Debating Student Debt

Three further thoughts on the Free Exchange debate on the effects of student debt:

• Some people seem to think that who paid for a degree would affect the motivations of a student to work hard.

  Would who paid for your car affect your motivations to drive it? Would a car that was a gift from a rich father be driven with less enthusiasm? Probably not.

  In fact those who believe that such behaviour is determined by economic rationality need to ponder this: If there are benefits to working hard and getting a better degree, why wouldn’t a rational student seize those benefits regardless of who paid for the opportunity to study?

• Some years ago I did a full-time MBA at one of the top UK schools. All of us on the course had paid large fees, and sacrificed even more in foregone salary. A substantial investment by anyone’s standards.

  Did we all therefore work as hard as possible to make the most of the opportunity?

  My experience was that people behaved very much in line with their personalities. Some people burned the midnight oil and read every book cover to cover. Other people often skipped lectures and slept in. Many people left their assignments to the last minute, and did a rush job that didn’t do them justice.

• The discussions here remind me of a quote from Einstein.

  “Common sense is just another name for the prejudices we acquired by the age of 18.”

  People seem to be here to spout their received wisdom, without any real thinking or exchange of ideas.

  Which like the behaviour of the MBA students I described above is utterly, familiarly, human, and far from rational.

Perspectives on Wealth – Follow Up

I wrote recently on the narrow way we often think of wealth, and how that can be very misleading about people’s true economic well-being.

The points I made there are relevant to a post on The Econonmist blog, about student debt. Some of the connections are these:

• Another way to think about student debt is to consider the intellectual capital that is gained, and offsets the financial debt that may have been undertaken. This is the point I originally made as an example of how in statistics someone with healthy prospects can appear to be worse off than a truly poor person, who does have a modicum of savings.
• Of course there is more to studying than simply enhancing one’s financial prospects. Some of the commenters on the post point out that large debts prevent talented people from working in non-profits or the public sector, where they are very much needed. This relates to my thoughts on private and public wealth.
• The Economist suggests that maybe if all students were required to take on a large loan, that would actually level the playing field because it would:

“put the children of the middle class in at least somewhat the same position as the less affluent students who compete with them for places”

• When you consider “social capital” it is clear that the playing field cannot be so easily levelled. Someone who knows that in the worst case they can always go and live in comfort in an affluent parental home is in a very different position to someone whose debts might end up as a burden not only to themselves, but their hard-pressed family. And there is a great deal more to social capital than just that. For example, is a law degree sufficient to gain entry to a lucrative legal career? Or is the right accent and demeanour also a requisite?
• Remember that decisions are made in conditions of bounded rationality. It’s not sufficient that education is a good investment. It must also be clear to a young person with little experience of the world that it’s so. If that young person comes from a background where this is taken for granted, their decision will be obvious. If they hardly know anyone with a university education, the risks may appear great, whether they are or not. And it is actually the case that the less capital you have, social and otherwise, the more any given financial loss would impact you.
• Maybe most pertinent from my earlier post is the point that most often people are not interested in any real or rigorous thinking, simply in latching on to evidence to justify their own existing point of view. The discussion on the Economist blog – from whatever point of view – illustrates this only too well.
• In fact I wonder, was the original Economist post written to shed light on an important question? Or was it like much else written simply from the perspective of “What can I say today to get some traffic to this blog and earn my paycheck?” Questions that we would all do well to ask ourselves often.

Perspectives on Wealth and Development Statistics

Chris Marlow quoted some statistics on the distribution of wealth:

# The top 2% own 50% of global household wealth
# The bottom 50% own just 1% of global wealth

I’m wondering what is meant by “household wealth” here.

A tremendous amount of the wealth of humanity exists as publicly owned assets – our roads, schools, hospitals, libraries, universities to name a few.

In fact our true wealth lies as much in our knowledge, our culture, our relationships, our natural environment as in the usually measured assets. Economists sometimes call those things “human capital”, “social capital”, “intellectual capital” and so forth.

Again many of these, in so far as they can be said to be owned at all, are not privately owned.

A person with apparently “no personal wealth” whatever can actually be living a very decent life, at least in the developed world.

At the extreme, plenty of young professionals with outstanding student loan debt are going to have a negative net worth, and could accurately be said to have less than zero wealth. Which although accurate, is at the same time liable to be severely misleading to the casual observer.

Of course, the basic point that there are great disparities in wealth in the world is extremely valid. And we should certainly all wake up to this.

But we also need to be alert to the fact that statistics are rarely used in a neutral or rigorous way. In development, you often find situations where depending on how someone prefers to see things, they either say:

• ” Look how many people are hungry / illiterate / sick” OR
• “Look at the enormous progress has been made in reducing hunger / raising literacy / increasing life expectancy”

Both sets of statistics are equally true, but the impression they leave on the casual reader is very different.

And most people in this world are content to be casual readers.

Or worse, they are only interested in seeking out information which reinforces and justifies their existing points-of-view, and happily seize on whatever suits that end.

A true commitment to making a difference requires much more work than this.

Which in part explains why so many well meaning people have thus far made so little difference.