Sunday, January 3, 2016

How much are we spending, really?

A colleague linked to a New York Times article on the high cost of higher education.

Particularly in the case of public colleges and universities, people have blamed at least part of the rise on a decrease in government support.

The article's main contention is that there has been no such drop in support. "It is a fairy tale in the worst sense, in that it is not merely false, but rather almost the inverse of the truth."

"In fact, public investment in higher education in America is vastly larger today, in inflation-adjusted dollars, than it was during the supposed golden age of public funding in the 1960s. Such spending has increased at a much faster rate than government spending in general. For example, the military’s budget is about 1.8 times higher today than it was in 1960, while legislative appropriations to higher education are more than 10 times higher. 

"In other words, far from being caused by funding cuts, the astonishing rise in college tuition correlates closely with a huge increase in public subsidies for higher education. If over the past three decades car prices had gone up as fast as tuition, the average new car would cost more than $80,000."

There are a few things wrong here.

First, it is true that government spending on higher education has gone up a lot.

Consistent and easily accessible data are available from 1959, and here's what they show:
The blue line is "current" dollars, while the orange line has been adjusted for inflation and is expressed in 2009 dollars.

(The data are from the National Income and Product Accounts of the Bureau of Economic Analysis; table 3.16 for expenditures on higher education, and 3.15.4 for the price index for government expenditure on education overall, to convert to real expenditure.)

So that part of the article's argument is correct: legislative appropriations are up by a factor of almost 10 since 1960, but that's a red herring. The government's overall appropriations are also up significantly over that time.

What about the military only being up by a factor of 1.8? It's also factually true, but another part of that same ruby-colored fish. Since 1960 we've ramped up military spending to fight the Vietnam War, then pulled it way back, ramped it up again under Carter and Reagan, then pulled it back again after the collapse of the Soviet Union, ramped it up again to fight in Afghanistan and Iraq, and again pulled back as our direct involvement in those conflicts has diminished.

In other words, we've had good reason for periods of large decreases in military spending, in a way that's not comparable with educational spending.

If we look instead at government spending on higher education as a share of all government expenditure, we see that it rose until 1977, and has spent most of the time since then below that level of 3.0%
On that same chart, we can see government expenditure on higher ed as a share of GDP. That peaks in 1975 and has been much more stable since then, dropping noticeably in the early 2000's before recovering in after 2006.

(GDP is from BEA's NIPA table 1.1.5.)

The other thing left out so far is the number of students for whom higher ed is being provided. The article does mention that there's been an increase in students, but it's important to control simultaneously for that and for the increase in GDP.

Our GDP per capita has gone up considerably since 1959, which means we should expect average compensation to also be going up. Education is about as close as anything comes to being a pure service industry: we have some material costs for heat, food, construction, and maintenance, but the vast majority of the expenses in an educational institution are compensation of employees.

As the economy gets richer, people's compensation should be going up, and so the expenses for a service industry like education should also be going up.

The easiest way to control for that is to scale everything by GDP.

This final chart shows government spending on higher education, as a share of GDP, divided by the student population as a share of the total population.
The blue line for "Full" includes only full-time students; the orange line for "All" includes both full- and part-time students; the gray line for "Weighted" combines full-time students, plus part-time students counted as half a full-time student. All three lines show roughly the same story: funding peaked in 1976 (1982 for the "Full" line), and has been trending down ever since. The early 2000's were a disaster; there was some recovery from 2006 to 2010, but that has plateaued and then started back down.

Contrary to the author's contention, I think it's reasonable to argue that government support of higher ed has been slipping for decades.

(Population data for the last chart are from the Census Bureau, while student numbers are from the National Center for Education Statistics, table 303.10, "Total fall enrollment in degree-granting postsecondary institutions, by attendance status, sex of student, and control of institution: Selected years, 1947 through 2023".)

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