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For conservatives it might seem pretty inconsistent to hold the position that Pell grants and financial aid drive up college costs (they do) and then to support schol vouchers at the K12 level. I understand that preference for each of these positions is not coming from the same place. But think about it – the economics are pretty straightforward. Increase the demand for either product and its price will rise. So, can you hold both of these positions at the same time? I’d say yes.

Whether one or both cases is a concern depends on the relative ease with which good substitutes are created. In the case of elementary and secondary schools, it is plausible that the expansion of spaces of similar quality to the ones being replaced in public schools would be relatively easy to do as private demand increases. In other words, it is plausible to imagine that the supply of seats in K12 education is fairly elastic. Even if it is not, the K12 voucher movement has something going for it. If the supply is not elastic, it is likely to be the same in both sectors – so by pulling demand out of the public sector and putting into the private sector, we should see public sector costs fall even if private sector costs rise, and this is plausible since K12 education is largely universal. I.E. the voucher system is not augmenting the overall demand for K12 education, just changing its composition.

Two things are not different in college education. Each are equally important in my view. First, the supply of quality higher education seats is far more inelastic than you might think. You can’t just replicate the University of Rochester overnight. Even if I persuaded each of my colleagues to move down the street with me, and I rebuilt every new building on my campus to resemble the ones here at U of R, we have both an accreditation problem (our competitors decide what we ought to be doing and whether it is legitimate) and we have a reputation problem. This, in essence, coupled with the fact that the supply of talented and engaging teachers, researchers and institutional officers is not completely abundant, and you have a recipe for a very inelastic supply of quality higher education seats. The second issue is that when we provide subsidies and vouchers for students to attend universities, we are quite plausibly adding to the demand for that service. Whereas in the case of K12 education educational subsidies do not much alter the underlying demand (I argue it still does, albeit on a different dimension) the same is not true in higher education. More people are drawn to college. More two year students are drawn to 4 year careers. More BA students are drawn to Masters programs and beyond.

Therefore, in the presence of both a fairly responsive demand curve for higher education and a relatively inelastic supply curve it is certainly plausible to theorize the subsidies to higher education do not translate into better educational access, but largely the benefits accrue to the fixed factors of production – especially professors and other providers/owners of the fixed factors related to providing a college education.

There is a larger lesson here. I have argued before that while I am a strong supporter of a more consumer driven health care system, the medical supply side is completely unable to handle that kind of a world right now. Therefore if thoughtful advocates of markets recommend that we move in this direction, it could very well make the medical system more dysfunctional than it already is. I fear the same thing can be learned in the push for more vouchers in the health sector. If the entire medical field is not deregulated and better able to adapt to increases in demand and changes in demand for the way service is delivered, then providing vouchers to patients may end up driving up costs in the long run. Then we’d have the awkward position of having to defend markets after having witnessed another cost increase when the world was moved to a market direction. But medical regulations virtually assure that the supply of medical services will not respond much to changing medical demands. Are there prospects for admitting more highly qualified foreign doctors? Are there prospects for a finer division of labor within the medical profession? Are there prospects for expanding medical schools and the other allied health professions? Are there provisions to allow more retail medicine? And so on. I doubt we’ll see any move toward deregulation and so long as we don’t I do not think it is helpful to advocate for more market based medicine at all. I feel the same way about energy policy. So long as environmental regulatory policy is such a tangled mess, pushing green energy programs will only increase costs. Yay.

2 Responses to “The Problem with Vouchers”

  1. Rod says:

    Lucky for me, my son graduated in 1996 with a degree in physics. It was also fortunate that my son was a swimmer who could compete at a college level in breaststroke and the IM, so they gave him a need-based scholarship and told him they’d really, really like it if he swam. Anyway, while the sticker price started out at around $18,000, the annual rate for room and board was about what we’d have to pay at Penn State (Penn State offers few academic scholarships, so most of the students who are not athletes pay close to the full freight.) My son’s college thereby gave what amounted to a tuition discount to scholar-athletes, and they let the parents who could afford the sticker price have it.

    He also qualified for student loans of about $5,000 per year, as did nearly every other student at his college. No doubt it was these subsidized loans that drove demand at all colleges, by increasing the supply of families that could then afford to enroll their kids in higher education.

  2. jb says:

    Great summary of the education/voucher matter. I have thought all of these things through as well. I do think eventually we would see the subsidy/higher cost problem if vouchers we adopted; eventually the public would insist on larger vouchers, which the schools would absorb for teachers, shiny new buildings, etc, because they, like the colleges adn universities would surely create barriers to entry (FYI unions are now of course making a run at charter schools in Mass.).

    Nonetheless, vouchers would be beneficial because they would separate the argument for government FINANCED K-12 (which can be debated) from government OPERATED K-12 (for which there is no justification).

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