Monday, March 4, 2013

Government Goes to College -- and Makes it Worse

In his 2012 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.
Government intervention drives up college costs. 
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 law, 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, the Obama administration wants to punish colleges for the soaring prices it 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 that doing so 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 of the 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 responsibility to control college tuition?  


Paula Bolyard said...
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Paula Bolyard said...

I would disagree with one part of your excellent analysis:

"When colleges must educate more students, they must build new classrooms in which to teach them..."

Often, there is little or no correlation between increased attendance and new facilities. Many schools (especially those of the public variety) follow the "If you build it they will come" policy. The stated goal is that better facilities will attract more students.

At the University of Akron they spent $61 million on a new football stadium. It's operating at a loss because ticket sales are not covering the bond payments. They said they needed the stadium so the school could shed its "commuter school image" and attract more residential students. They also justified building more dorms for the same reason.

Bloomberg had a piece last year about college funding that managed to come up with an even worse government intervention than Obama's idea:

"I am somewhat surprised that the Occupy Wall Street crowd is not making a case for ending tax exemptions [on endowments] for elite higher education. One option the protesters might propose would be a progressive tax scheme, permitting full exemption of donations, dividends and capital gains at poor schools; no exemptions at wealthier ones; and perhaps even a tax on that income at extremely rich universities such as Harvard, Yale and Princeton."

Dr. Michael Bauman said...

Many thanks for your helpful response. With most of it I fully agree. But, while I agree with what you've said about Akron, I think my point still holds: In order to accommodate the increased number of students that government intervention produces, colleges must build more dorms. Colleges build other things too, some of them wise, some of them not. If a college is a commuter college, then that college works from a restricted student base. To broaden that base, to transform itself into a residential college, it needs dorms -- and other things. 61 million dollar football palaces might not be one of them, but dorms must be.