Charles Lane: Big bloat on campus - The Washington Post

Many economic policies are driven by the emotions of political populism: the policies feel "right" or "good" as long as you don't ponder them too deeply. Then again, there's evidence that some people would still support bad a policy because economics takes a backseat to various emotions.

"Medical insurance" is no longer… insurance. It is indirect payment, and that's a problem. The other major example of indirect payment in our society is college tuition, with federally subsidized loans and grants creating an indirect market, as well.

In both of these markets, healthcare and education, government policies have distorted costs, contributing to rising costs and declining value.

Consider the following column and what it illustrates about the cost of higher education.

An F for effort on holding down tuition
http://www.washingtonpost.com/opinions/charles-lane-big-bloat-on-campus/2012/12/31/649c12b8-536b-11e2-bf3e-76c0a789346f_story.html
By Charles Lane, Published: December 31
The Washington Post

At the University of Minnesota, the number of employees with "human resources" or "personnel" in their job titles has grown from 180 to 272 since the 2004-05 academic year. Since 2006, the university has spent $10 million on consultants for a vast new housing development that is decades from completion. It employs 139 people for marketing, promotions and communications. Some 81 administrators make $200,000 per year or more.

In the past decade, Minnesota's administrative payroll has gone up three times as fast as the teaching payroll, and twice as fast as student enrollment.

Oh, and tuition more than doubled in that same period, to more than $13,000 per year.

When I hear college administrators talk about the benefits their institutions bring to local economies, apparently a huge benefit is the high salaries paid to administrators. Clearly, they must be demonstrating "trickle down" economics in practice. No?

My wife and I attended graduate school at the University of Minnesota. It was expensive, especially at the graduate level. Thankfully, her outstanding employer reimbursed her tuition and I was a fellowship recipient. But, someone always pays — even when the student doesn't pay directly.

There should be a lot more outrage about this than exists — though we can hope that outrage will grow as more and more such facts come to light.

Solving the problem, however, won't be easy. Americans and their elected leaders have grown used to discussing college "affordability" as a matter of distributing ever more government aid — in the form of tax breaks, direct assistance or subsidized loans.

Actually, this is self-defeating: by making it possible for students to pay higher tuition, federal and state aid reduces institutions' incentive to make the hard budgetary choices that might hold tuition down in the first place.

My young students, and some of the non-traditional students, didn't give much thought to what college would cost them in the long-term. They signed some papers, subsidized loans were awarded, and the students went to class. When I would ask students if they knew the amount of loans they might owe, few had even a rough estimate.

I understand the problem. This happens when people buy anything on long-term credit. As a society, we often buy cars, homes, or expensive luxuries based on monthly payments instead of total costs. Imagine if you didn't have to make any payments for five, six, or even ten years. Loan deferments warp the perception of costs, further than the loans would anyway.

Colleges and universities, especially the for-profit and the tuition-supported institutions, rely on student debt and other forms of government support. I've met many veterans attending expensive institutions, obtaining degrees with minimal marketplace value; I must assume some institutions seek out these students.

While universities are good at seeking out students, they aren't so good at basic management. This is particularly ironic at Minnesota, home of the respected Carlson School of Management.

Management got so loosey-goosey at Minnesota… that the school had no idea of such basic facts as how many employees report to each supervisor.

Someone might want to teach the administrators how Visio works. It's called an org chart, and it's a good thing to have when auditors ask questions.

Forget the "value" of education — it is hard to quantify. But, can't we all agree that mismanagement cannot be excused simply because education is a special kind of service?

… In their purest form, market concepts of cost-effectiveness don't neatly apply to what universities do, for reasons well explained by economist William Baumol of New York University's Stern School of Business.

Like medical care or the performing arts, Baumol says, education is one of those "industries" whose "output" defies precise measurement and whose production processes are hard to automate and standardize. It's a hands-on endeavor, with lots of human interaction, so there's a limit to how much labor you can save.

… [Government] should condition more of its support for higher-ed on actual cost-cutting by institutions. The days of pouring government money into the existing business model, no strings attached, need to end.

The University of Minnesota is not unique. It is simply a documented example of what's wrong with the priorities at many institutions. The community college at which I once worked is at risk of losing accreditation, not for academic failings but for mismanagement. My colleagues in the classroom are often blamed for the perceived problems in education. I'd argue most of what's wrong starts in presidential suites and boardrooms.

Our priorities are often upside down, with less investment on direct teaching and more spending on administrators and impressive campus buildings. Maybe tuition increases will lead to demands that things change. I doubt it, though. It's easier for politicians to offer "affordability" via more spending.