The Stimulus Package and Higher Education

By Richard Vedder

Most in the higher ed establishment are no doubt doing cartwheels, if they are physically able, over the Democrats proposed $825 billion stimulus package. They think it will help higher ed, even if it does not help the economy. Count me as one dissenter: I think the proposal is an unmitigated disaster.

First of all, what the Dems are really trying to do is use the rhetoric of "stimulus" and the reality of a recession to implement cherished left-wing programs that have little to do with the economy. Second, stimulus packages don't work --period. They did not work in the 1930s (unemployment at the peak of the Works Progress Administration was over 17 percent), did not work in the U.S. in the 1970s (indeed, causing stagflation), did not work in Japan in the 1990s, and did not work in our nation early last year, as unemployment rates have risen and equity values fallen in the wake of a $100 billion plus stimulus package. We are in uncharted territory running budget deficits that will be well over 10 percent of GDP in relative peacetime, and, if history is any guide, the results will not be pretty.

But what about colleges? The proposed aid does nothing to force colleges to reform, and, indeed, delays reforms that are needed. The colleges not only will gain some funds directly, but get the ability to raise tuition charges more. The proposed bill will give the states billions for educational aid, which will end reductions in state college appropriations. It will pour tens of billions into student aid through larger Pell Grants and increased student loan availability, allowing the colleges to raise tuition charges even more.

There is nothing, of course, that forces the colleges to do anything different. To be sure, this is not an education bill, but a so-called stimulus package. But it is bad fiscal policy, bad education policy, and, in general-- just stinks. To be sure, the bill is far from a done deal, and Congress will wrangle. But usually, Congressional wrangling works to worsen, not improve things. The market is low for a reason --the prospects for the private economy in the coming years is abysmal. It is not yet noon where I am writing this, but I need a drink.