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Saturday, February 5, 2011

Higher education probably won't help our economy

Bloated, wasteful and ineffective is no way to grow an economy

As the rest of the Nation recovers Nevada’s economy still seems to slide further and further into the abyss. Nevada has the nation’s highest unemployment rate (over 14 percent). We also face a significant budget shortfall. The general fund revenue for the state budget is projected to be $5.3 billion for the next biennium – current spending is $6.4 billion.

Governor Sandoval has proposed cutting the budget and implementing reforms – most notably for education. Higher education in particular is slated for a 7 percent cut in state appropriations (17.5 percent if you include the lost ARRA federal subsidy).

To discuss the magnitude of the cuts the Board of Regents called a meeting on February 3, 2011. After three hours of testimony the only solutions presented were 1) close class sections, 2) reduce enrollment and 3) terminate faculty.

Oh no, budget cuts... Again.

The colleges and universities of Nevada have also been rolling out a new PR campaign. They’ve argued “invest more in us and we’ll help grow and diversify the economy.”

The relationship between higher education and positive economic growth is “indisputable” claims the state’s higher education chancellor Dan Klaich.

Its not at all clear that higher education can help grow Nevada’s economy. Naturally, a more educated work force can be more productive and earn higher incomes. But that assumes we're actually educating people in the first place. It also assumes that jobs are created just because of education quality rather than a host of other factors.

First of all, states with top tier universities like California, New York and Michigan are bleeding residents and jobs. Its not just these three, a host of other states with top universities are also struggling to create jobs and keep residents. Between 2000 and 2008 the combined net migration rate for states with an Ivy League school was -2.5 million. Nevada, with its 3rd and 4th tier universities, had a net migration rate that was higher than the combined rate of all 32 states with a top 100 university. In fact, having a Top 100 University as ranked by U.S. News and World Report means a state also averages a statistically higher unemployment rate (nearly 3 points higher than not having a top 100 university).

University officials in Nevada are making a very basic logical fallacy. They are seeing Nevada's economic struggles (fact) and assuming that Nevada's low percentage of college graduates (fact) must be a reason why the economy hasn't diversified and recovered. This fallacy leaves them believing they're the saviors of Nevada, thus, we can't cut their budget.

Conveniently, they forget the fact that prior to this economic crash Nevada sustained high economic growth, population growth, high income-per capita, and below average poverty rates for DECADES, despite having a "poorly educated" populace.

There is probably a more robust positive relationship between higher education spending
and keg stands than with economic growth.

It is especially unlikely that further investments in higher ed will boost Nevada's economy when the Universities spend so much already and produce very little in return.

UNLV spends $19,000 per FTE student and only graduates 48 percent of the full-time students within 8 years. Meanwhile, UNR spends over $34,000 per FTE student and graduates merely 54 percent after 8 years.

At the Regents meeting I pointed out that UNLV and UNR spend more money per-pupil and employ more adults per-pupil to do the same job. According to Dr. Jay Greene’s report “Administrative Bloat at American Universities” both UNLV and UNR grew their employees faster than the student body between 1993 and 2007. UNLV saw inflation-adjusted spending per-pupil rise 59 percent while UNR saw spending rise 21 percent.

According to the U.S. Department of Education, UNLV’s inflation adjusted credit-hour costs have risen 90 percent while fees increased a whopping 771 percent over the last decade. At UNR the increase was 80 percent and 290 percent respectively.

How can anyone consider UNLV or UNR to be a wise investment? Spending more and more money to employ more adults to do the same shoddy job will not grow our states economy. At best it will do nothing at all. At worst, it may actually retard or reverse economic growth.

My two minutes of comment were up at that point, but the damning facts keep piling up. The Lied Institute at UNLV released a rather shoddy report calling for more “investment” in higher education, pointing two Arizona and Utah as states to emulate. I've blasted the report to pieces here and here.

Failing to conduct even the most basic literature review or even analysis on state spending, the Lied Institute researchers failed to notice that Nevada already spends more on education and research per-pupil than Utah and Arizona (see figure 11 on page 29).

In particular the Lied Institute researchers and Brookings Institution Mountain West have called on lawmakers to emulate Arizona State and the University of Utah.

ASU spends $28,000 per-pupil on “Education and General Expenditures per FTE” according to the Education Trust. That is $6,000 less than UNR, Nevada’s flagship university. As much as Arizona State is made fun of for their low-quality, they spend less and graduate more of their own students than UNR.

The University of Utah does in fact get the lion’s share of resources in Utah – spending over $50,000 per FTE. Embarrassingly, their 6 year graduation rate is 51 percent. They make Arizona State – a university lampooned by everyone including SNL and the Daily Show - look like Harvard AND a bargain.

Worse still may be the quality of, at least some, of the faculty in Nevada. One professor employed at the University of Nevada – Reno wrote me via Facebook to accuse me of believing what I do because I’m paid to believe it. Of course he “believes with all [his] heart in the mission of the university” and is “proud of [the university's] progress” and success.

After pointing out the irony – he has called for higher taxes to fund his own employer where he makes $143,000 a year – I asked him exactly what the university’s mission was and what does he mean by success.

Just 12 percent of UNR’s students are considered low-income (Pell Grant recipients) and just 11.6 percent are underrepresented minorities (white non-Hispanics make up just 56 percent of the population in Nevada and less than half of the K-12 student population).

I wondered if the mission was to spend $34,000 a year to graduate half the students within 8 years – the vast majority of whom were middle/upper class and white.

If that his definition of success and progress, then I think the Klan might agree with him. Or at least the Joker...

Nevada needs to rethink the higher education paradigm because being bloated, wasteful and ineffective is no way to grow an economy.


  1. Patrick - Interesting post. Are your FTE figures for UNLV, UNR, etc. per school year? It's hard to digest that University of Utah spends 50k per FTE per year, but given the state of higher education, completely believeable. Also, I presume your FTE figure include student tuition which offsets some small portion of the cost (onto the federal government's loan book, really).

  2. That is per-pupil (full-time equivalent) for the school year. Latest year was ending 2009. The data comes from the IPEDS database (US Department of Education) and is collected by the Education Trust here:

    The figures are from expenditures for certain categories from all sources of revenue, including tuition, fees, state support etc.

    Most of the difference between University of Utah and University of Nevada - Reno is actually from a category called "Public Service" not research.

    UNLV and UNR have seen some declines in spending since 2009, but remember, state general fund appropriations make up only a portion of a portion of the university's total budget.

  3. Interesting article in weekend WSJ about all the college graduates unemployed in Egypt. So you may be right. Higher ed may not yield development.

  4. Patrick- Thank you for the prompt and detailed response. For so long education has a sacred cow that it's hard to converse about logical and reasonable limits to education spending. I have a friend who's a few semesters away from FOUR different associate degrees at CSN - unless there's a special offer to trade in those 4 associate degrees for one masters degree ... what a waste of taxpayer money!

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  5. Recent figures I received from the Regents puts UNLV's spending closer to $24,000 per pupil and UNR at $35,000 per pupil.

    Those figures exclude the medical, dental, and law schools and also exclude athletics.

  6. Get your facts right.... California is not "bleeding residents and jobs."

    Companies continue to stay in that state despite a high tax structure for the simple fact that they can hire educated employees.

    Despite Nevada's claim that a low corporate tax structure will diversify our economy, it won't.

    Go look at Zappos careers page and see what a growing, savvy company is unable to find in a work force here.

    If you are going to call yourself a researcher, act like one.

  7. How are those two degrees granted by bloated, wasteful public universities treating you, Patrick? They seem to keep you employed. You seem to have some research and forensic skills which, one would assume, are the result of said education. Doesn't it follow, then, that you regret having participated in these wicked, bureaucratic ventures (wishing, perhaps, to be a janitor or a blackjack dealer instead of Policy Analyst?) Or are you trying to save future generations from themselves?

    Or could it be that there is hypocrisy afoot?

    If higher education is the evil that NPRI and you, personally, posit, then repent: renounce your degrees, burn them on the steps of UNLV, and refuse to use the skills learned there. Handicap yourself in your daily work-life, and reduce the quality of your life. That'll show 'em.

  8. Companies continue to stay in that state despite a high tax structure for the simple fact that they can hire educated employees.

    That's an assertion not supported by the Census data you link. Do you have another source of data showing employment trends by sector? Absent that, I could just as easily assert that California's job growth is heavily concentrated in government services and agriculture, two sectors which cannot relocate no matter how much they would like to.

  9. University of Utah has a teaching hospital, and I imagine that accounts for a large part of the funds.

    As far as retention, that is an issue with the legislature, and a culture change on campus is going to have to take place.

  10. There is a tendency in all these discussions of the benefits (if any) of higher education to lump all fields of study together. The graduate with a degree in mathematics or electrical engineering probably contributes more to the state than the graduate in Women's Studies. I could be wrong as the diversity industry is growing rapidly but the tendency to lump all bachelor's degrees as equivalent can be misleading.

    Motivation is also important. When UCLA canceled my daughter's Arabic class due to low enrollment, she and the other students simply moved the class to the teacher's home and paid him the tuition. How many "Whiteness Studies" students would do the same?

  11. The results of ignorance far out weight the cost of education. Stopping the
    attempt to educate our citizens insures the availability of labor at the lowest cost to industry. This fits well with the obvious result of our drug laws to fill our prisons with cheap labor.
    We have been sold down the river by scum elected officials completely owned by businesses dependent on desperate people. When these cold hearted bastards get their way we all lose.
    The rebranding of the Labor Unions as the cause of our problems is one
    of the most abhorrant and deceitful tropes being foisted on the public.
    It's just divide and conquer by withholding jobs and investment until the
    working people are stuck and desperate.
    Where are the jobs ? USA industries are sitting on over 3 trillion in cash
    waiting for what?
    Anyway, western wrangler is a dim wit and gets no respect for this asinine foolery.

  12. Interesting analysis. I have a few questions though. I suppose I could find the answers if I dug into your links, but I thought I would check and see if you have a ready response:

    1) Does the 8yr graduation rate include only traditional part time students or does it include every student who signs up for a class? I could imagine that if tuition is cheap enough, many people will sign up for single classes without any intention of earning a degree. How does the fraction of full time students at UNLV/UNR compare to ASU and Utah?

    2) The average annual rate of growth at UNLV/UNR is 3%/1% relative to inflation. How does that compare to costs in other service heavy industries (veterinarians, chiropractors, lawyers, home nursing, etc...)? While inflation overall was quite low in the 90's, my understanding is that this is largely due to falling commodity prices, increased manufacturing efficiency, and free trade (all good things to be sure), but relatively cheap oil, improved supply chain management, and cheap chinese labor aren't going to make it cheaper to offer legal advice, fix fido, or teach semiconductor devices. Is there a disparity between the cost of higher ed (not sticker prices!) and costs in these other industries?

    3) How much of the increase in the cost from 1993 to 2007 was driven by endowment growth fueled by the tech/housing bubbles? Is it fair to include this in increased costs?

    4) Do the budget numbers (expenditures/student) include the so-called "in and out funds" or "pass through funds"? For example, at the university where I work, we hold the state contract for processing state Medicaid payments. Technically the money spent on managing this is part of our budget, but the money for this comes from the state specifically for this purpose. This isn't really an expenditure on a student, but I don't see how it would be separated in these reports. Other examples of pass through money might include research contracts with corporations and federal agencies (a large fraction of our staff are on soft money, not state or tuition dollars), restricted gifts, and public service activities. The money for these activities is walled off from other and makes up a majority of our budget. Ceasing these activities would not free up this money for teaching students. How much if any of the expenditures/student that your report for UNLV/UNR includes such pass though funds?

    5) What is the economic impact of the research and public service activities carried out at UNLV/UNR? Is either a land grant?

  13. Education? Everyone needs it. School? Not so much.

    I worked my way up from bench technician to aerospace engineer in 15 years earning good money all the way. No degree.

    My son is taking EE courses and I find that I'm about as well educated as he is and instead of being in debt I'm debt free. Of course I got my first amateur radio license (Technician - which was the hard test and easy code) at age 13. Radiotelephone first class at age 17 1/2. (am I dating myself?) So I was already pretty well trained before I even started.

    Could a kid do that today? Maybe. It is unfortunate that I can't say: SURE.

    And the cost of books? What a racket. Our only hope for the future is to destroy the schools and let those interested in a subject teach themselves. The Internet has better resources than I ever had as a kid (The Radio Amateur's Handbook).

    The Engineering teachers (etc) can get jobs. The rest can pound sand.

  14. @Anon 1: California's net migration (people moving in - people moving out) is negative. They only maintain growth through birthrates

    @Anon 2: Logically fallacious argument. You've just implied that getting a product or service from X means you cannot criticize X. In other words, participating in capitalism means you can't criticize capitalism. I hope you're smart enough to see the error in reasoning.

    @Goef, those figures do not include Utah's medical school. It also excludes athletics, capital projects and debt repayment.

    @Chavinac, higher education doesn't even do its core function well. You cannot grow an economy by spending tons of money and not succeeding at your core product - producing educated students.

  15. @Anon 3

    1) graduation rates are by cohort of first-time full time students. So part-time students and returning adults students are excluded.

    2) I'm not sure how higher education spending growth compares with other industries. I'm only sure that it outstrips inflation, income-growth, and student enrollment growth and has not improved in quality. Few industries survive long doing that.

    3) Why would a tech bubble or housing bubble fuel an increase in spending but a tech pop and housing pop not fuel a decrease in spending? We've seen a consistent upward trend regardless of state economic performance.

    4)The data is collected by the U.S. Department of Education and has been sorted by education and education associated expenditures. Thus, I would believe such an expenditure would not be included. But why is the university in the business of processing Medicaid payments? Shouldn't you be teaching and researching?

    5)truth be told, no one actually knows the true impact. NSHE released a figure of $1.80 per $1 spent but the study is based on nonsensical assumptions. We would need a true ROI done and frankly, NSHE wouldn't bother because I bet $100 we'd see the ROI as very low (and lower than doing alternatives like tax cuts) if not negative.

  16. anon2 here...

    In your rebut, you changed your argument halfway through--first you say that it's fallacious because one should not be able to criticise a product because of a beef with the provider (Windows is not Microsoft). You then switch your argument from the provider back to the product (Capitalism being the "product"). Pick a horse and ride it, man.

    My contention isn't that you are criticizing Provider X (the school/school system), nor that you shouldn't be able to; my contention (and the reason why you are incorrect that my argument is fallacious) is that you're criticizing the product being provided--in this case, education, a product that you yourself have purchased, use daily, and get value from, but are saying that nobody should be able to obtain, at least not in the taxpayer-subsidized way that you yourself obtained the product.

    To re-frame it using your first analogy:

    You obtained Product X (public education), and use it daily to your own benefit. Ironically, you use Product X to try and prevent others from obtaining the same product for themselves.

    To re-frame it using your second analogy:

    You "learn" Capitalism, and use that same economic system to prevent others from engaging in free trade---not competing as a function of the machine, but in essence saying "Free trade made me wealthy, but despite that, it doesn't work and must be abolished from here on out."

    Again, I call on you to renounce your own public education (and, thereby, your value as a political analyst) as worthless and overrated.

  17. Anon 2: Yes, you engaged in a logical fallacy, but not as I originally thought. My original accusation stemmed from the belief that you actually understood my argument. It seems your fallacy now stems from an incorrect interpretation of my argument.

    Your distinction between product and provider is also irrelevant in this case.

    The provider is the public university - the product was the education and the degree signifying the education. We agree on that, but who cares.

    Your argument is that since I argue the university system is overrated, oversold and bloated (and self-serving) it must be evil so I should renounce my degree (this non-sequitur).

    My argument is that the university system is bloated - it has more money today than ever before and employs more adults than ever before but the quality of education received has not improved despite the fact that students today are paying several times more dollars for their education than even students from just a decade ago.

    I am not arguing that education itself is bad. I am not arguing that no one else should obtain a college degree. I'm arguing that the university system - through mission creep and irresponsible budgeting - have made the degree more expensive and less valuable than before. I'm arguing that this must change so education is less expensive and of higher quality.

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  19. I do believe that higher education is something that we all must aim for because we definitely need the knowledge about things.

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  21. Higher education probably wont help our new generation. Read to know more on this point

  22. Higher education probably wont help the new generation. The views given by you throws a ne light

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  24. I think a college education is important, but what needs to change is the costs and debt associated with college. I think that loans should only ever be used for the education portion of an education. Never should it be used for room and board, food, entertainment, clothing or other non-education expenses. I think if this was a good rule of thumb, college education would be more achievable and more affordable and more apt to keep graduates from being burdened with debts after their education completes.

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