Phi Beta Cons

Two Strikes, One Time Up

When it comes to analyzing higher education, New York Times columnist Robert Frank needs a fact-checker. While his overall point that schools are constantly competing for prestige is correct, he makes a big understatement. He says that the federal government’s annual subsidies to higher education “exceed $30 billion.” Thirty billion? Pell grants alone are up to $36 billion. Add to that billions of dollars in research grants and you start to arrive at real money.

And then he pulls out that old canard, William Baumol’s cost-disease theory. Baumol’s 1967 explanation of why costs go up in service industries (it takes just as many people, and just as much time, to play a Beethoven string quartet now as it did 100 years ago) is largely irrelevant in higher education. In 1980, H. R. Bowen introduced a much better theory, the revenue-to-cost hypothesis, which is discussed in some detail in a paper by Robert E. Martin, “The Revenue-to-Cost Spiral.”

Jane S. ShawJane S. Shaw retired as president of the John W. Pope Center for Higher Education Policy in 2015. Before joining the Pope Center in 2006, Shaw spent 22 years in ...

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