Monday, May 13, 2013

Academic Costs

As by now we all know the costs of College education has exploded beyond any reasonable level. In the NY Times today a left wing academic presents a self justifying demand that the Government should spend more on College support, not less.

This economist states:

Some wonder how the American ideal of equality of opportunity has eroded so much. The way we finance higher education provides part of the answer. Student debt has become an integral part of the story of American inequality. Robust higher education, with healthy public support, was once the linchpin in a system that promised opportunity for dedicated students of any means. We now have a pay-to-play, winner-take-all game where the wealthiest are assured a spot, and the rest are compelled to take a gamble on huge debts, with no guarantee of a payoff.

Even if compassion isn’t a factor — even if we focus just on recovery now and growth and innovation tomorrow — we must do something about student debt. Those concerned about the damage America’s growing divide is doing to our ideals and our moral character should put student debt at the top of any reform agenda.

Now one must remember that he is at Columbia, and that Columbia has always been a bastion of socialist and communist sympathizers who also have in my experience harbored abject hatred for Catholics and the like, as demonstrated in my rejection for being a Catholic in 1960. Not that I still remember it, just like yesterday! Still have the letter and all. Again MIT had no problem.

The real problem is two fold:

1. Costs: Consider what it costs to educate a class. Let us do a simple example. Sort of back of the envelope. Assume a class has say 30 students. Let us assume the average Prof teaches two of these a semester, I know some big whigs like the author of the piece may be exempt, but let us look at the typical schlub. Now assume the typical student take 5 of these courses and thus a faculty member supports 2 of them and this means 2.5 faculty members are the cost of the classes. Let us assume we pay them $150,000. so the costs per 30 students is $375,000 per year! Now divide by 30, and that is a cost for the teacher of $12,000 per year. Use 100% overhead, not unrealistic in a service business, especially economics, and you get the total cost per student in say economics of $24,000 per year. However the charge is $48,000! Whoops, where did it double? Administration and excess building overhead. Why, the Government supports and in some cases demands it. So here we have another economist who seems to be ignorant of the old adage, profit equals revenue less costs.

Now there are other economists who also fail to examine the numbers. For example Becker states:

The growth in tuition is not explained by any conspiracy theory, but mainly by increases in the cost of producing college education. Professors and other teachers are the principal input in colleges, so that the cost of these teachers is an important determinant of the cost of producing education. College teachers are well educated since they almost always have Masters degrees, and at the better colleges and universities they are very likely to have PhDs or similar advanced degrees. 

Colleges have to compete for highly educated persons against employers in both the private and public sectors. Since after 1980 earnings of highly educated persons has risen rapidly in these other sectors, colleges have had to pay a lot more for their faculties and administrative staffs. The greatly increased pay of faculty has substantially raised college costs, which in part have been passed on to students through higher tuition and other fees.

This analysis also explains why tuition has grown most rapidly at 4-year private colleges and other elite schools. These schools tend to have faculties that are considered the most skilled and productive, and they invariably have PhDs or other advanced degrees. Since the rise in earnings in recent decades has been greatest for the most educated individuals, the costs of more elite colleges and universities have risen faster than that of other schools. They too have passed through to students some of these much greater costs via much higher tuition.

In my opinion what he says is total nonsense. It was necessary to get great engineering Profs even in the 50s. It is not the salaries. It is the overhead. If one were to make a statement like this then one must be able to have a basis. I have seen the numbers and the costs. It is the cost of all these new Deans, the new buildings with their staff and maintenance. The massive growth in infrastructure, human and inert, is what is the driver. College Presidents are recruited for their ability to raise money while not really bothering the faculty. The problem with raising new funds for buildings is that these monsters need care and upkeep. They need "management" and they consume resources that are just added to the tuition burden. For the most part no College President has a clue about this until one of the "cost centers" economically explodes.

It is a shame that the economists who are justifying these increases have not a clue from whence they come. Perhaps that is why I have never seen an economist run a real company. Just our Government.

2. Majors: Let us face it, one really goes to college to get a job. Employed, the fact that you now have a skill that someone can use to make money. If you are a philosophy major, a fine arts major, a French Literature major, perhaps you cannot find a job. That is your problem. Should you be educated in that fact? Not really, it becomes one of those things you learn as part of life. Should you be allowed to gamble with other people's money when the odds are stacked against you? I would not think so. Then why give aid to those majors which are unemployable. Give tuition support to Engineering students, not art students. Give it to Computer Science and Bio students, not French Literature. Want to major in philosophy, get a wealth set of parents and live off of them. Not us.

Thus this economist has missed all of the key issues. The problem is that we allow these things to happen.