Investment Advice

The nation should spend more on higher education because that investment will result in economic growth. But what if the truth is a little more complicated? Jay Schalin writes in Clarion Call, a publication of the conservative John William Pope Center for Higher Education Policy, that the whole education results in economic growth mantra seems a little weak to him:

You don’t have to spend much time in state political circles before you hear some version of “the speech.” It goes something like, “We have to invest more in higher education if we are going to compete in the knowledge-based global economy of the 21st century.”

The problem is that, sometimes, the consensus, or conventional wisdom, is more “convention” than wisdom. In this case, most people don’t think to question it, and those with doubts probably feel it’s best politically to ignore them. Still, amidst all the cries for more government spending on our universities to spur economic development, I came across an unpublished article by iconoclastic Ohio University professor Rich Vedder, who made a remarkable claim. He had created an econometric model that demonstrated that the relationship between state spending on higher education and state economic growth was negative—the more states spent on higher education in recent years, the worse their economies performed!

This is potentially very interesting. State investment in public education is supposed to yield big numbers. One study indicated that a dollar invested in education brought between $1.84 and $26 to the economy. The University of Houston alone maintains that “$1 billion brought into our area every year produces $3.126 billion in economic benefits.” But what if this just isn’t true? As Schalin explains:

Some factors that contribute to the negative effect of state higher education spending are readily identifiable. They include highly subsidized public colleges that expend great resources toward educating young people who are not really college material; wasteful, unnecessary research by faculty; excessive non-faculty staffing, and so on.

Schalin is right to question the true impact to public education spending on the economy but the trouble here is not really the education so much as the measures. “Economic impact” studies are usually more metaphorical than scientific. Education spending can result in economic growth very easily depending on what the researcher chooses to include or exclude in the calculation.

Obviously economic growth depends on a lot of things that have to do with public higher education (workers’ education levels, access to technology, innovative capability of the community) and a lot of things that don’t (natural resources, foreign competition, labor costs). It’s wrong to assume that all state money for higher education pays for itself, but it’s also wrong to conclude, as Schalin does, that,

As states invest more money in university systems, the returns from each new dollar spent diminish. Eventually, the returns become negative, which, according to the two models mentioned above, is where most states are now. There are enough red flags indicating that the current levels of spending on higher education are already too much of a good thing. There needs to be a lot more research and discussion before states give themselves over to the consensus view.

Schalin needn’t worry, however. Spending more money on education to get economic growth may be the “consensus” view, but it’s not like states are tripping all over themselves trying to spend more on higher education. In fact, most states have been cutting appropriations for higher education over the last decade, a trend only exacerbated by the recession.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer