Saturday, January 28, 2012

Obama and the Colleges

In his State of the Union address, President Obama declared his intention to cut federal funding for colleges and universities where tuition rises too much.
His plan makes plain three things:  (1) He thinks rising tuition is caused by colleges; (2) He thinks government is the solution to the problem, not one of its chief causes; and (3) He thinks he knows how much tuition all colleges and universities ought to charge and, therefore, which ones are charging too much;
He is trebly wrong:
(1) As everyone who ever studied economics ought to know, all other things being equal, when the demand for a good or a service rises, its price rises as well.  By providing grants and low interest loans to millions of students, the government has driven up the demand for college enrollment dramatically, thereby driving up the price as well.  When colleges must educate more students, they must build new classrooms in which to teach them, new dormitories in which to house them, new dining halls in which to feed them, new health facilities in which to care for them, new athletic facilities in which to keep them fit and entertained, and new parking lots for their cars.
Colleges also must hire new admissions counselors to handle their applications, new campus police to keep them safe, and new maintenance crews to keep them comfortable.
They also must hire new faculty members.  Those faculty members require not only competitive salaries, but also health insurance, retirement funds, research sabbaticals, offices, parking lots, and secretarial staff.  The secretarial staff requires salaries, retirement funds, insurance, vacations, offices, and equipment.
Did I mention bigger libraries, more books, and more librarians?
What colleges cannot get from donors to cover these crushing new expenses, they must get from students. 
Of course, government intervention and the rising costs it entails are not limited to the demands of expanding enrollment.  Government intervention also includes government regulations that tell colleges and universities whom to hire, whom to enroll, and what to teach.  If colleges do not comply, federal funds are cut off.  To avoid that cut off, institutions of higher learning must hire whole departments full of educational bureaucrats to implement, to assess, and to enforce government mandates.  Those departments of compliance must be housed and supplied.  The bureaucrats who administer them require salaries, retirement funds, insurance, and vacations.  If colleges opt out of hiring teams of bureaucratic overlords to manage compliance, they run the risk of falling afoul of the laws, in which case they invite not only the loss of government funds but also possible lawsuits, the costs of which are rising along with everything else.
The heavy expense associated with meeting the needs of more and more students -- and the heavy cost of government mandates on colleges and universities -- can exceed many millions of dollars per campus, depending upon the size of the school.  The aggregate costs to colleges and universities nationwide are perhaps incalculable.  In order to meet these rapidly expanding financial burdens, colleges must raise tuition, sometimes quite dramatically.
In other words, government itself has done things that drive college costs into the stratosphere.  And now that it has, Obama wants to punish colleges for the soaring prices he and his ilk helped produce.
I am not saying that by opening up access to college for millions of service men and women via the GI bill that the government did wrong.  I am saying it costs colleges and universities enormous amounts of money.
(2) Expensive as those forms of government intervention are for colleges, they are not alone, and they are perhaps not the worst.  By printing many trillions of dollars in fiat money, and thereby shrinking the value of every American dollar on the planet as a result, the government makes it necessary for colleges and universities to charge ever greater amounts of money for the services they provide just to break even.  Because it takes more newly shrunken dollars to buy what old dollars used to, more dollars are needed.  Even if all colleges and universities decided against raising tuition in order to cover the costs involved in servicing more and more students, the government’s monetarist chicanery still drives up prices dramatically over time.
(3) Finally, I cannot imagine upon what possible basis Barack Obama thinks he knows how much tuition every college and university in America ought to be charging, or how much that tuition ought to go up each year.  But if he plans to punish colleges whose tuition rises too quickly or too much, then know it he must. 
Suffice it to say that I am continually amazed at how much community organizers know, or think they do.
Finally, to ask the obvious question:  Where in the Constitution does the president have either the power or the repsonsibility to control college tuition?  


Anonymous said...

no one is forcing schools to grow, and you seem t have inverted economics of scale. And lavish recreation facilities are unnecessary,but often built with the promise of brining in more money.

Dr. Michael Bauman said...

If schools wish to maintain even the same number of students they now have, they must compete with other colleges, colleges that invest in things like recreational facilities. If they do not compete effectively, they not only will not grow, or even maintain the status quo, they will shrink. Keeping colleges afloat is much like riding a bicycle: If you don't go forward, you fall down.

Gina M. Danaher said...

Government interference in the free market, under the guise of compassion, accidentally on purpose creates a parallel economy which sucks the life out of the free market. The fact that the market has to compete against the government which has access to unlimited funds in the form of confiscatory taxation, causes those in the marketplace to raise their prices or die.

Paula said...

Another aspect of the problem of rising tuition is the requirement that schools admit nearly everyone. In Ohio, it goes like this:

"A graduate of the twelfth grade should be entitled to admission without examination to any college or university which is supported wholly or in part by the state."

That's why the freshman retention rate is only 63%. Of the returning students, more than half must take remedial classes and only 54% graduate. This is an incredible waste of resources, though it would be difficult to quantify the many residual costs associated with it.

And really, shouldn't the #Occupy types start going after the 1% schools with massive endowments? Is it fair that Harvard has a $32 billion endowment in addition to all the state and federal funding? Under Obamanomics, Harvard should be penalized for hoarding all that money.

In Ohio, The Ohio State University, with a nearly $2 billion endowment, receives $500 million (7K/student) in state funds while poor community college Stark State only receives $25 million (3K/student).Shouldn't the poor students at Podunk Community College have a level playing field so they can get a Harvard- or Ohio State-quality education? Where's Obama's Fairness Czar on this one?

Dr. Michael Bauman said...


You are quite right that open enrollment poses multiple challenges to a college, challenges like remediation, which often is expensive and ineffective. If you have to spend significant portions of your limited resources doing what ought not be done, you have less left to do what you ought.

If a college wishes to carve out a niche for itself with open enrollment, then I don't object. But if the government requires open enrollment and does not fund it either adequately or fairly, the result is to injure higher education. The Ohio state legislature makes clear that they think college is not really higher education but just 13th grade. They make clear that they think education is an entitlement, not an achievement. They think that enrollment is a right, not something you earn.

Some folks do not merit college enrollment. Their record of non-achievement makes it clear. Others do not desire it. If you entice either of those groups into college enrollment, you help waste both the taxpayers dollars and the students tuition dollars. Waste is not good for anyone involved.