7 ms·

I only read the article (and not the podcast, if it's different) but I think their argument misrepresents how the economics of higher education work. > "Econom

by brdd 8y ago

I only read the article (and not the podcast, if it's different) but I think their argument misrepresents how the economics of higher education work. > "Economics 101 suggests that declining demand results in lower prices." This isn't true for college sticker prices because colleges have perfect price discrimination. Most students don't pay the sticker price; they pay exactly what they "can". In no other industry do we have such perfect incentives aligned on the provider side to increase prices-- - People who can't afford the higher prices can pay less, through financial aid and scholarship programs. - To determine what is the "maximum" price you can pay, the student/parent voluntarily provides literally every data point possible. Every tax record, every loan, etc. - Because of this perfect price discrimination, an upward trend in college costs (that outpaces inflation) is not only reasonable but expected. It's in the interest of the institution to maximize its surplus/profit to the student's upper limit.

squozzer 8y ago
Also, Econ 101 is essentially a naïve exercise in optimizing price-demand curves (find where f'(x) = 0), which assumes prices always converge on a supply-demand equilibrium point. Another model, found in utilities, fixes the cost point, so when demand falls, prices rise. Did you ever buy into your electric company's "conservation program" and cut your consumption, only to have your rates rise? Congrats, you just got rick-rolled by capitalism, comrade sucker.
oflannabhra 8y ago
The point of the podcast, at least, is that despite all of your points, colleges are taking on enormous amounts of debt, while enrollment is shrinking. They are losing money.
- onlyrealcuzzo 8y ago
  For established non-profit schools? Or new, mostly for-profit schools? I find it hard to believe any reputable, 20+ year-old, non-profit schools are losing money. They should own their assets outright, have extremely low interest rates on any outstanding debt, pay close to 0 taxes. Wages for non-executive staff are not keeping pace with inflation. How are they losing money?
  - majormajor 8y ago
    Gotta have newer, shinier buildings! Not sure my alma mater has stopped construction since I went there, not sure how they pay for it all.
    - marpstar 8y ago
      Same here. When I started my undergrad degree in 2006, my university had just built the first new residence hall in 20+ years. Since since I left in 2010, they've added two new academic buildings and two more 4+ story residence halls. Granted, enrollment continues to climb at the school, but they haven't stopped calling me multiple times a year looking for alumni donations...
    - thelock85 8y ago
      At least in top-tier research institutions I think this is because big-time philanthropists would rather see their name on a new building or expansion, than earmarked for maintenance of existing buildings. So capital expenditures outpace general operation costs born by state/local and current students/non-wealthy alumni.
  - TangoTrotFox 8y ago
    Berkeley is arguably the poster child for many of these problems. They continue running on a deficit.
    - gowld 8y ago
      Berkeley is intentionally a subsidized public school, so their deficit is entangled with their subsidy. Nearly government-funded programs are likewise.
  - juliangoldsmith 8y ago
    In addition to large amounts of new construction, administrative staff has expanded massively [0]. Between 1975 and 2011, the number of full-time, tenured faculty at universities grew by 23%. The number of administrators grew by 369%. The trend seems to be to hire part-time and untenured faculty to keep salaries down, then hire more administrators. [0]: See "Full-Time Nonfaculty Professional" at https://www.aaup.org/sites/default/files/files/2014%20salary%20report/Figure%201.pdf https://www.aaup.org/sites/default/files/files/2014%20salary...
- TangoTrotFox 8y ago
  Most of their costs are self inflicted. A cynic would say that colleges have an incentive to keep their their net low to justify ever higher costs. Look at things like the completely bloated administrative and managerial structures which are now also regularly paired with bloated compensation. And something that happened at my universities, which I expect is typical, is that there was massive and widespread construction. They were constantly building up and tearing down things, even when what they were tearing down was completely functional. It was nonsensical, at least if you assign any value to money. You can even just see things on a macro level. The product that the universities are offering has not meaningfully changed or improved, yet their costs have gone into lala land.
moorhosj 8y ago
Don’t other countries have similar forms of price discrimination? Are their education costs rising at the same rate?
- umanwizard 8y ago
  Other countries have education funded directly by the State. In the US it is funded by a crazy mish-mash of the State, the federal government, endowments, subsidized loans, unsubsidized loans, etc.
deleted 8y ago
[deleted]
pessimizer 8y ago
> This isn't true for college sticker prices because colleges have perfect price discrimination. Most students don't pay the sticker price; they pay exactly what they "can". > In no other industry do we have such perfect incentives aligned on the provider side to increase prices-- (Healthcare.)

by brdd 8y ago

squozzer 8y ago

Also, Econ 101 is essentially a naïve exercise in optimizing price-demand curves (find where f'(x) = 0), which assumes prices always converge on a supply-demand equilibrium point. Another model, found in utilities, fixes the cost point, so when demand falls, prices rise. Did you ever buy into your electric company's "conservation program" and cut your consumption, only to have your rates rise? Congrats, you just got rick-rolled by capitalism, comrade sucker.

oflannabhra 8y ago

The point of the podcast, at least, is that despite all of your points, colleges are taking on enormous amounts of debt, while enrollment is shrinking. They are losing money.

onlyrealcuzzo 8y ago
For established non-profit schools? Or new, mostly for-profit schools? I find it hard to believe any reputable, 20+ year-old, non-profit schools are losing money. They should own their assets outright, have extremely low interest rates on any outstanding debt, pay close to 0 taxes. Wages for non-executive staff are not keeping pace with inflation. How are they losing money?
- majormajor 8y ago
  Gotta have newer, shinier buildings! Not sure my alma mater has stopped construction since I went there, not sure how they pay for it all.
  - marpstar 8y ago
    Same here. When I started my undergrad degree in 2006, my university had just built the first new residence hall in 20+ years. Since since I left in 2010, they've added two new academic buildings and two more 4+ story residence halls. Granted, enrollment continues to climb at the school, but they haven't stopped calling me multiple times a year looking for alumni donations...
  - thelock85 8y ago
    At least in top-tier research institutions I think this is because big-time philanthropists would rather see their name on a new building or expansion, than earmarked for maintenance of existing buildings. So capital expenditures outpace general operation costs born by state/local and current students/non-wealthy alumni.
- TangoTrotFox 8y ago
  Berkeley is arguably the poster child for many of these problems. They continue running on a deficit.
  - gowld 8y ago
    Berkeley is intentionally a subsidized public school, so their deficit is entangled with their subsidy. Nearly government-funded programs are likewise.
- juliangoldsmith 8y ago
  In addition to large amounts of new construction, administrative staff has expanded massively [0]. Between 1975 and 2011, the number of full-time, tenured faculty at universities grew by 23%. The number of administrators grew by 369%. The trend seems to be to hire part-time and untenured faculty to keep salaries down, then hire more administrators. [0]: See "Full-Time Nonfaculty Professional" at https://www.aaup.org/sites/default/files/files/2014%20salary%20report/Figure%201.pdf https://www.aaup.org/sites/default/files/files/2014%20salary...
TangoTrotFox 8y ago
Most of their costs are self inflicted. A cynic would say that colleges have an incentive to keep their their net low to justify ever higher costs. Look at things like the completely bloated administrative and managerial structures which are now also regularly paired with bloated compensation. And something that happened at my universities, which I expect is typical, is that there was massive and widespread construction. They were constantly building up and tearing down things, even when what they were tearing down was completely functional. It was nonsensical, at least if you assign any value to money. You can even just see things on a macro level. The product that the universities are offering has not meaningfully changed or improved, yet their costs have gone into lala land.

moorhosj 8y ago

Don’t other countries have similar forms of price discrimination? Are their education costs rising at the same rate?

umanwizard 8y ago
Other countries have education funded directly by the State. In the US it is funded by a crazy mish-mash of the State, the federal government, endowments, subsidized loans, unsubsidized loans, etc.

deleted 8y ago

[deleted]

pessimizer 8y ago

> This isn't true for college sticker prices because colleges have perfect price discrimination. Most students don't pay the sticker price; they pay exactly what they "can". > In no other industry do we have such perfect incentives aligned on the provider side to increase prices-- (Healthcare.)