College Costs: Back to Econ 101

This Yahoo News article about college sticker shock offers a couple of explanations, as to why college costs have risen so dramatically -- 250% since 1982.  One possible explanation that the author, Liz Goodwin, offers is that colleges choosing to spend their money on administrative staff and various facilities and services has driven up the cost of an education.  The alternative theory is that because professors still need to spend a certain amount of time in face-to-face contact with student, despite all the technological advances, which costs that much more than it did in 1982.

They argue that a college’s hefty price tag isn’t actually surprising at all, given that it depends on the performance of its workforce—highly educated professors and teachers who provide a face-to-face service, not a material good.

Larger economic trends have jacked up the salaries of highly educated workers across the board in recent decades, while the cost of face-to-face services has also remained high, since technological advances do not necessarily make these services cheaper.

Feldman used the example of the cost of a haircut, which has also outpaced inflation in the past 30 years.

While technology has made factories vastly more efficient at producing goods for less money, technological advances have not been able to make the time a haircut takes shorter or replace the skilled person who has to give the haircut. College is like a haircut on steroids, since the barbers have PhDs.

Without analyzing in detail, this seems seriously flawed to me.  I interacted with professors on occasion in college, but mainly I talked to graduate student TAs.  Professors can lecture as quickly and easily to 500 students as to 50 for the same price.  Though perhaps one could argue that the professor who has 500 in the auditorium should get paid more than the professor who has only 50, somehow I don't think that is how it works.
 
I think Goodwin does hit upon some factors that influence the costs, but I also think there is an underlying and very basic concept that is missed.  Because of the easy availability of guaranteed student loans, there is much more money available to many more potential college graduates than was the case in the past.  When I went to college, it was either private funding or scholarships available to cover the costs.  Student loans and grants were around, I suppose, but I knew very few people who borrowed money to go to college.  Plus, there were many alternatives for people who where not academically-inclined.  The comment about factories quoted above is telling -- industrial production has become much less labor-intensive.  Machines and chips allow fewer people to produce more than ever before.

Tuition inflation is being driven by supply and demand.  Increasing demand for higher education requires colleges to increase the supply of personnel which increases cost.  Access to "free" money, in the form of student loans, makes potential college students out of the upper two-thirds of any graduating high school class.  If loans were based on the capacity for academic success as evidenced by (uninflated) grades and test scores, the college pool would be much smaller.  Also, if we were at all serious about higher education, we would be encouraging students to take courses and major in fields that have some potential for productivity.

I was at a high school graduation over the weekend.  The salutatorian is going to an engineering school to pursue aerospace engineering; the valedictorian is going for an MBA.  I would venture to guess that half the remaining students in that class who go to college will major in pre-law, pre-med, nursing, or education.  I'm glad the salutatorian is going to major in engineering,  but there is hardly a pressing demand for aerospace engineers.  I know for a fact we do not need any more MBAs right now, and that we should declare a moratorium on law degrees for at least the next hundred years.  Health care and education might be "noble" fields, but they are too rife with government intervention and too tied up in bureaucratic Gordian knots to be efficient or particularly productive.

Kids think they have technical skills because they can take pictures on their smart phones and post them to Fakebook.  Maybe they should be encouraged to learn to program computers -- not necessarily get a degree in computer science.  I'd like to see students in agriculture rather than agribusiness learning how to make farming less dependent on petroleum while maintaining or improving quality and quantity.  I'm all for distributed production of power and a computer-controlled lathe and 3-D printer in every workshop, thorium reactors, welders, makers, unique local products, while learning calculus and reading Plato on the internet.

What the system is really admitting is that they don't know how or don't want to educate people without the big system and the big money to feed it.  The education complex is like any overgrown, institutional officialdom.  It eventually loses sight of its purpose and simply exists to feed itself and continue to grow.