December 07, 2014

Horse 1800 - May We Please Have Some Proper Economic Modelling For Deregulating University Fees?

There is this model in economics called a "Production Possibility Frontier" or sometimes a curve; which looks at the ability of an economy to produce one of two items. The curve tries to graphically depict the opportunity cost of producing one things as opposed to another. The most famous example of this is asking the question of "butter versus guns"; which has been visited by people such as Thatcher, Eisenhower, Goebbels and Göring.
If this is presented as a dichotomy between one thing and another, does this apply to things like funding models and ownership models? The reason why I ask such a question is to do with Christopher Pyne's intention to deregulate higher education.
If higher education is deregulated, can this be presented as a production possibility frontier between private and public capital. If so, has anyone presented or even thought about the net benefit to the economy either way? I suspect not.

I suspect and I could be entirely wrong about this (because I have no data sets to back up my opinion) that public education is a more efficient delivery system than the private system. My general question is what does the production possibility frontier look like and where on that curve is investment of capital best served?
The reason for my suspicion has to to with the explosion of capital between about 1890 and 1970. Two World Wars got in the way; which changed the base line for economic growth (which is why the post war period usually looks so glorious) but my theory is that the beginning of widespread literacy in the beginning of the twentieth century is the major defining factor for the what the French call the "Trente Glorieuses" or the Glorious Thirty.
Widespread literacy could only occur if government steps into the education sector because private enterprise which has a mindset which is far shorter, can not, does not and will not invest in education unless it can spin a profit from it.

I think what they’re protesting about is the election of the Abbott government. They really don’t have the kinds of problems that they are protesting about that deserve the burning of effigies. We’re asking students to pay 50% of the cost of their education. We’re not asking for their left kidney to be donated. I think they need to get some perspective and proportion.
- Christopher Pyne, on The Bolt Report, 24th Aug 2014

The problem with education is that it has an exceptionally long lead time before results are produced. An individual might take many years before they have finished their formal education and an even longer period before they will make a return on the capital invested in them through higher wages. Governments would do well to remember that the working life of an individual, might be longer than fifty years; which is longer than 12 election cycles.
If all higher education was free at the point of delivery, it isn't like that level of investment just disappears. By investing in the human capital of the labour force, that initial investment is likely to be repaid several time over during an individual's working life.
Incidentally, you can hardly blame students for protesting against $100,000 degrees because if you actually do a bit of research and "get some perspective and proportion" if you look in the right places, you should be able to purchase a left kidney for less than $100,000. Monetarily, Pyne would be asking students for their left kidney to be donated if he could get the legislation through.
In the United States, that great bastion of free market capitalism, the average cost per year to study at an Ivy League university for 2014-15 was US$43,938 or AU$52,749. Over four years that's just under $211,000; so that remark about kidney donation is suddenly quite galling.

I wonder if Christopher Pyne as the Education Minister has ever produced a set of working models looking at the net benefits to the economy of one funding regime or another. If not, then upon what basis is the proposed deregulation of higher education based on? If it is based on the presumption of clearing expenses from current government expenditures, what will that do to a future economy in many election cycles' time and after he is no longer a cabinet minister?
Has anyone modeled the net efficiency of one public dollar as opposed to one private dollar spent in education? Is that even possible? Again, if we look at the United States which has the world's highest per capital health care costs, this might suggest that a free market isn't the best solution in determining outcomes. I don't know though if health care and education are necessarily congruous. I know that when it comes to a putting child through a government primary and secondary school, the total cost K-12 is about $65,000 but a through a private school it works out to be about $420,000. This suggests that the public system is roughly six and a bit times more efficient, despite what advocate groups like to tell you about the private schools system.
When it comes to university education, I don't even know what a set of metrics would look like but worse, I suspect that the Education Minister doesn't know either.

If Education Minister Christopher Pyne intends to deregulate higher education, could he please produce his modelling to show why such a system has a net benefit? Otherwise, could he just be honest about who is paying the piper? It'd be nice to know who was fleecing us whilst the wool was being pulled over our eyes.

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