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
