Monday, February 27, 2006

On education and economists, again...

Despite being on my lurking mode, I've been following the discussion in this cafe. That includes Rizal's serial quarrel over education with his secret lady. The debate was interesting, though as expected, it went into different frequencies. Expected, because this is a common thing in any debates involving economists... :-)

Of course, education is important. No doubt about it. It provides human dignity, self-respect and so on. On the other hand, education is also an investment -- human capital investment. That's where we enter the economic frequency. Here are some scattered comments, mostly based on my old piece.

First, the usual grievance is "government should improve education." What do we mean by 'improving education'? Before any of us start arguing with each other, please do make sure we are on the same wave length about this.

Second, is education as endowment, or is it a choice variable? It is both, for sure. When we agree that it is an endowment, that makes it justifiable to call for an overall improvement, as well as ethical it is ethical to call for a more equal distribution. However, since it is also an individual choice, that's where we start talking about trade-off.

Put it simply in an example: why does A go to an elementary school and B does not? A usual answer is because B is too poor to go to school. OK, now why X goes to Harvard Business School, and Y does not? Well, maybe because Y is too poor to go there (mind you, everyone except the son of a Dubai sheikh is too poor to go there). But might it also be that because Y chooses not to go there? Because it is not worth spending 2 more years in school, while Y can do some other things within those forgone 2 years? The answer is also yes.

But the 'choice' answer is not always the case for MBA degree. Going to any level of education is always a choice, because spending 6 years in primary schools, another 6 years in high school, another (...) years in the university are also choices. Read the case of Indian farmers in my article.

The moral of the story is: if the government is to improve education level, that should be both from the supply and demand side. What affects the demand for education is the return of education. It can be anything, but labor market is one important aspect of it. We can build may schools, and/or better schools. But no one would come if there is no where to go after finishing schools.

Third, let's suppose we agree that the government should do something. Does 'something' always mean more budget? More regulation (or even less regulation)? Fourth, let's suppose that there should be more budget for education. What should we spend the budget for?

Well, we see that there are more questions than answers. That what makes economists like Rizal seems to be blunt, unattractive people... :-)

(BTW, I keep asking myself, what the hell am I doing here, forgoing my modelling career back home...)


  1. Pe,

    You have to make clear what sort of education you are trying to argue. Higher education might be considered as 'choice'. But, elementary education, in my opinion, is compulsory. In this case, the role of government is crucial.

  2. ah yes, of course. you're very right, we also need to be on the same frequency of discussion regarding the level of education.

    but you are confusing the demand and supply side by putting the terms 'choice' and 'compulsory' at the same paragraph. sure, we can argue that it is _compulsory_ for the govt. to provide (supply) basic education. but what should the government do to make kids go to school (or parents to send their kids to school)? shoot them or bring them to jail when they don't?

    no. but remember that people reacts to incentives. hence, the idea is how to (also) provide the right incentives so people will choose school over other choices. that makes Rizal's argument regarding job market valid.

    the next question will be, if it's the role of the _government_, what should that be? and what about the role of parents, community, the church, the mosque, the private sector etc?

  3. Pe,

    If the matter is elementary & middle education, in my opinion, the problem lies not in the incentives (expected 'job market'), but 'opportunity cost'. Most parents don't send their children to school are because of poverty. By sending their children to school, they will lose the income that might come if the children work. In this case, the role of the government is even more crucial; dealing with eradication of poverty, social security system, and establishing regulatory framework to abolish child labour.

  4. Tin -- what you've said are true and that's my point. It's not often that I support Rizal's argument (he he..). But in many cases, problems in education is not the disease in itself, but symptoms of other diseases. Poverty, missing market (job market, credit market) etc.

    That's where the big 'mystery of missing benefit' is. We believe that education is important. Yet, in many developing countries we've seen more money poured for education, more kids in school, but did not have clear impact in growth and poverty.

  5. This government intervention on education reminds me on one paper by Duflo (AER 2001). This paper discuss about the effect of SD Inpress (one of the largest gov intervention on primary school in indonesia) on several labor and education parameter.

    Despite all the problems, the paper give very good insight on the effectiveness of the gov intervention on Primary School.

    May be the important question is what is the effect of this intervention on the labor market? Is it a positive or negative or neutral effect?(due to SE and IE).Need to research for this (could possibly publish in top journal :D)

    My points is the government intervention should be measured on the basis of personal benefit of the affected individuals.


    (maaf kalo salah nulis :D)

  6. wow... so much pressure for the government if they have to supply everything... haven't you learned, private can supply things efficiently?? why do we always rely on the government to provide for our life? hey, i need a husband... government should find me one!!!

    the government role is to regulate not to supply except public goods of course (see, i'm not missing any pubic economics class.. hihihi). And i don't think education is a public good.

    i agree with AP (and Rizal), Eduacation is important indeed, but government should not extend their power in this sector... if there's a high demand for cheap education, there will be a supply for it... no need for pressuring government to supply for one...

    speaking about opportunity cost, money is not always the one for education... there is such thing as "social opportunity cost"

    btw AP, i didn't know CSIS is a modelling agency... =D

  7. To Ado,
    make sure Aco don't read this; at least not if he's your teacher:

    "My points is the government intervention should be measured on the basis of personal benefit of the affected individuals."

    Govt intervention should be judged based on the _social_ benefit, not private.

  8. Ap,

    Well, now we talked about the social welfare. It is indeed have to be judged by the social welfare. Maybe the main issue is how do you measure the social welfare.

    As utilitarian, I think, the social welfare is just the sum of individual welfare (I think, in mathematical form, using integral under n lower bar untill n upper bar). Thus if welfare of individual increase due to the treatment effect (in this case the government intervention), thus we can assume that the social welfare also increase. I think the rawlsian would also guess the same things. (if the welfare of lowest precentile of society increase, then the social welfare also increase). I think this is the simplest definition of Rawl and Bentham idea of social welfare.

    In practical concept, It seems that many studies, that try to research special effect of special intervention of the gov't, uses the treatment evalutiaon (ATE, ATET, MTE, d-i-d, c-did). Thus they do not calculate to social welfare but calculate to individual welfare (especially the treated individuals). CMIIW.

    Thanks any way. Well may be I shoudl avoid ado as my teacher..:D. Gue jadi mahasiswa loe aja Pe..

    Maaf kalo ada yang salah..Maklum manusia..:D



  9. Just short comment: why govt? Because it's the institution that has the people's mandate to exercise policies for the good of the people. Is private sector always more efficient than the govt? Not necessarily. History proves that private sector can also cause inefficiency (read case studies in Chang, HJ. and I. Grabel. Reclaiming Development, 2004).

    'Demand creates its own supply' (as implied in Dhani's comment) is doubtful. However, even if it's true, it will not 'spontaneously' happen. In the mean time (within the time lag), can we simply disregard the need of education just because we are 'waiting' until the 'market' finally provides it?

    In addition, the fact that corruption exists is not solely in the public sector, but also in the private sector (click here)

    Anyway, I don't want to make a bias on this topic. Let's talk about education, and the role of the government can wait for the next discussion.