More On Regulation

Kevin Williamson has a wonderful piece at NRO following up on our note from yesterday on inflation being largely limited to four sectors with significant government intervention: Healthcare services, housing, prescriptions and education. Do read all of what Kevin says and ignore the one quote below.  He is right in his conclusions but he does, however, make one wildly incorrect assertion that we would like to clear up.  He says:

Because higher education is not very competitive (it is dominated by government schools that will lose little if any revenue if a dissatisfied student — which is to say, a customer — decides to go elsewhere)

Kevin is absolutely right about administrative bloat but absolutely wrong about government schools not worrying about losing revenue from enrollment reductions.  It is our biggest worry.  Almost all government universities are funded by states so we will use states in our discussion.  Fifty years ago, generally, students paid a trivial amount and states paid the rest.  California was tuition free although there were some fees.  The recent past has seen states balance their budgets through tuition increases.

Sidebar: Without data, our take is that state spending on universities is flat to slightly down while costs are up substantially.  Clearly, state support is smaller as a percentage of tuition but it is not clear that state spending on universities is down much.  We will try to follow with another post.  End sidebar.

Now even in-state students pay a large portion of the cost education.  Out-of-state students are even more critical because they pay higher rates.

Failing to attract students will reduce a public university’s budget.  Failing to attract the predicted number of out-of-state students has the same impact.  In Wisconsin the reduction is generally immediate.  If you do not meet your revenue targets then you must give the previously budgeted amounts for spending back.

Satisfying students is even more important because in demand schools can, with appropriate approvals, charge higher prices.  In demand schools charge higher prices and get more revenue.  In demand schools that meet students needs get better students and that leads to better performance on rubric like retention and graduation rates that keep the budget cutters at the state level away from your school.

In short, it is an intensely competitive time at most public universities.  Even flagship schools like UT-Austin and Madison are not exempt.  We might wish that the competition was not on all the levels it is but it is competitive in useful ways as well.  It is why the US university system is the best in the world while less competitive K-12 is not.


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