3 ms·

I stopped reading this about four paragraphs in and did a bunch of web searches to try to find the phenomenon it reminded me of. Once I had successfully found

I stopped reading this about four paragraphs in and did a bunch of web searches to try to find the phenomenon it reminded me of. Once I had successfully found it with my second search ([economics name for effect raises orchestra]) I came back and found Baumol in the very next subhead. Whoops. All a great read though! In retrospect every year at the student newspaper when we ran the "here is how much tuition is going up and here is how much financial aid is going up" article we probably should have invited an administrator or professor to comment on Baumol's cost disease.

e4e78a06 5y ago
The price of college in particular is commented on in the article - prestige matters and prestige is zero sum, so supply is constrained and demand is highly inelastic. Add on to that vastly increased purchasing power made possible by subsidized student loans that can't be discharged in bankruptcy and you have a recipe for out of control prices. Limited supply of a highly inelastic good combined with massive demand way above what people normally could pay yields prices going to the moon. There's not an easy fix for this. If you have the government pay for college then the race to get into college gets all the money that would have been spent on tuition. On top of that, it's not inherently clear what amount private universities should be paid or if they should be allowed to charge on top of what public money pays for. I went to a public school and I'd trade my crappy experience (caused by budget shortfalls and bureaucratic overhead characteristic of government-run institutions) for a more expensive private school any day of the week. You really don't want overfilled classes, extreme competition for research positions (even basic things like being an experiment monkey are competitive), and a system that in general only pays attention to you if you have above a 3.8. If you kill government subsidized loans you fix the market for less prestigious schools, but the top 20 or so are still going to have substantial pricing power. Private market loans and ISAs still have the potential to jack up purchasing power.
- vintermann 5y ago
  > bureaucratic overhead characteristic of government-run institutions Whenever I read something like that, I wonder if the speaker ever worked in private industry. IME, government gets all their bad organizational ideas from us.
  - SuoDuanDao 5y ago
    Yes, but private industry companies can go bankrupt if they're too incompetent. Governments can too of course, but they typically take a lot longer to do so.
- BlueTemplar 5y ago
  You will notice that this is not an issue everywhere (or at least not as dramatically so as in the USA). I guess a bit like housing prices have disproportionately risen in London compared to other places since Agatha Christie's time ?
beerandt 5y ago
Isn't this just another way of saying that original assumptions about how to define the market and potential participants were wrong? Or at least that definitions need to include info about competing markets?

e4e78a06 5y ago

The price of college in particular is commented on in the article - prestige matters and prestige is zero sum, so supply is constrained and demand is highly inelastic. Add on to that vastly increased purchasing power made possible by subsidized student loans that can't be discharged in bankruptcy and you have a recipe for out of control prices. Limited supply of a highly inelastic good combined with massive demand way above what people normally could pay yields prices going to the moon. There's not an easy fix for this. If you have the government pay for college then the race to get into college gets all the money that would have been spent on tuition. On top of that, it's not inherently clear what amount private universities should be paid or if they should be allowed to charge on top of what public money pays for. I went to a public school and I'd trade my crappy experience (caused by budget shortfalls and bureaucratic overhead characteristic of government-run institutions) for a more expensive private school any day of the week. You really don't want overfilled classes, extreme competition for research positions (even basic things like being an experiment monkey are competitive), and a system that in general only pays attention to you if you have above a 3.8. If you kill government subsidized loans you fix the market for less prestigious schools, but the top 20 or so are still going to have substantial pricing power. Private market loans and ISAs still have the potential to jack up purchasing power.

vintermann 5y ago
> bureaucratic overhead characteristic of government-run institutions Whenever I read something like that, I wonder if the speaker ever worked in private industry. IME, government gets all their bad organizational ideas from us.
- SuoDuanDao 5y ago
  Yes, but private industry companies can go bankrupt if they're too incompetent. Governments can too of course, but they typically take a lot longer to do so.
BlueTemplar 5y ago
You will notice that this is not an issue everywhere (or at least not as dramatically so as in the USA). I guess a bit like housing prices have disproportionately risen in London compared to other places since Agatha Christie's time ?

beerandt 5y ago

Isn't this just another way of saying that original assumptions about how to define the market and potential participants were wrong? Or at least that definitions need to include info about competing markets?