Even though Congress just passed and Biden signed the “Inflation Reduction Act,” inflation is going to accelerate as the federal government’s massive spending and borrowing binge continues. How will the decreasing value of the dollar impact our colleges and universities?
In today’s Martin Center article, economics professor Richard Vedder argues that it will hit them hard.
For one thing, they can’t increase their prices as rapidly as most other sellers can. Vedder explains:
Whereas grocery stores, gas stations, and airlines change their prices weekly or even daily, universities set tuition fees that exist for a minimum of one academic year. If the Consumer Price Index is reasonably correct, each dollar of tuition schools collect this fall was worth around $1.08 (in today’s dollars) a year ago, when university decision-makers decided on fees for the year ahead. The more rapid inflation becomes, the more colleges lose purchasing power.
Furthermore, accelerating inflation is apt to have a negative effect on the endowment earnings of colleges and universities. Also, college and university employees who work under yearly contracts will see their purchasing power erode.
Vedder also makes the case that the higher-education establishment is complicit in this sorry state of affairs. He writes, “I especially blame my fellow academic economists, a majority of whom seem to still, vaguely if not stridently, endorse the old Keynesian remedy for nearly all macroeconomic ailments: increase ‘aggregate demand’ by ‘stimulus’ packages of massive budget deficits and artificially low and unsustainable interest rates. The Federal Reserve System is run by individuals steeped in a Keynesian academic tradition and in such fashionable but unproven notions as ‘Modern Monetary Theory.’”
For decades, statist policies worked to the advantage of American colleges and universities, but now the chickens are coming home to roost.