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556  9 December 2002   

As for a US war on Iraq, it would throw the US economy into a complete tailspin, unseating George Dubya in the process - so you should watch out for the U-turn.  Bush's sacking of his two top Treasury men, over the weekend, was widely interpreted as clearing the decks for war.  I disagree.  The failure of Paul O'Neill as the US "Chancellor of the Exchequer" made the sacking inevitable.  He was an amateur, without experience of government, brought in from a glittering business career.  He completely failed to grasp that political leadership is a quite different skill, demanding a different style, a different personal and public philosophy, different values.  He cocked up.  the weekend Press carried catalogues of his political howlers - and he compared very badly with the wise and subtle Alan Greenspan, the "Governor of the Federal Bank of America" (as it were).  As a businessman, O'Neill was simply out of his depth in politics - a lesson from which Tony Blair should take note.  O'Neill had to go, and he took his side-kick Larry Lindsey.

Bush must - and will - extricate himself from the Iraqi commitment.  He will also play on the terrorist organ a little more quietly, because that can be even more unsettling than Iraq - in the minds of the US consumer.  Christmas spending will obscure fragile consumer confidence, and the January/February period is doldrums, for the consumer economy.  My forecast is that by Easter, we shall see upwards trends in American consumption firmly established, with George Bush then selling himself as the man who both stood up to Saddam Hussain and steered the Us economy to a prosperous 2004...

Do you think I am crazy? Or over-optimistic?  Or what?  Drop me a line

557  11 December 2002   

Financing Our Universities 

Public debate has, it seems to me, narrowed the Government’s options down to two. 

Public opinion clearly does not favour placing the whole burden on the general body of taxpayers – as we do with health, highways, defence, Police and education.  Rather, the public favours gathering income from “graduates” who earn above a certain income-level in their later lives.  They are deemed, without more, to have received special rewards from their enjoyment of state-funded University education.  And I agree with that view.  Seeking education over 18 is seen as a personal life-style choice (currently, for a minority 40%) and there is no consensus sufficient to underpin general tax-funding.

But an important distinction remains, between two options. 

• Option One   This is a “Debt Recovery Model”, which argues that the graduate’s personal liability be crystallized as a specific debt reflecting the sums actually borrowed, and be repayable only by way of the tax-mechanism, as a sort of quasi-tax.  Once the debt had been repaid, the payments would cease.  If they had not been repaid by retirement, the balance of the debt would be extinguished.  All the signs are that Tony Blair prefers this non-redistributive option.

• Option Two is a straightforward “Adult Education Premium” on all graduates, payable by way of a percentage addition to their Income Tax bill, whether they have borrowed State money to finance their college days or not.  The additional Premium would be payable merely because the individual enjoyed graduate status, and would be a supplement payable for as long as that individual paid Income Tax on above-average earnings.  “Poor graduates” would pay nothing, for as long as their annual income fell below the trigger level.

Given that choice, only the second, the Premium, would be satisfactory.  It  would be redistributive, one of the few remaining redistributive mechanisms available to modern society.  The first would merely visit upon the student the lifetime consequences of his poverty, dunning him for having been poor.  And it would be seen, by teenagers from low-income households, as the assumption of debt, even if the obligation to repay were suitably deferred.  And it is that fear of debt which triggers the reluctance of many students to take up post-18 studies.   

The right way forward is to devise a tax payable, above a trigger income-level, by all those who have benefited from post-18 education.  That should include all existing graduates, as well as those securing future qualifications.  It should not be “debt-related” at all: it should be payable (for example) by those who had qualified abroad, or at a fully-private institution.  And its scope should include vocational training, as well as “university” education (which is itself an increasingly tenuous concept).  If one were to cast the net as wide as that, the percentage premium would be small and thus far more acceptable, politically.  A large number of people would be in the same boat.  It would be a category-specific, and effectively hypothecated, income tax increase, exempting the low paid and unqualified. 

Definitions would prove fiendishly difficult.  What of those who completed a full course, but who then for some reason “failed to graduate”?  What of those who proceeded post-18 with a State-funded course outside a “university”?  Should the deployment of any State funding on post-18 training be enough to trigger the tax-premium in later life?  What about the drop-outs who left with no formal qualification – but nevertheless with major competitive advantages?  All these questions would need answers. 

• But I favour a universal Adult Education Premium, along those lines.

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