Notes on cost disease in education
On the growth of higher ed expenditures, for years, I bought into the lagging productivity view as forwarded by Richard Vedder and others. In fact, William Poole, while still president of the St. Louis Fed, delivered a speech on this topic to a small luncheon group at WKU with our university president sitting right there. It was fairly humorous seeing our president’s reaction. However, I realized that in assessing productivity, Vedder, Poole, and others (like myself) routinely treated education as the sole product/service. Yes, we had always acknowledged a “consumption” component to student demand, but we treated that as a nuisance element, not as an integral feature of the market. That was probably not a bad assumption back in the mid-20th century and earlier. Over the last 50ish years, the consumption element has become increasingly important but remains ignored as merely a nuisance factor. Even the educational part itself has taken on more of a consumption aspect as students have opted into degrees that are more about avocation than serious academic study or vocation.
For all my grousing about the lack of student interest and “why are they even here,” the puzzle existed only because of my underlying, single-product assumption. There is a large demand for the consumption aspects of the higher ed “experience.” The U.S. is a rich society, and students (and their families through intra-household economics) want to consume the college product/service bundle – the “college experience” as even this verbiage began to reflect the shift toward non-educational, “summer camp”/ consumption. It is related to what we have observed at lower levels of education where the reason there isn’t more learning has little to do with teaching methods or school systems but the lack of interest by students and their parents in the educational component. For many parents, school is mainly about cheap day care. That’s a point that I make in my 1999 Spoiled Rotten: Affluence, Anxiety, and Social Decay in America.
Yes, $1.5+ trillion in student loan guarantees helps bolster this demand, but $1.5 trillion in loan guarantees is not the same as handing out $1.5 trillion in direct subsidies (grants), at least not yet. During most of this growth period in demand, the majority of students/parents expected to repay these loans. That may have changed more recently.
