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Wednesday, September 11, 2013

Wednesday, September 11, 2013

Messing with the Wonkblog College Story

It is true that in the U.S.  “the tuition is too damn high,” and there’s enough righteous public anger about it for the Washington Post to have published a ten-part back-to-school Wonkblog series under that very title.  Why is tuition so high, according to this major metropolitan newspaper? The answers are of real interest: Even the best points made by the series author Dylan Matthews, in his heroic effort to create a coherent big picture, reinforce the premise behind the current perversity in state and national policy.  

For starters, Mr. Matthews agrees that college is still worth it.  B.A. degrees garner on average twice the lifetime earnings of high school diplomas.  College tuition offers an estimated 15-17% return on investment, which is better than your mama’s bond yields or the appreciation on an apartment near the Google bus.   (Parts I, II)  The other side of this is that dodging college now actively damages your economic future.  Colleges have something of a captive market, and this is where the trouble starts.

Although the customers keep lining up for the college product, they know a lot more about cars, apps, and clothes than they do about college.  Applicants have no "first-hand knowledge of colleges' quality," so a bunch of quality “signals” are gathered together to dubious effect. (VI) Brand plays a major role (Smith, Stanford, Swarthmore, Slippery Rock, and so on).  So do image, region, peer opinions, relentless marketing, and gimmicky, indecipherable financial aid packages.

The unfortunate result is that, according to various studies, "most students are not likelier to attend schools that spend more on instruction" (VIII).   So here we have an industry whose clients choose among thousands of possibilities without hard data about the quality of the core product, the education. Colleges have incentives to manipulate these millions of sitting ducks with confusing marketing and deceptive financial aid plans. More importantly, they do not have incentives to spend more money on education itself.  In the vacuum of quality data a default signal appears, “price, and in particular sticker price. The theory is schools that cost more will deliver a better education.” Here’s where a further perverse incentive appears.   “Schools have a real incentive to push up tuition for its own sake" (VI).  And they have responded to this incentive with extreme vigor: they raised tuition 297% between 1990 and 2012, or twice the increase seen in health care (I).  

We thus have opportunity for outrageous tuition increases.  What about motive? Well it turns out not to be the need of university administrators to coddle faculty with massive salary increases.  It turns out, according to Mr. Matthews, that the Baumol effect--in which services like instruction don’t see huge the productivity increases one finds in manufacturing, so labor costs always rise—isn’t really that important.  One proof is that only a small proportion of cost increases come from (generally low) increased instructional expenditures, so often targeted in MOOC discourse.  Another is that faculty salaries on the whole just don’t go up that much--  0.9% per year between 1987-2008 (V).

So why is the tuition too damn high? The first and largest immediate cause is administrative bloat.  Administration has grown far faster than any other segment of the university: one estimate is that it gets $2 for every $1 added to core educational functions (VI).  (This fits with studies of University of California expenditure growth.) The second immediate cause is the "amenities race" -- the famous climbing walls and Vegas-style sports complexes that seem to attract students with pretty good grades and truly outstanding family wealth (VIII).

But just as for Freud the psyche was not Ego or Superego alone, we must locate, Mr. Matthews assumes, an institutional Id behind the sheer relentlessness of rising prices. This was apparently best described by Harold Bowen  (not to be confused with William) as "the revenue theory of cost" (VI).  Core postulates are as follows: "there is virtually no limit to the amount of money an institution could spend for seemingly fruitful educational ends."  Each institution raises all it can.  Each institution "spends all it raises."

We have a theory of primal profligacy, and its most villainous instance is that genre known as the research university.  Their spending just goes up and up and up. While their poor relations at the community colleges raised tuition to make up for state funding cuts, public research universities increased overall revenue “by $5,793 per student, almost double the increase in per-student spending.” What this means, Mr. Matthews concludes, is that  “public research universities could have kept tuition stagnant and still had $2,651 more per student to work with, which could finance a good share of the actual spending increase. “  Why didn’t they do that and keep tuition down.  The reason is the Bowen Id: “they wanted more money than that, so they increased tuition too” (III).  Private research universities have an even worse unconscious urge, spending three times more per full time student than their public  cousins, or $12,435 during the past decade).

The tuition punch line is that administrative bloat and the amenities race are not root causes.  The root cause is the will to spend as much money as possible.  The title of this story is “just throwing money around and getting it from wherever" (III).  The tuition is too damn high because higher ed is compulsively spendthrift (except the community colleges, which are destitute.)  Plus, its managers are corrupt.  Although colleges should cut expenses to keep tuition down,  the "moral character of college and university administrators may be somewhat lacking, to put it politely." And so, our mild-mannered guide concludes, "universities could be spending far, far less than they are now without any corresponding decline in educational quality."

It is perhaps because colleges are wasteful and unreformable that the last two of the series’ segments are somewhat halfhearted. Tech innovations like MOOCs will eventually maybe be as good as college at "building human capital," but they won't ever signal "college" in the sense of subsidized fun, which is much of what state college funding really does (IX). So how to fix all this (X)? Who really knows.  Maybe make CCs free. Put other public colleges on a federal backstop when the states cut them. Perhaps try a super-voucher system with a cap on expenditures so that colleges would have a disincentive to raise fees.  And also, in a convergence with the Obama proposals that came out at the same time, force colleges to produce meaningful data on educational quality.  The series’ final line is an ominous call for better data, or else: "Without better data, there's no way to defend the contribution that college makes to our economy and our society, and no way to make that benefit cheaper for those who need it."

I retell the full Wonkblog story because it is a smart version of the dominant narrative that the university community must confront.  It embodies an important kind of liberal Reaganism.  The key premise is that government and public investment are basically good, but always opaque and perverse and in need of permanent austerity.  Public officials always want to spend way too much—that’s their Id at work—and in such an opaque way that even sympathetic wonks like Mr. Matthews can’t quite figure out what they spend the money on.  The associated practice is that audits replace the higher funding levels that built these public systems and once made them great.  A related practice is to minimize or ignore the effect of the history of previous cuts, so that behavior that is indeed suboptimal for the system, yet rational for the college, can never be understood.

That is really too bad in the case of higher education.  That is because the outsized growth in tuition via administrative bloat, hospital expenditures, Vegas gyms—every single category of non-instructional spending that so many academics constantly protest—had been driven by free-for-all competition for private funds.   If we poke our heads outside of this constrictive U.S. framework,  we can see that the huge costs and spending perversities are induced by administrators, it's true, while engaged in a free market scramble in the wake of repeated public cuts.

I have detailed much of this causality in this space before, in which I have been happy to criticize administrators for their complicity with this destructive system. But we need to see the whole system for what it is.   One can start on the technical errors in Mr. Matthews’ series via Dean Dad’s slam, "The Theory isToo Damn Thin,” and also think about a full-scale alternative via Bob Samuels’ new book, Why Public Higher Education Should be Free.  In my next post I will say more about why the tuition crisis won't get fixed without fixing public funding via this important piece by Mariam Wang at ProPublica, which I hope you have time to read.  


TB said...

One (perhaps tangential) question:
All the studies on the benefits of going to college that I have seen so far seem to suffer from the same flaw. Namely, they fail to control for one potentially significant fact: people *choosing* to attend college do not represent a random selection of a certain generation. Nor do those who *choose* not to go to college, for that matter. Whether one's decision to go to college is a result of one's abilities and drive or merely the family pressure (which implies a certain level of family support), these are the same factors that also affect other career choices and, consequently, future earning potential. Simply observing that those who go to college (even if they don't finish) make more than those who don't even attempt establishes correlation but *not* causation. A truly convincing (but obviously impossible) study would have to bar a random selection of *college bound* kids from entering college and then compare their life outcomes to those who were allowed to attend. Short of such a cruel approach, one has to cleverly devise other ways to control for the "self-selection" effect. I can't think of such a clever way right now, but it does not mean it's impossible.
In any case, the study by the Hamilton Project “Regardless Of The Cost, College Still Matters” http://www.hamiltonproject.org/papers/Regardless_of_the_Cost_College_Still_Matters/ that is cited in the Wonkblog does not seem to be concerned with this issue; there is no mentioning of it in the Technical Appendix http://www.hamiltonproject.org/files/downloads_and_links/September_Jobs_Blog_Technical_Appendix_v2.pdf
So, once again, has anyone seen a study that takes the aforementioned issue into account? I think this is very important for those of us who are skeptical of the push from above to make college cheaper (in all ways other than dramatically cutting the administrative and regulatory compliance costs). If we had a *genuine* argument that the college is still the best investment one can make, I would find it much easier to argue with the likes of Gerry Barnett who oppose the research mission of public universities as too expensive.

Chris Newfield said...

TB - point well taken. I don't think I've read such a study but now that you mention it I will specifically look for one.

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