Why Increasing University Subsidies Does Not Help The Poor

 Recently here in California Governor Arnold Schwarzenegger was taken to task for reducing government subsidies to California Universities. The argument went that government subsidies help reduce University costs, which in turn helps reduce tuition, and since the poor would have a hard time paying higher University tuition, government subsidies are a boom for the poor.

While I can understand the motivation behind this argument, frankly, the argument was never very persuasive to me. For one, the majority of people that attend these Universities, especially the elite ones like the UC system, Stanford, and USC, are not poor people, but the upper and middle class. Yet since the subsidies come from tax revenue, tax revenue that can be used to help all citizens, very poor, poor, and middle class, subsidizing Universities is a method that takes from everybody but primarily helps the upper class and middle class. In the end, becoming a very inefficient way to decrease income inequality.

Second, there is no guarantee that subsidizing Universities will result in cheaper tuition for the poor. For example, Harvard, probably the highest subsidized University in the country, either by government subsidies or by direct gifts from former students, has one of the worse records of cheaper tuition for the poor. Hispanic Business writes:

Until recently, Harvard University has been perhaps the most glaring example of an elite college's failure to welcome low-income students. With an endowment of $25.9 billion -- far larger than that of any other university in the U.S. or abroad -- Harvard clearly has the resources to educate the poor.

Yet only about 10% of its undergraduates are eligible to receive federal Pell Grants, which are usually awarded to students from families earning less than $40,000 a year. At Amherst, 15% of the students get Pells, and President Anthony Marx is aiming to boost that to 25% of future classes.

But now, Harvard's controversial president, Lawrence Summers, is on a campaign to give low-income students far greater representation at America's most prestigious university. "If Harvard is only for the children of those who have been successful, we will lose the social mobility that has always been America's strength," argues the former U.S. Treasury Secretary. "I'd like Harvard to look as much like America as possible."

How far has this program gone? Hispanic Business continues:

GUARDED OPTIMISM. Harvard's program has only been in place for one full admissions cycle -- for the class that entered Harvard in September, 2005 -- but Summers and Fitzsimmons are encouraged. Last fall's entering class had 299 students from families earning less than $60,000 a year vs. 246 the year before -- an increase of 22%.

Imagine that, with a school as rich as Harvard, with a school with as many resources as Harvard, and more importantly, with a school that gets so much free money from government subsidies and private donors, Harvard could only find 299 students - and that an increase of 22% from the following year - from families earning less than $60,000/year. In addition, since the hard left at Harvard has run out Larry Summers, the founder of the program, the problem might get worse not better.

Subsidizing Universities to help the poor is analogous to having the government subsidies upper end department stores like Nordstroms and Bloomingdales in an effort to make products cheaper for the poor. A method that not only doesn't accomplish its goal very efficiently, but when it does help make products cheaper, it does so primarily for the benefit of the rich and middle class, not the poor.

Shawna Rasul, a student at the UCLA School of Law, learned this lesson the hard way, in a letter to the editor of the Daily Bruin she wrote:

I got an e-mail from the chancellor Thursday morning that gleefully described how UCLA has managed to raise $3 billion – more money than any other institution of higher education ever!

That's truly impressive, and from now on, I will hear "$3 billion" every time I walk into the lobby of my UCLA apartment building that looks like an abandoned home-improvement project.

Every time I look at the holes in the drywall and the 1970s renaissance carpeting, I'll think about the $3 billion.

When I cautiously take the elevator up to my floor and notice that the permit expired 14 months ago, I will wonder about those $3 billion. When I pay my $24,000 in student fees (which recently went up another $1,500), the $3 billion will be on my mind. While I'm pounding the pavement looking for a full-time job because the mid-year tuition increase has left me without the ability to pay my rent and bills this semester, I will reflect on the $3 billion.

But excuse me if I don't pop open a bottle of champagne and throw a party – I can't afford it.

This is why you won't find me on the picket lines asking for more funding for Universities, and instead find me squarely on the side of those who reduce University funding and instead find efficient means to help the poor pay for college tuition.

Update: Harvard economist Jeffrey Alan Miron writes on the same thing and seems to agree with my conclusion as well, his post here.

Update: Richard Vedder of the Center For College Affordability And Productivity has more. (Originally posted: 3/6/2006)

The Hidden Danger of Seat Belts

By DAVID BJERKLIE Thursday, Nov. 30, 2006

If there's one thing we know about our risky world, it's that seat belts save lives, right? And they do, of course. But reality, as usual, is messier and more complicated than that. John Adams, risk expert and emeritus professor of geography at University College London, was an early skeptic of the seat belt safety mantra. Adams first began to look at the numbers more than 25 years ago. What he found was that contrary to conventional wisdom, mandating the use of seat belts in 18 countries resulted in either no change or actually a net increase in road accident deaths.


How can that be? Adams' interpretation of the data rests on the notion of risk compensation, the idea that individuals tend to adjust their behavior in response to what they perceive as changes in the level of risk. Imagine, explains Adams, a driver negotiating a curve in the road. Let's make him a young male. He is going to be influenced by his perceptions of both the risks and rewards of driving a car. The considerations could include getting to work or meeting a friend for dinner on time, impressing a companion with his driving skills, bolstering his image of himself as an accomplished driver. They could also include his concern for his own safety and desire to live to a ripe old age, his feelings of responsibility for a toddler with him in a car seat, the cost of banging up his shiny new car or losing his license. Nor will these possible concerns exist in a vacuum. He will be taking into account the weather and the condition of the road, the amount of traffic and the capabilities of the car he is driving. But crucially, says Adams, this driver will also be adjusting his behavior in response to what he perceives are changes in risks. If he is wearing a seat belt and his car has front and side air bags and anti-skid brakes to boot, he may in turn drive a bit more daringly.


The point, stresses Adams, is that drivers who feel safe may actually increase the risk that they pose to other drivers, bicyclists, pedestrians and their own passengers (while an average of 80% of drivers buckle up, only 68% of their rear-seat passengers do). And risk compensation is hardly confined to the act of driving a car. Think of a trapeze artist, suggests Adams, or a rock climber, motorcyclist or college kid on a hot date. Add some safety equipment to the equation — a net, rope, helmet or a condom respectively — and the person may try maneuvers that he or she would otherwise consider foolish. In the case of seat belts, instead of a simple, straightforward reduction in deaths, the end result is actually a more complicated redistribution of risk and fatalities. For the sake of argument, offers Adams, imagine how it might affect the behavior of drivers if a sharp stake were mounted in the middle of the steering wheel? Or if the bumper were packed with explosives. Perverse, yes, but it certainly provides a vivid example of how a perception of risk could modify behavior.


In everyday life, risk is a moving target, not a set number as statistics might suggest. In addition to external factors, each individual has his or her own internal comfort level with risk-taking. Some are daring while others are cautious by nature. And still others are fatalists who may believe that a higher power devises mortality schedules that fix a predetermined time when our number is up. Consequently, any single measurement assigned to the risk of driving a car is bound to be only the roughest sort of benchmark. Adams cites as an example the statistical fact that a young man is 100 times more likely to be involved in a severe crash than is a middle-aged woman. Similarly, someone driving at 3:00 a.m. Sunday is more than 100 times more likely to die than someone driving at 10:00 a.m. Sunday. Someone with a personality disorder is 10 times more likely to die. And let's say he's also drunk. Tally up all these factors and consider them independently, says Adams, and you could arrive at a statistical prediction that a disturbed, drunken young man driving in the middle of the night is 2.7 million times more likely to be involved in a serious accident than would a sober, middle-aged woman driving to church seven hours later.


The bottom line is that risk doesn't exist in a vacuum and that there are a host of factors that come into play, including the rewards of risk, whether they are financial, physical or emotional. It is this very human context in which risk exists that is key, says Adams, who titled one of his recent blogs: "What kills you matters — not numbers." Our reactions to risk very much depend on the degree to which it is voluntary (scuba diving), unavoidable (public transit) or imposed (air quality), the degree to which we feel we are in control (driving) or at the mercy of others (plane travel), and the degree to which the source of possible danger is benign (doctor's orders), indifferent (nature) or malign (murder and terrorism). We make dozens of risk calculations daily, but you can book odds that most of them are so automatic—or visceral—that we barely notice them.

The Invisible Hand vs Charity

One of the major problems I have with Chicano Studies is its overemphasis on altruistic ventures as opposed to "personal gain". Becoming a community organizer, for example, is more encouraged than becoming an engineer. This was particularly important to me last year when my sister, being in her junior year of high school, was applying to colleges. Though she had already decided on engineering as her intended major, she was having doubts and was considering a profession that "makes a difference".

I explained to her that engineering can also be used to make a difference, the two are not mutually exclusive. I also said that when you compare engineering to the highly inefficient means of "making a difference" common among chicano studies students, like community organization, one can make a very strong argument that engineering makes more of a difference - and in the process, you can make a good living doing it.  She didn't seem convinced and I could tell that I needed to explain my point better. Unable to do so at the time I resorted to reminding her that there is a field in engineering that may allow her to design better prosthesis, and being that my dad lost his leg from the knee down in a work accident, she could possibly make his life and people like him better.

That satisfied her but I still thought I needed a better way to explain my point. The blog post I did later on the topic, titled "In Praise Of Personal Interest" did a better job, I wrote:

...if charity is your goal, with extra money [you would make by being an engineer] you can provide valuable resources, fund efficient charities, be a stronger role model to the next generation (three people in my family want to be engineers now, just because of my experience), provide a better future for your children, assist your family out, or, just as importantly, be a testament to those around you that hard work and dedication pay off, that there is a way out of the ghetto.

Lastly, unlike nonprofits, even if altruism is not your goal, capitalism works in such a way that when pursuing personal interest “you are led, as if by an invisible hand, to do things that improve the lives of others”.

Still though, I felt like I could have explained myself better. My point does not come across as clearly as I'd like it to. Well to my surprise, while riding my bicycle to work yesterday, I was listening to a bloggingheads podcast with Philosopher Peter Singer and economist Tyler Cowen about alleviating poverty when Cowen asks Peter Singer a question that I would have asked him if I was doing the podcast, namely: what advice would you give to an 18 year old in college who has read Peter Singers book, is convinced that making a difference matters, and is considering a career as an engineer in the cell phone industry because she sees what a difference cell phones are making to the poor in Africa? Would that career choice, from an altruistic perspective, make more of a difference than, say, a person who makes 40k/year and gives 15% to the poor in India? What if the engineer never gives a dime to charity?

What answer do you think Peter Singer gave? Click below to see the exchange (full video, which is highly recommended, can be found here). It is a good answer, and in the end, it moves me a step closer to finally explaining my point better.  Maybe I should forward this to my sister? (Originally published 05/22/2009)

Should We Ban All Motels?

Mark Steckbeck, professor at Hillsdale College, writes:

The virtue of a free market economy is that it serves disparate tastes and talents—wants and skills. Hotels and motels, for example, differ in their locations, amenities offered, cleanliness, etc. In fact, some are utter fleabags many of us might deem unseemly. But they serve the wants of others, especially those with few or no other housing alternatives such as migrant workers and the near homeless. These customers obviously find inexpensive motels their best alternative, notwithstanding my objections.

If a minimum quality standard was legislated on motels (let’s say in the name of justice to protect the poor), forcing them to provide middle class quality and ammenities, are the customers of inexpensive motels made better off? If we force owners of motels to provide a certain level of service and quality—say a “living” quality—that forces some hotels raise their rates or to shut down, are their customers made better off? Is anyone made better off by eliminating the best market alternative currently available to them? If hoteliers refuse to treat their customers to the standards compatible with my interests I don’t want them around any way. That makes the poor better off, right?

If you say no, how is this any different than someone saying this about Wal-Mart:

Look, no one should have to work in a Wal-Mart; I just plain don't care if the state loses the jobs that the chain might 'create'. What's the point of having those jobs when they don't pay a living wage and don't provide any sort of healthcare? Not to mention the way they destroy the workers' souls.

Steckbeck concludes with:

Although I'm sure the author didn't intend it, his argument is a callous disregard for the poor and the unskilled. The effect is to say, "Let’s remove the only employment alternative available to many Wal-Mart workers, and for many the bottom rung needed to acquire experience and skills necessary to obtain higher paying jobs. Yeah, let’s just get rid of those."

You may not like the job or the compensation package, but like the example of inexpensive motels, remove their best alternative and they are made worse off. Be grateful that you have the skills and opportunities that allow you to earn a decent compensation package, but don't destroy someone else's best alternaitve because it isn't compatible with your idea of fairness. How noble and righteous is it to make the people who lack the skills and opportunities currently available to you worse off?

The full article can be found here (broken). (Originally posted 03/14/2006)