An Unteachable Moment

A cursory examination of the facts will lead to the undeniable conclusion that universities have perverse incentives. Before analyzing universities, one needs to first look at the basic economics of subsidies. Every economist and their grandmother will tell you that when you subsidize a good or service, its price increases. This is as a direct result of people being willing to pay more for a good or service. A quick look at tuition prices will find that every year since 1958 tuition has trounced inflation. More is afoot in the war on parent pocketbooks than inflation. There is clearly an underlying force that keeps pushing tuition upwards.

Government policy on making tuition more affordable could not be more counter productive. Before Uncle Sam pulls out his pocketbook and lays some dough on the table for a student's education, he turns to the parents and finds out precisely how much they can "afford" to pay. Anything above the affordability marker, Uncle Sam is willing subsidize either directly in the form of grants, or indirectly in the form of loans. This has grave implications for a university administrator looking to maximize the number of students applying to a given university. One way to increase applicants is to decrease tuition pricing. In a sane world, where markets operate free from government subsidy, that is precisely what the administrator would do. We do not occupy this sane world.

Because of the subsidies offered to universities that scale up and down with tuition, universities have every reason to keep costs up in order to attract stampedes of students. These costs include using tuition money to build attractive new facilities such as stadiums, dorms and *ahem* student unions that would encourage would-be students to apply to the university. The cost is then unloaded upon the students. In a university like San Jose State, where most students receive financial aid, this means that demand becomes inelastic and administrators are forced into non-monetary competition like the airline industry pre-deregulation.

Is there a solution to this problem? Therein lies the beauty of punditry. I don't need to give you a solution. A gadfly cannot be seriously asked to propose a solution to the horses ailments. The gadfly's job is to aggravate the horses ailments till it can ignore them no longer. Nonetheless, here is my modest proposal to fix the system. Stop subsidizing education and watch prices fall. Given the political impossibility of my proposal, I will return to my conservative hermitage until next week.

chimerical- imaginary, impossible
choleric- easily angered, short-tempered