillovers, why make it free only at community colleges? Why not for those at four-year schools? If for those at public colleges, why not for those at private ones?
If everyone can get the first two years of a bachelor’s program free at community college, won’t this artificially drain students away from state and private four-year schools?
Moreover, since Pell Grants cover a large fraction of existing community college tuition costs for poor students, won’t making it free for everyone just be another subsidy to the middle class?
We have a lot of problems in post-secondary education in our country, both in terms of the burgeoning per-student costs at four-year schools and the level and methods of subsidizing study.
The general idea that a 21st century economy benefits from significant post-secondary educational spillovers is almost certainly correct. But implementing taxpayer-financed free tuition at community and vo-tech colleges as a stand-alone measure separate from other reforms is a pretty blunt instrument.