Last week, the New America Foundation’s Sara Mead took issue with a blog entry I wrote wondering how her group could tout student loan auctions because they use “market forces” while simultaneously advocating for “the gargantuan market distortion that is the overall student aid system.” Mead replied with a “there you libertarians go again” argument, writing that Cato:
holds that unrestrained markets always produce the best possible outcomes. But McCluskey is confusing means and ends here. Harnessing market forces is often the most efficient way of getting to a particular end. But we believe that public policy should use market forces to achieve desirable ends based on public policy values.
Now, let’s not get bogged down in some very important questions like who defines “desirable ends,” or what, exactly, “public policy values” are. No, let’s get right to a bottom line with which it seems Mead and I might be able to agree.
Toward the end of her argument, Mead says that it is important to “increase college affordability and access…because among other reasons, a better educated population produces broader social benefits—more civic engagement, innovation, economic growth, etc.” I agree with at least part of this. Economic growth is a good goal to shoot for, because it tends to reflect both the innovation Mead values, and an increasingly efficient and effective allocation of societal resources.
So it turns out a funny thing happens when the market is subverted to spend more money on higher education: It actually hinders economic growth. As economist Richard Vedder found in Going Broke By Degree: Why College Costs Too Much, controlling for other factors impacting economic growth, the more states invest in higher education, the lower their rates of economic growth. That’s right: letting “public policy values” force money out of taxpayers’ pockets and into colleges and universities actually has a dampening effect on economic growth.
Why is this? Because if left alone, individual taxpayers will produce better results in the aggregate than government can. Individuals know what they want and need better than any government, and even more importantly, in a truly free market they have to balance their needs and desires against those of all the other people in society, resulting in the fairest, most efficient, aggregate outcome. Not so with government, where politicians can’t possibly divine and balance the needs of everyone in our impossibly complex society, and the people with the most lobbying power often get what they want specifically because they don’t have to balance their needs against everyone else’s.
In the case of higher education, this plays itself out with relatively well-off students often getting aid; students spending large amounts of time partying rather than focusing on graduation; professors devoting much of their time to esoteric, often government-funded research instead of teaching; and universities using resources very inefficiently. Meanwhile, taxpayers are doing without money they might have used to buy food, or invest in innovative young companies, or any number of other uses that would have been much more beneficial to society, but which politicians ignore because – unlike kids taking subsidized loans or bigger Pell Grants – their absence is invisible.
Thankfully, sometimes there are crystal-clear signs of government failure. Case in point: all those lenders – especially the federally created Sallie Mae – that Mead and others despise for making billions of dollars off of student loans. How’d they do it? Not through “unrestrained markets,” but government-subsidized loan programs designed to circumvent market forces in pursuit of – you guessed it – “public policy values.”