In the kingdom of the blind, the one-eyed university is king

[Update: Yikes, I wrote this yesterday but see that Tyler has already posted a reply to Avent.  Readers short of time will want to skip this post and read his instead.]

Tyler Cowen notes that American universities lead the world.  He finds this surprising (or at least “sobering”) given all the inefficiencies he sees all around him.  Ryan Avent points out that this dominance occurs despite heavy government involvement in American higher education:

Mr Cowen is clearly upset by the inefficiencies of the higher-education sector. And clearly there are inefficiencies; it would be surprising if there weren’t in a sector so dominated by the government. But contrary to what Mr Brooks’ writing might lead you to believe, American higher education is very much exposed to international competition. As Mr Cowen indicates, an American advanced degree is one of the country’s best exports (and your author opted to purchase from a foreign producer, the London School of Economics, when he went shopping for an advanced degree).

This, I think, is a significant challenge for both parties and indeed for economics. A sector dominated by the state””state-run in some cases, merely subsidised and regulated in others””is, I think most Americans would agree, both a major contributor to American prosperity and one of America’s most competitive industries on foreign markets, despite its glaring inefficiencies. What ought we to conclude based on this example?

Certainly, one could reasonably argue that the sector would be even better if state control were relaxed, monopolies broken up, subsidies curtailed, and market controls (like those on immigration) eliminated.

Let me start off by admitting that although I’ve taught at colleges in Australia and the UK, I’m no expert on foreign universities.  But I’ve heard lots of anecdotal reports that foreign university systems are even more completely dominated by the state.  In many systems tuition is quite low and there seems to be little competition for students.  I’ve heard all sorts of horror stories about faculty apathy due to lack of incentives.  This article from the University of Chicago alumni magazine says the entire Italian system is corrupt from top to bottom, with jobs doled out on the basis of connections and nepotism, not ability.

The qualified job candidates fregati by the baroni often leave the country and begin successful careers abroad. In the last 20-30 years, tens of thousands of Italian researchers have fled the country. The baroni‘s clans continue to operate undisturbed and have absolute control of the Italian academic system. As a result of such nepotism, the Department of Economics at the University of Bari had, at one point, eight professors who shared the same last name: Massari. They were all related. Apparently this set a new record for Italy; the previous record was six family members in the same department or institution.

The US has lots of elite private universities, which force even the very best public universities (such as the California system) to keep on their toes if they want to maintain their rankings.  Private ownership can certainly contribute to efficiency, but in my view competition is even more important than ownership.

If comparative advantage is what matters in international trade, then the US dominance in higher ed may tell us more about foreign universities than about our own system.

PS.  This post should not be viewed as a blanket condemnation of foreign universities.  Pound for pound the other Anglophone countries do very well in competing for foreign students.  And there are excellent universities in countries like France and Japan.  I was simply trying to show that an observation that looked perplexing was actually quite consistent with the theory of comparative advantage.



22 Responses to “In the kingdom of the blind, the one-eyed university is king”

  1. Gravatar of Morgan Warstler Morgan Warstler
    14. April 2012 at 04:52

    One argument liberals will not stare into the abyss on:

    The free market things that make America unlike Europe, are the reason America is richer than Europe.

    Germany knows this and so Europe is becoming more American. The American right knows this.

    Where it is the most obvious take-away to anyone paying attention, to a leftist, that idea is simply impossible. It is impossible, because it means that they themselves are bad for America, not good.

  2. Gravatar of Peter N Peter N
    14. April 2012 at 06:33

    Tyler has a link to interfluidity

    that is brilliant and contains a much more elegant version of some things I’ve been trying to say here.

    “An interesting corollary of Cowen’s argument is that a substantial fraction of notional savings are in fact empty claims “” no meaningful real economic activity accompanied the generation of that income, so no real investment could have attended its non-consumption. This suggests that any attempt to mobilize savings in aggregate “” any net dissaving “” is likely to be attended by either inflation or displacement of consumption by current earners. I think that this is true, that it is now and increasingly will be a source of social and political problems. ”

    Either inflation balances the books, or deflation with repudiation of debt followed by partial inflation does. The stored value was illusory and net attempts to draw on it must necessarily fail.

    This is Europe’s sovereign debt crisis. They weren’t as rich as they thought they were. How they wasted money when they thought that they were rich isn’t as important as the fact that their wealth was illusory. The illusion is the same, merely the form of waste (or even possibly unaffordable productive investment) is different.

  3. Gravatar of Peter N Peter N
    14. April 2012 at 06:45


    There are “bad” elements of both right that want to take America down rat holes. They just favor different holes and different rats.

    There are elements of right and left that are paying attention to what they see, not just what they believe. Therein lies some small hope.

    The physiological fact that we see more with our brains than with our eyes (bandwidth and processing bottleneck) and thus see mostly what we expect to see was an evolutionary advantage in the past. It still mostly is,but we’re beginning to notice the downside of this.

    BTW for those who are interested, the bottleneck is the reason for oddities like blind sight.

  4. Gravatar of Peter N Peter N
    14. April 2012 at 06:47

    This is for Scott to correct an autocomplete error in my email address in the previous. To any others who may see this – sorry.

  5. Gravatar of Kailer Kailer
    14. April 2012 at 07:05

    You nailed it with the point about competition being more important than public versus private ownership. In Alberta, where I grew up, the public school system is considered one of the best in the world, and a large part of that has to do with the freedom of parents to choose the school their child attends. Similarly, out here in Ontario they privatized the DMV, but instead of having free entry where any firm can register vehicles, and issue drivers licenses on behalf of the province, they contracted out these services to one firm, so it’s run every bit as inefficiently as before, with poor hours, huge lines and locations in industrial areas where the land is cheap.

    I think politicians on both the left and right have trouble accepting this point. On the right because it suggests that the public sector can be just as efficient as the private sector, and on the left because belief in the power of competition would undermine many arguments for government intervention.

  6. Gravatar of Justin Irving Justin Irving
    14. April 2012 at 07:55

    I know this will be a real shock to everyone, but Scandinavian universities are quite good in the social and real science. One would need to do a data heavy analysis to be sure, but there have been a number of ‘important’ econometric innovations out of Denmark and Sweden, not to mention Svensson (I hear nanotechnology and biology research is big too).

    I suspect much of the U.S. lead comes from being big. If you think of university quality as being normally distributed (seems plausible), it is not clear to me that the distribution is different between Sweden (or the fiscally sound part of Europe overall) and the U.S. The U.S. just has more “draws” from that distribution. Could be wrong.

  7. Gravatar of ssumner ssumner
    14. April 2012 at 09:09

    Morgan, There’s a grain of truth in what you say.

    Peter N, Coincidentally I just linked to that Waldman post in my newest post.

    I think what he’s really describing is a long term downward trend in real interest rates, an argument I’ve also made in various posts.

    Many people assume this loss of wealth contributes to high unemployment. Not so, being poorer should make us work harder.

    Very good analogy about vision and blind spots. We see what we expect/want to see.

    Kailer, Excellent point.

    Justin, I’m not at all surprised (although I didn’t know that.) What you describe is exactly what one would expect in societies with high levels of civic trust, or virtue, or whatever you call it. Europe trails us in higher ed mostly because the bigger countries in Europe don’t do as well (at least at the top levels), and the smaller one’s don’t have the critical mass necessary to make up for that shortfall.

  8. Gravatar of Jason Jason
    14. April 2012 at 09:19

    I still think higher education is more about signalling than learning skills, hence any “inefficiencies” are largely moot. Weddings are also highly “inefficient” (see some of Yglesias’s recent posts on his adventures), but one is not trying to be efficient with a wedding.

    Does this look like what happens in a system competing on efficiency in education?

    (Note: for better schools, you do more of this stuff, not less.)

    It looks to me like this:

    Or this!

    Or this!

  9. Gravatar of Steve Steve
    14. April 2012 at 10:11

    I once met a Spanish woman who had a physics research fellowship at Harvard; she said she couldn’t get a position in Spain because she wasn’t related to the right people.

    This is a cultural problem, not fiscal or monetary. I don’t know how you fix it.

  10. Gravatar of Mike Sax Mike Sax
    14. April 2012 at 10:28

    “In many systems tuition is quite low”

    That’s one thing you don’t have to worry about in the US as a Baron’s piece this week showed-pg. 25. College tuition is up by 400% outsripping the inflation rate by a factor of 4.

    Then there are the many students saddled with debt when they leave college. President Obama himself has discussed this and Bernanke revealed to Congress that his son will leave medical school with about $400,000.

    The real driver of student debt in the US is that student loans are the only kind of loans you can’t walk away from there is no bankruptcy protection from them.

    Evidently this was driven by the implosion of the student lenders after the 70s-between the high inflation rates and unstable banking system of the time-the saving and loans et al-students basically walked away from their lonas.

    I know some might see that as reason to keep students in perpetual student debt slavery for the rest of their lives but I think the question begs whether or not the current status quo is superior to the one 30 years ago? At least we didn’t have huge parts of the yonger generationi who were unable to by a home car or even get a credit card. Surely this is a major drag on the economy.

    So while the student lenders may shudder about the old status quo the current one is pretty abysmal as well.

  11. Gravatar of Peter N Peter N
    14. April 2012 at 11:54

    @Mike Sax,

    I just ranted on this on MR. Is it really a coincidence that the bubble debt (subprime, and student loans) is the same debt given special protection under revised bankruptcy law?

    I doubt it. It’s an attempt at reducing lending risk at no cost to the banks – a sort of government subsidy, in effect.

    It failed to work for housing (since losses from foreclosure were greater than any haircut a bankruptcy court would have applied). At least in many states the loans themselves are nonrecourse.

    For student loans, banks want to harness the coercive power of the state to exact their rent. If banks can’t issue ordinary student debt at an affordable rate with an ordinary risk structure, then they shouldn’t issue any.

    All these back door subsidies do is inflate the cost of goods. College tuition is out of control, and worse, a lot of student debt is from fly by night colleges for students who had no real chance of graduating or for whom the promised good jobs never materialized from hype space.

    Youth is full of ambition and energy. It takes entrepreneurial risks and forms households, both of which are vital engines of the economy.

    To cynically exploit this by selling worthless educational products is shameful and quite possibly criminal.

    When developers can walk away from billions of dollars of debt under corporate shield or get a deal because they’re to big to fail (Borrow a million, the bank owns you; borrow a billion, you own the bank.), should we be chasing people who were swindled by the financial-educational complex.

    A large part of this debt will never be repaid. It’s just a question of how ugly the repudiation process will get.

  12. Gravatar of Peter N Peter N
    14. April 2012 at 12:04

    Steve, it’s not entirely a cultural problem. When you have a two tier job system, where the old have cushy protected jobs and the young have high unemployment, you only get a job for a young person, when an old person dies or retires. Sometimes not even then, since this would be a chance to reduce payroll.

    With such a shortage of really good jobs, you will inevitably see a lot of nepotism. Unblock the labor market and the problem would likely disappear. But, somehow, older workers don’t (want to) see the logic of it.

    “It’s Hard to get a Man to See the Truth About Something if His Job Depends on Not Seeing it.”

  13. Gravatar of ssumner ssumner
    14. April 2012 at 12:26

    Jason, Cute! I like the Japanese pics best.

    Steve, So it’s not just Italy.

    Mike Sax, You said;

    “I know some might see that as reason to keep students in perpetual student debt slavery”

    I don’t see any need for those Americans who didn’t go to college (lucky duckies) to subsidize those that did. I worked my way through college and grad school, and borrowed funds as well. It seems to me that’s not an unreasonable thing to ask of college students. Admittedly the tuition is higher today, but so is the level of financial aid. (I got virtually none.) I talk to many PhD students today who get lots of financial aid. I don’t doubt some students are suffering, but that’s mostly because of our macroeconomic policies, not our education policies.

    PeterN, You quoted someone:

    “It’s Hard to get a Man to See the Truth About Something if His Job Depends on Not Seeing it.”

    Who is that guy? Galbraith? I wanted to find that quotation when I did the post explaining why the Fed would never turn policy over to a futures market.

  14. Gravatar of Peter N Peter N
    14. April 2012 at 13:09

    The quote is attributed to Mark Twain, without any citation.

    He had a rather cynical view of economic affairs. He once went bankrupt and lived though the early 1870s.

    “A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain.”

    “When a person cannot deceive himself, the chances are against his being able to deceive other people.”

    “I think I can say, and say with pride, that we have some legislatures that bring higher prices than any in the world.”

    “The calamity that comes is never the one that we had prepared ourselves for.”

    “There is something fascinating about science. One gets such wholesome returns of conjecture out of such a trifling investment of fact.

    “Behold the fool saith, ‘Put not all thine eggs in the one basket.” — which is but a manner of saying, ‘Scatter your money and your attention.’, but the wise man saith, ‘Put all thine eggs in the one basket — AND WATCH THAT BASKET'”

    “When we are young, we generally estimate an opinion by the size of the person who holds it, but later, we find that this is an uncertain rule, for we realize that there are times when a hornet’s opinion disturbs us more than an emperor’s.”

  15. Gravatar of Saturos Saturos
    14. April 2012 at 14:14

    ‘Put all thine eggs in the one basket’

    Did either Twain or the wise man manage to leave much money for their kids?

  16. Gravatar of happyjuggler0 happyjuggler0
    14. April 2012 at 14:59

    According to wikiquote it was from Upton Sinclair:

    I used to say to our audiences: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

    I, Candidate for Governor: And How I Got Licked (1935), ISBN 0-520-08198-6; repr. University of California Press, 1994, p. 109.

    I tried checking it out from the googlebooks preview, but it didn’t cover that page. However whenever someone comes up with a citation that precise, I am inclined to believe it!

  17. Gravatar of happyjuggler0 happyjuggler0
    14. April 2012 at 15:02

    Of course it may be that Upton Sinclair didn’t originate that quote, and was just using it….

  18. Gravatar of Peter N Peter N
    14. April 2012 at 21:49

    I’ve so far found attributions of the quote to Upton Sinclair (In 1935 He said he used to say it, not claiming it to be original. There’s also reference to a 1908 book I haven’t been able to check), Sinclair Lewis (maybe a Sinclair confusion, but they were friends at one point), Mark Twain, H. L Mencken, Brianna… I guess Sinclair is ahead on points so far.

    Here are a few more selected to be of use to an economist when giving a talk. In researching this, I found a few treasure troves with thousands (literally) of quotes on politics, ethics, economics, the law and human frailty in general – very little junk, like:

    For every complex problem there is a simple solution. And it’s always wrong.
    – H.L. Mencken

    “However beautiful the strategy, you should occasionally look at the results.”
    – Winston Churchill

    It is useless to attempt to reason a man out of a thing he was never reasoned into.
    – Jonathan Swift

    “If we torture data long enough, it will confess

    “The trouble with quotes on the Internet is you never know if they are genuine.”
    Abraham Lincoln

    “Government is not reason; it is not eloquent; it is force.
    Like fire, it is a dangerous servant and a fearful master.”
    George Washington

    It’s tough to make predictions, especially about the future.
    — attributed to Mark Twain, Yogi Berra, Niels Bohr and Sam Goldwyn among others. Probably said by . Danish cartoonist Robert Storm Petersen and popularized by Bohr

    The art of prophecy is very difficult — especially with respect to the future.
    — Mark Twain, (1835-1910) but with no citation

    We can’t solve problems by using the same kind of thinking we used when we created them.
    –Albert Einstein, (1879-1955)

    In science it often happens that scientists say, “You know that’s a really good argument; my position is mistaken,” and then they would actually change their minds and you never hear that old view from them again. They really do it. It doesn’t happen as often as it should, because scientists are human and change is sometimes painful. But it happens every day. I cannot recall the last time something like that happened in politics or religion.
    –Carl Sagan, (1934-1996)

    Permit me to issue and control the money of a nation, and I care not who makes its laws.
    –Amschel Mayer Rothschild, (1743-1812)

    The great tragedy of science–the slaying of a beautiful hypothesis by an ugly fact.
    –Thomas Huxley, (1825-1895)

    There is no greater mistake than the hasty conclusion that opinions are worthless because they are badly argued.
    –Thomas Huxley, biologist and writer (1825-1895)

    “I sincerely believe . . . that banking establishments are more dangerous than standing armies.”
    Thomas Jefferson, 1816

    The difference between genius and stupidity is; genius has its limits.
    –Albert Einstein

    If the rich could hire someone else to die for them, the poor would make a wonderful living.
    Old Jewish proverb

    More than any other time in history, mankind now faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly.
    –Woody Allen

  19. Gravatar of ssumner ssumner
    15. April 2012 at 09:13

    Everyone, Thanks for those quotations.

  20. Gravatar of Mike Sax Mike Sax
    15. April 2012 at 11:13

    “I don’t see any need for those Americans who didn’t go to college (lucky duckies) to subsidize those that did.”

    Whether or not there is a need or not that’s not what I’m asking here. My point is not a demand for a subsidy but rather question a currnet subsidy, namely that implicit government guarantee for student loans.

    Why are the student lenders the only class of lenders who receive a government gurantee. Lending is a risky activity and all the other lenders-auto, mortgage, credit card etc-bare consdierable risks in making loans that the student lenders are exempt from by virtue of the government priviligiing student lenders.

    I think Peter N. nails it here when he says, “. If banks can’t issue ordinary student debt at an affordable rate with an ordinary risk structure, then they shouldn’t issue any.”

    Unless they can explain what’s different about student loans why they can’t make it work with a normal risk structure-and even if they can’t why that’s our problem as a society then the huge blanket government subsidy should end for the student lenders.

  21. Gravatar of ssumner ssumner
    16. April 2012 at 06:41

    Mike Sax, OK, I don’t know enough about the student loan market to have an intelligent opinion.

  22. Gravatar of Time to End the Free Lunch for the Student Lenders. | Last Men and OverMen Time to End the Free Lunch for the Student Lenders. | Last Men and OverMen
    24. April 2017 at 06:33

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