Clunkers in Higher Ed

by Andrew Gillen

One of the most amazing things about the cash for clunkers program is the division it has caused among the econobloggers.

The pro side is represented by Alan Blinder and Justin Fox, the con side by Steven Levitt and James Hamilton. (For the record, I’m with Levitt and Hamilton. I just don’t see how “destroying useful goods could somehow make the nation wealthier.”)

For those of you not familiar with the program here is my somewhat biased summary:

• Americans used to like buying big gas guzzling cars, and American car companies specialized in making them.
• Congress wasn’t happy with the environmental impact of gas guzzlers, and mandated that some sales had to be of fuel efficient cars.
• Consumers resisted buying the fuel efficient cars.
• Gas prices went up, consumers wanted fuel efficient cars, but foreign companies are better at making them. American companies still couldn’t sell theirs.
• Since American companies couldn’t sell cars, they needed to be bailed out, meaning the US government now largely owns them (except Ford)
• But people still aren’t buying the cars, so we tell them if they turn in their old gas guzzler to be destroyed, we’ll give them some money to buy a new, more fuel efficient car.
• Thus the government is giving people money to buy things from... the government. Which somehow makes us better off, or so I'm told.
  

As you can see, this is all a very complex and convoluted way to transfer money from one government run program to another. That makes me glad I work in the higher ed industry. When we want to do something we just do it in a straightforward manner. For instance, suppose we want more teachers.

• We make it very difficult to become a teacher by imposing lots of barriers, most with very little evidence that they actually improve student learning.
• The best way to deal with these barriers is to go to major in education at an American college.
• American colleges take money from the students and various governments and compete in a wasteful arms race. Because the arms race is never ending, the need of colleges for money is essentially a black hole, sucking up all available money.
• Students are asked to come up with some of the extra money to give to colleges.
• This is problematic, because we don’t pay teachers much, so they really shouldn’t be taking out huge loans to enter a low paying profession.
• We come up with loan forgiveness and income based repayment programs.
• Thinking they can realistically repay all these loans thanks to these programs, lots of students take on lots of debt and enter a low paying profession.
• Surprised that lots of students are using these programs and that it’s costing lots of money, we cancel them.

Mission Accomplished: We’ve funneled lots of people through ridiculously expensive programs with the help of loans they couldn’t afford to take out, and that they only took out because we told them they wouldn’t have to repay them. We get lots of new teachers. Later, once they’ve anchored their future into a low paying profession, we tell them we lied and they will have to repay the loans. Everybody wins, with the minor exceptions of a) the teachers, who have to repay all the loans, and b) the students (since lots of really good teachers aren’t willing to play along with this and other crazy schemes).