Sunday, September 9, 2012

Obama Calls for Lower University Tuition Rates

‘This morning I heard President Obama call for universities to lower their tuition rates so that “everybody in America can go to college.”

I am virtually certain that the President is not stupid enough to think that if tuition rates fell to zero,there would magically be enough room in the colleges for everybody in America. So I’ve got to believe that he’s purposely saying stupid things in order to appeal to stupid voters — the sort of voters, in other words, who probably don’t belong in college.

To believe what the President wants you to believe, you’d have to be not just stupid but badly misinformed. At the University where I teach, we do not lack for applicants. The reason we don’t have more students is not that they can’t afford us; it’s that we don’t have room for them.

The President’s proposal would make sense if universities were ordinary monopolists, artificially restricting enrollments in order to keep prices high. But universities, insofar as they are monopolists, are by no means ordinary — they are price-discriminating monopolists — and extraordinarily effective ones at that.

Every year, I tell my Principles students with confidence that “You and the student on your right are probably not paying the same tuition rate”. Universities have detailed information on students’ academic records (which tells them where else those students are likely to be admitted) and detailed information on student’s (and their family’s) financial statuses. They exploit this information to tailor individual aid packages.

That’s important here, because, unlike an ordinary monopolist, a good price discriminator doesn’t leave seats in the classroom unfilled just to keep prices high. Instead, the price discriminator fills empty seats at bargain prices while still keeping prices high for those who are willing to pay full fare.' - Playing the Dunce, Steve Landsburg, 09/04/2012
Beyond Landburg’s monopoly aspect, what about land grant universities as “the second coming of the post office”? How so?

Administrative positions at universities, as reported many times by Mark Perry, economist University of Michigan,  are now at or exceed the number of professors and instructors at many, many universities. The administrative positions which are increasing at an increasing rate are well paying and come with a litany of benefits driving total compensation to high levels.(1)

Beginning in 1979 to present the escalating cost of higher education is accompanied by escalating administration positions and associated cost. These administrative position are to extent or another the result of a political constituency building process of certain politicos. These expanding public sector administrative positions then rationally require such persons holding such positions to support political candidates that support the growth and maintenance of the growing administration.

Therefore the escalating costs of higher education are politically driven as a political constituency building exercise. A few questions that beg to be asked are: would Mr. Obama be open to slashing this politically built constituency which is very likely part of his voter base? Capacity concerns aside, if institutions overnight jettisoned fifty percent of their administration and consequently lowered cost would Mr. Obama then complain of lost jobs or more succinctly complain of lost jobs which represent his now lost voter base?

In the final analysis, Landsburg is likely correct: “…to believe that he’s purposely saying stupid things in order to appeal to stupid voters”.



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