More on vouchers

Robert Lewis writes:

I never really bought the voucher idea for schools (or really anything else that is generally used). If you have a scarce resource with a market clearing price of $X, and the government gives everyone buying that resource a voucher worth $Y that can only be spent on that resource, the price of that resource will now be $X+Y.

This seems to be what happened with higher education, and is why the sticker price of higher education has gone up so dramatically over the past 50 or so years. The government started giving out grants and subsidized loans, which allowed colleges to raise their prices, which caused the government to give out more grants and subsidized loans, which allowed colleges to raise their prices more . . .

Now, I know that this this isn't entirely true, because if you put more money into the system, it should drive supply, but given the experiment with higher education, this doesn't really seem to help. To the extent the supply increased, it increased at the bottom. Harvard and Yale were around before there was any financial aid, what we got was University of Phoenix and DeVry. Adding schools like this to the supply is arguably worse than useless.

Mr. Lewis' analysis of the short-term impact of vouchers is spot-on, but I think the difference long-term is a different price elasticity of supply. When I was kvetching about health care costs, I pointed out that a selective subsidy will cause prices to rise for those not subsidized. Of course it's also true that a general subsidy will cause prices to rise for everyone, holding supply constant. But I think (as does Mr. Lewis, per his last paragraph) that the supply of education is substantially more elastic than the supply of health care. Where I disagree with Mr. Lewis is in his assessment that the new entrants to the education market are providing junk. Some certainly are, but are they all?

Consider the Penn State World Campus. Classes are taught by Penn State professors, to Penn State standards (or at least, so says Penn State). I realize Penn State is not Harvard, but it's certainly better than, say, DeVry. Would the World Campus exist without the widespread availability of financial aid? My guess is no. While many of the new entrants to higher ed are bad, many existing schools are expanding their capacity as well, via extension campuses and online programs. The local Public Ivy, the University of Washington, is steadily expanding its offerings at the various extension campuses, while all the local community colleges are offering online programs.

Now I am not arguing that the massive (and uncapped) subsidies to higher education are not causing a bubble. We are certainly seeing many of the characteristics of the bubble, and the DeVrys and Universities of Phoenix are probably the higher ed equivalents of Countrywide. But I think there are two important differences between financial aid for higher education and vouchers for elementary and secondary education:

1) Subsidies for higher education are virtually uncapped. True, there are limits for semesters of eligibility, but you can borrow vast sums of money, and these sums are related to the amount of tuition you pay- meaning that colleges can raise rates, assured that aid amounts will also rise.

2) Our culture places an unduly high value on college education, requiring a university education for many jobs that are plainly of a vocational/technical nature. A university education, for most jobs, provides little real added value, while a secondary education is critical.

In terms of economic effects, 1) is probably more important, but I think 2) is the underlying cause. Let me take an example from my own life to illustrate what I mean.

I'm a nurse. I'm not a nurse out of any great love for patients or any passion for health care. I am purely a mercenary nurse, and my nursing is naked rent-seeking behavior- the government artificially limits the supply of nurses, increasing the wages that nurses earn. In the Army I had an opportunity to get a nursing license for free, so I did, and now I am a rentier in the technical sense, and I feel like one in the colloquial sense too- I collect income far in excess of the actual work I do.

Nursing is not a job that requires a great deal of education. It's a technical skill, like carpentry or welding. But credential inflation is all the rage in nursing now, and nurses are earning bachelor's degrees, master's degrees and even doctorates in nursing (the latter leading to an amusing situation, in which nursing Ph.Ds insist on their right to be called "doctor," while MDs insist that that's silly). Government subsidies are aiding this process, but these subsidies are so popular because we have an inflated regard for a college degree, and everyone wants their particular profession to require one. Thus we endure the spectacle of degrees in interior design, in fashion marketing (an actual major at my first university) and yes, in nursing. Why anyone should need four years of undergraduate education to pick curtains, sell dresses, or wipe asses is anyone's guess, but vocational education is looked down upon, so everyone wants a bachelor's degree. Hence our democratic politics punishes politicians who don't support expansive subsidies for higher education, and the problem gets worse and worse. In nursing, first the LPNs got crowded out, and now the nurses with associate degrees are feeling the squeeze as more and more hospitals require a BSN for advancement or even initial hiring.

So what are the origins of our exaggerated regard for the sheepskin? I am cogitating on this as we speak! And of course, leave your ideas and responses below. One of the advantages of being one of the first readers of our blog (now averaging 17 visits a day) is that you have the full attention of the authors. When this thing takes off, and Whip Lash and I stand astride the blogosphere like colossi, you will be able to say to all the Johnny-come-latelies, "I remember when Jon was making supply and demand graphs on MS Paint. Where were you then?!"