Megan McArdle Doesn’t Understand Higher Education Either

In Bloomberg, yesterday, writer Megan McArdle criticized her fellow columnist Ezra Klein’s analysis of rising health care and higher education cost, claiming that, (paraphrasing) since food, shelter, and clothing are more crucial to survival than higher education and health care, there’s no way that a consumer’s inability to say “no” can explain the spike in costs. I’m generally a fan of Klein’s data-based analysis, and, as in many of McArdle’s other pieces, I rankled a little at the weird strain of smugness I detected here. (In particular, her insistence that the human race did fine for thousands of years without higher education didn’t seem germane to a discussion of current market realities, and her assertion that the human being can do better without insulin than heating fuel appeared, to a type-one diabetic like your humble author, clearly wrong.)

I could forgive the gotcha commentary if, as in many of her other pieces, the core argument was sound and well-researched. But here, I feel like McArdle’s desire to one-up a colleague overshadowed her argument. In particular, I think she gets two major parts of her analysis wrong: her dismissal of Klein’s “consumers can’t say no” argument and her alternative explanation of why costs are rising.

Firstly: Klein is essentially right to argue that consumers can’t or won’t say no to higher education and health care, for two reasons. The first is that, while food, fuel, and clothing have a more-or-less hard upward bound in terms of how much an individual can consume, education and health care do not.

The average human can only cram so much food into its stomach, and the supply of food in many places outpaces this physical limit, though sadly, of course, in many places food prices do limit individuals’ ability to eat, and starvation occurs. We can, similarly, only wear one set of clothing at a time, even if our love of novelty does push us to acquire new clothes more often than we need to. We also only need one place to sleep. As an added bonus, all humans possess at least some capacity to attend to their own food, clothing, and shelter needs, even if this involves foraging. Not so with healthcare and education. These upward bounds limit demand to a certain extent, and ensure that, in the developed world anyway, most people have enough access to keep prices down.

While many students still graduate from universities in the traditional four years, most now do not. The Chronicle of Higher Education has great stats on this, and the most striking is that, for most metrics, they’ve moved to a six-year graduation scheme. For public universities, only 31.3% of students graduate in four years. So while an individual might need only one degree, that degree is now taking longer to achieve, and there’s no guarantee that that individual won’t be back later in life for continuing education, professional certifications, and other supplemental education.

Health care is even more obviously unbounded. When care is suggested by doctors, patients almost invariably accept the suggestion. A single individual with cancer can run up $1 million or more in hospital bills, and you’re unlikely to meet a cancer patient who decided to cut the chemo for reasons of cost.

Part of the unbounded nature of these costs no doubt springs from the partial shielding most people receive from the direct costs. Between student loans and health insurance, most people do not pay their short-term bills directly. Add to this fiduciary sponginess a systemwide standard of inexact and unclear pricing, a significant likelihood to use the nearest institution to one’s home (except among elites, for both), and a desire for premium care/education that doesn’t have an exact analogue in healthy food and nice clothing. If we only made one food choice in our whole lives (or our lives depended on that choice), we’d no doubt see higher prices related to quality across the board. Nobody wants to go to a college that will mark them as a loser their entire lives, and no one wants to go to a hospital that might kill them.

McArdle, in her own analysis, also argues that there are essentially two business models in higher ed and health care: compete on volume or compete on quality. I’ve written before on how higher education should not be viewed as a traditional business, and how it not only should not be compared in purely econometric terms to other businesses, but how the best of them actively shield the short-term unproductivity of scientists and artists from market forces. I think those points are relevant here.

But McArdle indicates that non-elite universities essentially all share race-to-the-bottom incentives, and all elite universities share the same exclusionary ones. But my experience with higher ed has shown me a third section of the pie: a vast middle, dedicated to providing quality education without excluding students. By McArdle’s logic, practically all public universities are little better than diploma mills, since they do not turn away students. Why should these universities care about increasing retention rates if the floodgates are open to paying, failing, profit-engine students?

If all hospitals and universities were for-profit, I confess that McArdle’s logic would make more sense. There’s a reason why for-profit universities overwhelmingly staff with poorly-paid, unbenefitted adjunct faculty: the general quality of the education doesn’t matter so much as the presence of butts in the seats. (A caveat: most adjunct professors I know are hardworking and dedicated folks. It’s just hard to be your best as a teacher when you have to work a second job for the benefits, and your primary position pays less than a good customer service job.) For-profit hospitals, too, are instituting morale-destroying plans such as a “pay for your own on-the-job injury/sickness care” policy and other “cost-sharing” plans.

There are lots of institutions, both educational and medical, that care about both quality and access, and pride themselves on delivering both. Costs at these institutions are rising as well. I don’t think we need to turn to a damned-if-you-do, damned-if-you-don’t suspicion of these industries to see why.

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