Thursday, 16 April 2015

It's The Most Ironic Thing - Lib Dems & Tuition Fees

Now that Parliament has dissolved to make way for the general election, we are about to enter a period of time when the Liberal Democrats will lose many of their MPs. One thing I find quite ironic is that the main Lib Dem legacy will be the little matter of reneging on the promised scrapping of tuition fees. I say ironic, because the scrapping of tuition fees was a completely ludicrous idea, and one that in not being delivered is probably the party's best achievement. The problem wasn't actually breaking the promise - it was making such a preposterous, economically untenable promise in the first place. To give you an idea of how catastrophic such a policy would be - it's a policy the Green Party also supports, which is usually indication enough of its economic absurdity.

The current tuition fees system is pretty much the fairest system imaginable: the government loans to those who need the money to obtain a degree, and it only asks for payment when the post-graduate can afford to repay with a small proportion of their earnings. Anyone who thinks that that is unfair has a pretty peculiar idea of unfairness. What you have to realise is that nothing comes for free in education. If tuition fees are scrapped, then the cost of obtaining a degree is then picked up by the taxpayers. Tax that goes on to subsidise higher education amounts to lots of tax paid by low earners to subsidise people better of than themselves. We know this because we know that two thirds of working people do not have a university degree, and we know that on average obtaining a degree boosts one's life earnings by 60%.

Tuition fee subsidies do something else as well - they artificially ramp up demand for places, which has all sorts of negative spillover effects on how people value university education. Given all this, it comes as absolutely no surprise to learn that Ed Miliband wants to artificially interfere with prices by lowering tuition fees to £6000 (everyone knows it's simply a bribe to win student votes). Admittedly the policy isn't as catastrophic as the Lib Dem and Green proposal to scrap tuition fees altogether, but in proposing to artificially lower tuition fees Miliband shows a similar contempt for the notion of pricing education at its value.

The value of higher education is this. University fees should amount to exactly what it costs to obtain a degree, and fees (prices) should match demand, whereby the right number of people are getting degrees. How do we know what the right number is? This is down to a utilitarian efficiency, which is measured in terms of what we might call practical economic utility. What is meant by 'efficient' here is that an efficient transaction occurs when the overall increase in utility is greater than the overall decrease in utility. In other words, when degrees are priced at their true value - a value that measures costs associated with supply and demand - you have the right number of people doing degrees, and you have the right people paying for them, which is, it won't surprise you, the people actually doing the degrees.

* For more on this, see my Blog Why Tuition Fees May Be Too *Low* Not Too High