“Conventional Wisdom” Not Always Wise

There’s a famous line of Mark Twain’s that goes, “The trouble isn’t what people don’t know, but rather what they know that just ain’t so.”

That’s every bit as true when it comes to education as in any other field. Ideas that people are certain are true because they’re heard them again and again are often untrue. They form the “conventional wisdom” that gets in the way of seeing things the way they really are.

In a new paper entitled “Over Invested and Over Priced,” Richard Vedder takes a critical look at several pieces of the conventional wisdom about higher education. Vedder, a jovial, outspoken economics professor (at Ohio University) has focused his attention on higher education for the last several years. He was one of the few people on the Spellings Commission who raised deep questions about the value students receive for all the money we spend on higher education. In this new paper, he continues doing that.

Here are the main propositions that Vedder examines:

1. Since college graduates are substantially more productive than non-graduates, the country gains from policies that further promote college attendance.
2. Graduates have higher earnings due to the human capital they gain in college.
3. States can give themselves an economic boost by investing in their colleges and universities.
4. It’s just about impossible to lower the cost of college education.

Sound true? Vedder claims those ideas are false – and explains why.

As to the first proposition, Vedder readily acknowledges the statistics showing that average yearly earnings for full-time workers who have college degrees are much higher than average earnings for full-time workers without degrees – a difference of over $27,000 annually. So why don’t we just aim government policy at getting more students through high school and into college? Isn’t it obvious that those students and the nation as a whole would gain?

Not so fast. Vedder points out a serious problem with that line of reasoning. The students who interested in academic work after high school are already going to college. Most of those who now don’t go to college aren’t well prepared for it and want to do other things. Consequently, Vedder concludes, “If incremental state funding encourages relatively unqualified students to pursue college, the marginal attrition rate amongst those students is likely to be extremely high.” (Here, Vedder could have strengthened his argument with evidence that substantial numbers of college graduates now wind up doing jobs that don’t really require any advanced education.)

As to the second proposition, it isn’t the case that the correlation between college attendance and high productivity is especially strong. Most of the students who go to college are very bright and ambitious. They would likely succeed well in life with or without additional years of formal education, as some notables such as Bill Gates have done. On the other hand, pushing a kid who doesn’t have much academic aptitude through college won’t magically transform him. Many lower tier colleges and universities cater to the large number of marginal, “disengaged” students who simply want a college degree with as little effort as possible. For that reason, it’s a mistake to assume that a college degree necessarily means a large – or any – gain in human capital.

Regarding the third proposition of the conventional wisdom, Vedder demonstrates that the presumed relationship between state spending on higher education and economic growth in the state is not just erroneous, but actually gets the truth backwards. His research supports the conclusion that the more a state spends on higher education, the less well its economy performs.

That seems counter-intuitive, but the evidence and the reasoning are compelling. He points to state pairs such as North and South Dakota, Kentucky and Tennessee, where the state with lower higher ed spending has the more robust economy. A coincidence? Probably not. Vedder observes that much of the money a state spends on higher education does not actually do anything to educate students – administrative expenses and non-educational things that come under the higher education budget consume a large share of the spending. Furthermore, increasing higher education spending may well divert resources away from other governmental or private sector efforts that do more to improve economic performance.

The largest portion of the paper is devoted to the fourth proposition. Vedder sees college education as considerably overpriced and takes issue with those who contend that little can be done by lower the cost. Their argument is often made by analogy to the fine arts. Vedder writes, “A modern day painter, even if capable, would take as long as Da Vinci to paint the Mona Lisa. In the arts, there are very limited opportunities for capital-labor substitution, for using cost-saving techniques, etc. Is the same thing true of universities?”

He thinks otherwise, and runs through twelve reasons for the constant and high rate of increase in the cost of college education. I’ll focus on just a few of them.

First, and probably most importantly, a very large percentage of the money flowing into higher education comes through third party payments. Overwhelmingly, that means the state and federal governments, which subsidize both students and schools. So? “When someone else is paying the bills,” Vedder writes, “consumers are less conscious of cost considerations, and that in turn leads to some distortion and inefficient use of inputs used to produce higher education services.” If we were to move away from government subsidization, the impetus for rapidly escalating expenditures would disappear and the natural tendency for people and institutions to spend carefully would assert itself.

Another key point Vedder identifies is the rigidity of many higher education resources. Tenure is a good example. While it may protect academic freedom, tenure certainly “makes it difficult to reallocate faculty resources to alternative uses. Universities are often slow to increase instruction where employment demand is soaring, and also slow to reduce or eliminate costly programs no longer in much demand.”

Restraints on competition are still another factor. Even though most colleges are non-profit institutions, competition among them would keep prices down as it does in other sectors of the economy. Unfortunately, it isn’t easy for new entrants to break into the higher education market due to the requirements of accreditation.

The big question, of course, is what should be done. Vedder argues that American higher education would benefit from a healthy dose of “market-based management.” To bring that about, the first step is to wean higher education away from its heavy reliance on government support. He favors eliminating direct government support for institutions and instead giving vouchers to needy, well-performing students instead. Vedder also would like to see schools make more efficient use of their facilities, increase teaching loads, abandon low-enrollment programs, vary tuitions according to costs and demand, and make other cost-saving changes.

“Over Invested and Over Priced” is an important paper on the ailments of American higher education and it should spark a much-needed rethinking of the way we handle this institution. Throwing aside the blinders of “conventional wisdom” is the first step and I applaud Rich Vedder for helping us do that.