A break from the Felix-bashing

I realize I've been hard on him lately, but it's worth taking a moment to remember that Felix Salmon is one of the best financial journalists out there, especially on the philanthropy beat:

While the Cooper Union ethos never left the students or the faculty, however, it did seem to desert a significant chunk of the Board of Trustees and the administration. Starting as long ago as the early 1970s, the board started selling off the land bequeathed by Cooper, not to invest the proceeds in higher-yielding assets, but rather just to cover accumulated deficits. Cooper hated debt and deficits, but that hatred was not shared by later administrators, who would allow debts to accumulate — bad enough — until the only solution was to sell off the college’s patrimony, thereby reducing the resources available for future generations of students. If you visit Astor Place today, the intersection once dominated by the handsome Cooper Union building, the main thing you notice are two gleaming new glass-curtain-walled luxury buildings, one residential and one commercial, both constructed on land bought from Cooper Union.

Then, when you turn the corner and look at what hulks across the street from the main Cooper Union building, you can see where a huge amount of the money went: into a gratuitously glamorous and expensive New Academic Building, built at vast expense, with the aid of a $175 million mortgage which Cooper Union has no ability to repay.

I started to quote more, but as startling and depressing as the details are, you really need to read the whole thing to get the full impact. It's an extraordinary story with particular significance to those following the tuition debates. While it would be a mistake to assume Cooper Union is completely representative, it is an enormously instructive example that seems to give us one more reason to question the cost disease theory.

A word of warning, I would not advise reading past the phrase "vision process" on a full stomach.

From unsupported hypothesis to conventional wisdom

I don't want to pick on Andrew Delblanco, who turned in an unusually well-balanced piece on MOOCs in a recent issue of the New Republic, but this passage bothered me quite a bit:

But the most persuasive account of the relentless rise in cost was made nearly 50 years ago by the economist William Baumol and his student William Bowen, who later became president of Princeton. A few months ago, Bowen delivered two lectures in which he revisited his theory of the “cost disease.” “In labor-intensive industries,” he explained, “such as the performing arts and education, there is less opportunity than in other sectors to increase productivity by, for example, substituting capital for labor.” Technological advances have allowed the auto industry, for instance, to produce more cars while using fewer workers. Professors, meanwhile, still do things more or less as they have for centuries: talking to, questioning, and evaluating students (ideally in relatively small groups). As the Ohio University economist Richard Vedder likes to joke, “With the possible exception of prostitution . . . teaching is the only profession that has had no productivity advance in the 2,400 years since Socrates.”

(for more along similar lines)

I'm not an economist, I haven't gone through Baumol and Bowen's research, and my college teaching experience is more than a decade out of date, so I'm certainly missing some salient points here, but if the hypothesis is true, I'd expect to see the following:

1. There should be a shortage of teachers

2. The percentage increase in wages for teaching should be greater than the percentage increase in overall tuition.

3. The share of tuition going to instructional costs should increase substantially relative to costs such as administration.

Rather than seeing all of these, it's not immediately obvious that we're seeing any. College teaching jobs are not easy to get, non-instructional costs seem to be more than holding their own and if you look at people who are paid solely to teach, their wages are increasing more slowly than tuition.

We have to be careful about treating informal observations as data, but with that caveat in mind, there are lots of reasons to question and not much evidence to support the hypothesis that a lack of technology-driven productivity gains by instructors are causing the sharp growth in tuition. Nonetheless, the idea has gone from interesting but unlikely theory to generally accepted fact.

Here's where I blame it all on Steven Levitt.

OK, not really, but this is an example of a journalistic fad that owes a lot to Freakonomics: propping up an argument with a semi-relevant economic allusion. This isn't the same as analyzing a problem using economic concepts (for example, trying to explain health care inflation as a principal agent problem). Instead, what we have here is the idea that explaining the concept is the same as arguing that it applies.

It is, of course, possible that cost disease really is driving the growth of tuition. This is an enormously complicated problem and complicated problems often look very different when examined in detail. Viewed from a distance, though, the idea that a lack of instructional productivity gains are driving the growth simply doesn't jibe with what we're seeing.

Raising tuition

I have quite a bit to say about this post from Richard Posner but no time to say it at the moment. I'll try to get back to this but in the meantime feel free to start without me.

In any event, there is no case at all from an overall social standpoint for subsidizing students who would pay full college tuition, without the inducement of a subsidy; the subsidy does not induce students to obtain a college education who otherwise would not because they could not afford to; it is a windfall to their families. Private colleges recognize this. They charge very high tuition (though not high enough to cover all their costs—but they have other sources of funds, such as alumni donations), but grant scholarships or loans to students whose families can’t afford the tuition. Charging low tuition to everyone, as public colleges do for residents of the state in which the college or university is located), does not make economic sense; it merely as I said provides windfalls to families willing and able to pay the full tuition. As Becker points out, this results in regressive redistribution of income, because families that can pay full tuition are wealthier than the average taxpayer, who pays for the costs of public colleges that tuition doesn’t cover.