Many Variables, One College Problem

Over at the American Prospect, Matthew Yglesias raises a question from my blog entry yesterday in which I pointed out that college tuition is rising astronomically in large part because government provides the money to pay it. Yglesias points to my observation that over the last 10 years, aid per-student has actually grown faster than costs. He suggests that aid is therefore likely doing its job, making college more affordable by bringing aid closer to the cost of tuition.

Yglesias reaches a reasonable conclusion, but he takes one observation I made and leaps far beyond what can be surmised from it.

There are many factors that affect tuition prices, ranging from the cost of energy to rising and falling state aid to public colleges. These variables could certainly affect whether aid grows faster than college costs or vice versa in any given period. In the long term, though, it is clear that, as per-student aid has risen, tuition too has gone up, both at rates far exceeding normal inflation.

Suppose, though, Yglesias is right and aid does eventually match costs. At the rate we’re going, would anyone want to pay the tuition bills taxpayers will be forced to fund if and when that happens? I sure wouldn’t.

‘Twas a Famous Victory

Apropos of DeLay’s departure and the K Street Project (“Please, Hammer, don’t hurt me!”), I’m reminded of a dinner for another think tank I attended a couple of years ago.  DeLay was the featured speaker, and when he approached the podium, he got a roaring standing O. Except from my table, which was made up of Cato folks.  DeLay gestured toward us and growled into the mike, “Those must be the libertarians!”

Not too long thereafter, the Hammer declared an “ongoing victory” in the war on spending, noting that “After 11 years of Republican majority, we’ve pared it down pretty good.”  Sigh. Good riddance.

K Street Project — Corrupt to the Core

In his departing speech yesterday, former Republican House majority leader Tom DeLay was unapologetic about even the most controversial aspects of his tenure. He made a particular point of defending his controversial relationship with the lobbying community. ”The K Street Project and the K Street strategy, I’m very proud of.”

Here’s what the K Street project was all about: getting lobbyists to hire Republicans the Congressional leadership happened to like. Do so, and you’ll get favorable treatment from the GOP leadership. Hire Democrats, and you are asking for trouble.

Decoding this is simple: ”We don’t care about the merits of the argument around here. We care about power. Don’t hire our guys, and we will be inclined to reject your ideas and suggestions even if they happen to serve the public interest. But if you hire our guys, we will be inclined to embrace your ideas and suggestions even if they fail to serve the public interest.”

It’s really as naked as that. These people ought to be ashamed of themselves.

Journal of Inflation

It’s not the highest profile issue, but every once in a while one hears rumblings from the Ivory Tower about the exorbitant cost of academic journals.

There are, it seems, roughly a billion of these journals, and each one deals with its own microscopically narrow subject, from the Journal of Contaminant Hydrology to Husserl Studies.

According to an article in today’s Contra Costa Times, the University of California system alone spends tens of millions of dollars on such journals every year, and each year colleges get a little grumpier about the journals’ rising prices.

To combat subscription price inflation, colleges and universities are pushing for journals to switch from traditional paper to less expensive electronic formats, which is all well and good as far as it goes. It won’t, though, stop inflation in the long run; just as I wrote about tuition yesterday, journal prices skyrocket because publishers know that someone will pay for them. And who would that “someone” be? Taxpayers!

Just look at the inflation in taxpayer support for higher education over roughly the last decade, and it is abundantly clear who’s paying the bills. According to the College Board, the total amount of inflation-adjusted student aid provided through state and federal programs doubled between the 1994-95 academic year and the 2004-05 academic year, rising from $48.0 billion to $96.4 billion. In addition, the latest figures from the Digest of Education Statistics, when adjusted for inflation, show that total federal, state, and local appropriations to public colleges and universities rose from roughly $54.5 billion in 1995-96 to $69.1 billion in 2000-01, a 26 percent jump.

After seeing those figures, one doesn’t need to read an obscure publication about economics to understand why academic journals cost so much.

A Tale of Two Accounts

According to a prominent news report today, U.S. household net wealth was $53.8 trillion at the end of the first quarter of 2006. That’s an increase of almost $5 trillion since the same time last year, and four times as much as the nation’s entire output (GDP) for 2005. 

The fact that U.S. household net wealth has consistently increased during recent years provides a comforting counterargument against those who bemoan the decline in U.S. saving. That decline, which commenced during the early 1980s, achieved an important milestone recently: U.S. personal saving dipped below zero for the first time in 2005.

Why, then, is household wealth increasing? The simple answer is that our existing assets are becoming more valuable. Those capital gains are not counted in the income base (worker compensation plus asset income) for calculating saving. 

Unfortunately, looking just at household wealth provides false comfort. The point is simple: Take the economy-wide account and split it into two parts: the government account and the household account (private firms are owned by households). Looking at just the increase in household net wealth and congratulating ourselves for how rich we are (collectively) misses the 800-lb. gorilla in the room: the government account. 

What does that account look like? The recently released annual reports by the Social Security and Medicare trustees suggest that the total unfunded obligations of those two programs alone account for $84 trillion, also an increase of $5 trillion over one year ago. That doesn’t count Medicaid, whose costs are escalating rapidly (for both federal and state governments) and the rest of government operations including the growing costs of homeland security, border control, anti-terror efforts, and wars abroad. Curbing the size of government along these dimensions is clearly crucial to achieving greater wealth. Without this, much of the household wealth will have to be devoted to paying future taxes.

How rich do you feel now?

Private Answer to Stem Cell Debate

Harvard has announced that it is launching a privately funded, multi-million dollar program to clone human embryos for use in stem cell research. In this 2004 column, I argued for exactly this kind of private sector initiative to solve the politically divisive debate over stem cells.

I wrote in part,

By its very nature, government politicizes everything it touches. Science is no exception. Stem cell research needs neither government money nor politics. It is better to get the government out and let the private sector continue its good work. Those people calling for increased funding could take out their checkbooks and support it. Those who oppose embryonic stem cell research would not be forced to pay for it.

Harvard is proving one again that civil society can do what government can’t.


Death, Taxes, and Lawyers

Didn’t someone famous say that there is nothing certain in this world except death, taxes, and proliferating lawyers? These three evils come together in the debate over repeal of the federal estate tax.

A Cato supporter alerted me to interesting data showing that there are 52,000 estate planning lawyers in the United States. Let’s say that half of their time is spent on the estate tax, or about 1,000 billable hours a year each. And let’s say that their billable rate is $200 per hour.

What you get is an estate tax lawyer industry of about $10 billion annually. If you added in the costs of all the estate tax accountants, IRS administrators, the estate tax portion of the life insurance industry, and other workers, the costs of estate tax paperwork could be as high as the amount the government collects from the tax – $28 billion annually. That is the definition of a wasteful tax.