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The High Cost Of "Free" College

Authored by Nathan Keeble via The Mises Institute,

Tennessee Promise, and now Tennessee Reconnect, are the first programs of their kind in the United States. Through these programs designed by now gubernatorial candidate Randy Boyd, the state will pay tuition for all that seek an associates degree from a community college. They are everything that progressives like Bernie Sanders have wanted for decades. President Obama has said that they should serve as an example for the entire nation. Tennessee, one of the most conservative states in the Union, has become a champion of single-payer education.

One of the defining aspects of the Tennessee Promise and Reconnect programs is the source of their funding. Instead of being funded directly through taxpayer money from the state’s general fund, these programs are bankrolled by money generated by Tennessee’s state run lottery. This detail was essential to the legislation’s enactment, courting otherwise conservative or libertarian legislators.

The use of lottery funds seemed to overcome many ethical and economic objections. Unlike taxes, people choose to pay for lottery tickets. Promise and Reconnect weren’t like other government programs because they at least appeared to be funded voluntarily, just like a business. At first glance, the dangers of a single-payer system in education are largely, if not completely, neutralized.

Enough people were convinced by this argument that the legislation easily passed. However, closer scrutiny will reveal that the Tennessee Promise and Reconnect programs do not avoid any of the ethical or economic pitfalls of government programs such as these.  

What Is Seen and What Is Not Seen In Lottery Funds

Nobody is forcing the man standing in front of them at the gas station coercing him into buying a lottery ticket instead of another product of equal price. His choice of purchasing a lottery ticket in lieu of another good is indeed voluntary. Everyone can see this as true. However, what is not being seen clearly is that the man’s choice of lottery ticket and its supplier is not voluntary at all.

Like the majority of states, Tennessee strictly prohibits gambling, giving only occasional, temporary exemptions for charities to hold fundraising raffles. In 2002, a constitutional amendment was ratified granting a total monopoly to the state of Tennessee to provide a lottery. As the 2002 amendment reiterates, “All other forms of lottery not authorized herein are expressly prohibited unless authorized by a two-thirds vote of all members elected to each house of the General Assembly for an annual event operated for the benefit of a 501(c)(3) organization located in this state...”

Because the state prevents any sort of competition, the revenue generated by the lottery program is not a genuine market outcome. In a free market, this revenue, at the very least, would be split among competing firms. State revenue generated through monopoly gains is every bit as coercive and invasive in a market economy as revenue generated through taxation, even if it is less obvious.

Whether or not one should support the legalization of gambling is beyond the scope of this article. What is necessary to recognize is that Tennessee’s lottery revenue is a deviation from what would occur in a market, and that money which is spent from its fund is equivalent in character and economic effect to any other type of government spending. 

Why Tennessee Should Break Its "Promise"

Tennessee Promise and Reconnect are a part of the Drive to 55 program, championed by Governor Bill Haslam and gubernatorial candidate Randy Boyd. The primary goal of this initiative is to see that 55 percent of Tennessee residents complete some form of college education. The chief economic flaw is revealed through the arbitrariness of this goal.

Why does Tennessee need 55 percent of its residents to have a college degree? Why not 62 percent or 87 percent? No answer can be given. Furthermore, which 55 percent of Tennesseans should go to college? Some students are necessarily more adept than others. Even more important is the question of the composition of the education they receive. What should students study and how many should enter each career path? The truth is that Tennessee Promise, as well as government in general, is uniquely ill-equipped to answer these critical questions.

Like any other resource, human resources are only as valuable in the economy as the wealth it produces for consumers, a truth that every good economist since Carl Menger has understood. At any given time, an economy only needs so many people working in each occupation. If too many degrees in a particular field are granted, a gap will form in the labor market resulting in chronic underemployment, which means trouble for workers suffering from a lack of income and consumers whose needs are not being met as effectively as they should be. Indeed, no economy can function unless resources, both tangible and intangible, are allocated properly in accordance with the desires of consumers.

The only method that can, and invariably will, answer the questions “what degrees, how many of them, and for which students?” is the market price system. In a market unhampered from government intervention, private lenders would direct financing to students who are most likely not only to graduate, but also to the students who are most likely to succeed in their planned careers, enabling them to repay their loan. They do so because they are subject to profit and loss. Private lenders must direct student financing efficiently and effectively to avoid insolvency.

Tennessee Promise and Tennessee Reconnect necessarily do away with all of the above. These programs do not face insolvency due to their funding source and provide student financing indiscriminately to all who come. In the absence of any rational ability to coordinate education resources to the demands of the labor markets and consumers, a serious misalloaction of labor is the only possible outcome. For the real world, this misallocation means years of people’s lives squandered, income forsaken, and wealth consumed.

To say that Reconnect and Promise are the Federal Student Loans program on steroids is not hyperbole, and the damage which federal student loans have done to students, colleges, and the labor market is visible to anyone with open eyes. Effects of state intervention in student financing have caused such upheaval in young people’s lives that an outwardly socialist candidate nearly became the DNC’s nominee for president in a populist surge largely over this issue, something previously unimaginable.

Tennessee should be a trail blazer in limiting the disastrous effects of government involvement in higher education. In part because it was misguided by what is nothing more than a technicality in funding, the state is becoming a leader in higher education’s march off a cliff instead. The world of education financing is in desperate need of profit and loss bearing entrepreneurs, who can use market prices to rationally direct capital. Real reform must focus on unleashing the marketplace, not limiting it and growing the state.