Sunday, December 31, 2006

2007 In Higher Education

By Richard Vedder

When the Democrats clobbered the GOP in November, many higher ed establishment types breathed a sigh of relief. To them, 2007 looks pretty good --rising state revenues, more liberal politicians in control, and a new Congress that is sympathetic to increasing funding for Pell Grants, student loans, etc. Moreover, with the Dems controlling Congress, the annoying calls for reform brought about by the Spellings Commission and its report will be muted, or so it is hoped.

These establishment types probably are at least partially right. My prediction is that 2007 will not bring much change to higher ed in America, and few if any of the fundamental problems will be addressed in any major way. However, the colleges will likely be disappointed because Congressional largess will not increase markedly. On the reform front, I suspect the Spellings Commission recommendations will be heeded some around the margins. We might find accrediting bodies pushing harder for greater tranaparency and evidence of student outcomes, for example. We might see the FAFSA form simplified a bit. We will not see a radical streamlining of the hodgepodge of federal student assistance programs however. And the universities will do little to deal with deficiencies in curriculum and low student expectations until extreme pressure is mounted, which probably won't be in 2007. Tuition increases will probably moderate a tad, but still be greater than inflation. In many states awash with rising revenues, there will be an increase in scholarship programs designed to increase higher education participation and success, with predictably poor results. By the way, because of rising real unit labor costs in the general economy which likely will be aggravated by new minimum wage legislation, I see the possibility of some economic slowdown, which might put a damper on some of these new higher education spending initiatives such I previously discussed with respect to Indiana and Michigan.

One good thing: I am an economist, and we as a group are not overly good forecasters. So maybe my mildly pessimistic prediction will prove wrong. Maybe we will see some schools engage in cost cutting and freezing tuition. Maybe we will see the development of an alternative to the US News & World Report rankings that have aggravated the rise in costs. Maybe colleges will reduce barriers to entry by easing student ability to transfer between institutions. Maybe some states will decide some kids do not belong in college until they have demonstrated they have a reasonably high probability of success. Maybe, but I am not optimistic.

Friday, December 29, 2006

Evaluating Research in the Humanities: MLA and Stanford

By Richard Vedder

I read some good stuff provided me by two fine but rival media outlets, the Chronicle of Higher Education and Inside Higher Ed. I will write about the news from Inside Higher Ed today, and the Chronicle soon.

The Modern Language Association has been in the news a lot lately, because it has proposed a new way to evaluate probationary faculty for tenure. Although there is a lot to the MLA proposal, a key dimension is to define "research" more generally (and generously) than in the past. At present, in the humanities, the publication of a monograph is considered necessary for tenure in a majority of serious four year institutions. This means the world is being flooded with lots of monographs that hardly anyone reads. The MLA proposal, by itself, is probably a good one, but does it go far enough? Maybe more radical thinking and action is needed.

First, of course, is the issue of tenure itself. Does it really protect academic freedom? Is it a "perk" that attracts many able persons to the professoriate, and allows universities to pay lower base salaries in exchange for job security? Or is it truly costly in terms of its effect in stifling innovation and resource reallocations? The decline in its importance in the real world (an increasing portion of teaching is done by nontenure persons) makes an examination of the entire institution legitimate, although MLA would almost certainly not agree. My surmise is, in the absence of tenure, the relative decline in the humanities observed in American universities would have been even faster. Whether that is good or bad is a highly debatable proposition.

Second, what about the research? Universities have a legitimate, even important, role to play in strengthening Western civilization and improve the quality of our lives by research that finds new ways to do things, methods to prolong lives, etc. Yet is it necessary that every French professor do a lot of research on obscure writers or avant-garde poets that no one reads? Has our research fetish gone too far? Does the research done by humanities professors materially improve their teaching? Increase our understanding of the world as it is or should be? Are the costs (lower teaching loads and therefore higher tuition fees) greater than the benefits? Since the costs are felt by parents and taxpayers, and the benefits are felt by professors (who prefer research to teaching), there is a certain redistributive dimension to this question. Third party payments have worked to give the academics the upper hand in this debate, and tilted things more in favor of research, in my judgment (read my book Going Broke By Degree for evidence). Has that been wise? How many articles do we need on Moliere, and how much do we need to talk incessantly in incomprehensible academic-speak about race, class, gender, rectal fascinations (a paper at the last MLA meeting,) etc.? Perhaps diminishing returns have set in to humanities scholarship.

That said, Stanford's decision to give $5,000 in research money to all of its humanities scholars with tenure or on tenure track is a curious one. I attribute it to be a form of disciplinary affirmative action, to assuage humanities faculty resentfully salivating over all the juicy government grants going to the scientists and even to a lesser degree the so-called social scientists. Will this program increase humanities research? Should it? If it does not, is it not merely a form of economic rent, transferring funds from alumni, donors, and tuition payers to one group of faculty?

Wednesday, December 27, 2006

The Great Credentialing Scam

By Richard Vedder

Taking a few days respite from the daily rhetoric of higher education, I ventured with my wife into a cellular phone store yesterday, trying to cope with a technology better understood by persons whose age is, roughly speaking, the square root of my own. One of the young clerks was talking about his on-line university training, so I joined in the conversation. The fellow, a veteran who looked to be in his early to mid 20s, said he was going to college for only one reason: to make money. I asked him if he was learning anythng in his on-line training and he answered "Yes,a little" but went on to add he is studying only for the piece of paper certifying him to be a college grad --a piece of paper possibly worth hundreds of thousands of dollars. He complained about each course he was taking was costing $1,000, but made a calculation that there was a high probability that, if successful in graduating, the degree would pay a high rate of return on his investment. Similar calculations are made daily by millions of young Americans.

Therein lies much of the confusion in the debate over college costs. The credentialing value of college arises from high information costs of learning the capabilities of prospective employees --aggravated by the Griggs v. Duke Power Supreme Court decision of about 35 years ago that made it difficult for employers to learn much about prospective job applicants. Colleges have played this advantage (namely that a diploma usually means the holder is at least literate, fairly intelligent, and fairly well motivated) to the max. They have raised tuition a lot because they can --the college/high school earnings differential and loan and grant programs permit it. A lot of people, like my sales clerk, are not interested in the socialization/consumption side of higher education. We need to ask: what is the social, as opposed to private rate of return on education that occurs for the sake of credentialing? Can the strictly credentialing function be performed much cheaper through alternative approaches --examinations, IQ tests, etc.? What is the rate of return on public and private investment in the social dimension of higher education? The answers to these rate of return questions may be radically different. How much of "learning" in college is the attainment of needed skills (e.g., accounting, engineering skills) that are not readily learned on the job? And how much of it is merely an academic form of some endurance race, where the mere completion of the race denotes certain desirable character traits?

My sidekick Bryan O'Keefe, the Whiz Kids, and I are starting to return from a Christmas break refreshed and ready to face the new year. A somewhat belated best wishes to you for the holiday season, and for 2007. We expect CCAP to expand and grow as it completes its first year as a voice for reform in higher education. One year ago, the idea for it did not even exist.

Friday, December 22, 2006

Michigan's New Education Initiative

By Richard Vedder

The ink is hardly dry (figuratively) on the blog I did four days ago on Indiana Governor Mitch Daniel's proposal to privatize the state lottery and use most of the money for college scholarships for good students. Now the Hoosier State's northern neighbor, Michigan, has entered the fray. I learn from a Grand Rapids radio station that Governor Jennifer Granholm is proposing radically expanding an existing scholarship plan. Under the new proposal as I understand it, students who complete two years of postsecondary training will receive %2,000 --even if their academic performance is so-so. If, however, they complete four years of schooling, they will get another $2,000 if their grades have been acceptable. Unlike the current plan, the money will only go to kids going to Michigan schools.

Here we go again. The proposal inflates demand for higher education, which, other things equal, should aggravate the tuition cost explosion. By giving money to millionaire children as well as poor people, it probably is regressive in its impact on income distribution. It proceeds under the dubious assumption that increasing the proportion of kids with a college education will promote economic growth. To be sure, as Governor Granholm argues, states with a high proportion of college graduates tend to have higher economic growth and lower unemployment. But it is also true that much of the higher productivity and income of college grads reflects traits that those persons have that they brought with them when they went to college --higher intelligence, more maturity, better motivation, etc.

Michigan is a state with low economic growth --one of the nation's economic basket cases. It already spends a lot relative to national averages on higher education. It would be better to lower tax burdens, I suspect, then engage in this spending. To be sure, I would rather give money to students rather than institutions, so I applaud the Governor for moving towards voucherization as opposed to institutional support. That is something I have advocated for years. But I am concerned that the increase in third party funds for higher education is likely to aggravate, not reduce, our higher education financial problem. And I am willing to bet Michigan's growth would be greater if the funds were used to reduce taxes that dull worker incentives and the spirit of enterprise.

Thursday, December 21, 2006

Tradeoffs, Rankings, and College Costs

By Richard Vedder

A host of people, including George Leef and my sidekick Bryan O'Keefe, told me that I had to read yesterday's New York Times piece on public universities. I did, and it gave a good depiction of the strategies propelling public schools on the make, like the University of Florida.

Economics is about trade-offs. Everything has a price. Consider two objectives for public universities. The first is to maximize access to a good quality education for residents of the state who have modest or average financial means. This goal is in keeping with American egalitarian ideals, and the notion that public universities exist to promote social and economic mobility and equal educational opportunity.

The second goal is to maximize prestige and rankings, as determined by US News & World Report. The strategy to obtain this goal is to get the very best students possible (buying them if necessary), to have a good reputation among peer institutions, obtained in part by luring big-name scholars, by having a large proportion of alumni who make donations, etc. Since the best students usually come from affluent families, since buying big name scholars means downplaying undergraduate instruction and also raises costs, etc., the second strategy tends to make universities less egalitarian, more elitist, more like private schools.

In the past decade, the second strategy has dominated the thinking of flagship universities, almost all of which want to be in the top 10 or 20 on the best public university list. It is not possible, and the pursuit of this goal has made colleges much more costly and elitist. As the Education Trust study on scholarships pointed out recently, institutional aid to low income kids has actually declined in real terms as universities strive to buy (through tuition discounts) kids with 1500 SAT scores --who often come from families with $150,000 or $200,000 incomes.

Most schools try somehow to compromise between the two conflicting goals, offering low or no tuition fees to some lower income students, but still giving main emphasis to the merit-based aid/superstar professor approach.

There will be no real solution to this dilemma until the "bottom line" changes. We need a new, much utilized ranking of educational excellence that stresses outcomes, incremental learning, vocational success of recent graduates, and other similar measures of accomplishment. Or, we need more for-profit education, where the bottom line is simple: profits.

Wednesday, December 20, 2006

Joe Six Pack U. 16, Country Club U. 4

By Richard Vedder and Matt Denhart

As stated often before, there are two types of universities from the student perspective. The first is the no-nonsense, low cost commuter school that serves the human capital investment needs of students --it is a cheap way to try to get the credentials needed for good jobs. The second type of school is the residential university, which in addition to the investment function, has a socialization function, promoting social interaction between students who literally live together. These schools tend to be more expensive, mainly because of room and board costs, but also because they tend to have somewhat higher tuition and are usually somewhat more prestigious. They tend also to be more research oriented.

It might be expected that over time the growth would be in the residential schools, since an increasingly affluent population is willing to pay for the socialization as well as the education. Thus, we might well predict that the long term trend should be for enrollments to rise more at residential universities than commuter colleges.

That trend did hold in the 1990s, but abruptly reversed early in this century. We took 25 public residential schools, often flagship universities, and paired them with 25 public commuter schools in the same states. For example, we took the University of Illinois at Urbana-Champaign and compared it with the University of Illinois at Chicago Circle, a commuter school. Similarly, we compared the University of Georgia in Athens, predominantly a residential school, with George State University in Atlanta, which is heavily a commuter institution.

In the 1990s, total enrollment rose more in the residential schools than in the commuter institutions -- 7.70% vs. 5.29%. An increasingly affluent American population wanted to buy the best for their kids, including the expensive residential experience. From 2000 to 2004, however, a huge shift occurred. Enrollments in the commuter schools soared, rising 15.99 percent, nearly quadruple the 4.32 percent rise in the residential institutions. While belt-tightening associated with the 2001 recession may explain some of it, we suspect the huge increase in commuter enrollment may reflect a more long term substitution of lower price commuter schools for expensive residential colleges at a time when college costs were soaring. In other words, the notion that college students and their parents are unresponsive to tuition fee increases that have been going through the roof may be erroneous. While the government often provides a bit of grants, the incremental cost of going to the more expensive schools is often paid for by the students and their families --and they are sensitive to those costs.

To be sure, a more rigorous and comprehensive study is needed, and perhaps things are reverting to the 1990s trend as the economy booms and tuition increases moderate a bit. But the 18 to 24 age cohort is going to start shrinking in size soon, and I suspect the residential college’s share of the enrollment pie may be in for a somewhat longer term decline. People are getting sick and tired of spending $20,000 a year to send kids to Country Club University for five or six years, when Joe Six Pack University will give a nearly equivalent credential for less than half the cost.

Tuesday, December 19, 2006

Hoosier Follies

By Richard Vedder

When he was with the Bush Administration, Mitch Daniels had a reputation for being a hard money man, a guy who would occasionally say no to some spending initiatives amidst a group of Big Government Conservatives whose unprincipled spending behavior contributed to the GOP's debacle last month.

Now as governor of Indiana, Daniels is threatening to repeat the sins he fought in Washington several years ago. To get Indiana moving ahead economically, he wants to spend a bunch of money on higher education. By privatizing the state lottery (probably a good idea), he wants to take a billion dollar windfall and drop it into higher ed, partly to fund HOPE-style scholarships and to lure big name scholars to the Hoosier State.

The intentions are good, and the goal of improving Indiana's so-so economic performance is laudable. However, the proposal, if adopted, suffers from several flaws.

1) National data suggest that the relationship between spending more state funds on higher education and economic growth is either non-existent or is negative -- more spending means lower growth;

2)An increase in scholarship aid will likely be at least partially offset by larger tuition increases than otherwise would be the case, as universities try to capture some of the funds that Governor Daniels wants to spend;

3)HOPE type scholarship programs extenuate the move away from need-based financial aid and tend to make flagship universities (e.g., Indiana University at Bloomington (U) and Purdue at Lafayette) into more bastions for upper class kids who tend to be the major recipients of merit-based scholarships. Should Indiana be selling state assets to provide assistance to children of yuppies attending increasingly country club-like institutions? Is this the optimal use of state resources?

4) Targeted programs to bring eminent scholars into states seem to have no effect on economic growth. For example, neighboring Ohio's Eminent Scholar program of a decade or two ago was implemented --and income per capita relative to the nation continued to fall. It is not clear to me how Indiana benefits if Professor X does his or her work at IU rather than at the University of Illinois, unless there is a huge royalty payoff from patents, which seldom is the case in the short or intermediate run.

I suspect that if Governor Daniels really wanted to increase Indiana's competitiveness, he would be better served reducing the tax burden, which historically once was low in Indiana but is no longer so.

Monday, December 18, 2006

The Presidential Library Race

By Richard Vedder

As the Bush Administration reaches the three-quarters mark, the President has begun to think about where he wants his presidential library. The earliest such libraries, such as those of Franklin D. Roosevelt and Harry Truman, were located in the hometowns of the president and were distinct from any academic institution. Lately, however, universities have entered into the bidding. Three Texas schools are in the running for the Bush library. It is noteworthy that all of them are decent quality private schools, but none of them is renowned as a top-flight research university. Moreover, all of the schools have a historical Christian religious orientation, ranging from fairly fundamental Protestant to Roman Catholic. This is, as far as I know, unique in the history of competition for presidential libraries.

Somethings never changes, however. Some faculty at Southern Methodist University (SMU) are concerned about the possibility that the Bush library might be located there. With the library might come a think tank with, horrors of horrors, a conservative orientation. This, to them, is unacceptable. One Methodist minister wonders how SMU can keep "Methodist" in its name if it has a library named after the nefarious George W. Bush. It seems that the academy may be showing its true colors --its left-wing orientation, its intolerance of intellectual diversity, etc.

For all my concerns about soaring college costs and the use of taxpayer funds to finance successful rent-seeking by some academics, probably bigger threats to academic excellence comes from the decline in academic tolerance and from efforts to enforce a mindless form of intellectual conformity that fits into the preconceptions of the scholarly elite. Great universities are always lively, disorderly places where there is lots of intellectual ferment. I always thought the University of Chicago was a great example --at their workshops sparks always fly, arguments are real and intense, etc. But a lot of true intellectual inquiry goes on there. I worry if we are losing this, and also where the pursuit of financial gain has similarly diluted the central role of intellectual discourse and dissenion on the American campus.

Friday, December 15, 2006

Is An Ivy League Education Worth It?

By Richard Vedder

In this space we have previously noted that an Ivy League education costs little or nothing more than one at good but not exalted quality universities. The tuition at Princeton is about the same as at, say, George Washington University (hereafter GW), which is not even ranked in the top 25 in the US News & World Report rankings. To be sure, a kid from an affluent family who is barely accepted at Princeton might be given huge merit based aid at George Washington, because being high school valedictorian and having a 1550 composite SAT score (minus the writing test) is an attribute prized by GW, while Princeton has more of these students than it can handle.

Indeed, the unlying premise of the great book by Dan Golden on admissions is that parents believe that by buying their kids way into elite schools, they are increasing their economic well-being. The country is run by Harvard graduates, and others from similar institutions,or so it is implicitly assumed.

Last August 21, Time magazine ran a story "Who Needs Harvard?" that made several interesting points. Only 7 of the CEOs heading the top 50 corporations on the Fortune 500 list are Ivy League graduates. Scholarly research shows that, other things equal, there are no particular advantages of attending the top schools. Maybe ranking 50 in a class of 2500 at GW is as good as ranking 700 in a class of 1500 at Harvard from a vocational perspecti

This is a proposition that deserving more investigation. The use of tax favored private monies to strengthen a network of social elitism (e.g., the Ivy League) is the subject of much attack these days, so the question is: is that network in fact strengthening or weakening over time? My hypothesis is that there has been some weakening in the dominance of the Ivy League schools amongst the CEOs of major companies, but not necessarily of elite private schools as a whole. I am going to be unleashing the Whiz Kids on a study of this issue in the New Year if not before.


I am informed by someone, I think George Leef, that in a new book I have been attacked as a polemic writer, along with others like Charles Sykes and Martin Anderson. It is interesting how modern academics often dismiss fact-based research (which my book Going Broke By Degree certanly was)that they do not like by engaging in name calling. I will be reading the new book, I hope, in coming weeks and may have more to say on this in the future.

Tuesday, December 12, 2006

The Snob Effect in Higher Education

By Richard Vedder

The most well established of all the "laws" of economics is the Law of Demand: when something becomes less expensive, people buy more of it. In economics textbooks, we usually discuss rare exceptions to this law, talking about "Giffen goods" or "snob effects," situations where the quantity demanded may actually rise with price.

Jonathan Glater and Alan Finder suggest in today’s (and tomorrow's) New York Times that the tuition explosion may partly be a consequence of a snob effect in higher education: higher tuition charges are perceived to mean higher quality, and with higher quality comes greater numbers of applications. The authors give examples (e.g., Ursinus College in Pennsylvania), that seemingly fit that description.

Two factors might help explain the results reported by the Times. First, massive amounts of third party payments, including institutional aid financed by the universities themselves by charging the very affluent through the nose, has reduced the sensitivity of customers to price. Usually, we think that means customers go from being highly sensitive (elastic demand) to becoming insensitive (inelastic demand), but it might even go further --customers become "snobs", wanting to buy "the best" and equating price with quality.

A second factor is that elite colleges are social networks, sort of academic country clubs, and that jobs often come from contacts developed at the university. The more expensive the school, the more elite the student body is likely to be, the more "pull" their parents have, and the greater the probability that graduates will get good jobs through university-developed social connections. Universities that jack up their sticker prices a lot can sock it to the rich legacy candidates for admission who have indifferent test scores, without overtly accepting bribes (which, however, if enough money is on the table, they will do via "development admits", as Dan Golden has so vividly shown us).

The irony in all of this is that perceptions about quality may in fact be way off. It is interesting that the very best schools as perceived by the public -- the Princeton’s and Harvard’s --charge little or no more than the merely "pretty good" schools like, say, Notre Dame, George Washington University or the University of Southern California. They (the top schools) use a relatively low price (relative to demand conditions) to turn down a huge proportion of applicants, allowing them to cherry pick amongst the rest, taking a majority of students on merit considerations and the rest for other reasons, including their ability to increase already obscenely large endowments via tax deductible gifts.

The authors appropriately note, however, that the Law of Demand is not dead. Muskingum College slashed its tuition in the 1990s (also drastically reducing institutional financial aid), and had generally favorable results, getting large increases in applications. I have always thought some entrepreneurial school could increase its rankings simply by drastically reducing tuition (financed largely by reducing institutional aid), thereby getting an increase in applicants from moderately affluent (but not uber-rich) students, and turning more students down, adding to an elite image. The Times story says the opposite approach, raising fees drastically, can have similar payoffs. That is what makes our world so interesting - "different strokes for different folks."

Simplifying FASFA: An Idea

By Richard Vedder

One of the advantages of teaching forever is that as senility sets in, your former students, now brighter than you are, come to the rescue. Brian Fruchey is one such student, a fellow who has aided CCAP in numerous ways, including establishing our initial web site. Brian's work (his day job) involves interaction with student financial aid issues, and he has superb ideas on how to simplify the FAFSA without sacrificing needed information.

Brian points out to me that the overwhelming majority of information on the FAFSA form is already reported to the Internal Revenue Service. Unfortunately, under current law, it is illegal for the IRS to share information with other government agencies, like the U.S. Department of Education. What if there was a little box on the 1040 Form, similar to the box asking whether you want to devote money to presidential campaigns, allowing a person to permit the IRS to give data to the Department of Education for college financial aid purposes? The IRS could report the data to the Education Department and the information could be electronically entered into a FAFSA form. Or, have a short FAFSA form for those who check a box on that form allowing IRS to provide the Department of Education with income tax data (a copy of the form would be sent electronically to IRS). To be sure, there are a few things that require information, such as the number of students in a family attending college, and possibly some financial asset questions. I am already uneasy, however, about those financial asset questions (which are of secondary importance in determining aid) since they are used to "tax" those who have prudently saved for college as opposed to those who have spent irresponsibly and not saved at all. I suspect the national savings rate has been reduced by our current financial aid policies.

The FAFSA form could be reduced to a postcard, with just a few questions about family members attending college. A significant "access" obstacle would be removed. No privacy would be violated, as the information in question is already provided by individuals, and permission is required before the information is released.

Student Compensation: Are Students "Underpaid?"

by Matt Denhart

Previously, we reported that college presidents, particularly ones at research-oriented institutions, have done exceedingly well financially in recent years. Continued research on salaries has unveiled yet another inequality. As already reported, the growth in salaries of presidents greatly exceeds that of the faculty who are actually doing the teaching and research. However, the most essential aspect of any university has been left from the equation: the students. Certainly the students are not earning an income; they are actually paying a good deal of money to attend an institution of higher education. However, financial aid does much to alleviate the cost of attendance, and one might consider financial aid as the equivalent of a student’s “salary.”

We have already reported changing salaries of presidents and faculty over the time period of 1996-97 to 2004-05. As the graph above shows, we have calculated the median growth (for four broad categories of four year institutions) in real per student financial aid. In real terms, the typical university president saw his or her salary increase 37.4 percent over these eight years. Compared with 27.6% for faculty and only 20.9 percent for students..

Obviously there is great inequality in the rate of salary increase, with students losing out. As more and more money is poured into the system, the top administrators are increasing their own financial well-being at the greatest rate. The hierarchy with students at the bottom seems to be a continuing trend in other areas beside salaries, evidenced by things such as continued rising tuition, enormous fees, limited access to required classes, etc.

The education and well-being of students should be the top priority of any non-profit college or university. However, such statistics seem to prove that this noble goal of the academy is no longer a reality. Perhaps we need to take a step back to reassess how we view and treat students, the whole rationale for universities.

Matt Denhart is an undergraduate student at Ohio University and is a research assistant at the Center for College Affordability and Productivity.

Monday, December 11, 2006

The "Higher Education as an Investment" Scam

By Richard Vedder

I am an economist, and economists have always considered sociologists to be lesser forms of human life. As a Northwestern undergraduate decades ago, my favorite professor defined a sociologist to me: "A sociologist is someone who requires a Ford Foundation grant to find a house of prostitution." Another friend, Doug North (Nobel Prize winner in economics in 1993) was gleeful when Washington University in St. Louis eliminated its sociology department.

But maybe we were wrong. Our sainted friend and comrade in arms George Leef of the Pope Center in North Carolina has sent me an article from the Pennslyvania Gazette, a publication of the University of Pennsylvania. Two Penn sociologists, Ivar Berg and Randall Collins, have been arguing for decades that the return to higher education is not what it seems to be. These gentlemen note that conventional wisdom has it that higher education improves workplace productivity, but in reality it does not. Higher education supposedly promotes social mobility, while the reality is quite different.

Berg in a 1970 book Education and Jobs: The Great Training Robbery made the point that employers were using college credentials as a crude screening device, a point made over the next several decades by many others, including myself (and one Nobel prize winner, Michael Spence, in particular advanced Berg's insights). Collins has argued that the rush for credentials has led to "credential inflation," whereby it takes higher levels of education to qualify for even the most mundane of tasks. Moreover, the financial costs of all this credentialing, which are escalating rapidly, have contributed to America's losing its distinctiveness as a nation in promoting social mobility. Dan Golden's recent writings about the role of "legacy" and "development" admissions in higher education is anticipated in Collins' 1979 book The Credential Society.

All of this comports with our notion that most of the university/high school earnings differential reflects not what colleges teach, but the superior qualities that college students have even as they enter college relative to those who do not go on. The Duke Power decision outlawing most employer testing of prospective workers has aggravated the problem: how do we know which applicants are bright, motivated, disciplined, mature, creative? On average, the answer is "the ones who went to college," not so much because of what they learned in college, but because of their innate intelligence and superior work habits going in. Colleges can test prospective students legally in ways forbidden to employers.

Higher education has profited mightily from this phenomenon, which might better be termed a scam. The private schools that are more selective can proclaim, correctly, that "our students are brighter than those going to Joe Six Pack University" -- and employers who want bright and more knowledgeable students will grab them by paying high salaries --again, not so much from what they learned in college but for what they brought to college.

Is Tenure Dying? If So, So What?

By Richard Vedder

A basic tenet of economics says if something gets expensive, people try to use less of it, finding cheaper substitute goods. Tenured professors are more costly than non-tenured ones on average, although in principle it should be the reverse --since tenure confers a fringe benefits with monetary value, the stated cash compensation should be reduced for tenured professors, other things equal.

This comes to mind when I read the latest AAUP report on the status of faculty members. In the mid 1970s, a solid majority of faculty members had tenure; today barely 35 percent do. Since the tenured faculty tend to be full-time and many of the non-tenured faculty are part-time, it is possible that tenured faculty still teach 40 percent or so of all courses --but it is almost certain that a majority of teaching today is done by non-tenured faculty. The shift away from traditional public universities and community colleges to private institutions also means a further deterioration in the institution of tenure.

From a purely educational perspective, I suspect the biggest problem is not the lack of tenure, but the lack of lasting institutional commitment amongst part-time faculty. Are incidents of reprisals against faculty for their beliefs less prevalent where tenure is strong? If so, that is an argument for maintaining tenure. Are moves to enforce political correctness and stifle intellectual diversity greater or smaller on tenure-intensive campuses? Tenure has a number of undesirable effects, including making resource reallocation more difficult, so if the primary justification for the institution -- promoting academic freedom -- has little validity, than the gradual demise of tenure is a positive event. But that is an empirical question worth investigating.

At the same time, however, some critics of higher ed put too much emphasis on the evils of tenure. After all, faculty salaries are a small portion of university budgets (typically, well under 25 percent). Ending tenure would have at best marginal effects in terms of improving university efficiency and productivity. Arguably it should be done, but ending tenure is no panacea for all the problems facing higher education.

Friday, December 08, 2006

Jeane Kirkpatrick: A Model Academic

By Richard Vedder

A colleague of mine at the American Enterprise Institute, Jeane Kirkpatrick, died last night. She was a great woman, a person of enormous personal integrity and strength of character, who also had a nice sense of humor. She will be missed.

Prof. Kirkpatrick was best known for serving as Ronald Reagan's strong-willed but effective Ambassador to the United Nations, or for her marvelous talk to the Republican Convention in, I believe, 1984, where she lamented the "San Francisco Democrats" that had made her disillusioned with her own political party (the Democratic Party). She was a quinessential Reagan Era Cold Warrior, one of a small but hardy band of visionary and principled political leaders who contributed mightily to America winning the Cold War.

But I like Ambassador Kirkpatrick for two other reasons. One, she was intellectually honest, and said what she thinks. That is an increasingly rare commodity these days, and many in the academy engage in self-censorship, afraid to say what they think is right, for fear of offending someone. The tyranny of political correctness has robbed the academy of some of its greatest strength, its intellectual diversity. Jean Kirkpatrick never suffered from self doubt or peer intimidation. Second, even as she grew more frail, in her mid 70s she considered it important to meet with students and teach classes, which she did, sharing her wisdom with the rest of the world. She thought teaching was an important responsibility, and passing on the wisdom of one generation to the next to be a noble calling. I am privileged to have had a few good conversations myself with her. She was a wonderful colleague, and will be greatly missed.

Bridget Long and College Financing

By Richard Vedder

In evaluating the appropriateness of a policy, it is a given that it is best not to have the analysis done by persons who have some conflict of interest -- some potential gain or loss arising from the implications of the analysis. Yet who is doing the analysis of the economic effects of federal policies towards higher education? Almost entirely academics who have directly benefited from those policies, including me. In defense of myself, I am largely retired, and the nominal portion of my income (less than 10 percent of the total) coming from being a college professor is contractually fixed in terms of salary until the time of my full retirement, hence I cannot really gain or lose much from any given policy change.

Private companies help the Department of Education administer and evaluate the various college financial aid programs. One such company, for example, is Accenture. Would it be appropriate to ask Acccenture to evaluate the program that it largely administers? Of course not. If Secretary of Educaiton Spellings and/or Congress create a Financial Aid Commission as an outgrowth of the Spellings Commission, I would hope that they insist that the research on existing programs be done by persons without a potential conflict of interest. Hire professors from foreign universities (e.g, Cambridge University or the University of Toronto), or think tank individuals with scholarly credentials but no academic affiliation.

This came to mind when CCAP's friend Anne Neal sent Bryan O'Keefe sent me a copy of Professor Bridget Long's testimony on Tuesday before the Senate Finance Committee. Most of what Prof. Long said was a recital of the party line of the Academic Establishment. Bryan (who was there) tells me that Prof. Long spoke with great assureness and she rather airily dismissed any study not agreeing with her view that "financial aid does not matter (much)" in explaining the tuition explosion. She santimoniously proclaims that she more or less ignores research that has not been peer reviewed by other academics (with similar conflicts of interest). She is oh so sure of herself.

To be sure, I agree with much of what Prof. Long says. I agree, for example that all assistance is not equal in terms of economic effects. In my own empirical investigation, I find that grants have a more direct tuition effect than loans, for example. I share her concerns about tax credits as a way of aiding students. I am with her in showing skepticism about expanding government loan programs (relative to grants). I strongly agree with her on the need for aid simplification. The FAFSA form can be dramatically simplified, for example, as people in the know tell me that the bulk of the data provided on the forms the government already collects elsewhere.

Increased financial aid should enhance the demand for higher ed --if it doesn't, it is not doing its job --making more students wanting to attend college at the sticker price that is quoted in the catalogues. The PURPOSE of financial aid, I think, is to increase demand --or "access" in the language of university presidents. If not offset by supply increases, tuition will rise (the precise amount depending on the elasticity of supply). Also total revenues (price times quantity) will rise. Given rigidity in supply at many schools, including Prof. Long's, there is a very strong presumption in economic theory that tuition should go up if third party payments rise (certainly, no one denies that has happened in health care). My own research shows that there seems to be a clear positive tuition fee/federal aid relationship with respect to grants, although far less clearly so with loans (which, after all, have to be repaid).

When Prof. Long starts spouting the party line of the Higher Education Establishment on the true causes of tuition hikes, my suspicions grow that she is an apologist for perpetuating the higher ed gravy train that has led to extremely large salary increases for senior professors at private research extensive universities, including Harvard (a position to which Prof. Long no doubt aspires)over the past decade or two. While she is right that stagnant state appropriations have contributed to rising public school tuitions in the past, that says nothing about tuition increases of double the inflation rate at private colleges, nor does it explain the same phenomenon at state schools in the last year or two amidst rising state appropriations (see today's INSIDE HIGHER ED). She notes salaries are rising as if that is exogenously determined, claiming that is significantly explainable(without any empirical evidence)by the fact that the average experience and seniority levels of faculty are rising --never mind exploding salaries within the senior ranks over time at research extensive universities. With a straight face she notes technology is adding to costs, never talking about WHY in virtually every other area of human economic endeavor, it lowers costs. She is silent on the lack of incentives to contain costs when someone else is paying the bills. She does not discuss problems arising from resource rigidities, the under use of facilities (empty buildings in summer), restrictions on competition imposed by university refusal to transfer credits fully, the fall in teaching loads and its impact, etc., etc. I repeat: if you want objective analysis of financial dimensions of higher education, professional ethics demands that you go outside the academy for an evalaution. I want to make it clear that I am not saying that Prof. Long is ethically challenged (I don't even know her). But I am saying that it is very difficult for people, however well intended and morally upright, to speak objectively about the sector of the economy that feeds them.

This blog is running too long. The notion of Prof. Long that the "sticker price does not matter (much)" and that we should look only at the net tuition charge is also a dubious notion worthy of another blog --suffice it to say here that we should be interested in the true cost of higher education to society (including taxpayers), and that the total cost per student or some such measure is better than any tuition metric for measuring that. Also, the use of college fees as an income redistribution device (implicit in the growing disparity between gross and net tuition charges) has all sorts of other unintended consequences, including a decline in the national savings rate. More later about those concerns.

Wednesday, December 06, 2006

Two Observations: Congress, Becker and Posner

By Richard Vedder

I read in today's Washington Post that Congress is going to do something novel in 2007 --meet on a regular basis. Instead of meeting 3 days a week for maybe 25-30 weeks a year, the new energized House leadership is talking of actually having Monday sessions!!! And shorter "recesses"!!! I appreciate their enthusiastic display of work effort, but worry about the consequences for the nation. My guess is this passion for work may dissipate by next summer. There are a lot of higher ed issues on the burner --the reauthorization of the Higher Education Act for one--so in principle Congress should meet more. But since the net effect of modern federal involvement in higher education is arguably more negative than positive, I am actually sorry to read the news. To me a do nothing Congress on average is better than an activist one. Having said that, however, I suspect "gridlock" in the form of divided government on the whole is better for the nation than uniform single party rule. Competition in government, like competition in business, is better than monopoly.

The affable and astute George Leef of the Pope Center, a key ally in our fight for better and more affordable higher education, has brought to my attention two marvelous blogs by Gary Becker and Richard Posner. Becker is a Nobel laureate economist of great sagacity, and Judge Posner combines superb economic thinking with great accomplishments in the legal profession.

Becker and I recently (a few months ago) had a civil disagreement about his belief that higher education has a high rate of return to society, and his view that higher ed has all sorts of positive externalities or spillover effects (e.g., more healthy populations). This has made Becker more sympathetic to the Democratic announced efforts to expand student financial aid than I am. But Becker is intelligent, and thinks that the current loan system is not optimal. He shares my belief that moving to an "equity" approach to federal assistance and away from a traditional fixed rate loan approach is desirable (although I would prefer for the feds to exit the loan business altogether). The equity approach deals with the argument that current high costs and big student debts are threatening the nation with major shortages of lower paying professional workers, such as teachers and social workers.

Posner shares more my skepticism on the positive spillover effects of higher education, and does not like the massive expansion of federal student aid that Speaker-designate Pelosi and others are espousing. He makes the point that the primary benefits of university education accrue to the students, and even if there are some positive external benefits, it does not necessarily follow that, at the margin, an expansion of loan and grant programs serves society well. Both gentlemen are first-rate scholars and their views should be accorded great respect.

Tuesday, December 05, 2006

NACIQI to the Rescue? The Battle of the Women is Beginning

By Richard Vedder

Whenever university educrats get together, they tend to speak in an incomprehnsible gibberish of acronyms -- talking about ACE's position on this, or NAICU's stand (always negative: David Warren, the National Association of Independent Colleges and University's president, is the Dr. No of Higher Education) on that, etc.

One acronym that only the most intense higher education watchers are familiar with is NACIQUI (nuk-SEEK-ee, as distinct from NYE-cue). NACIQI stands for the National Advisory Commiittee on Instituitional Quality and Integrity, and is presided over by Carol d'Amico, with a new Vice Chair Geri Malandra, a Texas sidekick of Charles Miller (chair of the Spellings Commission), who, in turn, is very close to Margaret Spellings. Both Charles and Secretary Spellings have privately told me that NACIQUI, in its role of "accreditor to the accreditors" has a lot of latent but never used power. The gloves are off, Spellings is stacking NACIQUI with activist reformer types, and the war is about to begin. I say, let the best woman win.

NACIQUI can say to the regional accreditors, "we will not let any student attending one of your accredited schools receive any federal financial aid UNLESS you force those schools to start to provide measures of value added to their human capital during their college experience." It should say that. The war will begin when the accrediting groups say, "you have no authority to say that to us" and things end up in court. If I were a czar in an earlier age, I would then have the accreditors shot. In our kinder and gentler age, I would urge the Secretary to make life miserable for the colleges and the accreditors unless they get on board. I believe cooler heads -- and I am specifically thinking of Judith Eaton, who heads the accreditation umbrella organization, CHEA, the Council for Higher Education Accredition might prevail, and effect a compromise wherby the regional accreditors insist on some form of value added indicators, but allow for considerable discretion as to which indicators are used (my own preference would be for a relatively small number of permissible indicators, allowing some interuniversity comparisons by parents, in keeping with the Spellings Commission recommendations).

Into this battle of the women (Margaret Spellings, Judith Eaton, Carol d'Amico, Geri Malandra, occasionally Anne Neal, etc.), add another very important name: Sara Martinez Tucker, who should be confirmed today in Senate committee, en route, I hope to full confirmation before this Congress goes very shortly to its unlamented death. Sara is perfect for the job of Undersecretary, and will be an articulate person who will push reform, but do so in a civil way that may have a chance of success, despite the protestations of the Doctor No's of the world. On the Spellings Commission, Sara and I pushed long and hard to have Diet Coke available for the commissioners, with considerable success. Sara is capable of even greater accomplishments. I worry that the naysayers like NAICU might ultimately prevail, but Sara will put up the good fight, I think, with some class.

Monday, December 04, 2006

Rent-Seeking, Rip-Offs, and Research:II

By Richard Vedder

The other day Whiz Kid Matt Denhart and I, with some assistance from Side Kick Bryan O'Keefe, reported some startling data which showed that private university presidents have been very well compensated in modern times, with salary increases far exceeding those of ordinary Americans. We also noted increases were far greater in the research extensive universities heavily dependent on federal grant support.

But how do these college presidents do relative to their own faculty, the people who actually get the research grants, make the new discoveries, and teach the students?
The evidence, gathered for me by Matt, is that salaries rose far more from 1996-7 to 2004-05 for university presidents than for the faculty. But this trend is far less clear at the non-research universities. AT THE RESEARCH ORIENTED SCHOOLS UNIVERSITY PRESIDENTS HAVE BEEN THE BIGGEST COLLECTORS OF ECONOMIC RENT, NOT THE PEOPLE PERFORMING THE CORE UNIVERSITY FUNCTIONS OF TEACHING AND RESEARCH. To be sure, the professors are doing far better than the average American worker, whose pay in inflation-adjusted terms rose in the single digits. See the Table.

TYPE OF INSTITUTION Faculty Presidents

Liberal Arts Colleges 11.1% 16.8%
Master's Degree Institutions 27.4 27.8
Doctoral - Research Intensive 27.8 47.0
Doctoral - Research Extensive 29.8 58.9

The more research oriented the school, the more robust pay increases are for faculty, but that is vastly more true for university presidents. The faculty member gets a grant, the university uses its overhead money to increase salaries, but most generously for those at the top.

When is the rip-off of taxpayers going to end?

Unorthodox Views of College Financing: Two D.C. Attractions

By Richard Vedder

There are two events this week where unorthodox views on student financial aid, tax treatment of universities, etc., are likely to be expressed. The first will be tomorrow morning, when the Senate Finance Committee is having a hearing relating to tax exemptions. Charles Grassley, the outgoing chair of the committee, has been increasingly concerned about the abuse of tax free status by universities, triggered in part by the massive multi-million dollar golden parachute given to the disgraced former president of American University. Another dimension of all this is the question of college's selling admission slots (effectively) through "development admits," and showing preference for alumni kids. Dan Golden, journalist extraordinaire, is testifying before the committee. I think some prominent Democrats (Senator Kennedy comes to mind) will be sympathetic to some of the same concerns Sen. Grassley has in mind, so this is probably a bipartisan issue that will not die when Congressional control passes to the Democrats. Even an Establishment witness, Jim Duderstadt (a prominent part of the Dudervestky group on the Spellings Commission) former U. of Michigan president, might surprise, as he is far more open and less uncritical of financial aid practices then most other university administrator types. CCAP will be in the audience (Bryan O'Keefe, and Wick Sloane, who did a boffo job with Whiz Kid Jonathan Leirer on a study published as a CCAP Perspective).

Secondly, Thursday morning at 10:30, the Heritage Foundation is having a program on student financial aid programs and public policy moves to expand them. It may expand into a general critique of what is wrong with contemporary higher education. Gene Hickok, former Undersecretary of Education, is moderating. He was a reformist head of Pennsylvania's K-12 system before heading to Washington. The two speakers will be unsympathetic to the status quo in fiancial aid, and include Larry Arnn, President of Hillsdale College, and Yours Truly. Hillsdale takes no federal money, nor does its students, and is a better place because of it. (The same could be said of CCAP). For people in the D.C. area wanting to hear heretical, non-conformist ideas about higher education, consider attending one or both of these events.

Saturday, December 02, 2006

An Academy of Whores

By Richard Vedder

The startling data that Whiz Kid Matt Denhart and I revealed the other day on the salary growth of presidents of private institutions of higher education suggest several things --colleges don't care much about teaching, they are taking federal research dollars and diverting them for private gain, etc. But they also hint that implicitly university presidents are working on commission -- the more research grant money they raise, the bigger the salary payoff.

Presidents at the universities receiving the greatest amounts of federal research dollars got the largest raises; schools with moderate amount of research dollars received generous but smaller raises, while presidents at lowly liberal arts colleges received small raises. The salary differential between the big research university presidents and the liberal arts college presidents grew markedly. Why is putting your attention to getting research dollars more important than improving the quality of the teaching product at a teaching institution? The reason is simple: universities get easily measurable dollars from research grants, but better teaching is hard to measure and does not have financial rewards, because it is increasingly a loss leader that some universities offer almost reluctantly to provide some rationale for alumni donations and some non-research federal grants. The real name of the game is research --actually the real name of the game is MONEY.

I remember when I was teaching at a top flight liberal arts college and the economics chairman at Stanford told me he was sending his son to the college I taught at because it took teaching, advising, and nurturing young undergraduate minds seriously, something far from the thoughts of most senior Stanford faculty. Yet the Stanfords of the world are getting the huge financial rewards, while the teaching schools are leading a life of genteel prosperity, not starving to death my any means but not sharing in the big bucks financed by third party payments that are being captured by the major research universities.

P.J. O'Rourke once wrote a book entitled Parliament of Whores, humorously analyzing how politicians scrounge for dollars rather than weigh the evidence and follow principles. In America, it looks like we have An Academy of Whores, with our governments rewarding those academic hookers (the researchers) and their pimps (the college presidents) who grab the most dollars much more than those who do a good job of educating kids. All of this is aggravated by the fact that teaching is hard to measure very well anyway given the lack of performance testing in American universities.

Friday, December 01, 2006

Who Sins More: College Students or Administrators?

By Richard Vedder

I have a confession to make. On average, I like college students more than university administrators. True, college students are often immature, overly hedonistic, and abysmally ignorant of many of the fundamental events, persons, and concepts of Western civilization. But they are mostly sincere, usually honest, and generally mean well. That is as true today as when I began teaching back in the days of Socrates (actually, a couple dozen centuries thereafter). By contrast, many college administrators these days simply are untruthful, pompous, self-righteous and arrogant. I find the sins of students less egregious on average than those of individuals running institutions.

Two things in today's INSIDE HIGHER ED reminded me of that. At the University of Chicago, students are protesting attempts by the administration to move to a Common Application form. The university argues that this will increase the number of applicants. Students say that UC is just trying to deny more students admission, thereby raising the ranking of the school in US News & World Report. The kids like the current slightly eccentric, extremely rigorous academic orientation of the school, and think the new UC administration may be trying to dilute it, disappointing many denied applicants in the process. I suspect the kids are right.

And then there is Justin Park, the student at Johns Hopkins, who, on a private web site, urged people to go a fraternity party centering around the theme Halloween in the 'Hood. Someone took offense at this party and the publicizing of it, arguing it is racially insensitive. I don't think that it was necessarily insensitive, but even if it were, should universities react to the exercise of student First Amendment rights by suspending the kids from school, making them read a dozen prescribed books, etc.? Doing so puts a chilling effect on free expression and, ironically generates resentment, maybe even hatred, towards racial minorities. This type of high handed attempt to enforce speech codes is absolutely repulsive, and I hope John Hopkins pays a price for its authoritarian efforts to suppress free expression. Students are angry, I guess at Hopkins. Good for them. They are right and the university's $837,016 president, William Brody and his henchmen (or hench people, to be more politically correct) are dead wrong. Freedom fighters like Alan Kors and Harvey Silvergate are no doubt coming to the defense of freedom of expression at Hopkins, as well they should.

Why do we provide tax exemptions to institutions that are supposedly marketplaces of ideas and expression, when the institution itself forbids types of expression generally acceptable in American society? Shouldn't at the minimum any speech or expression which is legal in society at large be tolerated without penalty at any institution that accepts handouts from the taxpayers?