Comments on Questions on Economics of Higher Ed

• Suggestion
• Posted by Steve on August 11, 2010 at 6:45am EDT

• I suggest you start with the ASHE Reader on Finance in Higher Education. Google it and you should be able to obtain one.

• Read Anya Kamenetz
• Posted by Tina Passman , Assoc Professor, Classical Languages & Literature at University of Maine on August 11, 2010 at 8:45am EDT

• DIY U, Anya Kamenetz' quick & readable discussion of how we got to here in Higher Ed finances, is an excellent beginning to a way through these questions. Although many academics may disagree with her stance and her conclusions, her analysis is accessible, and starts this crucial conversation. If you are into reading blogs, her blog on the very issues brought up in this article is stimulating and challenging. http://diyubook.com/

• AGB's Initiative on College Costs
• Posted by Tom Longin , Consultant at Association of Governing Boards on August 11, 2010 at 9:15am EDT

• The primer you're looking for could well be AGB's collection of four essays entitled, "An Initiative on College Costs." Jane Wellman, the primary author, is easily the best informed and most accessible researcher / writer on the cost issue in today's contentious "cost" environment.

• Howard R. Bowen
• Posted by Paul Welch on August 11, 2010 at 9:30am EDT

• The ASHE reader is a good starting point, but I find that Howard R. Bowen's The Costs of Higher Education is foundational. Bowen's revenue theory of costs provides one with a baseline for understanding the abnormal economics of HE. Certainly his numbers are well dated. The book was, afterall, published in 1980; but his theory remains relevant.

  From there, I think the next best book is Roger Geiger's Knowledge and Money. There are more accessible books, for sure, but Geiger is thorough in his analysis.

  I'm sure others have different recommendations, but I like these two books.

• "Tuition Rising"
• Posted by Roderick G. W. Chu , Chancellor Emeritus at Ohio Board of Regents on August 11, 2010 at 10:30am EDT

• Cornell Univ. Professor Ronald G. Ehrenberg's Tuition Rising: Why College Costs So Much provides valuable insights.

• Baumol's "Cost Disease"
• Posted by Rob Robinson , Assistant Vice Provost at UT San Antonio on August 11, 2010 at 11:15am EDT

• While Bowen's revenue theory seems to describe well the situation on campuses, William Baumol's "cost disease" theory perhaps best describes why tuition rises faster than inflation and has consistently for 30+years.

  Bottom line is that professorate has not seen an increase in productivity (which usually happens through the application of technology.) Combined with upward salary pressure, the result is increasing costs. The same theory applies to all "handwork" industries (Baumol uses the symphony orchestra as his signal example).

  See http://en.wikipedia.org/wiki/Baumol%27s_cost_disease for a primer.

  The ASHE series have been mentioned. Charles Clotfelter had a good article from 1999 titled "The Familiar but Curious Economics of Higher Education" in the Journal of Economic Perspectives.

• "Unmaking the Public University"
• Posted by Michael Meranze , Professor of History at UCLA on August 11, 2010 at 12:15pm EDT

• The best analysis we have of the actual state of the contemporary university (including its costs, the ways it is and isn't funded, the burdens on students, etc) is Chris Newfield's The Unmaking of the Public University (Harvard). It also offers a historical analysis of the transformation of higher education over the last half-century.

• Recent Pertinent Issue of 'Planning for Higher Education"
• Posted by Terry Calhoun , Director of Social Media and Publications at Society for College and University Planning (SCUP) on August 11, 2010 at 12:15pm EDT

• "Issues in Higher Education Finance" is the theme of the April 2010 issue of Planning for Higher Education. These are the key articles, which can be found here: www.scup.org/socmed/ihe-phe

  Financial Planning: Strategies and Lessons Learned
  by Paul T. Brinkman and Anthony W. Morgan
  Financial planning is more important than ever as colleges and universities face serious if not unprecedented financial challenges.

  Understanding the Cost of Public Higher Education
  by Peter McPherson and David Shulenburger
  In the case of higher education costs, diametrically opposed views have persisted over time. Why?

  Improving Data to Tackle the Higher Education “Cost Disease”
  by Jane V. Wellman
  In seeking answers to the "cost disease," it is particularly important to identify the policy levers that influence cost behaviors.

  What Drives Instructional Costs in Two-Year Colleges: Data from the Kansas Study of Community College Instructional Costs and Productivity
  by Jeffrey A. Seybert and Patrick M. Rossol
  In community colleges, who delivers instruction is more important in driving costs than what is taught.

  Best Practice in the Use of Federal Stimulus Funds in Institutions of Higher Education
  by John Hammang
  Best practices achieve balance in policy, procedure, and the relationships of key players.

• Parts of the answer: wrong incentives
• Posted by Jim Luke , Professor, Economics at LCC on August 11, 2010 at 1:30pm EDT

• You ask a lot for a simple post. As a former corporate analyst/consultant, economist, and now professor, I could write volumes on each bullet, but I'll just comment now on 2:

  • In the technology world, how focused are we on increasing educational productivity? We talk a great deal about supporting authentic and active learning, and meeting the needs of a new generation of learners. But how much do we focus on utilizing technology as a lever to increase the number of students we can serve while maintaining educational quality?

  We (meaning all of us employed in higher ed) simply don't focus on productivity. We might peripherally touch on the issue if a particular teaching technology happens to improve learning enough to improve grad rates, but that's it. Billions of $ are spent really on three things in HE tech: enterprise systems (no teaching productivity there), teaching delivery (the LMS, et al.), and infrastructure (the servers, wireless, and projectors). How much is spent on actual productivity-improving software /systems for professors who create content and manage classes: zero. Instead we hand them this package called MS office (designed for a bureaucracy, not what we do) and pretend it's done. It's actually more time-consuming to prepare for, grade, and manage a class today than it was 20 yrs ago. I know I was there, I left, and I came back. The productivity and work flow revolution that overtook business has by-passed HE.

  Why? Wrong incentives and wrong measures. Union contracts and faculty pushback prevent changing student-faculty per class ratios. Admin doesn't care either, since they view productivity and the fundamental ratio of faculty-to-students taught as completely, totally unmanageable and unchangeable. Google on "university presidents" and "iron triangle".

  • If you are a CIO, and your university president came to you tomorrow and asked, "How can we use technology to serve more students, lower costs, and increase quality?", what would be your top three recommendations?

  I've met a lot of CIO's. I've read more. Not 1 in 100 could give a coherent, legitimate answer to your question. They simply don't ask the question. The CIO's job is: enterprise systems, infrastructure, and maybe the LMS. At many schools the IT function is so divorced from faculty (and also what happens in the classroom, real or virtual) that it's legit to ask whether IT knows what the institution is trying to produce. They remind me of those corporate IT departments in the 1980's that I visited as a consultant where they barely knew what the corporation produced let alone how production was done.

  A final note as economist to all: never mistake costs for prices and vice-versa. Costs do not necessarily drive tuitions. Tuitions rise because institutional managements are driven to raise revenue. Non-profits get bigger, for-profits boost stock price. Costs often follow -revenue collected will get spent. In fact, revenue will be spent Right now, the Fed gov pays for most HE via loans with the ultimate burden falling on students later. This is unsustainable. It is indeed similar to the sub-prime mortgage and housing boom dynamics, only slower growing. At least in the housing boom, the lender required a quasi-independent appraisal to indicate that what was being purchased with the loan was worthy. Today no such check exists. No wonder rising tuitions have essentially been limited only by the limits of government student loans.

• Productivity
• Posted by mkt on August 11, 2010 at 5:15pm EDT

• The National Center for Academic Transformation focuses on increasing productivity in education, by redesigning courses typically with more use of technology. They've worked with a number of colleges and universities.
  http://www.thencat.org/index.html

• Pithy Summary of Bowen by Ehrmann
• Posted by David on August 12, 2010 at 4:30am EDT

• I liked this pithy summary from Steve Ehrmann on Bowen's findings:

  http://tlt-swg.blogspot.com/2010/02/using-data-to-compare-institutions.html

  Sponsored by the Carnegie Commission on Higher Education, Howard Bowen tested the hypothesis that higher education instruction has a production function, i.e., that there is some normal relationship between spending and outcomes. When someone remarks that "I can't run a program with that budget; it's too little money," or enviously comments about another program, "With that endowment and budget, they must be wasting a lot of money," or simply spends time collecting comparable data in order to compare their program with the norm (can we boast our results are 5% better than those achieved by other programs that have about our same budget? can we use below average budgets to justify a request for an increase?) --- all of those imply a faith in a production function.

  But Bowen found no such evidence to support the belief in a production function. When he controlled for institutional type, context and reputation, he still found that spending per student at the institutions in that homogenous group was all over the map. And when Bowen analyzed how each instructional dollar was spent, that spending varied just as widely. His findings supported the revenue theory of costs:

  1. Higher education institution raise all the money they can

  2. Spend all the money they get

  3. And spend each dollar in ways largely dictated by how they spent it last year.

• books on economics of higher education
• Posted by John Thelin , Professor, Higher Education at University of Kentucky on August 12, 2010 at 4:45pm EDT

• This conversation is excellent, as are the suggested readings. For Howard Bowen, consider also adding his INVESTMENT IN LEARNING because it is a thoughtful and documented analysis by an economist about the non-income, non-economic benefits of higher education.

  As for Howard Bowen and the famous revenue theory -- often what is overlooked is that he was not being flippant or sarcastic. He was about the most understated, thoughtful person one could meet -- or read. His observations were very matter-of-fact about colleges raising all they can, etc. Also sometimes overlooked about Howard Bowen is that he had been a president of a liberal arts college (Grinnell) and a powerful research university (University of Iowa). His good writings on economics of higher education blossomed after he retired from presidencies. How many presidents who "return to their teaching and research" can match his contribution?

  I see one of the blog respondents is from AGB. That is promising. On the whole, what worries me is that the readers and respondents to this excellent article and blog will NOT include presidents, CFOs, CAOs, or Boards members -- the groups that could most benefit from the readings. Sad but true.

  As I have noted before, I consider most university presidential budget presentations to be evidence that the genre of fiction is alive and well in American higher education.

• How the University Works: Higher Education & the Low-Wage Nation
• Posted by KE on August 17, 2010 at 3:45am EDT

• Here's a suggestion from a different vantage point:

  Marc Bousquet wrote the book noted in the subject line above (2008), which details from the wage-earner perspective, the changes that others have pointed to in the transformation of higher education toward institutions with more than 50% adjunct / part-time / contract faculty. His focus is not solely finance, but also economic considerations such as the move to technology, partnerships with corporations, the increasing role of central administrations, and faculty teaching loads (fewer courses, but larger classrooms). The AAUP is increasingly involved in this area as well, and they have some relevant data at their website, at http://www.aaup.org under such tabs as "financial crisis FAQs".

  Good luck in your quest, Joshua Kim!

  --KE