There is little evidence that increased education spending drives economic growth

by Grace

JONAH GOLDBERG: Education is important and necessary for a host of reasons. But there’s little evidence it drives growth.

Questioning whether increased education spending is really the key to “winning the future”

British scholar Alison Wolf writes in “Does Education Matter?”: “The simple one-way relationship … — education spending in, economic growth out — simply does not exist. Moreover, the larger and more complex the education sector, the less obvious any links to productivity.”

Nasim Taleb, author of “Antifragile: Things That Gain From Disorder,” argues that education pays real benefits at a micro level because it allows families to lock in their economic status. An entrepreneurial father can ensure his kids will do OK by paying for them to become doctors and lawyers. But what is true at the micro level is not always true at the macro level.

Think about it this way: Growing economies spend a lot on education, but that doesn’t necessarily mean that spending makes them grow. During the so-called Gilded Age, the U.S. economy roared faster and longer than ever before or since, while the illiteracy rate went down. But the rising literacy didn’t cause the growth. Similarly, in the 20th century, in places like China, South Korea and India, the economic boom — and the policies that create it — always come first while the investments in education come later.

Jarrett Skorup looks at higher education spending.

There is no link between higher education subsidies and economic growth, and none between college degrees and job creation.

Since 1980, Michigan has spent a much higher proportion of personal income on state government support for higher education than nearby states like Illinois and Ohio. According to Ohio University economist Richard Vedder, by the year 2000, the Mitten State was spending the sixth most in the country (2.34 percent of its personal income), double what Illinois was spending and much more than Ohio. This did not lead to higher growth as Michigan’s economy performed among the worst in the country during that time period.

And states with a higher proportion of college graduates do not necessarily grow by adding more college degrees. A comparison of the number of state residents with a college degree with per capital income growth from 2000-2008 yields no correlation.

James M. Hohman of the  Mackinac Center for Public Policy sees “no correlation between a state increasing its college graduate base and growing its economy”.

20130214.COCGradGrowthVsIncomeGrowth2000-20081

If the hypothesis promoted by Glazer and the lobbyists engaged by Michigan’s tax-supported public universities was correct, the various points on this chart would be clustered around an upward sloping line, as states with higher growth in the number of grads also enjoyed relative improvements in income. However, no such trend line exists.

Another chart that built in a lag time also showed no correlation.

… The chart below compares state grad growth between 2000 and 2005 and income growth in the three succeeding years; once again no pattern can be detected.

20130214.COCGradGrowthVsIncomeGrowthLag1

So many factors enter into economic growth, making it believable that education spending would not be a driving factor.

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4 Comments to “There is little evidence that increased education spending drives economic growth”

  1. Dear Sir or Madam:

    The above data imply that success may depend less on what government spends than on how it spends for education to achieve economic growth.

    Sincerely,
    Ronald Grey
    http://RonaldGrey.wordpress.com

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  2. No doubt there’s lots of misspent education money spent by the government. For one thing, we spend about $40 billion annually on Pell Grants but have no idea about the results.

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  3. There’s also the issue of diminishing returns. Going from illiteracy to literacy is a huge big deal, but every succeeding step after that is going to have less return on investment.

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  4. Good point, AmyP. Especially considering the findings reported in “Academically Adrift” about the pathetically low levels of learning in our colleges and universities.

    http://www.insidehighered.com/news/2011/01/18/study_finds_large_numbers_of_college_students_don_t_learn_much

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