No, I’m not talking about Murray Baker’s long-running franchise. I’m talking about the argument that having indebted graduates is a drag on the economy. It goes like this: indebted graduates consume less than debt-free graduates because they are repaying their loans. If they had fewer loans, they’d spend more money, with inevitable multiplier effects on the economy. Hence less student debt = more economic growth. (For an example of this thinking, see here).

While this certainly sounds attractive, it ignores something important: namely, opportunity costs.

There are four ways that government can generate money to reduce student debt. It can tax, it can borrow, it can raid other areas of government spending or it can reduce the cost of educational provision (for instance, by cutting faculty). There may be a variety of arguments in favour of any one of these, but raising aggregate consumption really isn’t one of them.

Say government raises taxes to reduce student debt. Undoubtedly, future graduates will have more money to spend; but only at the cost of decreasing the purchasing power of today’s taxpayers. Borrowing is even less of a solution, since what future graduates gain in purchasing power is going to be more than offset by future tax rises required to pay off the borrowing.

What about re-allocating spending? We could, for instance, spend less on the military, or portraits of the Queen, or agricultural subsidies (take your pick, add your own). The source of the money is more or less irrelevant; what matters is that it’s being taken out of the hands of someone in today’s economy today, so as to improve the lives of tomorrow’s graduates. There’s no necessary net benefit to the economy as a whole here, either.

Finally, there’s reducing the cost of providing education in the first place. At least this option “keeps it in the family” (so to speak), but it’s the same deal; professors and administrators pay now so that recent graduates’ consumption can rise in the future. Of all the arguments, this one might at least plausibly have some extra benefit in terms of stimulus, since professors and administrators are likely to save a larger proportion of it than would students. But it’s still a pretty weak case.

The economic argument for publicly subsidizing higher education is that in the long-run it boosts productivity and hence raises the standard of living. But since it’s really not clear at all that reducing tuition or debt actually makes a blind bit of difference to access let alone productivity, it probably makes more sense to give a marginal dollar to colleges and universities to improve learning outcomes than to increase the spending power of recent graduates.