President Obama calls government spending on education “an investment”. What makes some expenditures an investment and others just spending?
In the political world the answer lies in who said it.
In the real world (which includes the political world), the differences are very important. It explains why some countries, like Germany, seem to always have a strong currency and healthy economy. It seems to explain why other countries like Italy, Spain and Portugal go from boom times to dire straits every couple of years. Germany invests in education and its infrastructure while the Southern European countries spend money on education and infrastructure.
Doesn’t that make it all clear?
Consider the case of the US government subsidies for college education. Congress delighted in a food fight this past week when Republicans chose to “pay for” the continued college loan subsidies by cutting Affordable Care Act funding. The GOP chose hurting the poor over taking the money from oil subsidies. This investing “issue” is not where the college tuition subsidy comes from, rather it is the “ins and outs” of subsidizing college education in the first place.
As a general statement, education (from vocations to skills to liberal arts to engineering to medicine), all things being equal, should be endorsed. The question is whether all education being pursued today will produce graduates who can generate enough income (or quality of life) to justify the cost.
The average college loan outstanding is about $25,000 with loans of $100,000 or more not uncommon. If we looked at these amounts as if they were a home mortgage, then on a 30 year basis, the $25,000 would call for a monthly repayment of $135 per month. The $100,000 would require a $535 per month.
Now consider that 2011 college graduate starting salaries average about $50,000 (about $3500 per month after taxes). Let’s add in rent, car loans, cell phones, and general living expenses. there is not much left for paying off the loan.
And remember that the $50,000 is the average. It is boosted up by starting salaries of engineers. That means there are a lot of people earning much less than $50,000 if they are fortunate to get a job at all.
So what’s this got to do with Europe and especially the southern European countries facing financial difficulties?
In Europe, most governments subsidize Universities and in the process keep tuition cost low. So, when these countries get in trouble with their budgets and run out of room to borrow, they are forced to cut spending. When that spending is tuition support, it is not long before students riot in the streets.
In the US, the federal government does not support universities directly. Instead the feds encourage student loans. These two approaches begin to look the same when students begin to default and bail outs become necessary.
Part of this discussion are those students who graduate and find themselves unable to find work. This is more like southern Europe and not like Germany.
Of course no student can see into the future. All students, however, can ask what future jobs will pay given their future degree, what it will cost to live, and how much they could afford to invest to get one of those future jobs.
At the end of the day, however, the student is responsible for his debt. Unfortunately, all tax payers will be responsible for cleaning up the mess when these “investments” default.