The Cost Of University Subsidies

Thomas Sowell explains:

Those who want the government to provide subsidies to help meet the high cost of college seem not to consider whether government subsidies might have contributed to the high cost of college in the first place.

In any kind of economic transaction, it seldom makes sense to charge prices so high that very few people can afford to pay them. But, with the government ready to step in and help whenever tuition is “unaffordable,” why not charge more than the traffic will bear and bring in Uncle Sam to make up the difference?

The president of a small college once told me that, if he charged tuition that was affordable, even an institution the size of his would lose millions of dollars of government money every year.

In a normal market situation, each competing enterprise has an incentive to lower prices if that would attract business away from competitors and increase its profits.

Unfortunately, the academic world is not a normal market situation.

Some of the ways of cutting costs that a business might use are not available to a college or university because of restrictions by the accrediting agencies and the American Association of University Professors.

The criteria used by most accrediting agencies are based on inputs — essentially spending — rather than results for students.

Competition among academic institutions therefore seldom takes the form of lowering their costs of operation, in order to lower tuition. The incentives are all the other way.

Competition often takes the form of offering more upscale amenities — posh lounges, bowling alleys, wi-fi, finer dorms.

None of this means better education. But, so long as the customers keep buying it — with government help — the colleges will keep selling it.

The full article can be found here.

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