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A conservative’s [brief] case for higher education funding

Posted by T. Greg Doucette on Nov 9, 2011 in Unsolicited Commentary

After more than 2 years of writing here at law:/dev/null, I’ve done a reasonably decent job of keeping the “real world” politics to a minimum1 — not because I’m averse to talking about those sorts of issues, but because law school is enough of a headache without me going into AN ALL-CAPS RAGE2 about the latest controversy du jour.

Even so, every now and then I feel a slight urge to rant ;)

Earlier tonight I took a break from drowning in homework to visit Chapel Hill for “An Evening with Five Presidents”, an event put together by the UNC Board of Governors featuring a panel discussion with the 5 folks who have led the consolidated University of North Carolina since it was established in 1972. Former BOG members were asked to attend as “special friends” of the University — and since I’m more likely to find a job lead from one of these folks than anything my GPA will get me, I figured making the academic sacrifice was a rational choice :beatup:

Anyhow, the wide-ranging discussion included more-than-a-few remarks about the proper way to fund the University and the totally absurd tuition increases being discussed behind closed doors (e.g. $4K+ increase at UNCCH for in-state undergrads over the next couple years :crack: ). Unfortunately those are the kinds of conversations that happen when newly-Republican-led state legislatures gore the higher education system and nuke $1 of every $7 overnight.3

It’s obvious from the General Assembly’s actions that legislators have a dim view of the university system, I’m just thoroughly flummoxed as to why. It’s always made intuitive sense to me that the education sector is one of the few options that are a sensible and eminently capitalist choice for investing taxpayers’ money.

Yes, I just said “eminently capitalist.” Maybe I’m biased because of the modest upbringing and former dropout status, but consider two brief reasons:4

The Social Network Effect:
Folks who’ve spent time in a computer science class have probably already heard of the “Metcalfe Effect”, named after Ethernet founder Robert Metcalfe. He argued that a critical mass of users was necessary to create any value in any particular network; for example, one person having a telephone is worthless, but as more people get telephones all current telephone users benefit.5 Economists refer to this as a positive network externality.

The Metcalfe Effect in computer science: for a network of (n) nodes, the total number of possible connections is (n * (n - 1)) / 2

You can see a visual depiction in the photo on the right. The Metcalfe Effect can actually be expressed as a mathematical formula — (n * (n-1)) / 2 — indicating the total number of possible connections between n nodes in a network. 2 nodes: 1 connection. 5 nodes: 10 connections. 12 nodes: 66 connections. And so on.

Universities are essentially big incubators for a human-centric Metcalfe Effect, creating what I’d describe as a Social Network Effect. Thousands of people voluntarily choose to come into a given geographic area, sharing a common institutional affiliation for 4 years at a stretch, and in the process inevitably form connections (their social network) with those around them.

Now is every one of N.C. State‘s 33,000+ students going to connect with the other 32,299+? Of course not. But in the aggregate, more connections are formed than would be otherwise.

I’ve seen this Social Network Effect get routinely derided by conservative pundits for years — “We’re supposed to be teaching kids to get jobs! Not to have fun!” blah blah blah rabble rabble rabble.

But the criticisms overlook basic realities of how economics works: information asymmetry is an impediment to maximum economic efficiency, and our personal networks help to distribute information and reduce that asymmetry as a result. This is the reason why the extent and quality of your personal network influences the resources you can obtain.

To make a long story short (these kinds of debates can get über-long), basically with the Social Network Effect at universities you get more people forging more numerous and economically higher-quality connections with more other people, producing a greater quantity and quality of economic interaction — better matches between employers and employees, producers and consumers, new business ventures, and so on.

The Foundational Knowledge Effect:
I couldn’t come up with a cool-sounding name for this one :beatup:

One of my minors at N.C. State was in economics, and to get there we had to read a lot of different books / essays / writings / etc. Out of everything economics-related that I’ve read, economist William Easterly’s The Elusive Quest for Growth ranks among my Top 2 favorites.6

A former economist with the World Bank, Easterly’s book discusses the various “panaceas” touted by the developed world for trying to improve third-world countries (things like debt forgiveness, building schools, and the like) and why most of them simply don’t work. While the book overall is excellent, what particularly jumped out to me in reading it was Easterly’s thorough exploration of the role of knowledge in the economy.

In a nutshell: knowledge is cumulative and builds off of itself.

This is why, if you look at the economic growth rates of various countries over the last century, countries tend to hit a certain point where their per capita GDP accelerates exponentially rather than just linearly — the “core” level of knowledge among the populace hits a threshold point where it can then take greater advantage of new advances and discoveries, accelerating growth further and leading to even more such discoveries.

As an example, you couldn’t simply teleport back to California in 1900, give someone the laptop you brought with you, and expect Silicon Valley to spring up decades ahead of time when the country hasn’t seen a radio or TV yet. Easterly discusses this reality in the context of African tribes cut off from the outside world, suddenly immersed in modern tech innovations when approached by missionaries: they pick up on it eventually, it just takes a long time when that foundational knowledge doesn’t exist.

Just like universities are great voluntary creches for nurturing social networks, so too are they among the most-effective means for building “core” knowledge in the populace. The widespread ubiquity of technology, access to the latest research, the exposure to knowledge that comes from building a social network in itself — all of this contributes to everyone’s foundation of knowledge, enabling a higher degree of economic growth at a faster pace than we’d have otherwise simply from mere exposure to it (and even more if it’s retained).

***

I have to cut this entry here because WordPress says I’ve already hit 1,300 words, but my main point is this: the Social Network Effect and the Foundational Knowledge Effect, taken together, lead to a situation where the economic loss that comes from taxing away private money and diverting it to a public purpose is recouped and then outweighed by the economic gain from reducing information asymmetry and increasing the scope and speed of innovation in the marketplace.

In other words, just looking at the economics alone and ignoring any other incidental benefits, funding the University of North Carolina is a net benefit for the State and its taxpayers.

The conservatives in the North Carolina General Assembly should take notice and give embodiment to the words written in Article IX, Section 9 of the State’s Constitution: “The General Assembly shall provide that the benefits of The University of North Carolina and other public institutions of higher education, as far as practicable, be extended to the people of the State free of expense.”

And I might be going out on a limb here, but I’d guess cutting 15% of the University’s budget and prompting 4-figure tuition increases don’t really mesh with that.7 ;)

Have a good night y’all! :D

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From the law:/dev/null Unsolicited Commentary archives:

  1. A mere 2.5% of our 467 entries. Even less when you consider 5 of the 12 Unsolicited Commentary posts are exclusively law school-related, and another 2 of 12 are predominantly law-oriented. []
  2. Hat tip to Ray William Johnson for the phrase :) []
  3. A hair’s breadth under $2,000,000.00 at NCCU Law completely gone. :crack: []
  4. I concede at the outset I haven’t gone searching for empirical studies to back up my arguments here; I’m sure they exist and I could found them if I felt like spending the time to do so, but I don’t need empirical confirmation to know when something basic makes sense ;) []
  5. Or, for the younger generation of folks reading this entry: the more people who join Facebook, the more each individual Facebook user benefits :P []
  6. The other, read during the time I had dropped out of school, is Henry H. Hazlitt’s Economics in One Lesson — hands down the greatest economics tome I’ve ever read, and one I strongly encourage everyone to read from cover-to-cover regardless of your political philosophy :D []
  7. That’s not to say I think all tuition increases are per se bad. I firmly believe students should be expected to fund a portion of their education (and even take out loans :eek: ) so they have some “skin in the game” as it were, and universities should have flexibility to deal with inflation and other cost issues. But I’ve also advocated for years that any tuition increases need to be predictable and capped. Better to have a 6.5% increase every year like clockwork than no increase one year and a 40%+ increase out of the blue the year after. []

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