Friedman’s high education lessons

21 05 2008

I am currently reading Milton Friedman’s “Free to Choose“. Throughout the book I am continuously impressed by Friedman’s intellect and ability to explain things with great clarity. I was especially taken with his explanation on why the governments shouldn’t subsidise higher education.

My personal argument against the government funding of higher education has always been the argument of equity. Taxes are paid by everybody, yet university education mainly benefits the middle and upper classes. I don’t think such arrangement is equitable as poor get very little benefit from paying their share of higher education funding. In fact they are subsidising the children of the better off to study. There are also many areas of university study with very questionable societal benefits such as feminism studies, New Age studies, homoeopathy and so on. Still I accepted the common view that education increases the nation’s productivity and higher productivity contributes to the greater social good.

Friedman convinced me that such thinking is nothing more than poor economics. Friedman doesn’t deny that higher education levels contribute to better productivity. But this is not a good reason to subsidise higher education. Higher productivity leads to higher wages which means that those who pay for higher education will recoup their costs though higher wages. Why should taxpayers pay somebody to improve their income levels, especially when most would do it anyway out of simple self interest?

Friedman points to another big fallacy in productivity argument. There are many ways to boost nation’s productivity. One way is too increase capital investment. For example government could give away taxpayer money to BHP or General Motors to build bigger plants and boost their productivity which will in turn increase the nation’s productivity. Attracting the best management talent is another way to make firms more productive. Should government use taxpayer’s money to top up already high executive salaries in order to attract the best to Australia? This would undoubtedly raise the nation’s productivity, but no government in their right mind would do that. Indeed the productivity argument sounds ludicrous when it’s applied to areas other than higher education. So why is it that in the area of higher education this clearly illogical argument is accepted as self-evident truth?

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23 05 2008
Vanity funding « Lattenomics

[…] far as more funding for universities is concerned, we have already established that public funding of universities is not desirable. Such funding is highly unfair for low income […]

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