“The American university is a grand political accommodation,” says Richard Vedder, an Ohio University economist and founder of the Center for College Productivity and Affordability. College presidents, he argues, appease faculty members by giving them control over what and how they teach. They appease students and parents with high grades and good facilities. They appease alumni with expensive sports teams. They appease politicians with shiny new research centers. “The idea is to buy off any group that might upset the political equilibrium,” Vedder said.
Pearlstein goes on to suggest four steps that colleges could take (but won’t) to cut costs.
Higher education in America is a classic case in which public policy seeks to subsidize demand while restricting supply. Just as in the case of housing, the subsidies largely serve to drive up prices. And as Alex Tabarrok points out,
Prices aren’t rising because costs are rising, however, costs are rising because prices are rising.
I fail to see any restriction of supply other than by the institutions themselves, and no, I don’t see opposing fraud as any restriction on supply.
Is higher education really or meaningfully supply-restricted though? Maybe at top schools, but overall?
And the subsidies to demand were in place in about the same degree 10, 20, and more years ago. But why does the price keep rising faster than inflation, that is, why don’t we hit equilibrium and why is demand apparently so price inelastic?
My answer is that, for an increasing number of people, there is no good way to substitute for education credentials of a certain degree of prestige in terms of the social, professional, and other benefits those credentials purchase.