Topic: General

Nothing Laughable about Student Aid Mess

Over at The Huffington Post, Anya Kamenetz belittles a recent op-ed I had on Fox News about higher education. “Neal McCluskey of the Cato Institute got Fox News.com to print a laughable retort to the Page One USA Today story last week on student debt,” Kamenetz writes. 

Actually, my laughable retort to USA Today’s article was in a letter that the newspaper printed last week. The Fox News piece was more of a laughable response to several higher education myths, though that included assertions like the one in USA Today that student aid is shrinking. Happily, Ms. Kamenetz’s piece offers an opportunity to do a little more hilarious misinformation busting.

First, while agreeing that the figures I cite in my Fox News piece are accurate – aid per-student aid really has been growing, including grant aid that students don’t have to pay back – Kamenetz responds that the maximum Pell Grant hasn’t risen since 2003, as if that somehow shows that my conclusions about overall aid are actually wrong.

Unfortunately, this is the standard response from people who want to see an endless flow of taxpayer dollars poured into students’ pockets. Of course, it makes no sense. It’s like saying that even though per-person steak consumption increased between 1996 and 2006, and people added a whole lot of new items to their diets in addition to steak, more people are starving today than 10 years ago because steak eating recently stagnated.

Having played the Pell Grant gambit, Kamenetz next asserts that on a per-student basis, state support for higher education is at a 25-year low, part of a trend that has led to increasing tuition costs. She cites a report from the State Higher Education Executive Officers to substantiate her claim, a report that does indeed show that in 2005 the average, inflation-adjusted, per-student public expenditure on higher education was $5,825, the smallest amount in 25 years. Of course, she neglects to mention another little tidbit in the report: In 2001, public expenditures per-student actually reached their highest point in 25 years, hitting $7,124!

What intervened between 2001 and 2005? Oh yes, a recession, which reduced tax receipts and forced states to cut spending, a process made more painful by the fact that many states spent wildly on higher education during the boom years. Even the most college-friendly states, apparently, couldn’t keep giving away taxpayer money that they didn’t have.

Finally, Ms. Kamenetz asserts that “what really makes me laugh is the argument that since the federal government is already spending a hell of a lot of money on this problem, that means the problem is not really a problem at all.” She then offers a deal: “let’s shake hands and agree that throwing more taxpayer dollars away is not going to get at the root causes of this mess.”

I agree that more taxpayer dollars won’t fix the college cost problem, but Ms. Kamenetz misses the main point: Not only won’t throwing more taxpayer dollars get at the problem’s root cause, it IS the root cause. As I wrote in my letter to USA Today, “clearly, aid is not shrinking. Indeed, that’s the problem: Like everyone else, colleges want as much money as they can get and will raise their prices if they think someone will pay them. All this aid ensures that someone will.”

It’s really fairly simple: As long as government is willing to increase student aid, colleges will inflate their prices to capture it. Moreover, as long as states continue to subsidize public postsecondary institutions with taxpayer dollars, we will see public colleges and universities waste massive amounts of money. Finally, as long as those subsidies continue, we will keep seeing tuition at public colleges and universities buffeted by the boom-and-bust cycle that governs most state budgets.

Frankly, there’s nothing laughable about any of the consequences of funneling more and more taxpayer dollars into the ivory tower, whether in the form of student aid or state subsidies. Hopefully, students and their advocates will soon come to realize that, end their constant demands for free higher education, and stop snickering about what they’re doing to taxpayers.

HSA Realism

John Hood has a column today on Health Savings Accounts that cites Michael Cannon’s recent paper on the topic.  As Hood notes,

You can learn more about some of the issues involved – fairness to the health and sick, tax benefits for the wealthy and poor, adverse selection and the stability of health-insurance pools – by reading an excellent paper out last month from the Cato Institute. Michael Cannon, director of health policy studies at the libertarian think tank, has produced one of the better policy studies I’ve read on any subject in a long time. It takes the concerns of critics seriously – studying carefully and then rejecting some, studying and agreeing with others, and proposing changes that will make consumer-driven health care make more sense for more Americans over time.

Health Savings Accounts are one of the most important health care innovations of recent history, with the potential to significantly increase consumer involvement in health care decision-making.  But they are not a silver bullet.   The Left has long had a “utopian complex,” believing that some simple legislative change can solve this or that complex problem.  Lately, too many conservatives have fallen in to that trap as well.  Cannon’s paper is an important contribution to the debate that should be read by both supporters and opponents of consumer-driven health care reform.

Updating “An Unnecessary, Expensive, and Probably Unconstitutional Board”

Last week, I wrote about the Public Company Accounting Oversight Board (PCAOB). Here’s an update:

Last week, the Securities and Exchange Commission appointed an obscure member of the Federal Reserve Board as chairman of the PCAOB, increasing his annual salary from $165,200 with the Fed to $615,000. 

Again, Congress ought to use this occasion to question the purpose and structure of one of its recent creations. 

A Key Reform for Budget Process Reform

Senate Budget Chairman Judd Gregg’s “Stop Over-Spending” (SOS) plan, announced last week aims at reinstating tight fiscal controls — after letting them erode over many years by gutting pay-as-you-go budget rules and pushing through massive supplemental spending outside of the regular budget process.

The proposal includes a line-item veto for the President to cut wasteful spending and a bipartisan commission for devising solutions to entitlement program shortfalls. 

Its main focus, however, is to set deficit caps tied to mandatory spending cuts similar to the Gramm-Rudman-Hollings Deficit Control Act from the mid-1980s.  That act, however, proved ineffective and had to be revised multiple times.

The key to whether lawmakers are really serious about budget process reform is whether proposed changes are based on short-term deficit measures or forward-looking long-term unfunded obligation measures. 

Spending control laws based on short-term budget measures are likely to mislead policymakers into adopting inadequate or inappropriate reforms.  Imagine if we were to determine the need for Social Security reform based on its net cash flow today–which is in surplus.

And we’ve been here before–we thought the pay-as-you-go constraints from the Budget Enforcement Act had done their job and turned them off in 2002–only to see a federal spending spree like never before.  If adopted (which appears unlikely) SOS may work for a time, but history is likely to repeat itself.

The key to a budget process is the budget measures on which spending constraints are based.  Using the same old budget measures will not deliver a new process.  It’s time to make fundamental changes by adopting more appropriate fiscal yardsticks.  Unless budget measures fully reflect the budget problems that lie ahead and correctly reflect the consequences of policy changes, we will continue to lurch from one reform to the next without making any improvement–at best.

The Common Law Court and Other Myths

I’ve posted my latest law review article on SSRN.  The article argues that some of the same rules that apply to executive branch agencies, like the SEC and EPA, should apply to “class action lawmaking” in ordinary courts.  A warning:  much of it will seem rather dry and esoteric to non-lawyers.   

Even so, I hope it will help highlight a serious blind spot of many Hayek-flavored policy proposals advanced by fellow libertarians.  These flawed proposals go like this:  “Agency A has identified a regulatory problem and offered a command-and-control solution.  But command and control solutions often have unanticipated consequences.  By contrast, the incremental case-by-case approach of common law courts allows regulation to adapt to unexpected problems as they arise. Hence, it’s better not to regulate and leave the issue to the common law process.”  (If you search through Cato policy analyses, you may find a few arguments that fit this mold.) 

Here’s the problem with that argument:  Over the last 50 years, courts have rejected the utility of incremental case-by-case decisionmaking, now seen as too “costly” for a mass industrial economy, and have instead patterned their proceedings after administrative agencies.  Now trial judges use procedures like the class action and mechanisms for case consolidation to put hundreds of thousands of recurring disputes raising similar facts before a single “expert” judge or special master tasked with sheparding these disputes into one global settlement.   As a result, in many cases, a choice between courts and agencies is a Hobson’s choice:  both courts and agencies are forums for the sweeping, centralized, one-shot regulation that Hayek so distrusted. 

Unfortunately, many libertarians ignore the sea change in the way our courts run themselves, envisioning that beyond the hulking canyons of Southwest D.C.’s alphabet gulch, there is a pristine land of 19th century “common law” courts, preserved in amber, waiting to rescue us from our zest for central planning.  The persistence of this myth shields us from the difficult libertarian trade-offs between modern-day judicial and administrative regulation. 

My article doesn’t venture an answer to these complicated trade-offs.  (I’m just a humble caveman lawyer.)  Instead, I  suggest a far more modest first step:  That courts start talking about class action law and administrative law in the same legal language, using the same legal concepts, putting us all on notice about the essential similarity between modern judicially managed and agency-managed regulation.