Faulty Economics Goes to College

[This appeared in The Gainesville Sun, online edition]

Florida Governor Rick Scott and legislative leaders in Florida are seeking to reform public higher education in the state. As part of this effort, Scott charged a Blue Ribbon Task Force with examining accountability, funding, and governance. The overall objective is to make the system more accountable to taxpayers and more sensitive to the economic development needs of the state. While this would seem a worthy endeavor, the economic philosophy underlying the report nullifies it potential impact.

The task force published a report arriving at a number of recommendations designed to improve higher education in the state of Florida. The one that has received the greatest media attention and critical reaction is the proposal to charge differential tuition rates to students based on their choice of major. 

While there are many ways one might configure a differential tuition system, this particular proposal recommends charging the highest tuition for academic majors that, according to the task force, are least economically valuable. The “value” of an academic major is determined by how closely it meets the needs of private business interests and, accordingly, generates positive labor market returns in employment and compensation (“high-skill high-wage high-demand”). This would, in turn, presumably contribute to the economic development of the state.

So, for example, under such a system a History or Sociology student would pay a higher tuition rate than an Engineering or Computer Science major. This would make the more valuable majors more economically attractive to students, thus increasing the number of graduates in the areas of study desired by industry. These are usually identified as the STEM (Science, Technology, Engineering and Mathematics) fields of study.

This proposal has been criticized widely but it is worth placing this policy recommendation in the larger context of the conservative neoclassical and neoliberal economic paradigm that now dominates public policy thinking generally. This paradigm is informed by a set of assumptions about the primacy of market outcomes and the sources of human behavior that are ideologically motivated and empirically unsubstantiated.

One of the most striking problems with this proposal stems directly from the neoliberal economic mindset pertaining to the measure of the value of an academic major. It is based exclusively on labor market criteria – employability and financial compensation determined by the perceived needs of private industry (termed “market determined strategic demand”). There are obviously many other equally valid measures of the value of a college degree. At one time higher education was prized for its ability to cultivate critical thinking, effective communication, humanistic values, analytical prowess, and active and informed democratic participation and citizenship. These capacities are entirely excluded from this equation yet they are equally valuable and sorely needed.

Also omitted from the market-based calculus are the non-pecuniary and intrinsic rewards that students derive from a learning experience that involves intellectual stimulation gained through engagement, inquiry, and exploration in the humanities and social science disciplines.  These are now regarded as at best secondary, non-productive forms of human enrichment. The market is the final arbiter of value. This is further communicated loudly and clearly throughout the report in the repeated reference to the “return on investment” which further reinforces the corporate-managerial-oriented thrust of the analysis and recommendations. 

A second, and more practically fatal, problem with the economic logic is based on what it implicitly assumes about human behavior. The intended purpose of differential tuition is to steer student behavior in a particular direction. Presumably, based on cost considerations, students will gravitate toward the cheap majors, and be repelled by the expensive majors, thereby producing a larger supply of what industry needs (engineers not sociologists) and the market rewards (through higher compensation).  The success of this proposal rests on the core assumption that human behavior is driven purely by economic considerations. Humans, in this economic model, are nothing more than blank-slate utility-maximizing automatons that blindly follow “price signals”.

Of course, anyone who has spent more than two minutes reflecting on how people behave and express preferences – for a university, a partner, or a cell phone – will know that this assumption is patently absurd (though it is a sacred tenet of neoclassical economics). Selecting a major is no different. By the time students arrive at the university, many have developed academic subject interests, skill propensities, and a personal identity. These will shape their choice of major as will their perceived ability to be successful in one area of study rather than another.  Differential tuition will not convert a literature junkie into a polymer scientist. 

But let’s just assume for the moment that, contrary to everything we know about the way the real world works, large numbers of students are driven purely by the cheap tuition and they choose Engineering or Accounting or Computer Science even though they would prefer English or Anthropology or History.  While this may provide support for the premises of the economic model, it may also produce some negative and counterproductive consequences.

First, many of these converted students – driven by cost rather than competency -- will likely be academically unsuccessful in the selected area of study, failing the difficult pre-requisite coursework designed to “weed out” majors. They will then have to choose another major that offers better prospects for success. This will make graduating within four years – something that institutions of higher education value greatly -- much less likely.

Second, assuming they succeed, they will be pursuing a career for the wrong reason (“it was the cheapest major”) rather than intrinsic passion for and commitment to the subject and profession.  The net result is potentially dissatisfied and mismatched employees that would prefer doing something else with their lives. 

Third, using tuition differential in this way could also potentially work against the long-standing cross-subsidy system in higher education. That system depends on the relative popularity of the “less valuable” majors, which cost less to offer and run (lower faculty salaries, lower operational costs, etc.) than the “more valuable” STEM fields of study. If the proposal was actually successful universities might find themselves with less revenue, generally, and inadequate resources to support the majors they covet, in particular.

Finally, does it really make sense to charge a lower tuition rate for a field of study that will yield better employment prospects and a higher salary? This means that students who buck the utility maximizing trend and choose a “less valuable” major will incur larger tuition expenses that are not compensated for by future income. If those students rely on student loans they will also be less able to make payments after graduation. This will simply contribute to the ever-growing number of students who are graduating into debt peonage.

So, there are many problems with this proposal.

But the fact that it was even entertained reflects the pervasive acceptance of a dubious economic ideology. The idea that reducing costs will stimulate desired forms of behavior has become an act of neoliberal faith and it is built into all kinds of public and private policies. Supply-side economics, which has dominated US economic policy since the 1980s, is based on the belief that reducing costs to business (regulatory, taxation, labor) will yield increasing private investments and produce positive benefits for all. This has been proven false but as an act of faith the believers cannot be dissuaded.

That is why in spite of evidence to the contrary, the governor of Florida believes that if we reduce corporate taxes drastically -- or eliminate them altogether -- we will attract businesses and create jobs. But like students, businesses are not driven entirely by tax rates and the costs of doing business. They might also want to establish a business in, and recruit workers to, a state that has a high quality educational system or one that invests in public services and amenities contributing to the general quality of life. These are public goods that require public investments supported with tax revenue.

As a final note, it is interesting that the blue-ribbon report repeatedly demands a demonstrated “return on investment” in public higher education.  This conveniently ignores that fact that state investment in higher education has been shrinking dramatically over time. From 2006-2011 enrollment in Florida colleges and universities has increased 27.7% (3^rd highest among the states) while spending per student has decreased by 26%., the third highest decline among the states.  If you reduce the size of your investment wouldn’t you expect a smaller return?  

The next time Governor Scott wants to form a higher education task force he should consider appointing a wider range of stakeholders including, perhaps, some social science and humanities faculty who might contribute to a more balanced, and potentially more effective and valuable, set of recommendations.