The purpose of markets is to discover the clearing price at which supply and demand balance. Demand is not simply what people want, but what they choose to put their scarce resources towards in preference to alternatives. If demand were not constrained by ability and willingness to pay, we would strip the world bare in no time.
Why, then, do those who favour the funding of higher education through student loans that need never be repaid think that this is somehow extending the free market into higher education? They think they are committed to a decent compromise between efficiency and compassion by supporting a “market” whilst ensuring that no one should be prevented from purchasing in that market by their “ability to pay”.
Sadly, there are many on the right who fall for the delusion that anything is good if you can label it a “market”. Markets are not intrinsically virtuous. If I kidnap your children and then offer to sell them back to you, that is a market, but it is not socially beneficial or ethically defensible. It is not a free market.
In a world of dispersed information and subjective and variable preferences, markets offer benefits over central control if they reveal information that could not be discovered so effectively by other means. They can coordinate activities and the use of resources to satisfy people’s subjective desires as efficiently as can be achieved by imperfect humans immersed in uncertainty.
But they do so only within a suitable institutional framework. One of the necessary features of that institutional framework is that decisions must be taken within the constraints of scarce resources and opportunity costs. Without those constraints, the information revealed is distorted, and the choices taken are misled.
Student loans that are subsidised if the graduate does not earn enough have that effect. Demand is exaggerated, encouraging people to take courses that offer insufficient social benefit to justify their cost. The supply of academics expands to meet the inflated demand. Innovation in provision is reduced. The price of academic qualification is driven up, giving an illusory impression of value to the recipient, as well as an artifically inflated cost to those who have to fund the underwriting, and reward to those who provide the marginal education. The average quality and real value to society of those qualifications is driven down. The supply of people of above-average intelligence into non-academic activities reduces, though they would have been more valuable in those roles. Society is poorer as a result of the intervention.
The socialist who decries the free market and tuition fees may be wrong, but at least he or she is intellectually consistent. The liberal who supports free markets, tuition fees, and student loans that need not be repaid by those on low earnings is intellectually incoherent. If you think that ability and willingness to pay should not constrain access to higher education, you should admit that you do not believe that free markets are a suitable way of allocating resources in this sector of the economy. In which case, don’t try to pretend that tuition fees and student loans have some sort of free-market or efficiency justification.