Practical Dad

College Education and “Skin in the Game”

I think that the kids need to have some skin in the game...

       Tech Guy and Father to the PracticalDad

This comment was made to me several days ago, just a day after both Middle and another posted a video about Bernie Sanders proposing free college tuition for all Americans.  Taped in a conference room at his Burlington, Vermont campaign headquarters, candidate Sanders restates the issue - higher education is unaffordable to hundreds of thousands of young Americans - and follows with both a plan and a plea.  Since I'm unable to find this video outside of Facebook, I'm providing a link to a CNN interview with Wolf Blitzer in which the same proposal is discussed.  Please understand that you have to get through a short segment on Hillary Clinton as a setup for the interview.

As full disclosure, I like Bernie Sanders even though I'm nowhere near a socialist in my leanings.  When he gave a filibuster in late 2010, I made it a point to have the kids watch - even if only for a few minutes - so that they could see a filibuster in action and his name has come up in later discussions with the kids.  The problem is painfully and correctly obvious.  We've allowed a system to be created that predicates supposed achievement and financial security upon the acquisition of a degree that can cripple a young adult's prospects for more than a few years and the cumulative level of student debt now surpasses the national level of credit card debt.  The mantra in the PracticalDad household for the past eight years has been we need to get you through college with as little debt as humanly possible and Eldest is almost at that point now.  So how do we make this happen for the millions of other young Americans?

What Sanders proposes is a popular two-fer, free tuition for all young Americans to be funded by a transaction tax upon each stock trade made on all equity markets across the country.  Get the youngsters excited while simultaneously sticking it to Wall Street.  The transaction tax specifically is a $.50 fee made upon each market transaction by all entities that trade in the exchanges and is what is referred to generically as a Tobin Tax, in honor of the man who first proposed the concept several years ago.  It is partially based upon the number of shares in any particular transaction, so a hedge fund moving 100,000 shares of a company would pay the tax while Joe Six-pack moving 100 shares of the same company in his own transaction would not.  The fees would be aggregated and then used to fund the tuition for any college student in the country, at any public school.

But here's where the Tobin Tax concept becomes interesting.  The equity markets have reached the point at which more than 2/3 of all transactions are now done via HFT - High Frequency Trading - aka what is now nicknamed Skynet.  In other words, high speed algorhythmic programs running out of the TBTF banks and hedge funds across what is considered Wall Street.  The key idea behind the original concept was to somehow curb the amount of HFT trading so that that small group of investors would no longer have an outsized advantage on the rest of the public; by the time that Joe Six-pack can place a single sell order, an algorhythmic HFT program can execute dozens for a distinct advantage.  HFT wouldn't be outlawed but it would be curbed.  The potential tax revenue on this would, by estimate of 2008 transactional data for all forms of financial instrument trades - stocks, bonds, swaps, etc - amount to greater than $300 Billion and even if the result of the transaction tax is a 50% reduction in the number of trades, the proceeds would approximate $175 Billion.  And that's with a five year old report based upon trade data from 2008.  As angry as Main Street has become with Wall Street's predation and apparent control of the levers of political power via campaign contributions, Sanders' proposal has the potential for some serious popular legs.

But after thinking about the proposal, I have two issues with it and neither pertains to the Tobin Tax, but instead the notion of free tuition itself.  The first concern is more pragmatic - what's the point of paying for every young American's tuition if there's no real, sustainable-living wage job available for him or her upon completion?  It's a lovely notion that Junior can achieve a more affordable education but at the end of the day, the point of higher education is ultimately to prepare people to take their places as productive members of society.  It's hard to be productive if there isn't enough economic activity to support said jobs and the end result is that the youngsters continually return to gather even more credits because there's nothing else to do.  Taken to it's logical conclusion, the program eventually costs even more because the kids just go to school instead of being gainfully employed.  Without sustainable, living-wage jobs for them, this is akin to nothing more than refueling airplanes so that they can maintain holding patterns instead of being able to land and letting the passengers get on with their lives.  Sanders is correct in that he makes this a concrete proposal as part of a larger package of actions that have to occur.

The other issue is more philosophic.  Should we put together and sponsor a package in which something such as the tuition for higher education is free or should we, as a society, make the statement that it has sufficient value that the student and/or family should still put something towards it?  In other words, assure that the student has some skin in the game, as the other father stated to me later.  I believe that it's human nature that we have more appreciation for that in which we've had a personal stake.  How many of us parents have seen kids take greater care of those items where there's a personal investment?  If you want to make it a sliding scale tuition based upon income, then so be it; but society can still absorb sufficient of the cost that the amount owed isn't punitive or exhausting to the payer.  Part and parcel of the philosophy piece - dark as it is - is the notion that there is no such thing as a free lunch (TINSTAAFL).  Even if there's no ticketed monetary cost to be paid, there exists the prospect that the price will be paid in other forms and in this case, the prospect of some form of compulsory national service via a re-institution of the military draft and/or form of civilian service.  It's an old idea that has been kicked around first by one side and then another but as funds go to one particular group and others believe their ox to be gored, the resultant clamor could result in such a deal being reached.  Hey, the kids are getting free tuition and money's tight elsewhere...why not let them pay it back another way?  Some can disagree that it might ever happen and some can disagree that it's a bad thing, but the prospect exists and it needs to be out there before any final decision is reached.

The issue might seem insurmountable given the barrage of commentary from one side and another amidst a 24/7 newscycle.  But it's good to remember that our country has made such statements about the value of public higher education before and each in times more troubled than these.  The great land-grant universities - Berkeley, Purdue, Penn State and the like - arose out of legislation passed during the Civil War and the GI Bill arose out of the ashes of the Second World War.  And these were far greater fights than what would be faced with the Wall Street crowd.

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