Is the Government Optimally Managing Education? Should it?

I recently came across an article in The Economist social class and how social class is a strong determining factor in the level of education achieved by children.  It discusses non-marital birth-rates at varying levels of education along with differing levels of parental involvement based on social class.  Ultimately, the article concludes that children raised in the highest quarter of income level who received low 8th grade test scores were just as likely to graduate from college as those with high test scores in the lowest quarter.

In terms of managerial economics, it's not difficult to connect the populations' level of education to the amount that the government has to pay in social welfare programs.  With that in mind, also note that currently student loans are not subsidized and students are ineligible for food stamps without working 20 hours a week making the decision to return to school more difficult for those with low income.  While there are grants available, they are limited.  My question is this: is the government losing money in the long run by making its education department profitable to the extent that it is?


Dave Tufte said...

Lacey: 100/100


Lacey: I'm not sure I get your point at all, so if I'm off base, let me know through the comments. I guess I don't understand if what you're asking is if the government is operating efficiently by making it harder for the people who need the benefits the most to get them. Is that correct?

I'm an economist, so let's just assume I'm biased. Anyway ... anyone can let their morals get in the way of their clear thinking about problems. As the biggest and oldest social science, economists claim that we have a stronger framework for thinking about problems, and this helps us keep our moral positions under better control. Of course, this angers a lot of people because economists say things that we can support with data that some people don't like to be exposed to.

I see three big points in what Lacey is saying.

1) The rich are more likely to be better educated. Economists have looked at that, and we think that the set of behaviors that tend to make people rich also tend to make them do better in school.

2) The less educated consume more social programs than the more educated. I think that's true (although I'll add the caveat that the rich are pretty good at carving out benefits of different sorts for themselves too).

3) It would be desirable to both need to spend less on social programs, and to have a better educated population. I'm dubious about the latter (a lot of people don't seem to use what they learn in school very well).

Some people see the conclusion from those three to be that we ought to subsidize education more or better, so that the poor are better educated and consume less social spending.

The economics tells me that this isn't likely to work very efficiently. Here's why.

A) People come into jobs planning out these programs with a puritan mindset already baked into them: they don't want to help anyone who won't help themselves first. Thus the education money goes mostly to people who don't have other issues to deal with instead of to who the education would most benefit. This is what economists like Casey Mulligan are driving at when they point out that our array of overlapping social programs amounts to a marginal tax rate of over 100% on the poor. In short: we're so committed to declaring our social spending worthwhile that we won't even ask whether the overlapping programs create incentive problems.

B) To the extent that my explanation for # 1 above is correct, throwing money at the symptoms of bad behavior won't do much good. On the other hand, if the problem is the behaviors of some people, how do we get those to change? Is it nature or nurture? If it's nature, we're stuck with it. If it's nurture, what are we going to do — take kids from dysfunctional households and foster them functional ones? That's a pretty radical bit of social engineering that's been crapped on by critics from all sides (e.g., sending aboriginal children to "white man's schools", or the debates over forced busing in the 1970's, or even requiring the mentally ill to take their medications).

Cam said...

I think that the government has made many efforts to subsidize higher education and enjoys the benefit of doing so. Having a population that is more qualified to work and pays more in taxes than they receive in entitlements and tax refunds is a huge bonus to society as a whole. Making the choice as to how much will be spent by the government (taxpayers and national debt) is both an economic and political issue. Our mindsets prevent us from looking at economic data and making choices by calculation.
I think it is great that a person must work to receive food stamps. Obtaining an education is hard work. Working while you do it creates more stress but also teaches you to work in the real world. I’m biased because I’m used to working many jobs, or full time, and going to school. I think that is a change of nature for some people. I wonder if economists in the government have put people’s behavior into formulas to figure out how much to subsidize or not to try to change behavior of individuals.

Dave Tufte said...

Cam: 50/50

There's a lot of research on this sort of thing, and depending on the program the research outcomes can have significant influence on the design of the program. Or not. There isn't much of a pattern. There are some programs that make no economic sense that get passed (e.g.,"cash for clunkers", or corn based ethanol being required for gasoline), and others where the economics wins out (e.g., the earned income tax credit).

One thing to keep in mind for something like education is that Cam is making an argument that there are positive externalities from the education of others. I think this is true, but I'm not sure how big the effect is. In thinking about the economics, the share that someone pays should approximately cover the portion of the benefit that accrues to them rather than society around them. Measuring those things is the real problem.