Rising Tuition

Lawmakers have tried unsuccessfully to impose limits on rising tuition at state universities. Is this the best way to ensure that the cost of college does not get out of reach?

The short answer is no.  Without getting caught up in any one legislative proposal that was floated this last session, I will sound like a broken record when I say again, a structural approach is needed. 

 

Without oversimplifying how we got here, I do want to reflect on how adopting purist partisan policies can create, well, stupid results.  So let’s call this the other side of the Laffer Curve.  For those that don’t know this concept, it goes back to 1974 and was presented by supply-side economist Arthur Laffer.  The idea is you can only raise taxes so much before the total amount of taxes governments can collect start to decline because we are taxed so much, no one wants to work. The main premise is; the more an activity (like production) is taxed, the less that activity is generated.  Thus, it also follows; the less an activity is taxed, the more of it is generated.  If we extend this concept and include regulation to the taxes, I think we can get to the same conclusion.  Regulate too much, less of that activity, too much cost to keep doing the activity.  And again, no regulation, more activity.

 

Let’s focus on the less tax (and less regulation) more activity scenario. This is one of the pillars of Republican policy thought.  Unfortunately, the blind spot in the model (theory, policy), is that it fails to contemplate that public infrastructure such as transportation and educational systems, are pretty vital inputs into this production activity. Without that public infrastructure, that activity can be highly diminished.  Put differently, without roads or an educated workforce, it will be hard to expand this activity. So the idea that zero taxation or regulation causes the greatest amount of activity, is false.    What’s worse is that as you travel down the Laffer Curve (meaning reduce taxes), two forces start working in very devastating ways.  Your reduced taxes create more activity, more jobs, but it also creates the need for more public infrastructure.  Unfortunately, because you reduced taxes just before you had a need for more public infrastructure, your public budgets become extremely stressed.

 

Lower taxes, more jobs, more people, more need for roads, more need for state universities, less taxes to pay for those needs…. Not a “Laffing” Matter!  This cycle along with deregulated tuition is largely what got us to the current state of our university systems.  The solution will require a structural review of our current taxation systems, as well as short, medium and long-term drivers of university system costs.  Again, this review will have to be placed in priority along with other state budgetary needs. However, for the purposes of understanding the overall strategy that got us here, think of it this way; when you declare yourself “open for business”, you better have priced (taxed) your services, such that you can keep providing those services in a way that keeps new customers (constituents) happy.