Archives For higher education

The New York Times–shocker!–hates the University of Phoenix

Geoffrey Manne —  12 February 2007

william pepicelloPeter Klein at the always excellent Organizations & Markets Blog has a characteristically excellent post on the New York Times’ characteristically anti-market article on the University of Phoenix (and for-profit higher education).

Lest there be any doubt that the article was meant to cast UOP in an unflattering light, check out the picture of UOP’s president, William Pepicello, that accompanies the article.  The picture makes him look like a cross between a clown and a devil–some sort of devil clown!

At any rate, the article is little short of a hatchet job, as Peter aptly demonstrates in his post.

I don’t know for certain whether UOP students maximize their utility by choosing UOP over Princteton (aka clown college, coincidentally), but there is, at a minimum, some theoretical merit to the form of organization. 

Here’s what I (and Adam Smith) said on the topic once before:

Here’s Adam Smith on universities:

The endowments of schools and colleges have necessarily diminished more or less the necessity of application in the teachers.  Their subsistence, so far as it arises from their salaries, is evidently derived from a fund altogether independent of their success and reputation in their particular professions.

In some universities the salary makes but a part, and frequently but a small part of the emoluments of the teacher, of which the greater part arises from the honoraries or fees of his pupils.  The necessity of application, though always more or less diminished, is not in this case entirely taken away . . . and he still has some dependency upon the affection, gratitude, and favourable report of those who have attended upon his instructions . . . . 

In other universities the teacher is prohibited from receiving any honorary or fee from his pupils, and his salary constitutes the whole of the revenue which he derives from his office.  His interest is, in this case, set as directly in opposition to his duty as it is possible to set it.

Faculties in today’s universities are substantially insulated from both the reputational and remunerative consequences of offering poor (or exceptional) education.  As direct payment by students — and, eventually, the conferring of degrees on “independent” courses of study — becomes more commonplace, this insulation will be seriously weakened, much to the likely benefit of the students.

I have no doubt that UOP isn’t perfect.  But it certainly mitigates some of the problems of traditional, nonprofit higher education.  Perhaps a comparative institutional analysis would have been in order.  The implication that UOP’s shortcomings derive necessarily from its for-profit status is both unsupported and unsupportable.

In Truth on the Market , , ,
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Henderson on Judicial Pay: Constitutional Crises Everywhere or Nowhere?

Josh Wright —  27 January 2007

Bill Henderson has a nice post on Chief Justice Roberts’ claim that judicial pay has reached the point of creating a “constitutional crisis.” Lots of bloggers (see, e.g., my colleague Ilya Somin at VC) have made the point that they are not impressed with the data the Chief has mustered in favor the assertion that the quality of the federal bench is likely to suffer as the gap between judicial pay and pay in private practice widens (or that a shift in composition of the federal bench towards fewer lawyers from private practice is a demonstrably bad thing, much less constitutional crisis). Most of this discussion has involved pointing out weaknesses in the Chief’s empirical evidence in support of his claim and some educated guesswork about the relevant elasticities of supply for high quality judicial candidates with respect to pay.  Though I think it it is very difficult to say something meaningful about these elasticities without data.

In any event, I think Bill’s post adds something new by attempting to reframe the debate a bit and raising some issues I had not thought about in relation to the Chief Justice’s plea for more compensation.  The first is that federal judges make much higher salaries than their state counterparts and so, as Bill writes, “it appears that we also have several dozen ‘constitutional cris[es]’ at the state level.” Second, Bil notes that while Am Law 50 partner and CLO salaries have grown dramatically as of late, both federal judiciary and solo/ small firm compensation has not done nearly as well. Bill asks why this gap in pay does not trigger the same sorts of concern over the independence of lawyers more generally?

These are both interesting points. With respect to state court judges, I presume that Chief Justice Roberts (if confronted with the data) would be more than happy to advocate for higher salaries in state court as well. But Bill is certainly right that if a gap in judicial / private pay creates constitutional crisis, we may be in the middle of more crises than we knew!  With respect to the plight of the solo/small firm practitioner, however, I’m not sure I follow what Bill is getting at. One obvious difference between judicial pay and practitioner pay is that the latter is set in the market in response to economic forces rather than by Congress in response to political forces. In other words, if the market sets much higher compensation levels for big law lawyers than solo practitioners — this is a valuable signal about the best use of lawyerly resources. In that setting, it is difficult to understand the sense in which these attorneys are underpaid, or why the gap would be problematic at all.
Third, Bill writes that:

“district and appellate judges working in large metropolitan areas will likely live in smaller homes or endure longer commutes. And the Judge’s kids may have to apply for loans to pay for college or law school, including federal Stafford loans, which are the lifeblood of higher education. In other words, their problems will be more like 98% of the American electorate, albeit still very much at the high end. Why is this a “constitutional crisis”? Some of us might call it “sensible policy.””

While I think that my prior is to agree with Bill’s punchline (and the position taken by most bloggers I’ve read) that this is not a constitutional crisis, I’m not quite sure that I agree with this third point. It depends who is on the margin doesn’t it?  And that depends, again, on the relevant elasticities. One possibility is that in expensive metropolitan areas the marginal candidate will be the one Bill describes. It is also quite possible that the marginal candidate in such areas is sufficiently wealthy such that the pay cut in going to the federal bench has little effect on the family’s financial well-being (though the Luttig examples suggests the former certainly does occur).  In any event, my point is only that it is really hard to talk about prospective changes in the composition of the pool of candidates without better data than we have (and are likely to have given the nature of these decisions) on candidates.

In Constitutional Law, Truth on the Market
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Conservatives and the Regulation of Higher Education

Thom Lambert —  12 October 2006

Classical liberals have long derided their conservative cousins for being fairweather friends of small government, but the criticism has been fairly limited. In general, conservatives have embraced limited government on matters of economic regulation and have endorsed governmental meddling only on matters involving so-called “values” issues like broadcast decency and homosexuality. Lately, though, conservatives seem ever more willing to embrace big government on matters that seem more economic than values-oriented.

An op-ed in yesterday’s NYT exemplifies this trend. The op-ed is by Eugene Hickok, a fellow at the conservative Heritage Foundation, which is normally fairly laissez faire on economic matters. Hickok argues that the federal government should exercise more oversight of college curricula.

Hickok contends that the quality of education is declining at colleges, even as the cost of a college education is skyrocketing. He points to studies documenting poor reading comprehension skills and “appalling” levels of civics illiteracy among college graduates. (OK, I’ll confess that I don’t really care whether engineering and chemistry students know how many electoral votes it takes to win a presidential election…but that’s just me.) Hickok endorses efforts by the feds to hold colleges accountable, just as they hold primary and secondary schools accountable under No Child Left Behind.

C’mon.

Can a real conservative honestly claim that federal regulation will do a better job than market competition at preserving (and enhancing) the value of an American college degree? In case Hickok hasn’t noticed, colleges — spurred on by various ratings such as the much maligned U.S. News rankings — are competing tooth-and-nail these days. Sure, colleges make some mistakes (Hickock points to goofball course offerings like the history of comic book art), but when they do, they get punished as their competitors highlight the relative rigor of their own curricula. Schools like St. John’s, the University of Chicago, Columbia, and Hillsdale — all of which emphasize the classics — have benefited as their competitors have dumbed down their curricula. Competitive markets are far more likely than government bureaucrats to guarantee an optimal mix of curricular options.

Oh but shouldn’t the government “help” market processes by requiring colleges to produce the information necessary for consumers to make wise educational choices? Hickok thinks so:

One of No Child Left Behind’s hallmarks is transparency. Today parents know more about the performance of their children’s schools than ever before. This same principle needs to be applied to higher education.

He’s a little bit vague, but it seems Hickok is calling for some kind of standardized achievement tests for colleges. Such testing is, of course, what creates No Child Left Behind’s “transparency.”

One might think that the gazillions of college guides — almost all of which provide detailed data on graduates’ scores on the GRE, LSAT, and MCAT — would provide this sort of information. Hickok, though, thinks this market response is inadequate: “The various college rating systems and publications are entertaining and interesting to read, but they don’t provide the sort of objective data tuition payers need to make informed decisions.” In other words, the government would do a better job of providing relevant information.

Color me skeptical.

The most troubling part of Hickok’s argument is his claim that because college students frequently use federal money to pay for tuition, the feds should exert control over college curricula. This is a dangerous argument for those of us who support vouchers as an alternative to public schools. If students’ use of federal dollars to pay for tuition opens their educational institutions up to federal oversight, then private and parochial schools that accepted federal dollars from poor kids would subject themselves to all sorts of meddling. That possibility might deter private and parochial schools from enrolling voucher students.

Almost certainly, Hickok’s call for greater oversight of college curricula stems, at least in part, from a concern that college faculties and administrations are dominated by folks pushing a left-wing, politically correct, anti-Western viewpoint. In his words, these folks are “seriously out of touch with much of America.” Believe me, I’m sympathetic. But is increased government involvement in curriculum decisions the answer? Hickok might like the curricular reforms the Bush Administration and a Republican Congress might enact, but what happens when the composition of those in charge changes but governmental oversight remains? Might not St. John’s be required to supplement its Great Books curriculum with obscure works outside the Western canon? Is it really government’s business to be making these sorts of decisions to protect adults who have every interest in maximizing the value of their degree? I think not.

Hickok concludes by noting that “Much of the world has come to America to get a higher education. But nothing guarantees that this will be the case in the future.” While he’s technically correct (there are no guarantees — North Korea could blow us all up tomorrow), I’m optimistic. Just as it “guarantees” that our products will be better and cheaper in the future, competition guarantees that top-notch higher education will remain available in America, even without federal oversight.

In Regulation, Truth on the Market ,
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Universities redux: The anti-market folks begin to crow

Geoffrey Manne —  4 March 2006

Last week I made a few observations and asked a few questions about higher education in the wake of the Summers fiasco (which I dubbed l’Affair Étés, but apparently no one thought that was nearly as clever as I did).

Over at Prawfsblawg, guest blogger Jonathan Zittrain takes NYT columnist John Tierney (for my money, the only reason to buy the Times other than the weather map and the movie listings) to task for his assertion that universities would do well to adopt a for-profit corporate model of organization. Bill Henderson piles on. Zittrain’s argument is, essentially, that the profit motive would subvert “proper” higher education.

Zittrain’s key conceit is to turn the tables on Tierney and assert that newspapers would, in fact, be better if they adopted a less market-responsive stance and emulated the universities Tierney is so quick to criticize. He says,

[w]e might actually know more about our world if journalists had tenure and were free to pursue stories wherever they led, without fear of financial repercussion.

The funny thing is, newspapers operate in an extremely competitive market. If Zittrain were right, they would already be doing this (or failing). Oh — and it turns out, according to Bill Henderson, they are! He quotes the Times’ Howell Raines:

Hiring mistakes are rarely shown the door at the Times, and the paper can be stuck with them for years. After a probationary period of fourteen weeks would-be staff members get tenure for life.

Now, to what effect? Has this behavior, along with myriad others, served newspapers like the Times well? I doubt anyone would actually make that claim. Tierney’s point is that tenure helps to insulate university faculties from market forces, to the detriment of students’ education. He asserts (perhaps incorrectly) that newspapers tend to take a different tack. Countering in response that newspapers would be better if they, too, were more insulated from market forces hardly scores any points.

But Zittrain goes on:

The idea behind a profession — law, medicine, journalism — is that it exists as something other than simply a raw market-responding entity. There are ideals associated with it, and members of the profession are to see those ideals as influencing their behavior independently of market forces (while also having good arguments about what those ideals should be).

This strikes me as dangerously naive. It means one of two things:

  1. We can and should rely on the idealism and self-restraint of professionals untainted by market incentives.
  2. Someone or something other than the market can and should police the professions (hmmmmm . . . who could it be . . .? Why, the government, of course!)

Forget #2 for now (it doesn’t factor in Zittrain’s analysis). Does anyone really believe #1? Leave aside the reality (which Zittrain does seem to acknowledge) that even relatively-insulated professionals are still subject to important market forces — does anyone really think we’d be better off with a greater degree of ideology and self-appointed moral arbiters to guide the professions?

If you do, please run out and buy this book: Armen Alchian, Economic Forces at Work (Liberty Fund, 1977). Turn to page 151 and read Alchian & Kessel’s 1962 article, Competition, Monopoly and the Pursuit of Money. Alchian and Kessel point out that, because property rights are attenuated in monopolies (and other “nonowned” institutions like nonprofits), more resources in these non-competitive environments will be used to satisfy “personal interests” rather than profits. Perhaps this will be a personal interest in fulfilling the noble ideals of the profession. Or, as Alchian and Kessel emphasize, it may be a personal interest in discrimination, pretty secretaries and easy work environments.

I have never understood why the world is so quick to believe the insiders in the academy (or journalism, for that matter) when we claim to be motivated by the “public good.” The same mechanism that takes the profit motive out of the equation also insulates insiders from the repercussions of extreme self-regard and makes these claims dubious. Precisely where market constraints are at their lowest we defer most fully to the insiders’ relatively un-monitored, unaccountable motives. That seems perverse.

Higher education and print media (oh — and health care. Can’t forget health care) may be two of the last bastions for defenders of the odious notion that the public good and markets are incompatible. But as Larry Ribstein has noted:

The Times is . . . selling a product. I also think that, in doing this, it is performing a public service, like every other profit-seeking business.

In contrast, Zittrain seems to belive that profit-making and good journalism are incompatible. He fears that

[i]f newspapers were to grant tenure to journalists, they might be less responsive to market demands and therefore less profitable.

In other words, the idiots out there who, you know, buy newspapers, think “good journalism” entails something quite different than what Jonathan Zittrain thinks it entails, and a newspaper that catered to his (inherently superior) vision would inevitably go belly up. Actually, he’s probably right. I gather that almost no one buys the NYT anymore. But he is wrong to imply that “selling a product” effectively is inconsistent with “public service.” The two are actually intimately entwined, and it seems quite elitist to me to suggest otherwise here.

I agree with Zittrain on one point: There is a great benefit (to those who can afford it) to getting a liberal arts education.

[T]here’s a world out there beyond the raw vocational skills needed for one’s next phase of life, and . . . there is a benefit — an incredible privilege — to have a number of years to view the world according to one’s intellectual curiosity, seeking and building truth for truth’s sake, and learning to know it when one sees it.

But to me, this suggests that universities that look a lot like today’s universities would continue to exist and thrive in a more competitive, more accountable environment. The market does not lead to the lowest common denominator as Zittrain implies; it leads to a diversity of choice, responsive to the range of consumer demand. It is rather the current model that is static — and troubling.

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More on JD/PhD's in Law and Economics

Josh Wright —  10 February 2006

My colleage Francesco Parisi has chimed in on Vandy’s new law and economics program in the Chronicle of Higher Education. Though I cannot click through to the actual article in the Chronicle, Francesco notes that GMU has long had a “Law and Economics” Ph.D. program, offering six different degrees in law and economics (as opposed to separate programs). I suppose the distinguishing fact is that the Vandy program would be housed in the law school and not the economic department — but as discussed in the comments to the earlier post here at TOTM, it is unclear whether that feature provides any additional benefits. In any event, I am happy to see more of these programs.

In Law & Economics, Truth on the Market ,
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