Going Broke by Degree: Why College Costs Too Much (review)
Buy Issue for $25 at JHUP- Going Broke by Degree: Why College Costs Too Much
As the title of his book suggests, Richard Vedder's evaluation of our current system of financing education is unremittingly negative. Vedder argues that colleges and universities are inefficient organizations that, in the absence of the positive influence of the profit motive, enrich the individuals they employ at the expense of students, governments, and society at large. The price of college rises rapidly because of declining productivity combined with the minimal price sensitivity of students resulting from the prevalence of third-party payments.
Vedder's optimal solution would be to remove the government from the financing of higher education all together. Recognizing the considerable political barriers to this idea, Vedder proposes an alternative solution: replace public subsidies to institutions with vouchers for students. Because these vouchers would be fixed in real terms, students would bear the entire burden of any real increases in tuition levels and would thus be price sensitive. The distinction between public and private colleges and universities would essentially disappear, institutions would operate more efficiently, and the diminished demand for higher education would force prices down. To appease those concerned with access to higher education for low-income students, Vedder allows for the possibility that the value of the vouchers could be income-sensitive.
Vedder employs both quantitative analysis—ranging from back-of-the envelope calculations to straightforward regression analyses—and theoretical arguments suggesting that almost every positive claim made about higher education is unjustified. He contends that the positive externalities of higher education are rapidly diminishing and may, in fact, be outweighed by negative externalities, especially if the detrimental economic impact of the taxes required to finance public subsidies is considered.
Many aspects of Vedder's analysis deserve attention. Unfortunately, the important questions he raises are obscured by the hostile tone of his writing, the legitimate evidence he presents is tainted by his careless analysis and neglect of existing research, and the reasonable suggestions he makes are overshadowed by logical inconsistencies.
Statements that are incendiary rather than constructive abound. Vedder writes that expanding student assistance is "egregiously wrongheaded," [End Page 123] the spread of "political correctness" and the student demonstrations of the 1960s are negative externalities generated by higher education, and an end to affirmative action would significantly reduce expenditures with no loss in academic quality. This is ideology masquerading as objective analysis.
Vedder relies on both shaky theoretical arguments and casual empirical analyses. He argues that universities make a considerable surplus because tuition exceeds the marginal cost of instruction, despite the fact that the marginal cost of educating additional students is generally lower than the average cost. He sees the failure of GRE scores to rise significantly since the 1960s as evidence that learning has not increased and purports to show price-gouging by comparing room and board increases to the CPI for food and housing. He asserts that education provides only a signal for potential employers and not an actual increase in productivity, ignoring the extensive economic literature inconsistent with this conclusion.
Similarly, Vedder dismisses (without examining) a considerable body of sophisticated research when he reports a series of regressions that suggest a negative relationship between investment in higher education and economic growth. The lack of rigor in Vedder's approach is particularly regrettable because there are, in fact, unanswered questions that deserve serious study about the appropriate level of public funding.
One example of the numerous logical inconsistencies in Vedder's argument is that the only apparent explanation for why the proposed vouchers will not be as inflationary as the existing grants he would eliminate is that they will never grow in real terms, not that they are fundamentally different in nature. On an even more basic level, shortly after asserting that the central factor causing tuition to rise is the falling productivity of university personnel, he argues that it is the demand side that plays the dominant role.
Sometimes Vedder seems to have a poor grasp of the relevant facts. His discussion...
