October 11, 2009
Britain's Central Planning Death Panels
October 11, 2009
Free Market M.D.
October 11, 2009
Economies of Scale in Compliance
October 11, 2009
Balan's Challenge
October 10, 2009
The Pleasure of Telling Others What to Do
October 10, 2009
Gonick the Great - and How He Could Have Been Greater
October 9, 2009
More Scott Sumner
October 9, 2009
Not From The Onion
October 9, 2009
Thoughts on a Second Stimulus
Let's suppose Joe Freshman goes through a process like the following in choosing a school:
(1) Based on factors like rankings, geography, information from friends and family, marketing, and possibly even economics, he chooses a group of schools to apply to.
(2) He visits those schools that accept his application, and based on factors like aesthetics and this time, certainly economics, makes a choice.
My gut feeling is that due to decreased importance of geography and increased intensity of marketing, Joe Freshman applies to more schools than his forbears did 30 years ago. Then at least for students with good credentials, or for those willing and able to pay full price, more schools are in competition for each student than there were 30 years ago.
My second gut feeling is that Joe has no good way to directly know the quality of eduation he will receive at any good institution. He does, however, have very good metrics for determining the prestige of each institution as perceived by others (possibly even future employers), as embodied in the various rankings that are out there. Importantly, this information does not change between stage (1) and (2), so Joe already accounted for prestige issues when he decided which schools were worth applying to. While he may certainly have preconceived preferences among the schools he applied to, the only new information Joe receives after the application process is aesthetic information, and the actual price he will have to pay. Therefore, the competition between schools for Joe will be borne out primarily in the aesthetic arena (if Joe can pay full price) and the financial offer (if Joe comes with good credentials).
Both of these areas of competition cost the institutions money. This suggests to me that part of rising tuition costs is decreasing efficiency in the process of matching students to institutions, what economists of competition and monopoly in the early 20th would have called "waste of competition."
If the middle-class started living a more thrifty lifestyle the U.S. economy would crater. Most frivolous expenditures go to U.S. companies like Starbucks and movie studios...
Haven't Milton Friedman and his fellow travelers always wondered why college students don't spend MORE. It's the paradox of the curve of consuming over a lifetime. It doesn't make sense for you to live a lifestyle of $50,000 a year or so at 40, but one of monastic studenthood at 20. It's more efficient to borrow $20,000 against a future $30,000, and live a relatively nice life in all time periods. That student didn't do so confounds Friedman and other rational-choice-ists.
So maybe that's coming more into balance, and students who realize they're going to be well to do investment bankers or lawyers really just rather start enjoying some of that fun now, and just run up credit card debt that they can pay off later with their very valuable educational credentials.
You keep acting like students need to be idealistic people happy to gain knowledge, and not economic agents maximizing their comfort.