Optimal Investment in College Instruction: Equity and Efficiency: Comment

I can only agree with T. W. Schlutz's positive analysis of higher education: there are undoubtedly large social inefficiencies in the present pattern of financing higher education, and that pattern is surely inequitable. In terms of positive analysis, there is one additional ground for arguing that the present system is inefficient: given taxpayer financing of the state universities and the degree of monopoly power that in-state tuition charges give individual institutions, it is doubtful whether universities have significant incentives to minimize cost. Despite the large number of colleges and universities, it is not obvious that competitive forces are strong enough to induce competitive efficiency among institutions. That consideration only adds force to Schultz's argument that traditional financing patterns are outmoded. The real question, therefore, is what alterations ought to be made in the system. Evaluation of policy alternatives must start with two fundamental questions: First, what are the governmental goals for which education is an instrument? Second, what are the constraints upon "first-best" optimization in terms of the policy choices? There are two distinct considerations which suggest that Schultz's policy conclusions-let the rich self-finance and subsidize the education of the poor-can be challenged. First and most important, while it is obvious that there can be no defense of the present inequitable financing pattern, that does not imply that public educational policy should be the instrument for achieving society's equity goals. A negative income tax is a far superior instrument for that purpose. Second, since those among the "poor" who do go on to higher education will receive the benefits of that education, why should they be subsidized at the expense of the children of the poor who do not attend college? There is a fundamental issue of the unit of equity: Is it the present value of the lifetime income of the college attender, or is it the family income of the student? Of course, the imperfection of the capital market requires some government intervention, but the logic of a