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Degrees of Debt
00:27:55
We look at the numbers behind the increase in the cap on undergraduate tuition fees in...
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- [00:00]
A
Thank you for downloading this week's More or Less podcast. Here's Tim Harford.
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B
Hello, and welcome to a brand new series of More or Less your weekly look at numbers in the news and in life. This week, a bus driver asks if we should get rid of traffic lights. A physicist tells us what would happen to New York if a terrorist set off a nuclear bomb in Central Park. And a monkey tells us whether England or Australia will win the Ashes. Jack the Psychic Cottontop Tamarin. More on his astounding powers later. But first, let's talk about the hot political topic of the week. The increase in the cap on undergraduate tuition fees for English students, which was approved in the House of Commons last night. Are the government proposals fair and progressive, or are they hanging a millstone around the neck of the nation's young people, dropping them into a deep hole of debt? Or perhaps both. Passions are high on both sides of the debate, but we couldn't help feeling the entire subject could do with a dose of numbers. So we decided to dig up Wesley Stevenson, dust him down and set him to work. What did you find, Wes?
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C
Well, I decided it was time for a spreadsheet. We know quite a lot about how this new scheme will work because in an act of kindness to number fiends like us, the Department for Business Innovation and Skills have put all the data on their website. Using this data, I've done some admittedly crude calculations, but based on a student borrowing £30,000 for their course. So this includes tuition fees and money for living expenses, and then looking at how much someone on various average salaries will end up paying back before the debt is written off in 30 years time. What is striking is that someone who earns on average below 35,000 pounds will pay very little or nothing at all. When you get to an average income of £50,000, you're still ending up paying back less than half of what you borrowed. So it's only when you get to an average of £70,000 annual income that you end up paying back £30,000, although even then it's not the full amount of the loan once you include the interest.
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B
Now, I don't want to get all economicsy with you, but being asked to pay back money now is very different from being asked to pay back money in 30 years time. So how have you adjusted for that?
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C
Well, the numbers I've given you are expressed in something called net present value, which adjusts for inflation plus the passage of time at a rate of 4.75% a year. This is the number the government use in their calculations of the cost of tuition fees. If you look at actual cash paid back, the numbers are substantially higher. But no economist would say this was the right way to think about debt payments.
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B
Now, as you say, the figures are crude. Do we have any idea how many people won't have to pay anything back at all?
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C
Because the salaries in my model rise by equal amounts each year, they're not really that realistic. So I decided I needed some expertise. So I went to the Institute for Fiscal Studies, who have modelled this using much more realistic assumptions of how much people earn. Lorraine Dearden has been leading this work for the ifs. She's also a professor of economics at the Institute of Education. She gave me a better idea of who will pay.
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D
Around 50% of graduates will, depending on the fee that they're charged, will not pay back the loan. The higher the fee, the higher the probability that they won't pay back the full value on the loan. We estimate, on average, speed students will be paying around 25 to 30,000 pounds in 2012 monetary terms for their university degree, which on average is more than they're paying at the moment. But there's a huge range in that the lowest earning graduates will be paying as little as 5,6000 pounds, whereas the highest earning graduates will be paying on average well over £40,000 for their degree.
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B
And for those who aren't making enough money to pay back the loan quickly, it's basically functioning as a graduate tax.
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C
Legally, it's not a tax. I mean, that would have different implications, for instance, for people who emigrated. But it does look a lot like a tax. Graduates will pay an extra 9% on earnings over £21,000 for 30 years, and at which time any remaining debt will be written off.
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B
Debts are clearly higher than under the current system. So is everyone paying more?
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C
Well, the government have said that the lower earning graduates will pay less than they do under the current system. Now, the IFS calculates that around 22% of graduates will pay less than they do today. This is partly because of the threshold at which graduates have to start repaying loans. That's rising from an income of £15,000 a year to an income of £17,800 a year in today's money. The government states this threshold actually as being £21,000, but that's in 2016 prices, not today's prices.
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B
Some more or less listeners have asked how much a graduate gains from having a degree? Do we know?
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C
Well, it varies a lot. An arts student, for example, earns 22,000 pounds extra over their lifetime. On average about 500 pounds a year. While a maths or computing student would expect an average lifetime earnings boost of around £220,000 or £5,000 a year. Now, if you look at the figures from the oecd, that's the Organisation for Economic Cooperation and Development, a quarter of people with degrees were earning below the median wage in 2008. But of course, at that wage, two thirds of your student loan would eventually be written off.
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B
It can't just be the graduates who benefit from this. I mean, if they're earning more, they must be paying more tax.
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C
Yes, this isn't a figure the government have mentioned when they've been promoting their new policy. But the public purse gains from someone having a degree. The OECD has done some calculations as to how much the public purse gains from a student who's been to university. Bo Hanson is one of their analysts.
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E
The benefits comes in like with higher income taxes because we have higher earnings and also higher social contributions by those with higher education. So this typically adds up to something like close to US$140,000 over the lifespans
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F
for a mal having a higher education.
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E
And for female, this is about US$150,000. If you take away the investment side
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F
from the benefit side, then you end
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E
up with about US$95,000 in net value of the investment for the government side for a male and $82,000 for a female.
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C
So if we translate that into pounds, the government gains approximately 45,000 pounds from a male graduate and 40,000 pounds from a female graduate.
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B
Okay, so taken as a whole, is this new tuition fees system progressive compared with the system we've been using in the past few years?
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C
Well, let's just remember that progressive means something quite specific, that richer people pay a higher percentage of their incomes. The answer is yes, the new system is more progressive than the old one. There are two reasons for this. First, the more you earn, the more you pay back. Unlike the current system where students from a poor background pay less, but middle income students and higher earning students pay roughly the same. Second, because the graduate population tends to be from higher earning backgrounds and goes on to earn more than those who don't, while university education will still be funded in part by general taxation, the majority will come from graduates to put the burden onto them rather than the general taxpaying population is almost certainly progressive. The only question mark is whether the funding of universities out of general taxation, which is of course progressive itself, is more progressive than the tuition fees system. Lorraine Dearden told me that she thought that was unlikely. There is, of course, one very large anomaly here. There are a huge number of people who have already benefited from a university education who now won't have to pay as much in taxes as they would have done.
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B
And it might be worth pointing out that you and I and many loyal more or less listeners are among their number. Wesley Stevenson, thank you. And now from the ivory towers of academia to the concrete vaults of Stockwell Bus Garage.
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G
As you know, here on the program we often get questions and comments from listeners and we try and respond to as many as we can. And that's why we've come here to Stockwell Bus Garage in South London. It's an amazing space, 1950s vaulted concrete arches above me. And standing next to me is Noel Staples, who's a bus driver and he wrote in with a question about traffic lights. Noel, what was your concern?
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F
Well, basic concern was that I was spending a long time actually sitting at traffic lights and not moving, not seeing anything move. And this begins to give you pause for thought and you wonder what's going on.
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G
Now you've collected your own data about on your bus route, how long you wait at traffic lights. What did you find?
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F
On average it was about 10 minutes. It could vary up to 15 minutes over the duration of the route. The duration of the route is about 45 minutes at night and about up to 65 minutes during the day. Some of the time you spend sitting at traffic lights, obviously absolutely nothing is moving. And you think, why did the lights change to red in the first place?
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G
I see the number 85 bus is reversing quite close to us. We'd better get out of the way. We've come about a mile north of Stockwell Bus Garage. We're now in Southwark. And from here I can see all of these new buildings they're putting up in London. A skyscraper that looks like an electric razor. Behind me is the new shard of glass being erected. But buildings aren't the only things that have been going up in London in the last 10 years. Traffic lights have also been being erected in the last 10 years. Transport for London tell us the number of traffic lights in London has increased from 4,500 to 6,000. But that might be about to change. We're standing by a junction four way intersection with traffic lights in Southwark. And this is one of many across London where Transport for London are considering removing the traffic lights. Now, Lowell wanted to know how much time was wasted at all these traffic lights and what the Evidence was that they were actually working. I'm joined by Ben Hamilton Bailey of Hamilton Bailey Associates. Ben, you're a traffic management specialist. And this question of whether traffic lights really help traffic to flow more smoothly, it's a big issue, isn't it?
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H
Well, it is because it's a part of a much bigger question about the nature of our streets and how best to ensure that they're both safe and efficient and provide the sort of quality of life that cities depend on. The interesting thing is, when we come to look at the evidence for traffic lights in the past, there's remarkably little. And across Europe where cities have begun to remove them and to create and rely on low speed environments for negotiated traffic, you see big improvements in journey times, much less time spent in delays and improvements in safety.
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G
I understand there have been some experiments in the UK in South West England.
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H
That's right. There have been experiments in a number of towns across the country, most notably in the small town of Portishead near Bristol, where two years ago a large set of traffic lights was installed at the very large public expense, some six or seven hundred thousand pounds. Eighteen months ago, these were turned off in a four week experiment. And the reduction in congestion and delays was so dramatic that the local residents insisted that the local authority kept them switched off. And they've been switched off ever since. The traffic's flowing fine and the delays to pedestrians and traffic has reduced significantly.
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G
Well, we've left the streets behind and we're now at the heart of London's street management system. This is a secret location in London. We are on the floor. It looks a bit like a city trading floor, big screens everywhere. The floor where all of London's traffic is managed. And I'm joined by Garrett Emerson, the chief operating officer for streets at Transport for London. Garrett, you're the man who decides whether the traffic lights get put in or whether they get taken away. How are those decisions made? Is there an evidence base? Is it a political thing? What's going on?
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I
Traffic lights get installed for a number of reasons, like to give priority to other particular users, whether it's pedestrians or whether that's cyclists and things like cycle superhighway development. They're also installed to facilitate development. But yes, you're right, there is a groundswell of opinion, both technical and professional opinion, as well as perhaps wider public opinion, saying, are all the traffic lights we have absolutely necessary and are they in the right places and is there scope to remove them?
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G
It's very interesting the way you put that. You said there's been a groundswell of opinion. I mean, that sort of makes it sound like we actually don't really know whether traffic lights work or not. It's just a changing intellectual fashion.
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I
Well, I think we have to get this in proportion. I think everybody or most people within the technical profession would agree and tell you that in the vast majority of cases, particularly in a dense urban environment like London, traffic signals are, as I say, absolutely essential to keep the roads moving and deliver substantial economic benefits in terms of effective traffic movement, faster journey times and more volumes of traffic around the network.
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G
Well, we've heard both sides of the argument, but it's still a bit vague for more or less tastes. How are these traffic lights actually modeled? What are the numbers and the analysis that goes into them? Well, I've come to meet Keith Firth. Keith works for the traffic consultants Colin Buchanan. And Keith, you're one of the co authors of a study of the economic advantages and disadvantages of traffic lights.
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B
What goes into the modeling of these decisions?
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F
We use some pretty sophisticated micro simulation models which represent traffic signals in real time. They look like animations and we can validate the models to replicate conditions on site. Exactly. And we can then play around with signal timings and traffic volumes and all sorts of different characteristics of the junction to then see how they perform under different scenarios.
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G
Do you have any sense of how many of London's 6,000 traffic lights are redundant and should be taken away?
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F
Well, our economic study looked at five different models that represented all of the different types of traffic signal junction that there are across London, or as close to that as we could achieve with the models we had available. So they were a good mix of junction types. And of the five, we demonstrated that at two of the sites we could switch off traffic signals for most of the day. Certainly at all of the sites there was an economic benefit to switching off signals overnight and in some cases that was also in the off peak period during the day. But at two of them it was practically all day.
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G
We've been talking about traffic management and traffic flow. What about pedestrians and in particular what about safety?
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F
There are a lot of pedestrians that rely on push button units and the green man signal and in fact the audible signal and the tactile signal that is also underneath the push button unit at a traffic signal. There are alternative crossing methods and before the signals were introduced there may well have been zebra crossings. There's no evidence yet to suggest that removing traffic signals would be a problem for pedestrians.
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B
Keith Firth, you're listening to more or less in association with the Open University and I'm Tim Harford. If like Noel Staples, you want to get in touch with us, please do. You can write to us via our website, BBC.co.uk more or less. Also the place to subscribe to our podcast or listen to old shows. Or you can email us at more or lessbc.co.uk. you can even follow me on Twitter. My username is simply Tim Harford. Now for something really cheery. Many of us will remember growing up during the Cold War under the threat of a nuclear exchange between the US and the Soviet Union. Now the more pressing threat seems to be nuclear weapons in the hands of rogue states or even terrorist groups. WikiLeaks revealed last week that Britain and the US are concerned about the security of Pakistan's nuclear arsenal. And this week Iran claimed that it is now self sufficient in the production of uranium, a necessary material for any aspiring nuclear nation. But how frightened should we be? Normally we look to diplomats and security analysts to tell us, but this being more or less, we decided to ask a physicist instead. Richard Muller is professor of physics at the University of California, Berkeley, and the author of the Instant Physicist and Physics for Future Presidents. I asked him for the numbers behind the threat of nuclear terrorism.
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E
Everybody imagines the doomsday scenario in which the megaton bombs, or the 57 megaton bomb that was tested by the Soviet Union is exploded over London or New York, destroying the entire city. We tend to lump all that together, but in fact the North Korean nuke, the first one, was a fraction of a kiloton. That's really enough to reach a few hundred meters, but that's it. I mean, yes, it's very bad, but to think of it as a weapon of mass destruction, I think is exaggerating it. And of course North Korea is delighted to have us exaggerated and be more worried about them than we should be. But it's worthwhile paying attention to the numbers and recognize their bomb was a fizzle that released less energy than the airplanes going into the World Trade Center.
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B
I hear rumors of. Of the suitcase bomb. Talk about a suitcase bomb. Is it actually possible to put a nuclear bomb in a suitcase?
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E
Yes, it is possible. It's exceedingly difficult to do. We're talking about the highest of the high tech. And the people who manage to do this in our nuclear business are considered absolute geniuses for their cleverness and their use of technology, the enormous testing programs and so on.
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B
I hear you. It wouldn't be easy for Al Qaeda just to produce such a thing.
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G
But if A nuclear device of that
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scale was set off, say, in Central Park. I mean, would that flatten New York?
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E
No. No. Again, they're small. The trick in making them small is to get them to go off with much less uranium in them. That's useful for tactical warfare if you really want to take out a bunch of tanks. But in a city, it's much less damage than flying an airplane full of gasoline into a building.
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B
I was struck by your claim that if one of these things were set off in Central park, it would basically not destroy the buildings at the edge of Central Park.
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E
That's right. Really, the fear of nuclear attack, if you don't take into account the numbers, the fact that different weapons have different equivalent tonnage, then you can overreact and be overly afraid. I fear that this is happening around the world where if you set off a very tiny bomb and it's a fizzle and you get less than a kiloton still, suddenly you're in the nuclear club. You get treated with a level of deference, which is undeserved, but which may be the actual goal of the rogue nation that does it.
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B
Now, we talked about nuclear bombs. What about dirty bombs? Can you explain what they are? And if one were to go off in Manhattan, what would the effect be?
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E
Yeah, it's very difficult to make a dirty bomb that would do anything more than spread fear. This is something that the experts know. Nonetheless, our Congress has decided a dirty bomb is a weapon of mass destruction,
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B
and a dirty bomb is a conventional explosive with some. Some radioactive material in and that the idea is the bomb just spreads the radioactive material around.
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E
It tends to spread radioactivity. But as soon as you spread out radioactivity, you drop below the threshold where humans get sick. So once you've spread it out to more than 100 meters or so, the people who walk through that area will feel nothing. They'll have a slightly enhanced chance of cancer, something that's going to be even difficult to notice statistically.
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B
But if you actually look at the radiation doses, what you're saying is they would actually be comparable to background doses or not much higher than background doses.
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E
That's right. So your chance of cancer might go up from. Depending on how long if you live in that area, your chance of cancer might go up from 20%, which is what we typical average, to 20.01% or something like that.
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B
Now, you've emphasized the fact that it would be very difficult for a terrorist group to build an effective nuclear weapon, but maybe they don't need to Build one, maybe they could steal one or buy one. Pakistan is not the most stable place in the world. They have nuclear weapons. Soviet Union, some of those old Soviet states, they have really big nuclear weapons. I mean, if terrorists manage to get hold of a Pakistani nuke or an old Soviet nuke, I mean, surely that's a big problem.
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E
I think that's the bigger problem. I think that's more of a concern than them actually building one. There is a control system on this that was jointly shared, actually by the US and the Soviet Union to make sure that such a thing could not easily happen. The control codes to do it were kept by the Soviet government. They were not in the hands of the people who had possessions of the bombs. And they're designed that if you try to break into it, the bomb will just destroy itself. It won't go up like a nuclear weapon, it will simply explode using the high explosive without setting off the nuclear material. So if you put in the wrong code, if you try to dismantle it, they are protected against that. Now, I don't know about the Pakistani bombs. They may not be, but the Soviet bombs were.
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B
Richard Buller, professor of Physics at the University of California, Berkeley, and author of the Instant Physicist and Physics for Future Presidents. We heard earlier about tuition fees. Well, they weren't the only higher education story in the news this week. Not coincidentally, David Lammy, a Labour MP who was Minister of State for Innovation, Universities and Skills in the last government, published an article in the Guardian on Tuesday about Oxford and Cambridge admissions. It had one statistic that really caught everyone's that just one British black Caribbean student was admitted to Oxford last year. The chatterati went wild on Twitter. For instance, many people made the claim that Oxford only admitted one black student, which is not actually what Mr. Lammy said. So are Oxford and Cambridge dens of racism? I went to Oxford myself and I have to admit there weren't many black faces in the lecture halls. But perhaps the numbers tell a different story. The More or Less team has been looking at the data and Charlotte Pritchard is here to explain what they've found. Hello, Charlotte.
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A
Hi, Tim.
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B
Now, did Oxford accept only one black student last year?
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A
Well, no, not quite. These racial categories are much more complex than that. Students can identify themselves as Black Caribbean, Black African or Black other, not to mention those who identify themselves as of mixed race or those who don't answer the question about their ethnic background. So if you add the black categories together, you find Oxford accepted 27 students who described themselves as black and Cambridge 34.
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B
OK, so that's a long way from one black student. But it's still not many, is it? I mean, Oxford and Cambridge admit over 5,000 students a year.
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A
Yeah, that's right. David Lammy went on the news channel to argue his case and made the point that there are hundreds of black students who have the qualifications to get into Oxbridge, but they're not getting the chance.
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G
Are we really saying that the 500 young black children who get straight A's at A levels should not be going to Cambridge or Oxford? Of course we can't.
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B
Several listeners wrote in to more or less@BBC.co.uk, or asked me on Twitter how the proportions of white vs black successful applicants compared to the proportions of white vs black top class students.
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A
That seems to be a pretty good question. Let's look at the students who got three A's at A level, not including the General Studies A level that's standard offer for Oxbridge entrance. According to the University's admissions Service in the UK, around 27,000 white students achieved this in 2009, compared with about 417 black students. Now, not every 3A student applies to Oxford or Cambridge, but just comparing these raw proportions, we see that 17% of white students with three A's at A level win a place at Oxbridge and 14.5% of black students with three as do.
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B
OK, so that's still a gap, although it's much narrower than David Lammy implies.
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A
And there is another factor. Oxford University points out that black students are disproportionately likely to apply for the most sought after courses, like medicine.
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B
Does that fully explain the lower success rate from black applicants to Oxford?
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A
It may explain part of the difference, but there's still certainly a problem here that can't all be blamed on dons at Oxford and Cambridge. If you look at the entire population of 18 year olds in England, Wales and Northern Ireland, we've excluded Scotland, where they sit highers. White students are more than twice as likely as black students to get three A's at A level, excluding general studies. If Oxbridge recruited the same proportion of Black students with 3 as White students with 3 as, the number of black students would rise a bit from 61 to 78. But if Oxbridge changed nothing and the education system was able to deliver the same proportion of black 3A students as white, the number of black students accepted at Oxbridge would rise from 61 to 130. So the numbers suggest that improving A level performance would more than double the numbers of black Students at Oxbridge.
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B
Well, thank you, Charlotte. Now, from tertiary education to tamarinds. Those of you who followed the World cup might recall Paul the Octopus, who alerted us all to the miraculous and potentially world transforming technology of using zoo animals to forecast the results of sporting contests. Paul, hatched in Weymouth and sprung to stardom in an aquarium in Germany, successfully predicted all of Germany's results in the World cup this summer, as well as the outcome of the final between Spain and the Netherlands. Paul sadly passed away in October, but we remained sufficiently curious about the phenomenon to go in search of our own psychic animal. So we sent Wesley Stevenson to Newcastle where he found a promising young cotton topped tamarind monkey called Jack. We needed a contest for Jack to forecast, of course, and we settled on the Ashes. In late November, just before the Test series began, Jack was presented with two bowls of food, one labeled England and one labeled Australia. We started by consulting Jack about the outcome of the first Test at the Gabba in Brisbane.
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D
We're putting out two balls. One of them indicates Australia, one of them indicates England and if he isn't particularly hungry, we'll just describe that as a draw.
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C
Right then, let's go for it.
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D
He's edging slowly. He's climbing down from his rope. He needs to make a decision. And the minute he's climbed back up the rope, he seems more interested in his little bed area. He's climbing all over the enclosure, seems interested in anything else but the porridge.
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C
We'll call that a draw. A drawer in Brisbane at the Gabba
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H
it comes to an end.
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F
It'll be recorded one day in wisdom
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C
as looking like a rather boring draw.
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F
But that has not been the tale
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H
of this Test match.
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C
So we're back with Jack the cotton top tamarind. So what's he going to go for for the second prediction, the Test in Adelaide.
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D
Jack is our largest monkey in this closure, but he's actually the shyest as well, so he's a little bit more hesitant. He's gone past the Australian bull, not even glanced at it. He looks like he's about to spring any moment.
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C
Oh, he's made the lead.
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D
He's jumped over.
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C
Yeah, he's still looking. He's not entirely sure, is he? Is he worried he's going to make the wrong decision? Oh, no, no, that's it. It's clear, isn't it? He's definitely chosen England there, England for the second Test in Adelaide and he's enjoying that grape swan comes in and
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H
bows to Siddle and he's played on, Swan has got his fifth wicket and England have won the second Test match at Adelaide.
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B
Interesting. Jack got both results right with three possible outcomes. Assuming each was equally likely, you might assume that Jack's chance of a correct prediction was 1 in 3 and the chance of two correct predictions was 1 in 9. We've sent Wes back to Newcastle to ask Jack what's going to happen in the next three games, but we think there's a much bigger story about what such predictions really tell us. And we'll tell you that story later in the series because for now we're out of time. Please keep your questions and comments coming in to more or lessbc.co.uk, or via our website BBC.co.ukmorealls Next week we're hoping to discuss age, sex and proofiness. Until then, goodbye.
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A
More or Less was presented by Tim Harford, the FT's undercover economist. The producer was Richard Knight and the editor was Richard Varden. It was made in association with the Open University.