Free Schooling – but No Free Lunch

04 Feb Free Schooling – but No Free Lunch

How would you like free college tuition for you and for your kids? It would really take the pressure off, right? Of course you’d take it if offered – but what if there was a catch, the catch being really high taxes forever? That’s the deal that Denmark – and a lot of Europe for that matter – has struck and it is working for them, at least more or less. Whether it would fly in North America is another story.

A blog from today’s Washington Post summarizes the situation nicely. In Denmark, tuition is ‘free’ (more on that in a minute) to everyone, and everyone gets an allowance from the government if they are in school. You can get this generous deal for up to six years, and even if you do drop out you owe nothing. Sweet.

Thing is, even those who have forgotten most of what they learned in Econ100 (and as a former professor of Econ100 I can hardly blame them) tend to remember one fact: there is no such thing as a free lunch. If you are eating, someone must be paying. And of course someone is paying in Denmark, and that’s the taxpayer. That’s fine in Denmark, which has one of the highest tax rates in the world and where there is a tacit buy-in to the fact that higher education for anyone who wants it is good for the economy as whole. But is it?

Again staying with the econo-reasoning, there is an argument to be made that if something is free, you consume more of it than you would if there was a price to it. In other words, a lot of people may be getting a college education when they might be better off doing something else. Even if you do not believe there is any harm in that in itself, the zero cost of education does make people less aware of choosing majors that will pay them well when they graduate. As the Washington Post notes, a frequent criticism of the Danish system is that it does not produce enough science and technology graduates, the argument being that if everyone had debts to pay back, they would think harder about studying things that would get them jobs.

Nor is it true that free education has wiped out the youth unemployment problem. As is true in pretty much every country in the world right now, youth unemployment is indeed an issue in Denmark, and at 11 percent the rate sounds pretty high. It sounds better though, when you compare it to the overall youth unemployment rate in Europe, which is stuck about 20 percent, or the rate in Canada and the U.S. which has hovered around 12 to 13 percent for the past couple of years. So Denmark is still wasting talent, but perhaps it is wasting a little less than other countries. As well, by almost any scorecard, Denmark also does better in terms of income inequality, which as we have been seeing lately is a pretty corrosive economic force.

So should we all go for higher taxes and take some pressure off our students? I’m still voting no on that one, but I do think the experience of Denmark is one to consider. If you just take the example of Canada, some estimates suggest that over the past couple of decades the cost of tuition and fees has actually tripled. Even assuming that that is an exaggeration, the cost of going to college in North America is prohibitive to some, and casts a long financial shadow over the lives of many who do manage to achieve it. That’s not without costs to the larger economy – proving again that whichever choice you go with, lunch is really never free.