Jul 15

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My Rich Uncle Won’t Help

Rich Uncle PennybagsNancy Folbre is an economist at the University of Massachusetts, Amherst. And last night, she wrote an article over at the Economix Blog, Let Your Rich Uncle Pay for College. It is about a pilot program that will allow students go to their state university system in exchange of a 3% tax on their incomes for the first 20 years after graduation. As she notes, this is a good deal for poor and middle class students. What’s more, similar programs in Australia and Britain have increased college participation.

This is an exciting idea and I hope that it works out well. But I’m more interested in what she compared it to: a market-based program called My Rich Uncle. It is based on an idea by Milton Friedman and the Cato’s Miguel Palacios. And like most libertarian solutions to these kinds of problems, it goes a long way out of its way to ultimately do a far worse job than a direct government approach.

The idea is similar to the Oregon program. Students who want to go to college find a rich person to pay for it in exchange for a piece of the action. My Rich Uncle would work as an intermediary between the two parties, just like those companies that administer loans between family members. I see various problems with this. The main one is that this will set up a situation where those who are already well connected will do the best. Those who know wealthy people are more likely to benefit from their largess. What’s more, those whose parents are in the upper middle class are a much better bet than those those parents are poor—because that’s how our “meritocracy” works.

Almost as big a problem is turning education into job training. My Rich Uncle will clearly incentivize even more young people to major in business and finance. It would probably also encourage more people to go into engineering, which is not necessarily a bad thing. I doubt it would do much either way regarding the sciences. But it would decimate most of the liberal arts. I think that our society is greatly enriched by having a diversity of intellectual experiences. I want more people studying literature and Latin. They make us all better. But there is another aspect to this: most people don’t work in the field they got degrees in. The point of college, as Professor Kingsfield might have said, is to train your mind.

Here we come to a conundrum. If programs like My Rich Uncle were the only ones available to support higher education, people would notice the first problem: too many business majors. And so a private bureaucracy would form to deal with it. Students would be told things like, “You know, we’ve got too many business majors this year. Have you thought about engineering?” I run into this a lot when I discuss things in depth with libertarians. After a while, they end up with systems that are even more bureaucratic and constraining than government programs. But to them, it is all good because the government isn’t doing it. In other words, they don’t care about freedom so much as they just mistrust the government.

So where does this leave us? I believe that these kinds of free-market approaches to social ills are not provided so much to solve problems. Instead, they are provided to show that there are potentially solutions to these problems. The assumptions is that if the government just gets out of the way, the free market will cure all of our problems. It reminds me of an old Far Side cartoon where a scientist is written out a proof. It starts with the problem and ends with the solution, but in the middle is, “A miracle happens.” Indeed, if you listen to conservatives generally on these issues, you will over hear the word “magic.” The government should get out of the way and let the magic of the free market work. But the free market doesn’t work by magic. We understand in broad terms how it works and how it fails. And it does fail. That is especially the case when providing social goods like public education. And remember: almost all libertarians and a growing number of conservatives don’t even want to have publicly funded primary education. So you have to wonder about them when they start hocking ideas like My Rich Uncle.

But I’ve left the best for last. My Rich Uncle went bankrupt in 2009, screwing a whole lot of people. Vive la free market!

Permanent link to this article: http://franklycurious.com/wp/2013/07/15/my-rich-uncle-wont-help/

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