I wonder what students in the University of North Carolina system are being taught about economics these days.
The question arises because in the midst of organizing protests against a plan by UNC campuses to raise tuition again, students are making an argument that I find puzzling from an economic perspective. Their argument is that in today’s increasingly knowledge-based economy, a college education is growing ever more valuable. There are fewer economic opportunities available to people with only a high-school education, the argument continues, because of technological change and the impact of competition from producers and lower-cost labor overseas.
OK, for the sake of this discussion I’ll accept the premise, though the reality of the labor market is a bit more complex than that (some jobs requiring only a high-school education are likely to be among the most prevalent in the coming years, according to projections and surveys, while others are clearly disappearing). The problem is that the argument proves a proposition quite different from the notion that UNC tuition should be kept at its current low rate — low even after recent increases, I should point out, when compared against peers and against the cost of providing a UNC education.
If the financial return to students and their families from an investment in higher education is growing — and that’s what is meant by suggesting that college is becoming more important in determining the prospect for employment and advancement — then why does this activity need to retain its massive subsidy? If going to college has such an economic payoff, then students and their families have strong incentives to invest the money necessary, whether it involves drawing down savings, working during college, or taking out loans. The investment will be well worth it.
Really, the better argument for major government subsidy of higher education — though I still find it largely unpersuasive — is that there are non-economic benefits that flow from the university to the public as a whole, benefits that the public would miss out on if it wasn’t coerced to pitch in tax dollars to help fund it. Such benefits might include the preservation of the great literary and scientific traditions of the past, the propagation of a class of university graduates ready and willing to live the “life of the mind,” or the innate wonder of scientific discovery.
But as my JLF colleague, economist Roy Cordato, would point out, these are all goods that are valued by individuals according to their subjective preferences. Who’s to say that one level of “philosophical output” or “scentific discovery” is better than another in a general, societal sense, since that output has a cost in the form of foregone private expenditures for other goods?
Naturally, I think both are extremely valuable things. But I am persuaded that they would be taken care of effectively in a private market for education and research, and that in fact history demonstrates this in both the for-profit and philanthropic sectors (see Terence Kealey’s The Economic Laws of Scientific Research for more on this subject). My only exception to this general principle would be in areas where the government is itself a major (legitimate) customer or potential customer of university education and research activities, and thus might properly provide some inducements and grants. Such areas would include fields with a military, intelligence, or diplomatic application such as aerospace and non-Western foreign languages. And even here, a clear offer of a government purchase, prize, or job will be sufficient in many cases to provide the appropriate incentives for students and institutions to invest the requisite dollars.
Back to the key point. UNC tuition ought to rise more because it is wasteful and inequitable for those reaping most of the benefits of a university education not to pay at least a substantial share of the cost. But what about the state constitution’s requirement that the benefits of the university be extended to the people of the state as free of expense as “practicable”?
Well, the plain language of the provision actually calls for a balancing test, not free tuition. I think that the current customer share of 15 percent to just under 30 percent (depending on the school) isn’t practicable. So sue me.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.