Elizabeth Warren: Universal free public college and cancellation of student debt

> The entire cost of my broad debt cancellation plan and universal free college is more than covered by my Ultra-Millionaire Tax — a 2% annual tax on the 75,000 families with $50 million or more in wealth.

It sounds like this is not an income tax but a tax on assets. Which becomes very interesting when your assets are not liquid.

Public school education serves two main purposes. It (hopefully) furnishes kids with the necessary foundations to be able to function in society and determine their own future. It also serves to keep kids safe and allow adults to get on with work. Both these function provide a large social benefit. This is precisely why the provision of primary education by the state should be free and compulsory. The external benefits are real and significant. They manifest as more productive parents, better informed citizens, higher social mobility, etc.

For higher education however the vast majority of benefits are captured by the individual through increased earnings potential. There are certainly some spillover benefits to society but not enough that society should completely shoulder the cost. Social mobility is an obvious concern here however higher education only needs to be free at the point of consumption to alleviate these concerns (as it is in the UK for example). If implemented correctly this should give everyone who wants to the opportunity to undertake higher learning whilst not introducing large amounts of moral hazard and free riding in to the system. There is simply little reason why tax payers should be required to fund everyone's degree (although a specific case could be made for subsidising certain degrees with a high social return). In fact, subsidising all degrees as Warren suggests leads to inefficient allocation given the mismatch between supply and demand for certain jobs (and a loss in productivity from people taking degrees they wouldn't otherwise have taken for jobs that may not be in large supply and where employment rather than further education might have led to better lifetime returns).

The solution proposed is appealing due to its simplicity but also fails on this account. What is needed is regulation which aligns the incentives of students, employers, colleges and lenders. College education should not be politicised and used a tool for redistribution. If it does then it will fail to serve its primary purpose as a market for producing the individuals with the skills required by society (a purpose it already struggles to achieve). Redistribution and consumer protection are obviously needed as in most markets and these should be strengthened through existing channels such as subsidies, loan forgiveness programmes, regulatory protection agencies, increased transparency, etc. The current system is certainly riddled with market failures but the what is being proposed is no better.