Thursday, September 10, 2009

New Obaminations: The President on Universities

By Richard Vedder

Bob Villwock sent me a transcript of parts of President Obama's speech last night that shows two things. First, it reminds us of the president's fundamental ignorance of the gains that capitalism has provided to Americans, gains that made us the richest nation in the world. It helps understand the president's fundamentally socialist tendencies and his contempt for free enterprise and the workings of markets.

Second, the speech draws analogies between private and public universities on the one hand and private and public health insurance companies on the other. The President opines that if public and private universities can coexist and both thrive, the same is true of health insurance --a public insurance option would not destroy, but invigorate and strengthen private insurance.

Before commenting further, let's quote the President directly:

"...the public insurance option would have to be self-sufficient and rely on the premiums it collects. But by avoiding some of the overhead that gets eaten up at private companies by profits, excessive administrative costs and executive salaries, it could provide a good deal for would also keep pressure on private insurers to keep their policies affordable and treat their customers better, the same way public colleges and universities provide additional choice and competition to students without in any way inhibiting a vibrant system of private colleges and universities."

By implying public universities have helped serve to keep college affordable, the President is ignoring decades of factual evidence to the contrary. The university/insurance comparison is silly anyway, since most of higher education is not-for-profit (unlike insurance), and is heavily subsidized by the federal government --per student government grants to ostensibly private Harvard are far greater than at, say, public Illinois State University. The private/public distinction is largely meaningless in higher education. It is precisely the rising governmental involvement that has caused the huge cost explosion in higher education --and in health care. Government is the problem, not the solution.

The notion that government run businesses can offer a better deal because of "overhead eaten up by profits" in the private sector is laughable as well. Despite massive government subsidies (e..g, paying no property taxes or rent on their facilities), the U.S. Post Office is broke and losing market share to far more efficient FedEx and UPS. Government run prisons are costlier than privately run ones. Overhead and administrative costs are higher in commercial enterprises where the political process allocates resources than in such enterprises where decision making is made by profit motives and market forces.

The abysmal ignorance of the president is upsetting. Profits are compensation for the use of capital resources, and serve an extraordinary useful social function-- serving as a signaling device that helps efficiently allocate resources. New investments in newspapers is non-existent because they are unprofitable, but investment spending on innovative Internet information providers is relatively robust because potential profits seem large.

The for-profit university sector offers instruction for less cost to society per student than the not-for-profit sector precisely BECAUSE of profits, not in spite of them. High executive salaries at the University of Phoenix have not kept that institution, or others like it, from offering a service that is rapidly gaining market share despite the enormous advantages the publicly subsidized not-for-profit competition has.


capeman said...

I'm not carrying any water for Obama's health plan.

But yeah, University of Phoenix is a great success. Read all about their astonishing graduation rates, legal controversies, the rest, at Wikipedia.

I would believe the Doc more if he had quit his job at public Ohio University and become a faculty member at U. Phoenix.

Or even if Doc simply was hiring U. Phoenix graduates for his staff. Instead of people from public universities and non-profit private schools.

Kadim said...

I would have to quibble (respectfully) with the citation of the US Postal Service (in comparison to FedEx and UPS) as a failure of the public sector.

USPS is a gigantic institution setup for the core mission of delivering mail six times a week to 99% of addresses in the United States.

FedEx and UPS don't do that.

USPS is constrained by its mission, which is politically influenced (for instance, they've talked about reducing deliveries to 5 or fewer times per week. It seems reasonable to me, but may face considerable opposition, which FedEx/UPS don't have to deal with.) Indeed, the post office's biggest problem is that people probably expect too much of it for how much it charges for regular mail delivery. Though I haven't examined it in detail, I expect that's the operation that loses money, not the package delivery/overnight letter business.

Lenny said...
This comment has been removed by the author.
Lenny said...

Occasionally, the good doc will post something that is highly informative and valuable...just not in the manner that the good doc thinks.

Here, once again, Vedder has laid out for all to see how truly radical and extremist his underlying agenda is. In Vedder's perfect world there is no public higher education: no great public universities, no state or federal financial aid and no state or federal support for university research. Vedder's nirvana consists of private universities for the wealthy and DeVry, U of Phoenix and in-house corporate training academies for the rest of us.

Also, I've come to the conclusion that Vedder's unrelenting hostility towards public universities does not arise from his experiences in the academic backwaters of Athens, OH but rather from the big boys (Big Ten, U of California and so on) never hiring him.