Is College a Bad Investment?

In his new book, “Going Broke by Degree: Why College Costs Too Much,” Richard Vedder contests a key justification for public investment in higher education: the argument that higher ed spending contributes to the general prosperity. A brief version of Vedder’s argument appears in the current edition of Forbes magazine (requires registration). I haven’t decided if I agree with his arguments or not, but he raises excellent points that should be considered in the context of public funding for Virginia universities.

Vedder, a professor of economics at Ohio State University, compared the 10 states with the highest state funding for universities to the 10 states with the lowest between 1977 and 2000, and found that the low-spending states enjoyed a 46 percent growth in real income per capita while the high-spending states racked up only 32 percent growth. How could this be? Vedder raises a couple of possibilities.

Colleges have devoted relatively little new funding over the past generation to the core mission of instruction (spending only 21 cents of each new inflation-adjusted dollar per student on it), preferring instead to assist research, hire more nonacademic staff, give generous pay increases, support athletics and build luxurious facilities. … In 1976 American education employed three nonfaculty professional workers (administrators, counselors, librarians, computer experts) for every 100 students; by 2001 that number had doubled.

Vedder also notes that educated people are mobile. Many of them leave the high-tax states where they were educated. Where to? To low tax states that don’t invest nearly as much in higher education! “Taxes reduce private-sector activity,” he says. “People who must pay high taxes tend to work and invest less and also tend to migrate to lower-tax areas.”

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  1. Sorrel Avatar

    Pending my purchase of Forbes, where did Virginia rank in the Professor’s study?

  2. Jim Bacon Avatar
    Jim Bacon

    Vedder didn’t mention Virginia by name, but the statistic that I’ve seen indicate that Virginia ranks in the middling range. I’m quite certain that we would not fall into either the “high spending” or “low spending” groups he tracked.

    8:51 AM

  3. Terry M. Avatar
    Terry M.

    The editorial doesn’t have any rankings.

    I have to say, I am not really surprised. I have been arguing for a couple of years now that what is missing in higher education is a holistic model that would allow us to demonstrate the actual cost-benefits of state support for higher education. The simple reason is that we currently have no way of telling a legislator currently what each dollar of investment buys.

    There may be a reason for that, apart from the complexity.

    I have ordered the book, so I have not read it. However, if Vedder does not take into account different institutional mixes (public/private) and the proportion of state dollars to each and other factors, it may all be meaningless. Missouri is a far different state than Virginia. It’s higher ed structure is almost radically different, particularly in the nature of its distribution of institution types.

    Perhaps of greater concern is how Vedder did the computation of state spending. If he simply used total appropriated dollar amounts, the study is seriously flawed. The reason for this is that in Virginia, users must pay for things such as fitness centers, rock climbing walls, stadia and the like – thus the money comes from Non General Fund appropriations (student fees).

    This is also true in other states. So, I guess what I am saying is that I wouldn’t leap to any conclusions about the value of his research until you read the whole book.

  4. Jim Bacon Avatar
    Jim Bacon

    Terry M, So, you’ve ordered a copy of Vedder’s book? Excellent. I’m counting on you to report back to the blog on the validity of his arguments.

  5. Terry M. Avatar
    Terry M.

    Will do so. I expect to have to respond to a variety of people about the validity of his arguments and his content.

    I just did a search on the Chronicle of Higher Ed website for Vedder’s name, and the only article that came up was reference to his testimony to House Committee on Education and the Workforce where he argued that college prices have increased because of public support for higher education.

    At this point, I really haven’t heard much from the community in response to his book or his remarks.

  6. Anonymous Avatar

    This information has to be wrong because Bill Bolling has stated for a fact that “College is affordable for most Virginians.”

    It can’t be too expensive and affordable at the same time!

    And we all know that Bolling knows everything!

  7. Terry M. Avatar
    Terry M.

    From an interview with Richard Vedder:

    Austrian Economics Newsletter: Can the essential message of your book be conveyed by econometrics alone?

    VEDDER: You cannot reduce economics to equations, not even economic history. Ironically, in the course of doing all this math, I have become more and more skeptical of the efficacy of these techniques. There are all kinds of problems with them which cannot be overcome. At the same time, the more I understand about the Austrian literature, the more I marvel at the theoretical sophistication and subtlety of argument you find in the works of Mises and Hayek.

    I’m not entirely against econometrics. Neither do I see it as just a way to raise my Nielsen ratings. For all of its imperfections, econometrics can add some rough support for agnostics who cannot see truth through any other means. But you cannot convey ideas like the discovery process in econometrics.

    and his testimony to House Committee on Education and Workforce can be found here.

    And for the record, whilst Dr. Vedder is criticizing colleges for giving excessive pay increases to faculty, may I point out that the average 9-month salary for a full professor at his institution is $88,200. Given that he is a “Distinguished Professor”, I would not be surprised if his salary were up to 40% higher.

  8. Bob Griendling Avatar
    Bob Griendling

    Now I ain’t no econometrical kinda guy, but I can tell you that I know few souls who said “I ain’t takin’ that big raise because the state has high taxes.”

    Ahem, that dog won’t hunt.

  9. Terry M. Avatar
    Terry M.


    I would agree with you if the good professor had been more traditional and spent his career at one institution. However, that is not the case…he has spent his career hopping from institution to institution. And I am sure he did not take pay cuts each time.

    Further, if he was at a private institution I would not raise the issue. But the fact is that his current assignment is at a state-supported research institution of the type he criticizes in his testimony, makes me think it is fair game.

  10. subpatre Avatar

    Certainly Vedder’s comments in the von Mises interview are accurate. Economic theory can be illustrated mathematically, but the math is general, and (generally) can’t be used to predict specifics. An example is the Laffer curve of tax-revenue maximization where revenue will “depend upon the tax system in place, the time period being considered, the ease of movement into underground activities, the level of tax rates already in place, the prevalence of legal and accounting-driven tax loopholes”.

    While talking about generalities, I’d point out that speculation about an individual’s work, based on speculation about the individual’s income is pure ad hominem. As the son of a Father who took a 60% pay cut to work at a place he loved –to teach and research– the flaws of speculation are glaring. Altruism is common in the world. People who make assumptions of motivation are revealing far more about themselves than anything else.

  11. Ray Hyde Avatar
    Ray Hyde

    I seems to subpatre is on target again, I could not have said it as well. Perhaps you would be willing to teach?

  12. Anonymous Avatar

    It sure is. That's why I dropped out and am making more at age 22 then your daughter ever will Jim.

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