British Students Riot: Why ALL Education Subsidies Should Cease

Posted on December 13, 2010 by


Students are rioting in Britain because they have to pay more of a percentage of what will give them an economic advantage over the people who subsidize their education.

There are massive barriers to entry in the labor market for those who want to get high paying jobs.  One of the reasons for the proliferation of this barrier to entry, college degrees, is the subsidy of Higher Education.  Higher Education degrees often act as signals to employees that a particular candidate for a job is high quality.  In the case of higher education, the signal works.

According to one study

in addition to positively influencing core task performance, education level is also positively related to creativity and citizenship behaviors and negatively related to on-the-job substance use and absenteeism.

Signalling, according to Wikipedia, is the economic term for an agent that “credibly conveys some information about itself to another party.”  According to the study linked above, education credentials do exactly that.  However, if the role of education is to teach people the skills necessary to perform a task, then the justification of a subsidy of education should be for that reason and not necessarily to act as a signal to employees (my reasoning is below).

The argument is often made that we should subsidize education because it leads to higher incomes.  Two reasons education leads to higher incomes (and there may be more) include the skills learned while being educated and the ability of a higher education degree to act as a signal in the workplace.  If education gives you the marketable skills necessary to increase your income then taking money from people to increase your income becomes morally problematic rather than some sort of act for the higher good as elected officials sometimes claim.  These same elected officials just happen to be paying off a huge voter bloc that will have higher than average income with their subsidized degrees.

If Education acts as a signal to employers as to who they should hire.. it is a very expensive signal.  Subsidizing this signal disperses the cost of it.  Ending all subsidies in education would ensure that the cost of this signal is not externalized AND that the cost is worth the benefits gained from the signal.  If students are unable or unwilling to bear the costs, and lenders are unwilling to loan them the money to do so, then the cost is very likely to be much higher than it’s worth to the individual students.

The benefit gained from a signal is the increased pay that an organization is willing to give to someone who embodies the characteristics represented by the information conveyed by the signal.  A lender can judge for himself if the increased pay, and the characteristics of the person in question, merit a loan to achieve this signal (a higher education degree).   Subsidizing this process makes educational less achievable for some due to higher costs AND it weakens the strength of the signal.

Students can get through school in two ways.  First, they can work there way through school and pay for it as they go.  Second, they can borrow money from others to get through school.  The first option has been systematically destroyed over the years due to a myriad of issues, all of which stem from government intervention.  The Second option is described above and leads to a dependence on others to judge your own character.  We need to find a way to restore the first option.  I propose that ALL education subsidies should end, ALL government loan guarantees should ends, and ALL government regulated and mandated accreditation agencies should end (unless they are part of the market and not part of the government).

Without the subsidy of the ‘higher education signal,” employers will be forced to use alternative signals in order to hire employees, likely conveying information much more accurately as the signal develops.  This may cost the employers a little bit of money but it pails in comparison with the cost that subsidies of higher education places on everyone in society.  Give free markets a chance.. they work much better than Governments do.