My last blog post on university tuition – which said that higher education has both public and private returns and charges should be arranged commensurate with the latter – seems to have sparked a variety of responses by email and on the blog.  Some of you were trolling, I think, or playing devil’s advocate, anyway. Others had serious objections.  Regardless, the counter-arguments essentially came in two varieties, and I want to take a moment today to answer both.

The “But-lower-levels-of-education-have-private-returns-too-so-why-not-charge-for-K-12?” argument.  Readers correctly pointed out that higher education is not the only level of education which produces private returns.  However, this isn’t quite the killer argument it seems.  All government spending produces some private returns and that’s not a reason to charge for all government services.  As I should have perhaps elaborated last time, three other factors do come into play:

First, the balance between public and private matters.  Where private returns are very low, it’s probably not worth the hassle to try and collect on it; only where private returns are significant does it make sense to try to recoup fees.  And, in fact, private returns on primary education are so low nobody measures it anymore because there’s no other baseline against which to measure them.

Why the difference in returns, you ask?  Simple, and it’s the second of our three points: the case for subsidization becomes a lot stronger once something is mandatory/universal.  Primary and secondary schools bring little in the way of private returns because almost everyone attends them.  As long as post-secondary is not universal, it is going to have higher returns.  And frankly, it’s hard to justify private payments once a government mandates that everyone do it.  We aren’t there with post-secondary yet.

But, you ask, aren’t we getting closer to universal?  Once we get to 80% of people getting some kind of post-secondary, wouldn’t free make sense, just as it does in primary and secondary school? And the answer here is yes, it would – if higher education were homogenous the way primary and secondary school are.  But – third point – they are not.  The cost to get someone a grade 12 diploma doesn’t vary much by school; in higher education it varies massively by credential (1 year for a certificate, 12 or even more for a doctorate or a medical degree), by field of study, by type of institution, etc.  That heterogeneity is a very good reason not to make consumption costless.  There’s certainly a case to be made that shorter programs – particularly those which have lower rates of return – should be made free (a case I made back here).  But the arguments used to make college-level Early Childhood Education free simply don’t apply to, say, programs in Medicine.  And that’s even before we start asking questions about the difference in family means of those invited into one program versus the other.

I said there was a second counter-argument: it was the “what about Medicare, huh?  What about Medicare?” argument, which Canadians are wont to fall back on when thinking about government subsidies.  That’s because on the whole Medicare is a pretty good program.  But it’s a terrible analogy for higher education.  Medicare is a type of insurance pool – and in particular insurance against random catastrophic events which could cause medical bankruptcies.  And yes, it’s universal in the sense that everyone gets sick and dies eventually, but end-of-life care costs vary enormously from one person to another.

But higher education is not like that.  No one is getting randomly and catastrophically educated.  People plan for education, just like they plan for buying a house.  They choose one of a number of different possible programs with variable costs (both private and public) based on their interests and the kind of life they want to lead – just like they do when choosing a place to live.

If you want a policy analogy, housing and not health care is the right one.  Housing is not perfectly analogous because the underlying asset (land + structure) has a market value that the skills and knowledge imparted by post-secondary education does not, and because frankly we are more tolerant of inequality in housing than we are inequality of education.  But it’s not an insurance market, and no one with an ounce of sense advocates fully subsidizing the occupancy of every type of dwelling just to cure homelessness.

Enough from me – have a good weekend.