Browsing the blog archives for May, 2015.

No free college

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Vermont socialist and presidential candidate Bernie Sanders recently introduced a bill to eliminate undergraduate tuition at public colleges and universities. His College for All Act would also reduce interest rates on federal student loans and allow graduates a refinance their loans at these lower rates, thereby “stopping the government from making profits on student loans.” The stated cost of the bill would be $300 billion annually, which would supposedly be financed by instituting 0.5% and 0.1% taxes on trades of stocks and bonds respectively, as well as a smaller fee on derivatives, including stock options and futures contracts.

Sanders has virtually no chance of winning the Democrat primary, but a lighter version of his bill could get some traction from those on the left—and possibly some swing voters who buy the notion that this would be an “investment in America,” so it’s worth debunking at the outset.

As for the interest rate proposal, the federal government nationalized the college loan industry in 2010, a move Sanders supported. If there’s any profit in the student loan business, the federal government is only getting it because it took over the system. The easiest way to keep this from happening is to privatize, but this wouldn’t make the left happy either. The problem is profit. In a socialist’s world, it’s evil. Governments determine production, pricing, and wages so that “market distortions” are eliminated and everything is “fair.” This ideological point aside, we’re hearing more calls to “do something about the $1.2 trillion in student loan debt,” which really means transferring some or all of it from those who willingly borrowed the money to those who did not. Like others of his ilk, Sanders would really like to dissolve most or all of debt, not just tinker with the interest rate.

There are many problems with his free college tuition proposal as well, aside from the fact that the federal government has no constitutional authority to pass it anyway. Costs of public institutions vary widely among the states in part because of the amount of funds state governments allocate. If the federal government is going to pick up the tab, then state governments have an incentive to spend less on their own, effectively turning over the entire college funding process to Washington.

Moreover, not every student needs to go to college or is ready to do so upon graduating from high school. The return on investment for any college decision depends on individual factors. Motivation is a very important one, but less of it is required when someone else is paying the bill. In fact, free college would be viewed as an easier alternative to many jobs one might get out of high school, effectively promoting a college education to those for whom it is not intended.

It’s also important to consider Sanders’ funding mechanism. His proposed taxes on stock trades sounds like a tax hike on the wealthy, but it would be counterproductive to the economy. Investors should be encouraged to move their funds into investments with the most potential. Like a capital gains tax, a levy on stock trades encourage investors to hold funds in questionable assets rather than pay the expense. This is a surefire way to stunt growth.

There is an irony here. Part of the occupy protests was based on the notion that many college graduates have incurred large amounts of debt but are struggling to find employment in their majors. Indeed, many have been deceived by a mantra that encourages college at any cost, so I have some degree of sympathy. Nonetheless, if many current graduates are unable to find good jobs—something leftist supporters of the movement parroted throughout the protests—then why should the government “invest” in more graduates? They wouldn’t owe tuition individually under Sander’s plan, but taxpayers collectively would incur the debt.

There are many other reasons why free college education is a bad idea; in fact, I can’t really think of a reason to support it. Perhaps you might expect me—as a professor at a state-supported university—to favor such a proposal because it would infuse federal dollars and expand the industry, but it’s just not a good idea for anyone.

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Libertarians & Open Borders

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Libertarians and conservatives agree on many issues. When it comes to economics, both groups generally favor free markets, although there are some divisions. I tend to side with the libertarians on most of these issues, but immigration is an exception, not for ideological reasons but for pragmatic ones.

Libertarians are strong ideological proponents of open borders. The notion of individual liberty cannot coexist with arbitrary borders. Besides, they argue, immigrants often bring skills and a work ethic that can help an economy grow. But many economists have produced strong evidence that illegal immigration is a huge economic drain. For example, the Heritage Foundation’s Robert Rector estimates that granting amnesty to 4 million illegal immigrants will cost the U.S. an estimated $2 trillion. The average education level in this group is tenth grade, so most will be low income earners and will contribute far less to the system than they take, creating losses with regard to Social Security, Medicare, public education, health care, and other government services.

Both sides are valid in this argument, but the traditional libertarian argument is flawed because it starts with a blank slate. Put another way, their argument assumes freedom in other sectors of the economy as well. One of the twentieth centuries greatest economists, libertarian-leaning Milton Friedman, encapsulated the problem in his famous retort, “You cannot simultaneously have free immigration and a welfare state.”

Friedman’s comment is simple and clear, but seems to be forgotten in the contemporary argument. The left argues for amnesty on emotional and pseudo-economic terms. On the emotional side, opposition to unfettered immigration is couched as “breaking up families.” Taken to its logical extension, this is an argument for no borders because chain migration has no end. On the economic side, we are told that more immigrants are needed to keep the Social Security system solvent. This claim proves that Social Security was never “insurance” or a “trust fund” in the first place, but instead transfers money from one group of citizens to another. Moreover, it should be needless to say that adding low-income contributors might help in the short run, but it will only intensify the long-term disaster when these individuals begin drawing more than the put in.

Interestingly, Friedman actually resolved this dilemma by offering an intriguing point: Our nation really benefits from illegal—not legal—immigration because illegal immigrants are (in theory) unable to access costly government benefits. They simply come and work hard. This is no longer true, as illegals can get EITC, drivers licenses, bank accounts, health care, public education, and other services regardless of their status. Without dialing back these benefits, illegal immigration is an economic drain. This is where many libertarians miss the point. They end up siding with crony corporatists who see open borders because they result in cheap labor, thereby passing much of the real costs along to taxpayers.

To my libertarian friends, I’m okay with immigration, but let’s get a hold on the current situation by securing the border and eliminating immigrant benefits first. Friedman was right.

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