THE ROLE OF GOVERNMENT IN EDUCATION (Milton Friedman)

Economics and the Public Interest ^ | 1955 | Milton Friedman

[Remember_Salamis]

I've read that a major contributor the economic disaster called the 1970s was that all the flower children got "crap" degrees and couldn't apply them in the real world. So what did they do? They kept going to school. And when they still couldn't successfully integrate into society, they simply became faculty members. These flower children with crap degrees now fill our children's heads with mindless left-wing propaganda the the university.

Imagine if the government didn't pay for all those leftists to get worthless degrees? How would have the Vietnam-era scene on campus looked if government wasn't subsidizing the education of protesting students??? How would our current political scene look if none of today's leftists (and yesterday's college radicals) got a free education on how to destroy the capitalist system?

[evilC]

Interesting article that deserves a bump.

[drtom]

And you are right. BUT...the military is a targeted customer with a clearly defined need. Therefore the target for actual funding is easy to determine.

Society is much more complex. What measure will you apply to determine what fields are worth funding?

Before I went into engineering I was an astrophysicist. People used to argue that my type of research (supernovae) had no return on investment ever. And I had to (grudgingly) agree. Is a psychologist that researches ADD statistics in schools less valuable than a pharmaceutical engineer that produces Ritalin?

I think in the end it will be the market itself that forces the correction. Once you have an overabundance of B.A.s and there are no jobs except for McDonalds, the trend will go the other way. My area is currently the center of a housing boom and suddenly trades have been rediscovered by the local population. The same is true on a national and global scale.

[Remember_Salamis]

Just like Friedman said, it's about Return on Investment (ROI). If Molecular Chemists give you the biggest ROI, then you should invest more in it. If it's literature majors that give you the best ROI, then spend more on them.

On a side note, don't you feel that people who get "social" degrees tend to be far more liberal than others? And since when can you teach creativity?

[Luke]

"Education is today largely paid for and almost entirely administered by governmental bodies or non-profit institutions.

Reallllly!!!! And just where does the taxpayer fit into this picture? Contrary... education today is largely paid for by you and me. Santa Claus is a myth folks.

[drtom]

Well, few made it into real "faculty" (not enough brains) but a lot made teachers and educators. However, and this is the interesting part, the majority got absorbed by industry. It was the ability to argue, present, and entice that made them perfect candidates for sales manangers, company reps and team leaders. The are a lot of them in upper management nowadays.

On a side note, this is not just an American occurence - Europe has seen the same.

I am much more concerned about the lack of citizenship knowledge in today's engineers. Most of our grads couldn't find Afghanistan on a map. Most hit 30 and have never been to another continent. You ask them to explain what Tesla and Maxwell did for science and they don't have a clue. As an engineer one will contribute to society. It would be good to KNOW a little bit about the latter.

[Remember_Salamis]

LEt's take a look at Friedman's dilemma of investing in Human Capital in a non-slave state. After all, you can't buy a piece of a person.

I'll propose an idea, an original idea that I just dawned on me: Education Bonds! We'll call them "EduBonds".

How they will work is that government will issue bonds for investing in a certain educational field. The government will give a defined dividend (we'll say 3% annual) on each type (engineering, computer science, literature, psychology, etc.). If the market feels that a particular field is needed more than others, investors will bid up the value of that bond, thereby increasing it's value. This will accurately reflect the supply and demand of certain professions in the private sector. If a private-sector investor feels that a certain profession will be in strong demand in the future, he can "buy into it" before it goes up in the future. The only money the government would pay is the dividend. Since the dividend rate is the same across all professions (3% in this scenario), but the price of the bond is not (it fluctuates based on private-sector demand), the government will end up paying for education based directly on what the private-sector is demanding!!!

Under this scenario, the government is not distorting what the private sector needs, but merely following the market's needs.

I really think I'm on to something. Can you help me work on it?

[Remember_Salamis]

The paper was written in 1955.

[drtom]

Return on Investment (ROI).

That's exactly my point. How do you MEASURE ROI? If it was immediate return only then we should scrap the Cassini probe, most particle accelerators, and a lot of theoretical physics. And how about sports? Why are my taxes paying a scholarship in golf or football? Who gives a soggy donut whether we win a medal in Athens this year or not? No ROI on that. </ sarcasm>.

And since when can you teach creativity?

You can't. That's exactly my other point. By luring people into programs they wouldn't have chosen in the first place you end up with mediocrity. Only enthusiastic students are creative students. A society must succeed in a multi-faceted fashion to be the leader of the free world.

[Remember_Salamis]

Regarding the Cassini probe, not all ROI is short-term; there are long-term investments as well. Today's theoretical physisist may discover how to make Cold Fusion a reality in 50 years!

Regarding Sports, ironically they do give a ROI for the university, but not all sports. The big sports, such as football, basketball, and hockey in the Northern US, all make a profit for the school. In fact, some college football programs can turn a $20M - 30M profit on winning a national championship. The problem here is when you run into Title IX. Yes, you are subsidizing your local women's lacrosse team. And no, nobody's watching.

Read my post on setting up a commodities market for education funding.

[drtom]

Oh god, you sure wouldn't want MY advice on financial matters. One look at my stock portfolio and you know why...LOL.

Interesting concept. Even the artsie-fartsies (I will get sooo in trouble for this) can have influence on "their" bond by simply buying it. I dunno if that works but it's interesting. I'll run it by my economics colleagues next week.

I spent some time in British Columbia, Canada, recently. The Govt there issues Labour Bonds. The return is tied to the labour market. If you buy them you help creating new jobs which triggers the economy etc. etc. Sounded good to me. Little bit related to what you propose.

[Remember_Salamis]

" Even the artsie-fartsies (I will get sooo in trouble for this) can have influence on "their" bond by simply buying it."

-- Exactly! If you're an art lover, why not just buy an EduBond in the type of art that you love so much? If you love classical music, buy an EduBond in music. If you love books, invest in an EduBond in Literature? In fact, it'd be even better than donating it because you actually get a return on your investment. With a system like this, who needs the National Endowment for the Arts???

BTW, do you have any information on these "Labor Bonds"?

[spunkets]

"How do you MEASURE ROI?"

By looking at who gets elected in the period after they graduate.

[drtom]

not all ROI is short-term. There you go. We need to evolve in as many arenas as possible because we cannot determine per se which fields are guaranteeing the best ROI. In the end, the combination of science, arts, engineering and economics will propel the society forward. Thus, I would not want to curb a student's enthusiasm for a psychology degree by subsidizing his program less than others.

Re Sports, so you have return for the institution. What if I were a famous writer/psychologist/economist and people flocked to my lectures to hear me, and I could increase tuition fees dramatically? This would be a similar return. As an example, Stephen Hawking works on topics that are as zero-ROI as they come. Yet, he is a shingle for Cambridge. Which enhances the reputation for the institution which creates other non-tangible assets.

[drtom]

Labour Bonds: I'll try to find a link. It's been a while and I can't remember their exact name but I should be able to google them out. I only remember that they spell labor with a "u"... :o)

[Remember_Salamis]

Read post #27. I have additional info. I'll sum up here

Each year, the government will issue EduBonds. These non-redeemable (but tradable) bonds will go towards education in a particular field. All will pay the same PERMANENT dividend on all career fields, in my theoretical scenario that would be 3%. The price of the bonds, however, can go up or down, depending on demand. If investors think a certain career field will be in strong demand in the future, they can bid on it and drive the price up.

In year 1, the government will issue bonds in 20 broad career fields, with 10,000 $10,000 bonds being issued for each career field. The government will pay (1) the owner of the bond 3% of it's value and (2) deposit 3% of the bond's value in a fund for that particular career field. If the bond's value goes up, so does the investor's ROI and so does the amount of money the career field is recieving.

In each subsequent year the government will issue more bonds, but they will be issued at their current price, not the original $10,000. In addition, the NUMBER of bonds issued will be adjusted to how much the bond's price changed the year before. If the value of a Chemistry EduBond went up 10%, 11,000 bonds would be issued for it. If the value of an anthropology EduBond went down 10%, only 9,000 bonds would be issued for it. On bonds held from previous years, the 3% dividend will still be paid to the investor, and the government will match that payout in depositing money in that career field's fund.

The market's current and future demand for certain career fields will be directly reflected in government funding. In the Arts and Music, where there won't necessarily be a business market demand, the demand of Art and Music partisans will drive how much funding gets devoted.

So, America's wants and needs for certain professions will be directly reflected in government funding. A perfect system. Are there any questions?

[Remember_Salamis]

"we cannot determine per se which fields are guaranteeing the best ROI."

-- The Market will determine the best ROI. If society, in the form of the market (both business intersts and partisan intersts in the fields of arts, music, literature, and "non-applicable" sciences) say that there should be less money spend subsidizing Psychology, is there any reason why we SHOULDN'T spend less money subsidizing psychology???

"Stephen Hawking works on topics that are as zero-ROI as they come. Yet, he is a shingle for Cambridge. Which enhances the reputation for the institution which creates other non-tangible assets."

-- And Cambridge pays for Hawking, not the taxpayer. So, Cambridge IS getting a pretty sweet ROI on Hawking. The same goes for American intellectuals.

Oh, and another thought: What about the ultra-philanthropists, like Bill Gates, who donates over $1B to charity every year? He could fund the education of a thousand Hawkins if he wanted (and get a return on his money too!).

[LiteKeeper]

INTREP - EDUCATION and the GOVERNMENT

[drtom]

ROI: But if there are ROIs that are not too obvious or not too quick like theoretical astrophysics - the market approach would shut that down. The number of people who are able to understand t.a. and its merits at a level that they would feel it's worth supporting would be significantly less than the psych supporters. Your music example is very good. Symphony orchestras all over the country have money problems. Chances are this education would have a problem to survive through market-funding (sadly, pop music and music education are usually mutually exclusive). Yet, I wouldn't want to travel to Europe to see a good classical concert just because American musicians aren't funded.

And Cambridge pays for Hawking, not the taxpayer

Not really. His chair is base-funded so it is the taxpayer's money that pays for it.

Oh, my pizza arrived. I'm off this thread but might check back later. Good chatting with you R/S! Good luck with your EduBonds.

[GSlob]

"and since when can you teach creativity?"
Creativity exists at several levels. A lot of it is "me-too" variety. For example, Nobel prize winner H.C.Brown started a field of organoboranes, got his richly deserved Nobel for it, and for years afterward continued publishing hundreds of articles on the subject which provided only incremental increase in knowledge. This is not to be snickered at, and is much better than nothing. Most people have at most only one "big idea" during a lifetime. I'd say that one can train "me-too" type creativity if one starts with young children, and conducts an unabashedly elitist, selective education. In many countries it has been done successfully.
To train creativity of original type is much more difficult: since these events are of once-in-a-lifetime variety, the successful teachers would be few in number. More, they would normally have a "creative" personalities and would not suffer fools (or lesser beings) gladly - Michelangelo is a good case in point. In his time he could and did advise and consult many people on matters of art, but he hated teaching, and had very few (worthless) apprentices during all his 89 years.