This Crazy Concept Called "Pricing"

Article Highlights

  • The normal way that free societies encourage "responsible" behavior when it comes to the cost of services is to allow sellers to set a price and buyers to decide whether they're willing to pay it.

    Tweet This

  • Massive state and federal subsidies ensure that tuition at public two- and four-year institutions has little relationship to actual per pupil costs.

    Tweet This

  • if you're not going to let market dynamics play out, you're stuck with efforts to insist on "responsible" behavior by fiat

    Tweet This

The headaches here are implicit in the way that the President views higher ed. It's hardly fair to pin the blame on President Obama alone, however, because policymakers have spent decades wedging us into this corner. The normal way that free societies encourage "responsible" behavior when it comes to the cost of services is to allow sellers to set a price and buyers to decide whether they're willing to pay it. The resulting market dynamic creates pressure on self-interested sellers to moderate their pricing, and encourages buyers to pay attention to cost.

In higher education (like in health care), we've done our damndest to smother this dynamic. Massive state and federal subsidies ensure that tuition at public two- and four-year institutions has little relationship to actual per pupil costs. Grants, loans, and subsidized interest rates mean that students have only a notional sense of what the true cost of higher ed is going to be. And massively discounted tuition for huge swaths of students means that prices don't mean much anyway.

One response is to try to start to foster more transparent data on price and quality. Happily, the administration is promoting some useful steps on this count. A second, more crucial step, would be to start to remove the subsidies and largesse that distort the higher ed market and make it only to easy for institutions to raise tuition without consequence. Unfortunately, here, President Obama simply promises more subsidies (discounted interest rates, calls for more state dollars) to complement the largesse he's previously championed (in ARRA, tucked into health care reform).

The frustrating result is, if you're not going to let market dynamics play out, you're stuck with efforts to insist on "responsible" behavior by fiat. And then we wind up with the President's finger-waving "you better behave" histrionics.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Frederick M.
Hess
  • An educator, political scientist and author, Frederick M. Hess studies K-12 and higher education issues. His books include "Cage-Busting Leadership," "Breakthrough Leadership in the Digital Age," "The Same Thing Over and Over," "Education Unbound," "Common Sense School Reform," "Revolution at the Margins," and "Spinning Wheels." He is also the author of the popular Education Week blog, "Rick Hess Straight Up." Hess's work has appeared in scholarly and popular outlets such as Teachers College Record, Harvard Education Review, Social Science Quarterly, Urban Affairs Review, American Politics Quarterly, The Chronicle of Higher Education, Phi Delta Kappan, Educational Leadership, U.S. News & World Report, National Affairs, the Washington Post, the New York Times, The Wall Street Journal, the Atlantic and National Review. He has edited widely cited volumes on the Common Core, the role of for-profits in education, education philanthropy, school costs and productivity, the impact of education research, and No Child Left Behind.  Hess serves as executive editor of Education Next, as lead faculty member for the Rice Education Entrepreneurship Program, and on the review boards for the Broad Prize in Urban Education and the Broad Prize for Public Charter Schools. He also serves on the boards of directors of the National Association of Charter School Authorizers and 4.0 SCHOOLS. A former high school social studies teacher, he teaches or has taught at the University of Virginia, the University of Pennsylvania, Georgetown University, Rice University and Harvard University. He holds an M.A. and Ph.D. in Government, as well as an M.Ed. in Teaching and Curriculum, from Harvard University.


    Follow AEI Education Policy on Twitter


    Follow Frederick M. Hess on Twitter.

  • Email: rhess@aei.org
  • Assistant Info

    Name: Sarah DuPre
    Phone: 202-862-7160
    Email: Sarah.DuPre@aei.org

What's new on AEI

image Recovering from tax time blues
image 10 welfare reform lessons
image Let HHS nominee Sylvia Burwell explain Obamacare lie
image Why bold ideas backfire in politics
AEI on Facebook
Events Calendar
  • 14
    MON
  • 15
    TUE
  • 16
    WED
  • 17
    THU
  • 18
    FRI
Wednesday, April 16, 2014 | 10:00 a.m. – 11:00 a.m.
Calling treason by its name: A conversation with Liam Fox

Join us at AEI as the Right Honorable Liam Fox sits down with Marc Thiessen to discuss and debate whether America’s intelligence agencies have infringed on the personal privacy of US citizens.

Thursday, April 17, 2014 | 4:00 p.m. – 5:00 p.m.
The curmudgeon's guide to getting ahead

How can young people succeed in workplaces dominated by curmudgeons who are judging their every move? At this AEI book event, bestselling author and social scientist Charles Murray will offer indispensable advice for navigating the workplace, getting ahead, and living a fulfilling life.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.