Running Out of Money to Help the Poor

Illinois Public Radio reports:

More than 150,000 college students were left without financial help this spring when Illinois ran out of money for MAP Grants…

…Illinois’ Monetary Assistance Program, or MAP, which provides financial aid grants to low-income students. The program ran out of money in March last spring, leaving about 150,000 students – half of all who applied – without help.

That number could grow – this year’s state budget cuts money for the grants by 14%.

Illinois has one of the worst if not the worst budget deficit in the nation, and it’s starting to reveal itself in cuts to public services. Liberals like to signal that they care more about the poor than conservatives, but it doesn’t matter how much the government cares about the poor if the government runs out of money.

In fact, there’s a good chance that the government’s intervention has made the situation worse. In Tuesday night’s third-party presidential debate, Libertarian Party candidate Gary Johnson argued that “the primary reason… college tuition is so high” is due to “government guaranteed student loans” that make “colleges and universities…immune from pricing.” After Green Party’s Jill Stein and the Justice Party’s Rocky Anderson called for “free education,” Gary Johnson retorted, “Free comes with a cost. Free very simply is spending more money than what you take in.

Now even simply loaning money with no risk of loss creates a distortion in the market, but Illinois’s MAP program is actually a grant, which as far as I understand, like the Federal Pell Grant, means it’s a gift that students don’t have to pay back. This is an even more direct subsidy that helps drive up the cost of higher education faster than inflation (though I’m not sure how the students are “left without financial help” if there are still federal subsidies available – but I’m no expert on this).

A compassionate liberal might argue that we need to provide these grants to low-income students because otherwise they would not be able to afford college, and it’s not fair that only the wealthy should receive the benefits of a college education. You might even argue that it’s a positive investment to help break the cycle of poverty.

I think this sort of argument calls for the Caplan Rule. A few weeks ago, Bryan Caplan blogged about the frequent “what if” questions regarding the potential imperfections of a world with less government intervention. Caplan argued that libertarians should respond with analogous “what if” questions about the actual imperfections of the real world of government intervention.

In this case, the interventionist is asking, “What if the government doesn’t help poor students go to college, and only the rich can afford it?” According to the Caplan Rule, a proper response might be, “What if the government helps poor students go to college, but this drives up the price so much that eventually government can no longer afford to help poor students go to college, and now those students are worse off than they would have been because they’re not getting help from the government and college costs even more than it would have if the government had not been involved in the first place?”

If that’s true, it doesn’t necessarily follow that all government attempts to help the poor are ineffective, or that there aren’t interesting arguments for certain kinds of assistance. But it does mean that low-income college grants, as a method of helping the poor, may actually be detrimental in the long run. You don’t have to argue that the poor don’t need college subsidies because, say, online education is free; this invites the response that a degree is still a valuable albeit possibly irrational signal (does that mean it’s a market failure?), and “what if” a poor person can’t get a job because he doesn’t have that degree? Well, even if the poor do “need” help, “what if” the government’s help ends up hurting?

I suppose some folks might respond that Illinois should simply raise taxes to continue funding this crucial program, but they already tried that. Apparently it’s not working. You might even argue that this program isn’t very costly, especially compared to [X program of less importance], but that’s just part of the unfortunate reality that the government’s interventions are decided by people who are often influenced by other people who lobby for their programs better than you do. This also works against the government’s effectiveness.

Sometimes when a person doesn’t want the government to help the poor, you might assume it’s because he doesn’t care about the poor. But he may very care much about the poor. Maybe he just thinks the government isn’t a very good helper.

2 thoughts on “Running Out of Money to Help the Poor”

  1. Yes, a compassionate liberal might argue that in general we should be spending more money providing more education for poor kids. He might also add that we should stop wasting money incarcerating the poor. Studies have shown that if you really want to reduce crime, it is better to spend the money on education, not the prison industrial complex. To be clear, sending lots and lots of people to jail does reduce the crime rate (three strikes and you’re out reduces crime) it just isn’t cost effective. Spending money on education is cheaper.

    A compassionate liberal might add that sending millions of young men to prison for smoking weed is a big waste of money, and would pay for a huge amount of free education. I would assume a compassionate libertarian would feel the same way.

    But enough with the easy stuff. I’m sure we all agree with that. If you look at the budget of most states, I think you would agree that this is the biggest reason that states have screwed up their finances (especially big states like California and Texas). Now to the controversial part: I think many of the grants and loans are a failure compared to cheap state universities. Across the county, the cost of going to State U has risen enormously. In it’s place, states have tried to subsidize the cost for the poorest students. On the surface, this makes sense. Why give the rich kid a break when the poor kid needs it? Unfortunately, this has failed.

    To begin with, it is extremely difficult to figure out who is poor and who isn’t. What if a kid’s parents are divorced? Should you base it on the rich dad or the poor mom? What if the parents have been doing just fine, but blow all their money on a boat? What if it is the opposite. A kid’s parents struggle and save every dime (teaching the kid a valuable lesson) and thus end up with a decent balance sheet once the kid reaches 18. Now they have to pay a bigger share. It isn’t hard to think of various scenarios that are simply unfair.

    That is why the old fashioned state university system made sense and worked well. It was cheap for everyone. Maybe it wasn’t a great deal for a rich kid, or such a bargain for a poor one, but at least it was a good value. As such, it was really popular, and allowed numerous kids to climb the ladder of success. In that way, it was similar to Social Security. Low overhead, everyone pays, everyone benefits, maybe not the “fairest” system in the world (by some definition, because it lacked means testing) but because everyone is involved, it made it more fair in some ways.

    Then you have the ridiculous notion that got into many kids’ heads that the elite school was so much better than the regular one. Studies have been inconclusive, but that hasn’t stopped many a young scholar from thinking that the key to success is to go to that great university. We certainly don’t want to discourage such thinking, but by and large, it is wrong. Most of the high school graduates would be far better served if they just went to community college, and then the cheapest state university. Community colleges are a great bargain while many state universities are competitive with any university in the world. It would be nice if young folks understood that.

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