Paul L. Caron

Tuesday, November 23, 2010

How Going to College Is Like Getting a Root Canal

New York Times, College Costs, the Sequel:

The questions readers put to my previous column on the supposed college cost crisis are best answered by economists. Accordingly, the editors and I have asked the economists whose book formed the basis of my remarks, Robert B. Archibald and David H. Feldman, to reply. — Stanley Fish

We would like to thank Stanley Fish for allowing us to respond to reader comments regarding his column about our new book. Reading them felt like working through the worst set of course evaluations a professor ever received.

The power of the dysfunction narrative was on full display in the responses. Stories of waste and inefficiency in higher education have a strong appeal, and they are deeply embedded in our public understanding of rising college cost.

Many who wrote took issue with us based on their personal experience. Although this is perfectly natural, generalizing from experience is not always sound. We need to stand back and take a broad look at the economic landscape of higher education.

At the core of the dysfunction narrative you will find a college-centric view of the world. If something unpleasant is happening, like rising cost, then the reasons must lie within the institutions themselves. We take a different approach, and the diagram below helps explain why we argue for a broader aerial view of the higher education industry.

Between the late 1940s and today, the inflation-adjusted prices of dental services and of higher education have behaved in a strikingly similar way. A wide variety of other personal services (ranging from the services of lawyers and physicians to bank service charges and life insurance) also display this same basic pattern of price change. These similarities could be coincidences. Perhaps each industry requires its own separate explanation. We don’t think so. We think one explanation fits them all.

College cost, and cost in the other similar industries, is rising for three broad reasons.

First, over time we have found ways to reduce the number of labor hours and kilowatts of power needed to produce most manufactured goods and agricultural products. By contrast, many services remain artisan-like. The time of the service provider is the service itself, and labor-saving productivity gains are very hard to achieve. As a result, the cost of a year of college or an hour of a lawyer’s time must rise compared to the price of a ton of steel or a bushel of wheat....

Second, the upward trend of college cost has been accelerated by changes in income distribution over the last 30 years. People with high levels of education have seen big income gains. Universities rely on highly educated people, as do hospitals, law offices and dental practices, to name a few. Rising income inequality is a force for rising cost in any industry like higher education. And rising income inequality also drives affordability problems. ...

Third, technology is a double-edged sword in many industries. For the most part, technological changes in how we teach, how we do research and how we equip our facilities have come at a cost. Some new technologies do make us more efficient. We no longer employ typing pools. But other new techniques, like computer-aided design in architecture classes or pulsed lasers in physics labs, have increased cost.

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The steady rise in the (comparative) price of services, e.g., dentistry, mostly demonstrates Baumol's Cost Disease. However, the parallel rise in the price of higher-ed represents a different phenomenon: rent-seeking.

Higher-ed is staffed by people who strongly believe that their services are or "ought to be" just as valuable (and therefore prestigious) as services by, e.g., dentists (or lawyers, physicians, etc.). So to maintain their relative position in society, higher-ed folks have quite deliberately refused to adopt any methods or technologies which might improve their teaching productivity. Prestige in academia is associated with lower, not higher productivity in terms of students taught (really. The first goal of the rising professor is to teach fewer, smaller classes). Higher-ed people conspire as a guild to prevent the introduction of video lectures, interactive computer-based training, and any other techniques which would improve the productivity of teaching stars and/or reduce the need for hordes of junior staff and associated administrators.

At the same time, higher-ed admins have succeeded in persuading Federal and state government to enforce a price-discriminating cartel of post-secondary institutions which extracts every last dime students and their families can earn or borrow(!). Nearly all colleges ask nearly all students to fill out "financial aid applications" (generally "under penalty of perjury") and provide their own and their relatives' tax returns. The schools then charge each student the maximum she and her family can possibly pay, including an outsized share of their future earnings via "student loans" (repayment of which is enforced by the government-- student loans are not even dischargeable in bankruptcy). As any economist will agree, the American "college financial aid" is basically the ultimate case study in price-discrimination by a government-backed cartel.

The excess rents extracted by higher-ed institutions (which, by the way, are mostly tax-exempt as well) fuel administrative bloat, administrators' edifice complexes, excessive faculty size (especially in useless departments such as "ethnic studies"), and the excess production of graduate students, each of whom strives to grasp the statistically-unavailable brass ring of a new professorial job.

The plot of tuition costs parallels that for dental costs not, in this case, because higher-ed is closely akin to dentistry, but because higher-ed administrators and professors benchmark themselves against dentists and will do anything, no matter how crooked, to maintain parity with them.

Posted by: Mehmet Ali | Nov 24, 2010 2:57:07 PM

If you are interested, Professors Archibald and Feldman are hosting a discussion and Q&A at the College of William and Mary room Morton 20, Wednesday December 1st at 7:30pm. The event is sponsored by Americans for Informed Democracy (a non-partisan student group on campus) and is open to the public.
For more information, email

Posted by: Alexandre Pouille | Nov 23, 2010 7:40:55 PM