Paying for higher education

Debate in California about the funding cuts for higher education has become quite perplexing, partly because some of the parties are not thinking very clearly about it, partly because the question is fairly complicated, partly because the politics of California budgeting have become so pathological. In response to relentless nagging from David Schutz (well, he put two comments on an earlier post [Update 26/XI: and offered this link to some thinking similar to what follows]), here are some reflections.

The economics of the issue are pretty cut-and-dried if we think higher education is only about job skills for alumni. In that model, it’s an investment, the alums make money from it (better jobs and higher pay), and so students should pay full tuition and if they don’t have it up front, take loans.  The “problem”, if there is one, is just a capital market failure.  If schools want to compete for better students with scholarships and such, or if California wants to bribe stars to come here for college because they tend to stay here afterwards, they are free to do so, and how nice for the A students; otherwise full tuition is the rule and college accessibility is a matter for banks.

On this theory, a state giving students from poor families a free or cheap ride, however you set it up,  is a well-meaning but ill-targeted idea, because most won’t be poor when they graduate, because some will leave the state after graduation, and because in-kind subsidies are generally bad practice. If you want to help the poor, give money to the poor (including poor college graduates teaching in bad K-12 schools or lawyering in the public defenders’ office), and lend it to the about-to-be-not-poor.

If there’s more to education than job training, or if you think the market doesn’t reward all the value created by everyone’s work perfectly, things get a lot messier. I think both those things are true.  First, the idea that higher education is just about employment is inconsistent with the whole American model of liberal education.  People should study literature and ancient history and complex function theory and all that good stuff in college, but it’s very hard to argue that it’s because every engineer is going to make better bridges because of his Shakespeare course. Also, a lot of benefit from education is made and consumed by the student himself.  We could say, so what; he should still pay for it.  But a lot is also consumed by his friends and family, because educated people are more interesting and fun to be around, and these benefits are not necessarily returned to the alum, nor are the benefits of his better-informed voting, participation, and judgment as a citizen.  The idea that education investments will be made optimally by the student runs aground on all sorts of market failures like free-rider problems, the well-known deficit of adolescents in processing delayed-payoff choices, and cultural flywheel effects like the undervaluing of education in minority groups with little historical experience that it really pays off better than working in the family restaurant, or cultural conventions that it adds little value for women. In my view, these market failures, plus the symbolic demonstration that we think it’s just really good for all of us if everyone has lots of it, justify the idea of heavily discounting it, just as we give it away free (and make you take it) through 12th grade.

There’s also more to an educational institution than students taking courses.  Research, for example.  A society could probably set itself up with research institutions separate from teaching-focused colleges, but we have chosen a different system, and it’s not clear that the former recipe would really work; can a university that does no research really train the PhDs who will do it in a think tank or industrial lab?  It’s conceptually possible to have an accounting system at a place like Berkeley that properly costs research and teaching so as to charge tuition only for the latter, but the existing system barely costs anything plausibly now, and how could we confidently separate those functions for graduate students getting independent study units working in a lab on an NSF grant, or a prof writing a book he will teach from next year?

The confident and pervasive assertion that undergraduates at research universities necessarily learn more than undergraduates at liberal arts colleges or in the Cal State system because their professors are more distinguished and productive scholars is not much more than that, an assertion. Because of the degree’s prestige, we admit the students who will do best in any environment, and the value added from going to Berkeley rather than Cal Poly may well be illusory. My friend from Swarthmore came out every bit as well-trained as I did from Hahvid, and the teaching at research universities doesn’t generally impress me. However, I don’t believe we are operating at the production possibility frontier for teaching and research, and the quality assurance system for teaching at my own school (and Harvard) is shameful and feckless.  So there’s no reason the research university couldn’t be a good undergraduate ignorance processing system, if we were to take it seriously, with no hit to research excellence or amount.

One of the less useful tropes of the current California uproar is that “Education should be free!” Exactly what could this mean, if taken seriously?  The best I can make of it is either a silly plea that facts be turned upside down by magic, like “Brussels sprouts should taste good!” or a proposition that it should be offered at a price of zero. Carry all the signs you wish, but education consumes real economic resources, hence has a real cost no matter what its price. So we’re talking about who should pay for whose, and how.  European experiments with zero-price education have not gone so well; many European students are as well-trained and capable and interesting company as our best, but a lot more are flailing around for years, getting very bad educations in overcrowded and shabby facilities, from profs whose main concern is their second and third jobs. Even highly subsidized state schools here have significant prices that help students stay focused on finishing up and getting on with it, and minimum unit requirements to stay registered along with grading in which it is possible to fail. The problem is that subconsciously we understand price to be an important signal of value, and to some degree “what you get for nothing you value at nothing.”  Giving it away at the college level seems to signal for many students that it’s an entitlement, and delivered to them, rather than an opportunity to invest their own effort productively.

In sum, if we were setting up the system from scratch, there’s no reason it couldn’t be based on full-cost tuition, discounted by some estimate of the external benefits the educated provide to all of us (but no fair loading unreasonable amounts of research cost into it), lots of loans, and salaries that better reflect the public benefits of employment choices of people like poets, schoolteachers, and luthiers. However, we go to reform our schooling with the social and economic structures we have, not the one we wish to have, and especially in California, that structure has several iterations of a deal whereby generation t receives a big endowment of personal, social, and physical capital from generation (t-1) that enables it to consume lots of resources and have a happy life, while still adding to (and maintaining) that kind of capital to bequeath to generation (t+1).  The current generation of California voters has broken that deal, realizing it would be even nicer for them to just consume everything they earn and leave my students to fend for themselves educationally and in lots of other ways.  They are making the transition to full-price education quickly, ignorantly, and heartlessly under the malign influence of leadership, especially Republican Party leadership, that has made an ignorant and idiotic worship of markets and private wealth into an ideology, and abetted by catastrophic constitutional decisions through an initiative process that was the solution to a problem Californians had at the beginning of the last century.

My generation and the next owe my students a big transfer of wealth entrusted to us by our parents and grandparents for that purpose; we may decide not to pass it on in the form of tuition discounts, and could reasonably engineer a fair and humane transition to a different system over an extended period or adaptation, but what’s going on in California now is a vast looting of a trust fund, a violation of fiduciary and parental responsibility.  It’s generation K for klepto running loose here, and it’s really ugly.  When it comes to your state, you’ll see what I mean.

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.

24 thoughts on “Paying for higher education”

  1. I like what you say; and I think we are already past that point you describe as a higher ed system with "full-cost tuition,…but no fair loading unreasonable amounts of research cost into it"

    According to my calculations in 2007 we had undergraduate fees at UC set at 100% of the actual per-student cost of providing undergraduate education. Since then fees have jumped a lot higher. That calculation was based on an earlier faculty time-use study and it included the faculty's own assessment of how much research contributed to instruction.

    Would some other experts please look into this and see what they think of the calculation?

  2. It is possible to separate research and education: any number of decent, even good undergraduate schools don't do grad degrees, and some excellent research schools only do grad degrees (e.g. UCSF).

  3. Brilliant as always. I would stress more the externalities. Teach one person at a University and many will learn from her or him.

    Also, look, U Cal is huge and Cal state is huger and the community colleges add up. The logic of charging full tuition is appropriate for a small price taking benificent entity. By subsidizing university education California can drive down the return to a university degree and obtain a more equal income distribution. Any entity with market power should consider the effect of its actions on prices and the Californian public education behemoth has a lot of market power in the California labor market.

    I'd say basing aid on loans is a mistake. My view is that labor income is not well correlated with the social usefulness of labor. In fact, I think that people choose points tangent to an indifference curve such that lower income is compensated by a greater sense of social usefulness *and* that their perceptions of social usefulness are not negatively correlated with social usefulness. You seem to agree as you mentioned poets and public defenders. A poll tax makes people care more about income. So does a loan contract.

    I'd go for a system where in lieu of tuition the state requires repayment proportional to income (a sort of consensual income surtax). That's because I think the incentive effects of a flat tax are better than the incentive effects of a poll tax totally aside from the desirability of equal incomes. Oh and, by the way, with my approach the post repayment plan incomes of university graduates would be more equal.

  4. Generation K: Is that the one that Tom Brokaw labeled 'The Greatest Generation', or is that their children. In either case, Heckuva job, Brownie.

  5. "They are making the transition to full-price education quickly, ignorantly, and heartlessly under the malign influence of leadership, especially Republican Party leadership, that has made an ignorant and idiotic worship of markets and private wealth into an ideology, and abetted by catastrophic constitutional decisions through an initiative process that was the solution to a problem Californians had at the beginning of the last century."

    I see, Democrats had nothing to do with this mess. Actually Democrats have turned a hatred of free markets and the results thereof into an ideology. They were the main contributors to the economic policies that let to the bubble an bust of the bubble.

    BTW, markets work and the government interventions into markets we've had over the past 20 years or more are finally bearing fruits.

    Here's a little tidbit written over 60 years ago by someone who has, according to you, made a worship of markets: "Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to “buy” houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in they long run they do not increase overall national production but encourage malinvestment." – Henry Hazlitt

    Sounds like his "ignorance" predicted things a lot better than your enlightened hatred of free markets.

    That's just the tip of the iceberg in terms of predicting this mess. Government has been following almost every possible stupid economic policy it could over the past twenty years and continues to do so. Using the exact bad policies that got us into this mess to try to get us out.

    I happen to know a hell of a lot more than you on economics, and for the most part Republicans have very little faith in free markets. They too go along with you in an "ignorant and idiotic worship of" the state.

    "My generation and the next owe my students a big transfer of wealth entrusted to us by our parents and grandparents for that purpose;"

    The same argument could be used to support any state system, including communism, regardless of how economically ignorant the model. Also, you in fact misunderstand the nature of capital if you thing the school system itself is some kind of communal aggregation of savings that can be consumed over time. There is capital inherent in the system but it is in many cases private, and most of in requires a true bank of savings, or a continual influx of resources to run. For example, knowledge is a form of capital, but it is held privately by teachers, and cannot be milked without feeding those teachers with accumulated capital. They need to eat now.

    There is no pool of capital saved up by our parents and grandparents upon which to feed the teachers and heat the schools. In fact, the entire country is being run as a giant ponzi scheme, where our parents and grandparents have been living of a pool of capital being saved by their children for their own retirement. Once those children reach retirement age that pool of real capital will have been consumed and we will be left with the government printing presses to feed our aging population. Good luck eating federal reserve notes.

  6. If you think brussel sprouts taste bad, you aren't doing them right. Try quartering them, and cooking them in a heavy skillet. Add a quarter inch of water to the pan, and cook (steam) them until the water is gone (watch carefully so they don't burn). When the sprouts dry out, add olive oil and crushed garlic and saute them, salt and pepper to taste.

  7. "My generation and the next owe my students a big transfer of wealth" – dude, our generation just spent everything left to us and everything your students will earn for the first decade or so of their professional lives. That's what a $12T debt means, you know. You might want to look into earning what you get instead of just voting for having it given to you by magic.

  8. "They are making the transition to full-price education quickly, ignorantly, and heartlessly under the malign influence of leadership, especially Republican Party leadership, that has made an ignorant and idiotic worship of markets and private wealth into an ideology, and abetted by catastrophic constitutional decisions through an initiative process that was the solution to a problem Californians had at the beginning of the last century."

    So a tuition increase of $2-3K a year by a deeply bankrupt state is "quick, ignorant, and heartless"? How much is the state subsidy per UC student? 20K? I admit I don't know the number, but I am about to finish paying for three non-California college educations for my California kids, and I can tell you that I paid at least $25K per student per year for the privilege of not sending them to a place where Michael O'Hare teaches.

    And how much higher are my taxes supposed to be, Mr. Public Policy Knowitall? At least half of my income goes to federal and state income taxes, Social Security, Medicare, property taxes and sales taxes. At some point earners start to lose interest in earning more, and we're close to that point.

    Your post makes many true and insightful points, yet devolves into a ridiculous partisan tantrum. I'm left with the sense that California's decisionmakers must have been sitting in your classroom for the past few decades.

  9. Pricing for higher education is going to have to be rethought. With the technology available to deliver information so quickly and online archives of classes easily accessible ( or less comprehensively webcast.berkeley.ecu), the only reason to pay so much for a higher education is the signal it sends. (Most of the value of higher education is achieved at admission.)

    vince52: Please go Galt. You overestimate your easy replaceability.

  10. Allow Eli to suggest something new, actually it is old, going back to Sherman Barber the then (1960s) president of CCNY, which WAS free. Barber said that anyone who graduated from college should be subject to a surtax which would be used to fund higher education. That tests everyone's assumptions and would support higher education.

  11. MH post:"A society could probably set itself up with research institutions separate from teaching-focused colleges, but we have chosen a different system, and it’s not clear that the former recipe would really work; can a university that does no research really train the PhDs who will do it in a think tank or industrial lab?"

    This experiment has been tried, by Josef Stalin, Napoleon Bonaparte and their heirs, justified to some extent by the eighteenth-century experience of go-ahead academies and stagnant universities. It wasn't a disaster, but both France and the ex-Soviet empire have concluded that it works less well than dual-purpose (Humboldtian) universities. The French CNRS is now SFIK largely a way of funding university-based research teams. Governments are bad at picking winners in research, and a competitive arms-length allocation of research funds is more efficient. The arm's-length part implies basing researchers in largely autonomous institutions, which universities are by historical accident, aka tradition.

    The practical case here is stronger than the theory, for the original Humboldt argument is idealist b/s. My debating points are:

    1. Research training is a part of education, and has to be delivered by people who are practising the trade they are teaching. (You can of course hive this function off into specialist academies; but these are still educational institutions.)

    2. During their tertiary education, it's important for as many students as possible to be exposed, even briefly, to the practice of genuine research (the core of truth in Humboldtian idealism): an argument against the specialised academies.

    3. Research is fun and should pay an accountability tax to teaching and public information – it doesn't matter which, and different researchers have different comparative advantages in the spectrum. The converse is not generally true.

    4. The vice of teaching is fossilisation; the vice of research is narrowness. A well-run dual system on Madisonian lines has a reasonable chance of limiting the damage.

  12. Hope but don't expect this to get figured out sometime soon. I just paid tuition for an entire semester for my son to take the last class he needs to graduate because classes are now being offered in alternating semesters, upping the number of years to graduate as well as, of course, the fees to pay. I'm lucky I could do it for him – many can't. That would have given him the option to drop out and work if he could find a job and try and get readmitted into an over-impacted system before the graduation requirements changed.

    Brussels sprouts are divine – here's how we do them:

    • Cut sprouts in half down the middle

    • Heat some olive oil and a little butter in a skillet on medium low

    • Place sprouts face down in one layer

    • Sprinkle a handful of pine nuts on top

    • Go have a glass of wine

    • In about 15 minutes, lift out sprouts, sprinkle with salt and pepper

    • Toss the now-golden nuts, butter and sprouts together.

    Bottoms of sprouts will be brown and sweet and the tops keep their crunch.

  13. "If you think brussel sprouts taste bad," It's your genes. There's even a test strip for it, to distinguish brussel sprout haters from lovers. Google "PTC taste blindness".

    Me? I love 'em, especially roasted with a bit of rosemary.

  14. Well, Mike, you are just like George Herbert Walker Bush, except that the vegetable which he slammed, and which got him excluded from polite society, was broccoli.

  15. It's kind of interesting that almost the entire period of explosion in California high-tech industry and real-estate prices came during the period when the state had effectively decided to stop paying for its human-capital infrastructure but was still garnering the advantage of previous decades of investment.

  16. "But a lot is also consumed by his friends and family, because educated people are more interesting and fun to be around." Spoken like a true Harvard snob. Plumbers, nurses, firemen, and other white trash obviously aren't worth talking to.

  17. $ 3 Million Extravagant Spending by Yudof/Birgeneau for Consultants – Work Can Be Done Internally.

    Save $3,000,000 for teaching students. Do the work internally with the resources of the UCB Academic Senate Leadership (C. Kutz/ F. Doyle), the world – class UCB faculty and staff, & UCB Chancellor’s stable of blotted staff (G. Breslauer, N. Brostrom, F. Yeary, P. Hoffman, C. Holmes etc) & President Yudof.

    President Yudof has a UCB Chancellor that should do the high paid work he is paid for instead of hiring an East Coast consulting firm to do the work of his job. ‘World class’ smart executives like Chancellor Birgeneau need to do the analysis, hard work and make the difficult tough decisions to identify inefficiencies!

    Where do consulting firms like Bain ($3,000,000 consultants) get their recommendations?

    From interviewing the senior management that hired them and will be approving their monthly consultant fees and expense reports. Remember the nationally known auditing firm who said the right things and submitted recommendations that senior management wanted to hear and fooled government oversight agencies and the public? Impartial consultants never bite the hands(Birgeneau/Yeary) that feed them.

    Mr. Birgeneau's performance management work accountabilities include "inspiring innovation and leading change." This involves "defining outcomes, energizing others at all levels and ensuring continuing commitment." Instead of demonstrating his leadership by fulfill the senior management work of his job, Mr. Birgeneau outsourced them. Doesn't he engage University of California and University of California Berkeley (UCB) people at all levels to help examine the budget and recommend the necessary $150 million trims? Hasn't he talked to Cornell and the University of North Carolina – which also hired Bain — about best practices and recommendations that might apply to UCB cuts?

    No wonder the faculty, staff, Senate & Assembly and Californians are angry and suspicious. Three million dollars is a high price for students and Californians to pay when a knowledgeable ‘world-class’ UCB Chancellor and his bloated staff are not doing the work of their jobs.

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