Thursday, January 05, 2012

The Occupy Movement and Ever-Rising College Costs

The people occupying various open spaces in urban centers and university campuses around the nation and world are a diverse group of individuals who share at least one thing, discontent with the status quo. If their concerns remain unaddressed, there is no telling where their Occupy Movement may lead.

A large and conspicuous segment of the movement is composed of college students and recent grads fed up with rapidly rising college costs. Between 1930 and 2000, average college costs in inflation-adjusted dollars increased more than five-fold. In the last decade, average tuition has increased two to three times faster than inflation or family incomes. And quality has not palpably improved. College graduates today are no better prepared for life or the labor force than previous graduates were.
The tide of ever-rising costs may be turning in the college textbook market thanks to the Internet and new companies that offer lower cost—even free—alternatives. But textbooks still represents far too high a percentage of overall cost for students (26% of tuition at four-year state universities; 72% at two-year colleges). And textbook prices, like tuition, continue to rise faster than inflation and will continue to do so until structural reforms are implemented.

Despite that, most studies show that a college education is still a winning investment because over their lifetime college graduates earn more than non-graduates, on average. But some schools are better values than others, offering more future income per dollar of cost expended today. The schools that offer the best values are not easy to spot, however, because they are not always draped in ivy or adorned with winning football or basketball programs. What we see in the Occupy Movement is the margin, the growing number of students who consider their college experience, correctly or not, as a losing proposition.

If the labor market remains soft, as some fear it must for years or decades given the nature of the financial calamities and bailouts of 2007-9, student unrest will grow more widespread and virulent. Few twenty-somethings believe that they will ever collect a Social Security check and hence feel as though by protesting they have nothing to lose except their (seemingly) overwhelming chains of debt. If the government were to resolve the Social Security question once and for all, student protests would abate somewhat because the status quo would appear less unfair and young people’s futures less bleak.
Regardless of the fate of Social Security, however, fundamental educational reforms will have to be undertaken sooner or later. Tuition, like healthcare costs, cannot continue to increase faster than other prices indefinitely or there will be no money left in family budgets for food, clothes, shelter, transportation, and so forth. (Many families already feel the strain.) To be effective, reforms will have to change incentives within higher education.

Colleges and universities are inherently inefficient because most are owned by governments or trustees (Corporate universities raise a different set of problems that won’t be addressed here.) and competition is less intense than one might think due to the tremendous segmentation of the market by geographical area, student ability, class size, physical amenities, population density of the surrounding community, religious orientation, sports programs, and so forth. Much of the competition that does occur is over research grants or student athletes and not over effective pedagogical techniques.
Due to that fundamental dearth of competition, tenured professors, administrators, legislators, and trustees have preferred to pass the cost of their inefficiencies onto students (past and present), taxpayers, and untenured professors. I have therefore proposed that governments allow professors to form new colleges as professional partnerships. In addition to increasing competition and student choice, collegiate professional partnerships would have bona fide owners, their professors, and hence a real interest in providing high quality, low cost educational services to the broadest swathe of Americans possible.

A second reform, the payment of government subsidies to students rather than to universities, would also help to transform higher education by shifting schools’ focus toward undergraduate education and away from graduate research. (Adam Smith made a similar proposal over two centuries ago, one of his many bright ideas unfortunately lost during the twentieth century.) Subsidies that are at least partially earned rather than merely received usually have greater impact, so they should arise out of some form of student service, perhaps a G.I. bill-like program that would provide students with money for college in exchange for a wide range of services to the country. Implementation would cost taxpayers no more than higher ed subsidies currently do and would soon turn disenchanted protestors back into students and workers.


practical thinker said...

Professor Wright,

Thanks for the always well informed opinion and perspective on the state of the college system and the OWS movement. I have seen the protests (and even heard the relentless drum beat from my office in Chicago) and have often struggled why a legitimate cause does not get more legitimate coverage.

My personal opinion has always been that the OWS movement is the reaction of a generation who has been sold a false bill of goods. Being a part of that generation myself, I always believed that if I worked hard in school I would be successful in the workplace which would lead to a nice home with a picket fence. Little did I know, I would graduate school just as the economy would turn as a result of a nasty credit bubble in our economy. Incidentally, the same credit bubble that allowed me to finance my education over the short term, also made most houses unaffordable in my my area and the remains of such would hamper our economy for many years to come. Was this done on purpose? Of course not, but I can't help but relate to many who feel they have been lied to.

I find your proposed solutions to be practical, commonsensical and powerful. I can only hope that they will get coverage and gain traction in the years to come.

I also wanted to comment on your blog in general. I always enjoy your posts and appreciate very much your insight into financial history. I recently purchased Fubarnominics and have not had a chance to read it yet but look forward to doing so. Keep up the great work!


Dan DeRose Jr

Robert E. Wright said...

Thanks, Dan! Occasional comments like these keep me plugging away.