Joe Stiglitz Channels Armen Alchian

For instance, government support for higher education is often viewed as enabling the children of the poor to go to college, and thus is viewed to have a positive redistributive impact. But, on closer examination, children of the middle- and upper-middle-classes are more likely to avail themselves of a higher education and whatever government support for it they can obtain. Thus the net benefits accrue disproportionately to the children of middle- and upper-middle-class individuals, and in this perspective, state support appears to be regressive. Moreover, it is not clear that parents’ income provides the appropriate focus of attention; the beneficiaries of education are not the parents but the children; it is the children who will receive higher wages as a result of the increased level of education.

This is from “The Analysis of Expenditure Policy,” Chapter 9 of Joseph E. Stiglitz, Economics of the Public Sector, 2nd edition, 1988.

This is yet another example of Stiglitz’s clear thinking about government policy. Notice in the 2nd and 3rd sentences how he makes the standard argument that many economists have made. The first place I saw this point made was in a 1960s article by, I think, Burton Weisbrod and W. L. Hansen of the University of Wisconsin. Interestingly, William F. Buckley, Jr. made this argument before a New York college audience while running for mayor of New York in 1965. Buckley writes about it in The Unmaking of a Mayor.

But then Stiglitz goes even deeper, the way Armen Alchian did in his article “The Social and Economic Impact of Zero Tuition,” New Individualist Review, Winter 1968. Stiglitz points out that since the recipients of college age are typically adults, the income of their family isn’t that relevant. College aid will go to people whom the aid makes wealthy.

Stiglitz almost gets to where Alchian got. Alchian focuses on wealth and points out that just as owner of land sitting on a pool of oil is wealthy even before he has drilled it, someone capable of getting through college is sitting on an untapped pool of wealth in his brain.

This is my third post on Stiglitz’s textbook. The first two are here and here. I’ll have a few more Stiglitz posts and at some point I’ll explain why I was rereading a 30-years-old book.

 

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