Hey what up with the high cost of higher education? As it turns out, the wage premium for a college degree is higher than its been since the 1920s – and so students quite rationally are willing to pay a fortune in tuition. That wage premium also has driven up hiring/retention costs for PhDs.

America used to lead the world in HS and college grad rates. While college attendance is still high, grad rates have slipped, and the drop-out rate is significantly attributable to financial barriers. The labor market gives every indication of being starved for educated workers – yet the market has not responded by increasing the relevant labor supply. This market failure is fueling wage inequality – America is now producing too many low-skill workers and not enough high-skill workers.

The longstanding remedy for underinvestment in education markets is public provision of education. As America made a big push at the beginning of the 20th century toward universal HS ed (raising grad rates from 5 to 50% in a few decades), it should today make a comparable push for universal college. Following the lesson of what worked previously, community colleges should be free – every American HS grad should have the opportunity to attend college for free. If this proves inadequate, a stipend system should be effected, allowing college students in good standing to draw a small salary.

At the other end, recent evidence on the value of Head Start and pre-K shows that we should also invest in early childhood education – for the purpose of producing more HS and college grads. Quality full-time pre-K should be universal and free – though I’d wait a decade or two to see the empirics before asserting it should also be mandatory.

To grasp the depth of the problem – consider that native-born American men born in 1948 are, to date, the most educated cohort in American history. American men born after 1948 have fewer years of education! American HS grad rates, pathetically, peaked in 1969 at about 70% and declined for more than 30 yrs, until the Great Recession made working so unattractive that kids finally started staying in school again – but HS grad rates are still below what they were 45 years ago!

Large scale education has simply never happened anywhere, anytime, in the absence of massive public subsidies. 5 year olds are unable to go to their local bank to take out loans for their education – this rather banal observation perhaps best captures one of the central problems in the education market: future workers lack the necessary information or access to credit to make efficient investment decisions. The second major problem are externalities. Students and their parents – who foot the bill for higher education – do not capture the full returns to their investment. Educated people make better citizens, are healthier, cause less crime, pay more in taxes, etc. In order for the market to allocate resources efficiently, these externalities must be offset – by collecting taxes from the general population (who benefit from other peoples’ education) and investing in education.

That this is sound policy for K-12 is beyond debate – liberals and conservatives will bicker over the form that public ed should take (vouchers, busing, affirmative action, etc) – but there is consensus that its a good thing in the general sense. Extending this policy to pre-K and post-12 should also be a no-brainer. 100 years have passed since America made HS free to all. The time has come to do the same for college and pre-K.