Richard Vedder, Going Broke by Degree: Why College Costs Too Much, The AEI Press, 2004, Washington D.C.

Reviewed by Ken Snowdon, Snowdon & Associates Inc.

In Going Broke by Degree Richard Vedder, an economist from Ohio University, (and an adjunct scholar at the conservative think-tank American Enterprise Institute) tackles the issue of “soaring college costs” in the United States and offers a prescription: put existing government grants in the hands of students through a voucher system and wean universities and colleges off the public purse. Vedder’s main contention is that higher education costs are rising because, “The productivity of university personnel is almost certainly falling, and it is clearly falling sharply relative to the rest of the economy.”

(p.xv) He then attributes the productivity decline to the lack of market forces in higher education. The solution? A greater reliance on market forces and the preferred policy instrument is a voucher in the hands of a student. His basic ideas are not new,[1] and the rest of the book is almost predictable except… Vedder adds some new twists. In making the case for a fundamental change in the funding of higher education he argues that the more state governments support higher education, the lower the rate of economic growth in the state. He argues that state funds intended for instruction, and to limit the size of tuition increases, are too often used to subsidize research, or athletics or other costs. He argues that research is better performed in the private sector than in universities. He argues that every time governments increase student aid or tax credits to help make higher education more affordable, the added subsidies actually encourage higher tuition. Provocative? You bet!

Going Broke by Degree gives the reader an introductory economics lesson using all the ‘tools of the trade’ and then some. The author has an engaging writing style and he can craft an argument and muster sufficient evidence – factual and anecdotal – to lend support to many of his assertions and conclusions. He plumbs a variety of data sources, most notably the National Center for Education Statistics (NCES), illustrating specific points with tables and graphs, and the occasional equation, and he has no qualms about taking a set of data and making adjustments to arrive at less than ‘traditional’ conclusions. In his examination of faculty salaries, for example, he begins by noting that published data from the NCES indicates an increase in average faculty salaries of about 3% in real terms over the period 1970-1999 – a relatively conventional view of average faculty salary levels. However, once he adjusts the time period, ‘corrects’ the inflation rate, and adds an assumption about increased fringe benefits, he concludes that the growth rate in faculty compensation is actually more like 45% “almost precisely equal to the corrected growth in real hourly compensation for all workers in the private business sector.” – a most decidedly unconventional view. (pp. 62-63) Vedder’s “creative” use of statistics are often used to challenge conventional views and, while one can argue about some of his adjustments and assumptions, his style engages the reader to think carefully (and critically) about information and the interpretation of information.

The book is organized in three sections. Part 1, The Problem, catalogues what Vedder calls the cost explosion in higher education, explores why universities are inherently inefficient and costly and then spends some time examining some of the “peculiarities” such as tenure and internal cross-subsidization. Part 2, Have Our Universities Lost Their Way? focuses on the past and present role of universities and Vedder’s answer to the question will come as no surprise. The final section Solutions: The Future of American Higher Education begins with a review of the for-profit higher education sector, distance learning and other forms of educational certification, arguing that each of these developments is bringing about major change in the delivery of higher education in the United States. The author then moves to two scenarios for the future of higher education in America. The first, focuses on ways to reduce costs and improve productivity that run the gamut from increasing the student-faculty ratio to improving student retention, and from changing tenure to reducing bureaucracy and non-instructional staff. Nothing much new there but his second scenario is a ‘zinger’. Systemic Reform focuses on “de-funding” higher education through the adoption of vouchers and a transition to a more privatized higher education system – what he terms The First Paradigm. If that seems too radical, The Second Paradigm: Other Regulatory and Financial Options emphasizes a suite of policies, designed, one might speculate, to keep university officials awake at night, politicians heavily engaged in announcing policy reforms, bureaucrats forever employed and economists on lucrative consulting contracts!

Vedder’s book is important. His views should not be taken lightly. Some of the ideas in Going Broke by Degree are finding their way onto the higher education agenda. Colorado is implementing a voucher-like system in 2005 and there are a host of states exploring more market-oriented approaches. And the same ideas transcend borders. The Discussion Paper produced as part of the PostSecondary Review in Ontario (Rae Review) includes vouchers as a funding option and many provincial governments are encouraging greater competition in the higher education ‘market’. For those interested in understanding more about the economic rationale for those ideas – from a conservative perspective – and the potential implications for higher education policy, Going Broke by Degree should be on your reading list.

[1] Vedder makes reference in the acknowledgements and in the text to Milton Friedman and Friedman’s

ideas from the 1950’s and 1960’s as reflected in Capitalism and Freedom, (Chicago: University of Chicago Press, 1962).