College Costs: Supply and Demand a Monetray View

As many know the costs of college has been exploding beyond any other inflationary costs in our economy. I read a book recently entitled Why Does College Cost so Much, by Archibald and Feldman, two academic economists and I saw many reasons, not one described by the authors, but by the fact that the authors were clueless of why. The book is filled with poorly drawn Excel slides and for the most part the slides are comparing apples to oranges. In addition the authors present an argument of costs without ever discussing costs, a trick that would never work in the real world. Ah, academics and ones at a state school at that.

Now to the monetary policy issue. In today's NY Times they recount the proposal of the new Budget wherein Pell Grants should be cut back.

Pell grants for needy college students would be eliminated for summer classes, and graduate students would start accruing interest immediately on federal loans, though they would not have to pay until after they graduate; both changes are intended to help save $100 billion over 10 years to offset the costs of maintaining Pell grants for 9 million students, according to administration officials. 

Now frankly if all Government support were to be eliminated then schools would have to drop the price to meet the demand, a dramatically reduced demand. The Government has a mini monetary policy of pumping cash into secondary education which in effect is inflating its costs but in an insidious manner. There is almost $2 trillion in debt for schools and growing. That is above and beyond the Government debt. When we look at comparing country debts we should for the US include all debt on a pari passu basis and thus if we look to compare ourselves to Greece we must add  Federal, State and Student debts, thus seeing a total well in excess of $20 trillion! That is we have already outdone Greece in debt!

The college debt is a real problem since it is burdening future generations with costs which in no way reflect the value delivered. What good is a fine arts degree in today's world, unless you are from an independently wealth family and already have a secure future. Then again with all the Government loans flowing around, this just drives up the costs, with academic overhead and waste also exploding. Thus the Government should tighten the belt even more. That may help all around.