Who is to blame for rising college costs?

College costs are soaring higher than inflation ever since 1981 and the government has a lot to do with that.

Who Should Be Blamed for the Rising Cost of College?

December 11, 2012 by Dan Mitchell

Notwithstanding the title of this post, perhaps nobody deserves blame.

Sometimes, a good or service rises in price solely as a result of changes in supply and demand. And if the price of something climbs because of market forces, then it’s merely a reflection of unfettered exchanges between buyers and sellers.

But politicians and bureaucrats often distort market forces with subsidies. And even though consumers ostensibly benefit when government helps to pay for something, intervention can have very costly consequences.

I’ve already shared an amazing chart and a very powerful video to help explain how government subsidies in health care have created a third-party payer problem that has resulted in rapidly rising prices and considerable inefficiency in that sector.

Well, the good intentions of government also are causing problems for higher education.

Here’s a superb video from Learn Liberty, explaining why college expenses are skyrocketing.

Why Is Higher Education So Expensive?

The first part of the video shows that a college degree has become more valuable, so it’s understandable that the relative price of higher education has risen.

But then, beginning at about 1:55, the video discusses the role of subsidies. Echoing points I’ve made in the past, the professor explains how subsidies have simply generated higher prices. In other words, colleges have captured all the benefits, not students.

Business Week recently published a story that provides some glaring example of how universities have wasted all the additional money. Here are some remarkable excerpts.

“I have no idea what these people do,” says the biomedical engineering professor. Purdue has a $313,000-a-year acting provost and six vice and associate vice provosts, including a $198,000-a-year chief diversity officer. Among its 16 deans and 11 vice presidents are a $253,000 marketing officer and a $433,000 business school chief. The average full professor at the public university in West Lafayette, Ind., makes $125,000. The number of Purdue administrators has jumped 54 percent in the past decade—almost eight times the growth rate of tenured and tenure-track faculty. “We’re here to deliver a high-quality education at as low a price as possible,” says Robinson. “Why is it that we can’t find any money for more faculty, but there seems to be an almost unlimited budget for administrators?” …Purdue is typical: At universities nationwide, employment of administrators jumped 60 percent from 1993 to 2009, 10 times the growth rate for tenured faculty. “Administrative bloat is clearly contributing to the overall cost of higher education,” says Jay Greene, an education professor at the University of Arkansas. In a 2010 study, Greene found that from 1993 to 2007, spending on administration rose almost twice as fast as funding for research and teaching at 198 leading U.S. universities. …Trustees at the University of Connecticut are reviewing administrative salaries at the school’s main campus in Storrs, following a controversy over the compensation of the school’s former police chief, who received $256,000 annually—more than New York City’s police commissioner. …Mitch Daniels, a fiscal hawk who will become [Purdue’s] president when his term expires in January…says he wants to take a look at administrative costs that he suspects are “marbled” throughout the university—beginning with his office. In anticipation of his arrival in January, and without his knowledge, the school renovated the president’s 4,000-square-foot suite. The cost was $355,000, enough to send 15 Indiana residents to Purdue for a year.

Wow. Reminds me of this post about politically correct featherbedding at the University of California at San Diego. I can see why college administrators like this system. But it’s definitely bad news for students who get stuck on a treadmill of higher tuition and more debt.

P.S. At 2:18, the video has a discussion of how subsidies lead to higher costs, which then leads to more demands for additional subsidies. Hmmm…bad government policy leads to more bad government policy. Seems like there’s a term for that phenomenon.

P.P.S. I highly recommend the Learn Liberty videos. Here’s one on protectionism, one on the legality of Obamacare, and here’s another about how excessive federal spending is America’s real fiscal problem.

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