Merit Goods Inflation Part IV

Part IV

Kids would work hard to get these scholarships, increasing the academic focus of high schools, but those who don’t make it would not be shafted with the monumental price tags they face in the present system. Scholarships for low-income students who don’t get merit scholarships should continue as well. These programs would be greatly benefited by the program described above because it gets at the problem of price. The amount of tuition kids need to scrape together would become a little more manageable. It would also take people in the middle, who aren’t rich but who could swing $20,000 for four tough years—less if their kid goes to a public university—out of the financial aid pool, allowing those programs to focus on the applicants who are truly needy.

Merit Goods Inflation Part III

Part III

What about education? The federal government should announce that 43,500 boys and girls, one thousand from each of our Congressional districts, will get a merit scholarship every year, to pay for four years of college. In any particular year, four times that number, 174,000 men and women, will be going to school for free on this program. The amount of the award should be based on the government’s judgment of the cost of educating a student—it could vary by category of school. Let’s keep things simple by using one number, say $20,000 per person. The total cost of the program? $2.6 billion per year. No big deal, it wouldn’t get noticed in our trillion dollar budget. But here’s the reason it makes economic sense. The dollars would get paid directly to the schools the kids decide to go to, but in order to qualify for the program, the schools must lower their tuition—for all the undergrads—to $20,000. So that the millions who don’t win the scholarship will get a benefit too. You think Yale would turn up their noses at all the scholarship winners? I don’t. Not with their endowment. So the Yale tuition comes down to $20,000. Columbia, Penn, Cornell would all want those kids too. Some schools might stick it out, hoping to get big fat tuitions from those rich enough not to care, but even their tuitions would respond to the increased competition.

Merit Goods Inflation Part II

Part II

So how do we get out of this mess? Simple. Government shouldn’t augment demand, it should augment supply. One of the best performing companies in America in the last 20 years has been Federal Express. What do they do? Exactly what the US Postal Service does. They must do it pretty well, because the Post Office isn’t half bad, and yet they stay in business. That’s my model for how health care should work. Federal and state government should collaborate (federal dollars, state implementation and accountability) to provide free or very inexpensive health care to all comers. The free market, the remaining private system, would have to compete and provide value (low cost as well as high quality) in order to survive. Everybody would have access to good quality care. Those who felt superior to the government service would be free to buy the good stuff privately, and they would probably get a decent deal on it.

Merit Goods Inflation Part I

I have a few thoughts to share on price inflation in health care and private college education.

Part I

My theory is that inflation in these areas results from solving the problem in the wrong way: by giving more purchasing power to the customer, rather than by providing the service directly.

We want people to be able to afford health care and education, so we help them to pay for it. We subsidize health insurance through the tax code and actually give free health insurance to a portion of the population through Medicare and Medicaid. As for education, we provide Pell grants and subsidize student loans. As a result, people can go to the doctor, get cared for and get some help with the bill. Or they can apply for assistance and loans, go to college and graduate, usually with tens of thousands of dollars in loans. If only a handful of people got these benefits and there were no effect on the market for the goods, the only inefficiency would be the time and effort spent applying to these great programs. But millions benefit and there is a pronounced upward impact on price and a very positive effect on supply. In response to the dollars, we make and sell some great stuff to customers with a lot of dollars to spend, albeit dollars designated for these particular goods. Our education system is top-heavy with Cadillacs; tuition at top private colleges comes with a price tag of $50,000 or more, and we have the finest health care in the world, as long as we focus just on the quality of the product. Americans have access to MRIs, Viagra, arthroscopic surgery, plus all the research from MD Anderson, the Harvard Medical School, the Mayo Clinic, and so on.

The supply response to the increased buying power of patients and students is a great thing and a pernicious thing. It’s great because health care and education are unalloyed goods for our society. We all benefit when these goods are broadly distributed. But the high cost of medical care has become a disadvantage for American business and a big hit on the wallet of individuals paying for their own insurance or for health care directly. In addition, health insurers have become so cost-conscious, their greatest focus is on selection, having become extremely choosey about who they are willing to insure, making life very hard for unlucky people with pre-existing medical conditions and creating an adverse selection bias for the governmental entities that sometimes pick up those left behind.

On education, here’s an odd fact: the majority of students at most private college are on financial aid. Most come from relatively privileged families, but who can afford to spend $200,000 on tuition? The system is hardly fair for the lucky few who can afford it, and it’s not much fun for the majority, who are stuck with a decade of paying off debt. Many view top private colleges as an investment, and consider whether the additional earning power after graduation will offset the debt burden. Somehow it’s not supposed to work this way.

Jim Hanifan

You don't hear his name much anymore but Jim Hanifan was the best NFL offensive line coach of all time. He coached Dan Dierdorf, Conrad Dobler, Tom Banks and the rest of the St Louis Cardinals line that protected Jim Hart throughout the 1970s. Hart almost never got sacked, and the offense was perennially potent. He head-coached for a short time but wound up coaching the Redskins' O-line in the late 1980s and early 1990s. The Skins tested the low-sack records he had set in the 1970s and had a nonpareil running game featuring Earnest Byner and producing a 202 yard rushing record for an unknown guy, Timmy Smith, in the Super Bowl. You may remember the men he coached then too: Joe Jacoby, Russ Grimm, Mark Schlereth, Jim Lachey, Raleigh McKenzie. After Washington he wound up his career back in St Louis coaching the O-Line for the Greatest Show on Turf and helped get them to their first Super Bowl. Obviously, the best in the business. Hope he makes the Hall of Fame. Position coaches should get more credit than they do.