It Depends on What You’re Buying at School

Should the government massively, directly subsidize higher education? What really matters is what higher education institutions are selling.

In order to get a handle on the issue, it’s worth revisiting the concepts of goods which are exclude-able or rival-in-consumption or both. For a good to be exclude-able means the seller can control access to the product. Time with your doctor is exclude-able because the doctor can simply refuse to see you. For a good to be rival-in-consumption means if one person is using it, another person cannot. A classic example is ice cream. I can eat it a particular serving of ice cream or you can, but we both can’t eat the same serving thereof. When something is both rival-in-consumption and exclude-able it’s call a private good and generally is best provided by the market. The classic tragedy of the commons is a case in which the good (the common land resource) is rival-in-consumption (my sheep can eat the grass or your sheep can eat the grass, but both can’t eat the same grass) but not exclude-able (we both have the same basic grazing rights on the land). Things like police services are neither rival-in-consumption nor exclude-able which is why they are typically well provided by the public sector or a community contract (private bodyguards being the only real exception to this rule).

So are higher education goods private? Seats in a classroom are pretty clearly private goods. I can sit for a class or you can sit for a class, but we both can’t. Classroom size is generally limited (I’ll get to massively open online courses later) and campus security makes it exclude-able. Closed-loop instruction (e.g. office hours, graded assignments, etc.) from a professor is also a private good for the same reason medical or legal services are private goods and has a huge impact on the quality and qualify-ability of learning. Lectures aren’t necessarily exclude-able anymore if recordings are available. College credentials (assuming they can’t be forged effectively) are also private goods. For graduate students, access to mentor-ship from top researchers in a particular field is definitely a private good.

So if most of the higher education goods associated with actually attending classes are private goods, even if there are good social reasons to subsidize higher education based on income (and I tend to agree that there are) then the real question becomes how to do so without destroying the ability of market mechanisms to provide high quality education at low cost. Such would mean things like eliminating the in-state vs out-of-state tuition differential as only the latter tends to be an “honest” estimate of the real cost of education at a given public institution. This doesn’t prevent states from offering grants to students who choose to attend a state school in their state of residence, it simply shifts the subsidy from a check directly to the school and to a program that rewards creating competitive value.

Part of the problem too is that educational institutions are imperfectly competitive. Some will cater to those who are willing to pay up for prestige, fancy athletic facilities, new buildings, and major art installations. Others will cut out the frills and offer good programs without all the extras. That’s really an okay thing, so long as the core mission of a school is still well accomplished across the cost spectrum.

As for those massively open online courses, it could be argued that they’ve made education a public good. They’re not rival-in-consumption due to their electronic format and the providers have chosen not to exclude anyone. This begs the question of what they’re providing beyond the opportunity to enhance the pursuit of a hobby through viewing some online lectures.

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