Michael Hicks: Facing up to the 'cost disease'
Thursday, January 28, 2016 9:57 AM
MUNCIE - It is not difficult to find fault with the rising expenditures in higher education, or to feel frustrated with the ever greater cost of educating children. Both past and future readers of this column will be exposed to my criticism of universities and schools that waste public dollars. Still, it is important from time to time to state what should be obvious; costs associated with education are likely to continue to rise for reasons unrelated to waste or ineptitude. Let me explain.
Across the economy, the past 300 years or so have seen a rapid growth in productivity of the typical worker. Stated more plainly, the value of goods and services produced by a typical worker has risen enormously, driven by all sorts of things from technology to education to personal freedom. This productivity growth has made us shift our spending, both privately and publicly, to things once considered a luxury. Universal education through high school and open enrollment universities are two of these things. But, our productivity in these two sectors has not seen the growth that has characterized manufacturing, transport, agriculture, food service or most other sectors.
Most of the modern wonders that improve productivity—technology, organization, supply chains—have done almost nothing to impact the costs of education. To be sure, technology can help, but most technology gains in education have focused on quality, not cost savings. For all the computers, screens, internet services and the like, the typical student-teacher ratio isn’t much changed from when I was a boy, or when my great-grandfather was a boy. That is not a criticism of education, simply an economic fact that all policymakers must understand.
College classes are likewise similar. I teach a class of almost 50 graduate students—half online, the remainder in my classroom. These in-demand electronic classrooms reach students in a half dozen states simultaneously. Although technology increases the geography, it takes me just as long as ever to grade papers, which is an important part of the education process, and there is no computer that can do it for me. This is a large class of graduate students, but it cannot really be larger without reducing quality by cutting papers and essay exams.
The cost impact comes from something economists call the ‘cost disease.’ You see, those fifth grade teachers and college professors cannot really teach many more students than they did a century ago. However, colleges and schools have to keep salaries competitive with what professors and teachers could make elsewhere. Otherwise they’d have no teachers and professors. This is most pronounced in fields with the best options outside education.
We can focus on lots of cost savings in education, but we must also recognize that ‘cost disease’ is an economic reality that will limit how far those savings can go. It is also why we’ll be spending a larger share of our GDP on education in 2115 than we do today.
Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University.