University funding in crisis?

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Catchfire Catchfire's picture
University funding in crisis?

Replace public loans with private equity contracts and then give firms a percentage of graduates' incomes!

ACADEMIC economists like to make fun of businesspeople: they want competition when they enter a new market but are quick to lobby for subsidies and barriers to competitors once they get in. Yet scholars like me are no better. We work in the least competitive and most subsidized industry of all: higher education.

I do not want to suggest that helping underprivileged students attend college is bad. A true free-market system equalizes opportunities, if not for fairness, at least for efficiency: talent should not be wasted.

The best way to fix this inefficiency is to address the root of the problem: most bright students do not have any collateral and cannot easily pledge their future income. Yet the venture-capital industry has shown that the private sector can do a good job at financing new ventures with no collateral. So why can’t they finance bright students?

Investors could finance students’ education with equity rather than debt. In exchange for their capital, the investors would receive a fraction of a student’s future income — or, even better, a fraction of the increase in her income that derives from college attendance. (This increase can be easily calculated as the difference between the actual income and the average income of high school graduates in the same area.)

This is not a modern form of indentured servitude, but a voluntary form of taxation, one that would make only the beneficiaries of a college education — not all taxpayers — pay for the costs of it.

The Chronicle of Higher Education responds:

This proposal is worth discussing not because there is much danger that it will literally come to pass but because it shines sunlight on the mind-set of many conservatives, exposing a way of thinking that does in fact result in many policy decisions that are hurting American higher education.

There are lots of problems with Zingales’s proposal, but the most important one is that it conceptualizes higher education as an almost purely private good. His new system, he says “would make only the beneficiaries of a college education—not all taxpayers—pay for the costs of it.”

But of course the reason that American taxpayers have long subsidized college attendance as well as K-12 education, is that we are all “beneficiaries” to some extent when other members of society are better educated. Elderly people, who don’t have kids in public schools or in public universities, nevertheless benefit from the scientific and literary advances made possible by the education of others. As Claudia Goldin and Lawrence Katz have so persuasively documented in The Race Between Education and Technology, we all benefit when America invests in education and make the U.S. able to compete internationally and raise the standard of living in this country. And we all benefit when education helps democratic citizens better evaluate debates and arguments under our system of self-governance.


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Catchfire Catchfire's picture

How The American University was Killed, in Five Easy Steps


First, you defund public higher education.

Anna Victoria, writing in Pluck Magazine, discusses this issue in a review of Christopher Newfield’s book, Unmaking the Public University: “In 1971, Lewis Powell (before assuming his post as a Supreme Court Justice) authored a memo, now known as thePowell Memorandum, and sent it to the U.S. Chamber of Commerce. The title of the memo was “Attack on the American Free Enterprise System,” and in it he called on corporate America to take an increased role in shaping politics, law, and education in the United States.” How would they do that? One, by increased lobbying and pressure on legislators to change their priorities. “Funding for public universities comes from, as the term suggests, the state and federal government. Yet starting in the early 1980s, shifting state priorities forced public universities to increasingly rely on other sources of revenue. For example, in the University of Washington school system, state funding for schools decreased as a percentage of total public education budgets from 82% in 1989 to 51% in 2011.” That’s a loss of more than 1/3 of its public funding. But why this shift in priorities? U.C. Berkeley English professor, Christopher Newfield, in his new book Unmaking the Public University posits that conservative elites have worked to de-fund higher education explicitly because of its function in creating a more empowered, democratic, and multiracial middle class. His theory is one that blames explicit cultural concern, not financial woes, for the current decreases in funding. He cites the fact that California public universities were forced to reject 300,000 applicants because of lack of funding. Newfield explains that much of the motive behind conservative advocacy for de-funding of public education is racial, pro-corporate, and anti-protest in nature.

Again, from Victoria: “(The) ultimate objective, as outlined in the (Lewis Powell) memo, was to purge respectable institutions such as the media, arts, sciences, as well as college campus themselves of left-wing thoughts. At the time, college campuses were seen as “springboards for dissent,” as Newfield terms it, and were therefore viewed as publicly funded sources of opposition to the interests of the establishment. While it is impossible to know the extent to which this memo influenced the conservative political strategy over the coming decades, it is extraordinary to see how far the principles outlined in his memo have been adopted.”



Catchfire wrote:

Replace public loans with private equity contracts and then give firms a percentage of graduates' incomes!

Well that makes perfect sense. Once you have turned corporations into people, the next logical step is to turn people into corporations.



I like Luigi Zingales' other economic advice for fixing the U.S. economy, and it begins with throwing some banksters in jail, cleaning up the corruption in the justice dept and Washington. I can get behind that and so could tens of millions of Americans.