Saturday, April 14, 2012

Tyler Cowen on higher education

Tyler Cowen elaborates on some of his views of higher ed:
To refer back to a distinction from the David Brooks column, we should not be trying to squeeze the entire economy into the shoebox of the dynamic but risky “Economy I.”  For public choice reasons, as well understood by Karl Polanyi (an underrated public choice theorist if there ever was one), the polity requires some respite from Economy I, whether we like that or not.  Read also this analysis by Interfluidity, which is one of my favorite blog posts of all time.  Furthermore the more “sluggish” Economy II, by operating under different principles, often serves as a useful R&D lab for Economy I.  Think MIT and Stanford, or note that Adam Smith ended up as a customs commissioner, as his father had been.  Goethe and Bach worked for governments for much of their lives.  It’s about balance and synergy, though it is perfectly fair to see contemporary Western Europe, especially in the periphery, as a region which has far too much Economy II and too little Economy I.
This is very similar to what I was saying in my previous post. Though state-run universities have their fair share of subsidies and "market inefficiencies", they're can still be stable incubators for research and innovation.

However, Cowen has additional comments on the plight of higher education:
The real problems are a few.  First, successful state programs tend to stultify and decline over time, and if nothing else the danger is that health care costs will eat up state budgets.  Second, the absolute returns to higher education (as opposed to the wage for not going) are not currently high enough to maintain the current fiscal structure of those institutions, furthermore those fiscal structures do not have so much “give,” due to tenure and various self-imposed cost inflexibilities.  Third, although most state universities have relatively little explicit debt, they are implicitly massively leveraged through reliance on ongoing tuition boosts, ongoing enrollment boosts, and timely retirements, none of which can be counted on in the future. 
Good points all around.

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