Over the past few years, the subject of our discourse has trended along with the headlines and from one of the Administration’s “revolutionary” programs to the next. Each has deserved study, rebuke, and the attention we have given, but there are plenty of often-ignored issues lurking just below the surface that will be in the next round of discussions. I believe one of those is the continued expansion of the federal government’s role in education, which has been an often-mentioned topic for our President, including his half-baked thoughts around making a four-year college education “free” for all – akin to high school. The goal of this piece is to get us thinking about the subject and to prepare a rebuttal when the subject rises to the surface by discussing the premise – not the individual programs and proposals. As with so many other programmatic solutions offered by the left, this one has to be rejected at its root.
There is nothing more fundamental to the future of our country than education. In order for our so-called service economy to flourish, we have to stay at the forefront of innovation, technology, and learning. As part of that, we need to act as a magnet for the world’s brightest and best (a topic for another day), but we must also be able to truly and efficiently educate our own citizens. The future of education is highly dependent upon both our cultural attitude toward it at a macro level and the familial strength at an individual level. Education begins at home and then moves to schools, while accountability for actual learning has to remain in the home and with the individual student.
The pre-1970s governance of public schools, in theory, was a fantastic example of what a federalist system should resemble – the control should be at the lowest levels, at the individual district where communities impact the direction of their school through the direct election of representatives to the school board, who in turn answer only to the county or state that collects and remits funds back to the school. As this structure evolved, states, responsible for funding, began to mandate standards and conditions in order for schools to maintain the funding; after all, states could not be on the hook for funding poorly-run centers for corruption and political disaster that result from irresponsible citizens who elect incapable and backward school board members (see Detroit, MI for Exhibit A). This system allows states and school boards to (a) tailor their curriculum to the economic needs of the individual state and district, (b) compete with other states and neighboring communities for population migrations, and (c) allocate their resources as they see fit (i.e. new science labs vs. college-quality football stadiums vs. Carnegie Hall-style performing arts centers). If a district wants to raise funds to erect a new stadium, so be it, but it should come on the heels of a campaign and popular vote by the district, not the pen of a state legislator or, worse yet, federal bureaucrat.
Instead, the competition amongst school districts and states for people who vote with their feet has been increasingly replaced by Jimmy Carter’s system of federalized education (as created in 1979 and 1980). Federal curriculums have replaced those of state construct, 10 cents out of every government dollar spent on education now comes from federal coffers, and the simple goal of providing the smartest education has another layer of bureaucracy in its way. As with any other federal bureaucracy, the US Department of Education (“ED”) has sought not to limit its own powers, but to greatly expand them. At $40.2 billion, higher education is the most expansive portion of ED’s 2011 budget, as currently proposed by Obama. The higher education spending is 52% of the overall budget and is largely made up of $35 billion in Federal Pell Grants to students (for which the 2011 budget amount represents a 29.2% increase over 2010 levels); the remaining $5 billion is primarily administrative overhead. (Note: ED’s budget does not include special appropriations for grants to institutions under the guise of ‘research’ or other study.)
Since higher education comprises the lion’s share of the budget and because it is the President’s most often discussed education-related topic, the remainder of this piece is dedicated to addressing the current and future state of US collegiate and university education.
Thinking back on my life as an example, I do not remember a time where there was not a cultural expectation to attend some kind of college in order to work. There was certainly a time when I was three or four years old that I dreamed of being a carpenter or builder, but after that, I was dropped into the American education mold and fit to the expectations that comprise it: graduate from high school with a high GPA, go to the best college possible, and then get a job. Nowhere in that mold is there even a thought about what one wants to do and if that desire requires a college degree, a high school diploma, or some kind of trade education. Our culture preaches a “college or bust” philosophy; it is so engrained in our fabric that many students now go through high school mindless of what lies ahead – without thinking about what they want to do after college; they simply focus on college as a concept. This unthinking has caused massive amounts of waste in multiple avenues including lost years to changing fields of study, transferring schools, and expanding curriculums to include excessive amounts of “general education” requirements. Much of this waste could be avoided by helping students to direct their collegiate studies in a way that will provide the most value to them upon graduation.
While I am not advocating a European-style college entry examination and forced career planning, I am suggesting we shift to a cultural emphasis on career direction early in life. A student who knows his career path can then determine the appropriate avenue for success – whether it is college or not. Today, too many students enter college as a rudderless ship searching for direction. These students end up exhausting their general education classes, changing majors multiple times, extending their stay in school beyond the historically-accepted, four-year window, and/or graduating with a meaningless degree and still no idea what they want to do. If a student is able to determine in high school what one desires, one can then focus high school studies, college planning, internships, course work, and extracurricular activities around a career track that will provide the most benefit to one’s learning and career. And that career track may not involve college at all. Today, we have too many students leaving college only to never use their degree; while the experience they gained in college will impact their lives, working toward their real future would have also provided them with a beneficial experience – an experience beyond the frat party and Saturday tailgate.
Those who exit college and never again use their degree have just made the worst investment of their lives and set themselves back four to six years. Chances are good that they have racked up tens of thousands in education debt, blown their savings, and/or wasted thousands from their parents’ savings. They either compound this waste by going to graduate school to finally focus on what they need to study in order to be taken seriously in the job market, or they take a job that never required the degree in the first place. This phenomenon has birthed the concept of “underemployment” or set employer’s educational expectations/requirements above a level that should exist. Simply because an employer can seek a college-educated person to answer the phone does not mean that it should in any way a requirement, and at an operator’s wage, a person will spend a lifetime consumed by one’s college debts.
Many of these individuals would be better served by skipping college and learning a trade, going to a specialized school, or entering their field directly for on-the-job training.
Our culture has created waste, not by denying or supporting too few people in their efforts to attend school, but by confusing the entire purpose of higher education and sending perhaps too many people through the institutions. Again, I am certainly not advocating that we deny people access to the institutions; rather, we should foster a society that encourages individuals to make a concrete evaluation of their personal situation and the applicability of higher education in that. Thinking of this sort is unquestionably counter to the vision of the President, who seeks to extend the compulsory K-12 education as far as possible. There are of course different motivations for this thought – both good and bad. He undoubtedly feels that college holds the key to professional success and is seeking to extend that key to everyone, but he is also seeking to expand the most influential center of liberal influence in our society. As commonsense would suggest, his first premise is misguided and the second is dishonest and unconstitutional.
To advance this cultural assumption, our government has endeavored to provide millions of Americans with grants and student loans in order to “afford” higher education. While noble in intent, the effect of this government subsidy is rarely questioned or publicized; we constantly hear about the “rising cost of education,” but we never hear about the actual reasons behind it. In contrast, we hear about the “rising costs of health care” in equal frequency, but the media is quick to falsely accuse “greedy” doctors and “big insurance” for the problem. Though the problem of abnormal cost increases in both instances is directly attributable to the government’s distortion of supply and demand, we never hear the real cause trumpeted in public. Leaving the health care debate for another day, government’s noble intent has done nothing but to create a vicious cycle of rising prices in education – one that “requires” more and more funding each year to build upon the excesses of the previous year.
Government’s distortion of education supply and demand occurs in two key areas – both concerning demand.
The first issue is government’s stance that individuals need to be aided in attending centers for higher education. To demonstrate the effect of this program, let’s take an example in a different industry. Suppose the government announced tomorrow that it was going to extend grants and low-interest loans to citizens who cannot afford to purchase an iPad so that they can go out and purchase one; in that event, two things would happen: (1) Apple stores would be so packed that backorders for the device would extend beyond the end of the Obama Administration, and (2) in response to this insatiable demand that cannot be met by near-term supply, Apple would raise the price of the iPad to increase profitability on sales as the devices become available.
Prior to the announcement, some consumers who could not afford the iPad and had to settle for low-cost alternatives, others could afford the device but decided against making the purchase, and many others already purchased the device – some of those stretched to make the purchase and others would gladly have paid 50% more for it. Prior to the announcement, Apple priced the device at a point to maximize profitability – a balance point to generate the most demand at the highest profit per unit.
After the announcement, the three groups of consumers changed. First, those who were desirous but previously could not afford an iPad were able to go out and switch from low-cost alternatives to an iPad. The group who were uninterested probably remained uninterested, but may have reconsidered their decision and perhaps switched into the buying camp with the incentive. The third group who already purchased on iPad will not be affected at first but will be affected after the pricing phase hits. With the increased demand in group one, Apple, being a well-run company, will take this new data and return to its pricing model. Their model will be affected most by the group of newly-eligible iPad buyers, Apple would recognize that some of them could afford to spend some of their own money on the device, so they will raise the price above the amount of the government grant – a price that maximizes profitability once again. But wait … now the third group is affected; with the increased price, Apple has just created a new class of people who are “unable to afford an iPad.” Surely the government will need to adjust its grant program to include these newly-affected consumers, and the cycle will continue.
In this way, college education is no different than other consumer goods, including the iPad. As government extends its loans and grants to students, it disrupts the pre-existing equilibrium and sets in motion this continual re-setting of the supply-demand levels and, therefore, the upward pricing pressure. Without government intervention, colleges would have to (a) provide a quality product (education) that perspective students would demand, (b) make pricing decisions based on affordability for their logical consumer base, and (c) dedicate more of their general funds and endowments to individually subsidize students of lower means that they want to attend their institution. Without the government intervention, the schools can be left to set their own pricing equilibrium based upon the means of their general populations, while provisioning to recruit desirable students by leveraging the dedicated capital from their other funds.
Institutions are not established to educate those with means. As constructed today, they thrive on churning out the best graduates, increasing their rankings, and publishing the results of groundbreaking research. They require the brightest and best to do this – regardless of means. When they can strike this balance and generate this desired outcome, they are ripe to attract the more people of means who desire to send their children to the “best” schools and thereby the school is able to increase its profitability, its enrollment, and extend more grants to students it seeks to recruit (regardless of means).
In a case where government lifted its grants today, schools would have to either lower the price to make tuition affordable for students or raise/use more of their own funds to provide for students of lesser means. In other words, they would have to re-evaluate their pricing model. Schools would actually have to adapt to market forces that, like most other sectors of our economy, drive costs down while increasing quality (e.g. Lasik eye surgery and flat-panel TVs). In situations where schools are continuing to innovate, staying at the cutting edge, and providing a superior product, higher prices will be supported by a certain contingent of the population willing to pay for a superior good and/or by schools that support the brightest students in an effort to attract greater demand and notoriety for their brand. In other ways, schools would have to evaluate their own product lines and exit those that are unprofitable; they may have to employ professors to instruct and leave the research to be funded by private grants and joint ventures with businesses.
The second issue is derived from the way that government approaches the administration of student aid, which disadvantages the entire market and distorts prices even further. To qualify for any kind of financial assistance – be it governmental or school- based, students are required to submit the federal form in which one is required to disclose his along with his parents’ financial position. Under the guise of providing assistance, this information is then sent to the feds as well as school admissions departments. In order to see the damage of this information sharing, we must again return to the iPad example and Apple’s pricing model.
In order for Apple to set its price for the iPad, it collects market data, conducts studies, and uses historical information to make assumptions about the proper pricing of its iPad – an item that will have the same price to every consumer; it will have the same price for a one-hundred-millionaire as it will to a fifty-thousandaire. Apple has no ability to set a very high sticker price that it will charge its wealthiest customers, and then profile customers based upon wealth as they come into the store only to offer consumers of lesser means discounts. Under this structure, Apple would be able to fully maximize profitability by extracting the greatest amount of profit from each and every consumer. The economic term for this pricing model is called “price discrimination” and this is exactly what the government has enabled in education.
By mandating the sharing of this financial information, schools are able to set a high sticker price for the wealthiest students and then offer discounts (or more loans) based upon the information they glean when perspective students apply. This allows them to set the price at a profit-maximizing level for each and every student they seek to admit. Without this information sharing, the sticker price on tuition would be lower, the need for aid would be lower, and the requirement for students to take on more debt to afford these higher prices would be lower. In a typical market with limited information, schools would be unable to raise the price of tuition to a level tolerated only by its wealthiest students.
To tie this discussion back to our current Administration and its proposals, “free” college for all would do nothing but to exacerbate the cost issue to be funded by taxpayers. In a “free” environment, far more people would attend college, which would increase the demand, but the supply is relatively fixed in the near term. This would require expenditures to expand the infrastructure and during the build-out would decrease the quality of education with increasing class sizes and more demand for classes that were once niche, hands-on offerings. The increased demand would create near-term resource scarcity and increase the long-term required capital expenditures, which would cause tuition costs to rise. That aside, school administrators would no longer be beholden to the affordability constraints placed on them by their wealthiest students; with the “bottomless” pocket of the taxpayer on the hook for the politically-untouchable tuition bill, one can only imagine what that would do to the pricing model.
Further, by increasing the demand from this federal program, states (who control the public institutions in their states) will be forced to pick up a greater tab to build infrastructure or expand the schools to meet the needs. This will result in yet another unfunded mandate placed upon the states by the federal government. States will no doubt look to tax payers first, but at some point, private donations and other private resources would have to be tapped – still a drain of resources on the overall economy.
Finally, all of this increased demand will further intensify our cultural problem by having even more misplaced people go through schools wasting time and resources, while incurring personal opportunity costs instead of advancing their own career. That’s not to mention the ballooning cost on taxpayers.
With so many graduates now who have gone through undergraduate programs and endured the general education course requirements (that includes Econ 101), it is a wonder how proposals like these get any legs in the first place. But, I guess if wasting money on a program like this makes us feel all warm and fuzzy inside, then it must be worth it. Which reminds me … is there a special colored lapel ribbon for education? I want one.
