Just Universities – Markets and Mission: An Economist’s Perspective

Many feel that markets and morality conflict with one another. The layperson’s opinion of economics is that you can either have a “corporate” or “service” -based mission in Catholic higher education. To the economist, this choice does not need to be mutually exclusive. When I speak to non-economists it is often difficult to bridge the gap between foundational economic concepts and individual biases and ethics. I would like to start by referencing Thomas Sowell, who would say that in economics “there are never solutions, only trade-offs.” This, I believe, is what dissects economics in its most basic form. 

The economist begins to understand that in any form of organization, societal or otherwise, we have trade-offs. Every principle of economics textbook talks about it on day one of class. We have a special name for it— we call it “opportunity cost.” An opportunity cost is the cost of making a decision. For example, if I go out to the movies with my wife one night that means I forgo doing something else at that time. Given choice, all decisions represent trade-offs. Notre Dame Philosopher, James Otteson, sums it up nicely:

It is no more a failure of markets that resources are scarce than it is a failure of engineering that I cannot travel faster than the speed of light. Similarly, the fact that markets do not solve all problems is no more a problem with markets than the fact that modern medicine cannot cure all diseases is a problem with modern medicine.

 (Otteson 2021)

I see this as at the heart of the issue between economics and other disciplines within the academy. Economics begins with the point that there is no way to get rid of scarcity; there are only trade-offs in how we deal with the fact of scarcity. Of course, after hundreds of years of economic thought, the Scottish Enlightenment, and the first official economist, Adam Smith, put forth the idea that volunteer transactions and markets perform better at the task of minimizing scarcity, than other forms of social organization. This is not controversial in economics; again, all basic texts show this. As Smith would say:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.

(Smith, I.2.1)

The masterpiece of economics is recognizing that negative rights are more important than positive rights; this really is what allows a society to flourish. Here is James Otteson again on this point:

Autonomy does not require that there are no influences on you, or that there were no external circumstances to which you responded or that you took into consideration. What it requires instead is that you could have chosen otherwise. . .. This capacity to choose otherwise, or “autonomy,” gives human beings dignity and elevates their status above that of non-human animals and inanimate objects.

(Otteson 2021)

On top of that, economists have found that the great side effect of all this is increasing wealth and resources for society. So, while we will always have scarcity, increasing wealth, or more importantly the individual motivation to do so (or “profit”), causes resources over time to become less scarce. This is due to the incentive in a market system to innovate. 

So, while we will always have trade-offs, in a particular instant the amount of resources is rising for all of society due to this effect, Julian Simon would call the human ingenuity the “ultimate resource.” However, you don’t get clever solutions without first having constraints. Individuals having to make constrained choices about how to use their own personal resources are the primary drivers of all economic growth, not top-down level planning from various levels of bureaucracy.

What this means, given the discussion about the university and its mission, is that to this economist, we should listen to our customers. The idea that the university will fall to economic forces seems rather moot because everything responds to economic forces (i.e., trade-offs and choices, not necessarily money). 

What I believe the real issue to be is that some areas, disciplines, cohorts, groups, (however you want to define them), have a different vision of how they want the world to look. Of course, we all do, and I don’t think that is an issue that is novel at this moment in time. What seems to be the issue is the frustration some groups have that other groups don’t share their vision for what a “just” society looks like. 

On this point as an economist, I feel your pain as well. I think the problem is that academia itself has become quite insular and has lacked the discipline of markets as the incentives in academia have gotten distorted. This has been due to the near monopoly the university system has had on credentialing the workforce. This economist is glad that this is changing. There are numerous stories of parents and students now questioning the value of a university education, and well they should. We should always want individuals making more informed and critical decisions. 

Our default assumption should instead be that people who make choices different from what we make or would have made must have their reasons, even if we do not know what they are. Our default principle should be, therefore, to respect their choices and recognize them as reflective of their equal moral agency. That does not mean that others are infallible or that we should regard them as such, or that others should be immune from criticism. But it does mean that we should exhibit humility when we judge others, because we only infrequently know the whole story. (Otteson 2021)

What economists have discovered, as the moral philosopher at Notre Dame has recently rediscovered in his new book, Seven Deadly Economic Sins, is the fact of the moral foundations of economics. Up until rather recently economics has been in a sense a very philosophical discipline.  The moral foundations of economics are solid and should be defended. 

Economists are not “capitalists,” “Capitalism” by the way was a pejorative term created by Marxists, so I prefer the term “market tested betterment.” What economics has really done is to understand how human interactions work and what causes human flourishing. Just a few examples follow.

Since 1980 the average price of fifty basic commodities has fallen 72.34 percent by the metric of the amount of labor time it would take to acquire those goods.  On the other hand, while most goods have been getting cheaper the largest increase in costs happen in industries that are heavily regulated by the government and/or heavily subsidized by the government, such as healthcare and education. For example, college tuition has inflated at nearly double the rate of the base Consumer Price Index.

This presents a quandary. If we really want to make education affordable, then the one thing we need to do is to get rid of subsidies and regulation in education. This would drastically reduce the cost of education and allow for more students from families of all income levels, to be able to afford it. This would force the academy to have to grapple with making choices about scarcity. Academics, in large part, have been unwilling to do this. This includes many economists as well, by the way. I find this slightly ironic as I would expect my business students to be able to do this once they have graduated or they would not be able to run a successful business. To an economist, especially in business, this seems like one of those cases of the old maxim that those who can do and those who can’t teach. 

However, I know many complain about the growing expenses of the academy due to administration. We have a very big incentive problem here. Many of the technical regulatory administrative jobs tend to be developed and cultivated in the academy through advanced degrees and then we turn around and complain about costs due to including regulations that impose the necessity of increasing administrative staff at universities. 

Also there seems to be a disconnect between what is considered, and what is, education. Is it really true that without college the population would be undereducated? What role should other forms of education play in the economy? What about internships, apprenticeships, and the like. While I understand why firms wanted to free ride on the university system in the 1960’s and have them prepare people for the workforce, is that really what the university is about? If not, what is it then? And if it is about workforce development then we are not doing such a great job of it. This is because most disciplines in the university are less about workforce development and more about various forms of thinking and knowledge. The idea seems to be that if we develop individuals in a broad sense, then that will spill over into workforce skills and productivity. While I do believe that in some sense this is true, I am not sure how much this is happening or how important it actually is. I think we need to not be afraid to look at these issues because if they are not addressed then the university will become less relevant to more and more people.

An advanced degree is not what it is cracked up to be in terms of income versus cost. Let’s look at one job as an example. Currently, per the Bureau of Labor Statistics, the weekly average earnings in the construction industry are $1,330 per week or approximately $69,000 per year, and the average weekly salary for professional services that would more than likely require a college degree is $1,358 per week or about $71,000 per year. Presently, average student loan debt is $37,172 per student when finished with school. Is a premium of around two thousand dollars per year worth that debt? The answer of course is it depends. It depends on aspirations and career goals. But even without considering the time value of money, the premium would take the average student over 18 years to amortize to be equivalent to the non-debt worker. While I understand that this is a simplistic way to look at things and I have not looked at salary increases of varying professions and other variables, my hope is at least to highlight the real dilemma here as it pertains to our customers. Is higher education worth it?

While I am not taking a stand either way, I think it is important for us to ask this question. I don’t believe we will be able to advance as a university, if we simply say of course higher education is worth it and then proceed down the same path that has caused the inflationary problems in higher education. Walter Williams once said: “Most of the great problems we face are caused by politicians creating solutions to problems they created in the first place.” Sadly, his aphorism holds true across most ages and most nations (Hannan).

This to me, as an economist, highlights the issue: A turn to more regulation or forced provision of higher education will only lead to increasing costs, which in turn will again lead to laments of prices being “too” high and calls for something to be done about it.

So, what should be done? As an economist I perhaps appreciate more than most that markets are always in a constant state of adaptation. We should allow this and embrace it. We need to recognize that human action is informed by individual’s normative concerns regarding the value of goods and services, as well as that the demand for those are also based on the individual’s values. For example, if people value disciplines they will support them through donation or market-based support. We need the best for society and that means that the allocation of scarce resources of both human capital and physical capital should be decided by individuals. The alternative is a cost that is too great for any society.