Friday, March 2, 2012

We're Eating Our Seed Corn

The most troubling news article I have seen all week was on the front page of this morning’s New York Times, with the headline “Where the Jobs Are, the Training May Not Be.” The article notes, “As state funding has dwindled, public colleges have raised tuition and are now resorting to even more desperate measures--cutting training for jobs the economy needs most.” It’s a cruel irony that the hottest career skills--health care, high tech, and engineering--are also among the most expensive to teach, partly because of the nature of the equipment used, partly because the instructors need to be offered high salaries to lure them away from nonteaching jobs, and in some cases because of safety requirements.

Cash-strapped states are reducing their subsidies for higher education, forcing students to pay more and in many cases admitting only a small fraction of the students who want to enroll. “At one community college in North Carolina--a state with a severe nursing shortage--nursing program applicants so outnumber available slots that there is a waiting list just to get on the waiting list.”

States continue to cut college funding continue even though higher education is demonstrably one of the best investments a state can make. Google the phrase “every dollar a state invests in higher education,” and you will find research showing that California gets $3 of economic activity for every dollar invested and Texas gets more than $5. One study for the Federal Reserve Bank of Boston (PDF here) estimates a total return to government of $7.46.

So why is it politically acceptable to cut funding to higher education? At root is the implicit belief that (a) the people who get higher education are the ones who benefit from it, so (b) they should pay for it.

It’s important to recognize that this attitude has two parts, and that the second part depends on the accuracy of the first part. But it turns out that the first part of this belief is only half true. Yes, study after study has shown that higher education dramatically increases a person’s income and reduces the likelihood of unemployment. For example, see the Department of Labor’s “Education Pays” page. The recent recession has only amplified this trend.

However, it’s not true that the recipients of higher education are the only people who benefit. That $7.46 return on the dollar of investment is not coming solely from the increased tax payments of the college graduates. Demonstrably, the presence of educated people in the economy causes everybody to be more productive and thus earn more. A fascinating study by UCLA economist Enrico Moretti (PDF here) compared the wages of otherwise similar individuals who work in cities that have differing shares of college graduates. The research showed that “a percentage point increase in the supply of college graduates raises high school drop-outs’ wages by 1.9%, high school graduates’ wages by 1.6%, and college graduates wages by 0.4%.” In other words, everybody benefits from higher education, but it’s the least-educated people who benefit the most.

That’s why it’s so destructive when politicians argue against funding for higher education and whip up popular support by encouraging uneducated people to resent higher education. We saw that happen just this week as presidential candidate Rick Santorum branded President Obama a “snob” because “he wants everybody in America to go to college.” (As notes, the President actually advocates a full range of postsecondary education and training, including apprenticeships.)

In the present political climate, however, it’s not good enough to argue that everyone benefits from spending on higher education. Those who believe in a government small enough to drown in the bathtub don’t want any investments in the public sector that could be replaced by the private sector. In other words, the second half of the key belief--people should pay for higher education--is not based solely on the premise that education benefits only the people who receive it. It also draws on the premise that the private sector does everything best, so investments in higher education should come from the private sector. In practical terms, these investments consist of the loans that college students increasingly take out to pay for their education. Last year student debt passed the $1 trillion mark, exceeding America’s total credit card debt.

We hear increasing warnings that college debt is the next bubble threatening our economy, and sometimes the government itself is accused of inflating the bubble by making cheap college loans available. But consider that much less of this debt would be necessary if we had a well-funded system of public higher education. This is another example of what Thomas Friedman and Michael Mandelbaum refer to in the title of their book That Used to Be Us. We owe much of the post-World War II prosperity to the G.I. Bill and to well-funded state universities such as California used to have. But in the present political climate, it seems that education is too expensive, so we’re going to try ignorance instead.

1 comment:

  1. Excellent commentary, Laurence. That Moretti study is very interesting - I wouldn't have thought to look for that kind of relationship.