Eggheads Dig In On Spending Issue

Posted on May 21, 2003 | Type: In the News | Author: Robert Robb
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The dry question of whether state appropriations for higher education produce increased economic growth has provoked quite a brawl, at least by egghead standards.

The Goldwater Institute recently published a study questioning the relationship. Jon Sanders, higher education policy analyst for the John Locke Foundation, a sister free-market think tank in North Carolina, looked at two decades of data for all 50 states.

He found that there was, at best, a tenuous correlation between increased spending on higher education and increased economic growth. In fact, there was a stronger correlation the other way around: States experiencing economic growth tended to spend more for higher education.

That would suggest that higher education is a consumable good, a service that benefits from economic growth rather than creates it.

That, of course, flies in face of those contending that higher education in fact drives economic growth, most notably ASU's new President Michael Crow. And Crow wrote Goldwater Institute president Darcy Olsen a "and-the-horse-you-rode-in-on" letter about the Sanders' study.

Now, there are limitations to any study such as Sanders'. It looked only at the relationship between per capita state appropriations and per capita growth in gross state product.

Given demographic changes, specifically significant growth in immigration and retirees, per capita figures are becoming less reliable as a measure of economic performance. Employment and wage growth, along with total output and output per worker, are increasingly better indicators.

Moreover, Sanders' study lumped all state appropriations together, even though there is quite a difference between appropriations to subsidize student education and those to support basic research.

But according to Crow, the entire study was hopelessly flawed and "of no value to a meaningful debate."

That's intemperate and unjustified.

Among other contributions, the study includes a chart of all 50 states and their increases (or decreases) in per capita spending on higher education and their increases in per capita gross state product over a 20-year period.

The lack of a meaningful association is plainly obvious without any regression analysis required. Several states that ranked high in increased appropriations ranked relatively low in increased economic growth. And several states that actually decreased their per capita spending on higher education were among the leaders in increased per capita GSP.

Conversely, some states that increased spending did well in economic growth. And some states did poorly in both.

Crow complains that "the study uses state appropriations to higher education . . . rather than higher education expenditures, as the key input." But state appropriations are precisely the public policy being debated, and for both kinds of expenditures - general support of student education and basic research.

The Goldwater Institute responded in kind with an opinion column poking holes in Crow's claim for an 11-1 return on state spending for university research labs, pugnaciously titled "A Potent Investment, or Just a Lot of Bull?"

This was probably unnecessary. Crow's claim was self-evidently absurd to anyone even faintly familiar with the range of rates of returns in the real world. An 11-1 return perforce has to include highly speculative secondary and tertiary effects.

As do virtually all the "economic impact" studies being tossed around these days. I suspect that if all these claimed "impacts" were added together their sum would exceed the state's actual output of goods and services.

There are some common-sense conclusions to draw from all this.

Higher education is primarily a service and state appropriations should be primarily guided by comparing its value to other consumables within the constraint of fixed resources.

Basic research, however, is increasingly moving into university environments. It makes sense for the state to figure out ways to improve the ability of our public universities to participate, particularly since there are educational opportunities associated with such activities.

There will be some economic benefits as well. But projections of significant and broad regional or state economic benefits should be treated skeptically.

University research activities have contributed meaningfully to the development of some regional economies. But there is not a consistent trend for such across time and place.

The danger in this debate is that it detracts from what really matters. The overall private sector environment, primarily tax and regulatory policy, has consistently, across time and place, been the proximate driver of economic growth, however measured.

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