Social media has been ablaze this week with news of New York’s recent approval which plans to make its public universities tuition-free. There are a few stipulations to the program, such as requiring a certain minimum GPA, having a household income under $125,000, and having to live in New York for however many years you received the benefit after graduating. Still, this is a fantastic opportunity for a lot of people in our movement, especially someone like me, because I live in Ohio.
For years, we have argued the downsides of government involvement in things like education, only to be ignored by progressives who claim the United States would have better results. New York has decided to do us the honor of being the first to implement this plan, effectively putting progressives’ money where their mouths are.
Let’s get something straight, the government has never – and I can’t emphasize this enough – been any good at business. That is because individuals, without exception, are all pursuing their own self-interest. Now, you may say “that’s exactly why government needs to be involved,” but you’d be wrong. Here’s why.
The government is not its own separate entity; it is a collection of individuals who also pursue their own self-interest. Except, the more extensively you allow government to be involved in business, the more authority over other groups of individuals you must give them. This throws off one of the inherent checks on the free market, which is that individuals have no authority over others, requiring that they must provide service to others’ needs in order to reach their own ends. A simple example of that would be if I decided I wanted a car. Before I can get it, I need money. To obtain money, I will need to use a skill I possess, find someone in need of that skill, and offer to trade them for something I want, in this case money, in exchange for my services regarding that skill. With government, however, that is not the case. In today’s society, due to the government’s monopoly on currency, it is more likely that our government would just print the money to buy one, forgoing the benefit of individuals mutually exchanging goods and services to reach their ends, and not worrying about the destruction it did to everyone else’s savings in the meantime.
One reason the government is unfit to be overly involved in a commodity market has to do with incentives. Businesses, like individuals, respond to incentives. In the free market, we use the price system to send these incentives between the producer and the consumer through profit and loss. Simply by buying or not buying, and to what degree, consumers send a signal to producers that either the product is unwanted or that the price is too high, thus incentivizing change. Likewise, producers may set a price that is high or low enough to incentivize consumers to alter their consumption of a certain good, dependent on supply. This simultaneously gives incentive to other producers to either enter or leave that market depending on the profit margin.
An extreme example to help illustrate the point would be bottled water after a hurricane. In a crisis like this the demand for bottled water rises drastically fast. The suppliers then raise prices, accomplishing two things. First, it curbs the incentive to buy more than is necessary, avoiding instances of hoarding. Second, it sends a signal to other producers to enter the market through the increased profit margin, which increases the supply to the consumers who desperately need it until the price falls back to its natural level. When government steps in to control the price, those signals aren’t sent. Prices remain too low, people buy larger amounts, and shortages arise because there is no incentive for other suppliers to enter the market.
This self-equalizing system doesn’t work when government controls the entire commodity either, mainly due to the fact it cannot lose. It receives its funding through the coercive act of taxation, and anything needed after that can be borrowed. New York has the 10th highest level of state debt at just over $300 billion dollars, and 29% of their annual budget is already spent on education. With this new program, things will get worse. When you consider that there is no incentive to keep costs low in fear of incurring a loss, coupled with individuals within the government pursuing their own self-interest, it means education costs will rise – a lot.
Costs have been rising for years due to other factors regarding government involvement too, specifically third-party payers. The further a consumer is detached from the actual cost of a commodity, the less marginal utility is affected by cost changes. We are seeing this now in our healthcare market; as out-of-pocket costs fall as a percentage of the whole, prices are able to rise ever faster without the consumer feeling the brunt of it. The same happens in our education system; as government loans flooded the market, the cost felt by consumers went down, allowing universities to raise costs exponentially faster than other markets with no repercussions. Now that the cost for public universities in New York will be bore completely by a third-party, the effects of higher prices will be almost invisible.
This doesn’t even take into consideration many other negative side effects of this type of rationale, like the massive influx of college degrees watering down their value until they are no more valuable than a public high school diploma, or the lunacy of allowing an entity like the state to become the largest lender of student loans in the nation. They make money hand over fist on interest payments from students, only giving further incentive to lend, regardless of risk. Then, after it goes bad and students default on their loans, they pass the losses onto the taxpayers. It’s as If we’ve learned nothing from Freddie and Fannie, and the housing crisis in 2008.
Although it is guaranteed to fail, the politicians in New York will undoubtedly try to hide its demise anyway they can. They may quietly shuffle funding from other programs into education to keep it afloat, or ask for federal funding to help. This may slow down the program’s unravelling, but rest assured, unless New York has found a way to undo economic certainty, this program will not be sustainable. This will result in free market advocates finally having concrete evidence here at home as to how these things fail. And for that, New York, we thank you.
Featured image: CampusReform.org
Thomas J. Eckert
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