March 2011: Economists Discover Tuition Increases

It’s really not as glamorous as it sounds. The main impetus for the discussion is the November election. Candidate Obama said:

“We’re putting colleges on notice: you can’t assume that you’ll just jack up tuition every single year … If you can’t stop tuition from going up, then the funding you get from taxpayers each year will go down.”

Meanwhile, candidate Romney responded to a question about college tuition by a high school senior who, as far as I’m concerned, is the frontrunner for the “millennial of the Year” award:

“Don’t just go to one that has the highest price. Go to one that has a little lower price where you can get a good education. And, hopefully, you’ll find that. And don’t expect the government to forgive the debt that you take on.”

Paul Krugman—an economist I like but who has so far ducked the student debt question and does so again here—lays into Romney.

“For the past couple of generations, choosing a less expensive school has generally meant going to a public university rather than a private university. But these days, public higher education is very much under siege, facing even harsher budget cuts than the rest of the public sector. Adjusted for inflation, state support for higher education has fallen 12 percent over the past five years, even as the number of students has continued to rise; in California, support is down by 20 percent.” (“Ignorance is Strength,” New York Times)

Here’s what he’s talking about, from Digest of Education Statistics data.

Since the early 1980s recession, there’ve been two broad humps in tuition increases, caused by cuts in state subsidies to public universities, coinciding with the next two recessions. I have two problems with Krugman’s characterization of the situation.

(1)  Cost is important, but spending is more important (in the long run). Digest data indicate that our 4-year public undergraduate institutions have increased spending per student by 5.5 percent between 2003 and 2008. I wish I could find longer term data easily, but I’m guessing it’s grown as public universities have tried to keep up with private ones. For instance we see this in legal education where state law schools like Michigan charge $46,800 for residents and Virginia $44,600 as well. These law schools are public in name only and should be treated as such.

(2)  The problem of subsidizing state schools boils down to whether the state needs the graduates and whether they stay in the state. Sure, adjacent states often have reciprocity agreements, but that doesn’t do a whole lot of good if jobs have moved south and west over the years or if the degrees provide questionable value to the state. Again in legal education, last week I questioned the point of public law schools. There isn’t much demand for new lawyers, and they’re not bound to staying in the state anyway, which is actually an argument for state rather than national accreditation for public law schools. Worse, even if we were to take the moderate view that some public legal education is necessary, some states have far more public law schools than they need, e.g. Ohio, which has five public law schools out of nine total.

We can contrast Krugman’s editorial with an article by Alex Tabarrok (“Tuning in to Dropping Out,” in the Chronicle of Higher Education)

“Our obsessive focus on college schooling has blinded us to basic truths. College is a place, not a magic formula. It matters what subjects students study, and subsidies should focus on the subjects that matter the most—not to the students but to everyone else.”

Tabarrok (who, let’s be honest, also has a badass name) is right, though I prefer comparing education to the mushroom power-ups from Super Mario, which I never really played because I’m not into console games. We can observe Mario growing when he eats the mushroom, but we never know what properties in the mushroom cause his gigantism. Same holds for education: it correlates to higher wages, but there’s no reason to believe that classroom learning directly causes this.

…Which leads us to our last economist, Robert H. Frank, who argues that taxing higher incomes will reduce the motivation of people to go to college based on salary outcomes via prestige:

“We might consider taking more direct aim at the component of tuition inflation that is attributable to growing salary gaps. Raising taxes on top salaries would be a good idea for American society in general, and not just for higher education. It would not only shrink the effect of salary disparities, but would also generate some much-needed revenue.” (“The Prestige Chase Is Raising College Costs,” in the New York Times)

I’m not sure if low income taxes on the wealthy is the precise cause of income inequality, but Frank, who, like Krugman, avoids discussing student debt, is right. If we actually cared about creating living wage jobs for productive young people, then college would be one path for people who are a good fit for it and not a toll booth on the road to “the middle class.” Spending and costs would drop accordingly.

In the meantime, we still have the candidates’ comments. Romney, like all spiteful Republicans believes that debt should be permanent, which makes sense since he’s a member of the class that carelessly lent the money and believes living wages and full employment are optional. With direct loans he’s not, as the tax burden has been shifted from him to poor people. The joke, if there is one, is on him. Obama’s solution to joblessness is to double-down by sending everyone to college and then throwing them into Income-Based Repayment. He’ll be able to get it both ways: college education remains sacrosanct in American ideology and no one goes broke because of it. Policy solutions that include everyone and offend no one are essentially political Enron accounting: the CFO lifts the problem from the books in the hope that it solves itself before catastrophe strikes. Except it does, leaving Obama’s successors to clean up his mess after he’s retired.

Good luck to Romney’s high school student until then.

(Fine, here’s some Mario…)

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One Response

  1. Matty,

    I like Krugman, as well. However, I cannot forgive this preeminent academic economist from addressing the issue of student debt. Hell, several members of Congress – both Republican and Democrat – have mentioned this problem.

    Ben Bernanke, current chair of the Federal Reserve, told Congress about his son’s immense student debt, from medical school. While he may not struggle to pay this amount off, at least his father – a powerful man – had the guts to mention this in a public hearing. What the hell more does Paul Krugman need?!

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