Don't worry Tyler, be happy!

As follow up conversation for Tyler Cowen's piece on America's export market, Ryan Avent talks briefly about higher education as one of America's most valuable exports.

A sector dominated by the state—state-run in some cases, merely subsidised and regulated in others—is, I think most Americans would agree, both a major contributor to American prosperity and one of America's most competitive industries on foreign markets, despite its glaring inefficiencies. What ought we to conclude based on this example?

Certainly, one could reasonably argue that the sector would be even better if state control were relaxed, monopolies broken up, subsidies curtailed, and market controls (like those on immigration) eliminated. But one also has to wrestle with how different the American economy would look if the state had never muscled public universities (including a broad network of technology-driven, extension-oriented schools) into existence.

For economists, higher education (and education in general) is difficult topic to tackle. There are thousands of variables that affect how colleges operate, and nearly 100 times as many variables that impact learning.

But while there are some concerns for the future of this industry, there are also big reason to celebrate. Are there inefficiencies? Certainly. Colleges that are primarily funded/managed by states can face substantial obstacles in how they manage and allocate their resources. But what about the benefits?

Ryan asks what the American college system would look like without state interventions, and links to a wikipedia article about Land-grant universities. These are universities originally designated by each state to receive the benefits of the Morrill Acts of 1862 and 1869. These universities were specifically designated to teach agriculture, engineering, and science as a response to the industrial changes of the time. I would argue that big investments in science education in the mid-1800s paid off. (And the full list of universities who opened under this act is pretty astonishing.)

Similarly, universities are becoming hubs for technological innovation in ways that the private sector is failing. For example, large pools of educated labor (eager undergrads) and capital investments (see charts below) are leading to substantial results in academic and applied research. No wonder these places are our biggest export!

So yes, American higher education has the red tape, the inefficiencies, the tenured professors, and the subsidies, but it also has so much more! It's not quite time to fret over this industry.

Data Source: National Science Foundation

Data Source: National Science Foundation