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Neighborhood Effects or Culture Rot?

What did Milton Friedman say on the question of college subsidies?

SEPTEMBER 16, 2013 by GEORGE C. LEEF

While he did not write extensively about higher education, Milton Friedman wrote enough to help us see where our college system has gone wrong. Today, we can see how his thinking evolved over time. Specifically, Friedman wrestled with the question of subsidies. That is: Does government support for higher education create positive spillover effects on the rest of society?


Neighborhood Effects

In 1955, Friedman wrote a paper titled “The Role of Government in Education.” In it, he argued that government support for education—although not necessarily government running of educational institutions—could be justified on the basis of “neighborhood effects.” 

The argument goes like this: An individual’s education benefits not only himself, but also society generally, when it makes him a better citizen. Friedman explained, “A stable and democratic society is impossible without widespread acceptance of some common set of values and without a minimum degree of literacy and knowledge on the part of most citizens.” 

Therefore, Friedman argued, government would be justified in mandating that parents provide at least a basic education for their children. While most families are able to bear the cost of such education, some cannot, and that permits the government to step in and assume the financial burdens for them.

Friedman maintained that these neighborhood effects were clear and significant at the level of basic education, but much less so at higher levels. Basic literacy for all would have societal benefits, but learning material covered in college—such as differential calculus or the origins of the War of Spanish Succession—not so much.

Nevertheless, Friedman thought that governmental support for liberal arts education at the college level was socially beneficial “as a means of training youngsters for citizenship and community leadership.” Toward that end, he favored a voucher system similar to the GI Bill that would assist college students, although Friedman did not want to have government subsidize professional and vocational education. Education of that kind (medical school, for example) would be undertaken simply on the basis that it was an investment that would later be recouped through earnings in the occupation. There was no need to subsidize it.


A Change of Heart

By 1979, when he and his wife Rose wrote Free to Choose, Friedman had become far more skeptical about the claimed social benefits of higher education. They wrote, “When we first started writing about higher education, we had a good deal of sympathy for the [social benefits] justification. We no longer do. In the interim we have tried to induce the people who make this argument to be specific about the alleged benefits. The answer is almost always simply bad economics.”

Specifically, the Friedmans pointed to a study by the Carnegie Corporation that concluded (naturally) that higher education provides great social benefits and thus warrants generous government support. Rose and Milton ripped into that study: 

It did not undertake any serious attempt to identify the alleged social effects in a way as to permit even a rough quantitative estimate of their importance or of the extent to which they could be achieved without public subsidy. As a result, it offered no evidence that the social effects are on balance positive or negative, let alone that the net positive effects are sufficiently large to justify the billions of dollars of taxpayer money being spent on higher education.

So, while the “neighborhood effects” argument for government subsidizing college had seemed appealing years earlier, by 1979 Friedman was quite unsure about it. 


Negative Externality

By 2003, Friedman had further revised his views. In an email exchange with Professor Richard Vedder (Professor of Economics at Ohio University and Director of the Center for College Affordability and Productivity), he wrote,

I have not changed my view that higher education has some positive externalities, but I have become much more aware that it also has negative externalities. I am much more dubious than I was when I wrote Capitalism and Freedom that there is any justification at all for government subsidy of higher education. The spread of political correctness right now would seem to be a very strong negative externality. A full analysis along these lines might lead you to conclude that higher education should be taxed to offset its negative externalities. (Sept. 12, 2003)

That idea about taxing higher education was, I’m sure, tongue-in-cheek, but it indicates Friedman’s realization that college education had changed dramatically over the decades. 

Instead of teaching students about their history, culture, and generally “how to think”—as it did when he was an undergraduate—by 2003 college had become far more about indoctrinating students on the proclaimed evils of our history and culture, and teaching them what ideas they should believe. 

Government should emphatically not support that kind of “education,” but it would be politically impossible to limit the use of federal vouchers only to those colleges and universities that still offer a curriculum geared toward forming good citizens and good leaders.


The Separation of . . .

Almost 20 years after Free to Choose was published, Friedman did an interview with George Clowes of the Heartland Institute. Clowes observed, “There are some who are for the total separation of school and state, so that parents would have to be individually responsible for the education of their children.” Friedman replied, “I agree with them as an ultimate idea.” Although the topic was K–12 education, I think that Friedman would have agreed that higher education also should be separated from government. 

Over his long career, Friedman had come to doubt the standard view about higher education—that it should be subsidized so as to improve society. He had concluded, I believe, that going to college was neither a necessary nor a sufficient condition for good citizenship and that subsidizing it served mostly to gratify the rent-seeking of higher education leaders, not to give the country better citizens.

ABOUT

GEORGE C. LEEF

George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.

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