New Irish Government

Details of the new Irish government is here with Michael Noonan being the Minister for Finance and Brendan Howlin taking the role of public sector reform minister. Joan Burton takes the Social Protection role. People calling that a demotion of sorts obviously understand a lot more about politics than I do and a lot less about economics. This is an extremely key role and she will oversee major changes in how unemployment is dealt with in Ireland. Richard Bruton will take the other main economic portfolio of Jobs, Enterprise and Innovation. Frances Fitzgerald takes a full cabinet position for Children. Ruadhri Quinn will be education and skills minister. James Reilly, a medical doctor, will take on the role of Minister for Health. Willie Penrose will have responsibility for housing and planning. A lot of other departments have been merged. To the extent that politics can impact on the wider world, this really is a historic Dail and there is certainly an opportunity to correct a lot of the failures of the Irish economic development model, while also a very stormy financial climate that creates all manner of threats known and unknown. Without any cynicism or political partisanship, I wish the new Taoiseach and his cabinet well. If I had one thought that comes from partially obsessive study of the economics literature over the last fifteen years or so, it would be "invest in people stupid". One of the key questions for this government will be whether an economic collapse must translate into human welfare failures. There is abundant evidence that this need not be the case and even a glance of the Irish mortality distributions will show that some of the major breakthroughs in Irish history occurred independently of national income levels.

The Hunt Report: Key Recommendations

Key recommendations from the Hunt Report (or National Strategy for Higher Education) have been announced today in the Irish Independent. The Hunt Report has been discussed by Kevin and myself before on this blog. On a previous occasion, I also flagged a report entitled: "Policy Options for New Student Contributions in Higher Education", which dates from July 2009. There is no sign of the Hunt Report on the websites of the Higher Education Authority or the Department for Education and Skills. However, the Education and Skills website does have a link to "Strategy for Higher Education" on its homepage; but this link does not appear to be working. The key recommendations from the Hunt Report, as announced in today's Irish Independent, are as follows:

* Means test for families of students applying for higher education grants to be extended to include assets.
* Mergers of institutes of technology and of smaller colleges.
* Lower fees in key subject areas where there are skill shortages.
* Performance-related pay for college staff but much greater transparency of their workload.
* Increase investment in research and development to 3pc of national income, nearly double the present level.
* No university status for the Waterford and Dublin institutes of technology.

Addendum: The above set of recommendations do not say anything about a student contribution, something that many observers had been expecting. of course, the recommendations listed above may not reflect the entirety of the full report. Also, the other report mentioned above - Policy Options for New Student Contributions in Higher Education - covers the issue of a student contribution comprehensively, for those who are interested. Update: According to another article in today's Irish Independent: "For years, an argument has raged as to whether tuition fees should be brought back or student loans introduced. Controversially, it (the Hunt Report) recommends both." According to a third article in today's Irish Independent, students would have the option of paying part or all of their fees up-front or taking out a loan. The third article also mentions that the report recommends a stronger Higher Education Authority - which would monitor performance by colleges and keep back some funding until they improved their performance. I discussed the potential pitfalls of such an approach before on the blog here.

In relation to the recommendation on means-testing, this issue was previously investigated by an expert group led by Dr Donal De Buitleir in 1993. That group made recommendations to improve the fairness of maintenance grant awards. It was proposed that family assets, including businesses and large farms, be taken into account as well as declared taxable income when eligibility for maintenance grants is being calculated. In addition, an OECD panel of international experts looked at the De Buitleir recommendation in 2005 and strongly urged that it be implemented. So it can be argued that the implementation of this recommendation is long overdue in Irish higher education. Myself and Kevin discuss the above, and other aspects of Irish policy relating to higher education in this blog-post: How Education Policy is Made.

Mandatory Minimum Sentencing, Drug Purity and Overdose Rates

This is the title of an article in the current edition of the Economic and Social Review by Ronald Davies (UCD). Link here. Abstract below.

Abstract: As of 1987, the US’s Anti-Drug Abuse Act (ADAA) has imposed mandatory minimum sentences for drug traffickers based on the quantity of the drug involved irrespective of purity. Using the STRIDE dataset and a differences-in-differences approach, I find that this led to increases in cocaine and heroin purity of 52 per cent and 27 per cent respectively. It also affected the distribution of purity around its mean. Using data on emergency room visits, I show that changes in the distribution of purity had significant impacts on such visits. These results provide insights useful when considering Ireland’s drug policies which include the use of mandatory minimum sentences.

Brian Hayes on Irish Education Policy

Today on his blog, Ferdinand von-Prondzynski mentions that Fine Gael (FG) has just published a policy document entitled 'Reinventing government: protecting services and getting the economy back on track'. Ferdinand notes some references in the document to universities and higher education, but suggests that these references are somewhat in passing, as primary and secondary education get far more attention in the document.

Brian Hayes, former FG spokesperson on Education and Science (2007-10) and current FG deputy spokesperson on Finance, gave attention to salient issues in higher education in his article in last Tuesday's Education section in the Irish Times: 'No more Republic of average'. Besides higher education, the article also addresses primary and second-level education, with the emphasis firmly placed on ideas to reform the overall education system for the better.

Ten points of action are outlined in the article under the following headings: (i) Change the points system and abolish the CAO; (ii) Publish school reports; (iii) Introduce a graduate tax; (iv) Abolish compulsory Irish; (v) Boost teacher quality; (vi) Invest in school leadership; (vii) Schools know best – give them real power; (viii) Let the money follow the student; (ix) Improve the teaching – and learning – of maths; (x) Give parents a greater role on school boards. While I do not agree with all of the detail in some of these policy-suggestions, there is much that will seem intuitive to economists in Hayes' article. Some thoughts are as follows.

The Points-System and the CAO. I agree with Hayes that rote learning does not prepare young people for the challenges they face in today’s world. However, I do not think it is necessary to abolish the CAO. Rather than let universities decide their own entrance system, why not change the CAO system to make it fairer? The system could include more continuous assessment (CA). However, this CA should be marked anonymously, just as the exams are. This would serve to take away the pressure of the Big Day, steer students away from rote-learning, and would still be a fair and transparent assessment method. I also think that having four (instead of three) compulsory subject-choices would be fairer, in that it would be a more level playing-field. I discussed all of this before here.

Publish school reports. I agree that this would be a step in the right direction. Kevin D has commented before on this in detail and mentioned that "when league tables are discussed in an education context it usually refers to comparisons of schools based on exam results... but such tables (real ones) would at least refer to outputs and could, with a little work, be made into a Value Added measure." Why keep parents in the dark about one of the most important decisions they will ever make?

Introduce a graduate tax. I agree that there is a need for a student contribution to resolve the higher education funding crisis in Ireland; and concerns about the fairness of 'free fees' have been discussed before on this blog. Certainly, I think it is undesirable to see the current increase that is planned for the student "registration fee". However, I do not think that a graduate tax is the answer. I would instead recommend an income contingent student loan scheme: the consensus solution offered by economists - which Kevin D has discussed before on the blog.

A good reference in this area is an article in the Guardian from last year, in which Nicholas Barr, LSE economist, argues coherently as to why students are better off under an income contingent loan scheme. In such as scheme, a graduate with low earnings makes low or no repayments, and anything not repaid after 25 years is forgiven. "Thus loans - deliberately and rightly - have inbuilt insurance against inability to repay, protecting graduates who do not do well financially out of their degree." Also, a student loan scheme is more transparent - graduates know what they are being asked to repay. It is ironic that the U.K.'s National Union of Students argue in favour of a graduate tax; they stand to avail of a fairer system now that U.K. Business Secretary Vince Cable has scrapped his plans for a graduate tax.

There are some immediate concerns in the Irish case about whether student loans would provide the upfront-finance needed to resolve the higher education funding crisis. Without a securitisation-strategy (to securitise the value of future loan re-payments), the taxpayer would still have to provide funds upfront so that universities could finance current expenditure. Furthermore, if the loan scheme is interest-free (as it is in the UK) then there is a subsidy (in relation to the time value of money) which is paid for by taxpayers. Securitisation seems to me to be the optimal solution; though of course, someone would have to buy the securities. The only alternative (in current conditions) would seem to be the increase in the "registration fee"; though Irish students should also be aware that they may apply for UK college loans from 2012. The only other possibility that I can imagine is to invite the UK Student Loans Company to set up shop in Ireland.

Finally, in relation to income contingent student loans, it should also be mentioned that the Australian student loan scheme has been evaluated in a very positive light in relation to its impact on equality of access; Bruce Chapman and Chris Ryan report the following: "The social composition of participants was different in 1999 from that of 1988: the distribution was more equal. That outcome reflected strong relative growth in participation in the middle of the wealth distribution. ...We find no evidence that participation fell among 'marginal decision makers'—those who, while at school, did not intend to study at university. We conclude that HECS did not discourage university participation in general or among individuals from low wealth groups."

Abolish compulsory Irish. I agree that it should be optional to study Irish for the Leaving Cert. While the Irish language is important for heritage (and knock-on effects on tourism), do we not get enough of that benefit by schooling students in the Irish language up until Junior Cert.? Those who want to study Irish at third-level (and I can see the need for this) could enter third-level courses that pick up where Junior Cert. Irish left off. I made this suggestion before here.

Boost teacher quality. While I agree that teacher evaluation and indeed teacher incentives, should be considered in more detail, there are pitfalls to be avoided in this area. There is research by Pedro Martins from the University of London (based on robust quantitative methods) which shows that an increased focus on individual teacher performance caused a significant decline in student achievement. It is possible that the mechanism behind this relationship is teacher-motivation.

Schools know best – give them real power. More school-level autonomy could reduce the risk that capital works related to school building projects do not go ahead. One model of enhanced autonomy (and accountability) is the charter school in the United States.

Let the money follow the student. Hayes does not use the term "school voucher" but that seems to be what he is referring to by "pupil premium". There is evidence from robust quantitative research in Colombia that a school-vouchers program "increased test scores by two-tenths of a standard deviation in the distribution of potential test scores. Boys, who have lower scores than girls in this population, show larger test score gains, especially in math."

Improve the teaching – and learning – of maths. I agree that "while the debate on bonus points is important, the teaching of the subject is the real issue". My reservations about the bonus points scheme for maths are documented here.

Give parents a greater role on school boards. Some charter schools are founded by teachers, parents, or activists who feel restricted by traditional public schools. A string of high quality studies have found that students benefit academically from attending a charter school rather than a traditional public school (in the United States).

Polling location and voter choice

Somewhat in the spirit of Caplan, a new paper in Political Psychology suggests the location of polling booths may affect voter behaviour.

Voting is perceived as free and rational. Citizens make whatever choices they wish, shielded from external influences by the privacy of the voting booth. The current paper, however, suggests that a subtle source of influence—polling places themselves—can impact voting behavior. In two elections, people voting in churches were more likely to support a conservative candidate and a ban on same-sex marriage, but not the restriction of eminent domain. A field experiment found that people completing questionnaires in a chapel awarded less money (relative to people in a secular building) to insurance claimants seeking compensation for abortion pills, but not to worker’s compensation claimants.

Like a large number of Irish people, my polling centre is where I went to primary school. (Incidentally, the last time around we elected a relatively unknown school-teacher on the first count.)

(HT: BPS.)

Drudy, P. J. : 'Housing in Ireland: philosophy, affordability and access'

Read before the Statistical and Social Inquiry Society of Ireland,
1 February 2007:

"This paper argues that Ireland’s housing problems stem in part from a particular philosophical orientation which supports the “commodification” of housing and gives strong encouragement to private market provision of housing for sale, for rent and capital gain and less attention to housing need. The paper examines the extent and causes of house price increases over the last decade, it draws comparisons with a number of other indices and concludes that housing in Ireland is over-valued/over-priced. A number of other indicators suggest that many new and aspiring house buyers are experiencing problems of affordability and other difficulties..."

Economic History and the Banking Crisis

Some of the recent trouble in the Irish banking system might have been avoided if the warnings of one of Ireland's great economists had been heeded. Richard Cantillon (1680-1734) was likely referring to the Mississippi Bubble in France (1719-20), but he could have been writing about the current crisis. His "Essai Sur la Nature du Commerce en Général" ends with the following paragraph:

"It is then undoubted that a Bank with the complicity of a Minister is able to raise and support the price of public stock and to lower the rate of interest in the State at the pleasure of this Minister when the steps are taken discreetly, and thus pay off the State debt.

But these refinements which open the door to making large fortunes are rarely carried out for the sole advantage of the State, and those who take part in them are generally corrupted. The excess banknotes, made and issued on these occasions, do not upset the circulation, because being used for the buying and selling of stock they do not serve for household expenses and are not changed into silver.

But if some panic or unforeseen crisis drove the holders to demand silver from the Bank the bomb would burst and it would be seen that these are dangerous operations."

Should Irish Students Turn Their 'Free-Fees' Campaign Towards Higher Education Grants?

Yesterday the HEA published the third Eurostudent Survey to be conducted in the Republic of Ireland; the report is available on the HEA website here. There is a short discussion of the report in today's Irish Independent (here), which quotes the report saying that "there are substantial negative effects of working beyond 20 hours per week. Up to this point, the effects of working extra hours do not seem to be important." Other findings are that:

- Some 65pc of students earn at least some income from employment
- Students' spending averages €1,086.64 per month
- The most popular job held by students is shop assistant, followed by working as waiters or waitresses and then bar staff

The third Eurostudent Survey reports on 2007 field-work that was conducted here with colleagues at the Geary Institute. Now we are at the start of 2009 - and with economic recession underway - the concern of working more than 20 hours a week during college is mostly a thing of the past. Despite this, student expenditure costs of approximately €1,000 a month (or €12,000 a year) still have to be financed. So average living costs of a four-year undergraduate degree are circa €50,000, and somehow they must be paid.

According to a report in today's Irish Times, over 20,000 students are expected to take to the streets of Dublin tomorrow to oppose the reintroduction of third-level fees, and to highlight the role they feel education should play in any economic recovery plan. It might be the case that a better use of the protest would be to re-direct the campaign towards a call for improved higher education grants.

The rationale for this stems from the unemployment problem that students now face. Instead of worrying about whether they are working too many hours, or wishing they had a handier number, many students are now lucky to have any job at all. A discussion on this issue is provided by Bridget Fitzsimons in the current edition of the UCD University Observer: "No part-time means full-time trouble...". "Student Advisor, Aisling O’Grady has noted 'a definite marked increase' in those visiting (UCD) Student Advisors for financial advice after being unable to find employment." For any students in severe financial difficulties, some options for advice and support are mentioned in the article. One comment about the new conditions facing students is provided by Juan Houlihan in 1st Arts:

"...I couldn’t go home every weekend for work, and I thought it would be easy to find work in Dublin. I’ve looked in a lot of places, but nowhere will even look at CVs. It’s difficult, and if I didn’t have grants to cover some expenses, I’d be in a lot of trouble. It’s hard to get through college..."

With the uncertain and unlikely prospect of getting a part-time job to cover living costs during higher education, students would gain considerably from an improved higher education grant. This could be a preferable option if there were to be an either/or scenario between 'free frees' or 'improved grants'. The re-introduction of fees in the context of an interest-free student loan system has been tabled by the Minister for Education, Batt O'Keefe. An interest-free lending initiative would mean that students would not have to worry about the cost of their higher education until they have secured post-graduate employment and are earning above a certain level of salary. In a detailed discussion of interest-free student loans on this blog, it was previously noted that the UK student loan system has the following features:

- repayments do not start until April of the year after students have completed their course
- repayments do not start until the student is earning more than 15,000 pounds
- the repayment is 9% of gross salary
- the repayment is transacted as an automatic deducation (through PAYE though this could as easily be a direct debit)
- there is no particular schedule for clearing the debt, but, if it has not been cleared 25 years after repayment began, or if the student turns 65 years old ---- then the remaining debt will be cancelled

In fact, the UK student loan system is a really good offer. Though it does mean that British taxpayers (particularly those that do not get the chance to attend higher education) sacrifice the time-value of their tax-pounds. In other words, they stump up cash so that other people can get a higher education. The money might otherwise be spent on things such as better policing, better healthcare or better primary school services. What's more, the loans on offer are subsidised by taxpayers so that there are some tax-pounds that will never go towards other public services. (What this means is that there really is no such thing as 'free fees' - as somebody else will pay the cost!). All that being said, the recipients of interest-free student loans shouldn't feel so bad, as there is such a thing as non-private returns to education (in other words, externalities - including more tax revenues for govt.).

So, it may be the case that some students would prefer to have 'interest-free student loans' as well as 'improved higher education maintenance grants', rather than just maintaining the status quo of 'free fees'. At present, to get a full maintenance 'grant' of €3,420, the maximum income limit for a family of four children is €38,675 a year. For more than eight children, it is €46,140 a year. Former education minister Niamh Bhreathnach, who abolished tuition fees, admitted she was disappointed at these figures. For more on the 'grant' and its history, see this previous blog post.

What we do know is that the annual maintenance support of €3,420 seems very low, and that it falls very far below the €12,000 that students are estimated to need for their annual expenditure (see Eurostudent 3). Without part-time employment opportunities to cover the difference, will every student comtinue to attend college? Furthermore, what about the students who are not entitled to a grant but can't get a part-time job? That is, those students from a four-kid family with an income above €38,675? A Geary working paper from 2007, "Household Characteristics of Higher Education Participants", suggests that eligibility for maintenance grants is an important factor for encouraging particpation in higher education.

All of this leads to the suggestion that a better use of tomorrow's protest would be to call for interest-free student loans and improved higher education grants (improvements to both the amount of the payment and the level of family-income at which the grant is payable). All that being said, 'interest-free student loans' combined with 'improved higher education grants' is a much more expensive prospect for the government compared to simply introducing interest-free loans, or for that matter, simply re-introducing student fees.

One thing is for certain, if the 'free fees policy' is definitely on the way out (and the govt. deficit is certainly putting this on the agenda), then students would be better served lobbying for an interest-free loan system rather than protesting against the inevitable. What might be needed now is some thought on how to generate short-term finance for interest-free student loans (and perhaps even improvements to grants). One suggestion is to issue ring-fenced special savings bonds. These bonds would bear interest in the same way as any other Irish govt. bond; however, the buyers of these bonds would also know that they are generating cash-flow to support Irish higher education.

Trade Union Call for Social Bond

The ICTU response is below - the idea of a social bond that people could buy into if they believed it was fair is an interesting one.

here

there is also a proposal relating to upskilling and training that seems, at first glance, to be well worth considering.

"In place of monies paid out in pro- rata unemployment benefit to workers on a three or less day week, exchequer resources should be alternatively allocated to the provision of training and upskilling opportunities for these workers on a reduced working
week."