Monday, January 23, 2017

An Alternate Reading

In my radio days, one of my favorite recurring bits involved playing back-to-back versions of the same song by different artists.  Depending on how far apart the interpretations were, you almost wouldn’t know they were the same song.  One immediately following the other, you could appreciate just how much a slightly different reading could change the entire feel of a song.  Going from, say, Billie Holiday’s version of “God Bless the Child” to Keith Jarrett’s, you got an entirely different reading of the same melody.  (For younger readers, contrast Taylor Swift’s version of “All You Had to Do Was Stay” to Ryan Adams’ version, and you’ll get the idea.)  

In that spirit, if not in that league, I’ll offer a different reading of a piece by Allison Schrager in Quartz.  She presents findings from a new NBER paper on the relative costs to institutions of instruction in different majors, and the relative returns to students from taking them.  She notes, correctly, that some majors cost more to provide than others, but that students typically pay similar tuition across fields.  Therefore, the students in the lower-cost fields wind up paying a sort of subsidy to students in higher-cost fields.

The study she cited looked at four-year schools, but the basics are similar at community colleges.  Many colleges have either course fees or program fees for certain high-cost programs to help to offset their higher cost; a student taking psychology will have fewer of those than a student taking, say, chemistry or nursing.  The idea is to reduce the cross-subsidizing to a tolerable level.  

She concludes by suggesting that public funding for colleges could be more effective if it were calibrated to the costs of various majors.  After all, in a world of progressive taxation, the eventual beneficiaries will wind up paying some of it back anyway.

She’s right, as far as she goes.  At this level, introductory social science or business courses typically have the largest enrollments per section, and their demands on facilities are modest.  The high revenue and low cost from there help offset the capital-intensive small sections in nursing or automotive.  

I’ll take her (correct) observations in a slightly different direction, though.

Her piece, and the study on which it relies, get at a more basic dilemma.  Costs of programs are borne by colleges, but economic benefits of those programs accrue to students.  In other words, colleges are so busy generating impressive positive externalities that they struggle to meet the demands of a for-profit business model.  They weren’t built for that.  Unlike a for-profit business, they aren’t designed to capture the value of what they produce.  They send their graduates out into the world, and don’t get commensurate returns.  We don’t get paid when our grads get hired.  If we do a better job, we don’t get more money for it.  

That can lead to chronic underinvestment, as Schrager implies.  But it can also lead to some real internal dilemmas.  Some of the highest-payoff majors, both for students and for society, are among the costliest for the college to run.  Balancing those books can require making decisions for the survival of the institution that directly compromise the value of what the institution produces.  That shows up most notably in the generation-long shift to adjunct faculty, who are often wonderful, but who can’t focus full-time on the students at hand.  It can show up in waiting lists for popular but expensive programs.  It can show up in opportunities not taken, and in small sections cancelled.  The costs of austerity are paid in small increments again and again.  When the value of improvements isn’t captured, the cost of cuts often isn’t immediately realized, either.  In the wrong hands, that can lead to a cascade of decisions that are individually rational, but cumulatively devastating.

Colleges are built to generate positive externalities, but they have budgets of their own that they have to balance.  Pressuring colleges to run “like businesses” may sound good, but fails because colleges can’t capture the value of their product.  That’s a feature, not a bug.  The whole point of education is to leave the student in a better position than when she started.  That means consciously choosing to create more value than is captured.  And it means pushing back, hard, on the narrative that colleges should be run like businesses.  They should be run prudently and with a responsible eye towards costs, but that’s not the same thing.  For the model to work, they need either much greater public support, or finders’ fees when employers hire grads.  The former is much simpler, and less prone to evasion, than the latter.  

None of which refutes Schrager’s points, any more than Cassandra Wilson refuted Van Morrison’s version of “Tupelo Honey.”  It just takes them in a different direction.  That melody had more music in it than one version could contain.