From Foxnews:
Wisconsin Gov. Scott Walker is calling for steep cuts to the University of Wisconsin System, while offering the network more freedom in exchange, … [H]is university plan … would cut funding by $300 million over two years…
Source: Berger-Fisher (2013).
This measure would amount to a 13% cut in state funding to the university system. In addition, the Governor’s proposal includes a continued tuition freeze until 2017, after which time tuition changes would be unconstrained. That means under the Governor’s plan, funding levels would be reduced, while the university is prevented from raising revenues. Layoffs seem plausible. [1]
I find this approach to dealing with the state’s calamitous fiscal situation [2] (exacerbated by recent ill-advised tax cuts) [3] interesting to the extent that higher education is important to economic growth. From KNOWLEDGE MATTERS: THE LONG-RUN DETERMINANTS OF STATE INCOME GROWTH, in the Journal of Regional Science (2012):
A state’s knowledge stocks (as measured by its stock of patents and its high school and college attainment rates) are the main factors explaining a state’s relative per capita personal income.
We find that these effects are robust to a wide variety of perturbations to the model. Other things equal, being one standard deviation above the states’ average in the stock of patents per capita (75 percent higher) leads to 3.0 percent higher per capita personal income. Similarly, being one standard deviation above the states’ average in high school attainment (a 20 percentage point increase) leads to 1.5 percent higher per capita personal income. Finally, being one standard deviation above the states’ average in college attainment (23 percentage points higher) leads to 1.4 percent higher per capita personal income.In short, we find that incomes have failed to converge because knowledge stocks have failed to converge. If state policymakers want to improve their state’s economic performance, then they should concentrate on effective ways of boosting their stock of knowledge.
By this criterion, the Governor’s plan is counterproductive.
According to the U of W Madison budget reports for 2011 (which appears to be the latest detailed reports available!), that campus alone has an operating budget of more than $3 billion. That campus’ share of the proposed cuts is about $60 million per year for two years. Thus, the proposed cuts are about 2 percent of the overall operating budget. I wonder if there is 2 percent somewhere in those budget outlays that can be cut without diminishing the knowledge stock within the state of Wisconsin?
http://www.mbo.wisc.edu/expenditure.htm
Per that same report, the total cost of salaries and fringe benefits within that operating budget is about $1.5 billion per year. I wonder, Professor Chinn, if you would be willing to take a 4 percent cut in your total salary and benefits in each of the next two years as your contribution to ensuring that that stock of knowledge within the state of Wisconsin remains stable?
The ability of the U of W Madison to locate that 2 percent and make appropriate decisions to ensure that the Wisconsin “knowledge stock” is maintained (and, indeed improved) should be enhanced by removing the tenure and faculty governance provisions from Wisconsin statutes and giving greater budgetary autonomy to those very talented folks at the U of W Madison, as proposed by Walker in that same plan. I’m sure that those decisions are better made there than by that Republican-controlled Wisconsin state legislature and governor’s office. 🙂
1) Unclear to me why the focus here is on Madison, when it looks like most of the cuts are elsewhere in the system, and I surmise in those parts of the system supporting schools catering to students with less advantaged backgrounds for whom returns to education might be larger, and the “bridge” to a four year degree more tenuous.
2) Tenure is a fascinating issue on its own, but I don’t see the logic of assuming that getting rid of it could lead to cost savings at equivalent quality levels, at least at your research flagship. The best faculty can always go elsewhere, and if you can’t offer tenure, you will likely have to pay more. You may be stuck with some “dead wood” tenured profs in the current scenario, but they tend to be at the very shallow end of the raise pool and can often be given surprisingly high teaching and administrative loads.
3) support for higher ed clearly plays a potentially strong signaling role to firms and individuals thinking about expansion and relocation. I am not sure how big a factor this really is, but for all of the complaints about high costs in the states on the right side of the figure above, I don’t see too many economic basket cases.
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tuition freeze until 2017
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So Walker’s supporting an unsustainable policy to create a headline for his campaign, and in traditional Republican fashion, the next guy will get to clean up the mess.
From one study:
“The accumulated evidence from analyses of economic outcomes is that the quality of education measured on an outcome basis of cognitive skills has powerful effects.
Individual earnings are systematically related to cognitive skills. The distribution of skills in society appears closely related to the distribution of income. And, perhaps most importantly, economic growth is strongly affected by the skills of workers.
Moreover, the existing research provides strong reasons to believe that quality of education is causally related to economic outcomes. To be sure, quality may come from formal schools, from parents, or from other influences on students. But, a more skilled population, almost certainly including both a broadly educated population and a cadre of top performers, results in stronger economic performance for nations.”
Cognitive skills:
http://www.learningrx.com/define-cognitive-thinking-faq.htm
Peak,
You and Menzie are avoiding the real issue—that, is, where is the correlation,, not to mention causation, running from higher spending to higher “cognitive skills”. There does not seem to me to be a very high correlation between the accelerating costs of higher education and improved outcomes. In fact, by many standards, there seems to have been an inverse correlation over the past few decades. Do you seriously think that the entire $3 billion annual budget for the U of WM is directed towards , much less effective in, “improving higher cognitive skills”? Does indiscriminate higher spending always result in higher cognitive skills? Or, particularly at current spending levels, does how the money is spent matter more than how much is spent?
Vivian, improving the quality of education improves cognitive skills, which leads to higher income.
The American higher education system, i.e. accredited universities, is a high quality system.
Cognitive skills are very important.
For example, India can graduate all the engineers it wants, but there’s little quality:
A College Education Without Job Prospects
November 30, 2006
“The job market for Indian college graduates is split sharply in two. With a robust handshake, a placeless accent and a confident walk, you can get a $300-a-month job with Citibank or Microsoft.
With a limp handshake and a thick accent, you might peddle credit cards door to door for $2 a day.
But the chance to learn such skills is still a prerogative reserved, for the most part, for the modern equivalent of India’s upper castes — the few thousand students who graduate each year from academies like the Indian Institutes of Management and the Indian Institutes of Technology.
Their alumni, mostly engineers, walk the hallways of Wall Street and Silicon Valley and are stewards for some of the largest companies.
In the shadow of those marquee institutions, most of the 11 million students in India’s 18,000 colleges and universities receive starkly inferior training, heavy on obedience and light on useful job skills.
But as graduates complain about a lack of jobs, companies across India see a lack of skilled applicants. The contradiction is explained, experts say, by the poor quality of undergraduate education.
Teaching emphasizes silent note-taking and discipline at the expense of analysis and debate.
“When we are raising our children,” said Sam Pitroda, a Chicago-based entrepreneur who is chairman of the Knowledge Commission and was an adviser to Prime Minister Rajiv Gandhi in the 1980s, “we constantly tell them: ‘Don’t do this, don’t do that. Stand here, stand there.’
It creates a feeling that if there is a boundary, you don’t cross it. You create boxes around people when we need people thinking outside the box.””
Peak,
It must take a special kind of cognitive skill to avoid, within such a long “reply”, addressing a very basic question. I guess that’s what higher education is about these days.
Vivian, I responded to your questions:
“Do you seriously think that the entire $3 billion annual budget for the U of WM is directed towards , much less effective in, “improving higher cognitive skills”? Does indiscriminate higher spending always result in higher cognitive skills? Or, particularly at current spending levels, does how the money is spent matter more than how much is spent?”
Obviously, you prefer to avoid my answer that spending on a high quality education improves cognitive skills and leads to higher income, and if money is to be spent on higher education, it should be spent on a high quality system (i.e. rather than an inferior system).
Peak,
Are you incapable of distinguishing:
1. “Spending on high quality education” and
2. Increased spending (particularly from current levels) is correlated with and causes high(er) quality education.
The first formulation (yours) ducks the issue of correlation and causation and conveniently assumes that higher spending automatically results in higher quality.
Vivian, are you incapable of distinguishing:
1. Spending more on high quality means more high quality.
2. Spending more on low quality means more low quality.
The appropriable return to education should be equal to its internalized cost, that is, the amount if tuition actually paid by the student less the wages forgone as a result of not working.
Thus, assuming one would otherwise be unemployed (ie, no opportunity cost of time), the return to education would be the market rate on the tuition paid by the student.
So imagine that a student paid $40,000 of $160,000 actual cost with a 10% ROI expectation. Then it would make sense to attend college if wages went up by $4,000, and education would expand until either the return falls to $4,000 or the system hits a budget constraint (ie, limited funding).
As a matter of economic, that’s how you get a bunch of sociology degrees.
It is also the reason that free community college is a bad idea.
Steven Kopits: I guess I should throw away my micro textbooks with discussion of internalizing externalities. I also should throw away all my textbooks that mention credit constraints.
Well, I think it’s a more complex argument, and I’m happy to debate the particulars.
But I think the essential point stands. Government subsidies to education are not subject to a rate-of-return test. They are subject to a political acceptability test.
The decision, from the student’s point of view, comes down to the appropriable returns on the student’s own investment. If a student can get a college education for $40,000 (regardless of how much it costs), then the required return, from the student’s perspective, will only be on the $40,000. Therefore, in the presence of unlimited government funding, we would expect the return to education to fall to the student’s internalized return on investment. If we assume that the student pays 1/4 of the total cost, then the return to education, excluding externalities, will be one-fourth of the market rate. It may well be a capital-destroying exercise, excluding any consideration of externalities.
Now, the returns to education could be higher if aid is rationed, because rate of return is not the binding constraint.
It could also be that the externalities are significant.
However, we should expect the returns to education to fall with incremental increases in government subsidies. I think that’s the simple economics of the matter.
But I am certainly open to debate the topic.
“Teaching emphasizes silent note-taking and discipline at the expense of analysis and debate.
“When we are raising our children,” said Sam Pitroda, a Chicago-based entrepreneur who is chairman of the Knowledge Commission and was an adviser to Prime Minister Rajiv Gandhi in the 1980s, “we constantly tell them: ‘Don’t do this, don’t do that. Stand here, stand there.’
Are these public or private universities? Such behavior is typical of state-owned enterprises–public schools. The emphasis is on rules (eliminating Type I errors), not outcomes (eliminating Type II errors). Normally, this problem is fixed by privatization.
Steven,
I don’t know where you got your education, but based on this last entry, I’m not impressed.
I’ve rarely read so much poppy-cock.
The fact is: there are bad private schools, just as there are good public universities.
UCLA didn’t attain world renown for nothing. You are obsessed with privatization – you should focus on what it takes to achieve excellence. Hint, a profit motive is not a major driver.
Looking out to 2018, letting a university raise tuition without constraints is insane. Not sure how it is in other states, but here in Colorado the colleges essentially raise tuition by the maximum amount that the legislature allows. Since a lot of tuition is paid for with subsidies and/or loans, the price elasticity of demand appears to be tiny, and students will essentially pay whatever they are told to pay for their education. This gives colleges some power to increase their tuition until they are recieving all of the income uplift that a student grad would recieve by going to college as opposed to not going to college. So if you think school is expensive now, imagine how expensive it would be if this were permitted. Undergrad graduates could easily get out of school with $300K of debt. Add on the fact that they also have to pay for health insurance now, even though there is only a tiny chance that a 24 year old would need it, and it is looking worse and worse for the younger, less-voting portion of our population.
Why not just give every school $1 trillion dollars and soon enough we’ll all be gazillionaires?
The answer is, obviously, that every additional dollar spent on education is marginally less productive than the last. The University of Wisconsin is no doubt a great school, but if it cut funding to the least productive degrees (education, art history, music, religion, psychology, etc) we would be better off, not worse. Burying a 20 year old kid with $30K in debt for a music degree (or increasing taxes on the productive folks by $30K) doesn’t benefit society. You don’t need a degree to be a great muscian.
In short, you can always tell which degress are worthless with a simple test. If the only job they lead to is being a professor, then they are pretty much crap.
Anonymous: Do you have documentation that education in music provides less return to society than education in, say, business administration? There are a lot more students in business administration, so using your same logic of marginal product, it may very well be the case that we should be cutting back in category X. The very fact that you select the arts a priori illustrates an anti-intellectual/anti-data perspective. (As an aside, my guess is I know a lot more great musicians [again not “muscian”] than you do, and a large number of them have advanced degrees, and all I know have BA/BMs.)
I also note that since the estimated rate of return on a college degree (not “degress”) is very high suggests that as a society we are underinvesting in higher education.
“So Walker’s supporting an unsustainable policy ”
There is nothing sustainable about education spending right now.
This right-wing nut just wants a dumb populace for his political agenda. I am sure this wanker Walker considers Sarah Palin to be intelligent.
If any one really cares about this the changes envisioned for the U of Wisconsin System I would suggest going to the following link. You will find a more comprehensive description of the changes. I suppose I should be surprised that this link was not provided by Menzie, but I am not. Why spoil a political rant by more information.
About the UW System authority from the Office of the President on Jan. 26, 1015
As you read the from the link, you will realize that the propose changes have been long in discussion with all the knowledgeable and responsible parties, which includes the President of the UW system, the Regents, the Governor and his education people, and the Legislature. But I guess they forgot Menzie.
Changes are difficult, but changes must be made. This seems to be a reasonable approach.
Ed
Ed Hanson: The discussion of other administrative changes was discussed in the news articles linked to; essentially all news accounts (here in Wisconsin, at Journal Sentinal or Wisconsin State Journal) remark upon the fact that there are points of agreement over the past years on this issue. Is your complaint that I didn’t provide this specific link? Furthermore, I do not recall the 13% cut as a point of agreement in past discussions. If that is the case, I would be very much obliged if you provide a link documenting that point of agreement.
Menzie,
I recently came across this candid little paper which, I think, should be distributed at the start of every economics class (and as a preamble to every blog on economics(. Perhaps you will find it useful.
https://www.princeton.edu/~reinhard/pdfs/EC%20100%20SIFFING.pdf
Best,
Viv
Vivian Darkbloom: Nice exposition, but pretty obvious (especially post-Tufte). And I think over time less relevant. There once was a time when someone could publish something, or say something to a reporter and have it repeated, with little challenge. The rise of the econoblogosphere has made unchallenged assertion harder. And if you will note, I try to provide hyperlinks to the data I use in my graphs so that even those too lazy to google for the data can access the data and can re-graph or re-estimate.
Reinhard was honest when he warned his readers that he might not be able to keep his own ideological leanings in check. I wonder if he noticed that his examples were of conservatives trying to disguise left wing truth.
Menzie
Yes, that is one of my complaints, you should have made that link. The source of the President of the UW system is closer to the original story than any presentation of a news program or a newspaper. And before you think you can misinterpret what I say, use of news program or newspaper stories can provide insight. But I ask you, are you trying to tell us that your link of the story is as comprehensive as the Presidents report?
As for the 13%, it has already been answered in part by Vivian above, explaining the context of the cut in state funding against the actual budget of your particular part of the system at Madison, $3,000,000,000 (3 billion). But let us complete that context, the budget for the whole system, $6,000,000,000 (6 billion), which is what the “13% should be measured”. Context, context, context. While I assume the 13% cut figure of state spending is accurate, the actual cut in relation of the whole budget is not nearly so dramatic. But, of course, you were after the dramatic for the political reason.
In case some have not gone beyond your slant, the proposal is scheduled to become official Feb. 3, I believe. It will then be up to the legislature, to approve, change, or reject the changes. That is the the process where your lobbying should happen. Until then, less slant, less politics, and more complete information from all sources and sides would be appreciated.
Ed
Ed Hanson: Ok, I’ll just refer to original working papers and academic articles from here on out. I look forward to seeing how you fare in the new regime, given your well demonstrated inability to read a graph in a typical academic article, as illustrated here (which follows up on a previous similar inability to read a graph that nobody else had difficulty with) and inability to do basic comparisons of growth rates, as here, and a tendency to take at face value certain statements, that involve dividing gross values by total value added unthinkingly (here). This should be fun to watch. Thank you for providing so much amusement in the past with your comments/observations, and thank you in advance for the ones that are to come!!!!
Ed Hanson: By the way, I didn’t see anywhere in the document prior agreement to a 13% funding reduction as part of the measures under discussion. Did I miss something? I thought that was your main point — that all of these matters had already been discussed, so nothing new in the 13% reduction.
Well, if Walker wants to cut spending to UW, your posts certainly aren’t going to discourage him, Menzie.
Here’s a topic for you: Is growth serially correlated? Why is there not more volatility in, say, China’s growth rate? Why does growth last quarter seem to have so much influence on growth this quarter?
What’s at play here seems to be a matter of philosophy more than a matter of economics. Walker is wrong to assert that professors should “work harder” (increase the number of classes in lieu of increasing the number of instructors) when the big growth of costs at the universities has been in administration (which should be shrinking as technology makes the the system more efficient … or should make the system more efficient). It all boils down to who pays for what?
If the expectation is that the universities are improving the overall economy of Wisconsin and it is, therefore, justified that general revenue funds be used to subsidize students’ education, how is that shown in actual results? Are students required to work in Wisconsin after graduation so that they can contribute back to the welfare of the state? Or, if students leave the state after graduation to the benefit of some other state, are those students billed for the amount that the state subsidizes their education? Or is it just on faith that everyone is better off if everyone pays something toward a college education for a few?
Sure, some Wisconsin residents can point with pride toward their state-supported colleges and universities, their football and basketball teams, and how college towns are nice places to live. But what about some farmer in Cornell who pays his “fair share”?
There are no “absolutes” here. The overall rate of inflation remains well below what universities have charged in tuition increases. But that doesn’t mean tuition increases aren’t justified based on shifting state contributions. It also doesn’t mean that universities are budgeting more toward directly improving the “stock of knowledge” within their student body as opposed to increasing other expenditures. Walker is pushing the universities to become more efficient suppliers of educated residents. It’s a phenomenon that is common in business. Do more with less and be better than your competitors. Universities have been exempt for the most part from this phenomenon, but this is a bit short-term hit for the Wisconsin system.
If Gov. Walker wants a real “market-based” university system, he could use other Midwest states’ contributions to universities as the benchmark for Wisconsin’s. What is the average percent of total state-supported colleges and universities in Minnesota, Iowa, Illinois, Indiana, Ohio, and Michigan? If a 13% cut in state support equals a 2% overall cut (based on comments to this post), then the state provides about 15% of the funding. How does that compare with those other states? Then how do tuition increases in Wisconsin over the past 10-15 years compare to increases in those other states? Finally, how does the tuition charged for residents compare to those other states’ institutions? It would seem without this “market” look we are left with “he said” “they said” in trying to determine what is reasonable.
I do not know about some farmer in Cornell who pays his fair share, but I doubt there is any economic sector that has benefited more from the advancement in research from the agricultural college in just about every state. Typical right wing bull assuming the only thing government does is waste money on welfare or military and that none of their well being is due to government spending on research or public capital.
By the way, what is the difference between welfare and military spending? Both are paying people not to produce.
Really, Spencer, your arguments are quite juvenile. If police in a town don’t have any crime that day, are they being paid to not produce? If there are no fires that day, are firemen being paid to not produce? If your country is not being attacked that day, are military organizations being paid to not produce? Now, if someone sits on his ass and simply consumes, is that not being paid to not produce?
Agriculture has indeed benefitted from advances in research, but we’ll conveniently ignore the research done by private industry. Still, that lonely farmer in Cornell could argue that he gets up at 4 am to milk the cows that he takes care of and then again late in the afternoon and all he has gotten from the college of agriculture is ??? The point is that one cannot easily argue that tuition subsidies have any rate of return on Wisconsin’s economy. So, the best you can do is argue that here are the market comparables from nearby states and Wisconsin’s spending is either comparable, more, or less. The rest is a belief that it is an investment in the state and not just a cost of doing business.
Menzie: Nowhere is there any mention of decreased enrollments. Did your excitement for writing a damming post against Walker cause you to overlook this necessary fact in your thesis?
Jeff: If you read a bit, you will see the measures being discussed to adjust to reduced funding combined with freeze on in-state tuition rates includes an increase in out-of-state/out-of-country enrollments (whose tuition is not capped). These individuals are unlikely to stay in the state after graduation to contribute to the in-state stock of human capital.
Furthermore, likely increases in tuition in the future to compensate for drastically reduced state funding will reduce the number of enrolled, ceteris paribus. Or is the demand curve vertical in your world?
Menzie: So lower funding will lead to higher tuition in the future or lay-offs in the present? It’s hard to have an intelligent discussion when your story changes from one comment to the next. As to your hypothesis that an increase in out-of-state tuition will cause those students to leave the state after graduation (and after they stop paying tuition!)….well I’ll just be polite and call that speculative at best.
Jeff: “damming”??
Ah, there’s the Menzie I know! When he runs out of ideas he resorts to nitpicking typos. As I’ve said before you make a better editor than economist.
I take it he is trying to copy Brownback’s success.
Anonyous,
I happen to personally know that the UW-Madison music department is excellent. But, hey, you are probably right. The money should go to Babcock Hall so that UW will be better than ever at using the state’s signature product to make yet ever better ice cream.
Vivian,
Wow! Brlliant! All economists are lying siffers! Wow!
And, yeah, that conflict of interest filled Menzie should darned well take a 2 or maybe 4% pay cut so that the Bucks can build a new arena and taxes are not raised on the rich. Darn tooting! I am sure you are just champing at the bit to take a pay cut for the good of whatever organization you work for (if you are professionally employed).
On a more serious note, thate has been a major problem in the US of college tuitions rising faster than inflation for a long time. Not obvious this has been buying anything worthwhile. But, let it be known that this increase is not due to spending on faculty. Since 1967 student/faculty ratios have barely changed while faculty salaries have only barely beaten inflation. OTOH, there has been a subsantial rise in the staff-administrr/student ratio since then, with these folks now outnumbering faculty nationally. While staff salaries have not gone anywhere fast, the rising numbers of administrators have also enjoyed salaries rising substantially faster than inflation, as have those of athletic coaches, even though only 20 unis-colleges actually make money on their athletic programs, contrary to widely held belief (hard to make money when the football coach makes more than the president.=).
So, rather than asking faculty to accept pay cuts, how about firing some assistent to the deputy vice provosts, please. There are an awful lot of these people around, and it is not at all clear what the heck they do. But, we do not hear about that when a bozo like Walker calls for cutting the UW budgets. No, it is people like Vivian telling Menzie he should take a pay cut.
Frankly, Vivian, you are an embarrassment and should be ashamed of yourself.
Barkley Rosser,
I’m not at all ashamed of asking difficult and sometimes pointedly facetious questions (that’s where those smiley faces come in handy).
1. One such question posed in my original comment Is whether there $60 million somewhere in that $3 billion operating budget that could be cut without sacrificing the quality of education. Based on your response and Menzie’s silence it appears that university professor’s salaries are sacrosanct, but taxpayer money is not. I suspect, though, from your answer, that you think there is scope to cut administration salaries and, I suppose, if you were to look closely elsewhere in the budget, there would be scope to cut elsewhere (evidently, sports are not your thing, and I would agree that then perhaps cuts from the UoWM sports program would not detract from the Wisconsin knowledge bank). The question, then, is whether a 2 percent cut in an operating budget is going to cause the horrible things to Wisconsin’s future that Menzie seems to think are inevitable.
2. I think Professor Reinhardt, being a noted liberal economist at Princeton, would know better than I whether all economists are “lying siffers”. I don’t think he said that, but I do think his advice to take the information economists (and others) put forward as ostensibly objective science is spot on and that “sniffing” is engaged in by some more than others.
3. I’m retired. I trust I don’t need to be ashamed of that. It gives me private time to engage in discussions such as this, but apparently these days “professionally employed academics” are allowed to do it at work without any corresponding reduction in pay.
Vivian Darkbloom: You do know a pay freeze was in effect for several years? That was on top of an involuntary furlough, which for professors works out to a de facto pay reduction (some staff can be away from their desks on the furlough days, but professors still have to do the same amount of prep/grading for teaching, etc., wherever they are) Your statement about willingness to shoulder sacrifices for the institution exhibits a remarkable degree of ignorance of the situation here.
I would also note there are a lot of fixed costs in the operations of a university. For instance, you can’t just “turn down the heat” 13% and expect to save 13%; turning down the temperature more to achieve the 13% reduction in costs I suspect might have some negative repercussions (on pipes, in the winter, for instance). Also, I’m not sure reducing salting of the sidewalks by 13% is a good idea, in terms of possible liability.
Finally, let me observe that particularly after accounting for the rise in the CPI, real state contributions to UW system have been declining for years. That’s not even taking into account the state’s increasing population.
Menzie, Thanks for your reply. I trust from your response that the answer to my original question (not a suggestion that you “should” take a pay cut as Mr. Rosser would have it), which was indeed facetious, is “no”. Clear enough. I suspect that if I asked most taxpayers, the answer to whether they would accept to “shoulder that burden” through a tax increase, their answer would also be “no”. There is, I suppose, no surprise in either case. Perhaps you could productively devote a future post as to where that $60 million can effectively be cut. Mr. Rosser has already come up with a couple of good suggestions. I have no doubt you can come up with others.
Menzie,
Is the operating budget of $3 billion really being reduced by 13 percent as you seem to imply here?
Vivian Darkbloom: Good point. Adjust accordingly; the mechanics are the same, in terms of fixed costs. And remember, these are on top of years of declining real contributions from the state.
vivian
” I’m retired. I trust I don’t need to be ashamed of that. ”
you should be proud of retirement. the sooner i get their the better! but i have plenty of time to wait. however, in retirement you are most likely living off of some combination of social security and medicare, in addition to any other savings you may have. you are receiving government subsidized welfare. according to many folks from the conservative side, our entitlement program is in financial straights. so you won’t mind if i reduce some of your government provided welfare? a 10% cut will not be horrible for you or the economy, and will help with my entitlement finances overall. after all, you are being subsidized by SS and medicare taxpayers. 🙂
Baffling,
I am actually not currently living off either Social Security or Medicare. While I’ve paid enough into Medicare to qualify for coverage, as an American citizen residing outside the US, Medicare does not cover my expenses. Thus, it makes no sense to enrol (and, if one does not enrol and later returns to the US after eligibility age and enrols, premiums are higher than those who were covered at 65). Of course, I voluntarily live outside the US, so I’m not complaining. I do sometimes think it is one of my little contributions (as well as income tax) to “shouldering that US fiscal burden”.
As far as social security is concerned, I do not yet collect it. When I do, it will likely be offset by any foreign social security I collect under so-called “windfall provisions”. It may surprise you, however, to know that social security is quite progressive (not only regarding benefits, but also taxation of benefits). Thus, “welfare” does not accurately describe payments to some recipients the value of whose lifetime contributions will not exceed their benefits (as actuarially predicted). I’m not sure yet where I will fall out on this, but it may also surprise you to know that I favour means testing of social security. The main opponents of means testing are, in fact, progressives, who seem to think that if the program is means tested it will lose popularity.
As far as US income taxes are concerned, someone (not facetiously) asked–no, demanded–that I take a tax increase. Imagine the audacity! That person should be ashamed of himself!
vivian, you still wouldn’t mind taking a cut in your future social security benefits, right? after all, if it seems reasonable to ask menzie for a pay cut for the benefit of the taxpayer, you are willing to do the same, right?
the problem with that $60 million dollar budget cut, is that somebody is going to lose a job over this decision. and it most likely will be a secretary keeping a department operating on a $30k a year salary, or somebody of similar position. the cut really does nothing to improve the quality of the institution or its efficiency. in effect it is a bad cut. the high end administrator is the one who’s job should be eliminated, but it won’t because it is that administrator who is making the decisions on the cuts. same thing happens in the private sector world, cuts end up at the low end when its the high end who made the mistakes to create the fiscal problem to begin with. so these arbitrary $60 million cuts are not very effective in the business, and simply add to the overall economic toll of the community.
baffling,
If I’m proposing means testing for Social Security, that would mean that I “wouldn’t mind” taking a cut (along with everyone else in the same position). Clear enough? If you have any other suggestions as to what else I could personally cut, I’d be happy to consider it, but offhand, I can’t think of anything else. I suspect that my passport fee covers the cost of its issuance and the income taxes I pay for any miscellaneous benefits I may have overlooked.
“the problem with that $60 million dollar budget cut, is that somebody is going to lose a job over this decision”
It’s not clear at all that somebody is going to lose a job over this decision (or even that some deserving person is going to take a pay cut). That was the entire point of the original (and several subsequent) comments. But, every time a government budget is proposed to be cut, that is exactly the scare tactic that I expect. There seems to be a strong bias among many that budgets can only be (indiscriminately) increased but never cut.
As I indicated earlier, the cuts (for two years) to the U of MW program represent about 2 percent (not 13 percent) of the current operating budget of $3 billion (I assume that the cuts to other U of W campuses would be roughly the same). You, Menzie and Peak are assuming that everything in that current budget is absolutely necessary to further the education of Wisconsin’s young adults. Mr. Rosser apparently without any shame or embarrassment, has astutely and without much apparent effort, already identified some areas that could be cut (indeed salaries and benefits of administrators and expenditures on sports), but I’m pretty sure there are many, many others. I was amazed in searching for info on the U of MW’s finances at the lack of transparency. Most of the literature readily available provides global information on where the money comes from, but very little detail on where it is spent, much less how this spending furthers the education mission. With some effort I found on their website information from 2011 (what company could get away with that?). Apparently, the public is expected to simply meet the financial requests of entrenched and tenured educational establishment solely based on Peak’s mantra that “more must be better”. Putting more decision-making in the hands of U of WM as to how money is spent might allow Menzie more of a input as to priorities. I fully understand why he’s not interested in having his salary cut, so that should be incentive to look hard at other places in the budget. Let him expend as much effort bucking that University administration as he does Scott Walker!
And, I don’t buy the argument that 98 percent of current costs are so “fixed” that there is nothing left to cut. To the extent they are “fixed”, a significant portion of that may be due to unwise spending commitments in the past and “fixed” costs can often be “unfixed”. Automatic and indiscriminate spending increases may explain why those “fixed costs” are so high today. Does the U of WM (and other universities like it) really need all those expensive recreation facilities and other building programs and the “fixed costs” that go with them? Again, if Menzie is concerned about this, a very useful and constructive exercise would be to expose that *current* spending budget to detailed scrutiny and have his readers help him pick away. This type of constructive effort might also reveal many expenditures that are not contributing to “cognitive skills” of Wisconsin’s youth and allow some of those funds to be allocated to something that does. Who knows, with that effort, some of that might even be transferable to boosting Menzie’s salary! I understand the U of W system has a limited merit pay program, and I would fully endorse someone who makes that effort get part of that.
Baffles,
Don’t wish your life away dreaming about retirement. If you hate your job that much, maybe you should do something else.
rick, i don’t hate my job at all-and i never said that. but i would love the freedom that comes with retirement. or being independently wealthy. but never fear, i will continue to work until i achieve those goals.
Barkley Rosser,
In re-reading your comment, I noticed that I forgot to address the first part of the following:
“I am sure you are just champing at the bit to take a pay cut for the good of whatever organization you work for (if you are professionally employed).”
I’ve already answered the second part (I’m retired), but as to the first, for most of my professional life I was not paid completely on a salary—later I was completely off salary. Thus, my pay was not guaranteed. Earlier in my career, my pay did from time to time get cut “for the good of the organization I worked for”. Later, my income was, to a significant degree, subject to the fortunes of my clients and the state of the overall economy. When clients were not doing well, they would sometimes ask me to take a pay cut. In most cases, I agreed. In a few other cases they demanded it. In a lot of those cases, i also agreed. I did that for the benefit of those clients, for the benefit of the organization I worked for, but mostly, I’m sure, I did it for my own long-term benefit. I never “champed at the bit” for those reductions, but when they came, one way or the other, I accepted it. I’m not complaining at all about that. Although I worked very hard, I feel very fortunate. There are, however, many millions of Americans whose incomes are also quite variable, who would love to have a pay freeze during a recession, or even a couple of percentage point reduction or even a job at all.
Ever thought of doing a blog, Viv? You’d be great.
And why Vivian Darkbloom? Is the connection to Nabokov, or Pretty Little Liars?
Thanks, Steve, but I don’t take myself that seriously. Besides, it’s a full-time job doing what I now do trying to keep the real bloggers on their toes. And, I’m not sure I’ll ever get over the shame and embarrassment of what I’ve done here. 🙂
As for the name, I thought it was catchier than “Vivian Bloodmark”. Never heard of Pretty Little Liars. I’ve lived outside the US now for 35-plus years and am not up-to-date on American popular culture (am I missing something?) I’ve known some liars, some of them pretty, some of them little, some of them pretty and little, but all of them human and divine.
Nabokov, on the other hand, was a great stylist, a great novelist, a great linguist, a great lepidopterist, a grand deceiver (in the best artistic sense) as well as a pretty good chessman. He was imminently humane in work and deed. He had no time for charlatans and philistines. Some say he was a snob. I think he had high standards. He was also a very lucid and under-appreciated thinker who didn’t give a tinker about economics. He lived through the Russian Revolution and, with his wife, Vera, narrowly escaped the horror of Hitler (his brother, however, died in a camp). He subsequently experienced the wonder that is (was?) America and wrote lovingly and humorously about it. All those experiences gave him a pretty unique perspective. HIs insights about time and memory and the creative process are, I think, profound.
You might, perhaps, enjoy a little book of “interviews” he gave, or better simulated, called “Strong Opinions”.
Vivian,
You really should consider it. You are an extremely good writer.
Not really, Rick. In fact, I’m sure out there McNab is frowning. Somewhere between my mind, my keyboard and my “spelling assistant” , I insinuated he was “imminently humane” rather than “eminently humane”. Of course, he had Vera type all his stuff and undoubtedly correct a lot of “howlers”. To my knowledge, she never let any get through. (Read the nice bio “Vera” by Stacy Schiff). I once, somewhere in the mid-1980’s, when on business, had the thrill of seeing her as she entered the Palace Hotel in Montreux, Switzerland (where they lived). She was a distinguished (white gloves, white hair) little lady, a little bent over, and un-mistakedly Vera. It always gives me a little chill to recall that little visual souvenir of one-half of the greatest literary duo of all time.
And, as far as blogging is concerned, it’s not a good format to demonstrate good writing (or scholarship), particularly in the comments. Things happen just too quickly. There is not only the temptation, but also often the need to create and respond to things “in real time” (Nabokov would have chuckled at that expression). He also famously said (I paraphrase): “I never show my drafts. It’s like handing around one’s sputum”. Alas, there’s a lot of sputum being handed out in the blogosphere.
Let me disagree with you, Viv, and continue to encourage to find a topic of interest and blog about it.
For a very long time, I just commented. I started my own blog in April, but really only started publishing regularly in October. I have no regrets. It has kept me firmly in the press and allows me to shape opinion in the oil analysts community.
I remain astounded how weak and polarized the economics profession seems to me. For example, consider cross national employment to population ratios which I noted in recent days. Has anyone else written about that and the implications for US labor markets policy? I don’t know that they have. Any yet to me, those numbers are just damning. Now, how hard did I have to work to find them? Not very hard at all. It’s easy. The OECD stats are readily available. Statistics on just about everything are available.
I often find that I read all sorts of things in the press and the economics blogosphere, and yet when I check the actual numbers, they tell a very different story than does the received wisdom (both pro and contra). There is a lot to write about, plenty of data available, and a real shortage of smart people–people who are willing to let the data speak–to write about it.
I am personally of the view that the retired have the chance to dominate and shape public opinion on the internet. Today, Jim and Menzie have virtually no advantage over your or me in access to information. (Actually, I have substantially more access to oil markets data and analysis.) And they have less time than you do. It is not hard to become a subject matter expert. So, I encourage you to find a topic that interests you and dig yourself into it. You have few disadvantages, and many advantages, compared to the professionals. And I’d add that people respect your voice and opinion.
I wouldn’t be shy. If you’d like to try it, go ahead. You have fans.
A lot of public universities have gotten themselves caught in a vicious trap. In order to generate more revenues universities have had to recruit out-of-state students. But in order to recruit those students whose parents have the big bucks, those universities have to compete with other universities in the same predicament. In order to compete universities started spending a lot of money on student amenities that would appeal to upscale students, who may or may not be academically motivated. So we see things like rock climbing walls, over the top recreation centers, upgraded dorms, etc. All that costs money. In order to get that money they have to create oversized alumni “outreach” offices to try and bring in donations from alumni. So admin costs explode. But alumni want to see big time athletics, so now they need a new or upgraded football field or basketball arena or conditioning center or whatever. They also have to recruit kids who might not be academically eligible. That means hiring special tutors and “minders” to manage the lives of these recruits. It also means creating special departments and majors that won’t be too demanding so the kids can concentrate on athletics. If you’re a university president your main job is having long and expensive lunches with fat cat plutocrats. Department heads are given contradictory goals. On the one hand the regents want the university to concentrate on world class research (it’s always “world class”). On the other hand they want to push through as many paying customers as possible. So they end up with a caste system of tenured professors and overworked and harried adjunct professors who flit about each day between teaching duties at universities and community colleges on the other side of town. And what kinds of solutions do we get from too many governors and boards of regents? They ask the Koch brothers to endow a few more chairs. Ugh.
As Vivian pointed out, the University of Wisconsin Madison needs to cut expenses by $60 million per year for two years. And yet, understandably, Menzie and his colleagues do not want to see spending reduced. The liberal solution of course is to foist the problem off on the tax payers. That’s a solution that I would imagine almost everyone in the city of Madison would support. After all, a modern Diogenes with his lantern could scarcely find a conservative anywhere in the city limits. It might even be illegal to be a conservative in Madison.
But conservatism is about solving problems creatively rather than expecting the taxpayer to solve them for us. So here’s an idea. The monolithic liberalism of the University is the solution. Everyone at the U voted for the President enthusiastically. And everyone there is a strong supporter of Obamacare, which they know provides high quality government health insurance at reduced cost and which they themselves would be happy to be on. Why not use the cost-cutting magic of Obamacare to solve the University’s fiscal problem? Why not put the entire work force of the University of Wisconsin Madison on Obamacare and pocket the cost savings?
A back of the envelope can illustrate the potential cost savings. There are about 16,000 employees of the University. Of course, some of them are students and are not getting benefits. But let’s just assume they are for the sake of argument. Let’s also assume that each of those 16,000 employees is 46 years old, has a 46 year old spouse, and a 16-year old child. Let’s also assume that each employee makes $60,000 per year. According to the 2011 budget, about $428 million is spent on fringe benefits and we could estimate that perhaps $200 million of that is spent on health care costs. So, we have $200 million to play with.
So, first, we eliminate the excessively expensive university health insurance and throw University employees on the exchange in which they can select a high quality but cost-controlled Obamacare plan. The Dean Value Focus 5250X silver plan can be had for the subsidized price of $429.05 per month for this family. To cover all 16,000 employees, that will cost 12 X 16,000 X $429.05 = $82.4 million. So pay an additional $82.4 million to the employees to buy insurance. The workers will have to pay additional taxes on that income, but that’s fine. They all support paying higher taxes anyway and this will be a good opportunity to do so. The University though will have to pay additional social security and medicaid taxes of 7.65% X $82.4 million = $6.3 million. The university will also have to pay a penalty of $2000 per employee, or 16,000 X 2000 = $32 million.
But look at the savings: 200 – 82.4 – 6.3 – 32 = $79.3 million, more than enough to cover the $60 million deficit. We can quibble about the details but I’ve made a number of conservative assumptions. Many people don’t actually get benefits. Many are younger than 46, aren’t married, or don’t have children and lot’s of people make less than 60K, so that their subsidy will be higher.
The savings seem to be there.
Lol. I love my father’s solution! Young people like me who don’t really need the insurance can just pay the penalty and then have enough left over to buy a 4K big screen tv at Best Buy.
hi jr,
sorry to burst your bubble, but your idol is not looking out for your best interest. for one, he is encouraging you to break the law. he probably also tells you to speed and roll through stop signs? maybe smoke a little pot? nice role model. and i am sure if you do have an illness and can’t afford your medical bills, he will assist you through your bankruptcy proceedings? of course, then you won’t be able to buy a home and your auto insurance premiums for the car will increase. oh forget that, you won’t qualify for leasing the car with your bankruptcy anyways. but you can always thank pops for the guidance in your life! on the bright side, you will qualify as a deadbeat because the hospital will still treat you with or without the insurance. at least you are alive!
Hi Mr. Baffling,
It’s not breaking the law not to buy health insurance. The law says that I can choose to buy it or choose to pay a penalty. And the law says that the only way for the IRS to collect the penalty is to take it from my refund, assuming I have a refund.
hi jr,
your pops likes to weasel out of arguments due to technicalities-perhaps he should steer you towards a career as a lawyer. but paying a penalty means you are breaking the law. just like you pay a penalty for speeding-your ticket. of course you can also argue that you chose to pay the fine so that you could exceed the speed limit. but we all understand the reality of the argument. jr i would be careful about the advice your pops has been giving you, it may lead you down the wrong paths in life.
“Dis-ease” (a.k.a. health) care and “higher education” (increasingly administration and retirement benefit costs hereafter), along with private and public debt service to wages and GDP, is now a net cost to the private sector and thus to incremental growth hereafter.
That is, the combined total gov’t spending, private “dis-ease care” (50-65% to 80% is spent on the sickest 5-10% to 20%) and “education”, and household and business debt service is now in excess of 50% equivalent of GDP. These sectors are required to grow in order for GDP to grow, but their growth constitutes a net cost to the remaining private sector: Catch-22.
The Eurozone (EZ) is in a similar situation with total gov’t spending at 48-50% of GDP but with “dis-ease care” being publicly funded and the EZ having less private debt service, i.e., “rentier taxes”, to wages and GDP. Still, the net effect on private sector growth (or lack thereof) is similar to the situation in the US.
Moreover, and more importantly, since 2008-09, total US net annual flows to the financial sector equals, or occasionally exceeds, annual growth of GDP. That is to say, the owners of the rentier flows, the top 0.001-0.1%, have a rentier claim on virtually all labor product, profits, and gov’t receipts for social goods in perpetuity.
The more the Fed (directed by its owners, the TBTE banks) pumps financial bubbles at larger share of wages and GDP, the larger the net rentier claims against current and future economic activity by the non-productive rentier elites, the worse wealth and income inequality becomes, the more labor’s share of GDP declines with after-tax and -debt service purchasing power of the bottom 90%+, and the slower money velocity and real GDP per capita will be.
It’s time for a universalist-humanist, Technoprogressive reset, r-evolution, redirection of vision, talent, and resources, and r-enlightenment for the bottom 90-99%. The neo-feudal, rentier-parasitic system of plunder, extraction, exploitation, and expropriation is coming to an end, which is indicated by the diminishing returns to hyper-financialization, QEternity, and debt to wages and GDP.
Economists are so far behind the curve as to be on the previous page of the metanarrative of historical r-evolutionary progression of human society.
Turn the page.
While we are on the subject of cost cutting, there is some more low hanging fruit. The School of Education costs the University $106 million per year. And yet if we eliminated it, the quality of teaching in Wisconsin public schools would improve significantly. Seems like a no brainer.
rick, why the hostility against educators? out of curiosity, when and where did you attend college. not trying to pry personally, just curious whether you attended college during the highly subsidized eras of the past when you could work part time and easily pay tuition at a public school. in those days taxpayers footed the bill and did not push that cost onto the students tuition, because it was an accepted investment in the future. today most folks want to do the opposite and no longer support the younger generation. it is especially discouraging when somebody from the previous era who received significant subsidies (even if they were unaware of this situation) finds it abhorrent to do the same for current youngsters.
No hostility Baffling. I’ve just observed that Education Schools teach people to be very bad teachers.
When my son was in the second grade, he suddenly started to hate reading. It turns out it was the new reading program at his school. The reading instructor had attended a Education School program at an Ivy League University on how to teach reading to elementary school children. My son was being told that reading is “work,” that he is not allowed to read above the level that they think right, that second graders have to develop reading “models,” that when reading he had to insert stickies predicting what was going to come next, etc, etc. When I heard all this, I thought the program must have been fiendishly designed to kill any love for reading that might be developing.
“No hostility Baffling. I’ve just observed that Education Schools teach people to be very bad teachers.”
rick, that is funny because i have observed just the opposite. most teachers come from schools of education, and are excellent teachers. i have, however, observed a significant lack of teaching skills from those who have not come from schools of education. i guess we have had quite different experiences.
When people talk about the returns to education, they usually have in mind the selective and highly-selective colleges. I don’t think it’s obvious the returns are really there, even for the most selective colleges. It would be interesting to do a fully randomized experiment in which kids who are accepted at elite colleges are randomly assigned to attend that college with no additional graduate or professional school or to join the military for 4 years. If we looked at earnings of the two groups into the future, I’m not convinced at all that the college educated kids would earn more.
But we have to remember that most colleges are minimally if non-selective. The very interesting book, In the Basement of the Ivory Tower: The Truth About College by Professor X relates an anonymous adjunct professor’s experiences teaching English at community colleges (which the President would like to make free) and non-selective 4-year colleges. His conclusion is that college is a huge waste of time and money for most people who attend these institutions.
Menzie:
“Anonymous: Do you have documentation that education in music provides less return to society than education in, say, business administration? There are a lot more students in business administration, so using your same logic of marginal product, it may very well be the case that we should be cutting back in category X.”
Certainly: http://online.wsj.com/public/resources/documents/info-Degrees_that_Pay_you_Back-sort.html
We have more business majors, but they still earn more because that knowledge is more valued by society.
“The very fact that you select the arts a priori illustrates an anti-intellectual/anti-data perspective. (As an aside, my guess is I know a lot more great musicians [again not “muscian”] than you do, and a large number of them have advanced degrees, and all I know have BA/BMs.)”
Having degrees did not make them become successful people. I’d argue they would have been successful with or without the degree.
“I also note that since the estimated rate of return on a college degree (not “degress”) is very high suggests that as a society we are underinvesting in higher education.”
Whose estimate? Estimates are garbage. Shouldn’t our GDP be growing by leaps and bounds since more people have degrees now than ever?
Anonymous: That’s the private return to education. I asked for the return to society. I suggest you consult an introductory microeconomics textbook.
I do like your statement “Estimates are garbage.” By the way, the numbers you referred me to in the WSJ are “estimates” of population means. This clear and unambiguous demonstration of your sheer ignorance of what numbers you are dealing with is going to be the subject of one of my next posts. (The fact that you work at a bank makes it even scarier!!!)
I think art is a metric of civilization. It is the residual, what we can produce when all daily needs are satisfied.
Like defense spending, spending on the arts defies easy quantitative analysis. In a narrow sense, art is entirely unnecessary. In a broader sense, we are willing to pay vast sums for some of it. Movies, broadways shows, music albums–all of these can command vast sums, and all of them represent art at some level. Indeed, I could make the case that the city backgrounds in a game like Assassins’ Creed are also art. They are fantastic, both from an aesthetic and historical perspective. Vast sums of money are spent to create it.
How much the state should spend on art is a difficult call. The American Boychoir School, which my son attends, is always scraping nickels together–and yet I do not believe that I would want it to be publicly funded (unless we went to a full charter type system). (And here’s the trailer for the movie with the Boychoir, with Dustin Hoffman. My son’s in there. If you can find Waldo, he’s standing next to him: http://www.prienga.com/blog/2015/1/17/boychoir-the-movie)
Here in Princeton we also have the Westminster Choir College, which along with St. Olaf’s, are probably the premier choral singing and teaching institutions in the country. Westminster, as I understand the story, was saved from bankruptcy by combining it with Ryder College, part of the NJ state system. The Choir College remains a focal point of choral music in Princeton, and indeed defines us as a principle hub for choral music in the world. Do I mind my tax dollars being used for that? I wish I could say I do.
Art has no utility. But there is no civilization without it.
How much should we sacrifice for it? Economic analysis may not tell us the answer.
Barkley Rosser
January 29, 2015 at 12:18 pm
Anonyous,
I happen to personally know that the UW-Madison music department is excellent. But, hey, you are probably right. The money should go to Babcock Hall so that UW will be better than ever at using the state’s signature product to make yet ever better ice cream.
=======================================================
I have no doubt the Music department is excellent. But it doesn’t add the value it costs. What is the employment rate of music grads from those departments who work in music related careers that required degrees?
baffling
January 29, 2015 at 1:52 pm
vivian
” I’m retired. I trust I don’t need to be ashamed of that. ”
you should be proud of retirement. the sooner i get their the better! but i have plenty of time to wait. however, in retirement you are most likely living off of some combination of social security and medicare, in addition to any other savings you may have. you are receiving government subsidized welfare. according to many folks from the conservative side, our entitlement program is in financial straights. so you won’t mind if i reduce some of your government provided welfare? a 10% cut will not be horrible for you or the economy, and will help with my entitlement finances overall. after all, you are being subsidized by SS and medicare taxpayers.
========================
Holy crap first time I’ve ever agreed with baffling. Let’s GUT those entitlements!
but let’s do it to current and future recipients to be fair, and means test the system to eliminate those who do not need the support. gut is a pretty irrational word to use.
Above Menzie asked me about the specifics of the 13% reduction of state subsidy (by the way subsidy is not a word that Menzie would use). I think he was saying (mind reading is acceptable in his posts) that it was unfair that discussions of the changes in the structure of the state university system did not start with the 13% number. Of course it did not start with that percentage, the 13% was a result of analysis of needs of the university system and the equally or more important needs of the rest of the citizens of Wisconsin. But what I did not understand was the importance the Menzie made of the comparatively small reduction of 300 million within the systems overall budget of 6 billion. Now because of very good questions from others, a little insight in Menzie’s mind and analysis is available.
Menzie makes the case that 6 billion is not the proper comparative number because so much of the 6 billion is fixed cost. And that defines one of the differences between government enterprise and private enterprise. There are no fixed costs in private enterprise, there are only costs, each cost is subject to change because there is a bottom line incentive, which is derived from a slue of factors, among which are, survival, growth, profit, individual bonus, promotion, and job security. These incentives are greatly reduced or non-existent in government enterprise. So in the example that Menzie made, heating costs become fixed, because there is no bottom line incentive. In government to make changes to fixed cost likely becomes subject to “use it or lose it.”
Ed
Do people really believe students pursuing music degrees are what’s driving up education costs??? Seriously? Look, in terms of economic inputs it doesn’t cost anymore today than it did 40 years ago to teach the basic liberal arts curriculum for undergraduates. Undergraduate math hasn’t changed. Greek and Roman history hasn’t changed. Poetry, political science, rhetoric, geology. The main teaching inputs provided by the university are classroom space and a teacher qualified to instruct undergraduates. That ain’t much. What’s driving the cost of education are the professional and graduate schools. That’s where you need significant capital investment (think physics & astronomy research) and big name star faculties. Big universities are obsessed with rankings, so they keep bidding up the salaries of star professors. There’s nothing inherently wrong with that. We need people to do basic research. We need people to teach advanced graduate students. We need great teaching hospitals. We need great advanced engineering schools. I’m not quite convinced that we need anymore great law schools or finance faculty members (they seem to have done plenty of damage already), but training people for the high end is all well and good. But those students in the law schools and in the medical schools and in graduate schools are not paying the full cost of what it takes to provide that kind of world class education. What ends up happening is that freshmen and sophomores taking basic core courses overpay by a lot. They essentially subsidize graduate and professional schools.
I would also disagree with Rick Stryker’s comments. First, there actually was a study about a dozen years ago that looked at elite schools versus good but not elite status schools. After tracking a graduating class for 25 years the study found that there was no measurable difference in incomes between those who went to top elite schools versus those who went to merely good schools after controlling for SAT/ACT scores and high school GPAs. Graduates from the elite schools had higher salaries on average, but that’s because they had higher SAT/ACT and GPA scores on average. Once you controlled for those factors there was no difference in their outcomes. So parents who paid for elite educations basically wasted their money. It’s the abilities of the kid that determine future income, not where that kid went to school. The value added on the school’s part was too small to be measurable.
I would also disagree with his comment about community colleges. My brother has taught at plenty of colleges and universities. He finally settled down at a large community college (22,000 students) that is only about 3 miles away from a large Big Ten school. He heads up the English department. The students at that community college take exactly the same courses that are offered at the big university. They use exactly the same books. They cover exactly the same materials. They take exactly the same tests. And in many cases they have exactly the same instructors and adjunct professors. The only differences are price and reputation. The cost is about one-sixth. If you worry about reputation, then being a snob can be expensive. What Rick Stryker is peddling is the Big Lie that a lot of large universities are trying to sell the public. Big universities see community colleges as a threat. And that’s why that neighboring Big Ten school decided to offer free summer classes. Community colleges are far less expensive, but they can’t compete with free. I believe it’s called predatory pricing.
2slugs,
You are refuting arguments I haven’t made.
My conjecture was that if you did a truly controlled experiment in which you took a pool of kids accepted to elite universities and randomly assigned them to attend the University or join the military, you wouldn’t see any real difference in their earnings in the long run. To truly randomize that, you’d have to limit education to undergraduate level and also give the kids returning from the military diplomas with academic records and a transcript so that they could apply for jobs as if they had just graduated. Your cite of the study tends to reinforce my claim, since it showed that the there was no benefit to the elite university compared to a less elite one.
Also, you falsely assumed that I was claiming that community college courses are not up to par. I made no such claim but rather just recommended a book. According to Professor X, community college and non-selective 4 year colleges are a waste since most of the students don’t want to be there but are compelled to be to qualify to be a state trooper, etc. Most students are unprepared by terrible high schools and can’t cope with the courses. The graduation rates are low and students emerge without degrees but with substantial debt. Professor X questions whether college is really useful for these students.
“I made no such claim but rather just recommended a book.”
rick, my boss demands that i have a college degree in order to qualify for my job. just reading the textbook is not sufficient for securing the job. this is not a government job by the way. so at the end of the day, we still need to deal with the reality that employment potential is significantly affected by acquisition of a degree or even college course credit. perhaps we could start explaining to the bosses how a college degree should not be mandatory?
Baffles,
You’ve missed the point yet again. I’m not disputing that many jobs require a college degree. I am questioning whether it’s really necessary to have that degree in many cases. Do you think your job really requires a college degree? What did you learn specifically in college that is necessary to do your job? If you are an engineer or accountant or something like that I can see it but many jobs aren’t specialized like that.
rick, you missed the point. many jobs, like mine, do have a demand for a college degree. or more importantly, the boss demands a college degree. until you change his mind, your argument is pointless. since we have many folks in the decision making suite demanding a college degree, we need to provide a path for all people to obtain a degree. otherwise you simply continue to perpetuate a world where those with access to education-such as the wealthy-will continue to dominate.
Ed Hanson: “There are no fixed costs in private enterprise.”
You really know absolutely nothing about running a business, do you? It is no wonder that you opine about private enterprise as if your only information source is a Fox News cartoon.
Baffles,
No, failing to purchase health insurance is not illegal. It is not like speeding as you think. You apparently missed the Supreme Court case on the constitutionality of Obamacare. If it were illegal to purchase health insurance, i.e., it were a mandate with a penalty, then the program would have been unconstitutional. However, Justice Roberts saved Obamacare by calling it a tax. To quote from the decision:
“Those subject to the individual mandate may lawfully forgo health insurance and pay higher taxes, or buy health insurance and pay lower taxes. The only thing that they may not lawfully do is not buy health insurance and not pay the resulting tax.”
Sorry, meant “illegal to not purchase health insurance”
rick,you can dance around a technicality all you want, but we both know the end result is the same with respect to the advice you give to your son jr. just like technically it was not the officer who killed the little boy in the park in cleveland, it was the bullet that killed him. doesn’t change the resulting outcome how you define the terms.
Baffling,
There is no technicality. I’ve given you the language of the Supreme Court ruling: “Those subject to the individual mandate may lawfully forgo health insurance and pay higher taxes…”
You are wrong.
rick, if that is what let’s you sleep at night, so be it. in the end, if you do not purchase health insurance you pay a fine. you are welcome to call it a tax, a choice, a fine, a donation, whatever. but a rule was made and you chose to break it a pay a penalty.
by the way, it is nice to see rick stryker supporting obamacare as a legal tax rather than an illegal law. progress is made.
Is it true that at the same time Walker is cutting support for the University he is also spending $200 Million for a new pro basketball stadium?
Education is not much of a priority is it?
What benefits the citizens of Wisconsin more: a better educated citizen or a better basketball arena?
Close call.
anon2: Yes, Governor Walker is apparently supporting the stadium. I will not hazard an answer to your second or third questions.