Rationally In-Exuberant about Public Higher Ed

by zunguzungu

On Wednesday, in an article at Slate, Annie Lowrey noted that “[t]he average price of tuition at four-year colleges, in constant 2007 dollars, climbed from $8,552 in 1980 to $20,154 in 2009,” and then she excused herself from offering an explanation as to why this would be the case:

There was no logical reason for these price escalations. Neither college educations nor homes had become less plentiful in relation to the size of the population, justifying a dramatic increase in price. Nor had a four-year education or an average new home improved significantly, at least not enough to justify the extraordinary costs. Irrational exuberance had seized both markets.

I think she’s wrong if she is suggesting that people are “irrational” for wanting to go to college or that people’s “exuberant” desire to do so is what’s driving tuitions upwards. In part, this is because I hate it when economists blame things their models can’t explain on the conveniently posited “irrationality” of human beings. People tend to understand what they need better than the market ever does, and declaring that “irrational” people have screwed up an otherwise rational system is often a way of maintaining faith in a model whose results refuse to bear that faith out. In this case, I would just note that Lowrey’s assertion that “irrational exuberance had seized both markets” is plausible, but not particularly supported. As she admits, she puts it forward because she can’t find any other logical explanation for why this escalation in prices might have happened.

By contrast, what if there was a logical explanation? What if, hypothetically, free higher education had existed in 1980 — thereby both lowering the average price of tuition at four year colleges and serving as a brake on prices at competing private schools — and what if we have watched for a generation as that public option was destroyed by right-wing antipathy for any kind of public service provided by government? What if, in short, prices are rising across the board because the free public option in education has been eliminated?

To shed my sneering faux-hypothetical rhetoric, this was my point yesterday: in 1981, a college education at a university like California State was virtually free. You paid $160 a year, which is not nothing, but which also is pretty little. Next year, CSU freshmen will likely pay $6,450, which is much closer to the price which that commodity would fetch on the open market. By the time they graduate, they will be paying substantially more, if current trends continue, but the numbers themselves are less important than the fundamental qualitative shift that this represents: the state used to pay for something that the students themselves now pay for. Prices have risen from almost zero to, actually, quite a lot. And they have risen not because of any intrinsic factor to the universities themselves, or to parents and students, but simply because of the way states like California have defunded their public universities, forcing those universities to turn to tuition-based revenue models.

It would seem to me to be obvious that this very simple and basic fact is hugely important in addressing the rising price of higher education. I’m not saying it explains everything, but surely it explains a whole hell of a lot. And yet when Lowrey looks at the rising prices, she throws up her hands, claims that “There was no logical reason for these price escalations” and implicitly blames students and parents for their “near-religious belief” that an education is correlated with better life options.

It may be that I simply find the whole exercise of reducing an education to its numerical value perverse. But to restrain myself to the question of how she would find this price escalation to be so inscrutable, the way she parses the data explains part of it: by not observing the public/private distinction, factors particular to public higher education disappear from view. But since publicly-funded universities are part of the sum total of all universities — since CSU, for example, is a very big university, and its 23 campuses and 400,000 students are tuition-paying members of our data-set — the fact that CSU’s prices have more or less risen from nothing to quite a lot in the time period she’s talking about gives us one very clear and direct reason why the average of all university tuition prices would have also risen. And even though CSU is just one (big) university system among the many, it’s worth noting that CSU’s tuition prices have skyrocketed as a very direct result of the fact that California has (like every other state) cut its investment in public higher education precipitously since 1980:

In 1980 California appropriated $12.86 from state tax funds for the operations of higher education for every $1000 of state personal income…By FY2008 this had dropped $7.71 per $1000 of state personal income, a decline of 40.0%.

We can quibble about details here, and we should. But this is huge, and I tear out what’s left of my hair when people want to talk about education reform without seeming to be unaware of the thing that CSU’s rising prices represent. Since 1980 — the time period that Lowrey is talking about — the state of California has led the way in gutting its investment in higher education, which has forced its public universities to shift the funding burden onto students, which then means rising tuition in those public universities. This is why you cannot talk credibly about the escalating price of higher education between 1980 and now without addressing the across-the-board de-funding of public universities that we have seen since in that time period, across the country. $160 to $6,450 is a gigantic shift, but CSU is only one of the many universities whose students have been blessed in this way. When it comes to public higher education in America, the “taxpayer revolt” was a national phenomenon.

To stay with the California public university, for example, here’s data for student fees in the UC, the CSU, and the California community college systems between 1965 and 2010, corrected for inflation. In short (and in absolute dollars), the annual price of a CSU degree went down a very little between 1965 and 1980 and the UC system raised its fees by only 25%. In other words, relatively little change for the 15 year period before 1980. In the 15 year period after 1980, by sharp contrast, the price of a CSU degree went up nearly 400%, the price of a UC degree went up about 250%, and the fees for community college began to be paid in real money, albeit still pretty low. Since then, these trends have continued, and in the last three years, they have accelerated radically.

Did California college students and parents suddenly and abruptly get exuberantly irrational about higher education starting in 1980? Or did Californians simply pass Proposition 13 in 1978, permanently destroying California’s ability to raise the tax revenues necessary to support itself? I think the latter is actually pretty much the whole story. After 1978, the state’s tax base went down substantially, so less money was available for public universities, and so tuition prices went up. This was the choice that was made, and we are now seeing its completely predictable and rational consequences: to pay for a sizable decrease in property taxes, the state of California has dismantled what was once the greatest and most egalitarian system of public higher education in the world. To put it another way, the price of giving tax breaks to people who are wealthy enough to benefit from lower property taxes has meant that the nearly-free education that primarily poor and middle class families were once able to take advantage of, now, is mostly gone.