What Milton Friedman Wrought

In a 1955 essay entitled The Role of Government in Education, Milton Friedman, the Nobel Prize winning economist and a leading member of the neoliberal Mount Pelerin Society, argued that universal vouchers for elementary and secondary schools would usher in an age of educational innovation and experimentation, not only widening the range of options for students and parents but increasing all sorts of positive outcomes. Thankfully this idea hasn't been widely adopted though it is being tested in Florida with less than stellar results so far. In his essay, Friedman also touched on the role of government in higher education arguing that government should play no role in subsiding education but rather a free market should govern the sector. He envisioned human capital contracts - an "equity-like" financial instruments - which individuals would use to finance their own higher education. In his conclusion, he wrote that:

The result of these measures would be a sizable reduction in the direct activities of government, yet a great widening in the educational opportunities open to our children. They would bring a healthy increase in the variety of educational institutions available and in competition among them. Private initiative and enterprise would quicken the pace of progress in this area as it has in so many others. Government would serve its proper function of improving the operation of the invisible hand without substituting the dead hand of bureaucracy.

Whereas Milton Friedman's vision for elementary and secondary education has been mercifully been kept at bay, his free market ideas have come to increasingly define higher education in the United States as the GOP successfully cut federal subsidies to education and as state governments also curtailed their sponsorship of public and land grant colleges. For example, since 1986 the purchasing power of the federal Pell Grant program, the nation's largest need-based financial aid program for college students, has decreased by 57 percent. Since 1980, federal financial aid has been transformed-with little explicit policy debate-from a system characterized mainly by need-based grants to one dominated by loans. In 1981, loans accounted for 45 percent and grants for 52 percent of federal student financial aid. In 2000, loans represented 58 percent of federal student financial aid, and grants represented 41 percent. The results have been an unmitigated disaster for the American middle class.

Since the early 1980's, the cost of an education at American universities has been rising steadily, at two to three times the Consumer Price Index (CPI). Since 1980, through 2005, after adjusting for inflation, the average cost of tuition plus room and board at a four year public university has increased by over 120 percent. For the private 4-year institutions, tuition prices have increased by over 140 percent. The College Board reports that private college tuition rose most sharply in the early and mid 1980's, while public tuition increased the most in the late 1980's and early 1990's. If a gallon of milk in 1980 had sustained this level of increase, it would now run just over $15.00; if a gallon of gas in 1980 had sustained this level of increase, it would now run over $9.50. While the cost of a college education has more than doubled, median income in the United States has risen by 18 percent.

This is what Milton Friedman has wrought:

Most American families have lost ground in college affordability. Over the last two decades, the cost of attending two- and four-year public and private colleges (including tuition and other education-related expenses) has grown more rapidly than inflation, and faster than family income as well. As a result, the share of family income that is needed to pay for tuition and other college expenses has increased.

The principal driver of the increased cost of attending college is higher tuition, and only the wealthiest families have seen their incomes keep pace with increases in tuition. The lowest-income families have lost the most ground, and this is a major factor in their lower rates of college attendance. For example, for the lowest-income families in 1980, tuition at public two-year colleges represented 6% of their family income. For the lowest-income families in 2000, tuition at these colleges represented 12% of their income. Likewise, tuition at public four-year colleges and universities represented 13% of income for the lowest-income families in 1980. In 2000, tuition at these colleges and universities equaled 25% of their income.

Today the Washington Post has a story on the impact of all this. I can normally write with an academic detachment on free market disasters but on the subject of education, how does one one quantify the damage inflicted? Milton Friedman wasn't just wrong; he was spectacularly wrong and thanks to his nefarious and frankly crackpot ideas millions are paying the price with dreams deferred and freedoms curtailed.

The implications are actually severe. Because the costs of attending college have risen so fast, students are choosing majors and careers that are remunerative since they are coming out with higher debt loads. So whereas Milton Friedman predicted this flourishing of ideas with positive benefits for society, in fact the very opposite has occurred. English accounted for almost 8 percent of degrees in 1971, but had sunk to 4 percent by 2002; history had 5 percent back then but now gets 2 percent. The number of degrees in foreign languages and literatures has been cut in half, from 2.4 percent to 1.2 percent. Meanwhile, business degrees accounted for 13.6 percent of the nation's bachelor's degrees in 1971, by 2002 they accounted for almost a quarter of all degrees. The outcome has been anything but positive.

Tags: Milton Friedman, neoliberalism, US Higher Education (all tags)

Comments

26 Comments

Re: What Milton Friedman Wrought

One clear cut side effect of this is less social mobility (only the already wealthy can really afford college) and therefore, rising inequality.

It should come as no surprise that, from 1968 to 2008 the Gini Coefficient for the US (which measures inequality) has risen from 38.6 (the lowest ever reported) to 46.6 - just shy of the highest ever reported.

Apparently the current US distribution of power and wealth now looks less like any European country, and more akin to somewhere like China.

by brit 2009-12-29 12:11AM | 0 recs
Re: What Milton Friedman Wrought

It's akin to countries like Uzbekistan, Turkey, Thailand. Worse than India and Tanzania. Still better than China and most of Latin America. The average for the EU is around 31. The US is 46 now down from around 40 in 1980.

I'm not quite sure what it says about a society when inequality is a goal at worse or at best tacitly accepted.

by Charles Lemos 2009-12-29 12:32AM | 0 recs
Re: What Milton Friedman Wrought

I don't think inequality is just 'accepted' by the the free market thinkers: it is actively sought as a sign of competitive strength. The Reagan Thatcher trickle down effect justified increasing disparities of income as a way of generating more net wealth per capita.

Problem is, of course, that poverty is relative, and there are large human, social, psychological and crime costs to very unequal societies.

Moreover, as the Bush years proved, radically unequal societies rapidly lose competitive edge and begin to stagnate through lack of social mobility. A lot of this happens through education and healthcare. Rich parents pre-purchase the success of their children, while more talented children from poorer backgrounds are handicapped at the get go.

My argument to all free market thinkers is to return them to Adam Smith, and remind them that markets tend to monopoly unless there are guarantees against restrictive practices. Monopolising healthcare and education is the prime restrictive trade practice of the privileged.

There can be no truly meritocratic efficient free market in human goods and services without certain preconditions.   The right always recognise the importance of security, defence, the rule of law and proper contract. But I would add universal education and healthcare as a precondition of an efficient marketplace too.

by brit 2009-12-29 01:56AM | 0 recs
Re: What Milton Friedman Wrought

Nevertheless, it's hard to argue that the typical American family is materially worse off than their typical EU counterpart.  TVs, trucks, iPods, personal computers, etc.  The problem with inequality is, as you suggest, a loss of competitiveness and a loss of "meaning" in life.  Choices are taken away from people about how they wish to live.  So you can commute 30 minutes each way every day to a job you don't particularly enjoy and spend very little time with a family for whom you buy big-screen TVs and gaming systems.

by the mollusk 2009-12-29 06:13AM | 0 recs
Re: What Milton Friedman Wrought

I think a slightly less nefarious take on the situation is that the Reagan/Thatcherites sought to control inflation by squeezing the people at the bottom.  From that grew a philosophical justification to continue squeezing long after inflation ceased to be a primary controlling factor in our economy.  Paul Krugman has argued forcefully that deflation is actually a greater concern currently, but the policies of inequality are too ingrained to be swept away overnight.

by the mollusk 2009-12-29 06:16AM | 0 recs
Isn't that their dream?

To restore social inequality?

The skyrocketing cost of college tuition is no secret. It is important to note, however, that the cost has increased most dramatically at four year private institutions.

We must not conflate+ public and private tuitions, and in turn, college tuition and wages.

Public college tuition has kept up with CPI inflation (until recently). American wages have not, with various market bubbles used as fools gold in exchange for lower salaries.

In my first diary here at MyDD, I refer to a modern day form of feudalism, where all but the wealthy are beholden to their student loan bearers and not the noble lords. The promise of the great society was broken.

As before, students are virtually required to seek a college education to gain access to higher paying jobs, and all but the wealthy need to take out student loans, but salaries have not kept up with the cost of tuition, leading to a modern day sense of servitude to student loan bearers. And in my case, as soon as I was done with years and years of education, I was laid off.

+ that word is so overused on the Internets these days.

by NoFortunateSon 2009-12-29 11:25AM | 0 recs
Re: What Milton Friedman Wrought

One cannot simply make this stuff up. From the Cato Institute

Human Capital Contracts "Equity-like" Instruments for Financing Higher Education (pdf.)

A more appropriate title is "Of Human Bondage"

Human capital contracts are "equity-like" financial instruments used for financing higher education. These instruments are better suited than student loans to attracting the private capi- tal needed to finance higher education. Further, since repayment depends on earnings and thus adjusts to the student's capacity to pay, human capital contracts should be more attractive to students than traditional student loans. Finally, by making transparent the relative economic value of certain fields of study or the value of degrees from competing institutions, human capital contracts would improve the efficiency of the higher education market as a whole.
Under a human capital contract, a student receives funding in exchange for a percentage of his or her income during a fixed period of time. Human capital contracts are equity-like instruments because the investor's return will depend on the earnings of the student, not on a prede- fined interest rate. The effects of these arrange- ments are, among others, less risk for the stu- dent, transfer of risk to a party that can manage it better, increased information regarding the economic value of education, and increased competition in the higher education market.

To ensure the development of human capital contracts as a viable alternative for financing higher edu- cation, policymakers should assure investors that such contracts are fully enforceable and afford them the same legal protection that student loans receive today. Human capital contracts should be acknowledged as securities so that investment funds will be allowed to hold them. Finally, human capital con- tracts should receive tax treatment similar to that given other means of student financing.

Next they'll propose some derivative instrument so you can invest in Harvard students or whatever.

by Charles Lemos 2009-12-29 12:49AM | 0 recs
Somebody call Alanis Morisette!

"Because the costs of attending college have risen so fast, students are choosing majors and careers that are remunerative since they are coming out with higher debt loads."

Milton Friedman is responsible for the rise of Trail Lawyers!  Isn't it ironic?  Don't'cha think?

by Swan 2009-12-29 04:25AM | 0 recs
Re: Somebody call Alanis Morisette!

Lol.  I mean "Trial" lawyers.

Trail Lawyers are the guys representing Mark Sanford.

by Swan 2009-12-29 04:26AM | 0 recs
Re: Somebody call Alanis Morisette!

troll

by brooklyngal 2009-12-29 08:57AM | 0 recs
Re: Somebody call Alanis Morisette!

Actually he is. Harold Koh, the former Dean of the Yale Law School, tells this story. In annual surveys  of the entering class of law students at Yale, about a quarter express their career goal in public interest law but by the time they graduate three years later less than 5 percent end up working for public interest causes.

My own life is a case in point. I would have rather spent my life teaching history at the university level but instead I felt compelled to get an MBA and ended up on Wall Street because the difference in salaries was just too great. My own freedom was impinged.

In 1970, the difference in salary between a university professor and a Wall Street lawyer or banker was perhaps a factor of two. Now it is a factor of well over ten.

Understanding University Salary Structures.

A great book on the societal impact of neoliberalism on education is The Trap: Selling Out to Stay Afloat in Winner Take All America by Daniel Brook.

by Charles Lemos 2009-12-29 09:02AM | 0 recs
Interesting...

I would have rather spent my life teaching history at the university level but instead I felt compelled to get an MBA and ended up on Wall Street because the difference in salaries was just too great.

I would have rather spent my life teaching history at the middle school level, but instead I felt compelled to earn a living.  And so, I became an engineer (and morphed into a scientist... and eventually into a paperpusher); and have never felt the urge to get an MBA (okay, I lie... I have had an occasional thought on that) and have never felt the urge to work on wall street (honest to all the Gods =)

In any case, I dont think my freedom has been impinged... I still indulge myself as an armchair historian; as do you (and much better than I do).  And I have found engineering and science (and even the paperpushing) to be tremendously rewarding.  I don't pay any attention to salary structures ~ I make more than enough.

However, to support your argument; I have 3 siblings.  All 4 of us became engineers; but 2 went on to get MBAs... such a great loss !!

by Ravi Verma 2009-12-29 10:25AM | 0 recs
Re: What Milton Friedman Wrought

Colleges and universities need to share in a very large part of the blame for skyrocketing tuition.  In some ways, I don't want to see government aid pouring into these institutions that seem to be much more interested in football and new construction than they are to fostering education and intellectual development among a notoriously hard-to-control demographic.

by the mollusk 2009-12-29 05:15AM | 0 recs
Re: What Milton Friedman Wrought

They have been forced to response to market forces. That's the point. You're blaming the victim and not seeing the cause. I'm making the case that it is the acceptance of Friedmanism that is to blame for skyrocketing college tuition.

by Charles Lemos 2009-12-29 09:06AM | 0 recs
Re: What Milton Friedman Wrought

But how?  I don't necessarily disagree, but the way your post read, it was difficult to draw a line between the two criticisms.

by the mollusk 2009-12-29 09:41AM | 0 recs
Re: What Milton Friedman Wrought

Beginning in the late 1960s, the state curtailed funding of public universities. The real damage came after 1980 when Reagan cut grants and pushed loans. An education was an investment to be made by an individual not by society.

by Charles Lemos 2009-12-29 12:18PM | 0 recs
Re: What Milton Friedman Wrought

Okay.  Now I see what you're driving at.  But if you look at the figure posted by NoFortunateSon below, this only seems to be hitting private universities.  I don't see why the federal government should be providing additional aid to these institutions.  Plus, my experience on university campuses is that you have as many construction workers as tenured professors at any given moment.  These institutions are quite specifically not hurting for cash.  They are making decisions to spend their cash on buildings, athletic programs, and landscaping.  These things are bait for donors and parents.  They are not things that necessarily lead to a better educational experience.

by the mollusk 2009-12-29 01:02PM | 0 recs
Re: What Milton Friedman Wrought

I understand you completely. But they are responding to the free market. It's been awhile since I revisited my freshman dorm at Stanford, Branner Hall, but its transformation has been remarkable. Not quite a resort, but close.

by Charles Lemos 2009-12-29 01:45PM | 0 recs
Re: What Milton Friedman Wrought

Milton Friedman is dead - I wish his ideas would die.

by phastphil 2009-12-29 06:05AM | 0 recs
Re: What Milton Friedman Wrought

The hard data on the bankruptcy of  free market idea in America was produced by the Canadian Council for Social Development in 2000, a comparison of the USA, Canada, and Sweden. Sweden has much higher taxes, but it is a social democracy in which all basic services including education are government run. Education through college is free, even though they probably have private schools and universities. DK

This is the link to the study. Because the data are in tabled form, I could only reproduce the education variables, but I recommend a look-see for anyone interested in comparing the results of Friedman's free market economics with liberal-socialism.

http://www.ccsd.ca/pubs/2002/olympic/ind icators.htm

                                               Canada, USA, Sweden
EDUCATION

  1. Adults/Post Secondary Ed. 38.8% 34.9% 28.0%
  2. High Literacy (% Adults)  25.1% 19.0% 35.5%
  3. Low Literacy (% Adults)   42.9% 49.6% 25.1%
  4. Grade 12 Math Score        519   461   552
by MainStreet 2009-12-29 06:16AM | 0 recs
Re: What Milton Friedman Wrought

Thanks for posting this. I quoted from it on the Nevada Faculty Alliance blog.

by desmoulins 2009-12-29 08:01AM | 0 recs
Re: What Milton Friedman Wrought

Thanks for posting it elsewhere.

by Charles Lemos 2009-12-29 09:18AM | 0 recs
Re: What Milton Friedman Wrought

Thanks for once again posting on the essentials.

But imo this is not the result of Friedmanite ideas or of Friedman himself. It overly personalizes what is really occurring.

what you describe is an effort to return elite education to the social elites and return other people to the vocation-appropriate type of ed required by the developing knowledge economy. (see my previous post on another thread, in reply to an earlier, also excellent post of yours.)
 No matter how much the evil-libertarians at Cato or their ilk  cash in on it, the ideological (as opposed to economic) lines were set in motion beforehand by political elites (i've posted on this recently) as evidenced in the Trilateralite book by Sam Huntington et al. On the (un) Governability of the Democracies.
In the US before WWII, education commentators blamed the German system of widespread access to a liberal education for  the rise of disaffected youth and therefore the rise of socialism, whereas the US had vocational ed. We are now returning to voc ed.]
 By the late 60s young people in the Western democracies were accused of being "overeducated" ; and of course the Bushes and their wealthy & privileged cohorts woud like to have the ivy credentialing & networking system for themselves again.

Free-market libertarianism in other words, is not the tail wagging the dog; as I suggested in the previous post I mentioned, this is all part of the effort to engineer a return to a society that will support a vast upflow of wealth from the lower echelons to the upper. THEY DON"T NEED EDUCATED PEOPLE.
Friedmanism is a symptom, not a cause; or better, it is a handy vehicle to clear the field for those who know that they can buy any good, service, or person they need, and steal the rest (too big to fail!)

by brooklyngal 2009-12-29 09:20AM | 0 recs
There is another angle to it...

And one that I have not seen quantified anywhere; so I would appreciate any thoughts you have on that.

Very high social inequities can retard economic development by slowing down innovation.  Let us take a hypothetical example of an innovator who wants to become an entrepreneur.  This person would like to start a small business, based on his/her idea; but also has a family to support.  He/she has enough money to tide over 18 months worth of normal living expenses ~ enough time to get the small business off the ground and into the black/blue.  

But what about abnormal expenses ~ like an unexpected health calamity, or an accident.  Even if the probability of such events are low, if the impact is sufficiently high, it will give this person reason to pause.

If the impact is sufficiently high, this person will stay put!

If that happens often enough, you have impacted the overall innovation process ~ and have impacted economic growth.

by Ravi Verma 2009-12-29 10:30AM | 0 recs
BTW

this is the same risk analysis that enters into the choice of majors.  You did not study history because the risk (probability X impact) of student loans being unpaid was unacceptably high...

by Ravi Verma 2009-12-29 10:32AM | 0 recs
Once again, an excellent post, but...

There are a few points I would like to add, having worked in the University system for a short while. The broken promise was the topic of my first diary here.

1. It is important to not conflate (there's that overused word again) public and private tuition costs. As noted above, until recently, private four year college tuition was accelerating far more rapidly than public four year tuition with respect to CPI inflation.

2. When you look at the public four year tuition cost, it has kept pace with inflation far more reasonably. But as you note, it is the American salary that has not kept pace with inflation. It is my opinion that the American salary needs to be addressed first before public university tuition costs.

3. I do not think it is sufficient to simply say that private tuition costs are increasing because they can. Public tuition has started to increase as well. Yet faculty salaries remain quite paltry. Universities are feeding off the student loan system and changes in society have virtually mandated that everyone use the University system, public or private option.

4. In my opinion, students trying to game majors, guessing which will be "remunerative" (I learned a new word today), is destructive not just because it homogenizes our society, but because it often fails, leaving cast aside and forgotten masses hugely in debt because their gamble didn't pay off. What companies are seeking one day is not the same as the next -- the world changes rapidly. My field is a classic example. When I started college in 1993, water resources were still a huge issue, large capitol projects still routinely following in the wake of the Clean Water Act (and other regulations of the 70's and 80's). A change in politics in the late 90's, and now, not so much. In a global society, I'd better move to China for work. Computer Science majors were hot, then the dot com bubble burst, so there's always Staples as a fall back (sarcasm). Today, biotech majors are huge, but that won't last forever.

5. Don't forget that students are required to choose majors increasingly early and increasingly specific, all the while trying to tailor themselves to future corporate needs. My radical solution? Abolish college majors at public universities. Or more reasonably, homogenize them into a handful of categories (arts, humanities, language, business, life sciences, physical sciences, engineering) and let students have increasing freedom under those majors in which classes they take. Create a national standard that must be upheld for each (such are already in place) and prevent private employers from viewing transcripts. Our society is increasingly juvenile, in that we are less mature by the time we reach a certain age. I do not believe it is moral to impose life altering decisions on College freshman through a premature and overly specific college major gamble.

6. Also don't forget that job training has virtually disappeared from the workplace. Colleges are offering increasingly specified majors (at our cost) so corporations can shirk this expensive responsibility. Meanwhile, pay discrepancies between the corporate caste and the worker caste are ever larger.

by NoFortunateSon 2009-12-29 12:07PM | 0 recs

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