Rent-Seeking, Rip-Offs, and Research

By Richard Vedder and Matt Denhart

This may be the most startling of the over 100 blogs done for CCAP in its short existence. The graph above (which can be enlarged if you click on it) provides very strong evidence that the following has occurred in the past decade:

1. In general, the salaries of private college presidents, adjusted for inflation, have risen several times faster than for all workers, or even for those workers possessing doctoral or professional degrees. College leaders are seizing some of the vast increase in funds coming to them and appropriating them for themselves (often implemented by highly compliant Boards of Trustees) -- in amounts far outdistancing what inflation or overall economic growth would warrant.

2. The salary ripoffs are far greater in research oriented institutions than in teaching oriented ones. The more research grants the institution receives, it appears that the greater the salary increases granted. For all their complaining about inadequate research overhead, the data suggest that universities very likely are using those monies to enrich quite literally the top admininistrators

3. The higher education emphasis on research appears to reflect more than merely a preference for exploring new frontiers as opposed to rehashing existing knowledge, but instead reflects a means of redistributing income from the general public to a chosen few who lead our colleges and universities.

The evidence was gathered through a careful analysis of compensation information on the salaries of private university presidents as reported by the Chronicle of Higher Education, for two years, 1996-7 and 2004-5. Figures for "Total Compensation" were used, and in a few instances where presidential salaries were listed as zero (Roman Catholic schools where the president was a priest), those observations were excluded. Comparisons are made with full-time, year-round worker earnings as reported by the U.S. Bureau of the Census, Current Population Survey. Because of an obvious data error relating to female workers, for the professional/doctoral worker computation below, only males were included (the exclusion of females should not materially change results).

The summary of the increases, adjusting for inflation by the Consumer Price Index for All Urban Consumers (CPI-U), are contained in the enclosed table (which along with the graph are near firsts for this blog site). While salaries rose by single digit amounts for all workers or all workers with professional and doctoral degrees, it rose far more for university presidents. For example, the real compensation increase for private research intensive university presidents of over 60 percent was eight times as great for all workers in society. It appears that perhaps Joe Six Pack is paying taxes to Washington, which is giving some of those funds to already relatively prosperous presidents at tax exempt universities.

TABLE
REAL COMPENSATION INCREASES, 1996-7 TO 2004-5

TYPE OF WORKER PERCENT INCREASE IN REAL COMPENSATION

All full-time workers 7.50%
Workers with Prof., Doctoral Degrees* 7.68
Private Liberal Arts College Presidents 17.76
Private Master Degree University Presidents 28.83
Private Research Intensive University Pres. 48.25
Private Research Extensive University Presidents 60.11

*Males Only

Source: Chronicle of Higher Education, U.S. Census Bureau, U.S. Bureau of Labor Statistics, Authors' calculations

Policy implications? We should review our tax exempt policies for colleges, we should rethink the funding of federal research grants, we should force colleges to engage in far more transparency on this issue, we should try to see if the trend with respect to presidents and football coaches holds for other high level positions --e.g., deans, university provosts, vice presidents, etc. In a system where there is little accountability to anyone, where there are few incentives to minimize costs, etc., it is not surprising that this trend has arisen. What are we going to do about it?

The NCSL Report on Higher Education and Spellings Commission Reactions

By Richard Vedder

Two things today, combined in a single blog. First, National Cross Talk, a nice newsletter on higher education issues, asked nine persons to react to the Spellings Commission report, and their comments make for interesting reading. For the most part, I agree with them. The comments ranged from quite positive (see especially that of former American Council of Education President Robert Atwell) to somewhat negative. I particularly enjoyed Checker Finn's remarks, especially his noting how the commission watered down its language and recommendations a bit in light of criticism of the excellent first draft of Ben Wildavsky. But the comments collectively give a good cross section of thinking of serious persons about some of the problems of higher education today.

Second, Bryan O'Keefe, my always faithful and diligent associate, brought my attention to a new study from the National Council of State Legislatures (NCSL) on higher education. They want $10 for it, which is insulting since NCSL's budget indirectly largely comes from taxpayers around the nation, and as a matter of principle I will not pay it. (NCSL is irritating in other ways as well, but that is not the subject of today's blog).

Nonetheless, the summary provided by Doug Lederman in INSIDE HIGHER ED suggests that the report on the whole complements rather than competes with the Spellings Commission report. It is critical of many practices of America's colleges and universities, and is blunter than the Spellings Commission in suggesting we no longer lead the world on some critical measures, notably access.

CCAP is particularly interested in the financial side of things. NCSL is correct in stating that higher education has become sort of the residual at the state level -- its funding is determined after the other more core needs are established, implying this is bad. Probably they are correct from the standpoint of making appropriate resource allocations, but the outcome of this approach --declining public support by states for higher education -- is not only understandable politically but may well be desirable economically, given the endemic inefficiencies, elitism, and arrogance of many public institutions. The summary Doug provided seems to suggest that NCSL may be hinting that increased higher education funding should be tied to demonstrated progress in serving social goals --efficiency gains, greater transparency, providing measures of "value added," etc.

I have always said that higher education leaders spout a lot of lofty rhetoric, but deep down what is important to them is money. Money is far more powerful than logic, reasoning, and good intentions, so bribing the top higher education "educrats" to behave appropriately is not an altogether bad idea --after all, that is what private competitive capitalism does all the time.

Hooray for the National Technical Institute for the Deaf

By Richard Vedder

I received an exciting email this morning from Alan Hurwitz, who runs the National Technical Institute for the Deaf within the Rochester Institute of Technology. Dr. Hurwitz writes that while the Spellings Commission talks about the need to know more about the labor market outcomes of our students, the NTID is doing something about it.

The NTID has arranged for the Social Security Administration (SSA) to provide earnings history on 12,000 students attending the NTID over the last 40 years (a 100 percent sample). NTID provided the SSA with Social Security numbers, and SSA reported back the earnings of graduates --not, of course, by individual names. The NTID is able to construct a neat graph showing the years from graduation and earnings for the NTID students relative to a broad cohort of the American population (the NTID students do quite well).

This type of information should be provided for every institution. Every school, in turn, should be required to report the data widely (if it receives federal funds) in a way that inter-institutional comparison of labor market outcomes is possible. If people truly look at college mainly as a human capital investment decision, the public is entitled to know how students going to the college fare --even those who drop out, I might add.

In concocting alternative measures to the US News & World Report rankings, nothing would be better than including some vocational success data, along with measures of value added during college in terms of demonstrating knowledge or critical learning skills.

The critics of detailed "unit record reporting" claim privacy is violated. The argument is bunk, as NTID has shown. This is an important tool that can be used to provide consumer information on colleges. Thanks, Dr. Hurwitz and the NTID.

Thanksgiving 2006: Luckiest People Alive

By Richard Vedder

The late, great Milton Friedman, along with his wife Rose, wrote a great autobiographical account, Two Lucky People. I am reminded of that as I think of our blessings on Thanksgiving Day.

I tell my students "you are the luckiest persons in the world. You were born in the richest of all generations in human history, in an epoch where people are prosperous and lead long lives. You were also born in the richest place in earth, with low levels of warfare relative to other times and places, and high levels of freedom and social mobility."

The typical American college student goes to school for 4 to 6 years, with considerable public subsidy, working on average 30-35 hours a week for 32 weeks a year. While Joe Six Pack toils 1,800 or even 2,000 hours a year making his daily bread, Joe or Josephine College works barely 1,000 hours, and rather than paying
taxes, is more likely to get subsidies (financed by Joe Six Pack) in the form of Pell Grants, subsidized student loans, and so forth. To be sure, there are exceptions from this model --in both directions (those working more, those working even less).

The question we need to ask: is this the optimal use of public resources? Are we getting our money's worth from this investment? Colleges are exploiting ignorance --the fact that employers have no way a priori of distinguishing the
productive potential employees from the unproductive. By providing this information to employers, colleges are able to charge high fees, claim that they are teaching great things, etc. I am a great believer in higher education --I have been part of it for nearly a half a century -- but I think there are excesses needing our attention, and that is why, as I careen towards senility, I am devoting my efforts to trying to improve a great institution, the American university.

Happy Thanksgiving.

Financial Aid Increases and the Law of Unintended Consequences

By Richard Vedder

Before I forget it, read Wick Sloane's great column in today's INSIDE HIGHER ED. It is a gem.

On to business. The Democratic promise to ramp up financial aid and reduce interest rates on loans led me to dig out some regressions that the Whiz Kids have run on the relationship between tuition fees and grants and loans. The results below, using data for 1971 to 2002, are confined to public universities. We (CCAP) find:

1. That for every new dollar of grant made per student, tuition rates rise by somewhere between 35 and 40 cents per student, meaning the net financial gain to the student is very substantially less than what would appear to be the case.

2. The relationship between loans and tuition is smaller per dollar of loan, as is the grant-tuition relationship at two year public schools.

These findings are provisional, and could be altered with different data sources, different years, different methodologies. None the less, they conform with the expectations of economic theory: bigger grants (e.g., Pell Grants), are far less effective than planned because they increase the ability of schools to raise tuition fees. Indeed, higher Pell Grants might help some lower income kids go to school, but lead to some other slightly better off students to forego college because of the higher tuition. If those foregoing school are better students than those induced to go to college by bigger Pell Grants, it is entirely possible greater aid might lead to lower long term graduation numbers relative to the 18 to 24 year old population. Moreover, if bigger grants lead to higher fees for part-time adult students not receiving aid, this problem is compounded.

What about interest rate subsidies? The Dems propose slashing interest rates in half. As an economist, I much prefer overt subsidies to disguised ones in the form of below-market interest rates. Don't mess with market forces, at least directly. But interest rate subsidies are the equivalent of a grant, not a loan, since they lower the cost to those students with loans. Thus my suspicion is this move would aggravate the tendency for tuition fees to rise.

Given the anti-equal opportunity bent of most American top colleges (discussed earlier), there is a decent humanitarian case to be made for expanding Pell Grants as an equal educational opportunity move, even if the positive impact on the impacted students is less than intended. However, the case for interest rate subsidies and tax benefits (which primarily serve the middle and upper classes) is extremely weak. It probably would be asking too much to ask our President to veto an expenditure bill -- he seems temperamentally incapable of making such a move. But hopefully Senate Republicans will use their considerable filibuster powers to effect a compromise that does less harm than the initial Pelosi proposals.

Colleges I Admire

By Richard Vedder

I have been trashing universities a lot lately, not because I hate them, but because I love them. They serve useful functions, and I think the preservation and strengthening of the intellectual basis for Western civilization is a pretty important job.

Yet amidst all the criticism, there are some schools that do very good things, as Dan Golden points out in his great book The Price of Admission. I want to mention a couple that Dan points out, and add a third of my own.

Berea College and Cooper Union could not be more different in many respects. One is in rural Kentucky, and limits its enrollment largely to students from nearby Appalachian states. My wife Karen, a guidance counselor extraordinaire, has long been a strong advocate of sending poor Appalachian kids to Berea, and I have seen the fine results. By contrast, Cooper Union is a New York City institution that draws heavily from America's leading urban center. Both schools have one important thing in common: they are free. There are no tuition fees. Both also do not let legacy or family wealth considerations impact admission --Berea goes so far as to forbid rich kids from coming, and makes every kid work at least ten hours a week doing something for the college. Both are single minded in their goal: to provide high quality instruction to deserving kids of all types of backgrounds. Both are marvelous examples of using higher education to improve equality of condition in our nation, something our nation's leading public universities are ignoring, as my last blog and the new Gerald and Haycock Education Trust study points out.

A third school that Dan Golden does not mention is Hillsdale College. Hillsdale will take money from students and their parents, and indeed needs those funds to survive, since it does not take a penny of federal money, nor do any of its students (no student loans). Why? Hillsdale philosophically is opposed to governmental involvement in what it does, and is willing to endure some financial sacrifice in order to maintain that principle.

Sometime the nice guys don't finish last, as someone, I think Leo Durocher, once claimed. By swimming against the stream, all three institutions have prospered. Berea has a huge endowment, mostly provided by non-Berea connected folks who admire the school and its mission. Cooper Union lived for years on income from valuable real estate investments, and now is appealing for outside funds. But it still avoids tuition, and it still is a first rate school. Hillsdale has a growing reputation as a good liberal arts college, and its endowment has grown more than most schools of its size and reputation, appealing to persons who put a strong value on individual liberty.

Declining Equality of Educational Opportunity

By Richard Vedder

There are two justifications usually cited for third party (government and private donor) support of higher education: it is a public good with positive externalities or spillover effects, and it is a means of promoting the American egalitarian ideal --"all men are created equal." CCAP has devoted a good deal of resources to examining the first proposition, and our tentative conclusion, at least on strictly economic criteria, is that the positive spillover effects of colleges are more theoretical than real, and that on economic grounds the case for public support for higher education is weak --maybe nonexistent or even negative (the colleges should be taxed rather than subsidized).

However, I have always said, "you can possibly justify public support for higher education on equal opportunity grounds --as a means of giving everyone a chance to succeed, regardless of their income." A dynamite new Education Trust study released this morning and authored by Danette Gerald and Kati Haycock (hereafter, G and H), Engines of Inequality: Diminishing Equity in the Nation's Premier Public Universities, suggests that even the equal opportunity rationale for public support of higher education may be dubious.

In table after table, G and H document that few of the students attending the flagship public universities of our nation are poor kids and minorities, while far more come from the higher socioeconomic strata. For example, while over one-third of Michigan college students had Pell Grants in 2004, only 13.5 percent of those attending the prestigious University of Michigan at Ann Arbor did. While nearly 49 percent of the graduates of Texas high schools in 2004 were underrepresented minorities, they made up less than 22 percent of the freshman at the University of Texas at Austin. Moreover, the progress with respect to these variables has been modest to negative over the past decade in most states.

Yet this, in a sense, is old news to followers of higher education trends. What is particularly startling are the data that G and H bring to bear on how institutions use their own financial aid resources -- not government funds. In 1995, for every dollar in grant aid given to students from families with more than $100,000 income, there were $3.87 in grants to kids from families with less than $20,000 income. In 2003, for every dollar given the rich kids (over 100K family income), the poor kids (under 20K income) got a paltry 66 cents. In absolute dollars aid to the rich rose 406 percent, while it fell 13 percent for the poor. Universities love to blame the K-12 system or inadequate state funding for the dearth of disadvantaged students in their midst. As Kati Haycock (one of my favorite fellow members of the Spellings Commission)said last weekend, at a Hechinger Institute workshop for journalists in Phoenix, while there is some truth to these assertions, the universities own behavior is simply reprehensible.

Why do they do this? Almost certainly, I think, to maximize contributions and prestige, measured by the US News & World Report rankings. Kids from affluent families are more likely to use family connections to get better jobs and make bigger alumni gifts in the long run; even now, the schools might be able to hit up their parents for dollars, and use some of their political connections as well. The US News ratings give higher marks for denying students access and for looking at entering SAT scores rather than what kids are really learning while in school.

How do we change the system? Simple: deny favored tax status and government subsidies, to universities that use institutional funds primarily to assist the upper middle class and wealthy. I hate government interference in university life, and, indeed, would prefer a world where government ignored higher education (including its funding). But if universities are going to prostitute themselves by begging for outside funds, then at the very least those funds should be used in line with broader national goals. The G and H study adds to the indignation raised by Dan Golden's great book about the private universities, The Price of Admission. College are becoming more than ever enclaves for the rich -- why should we subsidize them? We don't subsidize country or yacht clubs?

Universities, Entrepreneurship and Economic Growth: A Must Read from Carl Schramm

By Richard Vedder

Carl Schramm has written a nice new book, The Entrepreneurial Imperative. To Dr. Schramm, who is president of the Kaufman Foundation, the key ingredient in American economic exceptionalism is entrepreneurship. He also argues that universities have a key role to play in fostering entrepreneurship, but that they do a bad job of it today. I could not agree with him more.

There are several dimensions to the problem. The one that CCAP is focusing on is the university as an economic enterprise in its own right --its efficiency, its innovativeness, its ability to change with the times, etc. The University, seen in this light, has stifled entrepreneurship far more than it has encouraged it. To my mind, the non-profit nature of institutions and the massive third party payments have insulated colleges from making bad decisions, allowed them to coast, and shielded them from some of the consequences of competitive markets.

In a competitive market, people fail -- and learn from their mistakes. Market signals tell us who is successful, and who fails. What are the equivalent of market signals in higher education? We cannot even agree on what our output is, what it should be, or how it should be measured. Schramm has interesting statistics on the turnover rate in the Fortune 500 list. What about a Fortune 500-like list of 500 largest universities? What is the turnover rate? (answer, very little). The entrepreneurial spirit is not as alive as it could and should be, and one thing I stay awake at nights thinking about is: how can we change that? How can we bring Schumpeterian "creative destruction" to the academy? The for-profit universities are one option, but they do not engage in the research activities that are an important dimension of expanding economic as well as academic frontiers.

Whiz Kid Jonathan Leirer and I, with some help from my colleague Professor Tony Caporale, have been rather exhaustively looking at the relationship between government spending on higher education and economic growth -- while the research is still ongoing, to this point we usually get negative relationships --more spending lower growth. Taking tax money from the entrepreneurial private sector and giving it to the non-entrepreneurial university sector on balance is counterproductive. It should not be that way.

Perhaps Dr. Schramm and I, two like minds, can form an alliance to explore this issue in greater detail.

There are other dimensions of the university/entrepreneurial relationship that Dr. Schramm explores --university research efforts and the ownership of intellectual property rights, for example, or the teaching/non-teaching of entrepreneurial characteristics in universities. He also reaches the same conclusion I do about colleges of education -- they are a disgrace, and need to be eliminated. Above all, Schramm correctly notes the anti-business attitude in the academy. All in all, this is a very good read that I am pleased to recommend.

The Annual Chronicle Presidential Salary Survey

By Richard Vedder

This morning, the Chronicle of Higher Education's annual survey of university president salaries is out. The findings continue trends in the last few years: compensation is up, and increased use of non-traditional forms of pay are evident -- performance pay, deferred compensation, and other perks. The prosperity of higher ed is continuing to show up in the pay of the leaders of our institutions.

Moreover, two other trends appear to be continuing:

1. Salaries in research universities are rising much faster than in liberal arts colleges or schools with modest graduate work.

2. Presidential salaries are growing faster than those of mainline employees, including faculty, at least at the more prestigious institutions, not to mention the employment income of ordinary Americans.

In the four years 2000-1 to 2004-05, average presidential compensation at the research universities rose nearly 40 percent, or well over 8 percent a year. In inflation-adjusted terms, the annual rate of increase was about five percent a year, well above compensation growth in the economy as a whole. For private liberal arts colleges, however, the typical increase in inflation adjusted terms was more like 2-3 percent a year, one-half as much.

Higher Education Establishment types would note corporate leader salaries are rising even faster, that the job of college president is getting harder, and that the risks of getting discharged are rising, increasing the "combat" pay dimensions of the job. There is some truth in all of this.

At the same time, however, these trends are very worrisome and troublesome in other regards. Higher education professes to be a higher calling. We subsidize it rather than tax it. The public sacrifices to allow it to exist and flourish beyond what strictly market forces would dictate. University presidents are perceived by the public that subsidizes schools to be more akin to governors of states or ministers or priests --performing public services, for which they can expect to be comfortably paid, but not opulently so. I suspect most people believe a good university president of a fairly large institution should have the income of a highly successful doctor or lawyer, perhaps a $250,000 to $300,000 salary, a nice car, and maybe a stately presidential home for use while in office. If the president wants to earn perhaps another $50,000 to $100,000 a year serving on a corporate board, that is okay too. We want to reward our university presidents reasonably well, but not at the level of corporate executives. When salaries get over, say, $500,000 a year, and, in some cases, over $1 million annually, we have every right to wonder: are the public subsidies we give universities increasingly ending up as "economic rent", payments beyond what is necessary to have the service performed? Are university presidents selfless servants of the public trust, or money-hungry entrepreneurs? Why are we dropping money out of airplanes over college campuses, if the keepers of the purse are increasingly giving the money to themselves?

Also, why is it that teaching institutions are treated with far less opulence than research ones? Why do CEOs of big budget teaching institutions make less than CEOs of similarly sized research ones? Are federal research grants increasingly economic rents, something I have long suspected? The new congressional leadership may ask: why do we keep giving tax subsidies and grants to institutions that seem intent on allocating funds to bigger and bigger rates of compensation increase, even while universities operate in a stealth and inefficient fashion, raising tuition fees double the rate of inflation?

Milton the Magnificant

By Richard Vedder

The world has lost its greatest economist, Milton Friedman. Milton was a giant among men intellectually, even as he, literally, shrunk physically (always a small person, when I shook hands with him last summer I had to almost bend down). He was very important to me personally, but also to the work of CCAP.

Milton Friedman had enormous faith in people and in their judgment, and he believed that markets work --they allocate resources far better than any other alternative. In his magisterial Capitalism and Freedom Professor Friedman accepted the premise that some government support of higher education was justified because of the alleged positive external spillover effects, but he still felt that efficiency would be gained by promoting private initiative and markets in education by use of educational vouchers to consumers, rather than giving money to government schools. That is the CCAP position today.

His advocacy of vouchers was an extraordinary example of how an idea can have consequences, and defined the modern educational reform movement in primary and secondary schools. Friedman started the Friedman Foundation to continue to spread this great idea after his death.

In writing Going Broke By Degree, I corresponded with Professor Friedman, who revealed that his thinking on the efficacy of government support of higher education had changed, since he had become more aware that education can have negative as well as positive externalities. Indeed, he said a careful analysis of the subject might lead one to conclude that we should tax rather than subsidize universities. That, in turn, has led to CCAP's most important research effort, which is to, in effect, measure some of the economic externalities in higher education. To date, our research is leading us to confirm the observation in my book, namely that higher education government spending often has more negative than positive economic effects.

Milton Friedman was a kind man, a brilliant man, an optimist who loved humanity and trusted its basic judgments, a lover of freedom who did more to transform modern economics than any other human being. The world's greatest economist has died. We are fortunate to have had his rich legacy.

Postsecondary Puzzles: Porn, Pells and Public Prostitution

By Richard Vedder

The recent National Survey of Student Engagement suggests that students "work" perhaps 1,000 hours a year, about one-half of that of many adult Americans with full time jobs (they study 13 hours a week and are in class maybe 16 hours --assuming they don't cut class-- and maybe do 3 hours weekly of other academic related things and do this for 30-32 weeks a year). For this very light work load, we heavily subsidize them, with taxpayers financing universities through appropriations and students directly with Pell grants, subsidized loans, etc.

What do students do with the massive amount of free time, given their low work loads? College students have raging hormones, so it is not surprising that sex magazines are growing in popularity at various colleges. Some of these magazines go beyond just talking or writing about erotic things -- they display fully nude college girls and boys in provocative poses. The Boink web site of students at Boston University is a good example. Funded by purchases of their magazine and ads bought by various Internet porno sites, this is a business enterprise run by students, presumably for fun and profit. To the extent they are making money on sex, they are engaging in a form of prostitution.

While the BU administration and those at other colleges generally announce their disgust with such sites, they allow them to continue, no doubt taking the view that the students have their First Amendment right to free expression. I am no prude, believe in free expression, and understand that young people experiment with various forms of dubious behavior, including heavy drinking, recreational drug use, and sex.

My major objection is that the taxpayers are subsidizing this activity. Taxpayer-subsidized private scholarship recipients are spending time which should be used working their minds to working other parts of their bodies. Again, I am no prude, and I am not even condemning premarital sexual activity. I am saying, however, that if we truly challenged our students, they would have far less time to pursue engaging in prurient pleasures at taxpayer expense, a dubious use of scarce public resources.

Access, Student Aid and the New Democratic Majority

By Richard Vedder

I am quoted in today's Wall Street Journal as sounding somewhat skeptical that interest rate reductions, more tax credits, and expanded Pell Grants are really going to increase college affordability and access that much, given the positive impact that these things have on college tuition fees. The Democrats are making college affordability a big issue, which is a good thing. However, the solutions to the problem that they propose may be worse than the disease.

As usual, a little historical perspective is useful. The big rise in student participation in higher education came in the era before Pell Grants, massive government loan programs and the like. Let us look at college enrollments per 1,000 Americans. In 1870, barely one person out of every thousand Americans was a college student. By 1940, that figure had risen to between 11 and 12 college students per one thousand, and to beyond 31 per thousand by 1965, the year of the Higher Education Act and the first really serious, comprehensive and sustained federal involvement in student financial assistance, excluding, of course, the GI Bill.

However, it wasn't until about 1980 that federal involvement ramped up to significant levels -- that was the year the expression "Pell Grant" entered the English language. At that time, there were already over 50 college students per 1,000 population. The massive infusion of federal monies for student financial assistance since 1980 has been accompanied by a pronounced slowdown in the rate of growth in student participation. Today, the number of college students per 1,000 population is still in the high 50s, only modestly higher than in 1980. It appears the impact of greater student aid availability has been offset by rising tuition fees, so that the long-term rate of growth in university participation has actually started to slow considerably.

In other words, the Law of Unintended Consequences is as work. More aid means higher tuition, so the winners from aid programs are not students so much as educational institutions that increasingly live in the lap of near-luxury. The slowdown in participation growth actually probably is a good thing --too many, rather than too few, kids may be going to college as high dropout rates attest. But the way to optimize enrollments is not to drop money out of airplanes over student homes and then have colleges raise their fees sky high, which, roughly speaking is what we are doing now, and which the Democratic proposals will almost certainly aggravate.

Affirmative Action for the Affluent

By Richard Vedder

I have always been skeptical of the moral legitimacy of affirmative action programs as practiced in modern American higher education. While that position puts me at odds with most of the academy, I derive comfort knowing that vast numbers of Americans -- probably a solid majority --agree with my position, as the voters of Michigan showed last week (following on earlier actions in California and Washington). We are a nation that believes that advancement should be on the basis of merit, not on the basis of name or privilege. Our nation eschews an aristocracy, and high income mobility historically has suggested that advancement is possible for everyone, rich and poor alike.

Yet there is disturbing evidence that income mobility may be declining in America, just as it is rising in some other industrialized nations. Public support for higher education, rather than promoting meritocracy and equal opportunities for all, may be having the opposite impact: helping to establish an American aristocracy, where money, name and connections trump merit and hard work in terms of occupational and economic success.

Daniel Golden, in his wonderful but disturbing book, The Price of Admission, demonstrates beyond a shadow of doubt that the children of rich alums get preferences in college admissions over others, that rich people in general can, more or less, buy spots in prestigious colleges for their kids, that certain groups are discriminated against (e.g., Asians), while others are favored (e.g. faculty children). The powerful trump the weak, the less deserving rich take admission slots from the more deserving not-so-rich, etc. Essentially, we run an affirmative action program for the rich.

Philosophically, I believe private individuals or businesses should have the legal right to discriminate against persons on virtually any ground, however morally revolting that may be. Why? Because I believe in private property rights, and am skeptical of coercive actions of the state that interfere in the behavior of private individuals, unless there is clear harm to the community caused by that behavior. However, so-called "private" universities are not truly private in any real sense, as they take federal (and often state) government monies to aid their students financially, to pay for research, etc. Moreover, most so-called private donations are stimulated by the tax exempt nature of the gifts --tax liabilities fall with rising donations.

Is it morally or economically right for government subsidies to be used to create a club-like atmosphere where the rich are admitted but the poor are excluded? Is it right to allow legacy admissions where the institution is partially publicly funded? Should universities dependent on public funds be allowed to sell admission slots to big donors? Tony Blair's son was rejected by Oxford strictly on the grounds of merit, while American political leaders get their kids into schools often on the basis of their names rather than their academic credentials. Maybe it is time for this to stop, or for schools to be given a choice: you can continue to discriminate in favor of alumni, rich persons, or others, in which case you lose any public support, or you can receive public support, in which case admissions must be made without regard to certain group characteristics, such as alumni status, family wealth, etc. If I am going to oppose affirmative action based on skin color, ethnicity, sexual preference, etc., consistency would say I should oppose it on other criteria as well.

The Revolution of Falling Expectations and Efficiency

By Richard Vedder

Two things came across my computer this morning worth commenting on.

First, the latest results of the annual National Survey of Student Engagement were announced. NSSE is a fine test instrument, but as usual it refuses to provide institutionally-specific data, continuing the anti-transparency reputation of American universities (it really isn't NSSE's fault -- if they made the data generally available, most schools would not participate). The Spellings Commission recommendations, if adopted, would change things, and I think this is one recommendation worth fighting over, and I am willing to join the battle.

One thing the NSSE data in the aggregate shows is that college students study very little, maybe 13-14 hours weekly as a senior, which along with perhaps 16 hours in class means our heavily subsidized college seniors are having a 30 hour work week --maybe 35 hours, if some quasi-academic activities are included. Moreover, freshmen indicate that the work load is far below their expectations coming into college. Over the years, grade point averages have soared, while hours worked in academic pursuits have fallen. Doing less with more has been the reality of American higher education. Standards are clearly declining -- a lot. Question: why do the public authorities continue to subsidize this? Why do they not insist on evidence of learning?

Another NSSE nugget: on-line students are at least as equally engaged in their education as those in traditional settings --in some cases, they have MORE student-faculty contact. Is this not a sign that further on-line expansion may be desirable on educational grounds, assuming per student costs are no higher than in traditional settings?

Moving on, Whiz Kid Jonathan Leirer sent me a study put on-line at Rensselaer Polytechnic Institute (done by Rensselaer's James Adams and Roger Clemons of the University of Florida), entitled "The Growing Allocative Inefficiency of the U.S. Higher Education Sector." While I have not read the paper completely, I think I agree with the conclusion even though I have reservations about some of the metrics (e.g., the measurement of research productivity). It is good to know that there are honest academic economists out there who realize that when they apply the same efficiency criteria to their own business that they freely apply elsewhere, they find disturbing results.

Three Year B.A. Degrees

By Richard Vedder

One nice thing about doing a blog is you occasionally learn something from some of your audience. Wick Sloane, who has otherwise been a good CCAP friend and has written a provocative "Perspective" column on our web site (with CCAP Whiz Kid Jonathan Leirer), brings to my attention a great column that then Oberlin College President Fred Starr wrote for the Cleveland Plain Dealer more than 15 years ago, on October 9, 1991.

President Starr starts out be stating that "higher education, private and public, is too expensive." Since he wrote that, college costs have soared even further, rising faster than the inflation rate in every one of the subsequent 15 years. He then goes on to raise an issue that we raised the other day (again, partly stimulated by Wick): why should it take four years to get certified as being reasonably well educated, a "college graduate"? Why not 3 years? 4.567 years?

Economists usually look at the marginal benefits of something relative to the relative costs (for private businesses, the marginal benefits coincide, more or less, with marginal revenues from the sale of goods and services). I suspect that in some ultimate social sense, the marginal benefits of the first and second year of college very often exceed the marginal costs, and that may even hold for the third year. But does it hold for the fourth, fifth, or, increasingly sixth year? My guess is the answer very often is no. Several other civilized nations have reached that conclusion, and have gone to the three year baccalaureate degree. So we raise again what a well known academic leader raised 15 years ago: why not reduce the costs of college by at least 25 percent by lowering the course work required for a bachelor's degree? Why not at least start to do serious academic research into the question?

Not only is the per year cost of attending college soaring, but the long run trend is for students to linger around longer, often because a change in major, a transfer of institution, etc., forces the student to take more courses to meet graduation requirements. Thomas Jefferson entered the College of William and Mary at the age of 16 and studied there for but two years -- until the age of 18(he then went on to read law for several more years). Yet his college education put him good enough stead to, for example, pen the Declaration of Independence. While Jefferson was no doubt an extraordinary man, his attending and leaving college at an early age was common. Today, undergraduates seldom finish before 22, and PhD's seldom receive their degree before the age of 27 or 28 (Yours truly earned his at the age of 24, something I suspect in nearly impossible to do today). Colleges have been able to get away with keeping productive resources under their control for longer and longer periods (collecting tuition all the while), despite no demonstrated evidence that this has sizable positive learning effects.

One Election Loser: Sallie Mae Stock

By Bryan O'Keefe

While CCAP does not expect huge changes in higher education with the Democrats now in charge, at least one higher ed related company has already experienced a huge financial loss because of the coming change of political power.

Sallie Mae’s stock (SLM) is down more than 5 percent in the past two days – which is a loss of about a billion dollars for the company. One theory goes that investors are unloading the stock because they fear that the Democrats will promote student loan programs that deal directly with the government and eliminate middlemen, like Sallie Mae. We at CCAP will have more to say about this issue in the future. For the time being however it’s worth noting what the markets are predicting will happen in higher education financing – and it’s not pretty for Sallie Mae.

The Elections: Not That Momentous

By Richard Vedder

An earlier blog I wrote on this was eliminated by techies in cyberspace, so I will try again. The elections may change the higher ed landscape a bit, but not dramatically, for several reasons.

1) The new Democrats are, to a considerable extent, fairly conservative (a smart Democratic party strategy in picking candidates to run). Jim Webb, probable new senator from Virginia, is a perfect example. No raving liberal. The political ideology of congress is not moving all that far to the left, Nancy Pelosi notwithstanding.

2) The last two GOP congresses outspent the congresses of the Clinton years -- a factor, I think, in the GOP demise. I do not foresee a dramatic upsurge in higher ed spending. Pell Grants will increase, but they would have gone up anyway.

3) The recommendations of the Spellings Commission are not dead, or at least any more dead (are there degrees of being dead?) than they otherwise would be. The Commission pushed bigger Pell Grants (led by an ex-Democratic governor), and Congress will be receptive to that. Surprisingly, they might even embrace an idea pushed by Yours Truly on the Commission: trying to keep tuition increases below the growth rate in personal income. On another note, while the Higher Ed Establishment no doubt jumped for joy when they heard spending limits were rejected in three states, they no doubt were chagrined to learn that Michigan voters strongly approved the anti-affirmative action amendment. Americans want merit to trump other attributes in handing out governmental largess, and the endless "diversity" mantra of college presidents is wearing pretty thin with the American people. California was no fluke -- Michigan is a mainline, Midwestern state. President Coleman at the U. of Michigan sounded almost defiant before the results were in when she promised the U of M would pursue diversity vigorously, another sign of how out of sync the Higher Ed Establishment is with that annoying group that provides it with most of its money -- the American people.

The New Labor Frontier: Unionizing Postdoctoral Students

By Bryan O'Keefe

Inside Higher Ed has a fascinating story this morning about a unionization drive involving postdoctoral students at the University of California campuses. The effort was ultimately unsuccessful and the reason for the union failure is debated throughout the article. The most common view expressed is that questionable organizing tactics were to blame for the union’s failure, not the concept of organizing, per se.

As organized labor continues to decline in the private sector, higher education has become a new frontier for union leaders. (I have written more extensively about this growing unionization trend in the August 2006 issue of Labor Watch). This postdoctoral drive probably has lessons for both universities and union organizers. For example, universities should ensure that postdoctoral students are paid well-enough, have access to some type of health care, and are given the type of workplace flexibility that many of them expect. Employees are far less likely to turn to unions if they already have the benefits that the union is promising. For union organizers, the drive shows that the same tactics they have used successfully in other areas might not work in higher education. Postdoctoral students especially are highly educated, independent people for the most part and do not take kindly to being tricked into joining a union, as the story implies happened in California.

Cutting College Costs By 25 Percent: Ending the Senior Year

By Richard Vedder

In one of the few relatively memorable testimonies before the Spellings Commission, Charlie Reed, who runs the California State University system, opined at a hearing somewhere (I think maybe Boston) that the senior year in high school was a wasted experience. The question is: can the same thing be said about college?

All of this came back to mind in the past week. First, the always innovative Wick Sloane suggested to me that the way we package our higher education offerings is highly dubious in terms of maximizing either learning outcomes or efficiency. Why should all "courses" be roughly the same length? Why must learning occur in "3 credit" or "4 credit" courses -- why not more variability? Who says everyone needs to graduate in four years? Why not have some students race through in two years, and others in six? To some extent that happens now, but are we optimizing the time spent by students pursuing higher education? Wick is right, I think, and that got me thinking: should we repackage the way we dispense learning?

Then, reading Inside Higher Ed yesterday, I was reminded that the Europeans are going to the 3 year bachelor's degree, like the Australians. At my university, we have a 3 year bachelor's program for a small number of bright honors students, and I always felt they learned more in 3 years than most kids in four or five. Universities gain revenues, power, etc., by forcing students to linger around, but are the marginal benefits of the fourth year of instruction greater than the marginal costs? Do diminishing returns set in, leading us to keep some students around too long? Might we start evaluating the learning that occurs in the first, second, third, and, yes, fourth years of college? Do costs rise in the fourth year as students move to smaller classes taught by more senior professors, while at the same time the students learn material that is less part of the core needed either to be an educated citizen or necessary to fulfill vocational needs? Perhaps the length of the college program should vary by discipline, but something tells me the relatively rigid four year bachelor’s degree program for most programs and most students is not the optimal way of packaging educational services.

Who Owns The College: Three Cheers for Dartmouth Alumni

By Richard Vedder

In what may have been the greatest argument ever before the Supreme Court, Daniel Webster, on March 10, 1818, said, his voice quivering with emotion and his eyes filled with tears, "It is, Sir, as I have said, a small college. And yet there are those who love it." Webster was speaking of Dartmouth College, and in The Trustees of Dartmouth College v. Woodward was successful in preventing a politicized take over of the school by the Governor of New Hampshire. Dartmouth had a skirmish over governance and ownership, and the school won. It was a landmark decision in American constitutional law.

I read today of the result of a second epic battle over governance at Dartmouth. The alumni of Dartmouth narrowly rejected a move to amend the constitution that would have made it more difficult for dissident individuals to becoming elected as an alumni trustee of the institution.

In the last several years, some alums that were fed up with the ways things were going on campus successfully won election to the trustees under Dartmouth's novel, and in my mind excellent, election procedure. The College in the past had promoted wacky left-wing ideas dear to the hearts of overprotected and underworked faculty, while turning a more or less deaf ear to protests about the harassments of conservative kids, including those with the conservative newspaper (amongst them, Dinesh D'Souza). The alumni were expected to not "interfere", but, of course, to keep contributing mega tax deductible bucks (see Wick Sloane and Jonathan Leirer's November Perspective column on the CCAP Web site) to the Dartmouth coffers. When too many alums got too uppity too long, the Establishment rebelled, and formulated new rules to make it much more difficult to get elected through a grass roots campaign (under the defeated proposed rules, candidates would have to file for election before the official slate of nominees was announced). The alums said no to this.

I hope this sparks a revolution in university governance. Alumni of other schools need to push for an electoral procedure for board selection. Private college boards are self-appointed groups that have become far too often butt-kissing sycophants for university presidents. It is time for a policy denying federal financial assistance to any college or university that does not have democratic procedures in the election of persons to the board of trustees. In a public school that is accomplished in a very imperfect fashion by gubernatorial and/or legislative appointment of trustees, but even there elections for alumni trustee slots would seem appropriate. The question of "Who Owns the University?" returns.

Value Added: The Academy's Response

By Richard Vedder

One of the best things --arguably the best thing --that the Spellings Commission recommended was the development of value added measures of learning by colleges, and the publishing of those results in an easy-to-understand format on the Internet and in other forms to aid parents, students, taxpayers, and policymakers. There are three possible responses from the academy to this recommendation: one, we will not do it because it is inappropriate or impossible to do; two, we agree with you and will work to implement the recommendation or three, that we are already doing it so this is much ado about nothing.

In today's INSIDE HIGHER ED Scott Jaschik reports on a meeting of the National Symposium on Postsecondary Student Success, where a number of administrators claimed that the third option above applies. "All these national calls would make you think nothing is happening," according to Jon Young of Fayetteville State University. Well, if it IS being done, why are we not hearing about it? Why are we not working to get a relatively small number of standardized instruments to measure "value added" and report the results IN AN EASY-TO-UNDERSTAND fashion to real people, not academic administrators? I think Margaret Spellings is absolutely right to champion this issue, and I am under whelmed by what I read about what is really going on.

To be sure, there are issues. I think we should measure the "value added" of what students learn rather than how they feel or how "engaged" they are. There is a case for having critical thinking being a second metric worth evaluating. Also, I was pleasantly surprised to read that the North Central Association, a major regional accreditor, is offering an alternative accreditation review that seems to emphasis regular evaluation of "value added" type measures. Although the devil is in the details, this is an excellent move in principle. I hope this idea spreads.

The Three "As": Appropriations, Assessment, and Accessiblity, Revisited

By Richard Vedder

I read in the Chronicle a few days ago that the Center for the Study of Education Policy has issued a major (92 page) report on state appropriations for higher education, showing that appropriations have fallen relative to state output levels, relative to costs, etc., over the period 1979 to 2004. The report laments this, discusses strategies to restore appropriations growth, calls for developing new champions for higher education, etc., etc. While the statistics in the report are interesting and revealing, the recommendations themselves are bad, bad, bad, bad.

There is no real discussion of the reason costs are rising in higher education, the decline in productivity, etc. The study accepts this as a given, and that somehow we must meet the financial needs of this inefficient system without question in order to maintain and improve student access (never mind the fact that over 40 percent of students entering four year schools have not graduated within six years). There is no discussion of the rent-seeking behavior that has led to falling teaching loads and rising compensation, particularly at the research-oriented institutions.

Moreover, the Whiz Kids and I are in a very elaborate and intense research exercise looking at the relationship of educational appropriations to economic growth. Jonathan Leirer, in particular, is running pooled cross section/time series regressions with well over 1,000 observations, spanning a good deal of time and space. We are working on a major study-- CCAP's first-- on this topic. Suffice it to say here that we will not accept the hypothesis that is widely assumed to be true, namely that state appropriations for higher education are positively associated with economic growth. In fact, we will actually go farther than that, I think, but I should be cautious until we complete our rather extensive econometric analysis.

Indeed, what we are finding so far is that the behavior of states towards universities --gradually reducing their spending in relation to personal income, state output, or state budgets -- is actually good, not only politically, but economically as well. Why take funds away from hard working people who earned their money in the highly efficient market-based competitive market sector and give them to people who are operating an enterprise that is falling in productivity, that has no bottom line, that is largely unaccountable to anyone, etc., etc. etc.? Why allow the inefficient Soviet-style sectors to crowd out activity in the productive market-based economy?

We love universities, and I, for one, started attending one nearly one-half century ago and liked it so much that I never left the academy, still teaching more than 10,000 students later (not to mention doing research that most university persons wish I would stop doing). But the actions of legislators, rather than a sign of shortsightedness and neglect of our nation's future, may actually be a necessary and desirable action which, in time, will force some needed efficiencies into the delivery of higher educational services.

Bad Public Policy Idea of the Day

By Bryan O'Keefe

As states continue to grapple with the problem of rising college tuition at public universities, many well-intentioned state legislators come up with ideas on how to solve the problem. Unfortunately, some of these ideas are not wise in the least bit. Case in point: A recent proposal from a state legislator in Pennsylvania that would essentially change Pennsylvania sales tax law and give the additional revenue to Penn State. (Pennsylvania tax law note: several classes of items in Pennsylvania are exempt from the sales tax; this proposal would end some of those exemptions)

I know a thing or two about Pennsylvania and higher education, having originally grown up in the Pittsburgh area. Penn State has outrageously high tuition for a state university – I remember when you figured in all of the costs, going to school in Happy Valley was not that much cheaper than some private schools. This proposal seems to recognize that problem, but, instead of trying to give Penn State an incentive to cut some of their costs, it instead taxes everyone else to pay for Penn State tuition. Why should senior citizens and middle class families who have absolutely no connection to Penn State whatsoever subsidize it even more through the sales tax? And what is the guarantee that Penn State will not continue to raise tuition even with this new funding? The news stories that I have read seem to imply that the money will be given to Penn State and not students.
Finally, what about other state schools? Pennsylvania has a rather confusing system of publicly funded higher education that extends well-beyond Penn State. Why should PSU get preferential treatment over these schools?

While I object to the sales tax idea in the first place, if you are going to do something like this, maybe the money should be given directly to students in the form of a voucher. Make state universities compete for the students and let the students decide if Penn State really is the best public university in PA. Of course, this idea is not even on the table.

The only good news is that this dismal proposal has little chance of actually passing this year. Let’s hope that it stays that way in the future.