Robert B. Archibald

There is no question that in the U.S. the cost of college education, like the cost of health care, has grown much more quickly than inflation. And that very fact—the similarity between the price patterns in education and health care—is at the heart of “Why Does College Cost So Much?”. The authors, Robert Archibald and David Feldman, economists at the College of William and Mary, provide a compelling, data-based answer to this question.

Archibald and Feldman argue that there are three main factors that drive college costs. The first is “Baumol’s Cost Disease.” Put simply, what William Baumol and William Bowen argued nearly 50 years ago, was that when salaries rise in response to increased labor productivity in some segments of the economy, competition drives an increase in salaries in other segments of the economy that have not experienced productivity growth. But since the latter parts of the economy don’t see reduced costs, their prices then grow more quickly. Higher education is an industry that to date has been subject to Baumol’s Disease: it takes a college professor just as long as to deliver a lecture, or grade a paper, as it did a century ago. Of course, one might attempt increase productivity by increasing the number of students in the lecture, but (a) that doesn’t reduce the time needed to grade each paper, and (b) there’s a strong belief that the quality of education would decline as a result—that close interactions between professors and small groups of students is essential to quality education. Archibald and Feldman produce a great deal of data showing that the cost of higher education has grown in a pattern very similar to other industries subject to Baumol’s Disease, including health care and legal services.

The second factor that Archibald and Feldman point to is a decline in educational attainment in this country that started in the 1970s, and has driven up the costs of industries, like higher education, that hire many people with bachelor’s or higher degrees. And the third returns to technology: universities spend a lot of money of technology, to provide state-of-the-art educational experiences to their students, and research facilities to their faculty, but they do not derive the same return on investment as do industries, which buy technology only when there is a reasonable expectation of positive financial return.

Put together, the argument is that it is broad economic forces that are driving up college costs, not, as the authors put it “bad people making bad decisions.” Indeed, they catalog a list of other factors, of the bad-decision type, that have been suggested as causes of the rapid growth in college costs, and they show that each fails to explain the data on college costs. For example, one often hears that traditional universities have no incentives to keep costs low. But surely for-profit universities have just such incentives, and yet their cost pattern has followed that of the non-profits.

The conclusion that follows from Archibald and Feldman’s book is that there just aren’t quick fixes like price controls to the challenges of higher education. However, there are some things that can be fixed, and key amongst them, the authors argue, is the current financial aid system, which they believe is not well-constructed to achieve its key goal of ensuring access to college for students from lower-income families. They suggest some intriguing possibilities for a radical revision of financial aid to better meet this goal.

“Why Does College Cost So Much?” is heavy on data, with lots of graphs, but it’s clearly written for people without formal training in economics. It is a very important book for anyone who is concerned with the future of higher education in this country—and that, I would argue, is anyone who is interested in the future of this country.… (altro)