By Richard Vedder and Jordan Templeton:
A few days ago, we indicated to you that we have been doing estimates of the human capital stock of the United States, the compilation of which allows us to estimate the nation's total wealth. We believe that wealth approaches $500,000 a person, or roughly $1.5 million for a family of three. In a sense, we are a nation of millionaires.
Let us elaborate a bit. We estimate that about $59.4 trillion in wealth is in the form of male human capital, and $35.5 trillion is female human capital. Our guess is that the female component has expanded sharply for three reasons in recent years. First, the female share of the labor force has been growing for decades, and parity between the genders with respect to work may well come within a few years. Second, women are becoming increasingly dominant in the college trained population that provides a large proportion of that wealth. The typical college graduate has more than triple the human capital of the typical male with less than a high school education. Third, women have had some improvement in their compensation relative to males, in part because they increasingly occupy high paying managerial and professional jobs previously largely confined to males.
We would predict that most of the increase in human capital in modern times has come amongst females. Our economic capacity is being expanded largely by utilizing more fully the talents of the nation's female population.
Of the $95 trillion in human capital, slightly over half ($48.1 trillion) comes from people with bachelor's degrees and higher, a group that constitutes a far smaller portion (roughly 30 percent) of the working population. Over one half of the remaining human capital is represented by persons who have some college. Those with only a high school education or less possess roughly 20 percent of the nation's human capital.
All of this is interesting, but it raises more questions than it answers. How much of the human capital possessed by college graduates is a result of what they learned in college? How much results from their post-graduation work experiences --learning by doing? How much represents qualities that created human capital that predates college? These are not easy things to calculate, but we are trying. How much has the human capital stock changed over time, and what proportion of that increase is related to formal learning in school, and how much to other factors? The questions are many, and we at CCAP are trying to make a first pass at answering them. Stay tuned.
Richard Vedder is Director of the Center for College Affordability and Productivity (CCAP), and Jordan Templeton is a research assistant there and an undergraduate student at Ohio University.
Friday, February 27, 2009
The Bad, The Ugly, and the Disastrous
By Richard Vedder
After my rant a couple of days ago about President Obama's address to the nation, and after giving a slightly milder but still somewhat corrosive comment to the Associated Press yesterday, I vowed late yesterday afternoon to swear off, at least for a few days, Obama-bashing and criticism of the Administration's higher education policies. But then came the budget, which cries for analysis.
Actually, analysis is difficult to give since most of the budget details will not come for a couple of months. I cannot fault the President for that --forming a budget takes months, and the Administration has not been in power for long. But there is enough in it for me to agree with Terry Hartle that, if enacted, this would be the most sweeping change in higher education policy in decades --maybe since the Higher Education Act was passed in 1965.
The President wants to put private lenders out of business, not surprising for the most liberal president in American history who is clearly a socialist trying to nationalize significant parts of the economy, as the partial takeover of Citigroup today symbolizes (a banker told me yesterday that all his banker friends that took TARP money want to give it back). Obama wants to expand the Perkins program to more people. He wants to make Pell Grants an entitlement not subject to annual congressional review --part of a broader effort to increase presidential power, I suspect. He wants to make permanent a college tax credit that is far more generous than the one it replaces, even giving money to those who do not pay taxes in some cases. He wants to spend, spend, spend, with no indication of the dangerous implications of financing trillion dollar deficits over multiple years, clearly a very likely prospect. The notion that we can finance deficit reduction by removing troops from Iraq and especially by taxing the rich is sheer fantasy, as FDR found out with respect to rich-bashing in the 1930s. Never in modern history have we seen a president who so visibly hates successful people more, and wants to confiscate their wealth to help those who are less successful and productive. Doing that is feasible (as Joseph Stalin, Adolph Hitler and Pol Pot demonstrated), but it comes with serious and always adverse consequences. Trying to divide up the pie more evenly almost always leads it to shrink.
What makes me so depressed about all of this is that I recently read my colleague Andy Gillen's marvelous analysis of federal student assistance programs, which we are going to publish soon. Andy argues --and I agree--that the Pell Grant is the most defensible of all programs, since it does help lower income persons attend college without greatly augmenting the academic arms race. But the Gillen analysis also shows both theoretically and empirically that government assistance programs for others than the truly poor is counterproductive, because it leads universities to successfully capture much of new student aid through tuition increases. Under some scenarios, the net cost of college stays roughly the same for some, rises significantly for others, but falls for virtually no one. The cost to society as a whole unambiguously rises. That inevitably will happened here, I predict, unless stopped by price controls and all the problems that they create --shortages, quality decline, underhanded ways of raising prices (charging for the use of campus restrooms, for example).
There is an argument for the government stopping the subsidy of private lending. Indeed, CCAP has long wanted the Feds to get out of the student lending business. But there is no compelling argument to REPLACE such lending with more direct federal loans -- to try to create a Soviet-style monopoly in the student lending business. Next the president will propose making it a felony for a private citizen to lend money to a college kid, perhaps subject to severe penalties, such as being locked up in a hotel room with Nancy Pelosi for a week.
From the narrow perspective of the colleges, it may appear that they are big winners. Vast increases are proposed in research grants, aid to students wanting to go to college, and even, indirectly, institutional subsidies indirectly via stimulus money for state and local governments. But I suspect this will be fully overcome by the negative macroeconomic consequences of the President's policies. Financing massive deficits will ultimately lead to higher interest rates and/or inflation. The 1970s was the bad period for higher education, as real tuition fees fell as inflation rose faster than college's ability to react. The President's capitalist-bashing policies are depressing an already suffering stock market, and real endowments are plunging, and with that, private gifts. The elite private schools are particularly imperiled.
Other than that, everything is fine.
After my rant a couple of days ago about President Obama's address to the nation, and after giving a slightly milder but still somewhat corrosive comment to the Associated Press yesterday, I vowed late yesterday afternoon to swear off, at least for a few days, Obama-bashing and criticism of the Administration's higher education policies. But then came the budget, which cries for analysis.
Actually, analysis is difficult to give since most of the budget details will not come for a couple of months. I cannot fault the President for that --forming a budget takes months, and the Administration has not been in power for long. But there is enough in it for me to agree with Terry Hartle that, if enacted, this would be the most sweeping change in higher education policy in decades --maybe since the Higher Education Act was passed in 1965.
The President wants to put private lenders out of business, not surprising for the most liberal president in American history who is clearly a socialist trying to nationalize significant parts of the economy, as the partial takeover of Citigroup today symbolizes (a banker told me yesterday that all his banker friends that took TARP money want to give it back). Obama wants to expand the Perkins program to more people. He wants to make Pell Grants an entitlement not subject to annual congressional review --part of a broader effort to increase presidential power, I suspect. He wants to make permanent a college tax credit that is far more generous than the one it replaces, even giving money to those who do not pay taxes in some cases. He wants to spend, spend, spend, with no indication of the dangerous implications of financing trillion dollar deficits over multiple years, clearly a very likely prospect. The notion that we can finance deficit reduction by removing troops from Iraq and especially by taxing the rich is sheer fantasy, as FDR found out with respect to rich-bashing in the 1930s. Never in modern history have we seen a president who so visibly hates successful people more, and wants to confiscate their wealth to help those who are less successful and productive. Doing that is feasible (as Joseph Stalin, Adolph Hitler and Pol Pot demonstrated), but it comes with serious and always adverse consequences. Trying to divide up the pie more evenly almost always leads it to shrink.
What makes me so depressed about all of this is that I recently read my colleague Andy Gillen's marvelous analysis of federal student assistance programs, which we are going to publish soon. Andy argues --and I agree--that the Pell Grant is the most defensible of all programs, since it does help lower income persons attend college without greatly augmenting the academic arms race. But the Gillen analysis also shows both theoretically and empirically that government assistance programs for others than the truly poor is counterproductive, because it leads universities to successfully capture much of new student aid through tuition increases. Under some scenarios, the net cost of college stays roughly the same for some, rises significantly for others, but falls for virtually no one. The cost to society as a whole unambiguously rises. That inevitably will happened here, I predict, unless stopped by price controls and all the problems that they create --shortages, quality decline, underhanded ways of raising prices (charging for the use of campus restrooms, for example).
There is an argument for the government stopping the subsidy of private lending. Indeed, CCAP has long wanted the Feds to get out of the student lending business. But there is no compelling argument to REPLACE such lending with more direct federal loans -- to try to create a Soviet-style monopoly in the student lending business. Next the president will propose making it a felony for a private citizen to lend money to a college kid, perhaps subject to severe penalties, such as being locked up in a hotel room with Nancy Pelosi for a week.
From the narrow perspective of the colleges, it may appear that they are big winners. Vast increases are proposed in research grants, aid to students wanting to go to college, and even, indirectly, institutional subsidies indirectly via stimulus money for state and local governments. But I suspect this will be fully overcome by the negative macroeconomic consequences of the President's policies. Financing massive deficits will ultimately lead to higher interest rates and/or inflation. The 1970s was the bad period for higher education, as real tuition fees fell as inflation rose faster than college's ability to react. The President's capitalist-bashing policies are depressing an already suffering stock market, and real endowments are plunging, and with that, private gifts. The elite private schools are particularly imperiled.
Other than that, everything is fine.
Thursday, February 26, 2009
Holy Toledo!!!
By Richard Vedder
INSIDE HIGHER ED has an interesting story this morning about a controversy at the University of Toledo. The school is contemplating signing a contract with Higher Education Holdings, a Texas-based for-profit comppany, in which that company would handle some of Toledo's on-line instruction in return for a share of tuition revenues. This is precisely the type of innovative thinking that we have long advocated at the Center for College Affordability and Productivity, and I was delighted to hear about the proposal.
Full disclosure: I am a very small stockholder in Higher Education Holdings. I bought the stock (which is closely held) because I admire Randy Best, the company's head, immensely, and consider him one of the great visionary leaders in higher ed. I did some rather extensive consulting work for Randy a few years ago (before I was devoting most of my time to CCAP), and agree with the UT Prez that the company has done some remarkably innovative things --at low cost, good quality, and high consumer satisfaction.
The outsourcing of some educational sources makes sense. A university should view itself as a service provider that buys the services of various vendors in order to offer its "output" of degrees and courses. Some of those vendors will be individual professors like myself, whose services will be hired by the institution on an employer-employee basis. Other workers may simply contract with the institution individually rather than become an employee. In still other cases, a for-profit company may offer to provide the services, as with the Toledo case. A good university will use all of these modes of purchasing inputs used in producing educational services, the exact mix of them varying with cost and sometimes legal considerations.
The outsourcing appoach has advantages. It often uses cheaper, more fliexible labor inputs, and avoids the rigidity and bureaucracy associated with tenure and dealing with teacher unions (a malady inflicted on Toledo), etc. As needs change, out-sourced contracts change as well, allowing for a faster reallocation of resources. Whether the Higher Education Holdings arrangement is optimal for Toledo, I do not know --there are other for-profit providers, for example. But I do believe that the principle of outsourcing more services is an excellent one, and I commend Toledo for considering it strongly. I also hope the Education Establishment at Toledo does not prevail in preventing this innovation from occuring. It is this type of obstructionist behavior that contributes to the high schools prevailing in higher education.
INSIDE HIGHER ED has an interesting story this morning about a controversy at the University of Toledo. The school is contemplating signing a contract with Higher Education Holdings, a Texas-based for-profit comppany, in which that company would handle some of Toledo's on-line instruction in return for a share of tuition revenues. This is precisely the type of innovative thinking that we have long advocated at the Center for College Affordability and Productivity, and I was delighted to hear about the proposal.
Full disclosure: I am a very small stockholder in Higher Education Holdings. I bought the stock (which is closely held) because I admire Randy Best, the company's head, immensely, and consider him one of the great visionary leaders in higher ed. I did some rather extensive consulting work for Randy a few years ago (before I was devoting most of my time to CCAP), and agree with the UT Prez that the company has done some remarkably innovative things --at low cost, good quality, and high consumer satisfaction.
The outsourcing of some educational sources makes sense. A university should view itself as a service provider that buys the services of various vendors in order to offer its "output" of degrees and courses. Some of those vendors will be individual professors like myself, whose services will be hired by the institution on an employer-employee basis. Other workers may simply contract with the institution individually rather than become an employee. In still other cases, a for-profit company may offer to provide the services, as with the Toledo case. A good university will use all of these modes of purchasing inputs used in producing educational services, the exact mix of them varying with cost and sometimes legal considerations.
The outsourcing appoach has advantages. It often uses cheaper, more fliexible labor inputs, and avoids the rigidity and bureaucracy associated with tenure and dealing with teacher unions (a malady inflicted on Toledo), etc. As needs change, out-sourced contracts change as well, allowing for a faster reallocation of resources. Whether the Higher Education Holdings arrangement is optimal for Toledo, I do not know --there are other for-profit providers, for example. But I do believe that the principle of outsourcing more services is an excellent one, and I commend Toledo for considering it strongly. I also hope the Education Establishment at Toledo does not prevail in preventing this innovation from occuring. It is this type of obstructionist behavior that contributes to the high schools prevailing in higher education.
Wednesday, February 25, 2009
Obamination
By Richard Vedder
Earlier, I asked whether this was "Obama's Nation" or whether his policies were an "Obamination." After listening to last night's ersatz State of the Union address, there is no question in my mind that it is the latter. It was the single most frightening speech I recall having heard from an American politician over more than a half of century of listening to such speeches. Given my hypertension, I had to take it in small doses, but I would predict that on February 24, 2010, the economy will be in no better shape than now (unemployment above 7.5 percent, a Dow that is low), interest rates and inflation will be on the rise, and Obama will be blaming the persistent problems on greedy capitalists rather than himself. Obama is arguably our first purely socialist president, a person who has utter contempt for free enterprise. I also sense a streak of authoritarianism in him, and would not surprised to see an attempt to consolidate political power by unethical and possibly illegal means, by doing such things as trying to silence Rush Limbaugh and doing away with elections for union representation. I, of course, may be wrong. And Congress still has a role to play, although seeing the likes of Nancy Pelosi presiding last night did not instill much confidence.
But let us talk about higher education. I issued a blistering comment to the Associated Press, which soon will be in print around the country, ending any remote chances I had for a White House invitation for the next four years -- no big deal. Here is what is wrong with the announced higher education policy:
1) The notion that every child should have some postsecondary education is completely unrealistic and, well, dumb. We have thousands of disabled kids who have trouble telling time, and who are warehoused in schools because we don't know what else to do with them. They surely cannot complete a meaningful high school diploma which has integrity, much less any college. Hundreds of thousands drop out of high school annually for a multitude of reasons --family dysfunctions, drugs, abysmal quality schools, low cognitive abilities, etc. They do not belong in postsecondary schools. I would argue that we already have too many kids pursuing degrees for the sake of degrees. There is a need for more vocational training of many of our less academically successful youth, but that is not what the President seems to be calling for in his remarks to date.
2) The notion we will be number one in the percent of young adults with bachelor's degrees or more by 2020 does not accord with reality, particularly given our pathetically bad government schools that provide most of the secondary education in this nation. It is nearly mathematically impossible for us to pass Norway, for example, unless the Norwegians decide to embrace American progressive education with a vengeance overnight, which is highly unlikely.
3) Huge tax credits for Americans going to college in the stimulus bill add to the problem of rising tuition costs. My sidekick Andrew Gillen has developed the theory and facts to support that statement in an absolutely brilliant paper that CCAP is going to release very shortly. The Pell Grant increase, another part of the bill, actually makes more sense on both theoretical grounds and from the standpoint of American ideals of equal opportunity. The vast expansion of government student loans for middle class Americans will clearly raise costs, as colleges move to capture the funds.
4) Infrastructure help for colleges flowing from the stimulus plan is suspect given the low utilization rates of existing physical plant.
5) There are no proposals so far to demand accountability of colleges, to require them to measure outcomes, etc. There is no effort to change the way higher education services are delivered, a prerequisite to true positive change in American higher education. Indeed, there doesn't even seem to be anyone in charge of higher education on Maryland Avenue (which may or may not be bad).
My blood pressure is rising, so I better stop. I have made my point.
Earlier, I asked whether this was "Obama's Nation" or whether his policies were an "Obamination." After listening to last night's ersatz State of the Union address, there is no question in my mind that it is the latter. It was the single most frightening speech I recall having heard from an American politician over more than a half of century of listening to such speeches. Given my hypertension, I had to take it in small doses, but I would predict that on February 24, 2010, the economy will be in no better shape than now (unemployment above 7.5 percent, a Dow that is low), interest rates and inflation will be on the rise, and Obama will be blaming the persistent problems on greedy capitalists rather than himself. Obama is arguably our first purely socialist president, a person who has utter contempt for free enterprise. I also sense a streak of authoritarianism in him, and would not surprised to see an attempt to consolidate political power by unethical and possibly illegal means, by doing such things as trying to silence Rush Limbaugh and doing away with elections for union representation. I, of course, may be wrong. And Congress still has a role to play, although seeing the likes of Nancy Pelosi presiding last night did not instill much confidence.
But let us talk about higher education. I issued a blistering comment to the Associated Press, which soon will be in print around the country, ending any remote chances I had for a White House invitation for the next four years -- no big deal. Here is what is wrong with the announced higher education policy:
1) The notion that every child should have some postsecondary education is completely unrealistic and, well, dumb. We have thousands of disabled kids who have trouble telling time, and who are warehoused in schools because we don't know what else to do with them. They surely cannot complete a meaningful high school diploma which has integrity, much less any college. Hundreds of thousands drop out of high school annually for a multitude of reasons --family dysfunctions, drugs, abysmal quality schools, low cognitive abilities, etc. They do not belong in postsecondary schools. I would argue that we already have too many kids pursuing degrees for the sake of degrees. There is a need for more vocational training of many of our less academically successful youth, but that is not what the President seems to be calling for in his remarks to date.
2) The notion we will be number one in the percent of young adults with bachelor's degrees or more by 2020 does not accord with reality, particularly given our pathetically bad government schools that provide most of the secondary education in this nation. It is nearly mathematically impossible for us to pass Norway, for example, unless the Norwegians decide to embrace American progressive education with a vengeance overnight, which is highly unlikely.
3) Huge tax credits for Americans going to college in the stimulus bill add to the problem of rising tuition costs. My sidekick Andrew Gillen has developed the theory and facts to support that statement in an absolutely brilliant paper that CCAP is going to release very shortly. The Pell Grant increase, another part of the bill, actually makes more sense on both theoretical grounds and from the standpoint of American ideals of equal opportunity. The vast expansion of government student loans for middle class Americans will clearly raise costs, as colleges move to capture the funds.
4) Infrastructure help for colleges flowing from the stimulus plan is suspect given the low utilization rates of existing physical plant.
5) There are no proposals so far to demand accountability of colleges, to require them to measure outcomes, etc. There is no effort to change the way higher education services are delivered, a prerequisite to true positive change in American higher education. Indeed, there doesn't even seem to be anyone in charge of higher education on Maryland Avenue (which may or may not be bad).
My blood pressure is rising, so I better stop. I have made my point.
The Wealth of the United States
By Richard Vedder and Jordan Templeton
Our vast material bounty was not given to us solely by God. Rather, most of it was created from the wealth of the nation. That wealth accumulated over time through various forms of investment. And most of that wealth today is in the form of the talents derived from human resources. That is why many say that higher education is largely an exercise in the creation of human capital.
In order to assess the contribution of higher education in human capital formation, the first step is to calculate the size of the nation's human capital stock, which added to the physical capital stock is the nation's total stock of resources and, approximately, the national wealth.
We calculated the value of the human capital of the U.S. by simply adding together the discounted present value of the future compensation of all workers. Certain assumptions have to be made, of course, including ones relating to interest rates, probable future earnings growth, work life expectancy, etc. With that in mind, our initial estimate is that the U.S. human capital stock in 2007 was worth slightly over $96 trillion dollars. This estimate is preliminary, and could be modified in either direction after some refinements we are doing in the interest of accuracy.
Since estimates of the value of the physical capital stock (including housing) approach $50 trillion, it would appear than the total national wealth approaches $150trillion, or nearly $500,000 a person. Interestingly, two-thirds of that wealth is in the form of labor resources, consistent with labor absorbing roughly two-thirds of the national income. The national capital-output ratio is about 10 --there are $10worth of resources for each dollar of output generated annually. You could say that implies about a 10 percent annual rate of return on the stock of physical and human capital.
Calculating the national wealth in the aggregate helps put other problems in perspective. The unfunded Social Security liability of less than $10 trillion seems managable given the magnitude of our wealth, although when one adds the much larger unfunded Medicare liability, the total obligation of over $50 trillion is a lot even for a nation as rich as ours, and annual trillion dollar borrowings to finance government on a regular basis can become an additional major strain. Adding to that over $50 trillion in unfunded liabilities (via, for example, expanded entititlements to citizens) would definitely put the national balance sheet into a serious condition and helps explain the concern of some (including at least one of us) about our ability to engage in vast stimulus packages and new social welfare programs.
Our purpose in calculating the nation's human capital stock is simple --we want to try to disaggregate the portion of that stock that was created by formal learning at different levels from the proportion that was created through more informal learning mechanisms in the home and on-the-job training. And we would like to calculate the incremental impact on wealth arising from college education. This is a tricky business, as we hope to point out in future studies.
Stay tuned. This is the first of hopefully many writings at CCAP on this topic.
Richard Vedder directs the Center for College Affordability and Productivity and is Distinguished Professor of Economics at Ohio University. Jordan Templeton is a CCAP research assistant and an undergraduate student.
Our vast material bounty was not given to us solely by God. Rather, most of it was created from the wealth of the nation. That wealth accumulated over time through various forms of investment. And most of that wealth today is in the form of the talents derived from human resources. That is why many say that higher education is largely an exercise in the creation of human capital.
In order to assess the contribution of higher education in human capital formation, the first step is to calculate the size of the nation's human capital stock, which added to the physical capital stock is the nation's total stock of resources and, approximately, the national wealth.
We calculated the value of the human capital of the U.S. by simply adding together the discounted present value of the future compensation of all workers. Certain assumptions have to be made, of course, including ones relating to interest rates, probable future earnings growth, work life expectancy, etc. With that in mind, our initial estimate is that the U.S. human capital stock in 2007 was worth slightly over $96 trillion dollars. This estimate is preliminary, and could be modified in either direction after some refinements we are doing in the interest of accuracy.
Since estimates of the value of the physical capital stock (including housing) approach $50 trillion, it would appear than the total national wealth approaches $150trillion, or nearly $500,000 a person. Interestingly, two-thirds of that wealth is in the form of labor resources, consistent with labor absorbing roughly two-thirds of the national income. The national capital-output ratio is about 10 --there are $10worth of resources for each dollar of output generated annually. You could say that implies about a 10 percent annual rate of return on the stock of physical and human capital.
Calculating the national wealth in the aggregate helps put other problems in perspective. The unfunded Social Security liability of less than $10 trillion seems managable given the magnitude of our wealth, although when one adds the much larger unfunded Medicare liability, the total obligation of over $50 trillion is a lot even for a nation as rich as ours, and annual trillion dollar borrowings to finance government on a regular basis can become an additional major strain. Adding to that over $50 trillion in unfunded liabilities (via, for example, expanded entititlements to citizens) would definitely put the national balance sheet into a serious condition and helps explain the concern of some (including at least one of us) about our ability to engage in vast stimulus packages and new social welfare programs.
Our purpose in calculating the nation's human capital stock is simple --we want to try to disaggregate the portion of that stock that was created by formal learning at different levels from the proportion that was created through more informal learning mechanisms in the home and on-the-job training. And we would like to calculate the incremental impact on wealth arising from college education. This is a tricky business, as we hope to point out in future studies.
Stay tuned. This is the first of hopefully many writings at CCAP on this topic.
Richard Vedder directs the Center for College Affordability and Productivity and is Distinguished Professor of Economics at Ohio University. Jordan Templeton is a CCAP research assistant and an undergraduate student.
Tuesday, February 24, 2009
Variable Costs in Higher Education
by Daniel Bennett
Inside Higher Ed published a story today in which University of Florida asked tenured faculty member Florence Babb to increase her teaching load to 3 courses per year to help the university (which pays her an annual salary of nearly $100k) get through the current downturn. Babb, who currently teaches 2 class a semester and serves as coordinator of a women's study center, refuses to accept increased responsibility and has brought her faculty union to help battle the request. So much for asking workers to increase productivity.
Firms make production decisions by finding the optimal output level by setting the marginal cost (MC) equal to the marginal revenue (MR). MR is derived from a revenue function, in which total revenues (TR) are equal to the product of price and quantity {TR = P*Q}. MC is derived from a cost function, in which total costs (TC) are equal to the total fixed costs (FC) plus the product of the average variable cost (VC) and quantity {TC = FC + (AVC*Q)}. By setting MC equal to MR, the optimal output is achieved when P = AVC.
In general, fixed costs are comprised of capital and variable costs of labor.
This is not necessarily the case for the higher education industry due to the presence of academic tenure that guarantees faculty members lifetime employment. Assuming that the average new faculty member begins at the age of 30 and plans to retire at 65, this supposed labor input has essentially become a fixed cost due to the compensation the university has guaranteed the faculty member for the next 35 years. It has absolutely no resale value and the school can't call the local faculty repair man to come fix it when it becomes unproductive (like it can for other capital investments). Considering that faculty members comprise a majority of a college's labor force, their being a FC substantially impairs a school's ability to adjust its VC's during different stages of the business cycle.
In most industries, a firm will reduce its VC's during downturns in the economy and this is what we have seen with the large number of layoffs in the private sector. In doing so, firms retain their best employees and ask them to be more productive for the sustainability of the organization. The higher education industry (also faced with the reality of an economic downturn) has a harder time reducing its VC's, partly due to faculty tenure contracts and unions. Essentially, faculty members, which comprise a majority of their labor force, are FC's for colleges. Is it any wonder why colleges increasingly hire part-time adjuncts to teach?
The UF story mentioned above illustrates that faculty members are more of a FC than a VC and provides ammunition for the coalition to eliminate academic tenure and/or continue to staff classrooms with adjunct instructors. Colleges and other industries (e.g. auto, government) are not immune from business cycles and should be permitted to reduce costs when times are tough. Faculty unions attempt to remove this capability without providing much in the way of concessions. Job security is a benefit (not an entitlement) and should come as a trade-off for wages and other compensation (retirement, health care, time off, etc). Faculty should be presented with a menu of benefits to choose from that includes tenure. Those who choose job security should receive a reduction in pay or other benefits commensurate to a net present value calculation.
This would help to alleviate the problem associated with labor being a high FC by allowing them to more readily adjust VC's during different phases of the business cycle. This in turn would help control tuition. After all, schools should be be producing where P = AVC. If colleges can't significantly reduce their AVC's because labor is more of a FC, then it would follow that schools will either have to raise prices or close up shop.
Inside Higher Ed published a story today in which University of Florida asked tenured faculty member Florence Babb to increase her teaching load to 3 courses per year to help the university (which pays her an annual salary of nearly $100k) get through the current downturn. Babb, who currently teaches 2 class a semester and serves as coordinator of a women's study center, refuses to accept increased responsibility and has brought her faculty union to help battle the request. So much for asking workers to increase productivity.
Firms make production decisions by finding the optimal output level by setting the marginal cost (MC) equal to the marginal revenue (MR). MR is derived from a revenue function, in which total revenues (TR) are equal to the product of price and quantity {TR = P*Q}. MC is derived from a cost function, in which total costs (TC) are equal to the total fixed costs (FC) plus the product of the average variable cost (VC) and quantity {TC = FC + (AVC*Q)}. By setting MC equal to MR, the optimal output is achieved when P = AVC.
In general, fixed costs are comprised of capital and variable costs of labor.
This is not necessarily the case for the higher education industry due to the presence of academic tenure that guarantees faculty members lifetime employment. Assuming that the average new faculty member begins at the age of 30 and plans to retire at 65, this supposed labor input has essentially become a fixed cost due to the compensation the university has guaranteed the faculty member for the next 35 years. It has absolutely no resale value and the school can't call the local faculty repair man to come fix it when it becomes unproductive (like it can for other capital investments). Considering that faculty members comprise a majority of a college's labor force, their being a FC substantially impairs a school's ability to adjust its VC's during different stages of the business cycle.
In most industries, a firm will reduce its VC's during downturns in the economy and this is what we have seen with the large number of layoffs in the private sector. In doing so, firms retain their best employees and ask them to be more productive for the sustainability of the organization. The higher education industry (also faced with the reality of an economic downturn) has a harder time reducing its VC's, partly due to faculty tenure contracts and unions. Essentially, faculty members, which comprise a majority of their labor force, are FC's for colleges. Is it any wonder why colleges increasingly hire part-time adjuncts to teach?
The UF story mentioned above illustrates that faculty members are more of a FC than a VC and provides ammunition for the coalition to eliminate academic tenure and/or continue to staff classrooms with adjunct instructors. Colleges and other industries (e.g. auto, government) are not immune from business cycles and should be permitted to reduce costs when times are tough. Faculty unions attempt to remove this capability without providing much in the way of concessions. Job security is a benefit (not an entitlement) and should come as a trade-off for wages and other compensation (retirement, health care, time off, etc). Faculty should be presented with a menu of benefits to choose from that includes tenure. Those who choose job security should receive a reduction in pay or other benefits commensurate to a net present value calculation.
This would help to alleviate the problem associated with labor being a high FC by allowing them to more readily adjust VC's during different phases of the business cycle. This in turn would help control tuition. After all, schools should be be producing where P = AVC. If colleges can't significantly reduce their AVC's because labor is more of a FC, then it would follow that schools will either have to raise prices or close up shop.
Chart of the week: 02/24/09
This chart shows that increases in pay of university administrators continue to outpace increases in the median income.
View pas charts of the week here.
Source: CUPA-HR, Social Security Administration
Monday, February 23, 2009
Links for 2-23-09
by Andrew Gillen
The Chronicle of Higher Education finds out who the highest paid higher educators are.
Also be sure to check out this Chronicle of Higher Education story on executive pay. The scariest part is the number of senior executives/administrators. If my count is right, the Chronicle found 274 such positions. Of course, not all schools have all 274 positions, but this is exactly what we are talking about when we discuss bloated administrative staffing.
Greg Mankiw, commenting on why the satisfaction with economics majors at Harvard is low says
Finally, I’ll conclude with a series of quotes from EduBubble postings. I don’t necessarily agree with all of them, but they raise good points that can’t be ignored.
He says colleges raise tuition because they can:
The Chronicle of Higher Education finds out who the highest paid higher educators are.
the highest-paid college employee in the country was Pete Carroll, head football coach at the University of Southern California, with $4.4-million in total compensation (pay plus benefits).Glad to see we have our priorities straight.
Also be sure to check out this Chronicle of Higher Education story on executive pay. The scariest part is the number of senior executives/administrators. If my count is right, the Chronicle found 274 such positions. Of course, not all schools have all 274 positions, but this is exactly what we are talking about when we discuss bloated administrative staffing.
Greg Mankiw, commenting on why the satisfaction with economics majors at Harvard is low says
student satisfaction is low precisely because the student-faculty ratio is high.He lists a number of ways to combat this, concluding with this one
Some angel with deep pockets could give the university a wad of cashPerhaps it’s just me, but I find it hard to muster up any extra sympathy here, but I disagree with the commenters on Felix Salmon's article, who argued that making $200,000 a year doesn’t make you rich.
Finally, I’ll conclude with a series of quotes from EduBubble postings. I don’t necessarily agree with all of them, but they raise good points that can’t be ignored.
He says colleges raise tuition because they can:
Society already pumps a ton of money into the schools through hundreds of big and little programs. If these aren’t helping keep college affordable, do you think another will make a difference? Colleges spend every penny they can get and then they demand tuition from students because the students are happy to pay it. So why not charge what the market will bear?He sees austerity coming for colleges:
The beautiful shining ideal of a college filled with Starbucks, Stairmasters, and huge unshared rooms was only possible when the schools schnookered you into mortgaging all of the future income.He doesn’t like the FAFSA, or the NY Times take on it:
she doesn’t deal with the weird philosophical incentive to spend like crazy because the schools will take any dollar you actually save. She just talks about the complexity of the form and how some folks want to make it simpler, they really do, but there’s no easy way to squeeze all of the money out of the parents and the tax payer without requiring a ton of information.
Stimulus for the Educated
by Daniel Bennett
Analysis by Georgetown University's Center for Education and the Workforce estimates that 54 percent of the jobs to be "created or preserved" by the $787 billion monstrosity will require at least some post secondary education.
Researcher Anthony Carnevale described it as:
Analysis by Georgetown University's Center for Education and the Workforce estimates that 54 percent of the jobs to be "created or preserved" by the $787 billion monstrosity will require at least some post secondary education.
Researcher Anthony Carnevale described it as:
"This isn't a bill for people with shovels, it's a bill for people with training and college degrees..."Carnevale also notes:
"There's obviously direct aid in [the stimulus package] to help keep colleges running...the other thing the bill does is ensure a steady supply of customers needing their services."If the Center's analysis is correct, combined with the massive federal expansion into higher education by way of increased financial aid and college campus infrastructure spending, then any light that may have been seen near the end of the tunnel (in terms of making college more affordable and productive) appears to be dissipating. Increased government expenditures on post secondary education will provide a green light for business as usual at U.S. college campuses, which has significantly contributed to the run up in tuition pricing. College officials will continue to reward themselves handsomely for a job not-so-well done, with the average senior executive at all degree-granting institutions making nearly $150k per year, according to 2008-09 data recently released by CUPA-HR.
Friday, February 20, 2009
Higher Ed's Inflation Problem
by Andrew Gillen
In the story that spurred my previous post, there is this quote from a student:
In the story that spurred my previous post, there is this quote from a student:
“I think putting in a lot of effort should merit a high grade... What else is there really than the effort that you put in?”Here is my take on the issue.
Higher Ed Establishment: Grade inflation is a problem, why is it that you insist on getting better and better grades?On a completely, totally, and absolutely unrelated note, this is a quote from a paper on financial aid that I'm putting the finishing touches on:
Students: Our success is measured by our grades and our grades should reflect our hard work.
Higher Ed Establishment: But hard work is a highly imperfect measure of what you’ve actually learned.
Students: You can’t possibly judge us on how much we’ve learned. We’ve been refining our methods to appear to work very hard all through elementary, middle, and high school, and it would be unfair to change the game on us. Demonstrating effort is all we know how to do.
Higher Ed Establishment: Shouldn’t you really be focused on how much you learn instead of how hard you worked?
Students: Whatever, just give us an A.
Is it any wonder that when we measure schools based on inputs, which are costly, that costs continually rise?Here is my take on the issue.
Society: Cost inflation is a problem, why is it that you insist on consuming more and more money?
Higher Ed Establishment: Our success is measured by our reputation, and our reputation should reflect how much money we spend building that reputation.
Society: But money spent is a highly imperfect measure of how much your students actually learn.
Higher Ed Establishment: You can’t possibly judge us on how much learning takes place. We’ve been refining our methods to appear to be improving ourselves by spending ever more money for years, and it would be unfair to change the game on us. Spending more money is all we know how to do.
Society: Shouldn’t you really be focused on how much learning takes place instead of how much money you get to spend?
Higher Ed Establishment: Whatever, just give us more money.
Grade Inflation
by Andrew Gillen
The New York Times has an article about grade inflation that is worth checking out.
The go to source on this matter is gradeinflation.com, but it's bordering on being out of date. Luckily, a major update is scheduled for March 4th. I look forward to it.
The New York Times has an article about grade inflation that is worth checking out.
A recent study by researchers at the University of California, Irvine, found that a third of students surveyed said that they expected B’s just for attending lectures, and 40 percent said they deserved a B for completing the required reading...This can lead to tension when students have old school professors:
James Hogge, associate dean of the Peabody School of Education at Vanderbilt University, said: “Students often confuse the level of effort with the quality of work. There is a mentality in students that ‘if I work hard, I deserve a high grade.’ “
“I tell my classes that if they just do what they are supposed to do and meet the standard requirements, that they will earn a C,” he said. “That is the default grade. They see the default grade as an A.”As someone who was recently on both sides of the grading divide I can sympathize with both. As a student, I understood the intense pressure that getting good grades imposes. At the same time, as a teacher, I was baffled by the sense of entitlement and grade grubbing (as Jack Black put it so eloquently in School of Rock) among some students.
The go to source on this matter is gradeinflation.com, but it's bordering on being out of date. Luckily, a major update is scheduled for March 4th. I look forward to it.
Thursday, February 19, 2009
Chronic Obliviousness
By Richard Vedder
Dan Thomasson is a writer for the Scripps Howard News Service who very often has some common sense type columns that are food for thought. His most recent one was on higher education, and it was brutal --but a good indication of an increasing attitude amongst the American public.
Thomasson opines "academia always had had a tin ear when it comes to reality. Perhaps a better way of describing the condition is chronic obliviousness. At a time when the nation and the world are reeling from unemployment, frozen salaries...the message being sent by the nation's institutions of higher learning seems not only insensitive but devoid of common sense."
Amen. My thoughts exactly, as any reader of this blog will know. But why? Why are businessmen, many government officials, and families highly sensitive to economic hardships being inflicted by economic downturn, but academics are not? More generally, why do academics live in "an Ivory Tower" where they are clueless or insensitive about the real world?
I think the answer lies in the third party payments that subsidize university operations, along with the independence granted universities by the broader community. In the real world, markets discipline human behavior. If sales and profits fall at XYZ Corp., stock prices fall, stockholders get angry, vultures circle to make an offer to buy the company, bonuses are reduced, etc. The Board of Directors might fire the CEO. Consequences are real and painful.
In higher ed, there are no "profits" or other good bottom line measures of performance. There are seldom bonuses to be cut, no stock options that could become worthless, and no board hounding the CEO (President) to improve performance. Faculty has tenure, an employment arrangement that prompts chronic obliviousness like none other I know. To shield the universities from political interference, we give them remarkable freedom with only a minimum of outside scrutiny or accountability. There is a price for this --increasing insensitivity of universities to real world problems, an arrogance that comes from a lack of checks and balances brought on by competition, etc. For this reason, I think true university reform only will come when there is a radical restructuring on the way universities operate.
Dan Thomasson is a writer for the Scripps Howard News Service who very often has some common sense type columns that are food for thought. His most recent one was on higher education, and it was brutal --but a good indication of an increasing attitude amongst the American public.
Thomasson opines "academia always had had a tin ear when it comes to reality. Perhaps a better way of describing the condition is chronic obliviousness. At a time when the nation and the world are reeling from unemployment, frozen salaries...the message being sent by the nation's institutions of higher learning seems not only insensitive but devoid of common sense."
Amen. My thoughts exactly, as any reader of this blog will know. But why? Why are businessmen, many government officials, and families highly sensitive to economic hardships being inflicted by economic downturn, but academics are not? More generally, why do academics live in "an Ivory Tower" where they are clueless or insensitive about the real world?
I think the answer lies in the third party payments that subsidize university operations, along with the independence granted universities by the broader community. In the real world, markets discipline human behavior. If sales and profits fall at XYZ Corp., stock prices fall, stockholders get angry, vultures circle to make an offer to buy the company, bonuses are reduced, etc. The Board of Directors might fire the CEO. Consequences are real and painful.
In higher ed, there are no "profits" or other good bottom line measures of performance. There are seldom bonuses to be cut, no stock options that could become worthless, and no board hounding the CEO (President) to improve performance. Faculty has tenure, an employment arrangement that prompts chronic obliviousness like none other I know. To shield the universities from political interference, we give them remarkable freedom with only a minimum of outside scrutiny or accountability. There is a price for this --increasing insensitivity of universities to real world problems, an arrogance that comes from a lack of checks and balances brought on by competition, etc. For this reason, I think true university reform only will come when there is a radical restructuring on the way universities operate.
Replicable Science
by Andrew Gillen
Felix Salmon has some thoughts on the necessity of being able to replicate research.
Spurring the post was this paper by B. D. McCullough and Ross McKitrick which has this hilarious/scary line:
I'm sympathetic to his point in general, but I'm much more forgiving to the point of disagreement. Empirical research (in economics anyway) is plagued by messy data, imperfect proxies, simplifying assumptions, methodological controversy, etc. Thus, you can always accuse the researcher of impropriety (something some of the commenters on this blog take glee in doing to us). But I think we'd be better off giving researchers the benefit of the doubt while at the same time (and this is crucial) recognizing that empirical research is almost by definition imperfect.
Because any given empirical work is imperfect, I'm not going to be much more convinced by seeing the same thing done the same way multiple times. The best use of researchers time is not to replicate already imperfect studies, but to use other methods, other data, other proxies, and other assumptions to help determine just how imperfect the original study was. If we've got multiple studies all done differently and all pointing to the same thing, we can be pretty confident in the result, even though none of the studies inspires much confidence individually.
Felix Salmon has some thoughts on the necessity of being able to replicate research.
Spurring the post was this paper by B. D. McCullough and Ross McKitrick which has this hilarious/scary line:
Labour Economics called for replication papers in 1993, but dropped the section after 1997 because they had received no submissions.Felix's overall take is that
If you're running an empirical study, and your results aren't replicable, your study is largely worthless.
I'm sympathetic to his point in general, but I'm much more forgiving to the point of disagreement. Empirical research (in economics anyway) is plagued by messy data, imperfect proxies, simplifying assumptions, methodological controversy, etc. Thus, you can always accuse the researcher of impropriety (something some of the commenters on this blog take glee in doing to us). But I think we'd be better off giving researchers the benefit of the doubt while at the same time (and this is crucial) recognizing that empirical research is almost by definition imperfect.
Because any given empirical work is imperfect, I'm not going to be much more convinced by seeing the same thing done the same way multiple times. The best use of researchers time is not to replicate already imperfect studies, but to use other methods, other data, other proxies, and other assumptions to help determine just how imperfect the original study was. If we've got multiple studies all done differently and all pointing to the same thing, we can be pretty confident in the result, even though none of the studies inspires much confidence individually.
The Stimulus
by Andrew Gillen
This picture from Macroblog shows stimulus spending out to 2019. Education is lumped together with Labor, Health, Volunteering, and Social Security (the gray slice):
This picture from Macroblog shows stimulus spending out to 2019. Education is lumped together with Labor, Health, Volunteering, and Social Security (the gray slice):
Wednesday, February 18, 2009
Links for 2/18/09
by Andrew Gillen
EduBubble has a nice post, including this gem:
EduBubble has a nice post, including this gem:
These grants and tax breaks are just hidden college loans taken out by society.And his conclusion is dead on:
I would be a bigger supporter of the education if it weren’t so terribly wasteful. Most students use little of their education when they graduate. While I’m a big believer in learning for the sake of learning, I don’t think we should be saddling ourselves with tons of debt to indulge our curiousity. Let people be curious as a hobby. Don’t run up tens if not hundreds of thousands of dollars in debt just to build a talent for comparative literature.Paul Kedrosky hopes that the inevitable slowdown in the college cost explosion is upon us.
Part of the problem is, of course, cheap credit. The ready availability of state support, whether through state schools, bond issues, or student loan programs has made it easier for tuition costs to rise rapidly over the last twenty years, as cost ascend merrily to match governmental credit-fuelled munificence...To the extent that its costs are predicated on income from loan-fuelled students, and its operations requires further cheap credit, that will steadily (and in some cases speedily) change in the coming years
The Next Bubble
by Daniel Bennett
Community and vocational colleges have been one of the few bright spots in terms of affordability over the past few years. Such schools have been able to offer practical job training at a reasonable price (a great opportunity for the non-traditional student to hone his/her skills) because they don't have huge overhead costs and a vastly expensive administrative bureaucracy. Well, those days may be drawing to an end in the near future, thanks to the Obama administration's "economic recovery" bill, which will add nearly $4 billion to the Department of Labor's budget for training and employment. Almost $3 billion of which will support programs of the Workforce Investment Act, which will sign contracts with job training institutions, including community colleges and tech/vocational schools.
According to the VP for government relations at the American Association of Community Colleges, David Baime:
By passing such legislation, Congress and the new administration have effectively enabled the next bubble -- tuition at community and training colleges. Enhanced bureaucracies and bloated staff salaries are on the horizon for a sector that has traditionally avoided the public resentment of rising tuition.
Community and vocational colleges have been one of the few bright spots in terms of affordability over the past few years. Such schools have been able to offer practical job training at a reasonable price (a great opportunity for the non-traditional student to hone his/her skills) because they don't have huge overhead costs and a vastly expensive administrative bureaucracy. Well, those days may be drawing to an end in the near future, thanks to the Obama administration's "economic recovery" bill, which will add nearly $4 billion to the Department of Labor's budget for training and employment. Almost $3 billion of which will support programs of the Workforce Investment Act, which will sign contracts with job training institutions, including community colleges and tech/vocational schools.
According to the VP for government relations at the American Association of Community Colleges, David Baime:
"With the extra cash, the colleges could pay for equipment, curriculum packages, additional faculty members, and other needs. At a time when the colleges are getting budget cuts … getting those expenditures covered by the federal government is really helpful."At a cursory glance, this may sound like a plausible plan to provide Americans with additional job training, which I concede is of utmost importance. However, there are unintended consequences to every action and history shows us that similar public subsidies for colleges provide little incentive to control costs and hence, tuition. In fact, there is evidence which suggests that subsidies are counter productive in this regard. By expanding operations, community/vocational schools will incur additional residual costs (staff, maintenance, etc) and create a pacifier culture (or what economist Ronald Ehrenberg has termed the Cookie Monster syndrome) in which schools suck up all the resources possible, including in this case massive taxpayer dollars, with reckless abandon. Not to mention the fact that the subsidies will be very difficult to defuse in the future, creating yet another liability for the hyperbolic federal budget.
By passing such legislation, Congress and the new administration have effectively enabled the next bubble -- tuition at community and training colleges. Enhanced bureaucracies and bloated staff salaries are on the horizon for a sector that has traditionally avoided the public resentment of rising tuition.
Tuesday, February 17, 2009
The Holy Trinity: Greed, Stupdity and Arrogance At America's Universiities
By Richard Vedder
Barack Obama is signing a bill today that will once again allow American university presidents, at least at public schools, to continue on their inefficient ways. The stimulus package contains enough dollars to allow most colleges to have a merely mildly uncomfortable budget adjustment instead of a fundamental reinvention of the delivery of higher education services. Aside from budgetary funds directed specifically for education, there are lots of dollars for enhanced spending by organizations like the National Institutes of Health and the National Science Foundation, much of which will filter down to campuses.
Universities have gotten fat, rich and arrogant during the last generation. The National Center for Education Statistics (and a calculator) tells us that in 1976, there were 3.15 full time administrators or "other professionals" working at universities for every 100 full time equivalent students. By 2005, that number had nearly doubled, to 6.06. In 1976, it took 10 professional staff to educate a 100 students; today, it takes more than 14.
Rather than embracing technology to lower labor costs, we in higher education have expanded bureaucracies --simply because we could. And we have started to pay them princely salaries, arguing that we have to compete with corporations. Bull. Facing far greater risks and financial consequences than higher education, corporations have cut staff to the bone, and have raised productivity to remain competitive. Higher education has done the opposite, and does not either deserve nor require corporate level salaries.
Let us look at higher education then and now. I will use my own university as an example. Forty years ago, in 1968-69, the dean of the business school made $22,000 a year. Today's counterpart makes $242,500. Allowing for inflation, that is a real doubling in salary (particularly since the inflation adjustment, the CPI, is generally acknowledged to have overstated inflation in that era). This ignores soaring fringe benefits, and is dramatically more than real compensations per hour in the private sector (about 60 percent). And that is not an isolated example. The head football coach in 1968 (a campus legend with a great record) made $20,400 a year, one third the inflation adjusted salary of the current $330,000 (with bonuses extra) coach. While some positions have seen real gains in pay of "only" 60-70 percent, on the whole the administrative bureaucracy has grown not only enormously in size, but also in emoluments, relative both to the American population and to the faculty (who have not, however, done badly either --salaries for new assistant professors of economics, for example, rose around 50 percent in inflation-adjusted terms, and probably 60 percent when fringe benefit expansion is considered).
Here is the hustle. University presidents and other academic hookers go to the legislature, DC, or to private donors and beg for more money --to make college more affordable, to promote economic growth, to reinvigorate the American Dream - the spiel du jour used in this con game varies with time and place. A naive but well intentioned public gives us university folks more or less what we want (although, ironically, we rarely say thank you), and we use some of it to line our pockets, some to lower our teaching load (faculty), increase our power (administrators), etc. And of course, we sock it to the students too --raising tuition fees constantly. Without the pressure of market discipline, we become arrogant and greedy.
What about the "stupidity" in the title of this blog? Aren't university officials pretty clever to be able to convince Americans to subsidize them in the good life? Yes, but greed sometimes makes them stupid - even from the standpoint of their own narrow self-interest. Today's INSIDE HIGHER ED has a great story showing how public and campus opinion is turning strongly against presidents who have taken huge bonus payments in the midst of national economic suffering and campus cutbacks (one is my own president, Rod McDavis, who apparently refuses to return a cent of the $85,000 pay hike he received back to the university). Astute presidents (David Hodge of Miami University comes to mind, but there are others) have rejected these bonus payments, knowing how they create enormous resentment on campus and anger in the broader community. For some, greed trumps common sense, leading to stupidity.
Barack Obama is signing a bill today that will once again allow American university presidents, at least at public schools, to continue on their inefficient ways. The stimulus package contains enough dollars to allow most colleges to have a merely mildly uncomfortable budget adjustment instead of a fundamental reinvention of the delivery of higher education services. Aside from budgetary funds directed specifically for education, there are lots of dollars for enhanced spending by organizations like the National Institutes of Health and the National Science Foundation, much of which will filter down to campuses.
Universities have gotten fat, rich and arrogant during the last generation. The National Center for Education Statistics (and a calculator) tells us that in 1976, there were 3.15 full time administrators or "other professionals" working at universities for every 100 full time equivalent students. By 2005, that number had nearly doubled, to 6.06. In 1976, it took 10 professional staff to educate a 100 students; today, it takes more than 14.
Rather than embracing technology to lower labor costs, we in higher education have expanded bureaucracies --simply because we could. And we have started to pay them princely salaries, arguing that we have to compete with corporations. Bull. Facing far greater risks and financial consequences than higher education, corporations have cut staff to the bone, and have raised productivity to remain competitive. Higher education has done the opposite, and does not either deserve nor require corporate level salaries.
Let us look at higher education then and now. I will use my own university as an example. Forty years ago, in 1968-69, the dean of the business school made $22,000 a year. Today's counterpart makes $242,500. Allowing for inflation, that is a real doubling in salary (particularly since the inflation adjustment, the CPI, is generally acknowledged to have overstated inflation in that era). This ignores soaring fringe benefits, and is dramatically more than real compensations per hour in the private sector (about 60 percent). And that is not an isolated example. The head football coach in 1968 (a campus legend with a great record) made $20,400 a year, one third the inflation adjusted salary of the current $330,000 (with bonuses extra) coach. While some positions have seen real gains in pay of "only" 60-70 percent, on the whole the administrative bureaucracy has grown not only enormously in size, but also in emoluments, relative both to the American population and to the faculty (who have not, however, done badly either --salaries for new assistant professors of economics, for example, rose around 50 percent in inflation-adjusted terms, and probably 60 percent when fringe benefit expansion is considered).
Here is the hustle. University presidents and other academic hookers go to the legislature, DC, or to private donors and beg for more money --to make college more affordable, to promote economic growth, to reinvigorate the American Dream - the spiel du jour used in this con game varies with time and place. A naive but well intentioned public gives us university folks more or less what we want (although, ironically, we rarely say thank you), and we use some of it to line our pockets, some to lower our teaching load (faculty), increase our power (administrators), etc. And of course, we sock it to the students too --raising tuition fees constantly. Without the pressure of market discipline, we become arrogant and greedy.
What about the "stupidity" in the title of this blog? Aren't university officials pretty clever to be able to convince Americans to subsidize them in the good life? Yes, but greed sometimes makes them stupid - even from the standpoint of their own narrow self-interest. Today's INSIDE HIGHER ED has a great story showing how public and campus opinion is turning strongly against presidents who have taken huge bonus payments in the midst of national economic suffering and campus cutbacks (one is my own president, Rod McDavis, who apparently refuses to return a cent of the $85,000 pay hike he received back to the university). Astute presidents (David Hodge of Miami University comes to mind, but there are others) have rejected these bonus payments, knowing how they create enormous resentment on campus and anger in the broader community. For some, greed trumps common sense, leading to stupidity.
Monday, February 16, 2009
Two Depressing Stories
by Andrew Gillen
From Inside Higher Ed
From The Chronicle of Higher Education
From Inside Higher Ed
financial aid officers were baffled by the department’s desire to get rid of a program that does not cost the federal government a dime, saves colleges and students time and effort, and provides data-driven guidance for how the government might improve its methods of delivering financial aid.
From The Chronicle of Higher Education
Having insisted that institution-level results be incomparable, and thus of little value, the SUNY institutions proceeded to argue that the results shouldn't be reported to state officials, on the grounds that they were incomparable, and thus of little value. Plus, you never know when someone might start asking rude questions. "Stop gathering the numbers at a central place where they are potentially vulnerable to a freedom-of-information request," pleaded one institution. And so New York's short, doomed experiment in publicly reporting how much college students learn effectively came to an end.
Follow the Leader
by Daniel Bennett
Johns Hopkins University is the latest school to announce a hiring and salary freeze. This comes as no surprise as colleges across the US react to the downturn in the economy that has resulted in large losses of college endowments and a decline in college affordability for students and their parents. JHU took a step in the right direction by imposing a 5 percent reduction in top administrator pay--a act that should be viewed by the public and college officials as a realistic opportunity to make useful change.
However there is still much to be desired with respect to bringing colleges back to reality at a time when administrative pay is bloated and the number of high ranking college bureaucrats has risen disproportionately to student enrollment. The number of FTE executive-level officials has grown by more then 53 percent over the past 20 years, whereas FTE enrollment only grew by 39 percent.* These trends have contributed to the public outrage over the soaring price of college, along with a plethora of other missteps along the way.
A friend of mine has a newborn little girl and is already thinking about saving for her college education. She was shocked after talking to her financial advisor to find out that the family will need to save over $400 a month for the next 18 years in order to cover the cost of attending the University of Virginia (a Public college) if the current tuition trends continue to rise at the rates that they have over the last decade. This is assuming a 10% annual rate of return on investment. This is ridiculous and something has to give. The current recession is a perfect opportunity to correct many of the failed policies and university mismanagement that have enabled the tuition bubble and allow it to burst, so that the future generation of Americans can afford to earn an education and advance our nation and world economically.
* Figures cited are from ongoing research and represent a sample of 2,784 degree-granting colleges, which represents 55% of degree-granting institutions and 85.5 percent of student enrollment
Johns Hopkins University is the latest school to announce a hiring and salary freeze. This comes as no surprise as colleges across the US react to the downturn in the economy that has resulted in large losses of college endowments and a decline in college affordability for students and their parents. JHU took a step in the right direction by imposing a 5 percent reduction in top administrator pay--a act that should be viewed by the public and college officials as a realistic opportunity to make useful change.
However there is still much to be desired with respect to bringing colleges back to reality at a time when administrative pay is bloated and the number of high ranking college bureaucrats has risen disproportionately to student enrollment. The number of FTE executive-level officials has grown by more then 53 percent over the past 20 years, whereas FTE enrollment only grew by 39 percent.* These trends have contributed to the public outrage over the soaring price of college, along with a plethora of other missteps along the way.
A friend of mine has a newborn little girl and is already thinking about saving for her college education. She was shocked after talking to her financial advisor to find out that the family will need to save over $400 a month for the next 18 years in order to cover the cost of attending the University of Virginia (a Public college) if the current tuition trends continue to rise at the rates that they have over the last decade. This is assuming a 10% annual rate of return on investment. This is ridiculous and something has to give. The current recession is a perfect opportunity to correct many of the failed policies and university mismanagement that have enabled the tuition bubble and allow it to burst, so that the future generation of Americans can afford to earn an education and advance our nation and world economically.
* Figures cited are from ongoing research and represent a sample of 2,784 degree-granting colleges, which represents 55% of degree-granting institutions and 85.5 percent of student enrollment
Friday, February 13, 2009
The Second Battle of Yorktown
By Richard Vedder
My friend Dick Bishirjian, president of Yorktown University, is annoyed, and rightly so, but a proposal apparently making its way through the New Jersey legislature. A bill in that state would consider degrees from colleges not accredited by a regional accreditor to be invalid (illegal was the term used in the email to me). In other words, if a primarily internet based school is accredited by a national accreditor recognized by the U.S. Department of Education, that is not good enough for the State of New Jersey (if this legislation becomes law).
This is still another of numerous attempts by some in the higher education establishment to restrict competition, and give cartel status to the regional accrediting agencies. As the email to me indicated, a similar effort was foiled in Texas last year, where an attempt was made to accept as accredited graduates only those attending SACS-accredited institutions.
It would be interesting to prosecute states who enact such legislation for violating the Constitutional rights of individuals (the Commerce Clause of the Constitution), not to mention the Sherman and Clayton Anti-Trust acts. I hate excessive litigation, I even dislike the anti-trust laws, but sometimes you have to use the weapons at your disposal.
Proposals like this are simply awful. The regional accrediting agencies are controlled, typically, by boards made up of college presidents and other senior folks at the schools being regulated. They have never, ever, closed down a major institution for academic mediocrity. They are terrible at quality control, but are excellent at squandering resources, at restricting competition, at enhancing tuition fees, and, in short, ripping off consumers. To give these agencies monopoly status would be horrible.
I am not against the concept of certifying the level of quality of institutions, no more than I am against Consumer Reports evaluating which manufacturers make the best cars. But the current system needs big change. Moving to transparent evidence of student outcomes would greatly alleviate the need for organizations like SACS, North Central, etc. If the Obama Administration truly cares about college students and wants to make college more affordable, it will crack down on these efforts to restrict competition.
My friend Dick Bishirjian, president of Yorktown University, is annoyed, and rightly so, but a proposal apparently making its way through the New Jersey legislature. A bill in that state would consider degrees from colleges not accredited by a regional accreditor to be invalid (illegal was the term used in the email to me). In other words, if a primarily internet based school is accredited by a national accreditor recognized by the U.S. Department of Education, that is not good enough for the State of New Jersey (if this legislation becomes law).
This is still another of numerous attempts by some in the higher education establishment to restrict competition, and give cartel status to the regional accrediting agencies. As the email to me indicated, a similar effort was foiled in Texas last year, where an attempt was made to accept as accredited graduates only those attending SACS-accredited institutions.
It would be interesting to prosecute states who enact such legislation for violating the Constitutional rights of individuals (the Commerce Clause of the Constitution), not to mention the Sherman and Clayton Anti-Trust acts. I hate excessive litigation, I even dislike the anti-trust laws, but sometimes you have to use the weapons at your disposal.
Proposals like this are simply awful. The regional accrediting agencies are controlled, typically, by boards made up of college presidents and other senior folks at the schools being regulated. They have never, ever, closed down a major institution for academic mediocrity. They are terrible at quality control, but are excellent at squandering resources, at restricting competition, at enhancing tuition fees, and, in short, ripping off consumers. To give these agencies monopoly status would be horrible.
I am not against the concept of certifying the level of quality of institutions, no more than I am against Consumer Reports evaluating which manufacturers make the best cars. But the current system needs big change. Moving to transparent evidence of student outcomes would greatly alleviate the need for organizations like SACS, North Central, etc. If the Obama Administration truly cares about college students and wants to make college more affordable, it will crack down on these efforts to restrict competition.
An Audacity of Hope
by Daniel Bennett
It was announced on Thursday that the Gates Foundation is providing the National Student Clearinghouse with a $2.9 million grant to develop a national student database. The database will enable the tracking of student achievement through postsecondary education, and hopefully, beyond.
According to the announcement:
It was announced on Thursday that the Gates Foundation is providing the National Student Clearinghouse with a $2.9 million grant to develop a national student database. The database will enable the tracking of student achievement through postsecondary education, and hopefully, beyond.
According to the announcement:
"This new Clearinghouse system an expansion of its StudentTracker for High Schools system will address the urgent need within the education community for a standardized method for measuring the actual educational outcomes of students once they finish high school. Currently, there is no universally accepted way to determine the postsecondary attainment of high school students. As a result, U.S. policy makers and educators are unable to uniformly assess the performance of the nation's secondary school system and make information-based decisions on policy and program improvements."I agree that this provides a fantastic opportunity to produce data for policy makers to utilize in making decisions on public expenditures for education, rather than relying on old-fashioned conjectures and romanticized ideology. Such a system will permit us to understand which schools (both K-12 and college) are performing well and help us steer our educational methodology in the right direction. The best part is that the operation is privately controlled and not subject to the inefficient federal bureaucracy. I would hope that the system eventually be expanded to include post college graduation outcomes, but let's count this as a victory for now and laud the fact that we have an Audacity of Hope for future generations.
Thursday, February 12, 2009
Public College Subsidies-...Off With Their Heads
by Daniel Bennett
Inside Higher Ed ran a story this morning that discusses a trend in which public universities are increasingly recruiting out-of-state students. Some of the schools mentioned dished out a healthy dose of rhetoric by indicating that such strategies are intended to bolster geographic diversity of the student population. The idea that the goal is to increase revenue streams (due to the fact the out-of-state students pay up to 4x the tuition of an in-state student) to compensate for expected declines in state subsidies, was shrugged off as a secondary benefit. I say phony bologna.
The current recession is a perfect opportunity to make lasting change that will ultimately reduce the cost of college to students and taxpayers alike. Let's rid the public dime of the inefficient operation and excessive spending of state-sponsored public college. We need to cut state subsidies altogether and force colleges to compete on price and quality. The excessive spending will surely reign in, as colleges will trim back the non-education related services and bloated administrative salaries because they will be faced with the reality that students are going to vote with their wallets and those schools who offer a good value will survive and flourish. And those who don't will be faced with the decision to innovate, cut costs and improve quality, or to close up shop. The efficient markets theory can surely apply to higher education and in the medium to long term, reduce the costs of higher education substantially and at the same time, help to balance the state and national budgets. Maybe then, financial aid for low-income students can actually be effective at increasing access and making college more affordable.
Inside Higher Ed ran a story this morning that discusses a trend in which public universities are increasingly recruiting out-of-state students. Some of the schools mentioned dished out a healthy dose of rhetoric by indicating that such strategies are intended to bolster geographic diversity of the student population. The idea that the goal is to increase revenue streams (due to the fact the out-of-state students pay up to 4x the tuition of an in-state student) to compensate for expected declines in state subsidies, was shrugged off as a secondary benefit. I say phony bologna.
The current recession is a perfect opportunity to make lasting change that will ultimately reduce the cost of college to students and taxpayers alike. Let's rid the public dime of the inefficient operation and excessive spending of state-sponsored public college. We need to cut state subsidies altogether and force colleges to compete on price and quality. The excessive spending will surely reign in, as colleges will trim back the non-education related services and bloated administrative salaries because they will be faced with the reality that students are going to vote with their wallets and those schools who offer a good value will survive and flourish. And those who don't will be faced with the decision to innovate, cut costs and improve quality, or to close up shop. The efficient markets theory can surely apply to higher education and in the medium to long term, reduce the costs of higher education substantially and at the same time, help to balance the state and national budgets. Maybe then, financial aid for low-income students can actually be effective at increasing access and making college more affordable.
Links 2/12/09
by Andrew Gillen
Edububble finds out that "some colleges are giving the students their loan money in special debit cards that come with nasty fees." Story here.
Phi Beta Cons highlights a mini Madoff who milked UC out of an extra 100k, and then got the school to cover it up. Story here.
And last but not least, Al Roth opines about the health care market and how the law of one price does not apply. An insurer says:
Another good point:
Edububble finds out that "some colleges are giving the students their loan money in special debit cards that come with nasty fees." Story here.
Phi Beta Cons highlights a mini Madoff who milked UC out of an extra 100k, and then got the school to cover it up. Story here.
And last but not least, Al Roth opines about the health care market and how the law of one price does not apply. An insurer says:
The same service delivered the same way with the same outcome can vary in cost from one provider to the next by as much as 300 percent.I can't help but opine myself that this is happening in higher education too. I would love to be proven wrong on this, but that would require value added analysis, which schools are highly resistant to.
Another good point:
some attention will have to be paid to paying for some of the things that now may be paid for with hidden cross-subsidies.Also check out his earlier post on the effect that information can have on behavior. This too has clear parallels to higher education.
More of the Same Old Thing
By Richard Vedder
I read that the University of Massachusetts is raising its tuition rates by 15 percent, while Dartmouth College is raising theirs by "only" five percent. This is in a year in which the Consumer Price Index rose by only 0.1 percent, the smallest increase in over a half a century.
It is more of the same old thing. Raise real tuition fees a lot. If legislatures won't let universities do it, they do it anyhow through the back door --new fees and charges. Slim down staff a tad, give small or no salary increases. But do not try to make Major League changes in the way we do business. And then beg Congress to throw extra billions out of airplanes to sustain the uneconomic situation for another year or two. It is all very sad.
**************
Meanwhile, Jim Coleman shows me an article in INSIDE HIGHER ED where it is revealed that Tufts wants to limit the amount of pre-college credit that students can use for graduation. Tufts proposal is liberal compared with Williams or Boston College, which flatly will not take AP credit towards graduation. These moves are justified on some sort of quality control basis. Apparently a little AP is okay (at least at Tufts --whose faculty still have to approve the plan)--but not too much. We would not want any students graduate in three years, saving them $50,000. Let us put impediments to reducing the costs of higher education.
************
The new Secretary of Education Arne Duncan pleased the American College of Education audience he spoke to yesterday. Why? Apparently gone were the threats from his predeccsor demanding accountability and results. Instead, the audience heard all the platitudes about being the best system of higher education in the world. The voices of reform are being pushed aside, and the enablers of uneconomic and anti-productive policies are being encouraged --Duncan worried that not enough tens of billions will be dropped out of planes over campuses, enabling colleges to continue their old unproductive ways.
If I sound grouchy and pessimistic, that is how I feel.
I read that the University of Massachusetts is raising its tuition rates by 15 percent, while Dartmouth College is raising theirs by "only" five percent. This is in a year in which the Consumer Price Index rose by only 0.1 percent, the smallest increase in over a half a century.
It is more of the same old thing. Raise real tuition fees a lot. If legislatures won't let universities do it, they do it anyhow through the back door --new fees and charges. Slim down staff a tad, give small or no salary increases. But do not try to make Major League changes in the way we do business. And then beg Congress to throw extra billions out of airplanes to sustain the uneconomic situation for another year or two. It is all very sad.
**************
Meanwhile, Jim Coleman shows me an article in INSIDE HIGHER ED where it is revealed that Tufts wants to limit the amount of pre-college credit that students can use for graduation. Tufts proposal is liberal compared with Williams or Boston College, which flatly will not take AP credit towards graduation. These moves are justified on some sort of quality control basis. Apparently a little AP is okay (at least at Tufts --whose faculty still have to approve the plan)--but not too much. We would not want any students graduate in three years, saving them $50,000. Let us put impediments to reducing the costs of higher education.
************
The new Secretary of Education Arne Duncan pleased the American College of Education audience he spoke to yesterday. Why? Apparently gone were the threats from his predeccsor demanding accountability and results. Instead, the audience heard all the platitudes about being the best system of higher education in the world. The voices of reform are being pushed aside, and the enablers of uneconomic and anti-productive policies are being encouraged --Duncan worried that not enough tens of billions will be dropped out of planes over campuses, enabling colleges to continue their old unproductive ways.
If I sound grouchy and pessimistic, that is how I feel.
Tuesday, February 10, 2009
The Growth of University Bureaucracy Revisited
By Richard Vedder
My wife is forever nagging me to throw away old records, files and junk. In the process of doing so the other day, I discovered a list of positions and salaries for the administration of Ohio University of precisely 40 years ago --the 1968-69 school year. I suspect OU is a very typical state university, and what I say below is the rule and not the exception for American universiites.
There has been about a 10-15 percent increase in enrollment at the school, and when one factors in some inrease in the real volume of research, arguably the school is 25percent larger than it was four decades ago. But the administrative structure grew far faster.
At the top of the pyramid in 1968 was a President, an Executive Vice President, a Provost, three vice presidents, an assistant provost, and a chief business officer. A total of eight persons ran the school. Today, there are 17 persons I count in comparable positions. Today, we have, of course, a "Chief Information Officer." Instead of one assistant provost, we have 10 associate or vice provosts. The number of top administrators per student has come close to doubling. Going further down the ladder, the number of public relations professionals and affirmative action persons has far more than doubled.
Also, in the 1960s, the president was considered to be the equivalent of a super faculty member --part of the university community paid more than others, but not dramatically more. Today, the OU president makes about 10 times what the president did 40 years ago, whereas salaries of facuty have risen less, perhaps seven or at most eight-fold. The CPI rose about six fold --but if one allows for overstatement of inflation in that index, the true inflationary factor is probably about five fold. Real faculty salaries probably rose on the order of 50 percent, while that of the president roughly doubled. If football coaches are taken into account, the widening salary disperio between faculty and non-teaching administration is even more dramatic.
Today, we are told the business of running a university is far more complex than decades ago, and that we need to compensate presidents so that they are competitive with corporate counterparts. Bull. If running a university is more complex, it is becuase we have made it that way, creating unnecessary regulations and bureaucratic structures out of stupdity or hubris. If one were to take the top ten CEOs of financial service companies in the U.S. two years ago, about half of them have lost their jobs. The real comprehensive work income (using the Haig-Simons definition that takes into account changes in wealth associated with employment) of the group over the past two years has probably been negative. There are dire and real consequences of screwing up, of performing poorly. By contrast, if you take the top 10 university presidents (however chosen), probably the turnover has been one or two --and that has been voluntary. And the income of the presidents has been decidedly positive.
Moreover, who knows if the presidents are doing a good or bad job? In the private sector, pay is related to performance (hence the outcry over bonuses to poorly performing executives on Wall Street). Markets discipline bad behavior brutally in the private sector. University presidents do not face that, and should not be compensated remotely on the same scale as business leaders.
Universities are now facing a real financial crunch. I predict they will try to muddle through, putting their major efforts into trying to get more money out of Washington and state capitals. They will grudgingly make some modest reductions in the administrative bureaucracy, but will not try to do the radical rethinking of the way we do business that is desperately needed. As long as third parties continue to pay most of the bills, the problem will remain and grow.
My wife is forever nagging me to throw away old records, files and junk. In the process of doing so the other day, I discovered a list of positions and salaries for the administration of Ohio University of precisely 40 years ago --the 1968-69 school year. I suspect OU is a very typical state university, and what I say below is the rule and not the exception for American universiites.
There has been about a 10-15 percent increase in enrollment at the school, and when one factors in some inrease in the real volume of research, arguably the school is 25percent larger than it was four decades ago. But the administrative structure grew far faster.
At the top of the pyramid in 1968 was a President, an Executive Vice President, a Provost, three vice presidents, an assistant provost, and a chief business officer. A total of eight persons ran the school. Today, there are 17 persons I count in comparable positions. Today, we have, of course, a "Chief Information Officer." Instead of one assistant provost, we have 10 associate or vice provosts. The number of top administrators per student has come close to doubling. Going further down the ladder, the number of public relations professionals and affirmative action persons has far more than doubled.
Also, in the 1960s, the president was considered to be the equivalent of a super faculty member --part of the university community paid more than others, but not dramatically more. Today, the OU president makes about 10 times what the president did 40 years ago, whereas salaries of facuty have risen less, perhaps seven or at most eight-fold. The CPI rose about six fold --but if one allows for overstatement of inflation in that index, the true inflationary factor is probably about five fold. Real faculty salaries probably rose on the order of 50 percent, while that of the president roughly doubled. If football coaches are taken into account, the widening salary disperio between faculty and non-teaching administration is even more dramatic.
Today, we are told the business of running a university is far more complex than decades ago, and that we need to compensate presidents so that they are competitive with corporate counterparts. Bull. If running a university is more complex, it is becuase we have made it that way, creating unnecessary regulations and bureaucratic structures out of stupdity or hubris. If one were to take the top ten CEOs of financial service companies in the U.S. two years ago, about half of them have lost their jobs. The real comprehensive work income (using the Haig-Simons definition that takes into account changes in wealth associated with employment) of the group over the past two years has probably been negative. There are dire and real consequences of screwing up, of performing poorly. By contrast, if you take the top 10 university presidents (however chosen), probably the turnover has been one or two --and that has been voluntary. And the income of the presidents has been decidedly positive.
Moreover, who knows if the presidents are doing a good or bad job? In the private sector, pay is related to performance (hence the outcry over bonuses to poorly performing executives on Wall Street). Markets discipline bad behavior brutally in the private sector. University presidents do not face that, and should not be compensated remotely on the same scale as business leaders.
Universities are now facing a real financial crunch. I predict they will try to muddle through, putting their major efforts into trying to get more money out of Washington and state capitals. They will grudgingly make some modest reductions in the administrative bureaucracy, but will not try to do the radical rethinking of the way we do business that is desperately needed. As long as third parties continue to pay most of the bills, the problem will remain and grow.
Monday, February 09, 2009
Reinvention or Extinction: The Gospel According to St. Gordon
By Richard Vedder
Gordon Gee is clearly one of the most interesting characters on the American higher education scene. Most persons in Columbus, Ohio think he walks on water and is in the process of taking Ohio State to "the next highest level" (heaven?), whatever that means. Gordon's popularity with university presidents is more mixed, however, and I know one or two prominent ones who think he is something of a charlatan/comedian more than a serious thinker about higher education today.
That said, President Gee (formerly of West Virginia University, the University of Colorado, Brown University, and Vanderbilt University) made a remarkable speech at the American Council of Education meetings last week, apparently receiving a standing ovation. And I must admit I really liked most of what Gee had to say.
Universities face "reinvention or extinction" we are told. Universities should not hunker down and beg for enough money to ride out this downturn (which they are doing as we speak with their lobbyists working overtime to get stimulus dollars), but start to rethink the way they do business. Maybe we should deep six academic departments, promote greater interdisciplinary learning, etc., Gee opines. Maybe we should get more serious about the integration of community colleges and four year universities, meaning more than silly little articulation agreements.
All for the good, rhetorically. Gordon is a great talker. But as president of Ohio State he has bloated the administrative staff, and sent top salaries through the roof (beginning, of course, with his own). He has not dared tax the athletic department that takes in well over $100 million a year to help pay for university operations, or bring it into the mainstream of the university as he did (or tried to do) at Vanderbilt. And merely changing the organization of faculty is a trivial change in light of the economics of universities and the problems they face in coming years. Where does technology and capital-labor substitution fit into the mix? How do we provide incentives to make universities more cost conscious? How do we change the "publish or perish" culture to make research more economically viable and less expensive and self-serving? Etc., etc., etc.
Nonetheless, it sounded like a rousing speech, and, knowing Gordon Gee, it was no doubt delivered with much flourish. Enough words, however; let's have some action.
Gordon Gee is clearly one of the most interesting characters on the American higher education scene. Most persons in Columbus, Ohio think he walks on water and is in the process of taking Ohio State to "the next highest level" (heaven?), whatever that means. Gordon's popularity with university presidents is more mixed, however, and I know one or two prominent ones who think he is something of a charlatan/comedian more than a serious thinker about higher education today.
That said, President Gee (formerly of West Virginia University, the University of Colorado, Brown University, and Vanderbilt University) made a remarkable speech at the American Council of Education meetings last week, apparently receiving a standing ovation. And I must admit I really liked most of what Gee had to say.
Universities face "reinvention or extinction" we are told. Universities should not hunker down and beg for enough money to ride out this downturn (which they are doing as we speak with their lobbyists working overtime to get stimulus dollars), but start to rethink the way they do business. Maybe we should deep six academic departments, promote greater interdisciplinary learning, etc., Gee opines. Maybe we should get more serious about the integration of community colleges and four year universities, meaning more than silly little articulation agreements.
All for the good, rhetorically. Gordon is a great talker. But as president of Ohio State he has bloated the administrative staff, and sent top salaries through the roof (beginning, of course, with his own). He has not dared tax the athletic department that takes in well over $100 million a year to help pay for university operations, or bring it into the mainstream of the university as he did (or tried to do) at Vanderbilt. And merely changing the organization of faculty is a trivial change in light of the economics of universities and the problems they face in coming years. Where does technology and capital-labor substitution fit into the mix? How do we provide incentives to make universities more cost conscious? How do we change the "publish or perish" culture to make research more economically viable and less expensive and self-serving? Etc., etc., etc.
Nonetheless, it sounded like a rousing speech, and, knowing Gordon Gee, it was no doubt delivered with much flourish. Enough words, however; let's have some action.
Chart of the Week: 02/09/09
This chart shows that employee productivity at degree-granting institutions has risen slightly over the past twenty years, but has declined in recent years. View past charts here.
Source: IPEDS
Friday, February 06, 2009
Don't Miss This
by Andrew Gillen
Make sure you don't miss this post by Kevin Carey over at the Quick and the Ed:
Make sure you don't miss this post by Kevin Carey over at the Quick and the Ed:
Sample-based measures like the CLA are only the beginning; what we really need to do is start attaching a lot more useful information to individual college credentials while also making the credentialling process itself more open and flexibile, less about having been taught by some kind of formal institution and more about having actually learned something real.While it's still in its infancy, value added measurement is coming. And you might not like the consequences if you're caught off guard by it.
Thursday, February 05, 2009
Kudos to Southern New Hampshire University
by Andrew Gillen
The Boston Globe reports that Southern New Hampshire University has opened a bare bones campus “stripped to its academic core.” For 2/5 of the price, students forgo the new dorms, state of the art fitness center, sparkling cafeterias and leafy quads, and focus on classes “taught by some of the same professors.”
What is so great about this, is that it allows students who can’t afford the college experience to still get a college education:
The Boston Globe reports that Southern New Hampshire University has opened a bare bones campus “stripped to its academic core.” For 2/5 of the price, students forgo the new dorms, state of the art fitness center, sparkling cafeterias and leafy quads, and focus on classes “taught by some of the same professors.”
What is so great about this, is that it allows students who can’t afford the college experience to still get a college education:
"Families come to campus and they want to see a food court, a fitness center with a climbing wall, and brand-new dorms," said Paul LeBlanc, president of Southern New Hampshire. "So we build everything, each one nicer than the other, to remain competitive."
But, LeBlanc added: "I'm not sure that improves education. It just drives the price up. Not everybody needs it, and frankly, not everybody can afford it."
Californians Up in Arms
by Daniel Bennett
Inside Higher Ed reports this morning that Californians are up in arms about a Board of Regents proposal that would change the admissions policy at the University of California system. Currently, applicants must submit scores to two SAT subject tests to be guaranteed a full admission review. The new proposal would waive that requirement as well as reduce the guaranteed admission pool by scaling back the requirement from the top 12.5% to the top 9% of high school graduates.
The idea is that this will make a broader group of high school graduates eligible for admission review and help to expand access to disadvantaged students at the competitive UC system. The rough projections suggest that this change in policy will shift in favor of white student admissions, with slight improvements in the percent of black and Latino admissions, but a reduction in the percentage of Asian admissions. This has caused quite a stir among minority groups, but keep in mind that California has banned affirmative action from admissions procedures.
I'm all for equal opportunity, but not entitlement. The UC system (or any school for that matter) should be focused on recruiting the best students who have the highest chance of succeeding at school and in life, regardless of any demographic or social characteristics. Some will argue that the policy is intended to increase the number of minority students admitted to the selective public schools and were supportive of the change, until they realized that the policy might actually benefit caucasian students (for which it is also possible to be socially disadvantaged) the most. Let's not be hypocritical folks. If Americans truly want to change policy so that it provides more opportunity to those who are disadvantaged economically, then it must apply equally down the line and be race and ethnicity neutral.
Inside Higher Ed reports this morning that Californians are up in arms about a Board of Regents proposal that would change the admissions policy at the University of California system. Currently, applicants must submit scores to two SAT subject tests to be guaranteed a full admission review. The new proposal would waive that requirement as well as reduce the guaranteed admission pool by scaling back the requirement from the top 12.5% to the top 9% of high school graduates.
The idea is that this will make a broader group of high school graduates eligible for admission review and help to expand access to disadvantaged students at the competitive UC system. The rough projections suggest that this change in policy will shift in favor of white student admissions, with slight improvements in the percent of black and Latino admissions, but a reduction in the percentage of Asian admissions. This has caused quite a stir among minority groups, but keep in mind that California has banned affirmative action from admissions procedures.
I'm all for equal opportunity, but not entitlement. The UC system (or any school for that matter) should be focused on recruiting the best students who have the highest chance of succeeding at school and in life, regardless of any demographic or social characteristics. Some will argue that the policy is intended to increase the number of minority students admitted to the selective public schools and were supportive of the change, until they realized that the policy might actually benefit caucasian students (for which it is also possible to be socially disadvantaged) the most. Let's not be hypocritical folks. If Americans truly want to change policy so that it provides more opportunity to those who are disadvantaged economically, then it must apply equally down the line and be race and ethnicity neutral.
Predicting Earthquakes
by Andrew Gillen
Today’s Inside Higher Ed offers some evidence that the predictions I made back in April are coming true.
Fortunately, three things make it unlikely that I’ll let this go to my head. First, in the study, I said that
This last point has been on my mind a lot lately. The profession has come in for some deserved criticism, but I would now like to offer a partial defense. Basically, people have unrealistic expectations of economists.
To illustrate, let me stick with my weather related theme from above. I want to contrast three types of events. The first group concerns regular weather patterns, like summer Monsoons. Because these are reoccurring, theories on them lend themselves to quick and repeated testing, and we would expect for our understanding of them to be fairly good. The second group concerns more detailed information on regular patterns, such as the rain that will fall in September. These are subject to many other factors, so we can only really come up with a range around which we are reasonably confident. The last group concerns theories about events that are rare and/or difficult to test. Predicting earthquakes comes to mind. While we are pretty sure what causes earthquakes, it’s very difficult to use that information to predict earthquakes with any precision.
Now, back to economics. Recessions are a fairly regular occurrence, like monsoons, and as such --patterns have been identified that typically can predict recessions. It’s not perfect (sometimes recessions are predicted and don’t happen), but it’s pretty good. The severity or duration of recessions is like predicting rainfall – we can make some guesses, but can really only come up with a range where we are reasonably confident the value will end up. Depressions are the earthquakes of economics. We can really only (try to) explain them afterwards, and those explanations are not very useful in predicting the next one.
And because Depressions are so rare, we don’t really know what works to get out of one. We’ve only got one observation to work with (domestically anyway), so we're left with a bunch of non-falsifiable conjectures. It’s like trying to draw the correct line when you’re only given one point.
As a Congressional Budget Office (headed by Obama appointee Douglas Emlendorf) report released yesterday notes:
There are really two takeaways from this. First, don’t listen to economists who say they can predict earthquakes. Even if they studied the last one, and drew all the right conclusions, those lessons might not apply to the next one. Second, don’t expect economists to predict, or know how to get out of, earthquakes.
Today’s Inside Higher Ed offers some evidence that the predictions I made back in April are coming true.
Fortunately, three things make it unlikely that I’ll let this go to my head. First, in the study, I said that
readers should bear in mind that economists who try to make predictions tend to make the long-range forecasting of weathermen look good in comparison.This was an admission that there are lots of other factors at work as well. Second, I’m in the middle of reading The Halo Effect. And third, the general failure of my profession to predict the economic meltdown, and the utter confusion about what to do about it.
This last point has been on my mind a lot lately. The profession has come in for some deserved criticism, but I would now like to offer a partial defense. Basically, people have unrealistic expectations of economists.
To illustrate, let me stick with my weather related theme from above. I want to contrast three types of events. The first group concerns regular weather patterns, like summer Monsoons. Because these are reoccurring, theories on them lend themselves to quick and repeated testing, and we would expect for our understanding of them to be fairly good. The second group concerns more detailed information on regular patterns, such as the rain that will fall in September. These are subject to many other factors, so we can only really come up with a range around which we are reasonably confident. The last group concerns theories about events that are rare and/or difficult to test. Predicting earthquakes comes to mind. While we are pretty sure what causes earthquakes, it’s very difficult to use that information to predict earthquakes with any precision.
Now, back to economics. Recessions are a fairly regular occurrence, like monsoons, and as such --patterns have been identified that typically can predict recessions. It’s not perfect (sometimes recessions are predicted and don’t happen), but it’s pretty good. The severity or duration of recessions is like predicting rainfall – we can make some guesses, but can really only come up with a range where we are reasonably confident the value will end up. Depressions are the earthquakes of economics. We can really only (try to) explain them afterwards, and those explanations are not very useful in predicting the next one.
And because Depressions are so rare, we don’t really know what works to get out of one. We’ve only got one observation to work with (domestically anyway), so we're left with a bunch of non-falsifiable conjectures. It’s like trying to draw the correct line when you’re only given one point.
As a Congressional Budget Office (headed by Obama appointee Douglas Emlendorf) report released yesterday notes:
The macroeconomic impacts of any economic stimulus program are very uncertain. Economic theories differ in their predictions about the effectiveness of stimulus. Furthermore, large fiscal stimulus is rarely attempted, so it is difficult to distinguish among alternative estimates of how large the macroeconomic effects would be. For those reasons, some economists remain skeptical that there would be any significant effects, while others expect very large ones.Hence the spectacle of very smart economists accusing each other of not knowing anything. I think Will Wilkinson gets it right:
what doesn’t arise in my mind is a sense that some of these guys really know what they’re talking about while some of them are idiots. What arises in my mind is the strong suspicion that... on the questions that are provoking intramural trashtalk, there is no science.What's basically happening is that folks who can predict monsoons, and come up with good ranges for rain fall in September, are now being asked to predict earthquakes.
There are really two takeaways from this. First, don’t listen to economists who say they can predict earthquakes. Even if they studied the last one, and drew all the right conclusions, those lessons might not apply to the next one. Second, don’t expect economists to predict, or know how to get out of, earthquakes.
Wednesday, February 04, 2009
Addressing College Access
by Daniel Bennett
A new report by Public Agenda and the National Center for Public Policy and Higher Education was recently released. The researchers conducted a poll of more than 1,000 Americans to help determine the public perception of college education. The highlight of the report was a divergence of public sentiment concerning the necessity of a college education to succeed and college access. The results suggest that the percentage of Americans that believe a college education is necessary to succeed has increased from 31 to 55 percent since 2000, but that the percentage of Americans who believe qualified high school students have the opportunity to go to college has declined from 44 to 29 percent during the same time period.
The report suggests that college has become increasingly important, but access has declined. I certainly would agree that post-secondary education (whether vocational, trade or academic) is nearly essential for a successful career and that access is hindered by the upward spiraling costs of attending college, especially for students from low and middle income families. A recent IHEP report examined why qualified high schools students failed to attend college and found that the issues included a lack of encouragement and financial burdens. These disincentives are likely strengthened by misguidance and a lack of knowledge about the college application and financial aid process. But before we go clamoring to the government for a bailout to throw money at the problem (an ineffective approach), let's consider what solutions non-governmental organizations (i.e. the private sector) has to offer.
I recently met with Michael Carter, an outstanding and highly motivated young man, who has started a non-profit organization called Strive for College, which is dedicated to improving college access by developing community mentor relationships between college students and motivated low-income students. Carter's vision is to build a nationwide network of chapters on college campuses that reach out to local high schools to mentor low-income students through the college application, selection and financial aid process. Strive has already established chapters at four colleges (in as many states) and has plans to expand to 10 chapters by the end of the year. This sort of grassroots approach is much more effective (than expending taxpayer dollars on unsuccessful government programs) at extending a hand to the motivated, yet financially disadvantaged, high school student. I look forward to seeing this project flourish in the years to come.
This country's success and ability to overcome obstacles throughout its history has been made possible by innovative solutions from entrepreneurial individuals. This provides reason to believe that the problems facing higher education today can be solved by the same sorts of innovative minds and entrepreneurial spirit, without a desperate call for big brother to ride to the rescue with saddles full of taxpayer dollars.
A new report by Public Agenda and the National Center for Public Policy and Higher Education was recently released. The researchers conducted a poll of more than 1,000 Americans to help determine the public perception of college education. The highlight of the report was a divergence of public sentiment concerning the necessity of a college education to succeed and college access. The results suggest that the percentage of Americans that believe a college education is necessary to succeed has increased from 31 to 55 percent since 2000, but that the percentage of Americans who believe qualified high school students have the opportunity to go to college has declined from 44 to 29 percent during the same time period.
The report suggests that college has become increasingly important, but access has declined. I certainly would agree that post-secondary education (whether vocational, trade or academic) is nearly essential for a successful career and that access is hindered by the upward spiraling costs of attending college, especially for students from low and middle income families. A recent IHEP report examined why qualified high schools students failed to attend college and found that the issues included a lack of encouragement and financial burdens. These disincentives are likely strengthened by misguidance and a lack of knowledge about the college application and financial aid process. But before we go clamoring to the government for a bailout to throw money at the problem (an ineffective approach), let's consider what solutions non-governmental organizations (i.e. the private sector) has to offer.
I recently met with Michael Carter, an outstanding and highly motivated young man, who has started a non-profit organization called Strive for College, which is dedicated to improving college access by developing community mentor relationships between college students and motivated low-income students. Carter's vision is to build a nationwide network of chapters on college campuses that reach out to local high schools to mentor low-income students through the college application, selection and financial aid process. Strive has already established chapters at four colleges (in as many states) and has plans to expand to 10 chapters by the end of the year. This sort of grassroots approach is much more effective (than expending taxpayer dollars on unsuccessful government programs) at extending a hand to the motivated, yet financially disadvantaged, high school student. I look forward to seeing this project flourish in the years to come.
This country's success and ability to overcome obstacles throughout its history has been made possible by innovative solutions from entrepreneurial individuals. This provides reason to believe that the problems facing higher education today can be solved by the same sorts of innovative minds and entrepreneurial spirit, without a desperate call for big brother to ride to the rescue with saddles full of taxpayer dollars.
Art Museums, Radio Stations, Presses: Redeploying Assets
By Richard Vedder
Times are tough for universities, so they are starting to do interesting things out of desperation to cut costs or raise cash. Brandeis University wants to get out of the art museum business. Now the art museum, with paintings perhaps worth millions, costs the school cash to operate. Sell the paintings, the university ends that cash outflow, and gains funds that can be redeployed --increase scholarships, reduce debt, build more vitally needed buildings, etc. At my university's rival, Miami of Ohio, the school has decided to get out of the radio station business, in effect giving the nearby Cincinnati public radio outlet the right to its frequency (although the school will still retain ownership of the license). Still other schools are asking: why do we run an university press? Are the benefits in terms of institutional prestige, etc., enough to justify the costs?
All of these moves have been controversial. But every change, it seems, in higher education is precisely that. No one wants to lose their job, or see a familiar university asset be redeployed. Yet this sort of redeployment goes on all the time in the private sector. Old investments sometimes crumble and fail-- bankruptcy, and on other occasions are sold. Companies exit some endeavors, while entering others. Creative destruction, the essence of capitalism, coexists with creative innovation and construction.
The recession is hitting universities hard enough in some cases that they are being forced to adopt some of the practices of the private sector. David Hodge (the president) of Miami probably reasoned that the residents of Oxford will still be able to get their favorite NPR shows after the station sale, and it was not worth several hundred thousand dollars annually in subsidy just to keep local news that will no longer be aired after the Cincinnati people take over the Miami operation. My suspicion is that President Hodge is absolutely correct. Similarly, my guess is the Brandeis paintings will still be enjoyed by the public after the closure of the museum, to be sure perhaps a different public in different settings. But Brandeis will have more funds for other purposes.
Yet the savings from closing these quasi-academic ventures are actually probably less than can be gained from getting out of other commercial activities that have little or NO academic content. My university rarely gets more than 15,000 persons at a football game or 7,000 for a basketball game, but spends millions on athletic subsidies --at a prohibitively high subsidy per attendee. Almost every university has some food and/or housing operations that could be run more efficiently by outside contractors --and free up millions in capital outlays by so divesting.
I suspect that some schools should contract out some of their academic activities as well. Remedial education is essentially teaching high school level work to (academically speaking) rather mediocre kids --something a variety of private providers do successfully to help high school kids overcome deficiencies so they can graduate. Some nifty proprietary tutorial services are available for college students as well --why not let them handle more of the intensive instruction of students having difficulties? Universities own airplanes (mine does anyhow), printing operations, movie theaters, and a host of other things that are tangential to the mission of schools that might be profitably divested in these times of stress. Necessity is the mother of invention.
Times are tough for universities, so they are starting to do interesting things out of desperation to cut costs or raise cash. Brandeis University wants to get out of the art museum business. Now the art museum, with paintings perhaps worth millions, costs the school cash to operate. Sell the paintings, the university ends that cash outflow, and gains funds that can be redeployed --increase scholarships, reduce debt, build more vitally needed buildings, etc. At my university's rival, Miami of Ohio, the school has decided to get out of the radio station business, in effect giving the nearby Cincinnati public radio outlet the right to its frequency (although the school will still retain ownership of the license). Still other schools are asking: why do we run an university press? Are the benefits in terms of institutional prestige, etc., enough to justify the costs?
All of these moves have been controversial. But every change, it seems, in higher education is precisely that. No one wants to lose their job, or see a familiar university asset be redeployed. Yet this sort of redeployment goes on all the time in the private sector. Old investments sometimes crumble and fail-- bankruptcy, and on other occasions are sold. Companies exit some endeavors, while entering others. Creative destruction, the essence of capitalism, coexists with creative innovation and construction.
The recession is hitting universities hard enough in some cases that they are being forced to adopt some of the practices of the private sector. David Hodge (the president) of Miami probably reasoned that the residents of Oxford will still be able to get their favorite NPR shows after the station sale, and it was not worth several hundred thousand dollars annually in subsidy just to keep local news that will no longer be aired after the Cincinnati people take over the Miami operation. My suspicion is that President Hodge is absolutely correct. Similarly, my guess is the Brandeis paintings will still be enjoyed by the public after the closure of the museum, to be sure perhaps a different public in different settings. But Brandeis will have more funds for other purposes.
Yet the savings from closing these quasi-academic ventures are actually probably less than can be gained from getting out of other commercial activities that have little or NO academic content. My university rarely gets more than 15,000 persons at a football game or 7,000 for a basketball game, but spends millions on athletic subsidies --at a prohibitively high subsidy per attendee. Almost every university has some food and/or housing operations that could be run more efficiently by outside contractors --and free up millions in capital outlays by so divesting.
I suspect that some schools should contract out some of their academic activities as well. Remedial education is essentially teaching high school level work to (academically speaking) rather mediocre kids --something a variety of private providers do successfully to help high school kids overcome deficiencies so they can graduate. Some nifty proprietary tutorial services are available for college students as well --why not let them handle more of the intensive instruction of students having difficulties? Universities own airplanes (mine does anyhow), printing operations, movie theaters, and a host of other things that are tangential to the mission of schools that might be profitably divested in these times of stress. Necessity is the mother of invention.
Tuesday, February 03, 2009
Ashesi University
by Andrew Gillen
William Easterly calls our attention to Ashesi University in Ghana. Begun in 2002, the school is growing rapidly.
William Easterly calls our attention to Ashesi University in Ghana. Begun in 2002, the school is growing rapidly.
Despite widespread international publicity as a homegrown success, Ashesi has yet to receive a single dollar of official aid (one famous official aid agency turned Awuah down when he refused to raise his student-teacher ratios to what he saw as unacceptable levels).The schools website is here, and a recent Seattle Times interview is here.
Monday, February 02, 2009
Chart of the Week: 02/02/09
This chart shows freshman to sophomore retention rates for 2008 by school type.
View past charts of the week here.
Source: ACT
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