Notwithstanding the title of this post, perhaps nobody deserves blame.
Sometimes, a good or service rises in price solely as a result of changes in supply and demand. And if the price of something climbs because of market forces, then it’s merely a reflection of unfettered exchanges between buyers and sellers.
But politicians and bureaucrats often distort market forces with subsidies. And even though consumers ostensibly benefit when government helps to pay for something, intervention can have very costly consequences.
I’ve already shared an amazing chart and a very powerful video to help explain how government subsidies in health care have created a third-party payer problem that has resulted in rapidly rising prices and considerable inefficiency in that sector.
Well, the good intentions of government also are causing problems for higher education.
Here’s a superb video from Learn Liberty, explaining why college expenses are skyrocketing.
The first part of the video shows that a college degree has become more valuable, so it’s understandable that the relative price of higher education has risen.
But then, beginning at about 1:55, the video discusses the role of subsidies. Echoing points I’ve made in the past, the professor explains how subsidies have simply generated higher prices. In other words, colleges have captured all the benefits, not students.
Business Week recently published a story that provides some glaring example of how universities have wasted all the additional money. Here are some remarkable excerpts.
“I have no idea what these people do,” says the biomedical engineering professor. Purdue has a $313,000-a-year acting provost and six vice and associate vice provosts, including a $198,000-a-year chief diversity officer. Among its 16 deans and 11 vice presidents are a $253,000 marketing officer and a $433,000 business school chief. The average full professor at the public university in West Lafayette, Ind., makes $125,000. The number of Purdue administrators has jumped 54 percent in the past decade—almost eight times the growth rate of tenured and tenure-track faculty. “We’re here to deliver a high-quality education at as low a price as possible,” says Robinson. “Why is it that we can’t find any money for more faculty, but there seems to be an almost unlimited budget for administrators?” …Purdue is typical: At universities nationwide, employment of administrators jumped 60 percent from 1993 to 2009, 10 times the growth rate for tenured faculty. “Administrative bloat is clearly contributing to the overall cost of higher education,” says Jay Greene, an education professor at the University of Arkansas. In a 2010 study, Greene found that from 1993 to 2007, spending on administration rose almost twice as fast as funding for research and teaching at 198 leading U.S. universities. …Trustees at the University of Connecticut are reviewing administrative salaries at the school’s main campus in Storrs, following a controversy over the compensation of the school’s former police chief, who received $256,000 annually—more than New York City’s police commissioner. …Mitch Daniels, a fiscal hawk who will become [Purdue’s] president when his term expires in January…says he wants to take a look at administrative costs that he suspects are “marbled” throughout the university—beginning with his office. In anticipation of his arrival in January, and without his knowledge, the school renovated the president’s 4,000-square-foot suite. The cost was $355,000, enough to send 15 Indiana residents to Purdue for a year.
Wow. Reminds me of this post about politically correct featherbedding at the University of California at San Diego. I can see why college administrators like this system. But it’s definitely bad news for students who get stuck on a treadmill of higher tuition and more debt.
P.S. At 2:18, the video has a discussion of how subsidies lead to higher costs, which then leads to more demands for additional subsidies. Hmmm…bad government policy leads to more bad government policy. Seems like there’s a term for that phenomenon.
P.P.S. I highly recommend the Learn Liberty videos. Here’s one on protectionism, one on the legality of Obamacare, and here’s another about how excessive federal spending is America’s real fiscal problem.
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[…] Here’s a great video from Learn Liberty explaining why subsidies have translated into higher […]
[…] Here’s a great video from Learn Liberty explaining why subsidies have translated into higher […]
You can fix all of the above, but the results will be meaningless. if students are being taught the wrong concepts (Keynes, big government is better, etc), and if we do not start teaching real economics in the 2nd or 3rd grade (in simplified form), the only thing that will stop rising costs is a collapsed economy. When practically no0 economics is taught in our schools, and what is taught is indoctrination, not analysis, why should we expect teachers to provide even a basic coherent explanation of what a free market process is? If the teachers can’t or won’t teach it, then how do we expect the children to learn it? We give much lip service to improving math, science and reading skills, but economics affects our daily lives constantly. Is economics to be left to parents? But parents are the products are the of the same failed education system as the children and the teachers. One problem is that people look at what they are told to look at rather than seeking to understand what they are not being told that they should know.
When the number of Americans who think that an increase in the minimum wage is a great thing decreases from 75% (recent Gallup Poll) to about 3% (those on minimum wages), then we will know we are getting somewhere positive. Until then, it is just more MIGO (Money in, Garbage out). Until people begin to understand the consequences of policy changes on the economy, and specifically on their own lives, they will never realize what those consequences are, how long they take to be seen and felt (through measurements), how those policies cause harm, who really gets harmed and how long it takes to start feeling the pain.
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[…] government subsidies increase the cost of higher […]
Reblogged this on Litteken Economics.
I agree with everything above, but it’s also a race to the bottom (top?) for these colleges to provide more and more amenities to their students. Fancy dorms, dining hall foods, weekend trips, etc. Here’s more:
http://online.wsj.com/article/SB10001424127887323830404578145591134362564.html?mod=WSJ_3Up_RealEstate
The Business Week article is right on. Check ANY University and you will find the same explosion in high-priced administrators. The do it because they can: in the name of ‘we have to compete for the best’. Bull. I know one middle-of-the-road state university that has MANY administrators making over $400K per year. That is totally out of whack for what they do. Good, new, brilliant professors in contrast have tiny shoddy offices and ill equipped laboratories with too many students. Put the responsibility back on the departments and get rid of any more than two layers of administration, and you will see the cost plummet.
I haven’t watched the video yet, but here in Florida tuition is regulated by the state. Universities have an incentive to raise costs, through all the means mentioned above, in order to justify higher tuitions.
[…] 4 and 13. (If you don’t have a copy of FMR handy, well, go buy it, but also check out this post from Dan Mitchell.) If you got the government to reduce its distortion of market forces rather than increase it, you […]
[…] PERSPECTIVE HERE […]
Short answer=Federal guarantees.
http://www.mindingthecampus.com/originals/2012/12/_dishonesty_in_the_pay_for_col.html . This article on rounding up of College President taxes so it’s a net just adds to the outrage.
Perhaps it is to prepare the College Presidents for the world of the OECD or the World Bank or UNESCO where no tax salaries are the norm.
Not having to pay the freight charges for the policies so heartily advocated for. Big, never-ending government.
Part of the need for all these administrators is also all the nonacademic purposes being foisted on higher ed in order to change the Mindset of the student. They are to come out with a belief in a responsibility for the common good. Making the focus Learning Outcomes, not knowledge, picks up dispositions and attitudes and feelings. Which hopefully will change future adult behaviors. Takes a lot of administrators to monitor all those unappreciated “outcomes.” Plus you have to work with the accreditors who are pushing a poorly understood UN agenda called Quality Assurance that is not what most people think of when they hear the term quality used.
http://www.invisibleserfscollar.com/credential-inflation-how-reforming-higher-ed-with-learner-outcomes-can-damage-all-degrees/ is a story I did on what Outcomes means to higher ed’s purpose. It’s certainly a hiring program for administrators. Australia, which is further along on the QA juggernaut, has more admins at the typical university than profs.
AACU is now pushing “service learning and community based research as exemplars” of engaged learning that will help fulfill students emotional and ethical lives more than academic coursework. That is merely the “passive receipt of information.” Needless to say the engaged learning emphasis will propel the need for even more monitoring administrators. And it is a type of learning accessible to all.
The fact that these types of engaged learning also help propel a belief in the need for Social Justice is merely a bonus for administrators living off the ever growing State.
One of the things driving up the expansion of the bureaucracy is accreditation. It used to be accrediting bodies looked at how many of your faculty had a Ph.D. and how many volumes you had in the library. Now reaccredition takes a couple of years and more work than the faculty can do without detracting from their teaching. And the information compiled by this process in no way benefits the students.