Friday, September 19, 2008

Economic Externalities of Education: Nothing More than a Myth?

Yamarik summarizes recent research that debunks the generally accepted notion that education should be subsidized due to its economic externalities (HT Shikida):
A good deal of the direct cost of education is subsidised by governments – supposedly because education generates external returns for society. This column argues that there is little evidence of such returns. If there are reasons to subsidise education, they don't include economic externalities.
Yamarik however reminds us that there may be other reasons besides pecuniary spillovers for education subsidies:

The lack of evidence of external returns does not automatically imply that the US government should stop subsidising education. There are other non-pecuniary externalities that can be generated from schooling. First, increased knowledge can make a person more interesting (and even more attractive) and thus raise the utility of others. Second, Lance Lochner and Enrico Moretti show that schooling reduces criminal activity and generates a substantial social effect. Third, Milton Friedman has argued that education enables individuals to participate more efficiently in the political process.

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