The Higher Cost of Higher Education

I keep seeing figures like this one from the American Enterprise Institute floating around showing that the cost of higher education is growing much faster than the rate of inflation.

I have two young sons, and it is likely that my family will continue to grow over the next few years. I expect that my children will want to go to college, and I am very much concerned about the cost data displayed in that figure.

I have my own suspicions about the reasons for the rapid growth in higher education costs.

Part of it is almost certainly that colleges provide many more amenities and services to students than they did in the past. Equivalents to the professionally staffed academic advising center, writing center, counseling center, and career center available to my students at Texas A&M were not available to my dad at the University of Florida in the late 1960s. nor was he able to make use of programs like the Alcohol and Drug Education Program, the GLTB Resource Center, or the Student Conflict Resolution Center available to Aggies today. As near as I can tell, his in-state tuition and fees and UF got him a pretty Spartan dorm room (no air conditioning, community bathroom, weeknight curfew) and 15 credit hours a semester. Paying to build space and staff for these programs is expensive.

Another chunk is almost certainly due to the amazing growth in university administration and equally amazing increase in administrators' status and pay. The Chancellor of the University of Texas System makes about three aquarters of a millions dollars a year and the President of the University of Texas is pulling $600,000 annually. The president of Texas A&M makes a more modest, but still hefty, $425,000 a year. In the College of Liberal Arts at A&M, we have a dean, four associate deans, and two assistant deans. That's seven deans for twelve departments. My hunch is that if you could dig up an organizational chart for Texas A&M University thirty or forty years ago, the ratio of deans to departments was much lower and that the salaries of those serving as administrators were more comparable to ordinary faculty salaries.

The biggest mover in higher education costs, though, is very likely to be good old-fashioned supply and demand. In 1940, only 4.6% of Americans age 25 or older (about 3.4 million people) had completed four or more years of college. In 2010, 30.0% of Americans age 25 or older had completed four or more years of higher education (about 59.8 million people). Given the very high costs and long lead times necessary to create new universities or expand the capacity of existing institutions, it strikes me that places in colleges, especially in good colleges, are simple much more scarce than they used to be. As providers of a valuable service, colleges and universities are simply pricing higher education at its market rate. If anything, they are pricing it below market rates in many cases since, I would guess, many colleges could substantially increase tuition over today's rates and still fill incoming classes many times over with students of equivalent quality.

In the big picture, I am sure you could make some meaningful but ultimately marginal dents in the cost of higher education by rolling back student services, unpopular academic programs, and scaling back central administrations, but until students stop clambering to get in there is no reason for prices to come down. Higher ed reformers, therefore, are likely to have their biggest impact on college and universities (in terms of pricing and in terms of education) by working to create viable alternatives to traditional colleges and universities that still serve as gateways to reasonable employment opportunities. Only when demand for higher education actually wanes will suppliers of higher education have real incentives to lower prices.

Elizabeth Warren

Elizabeth Warren is an accomplished scholar and a rising political star, but she has no place running federal agency.

"Let me put it this way," said Warren on yesterday's call. "I'm saving all the rocks in my pockets for Republicans. And if that's too partisan for you, then shame on me.... We're not here to serve banks. We're not here to serve Wall Street. We're not here," she emphasizes that last bit, "to serve Congress. We're here to serve American families."

Got that?

She wants to throw rocks at Republicans.

Throw rocks. Not thoroughly examine, carefully consider, and judiciously regulate. Throw rocks.

At Republicans. Not irresponsible businesses or predatory lenders. Republicans.

Throw rocks at Republicans, that is, intentionally do damage to her and her party's political opposition backed up by a federal agency with the power to investigate, regulate, and punish.

Any hope she might bring balance to the new consumer protection bureau? Take into account the legitimate needs of businesses? Or at least respond to the duly elected representatives of the people?

Nope. Not here to serve banks, Wall Street, or Congress. Just "American families" however she chooses to define them and their interests.

Elizabeth Warren is many wonderful things, but she is also exactly the sort of partisan busybody who likes to think she knows how to make better choices for other people than they do and is eerily comfortable using the coercive power of government to push the rest of us into making the kinds of choices she likes and punish those who disagree with her. I welcome her departure from the executive branch of government, and I hope folks up in Massachusetts have better sense than to let her loose in the legislative branch.

Self-Incrimination and Encrypted Data

Does the 5th Amendment's protection against self-incrimination protect a criminal defendant's refusal to de-encrypt computer files that may provide evidence of wrongdoing?

CNET's Declan McCullagh writes about the case of a Colorado woman accused of mortgage fraud. In a raid of her home, police found a laptop containing encrypted files that may provide evidence in the case. So far, the woman has declined to provide the password to police. Prosecutors are seeking a court order to compel her to de-encrypt the files (though not necessarily to reveal the password to them directly).

The Department of Justice argues:

Public interests will be harmed absent requiring defendants to make available unencrypted contents in circumstances like these. Failing to compel Ms. Fricosu amounts to a concession to her and potential criminals (be it in child exploitation, national security, terrorism, financial crimes or drug trafficking cases) that encrypting all inculpatory digital evidence will serve to defeat the efforts of law enforcement officers to obtain such evidence through judicially authorized search warrants, and thus make their prosecution impossible.

Her attorneys argue that her 5th Amendment protection from self-incrimination should shield her from assisting a criminal investigation against her using her knowledge of the password.

In a brief filed last Friday, Fricosu's Colorado Springs-based attorney, Philip Dubois, said defendants can't be constitutionally obligated to help the government interpret their files. "If agents execute a search warrant and find, say, a diary handwritten in code, could the target be compelled to decode, i.e., decrypt, the diary?"

McCullagh notes that legal scholars have been grappling with this hypothetical case for some time and that there remains much debate about whether a computer password is protected by the 5th Amendment.

I suspect, however, that if the government is permitted to compel the de-encryption of files from memorized passphrases:

1. Criminal defendants will become very forgetful
2. New encryption software that automatically securely deletes files if an incorrect password is entered will find its way into wide circulation

The "Carried Interest" Loophole Is a Shame

Nick Kristof writes about the carried interest tax loophole in today's The New York Times. The loophole allows earnings taken from the profits of securities and financial transactions to be taxed at the capital gains tax rate (15%) rather than the normal marginal income rate (35% in the top bracket). The loophole mostly benefits those who work in high level positions in hedge funds and private equity firms who are take a commission directly from the profits of the transactions they manage. Kristof writes:

This tax loophole is also intellectually vacuous. The performance fee is a return on the manager’s labor, not his or her capital, so there’s no reason to give it preferential capital gains treatment.

Exactly. The fund managers work on commissions, and it is preposterous to tax those commissions differently than other performance-contingent income. A fund manager's commission's should be taxed no differently than a salesman's.

I oppose high taxes, but I am equally opposed to unfair and arbitrary taxes. Picking and choosing this or that type of income to be taxed at a preferential or discriminatory rate skews economic incentives and produces inefficiencies in the labor market that are ultimately disadvantageous to everyone. Republicans have been thoroughly in the right as they have criticized the Obama administration for pursuing policies that "pick winners and losers" rather than permitting normal market forces to shape economic outcomes. Its abdication of free market principles and a commitment to tax fairness in opposition to all "tax increases" is indefensible. (Also, it forces me to agree with Kristof, which I really hate.)

Republicans leaders have been wise to use the debt-ceiling negotiations to force spending cuts. They should further magnify their accomplishment by bargaining for a simplified tax code that would lower marginal income tax rates across the board in exchange for eliminating many of the various deductions, credits, and loopholes that imbalance economic incentives and impose substantial compliance costs on ordinary Americans. Tax simplification would increase the fairness of the federal revenue system, put money into the pockets of ordinary Americans, reduce the substantial compliance costs of paying taxes, and generally make the world a better place.

Lunchtime Reading: Dominique Strauss-Kahn's Eyebrows and Two Stories of Peer Review

The biochemistry that keeps Dominique Strauss-Kahn's eyebrows black while his hair has turned white.

Research on social contagions runs into trouble in the peer review process.

My friend and colleague, Kim Yi Dionne, and her coauthors have a paper pulled from the Bulletin of the WHO because an earlier version of the manuscript had been posted online as a working paper.