Tuesday, April 17, 2018

Two Articles and a Postcard

Which is better: a low price for everyone, or a special sale just for you?  

I saw two articles and a postcard today that, taken together, gave me pause.

The first article, from The Journal of European Social Policy -- I am sooooo much fun at parties -- concerns “the paradox of redistribution.”  The paradox is that countries that engage in “from the rich to the poor” redistribution actually achieve less redistribution than countries that use a “from everyone, to everyone” model.  (The American version of this theory is “programs for the poor become poor programs.”) The article finds that the paradox remains largely true in 21st century welfare states. For advocates of consciously using the state to sand down the rougher edges of a Darwinian economy, the lesson is that targeted benefits are far less effective, over time, than universal benefits.  

The easy American case is the contrast between Social Security and “welfare.”  The latter took on a harsh stigma, based largely on racism, and became so loathed that a Democratic president ran on ending “welfare as we know it.”  Social Security, on the other hand, is politically sacred; even the current President ran on protecting it. Both are essentially cash transfers, but in the popular imagination, one is available to anyone who lives long enough and the other was an unearned benefit for “those people.”  

The contrast between the two suggests that if we want to increase college attendance and attainment, we should go with lower sticker prices (“free community college!”) for everyone.

The second article, from the Wall Street Journal, is about colleges using “merit aid” as a recruitment tool.  Most colleges don’t meet students’ full financial need, and even among those that do, well, there’s need and there’s need.  So they’ve adopted a model of a high sticker price with individualized discounts. Entire companies exist to help colleges figure out the optimal discount for each student.  The article notes that what economists would recognize as “price discrimination” gets repackaged as a positive when it’s presented as “merit scholarships.” It quotes students saying that the scholarships they received made them feel wanted, or special.

The postcard that gave me pause arrived this week from Vanderbilt, addressed to The Boy.  It writes in gold font that “66% of Vanderbilt students receive some type of financial assistance.”  It adds that the 2017/8 “average financial aid package was $49,242,” and that their financial aid packages “DO NOT INCLUDE LOANS” (all caps in original).  In case that’s too subtle, the bottom line (literally) reads, in all caps and gold font, “IT’S FREE MONEY.”

The postcard strikes an awkward balance.  It reminds me of the old Publisher’s Clearing House sweepstakes that Ed McMahon used to hawk.  (For younger readers, Ed McMahon was the Andy Richter of his time.) We’re giving money away! You might win some!  Gotta be in it to win it!

Taken together, there’s a pretty clear distinction between what benefits the larger society and what benefits individual institutions.  Universal benefits -- free community college, say -- can be politically sustainable, and can affect large numbers of people. Tennessee’s experience with free community college is the paradigm case; enrollments there surged, and not only among low-income students.  Benefits that target the poor tend to get cut. Benefits that target individuals in the upper-middle-class can help individual institutions and individual recipients -- the college that lands TB will be lucky to have him -- but come closer to zero-sum socially, and can even be regressive.  

If that’s right, then there’s a fundamental tension between the broad social good of fostering a more and better educated population, and pitting colleges against each other.  The former would be best served through universal benefits; the latter, through fighting over a few stars with discounts that make them feel special, or lucky. In that context, “performance-based funding” for public colleges is likely to wind up somewhere between “more trouble than it’s worth” and “actively destructive.”  What we should do -- what we need to do -- is to strengthen public colleges and universities across the board, and make them worthy of everybody.

I don’t blame Vanderbilt for playing the game as it exists.  TB is a great kid, and they’re taking their best shot at landing him.  But if we want to change the results of the college arms race, we need to change the game.  If we want colleges to serve broad social goals, we can’t force them to fight each other. We need to make their funding as solid as Social Security.