Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Tuesday, February 08, 2005

Post-Secondary Education in Ontario:
The Rae Report

How our former Premier thinks we should fix higher education in Ontario:

Former Ontario NDP premier Bob Rae ... Monday released a list of recommendations — among them, a $300-million overhaul of student
assistance programs, and special legislation that would ensure a spot for every student in college or university who is eligible to participate — regardless of means. He also called for new grants that would allow 95,000 low-income students to enroll.

Mr. Rae said in order for colleges and universities to flourish, the Ontario government must increase spending by at least $1.3-billion
dollars by 2007-2008, including spending $700-million on improvements to the education system, from enrolment to graduate education.

Why does Mr. Rae want all taxpayers to fund higher education so generously? The same tired old arguments:
"It's an investment. It pays off for students themselves by providing for more rapid career advancement, increased job satisfaction and things as simple as improved health and longevity," Mr. Rae said at the Ontario legislature, where he released his report.

"Graduates are also more likely to give to charity, they're more likley to volunteer, they're more likely to vote," he added.

Note the classic errors here:
  1. There is no distinction between private and non-private benefits in the use of the word "investment". If students expect all these private benefits, I can think of only one possible reason to subsidize their expected receipt of all these wonderful private benefits: imperfect capital markets and extreme risk aversion by students. In other words, gubmnt loan guarantees might (depending on many conditions) make some sense.
  2. Note the classic confusion between causation and correlation. Students who graduate from university are more likely to give to charity, etc. But whatever induces these students to graduate might also be what is likely to induce them to give to charity. There is no good reason to assume that graduating from university causes them to donate more to charity. In fact, ceteris paribus, it seems equally likely that students who attend university would give less than they would have if they hadn't attended university.
  3. What is the elasticity of charitable giving, etc. with respect to university graduation? I.e., how much more will graduates give to charity because they attended university?

The major problem with university funding in Ontario is that too much money goes to rich people who use the justification, "What about deserving poor kids who can't go to university" to keep tuition too low. And it really bugs me that Bob Rae supports these types of arguments. (although in this report he does recommend allowing tuition to increase if it is justified. Ugh). Here is what I wrote about Rae's education policies when he was Premier over a decade ago. Neither of us has convinced the other.

My plan for university funding would be that we double tuition. And if we really care about poor people who would otherwise be unable to attend university, we then increase financial aid on the basis of need at the same time. It's called price discrimination, and it taxes the rich to subsidize the poor.

And for a really innovative way for universities to raise funds, consider this.

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