The Unseen Causes of Rising Tuition Rates

As the great French economist Frederic Bastiat once said:

I originally wrote this article for RevoluTimes on November 10, 2011

“Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all.”

This is precisely the reaction given to Congressman Ron Paul’s proposal to eventually phase out student loan programs offered by the government. While Paul has stressed that his budget plan does not seek to actively eliminate federal student loans anytime soon, he does concede that this is the ultimate goal.

The words had hardly rolled off his tongue before the media blitz began. From CNN to NBC to various websites, the headlines were filled with claims that Paul sought to deprive the masses of a sound education. Paul addresses these claims here.

But perhaps the most outrageous (and horribly misinformed) article came from a site in which the author claims that education is a “human right, not a product.” Such thinking is unfortunately becoming common place among today’s youth as an entire generation has been raised under the pretense of entitlement. The author continues by stating:

“…the problem here is not who is doing the lending, but that such sums of money must be lent to young students at all. Many young people cannot possibly fathom the magnitude of debt they are accruing to obtain a degree that is fast becoming, let’s face it, more and more useless every year…We need to make university education more affordable. It should not put both young and old students into debt which they then spend a lifetime attempting to pay down.”

This is what Bastiat referred to as “What is Seen and What is Unseen.” As Bastiat explains, the sound economist does not only evaluate what is seen from government policy on a particular part of society, but must consider the effects that are not seen and how it affects society as a whole.

The concerns of Paul’s critics and many others who are desperately seeking to pay down their student loan debt are justified in their indignation at the skyrocketing cost of college tuition; however they’re condemning the symptom of the problem rather than addressing the root cause.

As Congressman Paul and many economists have demonstrated, prior to the government’s interference in the education market, tuition costs were much lower and the quality of education much higher. For many college students in the 1960s, tuition rates were low enough that working a summer job would pay for college and enable the student to graduate without facing a heavy burden of debt. Today, the total amount of money owed in U.S. student loans is over $1 trillion; that’s more than the total U.S. credit card debt!

It seems reasonable enough to most people to blame the universities and claim it’s due to a capitalist system based on greedy universities only seeking to make a profit. If only this were true. There are two key factors however, that are not acknowledged by many college students and much of the American public.

The first is the direct correlation between government subsidies and rising prices. Prior to government issuing of student loans, colleges and universities were forced to operate within the market and cater to the interests of students that resulted in lower tuition rates and a higher standard of education. To those who claim this wouldn’t occur, they need only direct their attention to products such as cell phones and computers. Such industries that are mostly unregulated and left to the markets (especially compared to services like education and healthcare) continue to drop in price as the quality of their products increase.

Once the government intervenes in the market via student loans, universities no longer face market pressures to provide the most affordable education because their funding comes from the State (and the government has no limit to its resources-taxation). As all human action is based on self-interest, it’s to be expected that by eliminating the forces of the market and securing endless funding for universities, these institutions will seek to take advantage of the government’s meddling at the expense of the public.

The second factor is inflation. Just as the price of gasoline has risen dramatically over the last few decades, so too have other goods and services. As government expenditures vastly outweigh tax revenue, money is printed to cover the shortfall. This mass printing of currency decreases the purchasing power of the money already in circulation, wiping out the middle class as wealth is transferred to the wealthy and politically-connected.

The artificially high costs of college tuition are one of many examples of unintended consequences from government interference in the market and the lack of a sound currency. Without market forces, businesses and institutions are given the power to manipulate and exploit the consumer. Just as the Obama administration claimed to be fighting the insurance companies with its healthcare mandate, only to further entrench the power of the insurance companies by forcing those who would normally not seek health insurance to purchase it, the efforts to allegedly empower those seeking higher education has in fact stolen their power of influence over the market and left them in a state of indentured servitude.  If only the busy bodies in Washington were being graded on their performance, they would have flunked out a long time ago

Who is Serving You?

While it’s often argued by many that the State must help to provide for the needs of the people; what is not discussed is what the people actually want. While visiting family in Atlanta recently, it occurred to me that most Americans simply do not recognize the differences between the nature of the State and the nature of the market.

When it came time to eat lunch we stopped in a small restaurant in Atlantic Station. As we found our seats, the server cordially gave us menus, asked what we’d like to drink and said to simply let him know if we had any questions. Though the cuisine and atmosphere was very impressive, after a brief look at the menu we decided the prices were too expensive.

As the waiter returned to the table, we thanked him for his service but told him we weren’t looking to spend that much money and had decided to find lunch elsewhere. With a smile he politely thanked us for coming in and wished us a nice rest of the day.  There were no guns, no threats of arrest, and no men with badges forcing us to give up our money.

While most encounter this at least once a day, rarely do Americans take the time to appreciate what’s actually taking place. How often do we go into a department store or restaurant with the understanding that these businesses have spent hundreds of thousands, if not millions of dollars in advance to provide a good or service without any guarantees of a return on their investment? There are no demands or obligations to purchase any product; indeed the demand comes from us that these products be available. Should a business fail to produce what is demanded by consumers, it will soon file bankruptcy and cease to exist.

This is the nature of the market. Every entrepreneur must take massive risks and invest large sums of money to create production, innovation, distribution and let’s not forget paying the wages of the servers who welcome you when you enter and thank you as you leave; all to give you what you want.

The functions of government are diametrically opposed to the nature of the market. How many times have you been given the option to pay or not to pay taxes? Were you ever given an opportunity to not pay for the welfare state, endless wars or bailouts to corporations? Though many view the State as our protector, what happens if you refuse? Can you picture an IRS agent simply thanking you for your time and wishing you a nice day if you withhold your income? People do not pay taxes out of consent or compassion, but out of fear and submission.

As author and editorial Vice President of the Mises Institute, Jeffrey Tucker has pointed out before; even government institutions invoke a sense of submission upon your entering.  As Tucker explained, imagine walking into a department or grocery store. How many people are waiting to assist you? If you purchase a product but decide you no longer desire it or it’s defective, you simply take the item to the exchange desk and are either reimbursed or given the opportunity to choose another item. No questions asked.

Tucker then asks you to imagine entering the DMV. How many people are there to welcome you? Do any of the employees, (who are paid with your tax dollars) seem to have any urgency in helping you? Do these institutions ever seem to be efficient?  If you have a complaint how eager do they appear to be to resolve the issue?

The circumstances are even worse at the airport. If you’ve purchased tickets in advance online, you expect them to be available and to save some time before the flight. Should the airline fail to provide efficient services, you have the ability to seek out a competitor. It is not the owners of companies who hold the power in the market, but the consumer. Whether you’re wrong or right the business must cater to your interests or suffer a loss in sales.

But once you go through security, your demeanor changes entirely. There is no sense of control on your part. You walk with intimidation, hoping you’re not selected for the extensive security measures. No TSA agent seeks to make you feel safe or welcome. There is no greeting or sense of service, but a look of suspicion, of accusation and an implicit threat of force.

Behind the very notion of every government program is the assertion that the State is doing what’s best for the country; that our wise leaders are simply acting on behalf of the interests of their constituents. But at what point did politicians ask the people what they wanted? Was there not an overwhelming rejection of ObamaCare throughout the country? How many Americans asked to be subjected to the TSA’s strip searches? Were you ever asked how your money should be spent, or if it should be taken from you at all?

Politicians and bureaucrats have long fashioned themselves as benevolent leaders acting upon the will of the people, but broken promises and the increasingly violent disposition of the State has revealed them to be the direct opposite and has proven the State to be an abysmal failure. The voluntary sector of society, the peaceful cooperative nature of individuals within their communities and throughout the world that provide for society have demonstrated it is not government that produces the greatest public-servants, but the market.