NYT Says People Who Use BLS Inflation Data Are Conspiracy Theorists

Do not adjust your TV set. You did not leap into a parallel universe, and I am not suddenly sporting an evil Van Dyke. After enlightening us on how the Labor Department tracks inflation in higher education costs, the Timesresident champion of the elusive average college graduate, David Leonhardt, smugly compared anyone who uses government inflation data in good faith to conspiracy theorists like ShadowStats who think the government is cynically manipulating cost data.

(I’m using an image here instead of a block quote to show you I’m not kidding.)

(I’m using an image here instead of a block quote to prove I’m not making this up.)

One hastens to point out to Leonhardt that using the government’s published indexes, notwithstanding their flaws, to make an argument is not the same as (a) claiming the government is lying, or (b) cooking one’s own measurements based on repudiated methodologies to sell Web site subscriptions at fixed nominal prices. (For the record, I use Education Department data on college costs, though that’s probably problematic as well.)

So what prompted Leonhardt’s self-satisfied editorialization?

Answer: He discovered that until 2003, the Bureau of Labor Statistics tracked college tuition inflation by their stated prices and not their “net tuition” costs, which the bureau now largely tracks. It’s an interesting finding, but it deserved to be raised more professionally—and with better reasoning.

Leonhardt’s argument is that reporting on college tuition costs based on BLS data is “exaggerated” and “deeply misleading” because those data exclude financial aid discounts. He adds that only rich families pay sticker price and then compares college costs to retailers (e.g. Joseph A. Banks) that continuously discount their prices, making their sticker prices meaningless. Hence, he boasts that he’s knocked away yet another (sic) pillar people use to criticize the value of college education.

So what’s the problem here? One, the Joseph A. Banks comparison doesn’t work at all. Retailers that engage in psychological discounting in fact discount their prices—for everyone. They do not ask customers what their annual household incomes are and then charge them (in)appropriately. Colleges really do charge some people sticker price, so the sticker prices aren’t fictitious. Leonhardt hedges this fact by telling us this doesn’t matter because, allegedly, only rich families are charged full price.

The response, my second point, is if this is true so what? What are they paying more money for? Has the quality of education increased for people who pay sticker price? If you’re going to say that these students are paying for the privilege of learning with subsidized, smart people, then you’re going to have to prove that they actually learn more as a result. I’m also going to ask you to estimate when the marginal benefit of adding one more smart, subsidized student to an incoming class outweighs the additional cost to a given student paying full tuition. Note also that “graduating from college while well off” does not in fact ensure that a graduate will be well off going forward.

Finally, Joseph A. Banks’ prices are transparent once customers walk in, see the sticker, and do the math. Colleges, by contrast, advertise a *cough* *garble* *cough* percent-off sale. If this isn’t “real” inflation, why can’t families know up front what they will be charged?

I agree that the BLS should track inflation based on what people pay for goods and services holding the quality of those goods and services constant. However, the best Leonhardt can say about his discovery is that the composition of household spending on college has changed such that some students are asked to pay much more than they would have in the past so that other students can pay about what they would have in the past. If anything, this is a reason to track sticker price inflation, not ignore it.

Leave it to The New York Times to publish a blogger who trolls critics for using government data and then defines inflation away. Maybe Yale should give him an honorary B.S. in applied sophistry.

9 comments

  1. Paul Campos had an article on lawyers, guns, and money about how much students were actually paying. See: http://www.lawyersgunsmoneyblog.com/2014/06/much-law-school-tuition-really-gone

    He concluded that taken as a whole, using aggragate numbers, in 1991 law students were paying 89% of the stated tution and 79% in 2012. (using whole numbers)

    Not surprisingly he found that even using the discounted figures, as the actual cost of tution, the cost of law school had risen well above the rate of inflation.

  2. I tend to think shadowstats is actually closer to the truth too, just from simply looking around and drilling through some of the BLS data. Zerohedge does that too.

    I mean a lot of the statistics that are widely accepted now don’t make sense if inflation is low and the economy is roaring along. Like the 1/3rd of young people living with their parents statistic.

    1. First, the Billion Price Project agrees with the BLS. Second, if Shadowstats were correct, then the economy would have been shrinking by ~8% per year for the past several years (if not for a couple of decades). We would be in a position which would make the Great Depression look like a minor bump in the road.

  3. i love this confused bit from his piece:

    “I know what you’re thinking at this point: Wait a minute – college really is expensive and has gotten a lot more so. It’s certainly true that public colleges have become more expensive in recent years, partly because of state budget cuts.”

    He notes that the recent recession and subsequent state level budget cuts are part of the reason for college cost increases, but does not elaborate on the rest. He is trying to obfuscate the causes of increases to higher ed costs. ‘It’s not all the recession, but that is the only effect I am going to highlight.’

    But his hedonics argument takes the blue ribbon prize for flailing in an attempt to perpetuate his narrative, especially when underemployment among college grads is rampant. He goes from ‘college doesn’t cost a lot’ to ‘college only costs a lot for rich people at elite universities’ to ‘yeah, college costs have increased for everyone, but that’s only because of the recession,’ to ‘okay, college costs have been rising for everyone even prior to the recession, but hey, look at much college has improved.’ Now he just needs to explain credential inflation.

  4. I would also point out one more thing regarding this bit from the Leonhardt piece:

    “The next time you hear somebody describe college as costing $60,000 a year, know that the truth is: It costs $60,000 for affluent students who don’t qualify for financial aid to attend one of the elite colleges that a tiny share of Americans attend (and the figures includes housing and food).”

    So, his point is basically that elite colleges are skewing the data in terms of cost. Well, they also skew the data in terms of aid/grants. My wife works at an elite private liberal arts school that has a no-loan policy. It’s not common with all top tier schools (and frankly there are questions about sustainability), but it does highlight the fact that those high end schools are the ones that can shoulder the financial burden for students that the middle tier and state institutions cannot. Yes, there are pell grants.

    The counter argument would be that the cost of elite schools skews the amount of grant given by the top tier schools because of their costs (i.e., Univ. of Maine does not need to subsidize $50,000 a year for a student because tuition at UM is less than half that. As a result, assuming each school subsidizes one student, it would appear UM is less generous than than the top tier school). However, I would assume that top tier schools subsidize a higher percentage of their sticker price than do state institutions.

    1. The thing was that he could also check on the non-elite colleges, whose tuition has been increasing sharply. It’s not like some black box produces only one average, and doesn’t break it down by college and tier.

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