Saturday, January 31, 2015

On the Cause(s) of and Cure(s) for Low College Graduation Rates

In a thoughtful essay Thomas K. Lindsay explores several causes of insufficient graduation rates at the nation's public universities and suggests some possible cures.  As he notes, Department of Education Data demonstrate that fewer than half of the nation's college students graduates in four years.  Even after six years, more than 40 percent still have not obtained a degree, he says.  (Go here for some recent Department of Education data showing that, for those students who entered college in 2006, about 41 percent had not graduated after 6 years.) As Lindsay points out. these low graduation rates impose various costs.  Perhaps most importantly, the annual cost of attending college is significant, particularly when one includes the opportunity cost in the form of income that students forgo.  Lindsay quotes a study concluding that: "the average added cost of just one year at a four-year public university is $63,718 in tuition, fees, books, and living expenses, plus lost wages each of those many students could have been earning had they finished on time." Lindsay also points out that students who have not graduated thereby delay their entry into the workplace, reducing their own lifetime earnings.  

Lindsay attributes these low graduation rates to several factors. First, he cites evidence suggesting that students themselves are either unaware of graduation requirements or, if they are aware, fail to take the courses necessary to satisfy such requirements.  Second, Lindsay contends that some colleges and universities have de-emphasized the role of the faculty in academic advising, relying instead on what he calls "professional advising offices."  Compared to faculty, he says, such professional advisors have inferior knowledge about the "strengths and weaknesses of their advisees" and also lack the sort of "deeper understanding of which courses contribute best to a meaningful college experience."  More reliance on faculty advising, he concludes, will improve students' selection of courses and thus increase graduation rates.   Finally, Lindsay contends that some colleges do not offer "the courses required for graduation . . . with sufficient regularity to make a four year stint possible." He concludes by admonishing students and their parents to "get the message" about the importance of graduating in four years and urging universities "to devote more effort to making the four year degree a practical reality once again."

Lindsay has identified a significant shortcoming of American Higher Education, a shortcoming states and the industry itself should be working to address.  Here are a few reactions to Lindsay's thoughtful piece, most of which simply supplement what he has said.

1.  Graduation rates at public universities vary widely among the states, to say the least.  According to this 2012 article in the Washington Post, the 2008 four year graduation rates at state flagship institutions ranged from less than 25 percent (the Universities of Alaska, New Mexico and Nevada) to 85 percent (the University of Virginia).  Moreover, this site maintained by the Chronicle of Higher Education reports that overall four year graduation rates for states's public universities range from 8.2 percent, 14 percent and 20 percent (Alaska, Idaho and Arkansas, respectively) to 68 percent, 69 percent and 70 percent (Washington, Iowa and Delaware, respectively).  Thus, while some states have a large amount of work to do, others are already doing something right.  Perhaps the nation's system of competitive federalism will induce those states who lag to adopt reforms that help close the gap with leaders like Delaware.

2.  Advanced Placement Credits earned in high school can be an important tool for improving graduation rates.   According to this study, for instance, students who enter college with such credits are more likely to graduate on time than similarly-situated students who do not.  Unfortunately, some high schools offer few if any advanced placement courses, thereby hampering the ability of their graduates to complete college in four years.   Indeed, according to this source, slightly more than 40 percent of the nation's high schools offer no advanced placement courses at all.  Moreover, states and even individual universities within a state differ in their policies governing the acceptance of such credits. States that wish to improve the rates at which their citizens graduate from college (including those who attend colleges in other states), should consider expanding the number of high schools that offer Advanced Placement courses and accept such courses, where appropriate, for college credit.

3.  In my view Lindsay overstates the cost that students incur for an additional year of college, for two reasons.  First, like many others, Lindsay includes the cost of room and board in his calculation of this cost. However, and as previously explained on this blog, individuals must purchase food and housing whether or not they attend college.  Thus, policymakers and commentators should not include room and board in the "cost" of college, except to the extent that students attending college incur higher costs of such room and board than they would have incurred had they instead entered the job market without attending or completing college.  Second, the study on which Lindsay relies apparently employs the "sticker price," that is, the price that universities charge to those students who receive no financial aid.  As previously explained on this blog, however, many universities, including public universities, offer generous financial aid, including in some cases free tuition and room and board.   Thus, while colleges must themselves incur the (social) cost of educating such students, many students do not bear such costs themselves.  Thus, the average cost that students incur for an additional year of college is likely less than Lindsay supposes.  Nonetheless, even if one ignores the cost of room and board, the cost of an additional year of college is still substantial.

4.  Finally, there is one additional factor that may explain the failure of some students to graduate in four years, namely, the absence of meaningful employment opportunities upon graduation.  As explained previously on this blog, job growth during the current economic "recovery" has been slow to say the least.  As between remaining in college for an additional year and graduating into a dismal job market, many students will choose the former.  Put more technically, the opportunity cost of an additional year in college is likely lower for many students than the study Lindsay invokes supposes. Thus, policies that facilitate the creation of good, high paying jobs will likely encourage some students to graduate more quickly.

Saturday, January 24, 2015

Winston Churchill: 1874-1965

The Last Lion

Today is the 50th anniversary of the death of Winston Churchill, at the age of 90.  (For video of his state funeral, go here.)  While others urged appeasement of rising Nazism, Churchill recognized the mortal danger that that evil ideology posed to democracy and liberty and steadfastly urged Britain and France to resist Nazi aggression.  Despite his best efforts, however, most in the West turned a blind eye to the threat until it was too late (wrongly) thinking, as did Neville Chamberlain and others, that war against Nazi German was futile and that negotiations with Hitler could bring "Peace for Our Time."  (See Chamberlain's announcement of this "peace" here.) When Britain finally closed ranks behind him, Churchill led his nation and, along with President Roosevelt, the Free World, on a great crusade to save the world from what Churchill rightly called the "Abyss of a New Dark Age, made more sinister, and perhaps more protracted, by the lights of perverted science." One can only guess how civilization would have fared against Hitler and his allies if history had not blessed us with a man that William Manchester called "The Last Lion." Fortunately, we did not have to find out.  

Friday, January 23, 2015

Tribe Announces 2015 Football Schedule

Dreaming of Victory

William and Mary has announced its football schedule for the fall of 2015.  The Tribe, ranked 24th in the end-of-season FCS Coaches poll, will open 2015 with two road games against non-conference opponents: Patriot League foe Lafayette and ACC opponent the University of Virginia.  Eight of the subsequent nine games will be against opponents from the CAA, one of the power conferences in FCS football. (Four of the Tribe's CAA opponents finished in the FCS top 20.)  Unfortunately for hometown fans, only five of this year's games will take place at Zable Stadium, compared to six home games in each of the previous two seasons.

Virginia will be an early test for the Tribe, which will have a bye week to prepare for the game.   The Tribe has won three of its last ten contests with UVA, one by shutout.  (See here)  Like all Tribe fans, the Griffin dreams of a repeat of the Tribe's convincing 26-14 upset of the Cavaliers before 54,587 fans (including this blogger) in Charlottesville in 2009. (For some video highlights of that game go here.)    Here's hoping that the Tribe makes this dream come true!

Here is next year's schedule.  Kickoff times are TBA.  

September 5      Lafayette

September 19    Virginia

September 26    Stony Brook (Family Weekend)

October 3         Delaware

October 10       Villanova

October 17       New Hampshire

October 24       Hampton (Homecoming)

October 31       James Madison

November 7     Elon

November 14   Towson

November 21   Richmond

Thursday, January 22, 2015

Justice Kagan Refutes Paul Krugman's Fanciful Charge of Judicial Corruption

Knows What She Is Talking About

Not So Much

On March 4th, the Supreme Court will hear arguments in King v. Burwell, a recent decision by the U.S. Court of Appeals for the Fourth Circuit.  In King, a divided panel held that federal subsidies encouraging the purchase of health insurance pursuant to the so-called "Affordable Care Act," ("ACA") are available to individuals who purchase health insurance on exchanges established by the national government in those states that decline to create such exchanges.  The Fourth Circuit disagreed with a panel of U.S. Court of Appeals for the District of Columbia, which reached the opposite conclusion the same day.  In particular, and as Jonathan Adler has explained, the D.C. Circuit panel adhered the plain language of the statute. That language provides that subsidies are available to those individuals who purchase insurance on exchanges "established by the State under Section 1311" of the Act.  Thus, the D.C Circuit concluded: "the ACA unambiguously restricts the section 36B subsidy to insurance purchased on Exchanges 'established by the State.'" 

In a characteristically scathing essay, economist Paul Krugman claims that jurists who disagree with the Fourth Circuit's King decision are "corrupt" and "willing to pervert the law to serve political masters."  The result in King, he says, will reveal "just how deep the corruption goes."

Krugman's piece is long on invective and very short on legal analysis. Instead of parsing (or even quoting) the statute, Krugman claims that failure to subsidize purchases on federal exchanges would contradict Congress's overriding purpose in passing the ACA and undermine the statute.  In particular, Krugman claims that, without a subsidy, healthy individuals will decline to purchase ACA-mandated insurance, presumably choosing to pay the resulting tax-penalty instead.  The result, he says, would be a "death spiral," as the exit of healthy individuals from the insurance pool raised the cost of insuring those who remained and thus raised health insurance premia. Such increases, in turn, would cause more individuals to decline to purchase insurance, raising premia even further, and so on.

Krugman is certainly correct that, without a subsidy, health individuals may decline to purchase insurance that complies with the ACA's intrusive requirements.  For, as previously explained on this blog, the ACA artificially inflates the price of health insurance for many individuals, particularly those who are young and healthy, well above the cost of providing such insurance, so as to subsidize the purchase of such insurance by others.  (See also here.)  Moreover, removal of such a subsidy could readily set off the sort of death spiral that Thom Lambert describes in this thoughtful essay.

Thus, Krugman has certainly identified a plausible policy rationale for extending subsidies to individuals who purchase insurance on federal exchanges.  There is, however, an equally plausible rationale for the D.C. Circuit's "plain language" result, a rationale articulated by Krugman's fellow economist Jonathan Gruber, who, unlike Krugman, is an expert on the economics of health care. Indeed, the Obama Administration repeatedly cited Gruber's views on the purposes of the ACA when defending the individual mandate against constitutional challenge.    As Michael Cannon explains, in 2012 Gruber argued that reserving subsidies to those who purchase insurance on exchanges created by states would encourage states to create such exchanges in the first place, by reducing the price of health insurance for citizens in those states. In other words, Gruber described an elegant solution to a constitutional dilemma.  After all, under the Supreme Court's anti-commandeering jurisprudence implementing the Tenth Amendment, Congress lacks the power to compel states to create such exchanges.  See Printz v. United States, 521 U.S. 897 (1997); New York v. United States, 505 U.S. 144 (1992). By conditioning the availability of subsidies upon the presence of a state-created exchange, then, the ACA's plain language encourages states to create such exchanges, without transgressing constitutional boundaries.  In short, the D.C. Circuit's straight-forward application of the ACA's plain language may well interfere with Congress's objective to induce healthy individuals to purchase health insurance at inflated prices, at least in the short run.  In the longer run, however, this result may encourage more states to create exchanges, another apparent objective of the statute, thereby reducing the number and overall size of markets subject to the sort of death spiral that Krugman describes.  Unfortunately, Krugman's essay does not mention this alternative policy consideration.

Given these competing policy considerations, the D.C. Circuit's determination reflects a straightforward application of ordinary principles of statutory interpretation, whereby courts give effect to a statute's plain and ordinary meaning.  As Jonathan Adler and Michael Cannon have explained, the application of such principles requires the conclusion that the statute unambiguously denies tax credits to individuals who purchase insurance on a federally-established exchange.

Justice Elena Kagan, pictured above, understands these principles of statutory interpretation. Recently, in Michigan v. Bay Mills Indian Community, No. 12-515. Justice Kagan properly rejected the view that jurists may ignore a statute's plain language because "anomalies" in a statute suggest that  Congress really meant something else.  As the Justice (and former Solicitor General) explained:

"This Court has no roving license, in even ordinary cases of statutory interpretation, to disregard clear language simply on the view that . . . Congress 'must have intended something' other than what the statute's text actually."

Indeed, one pundit has suggested that, given this approach to statutory interpretation, Justice Kagan may be a sixth vote, along with Chief Justice Roberts and Justices Scalia, Kennedy, Thomas and Alito, to reverse the Fourth Circuit.  One wonders whether Krugman would ascribe such a vote to "corruption." If so, it seems unlikely that Justice Kagan would give such an incendiary allegation a second thought. After all, when asked what she thought of Krugman's claim of "corruption," Kagan gave a straight-forward reply, stating that Krugman's allegation "is just ridiculous language."  Well said, Justice Kagan. 

Saturday, January 17, 2015

Florida Rising and New York Fading

Gaining Ground

Falling Behind

The U.S. Census Bureau has announced that Florida has surpassed New York in population to become the nation's third largest state.  Here are the top ten states in population as of July 1, 2014, according to the announcement:

1.  California          38.8
2.  Texas                27.0
3.  Florida              19.9
4.  New York           19.7
5.  Illinois               12.9
6.  Pennsylvania      12.8
7.  Ohio                  11.6
8.  Georgia             10.1
9.  North Carolina    9.9
10. Michigan            9.9

The same announcement also includes a list of the ten fastest growing states, which also includes Florida:

1.   North Dakota
2.   Nevada
3.   Texas
4.   Colorado
5.   District of Columbia
6.   Florida
7.   Arizona
8.   Utah
9.   Idaho
10. South Carolina

In 1970, New York's population of 18.25 million dwarfed Florida's 6.8 million figure. (See here for these and other figures.) Since that time, the nation's population has risen more than 50 percent. Florida's population has nearly tripled, while New York's has risen a mere 8 percent.  Moreover, in 1970, New York's GDP accounted for 10.8 percent of the nation's GDP, while Florida accounted for 3 percent.  (See here).  By 2010, the Empire State accounted for a mere 8 percent of national GDP, while Florida accounted for 5 percent.  (See here).  If this trend continues (and there is no reason to think it will not), New York's GDP will account for 5.9 percent of the nation's by 2050, while Florida's will account for more than 8 percent.  This trend will have political consequences as well, as states such as Florida gain additional clout in the House of Representatives and Electoral College at the expense of states such as New York.

It should be no surprise that Florida has surpassed the Empire State in population and is closing the gap in economic output.  The disparate fortunes of these states are a case study in the operation of competitive federalism and the concomitant protection for economic liberty.  The constitutional framework of competitive federalism allows states to vie with one another for capital and labor by adopting policies that reward individual initiative and encourage entrepreneurial activity.  As previously explained on this blog, New York has adopted various policies inhospitable to economic freedom, thereby deterring individual initiative and resulting economic opportunity.    The state's top marginal tax rate on income, 8.82 percent, is one of the highest in the nation, whereas Florida has no income tax whatsoever.  Indeed, according to this source, New York residents pay 12.8 percent of their income in various state and local taxes, the highest percentage in the nation. (Another source reports that the figure is even higher --- 14 percent.)  The Empire State's corporate tax rate of 7.1 for all corporations, large and small, is also significantly higher than Florida's. (See here)  New York also encourages labor cartels known as unions.  For instance, the state is one of a diminishing number of jurisdictions that authorize labor unions and businesses to negotiate collective bargaining agreements requiring a firm's employees to subsidize unions as a condition of working for the firm subject to the agreement, even if the employee declines to join such a union.  By contrast, Florida's constitution protects its citizens' "right to work" for the firm of their choice, free of requirements to provide financial support to organizations they oppose.

These are just a few of ways in which, compared to Florida, New York thwarts economic liberty and discourages wealth creation.  This is not to say that Florida's economic policy is optimal in all respects.  The state fixes a floor on wages that is higher than the "minimum wage" imposed by the National Government.  Moreover, the state's corporate income tax, while lower than New York's, is higher than that of many other states.

All in all, however, Florida appears to be a far more hospitable climate for free enterprise than New York. Indeed, according to a recent study by the Mercatus Center at George Mason University, New York ranks dead last among the states in "Overall Freedom," (see here), 50th in "Economic Freedom" (see here), and 47th in "Regulatory Freedom."  (see here).  By contrast, the same study ranks Florida 17th in Economic Freedom (see here), 23rd in "Overall Freedom" (see here), and 32nd in "Regulatory Freedom." (See here)  The study also reports that, on net, 9 percent of New York's population left the state between 2000 and 2011, while Florida experienced a net inflow of 7.4 percent during the same period.

In sum, economic policies have consequences.  States like New York have chosen policies that deter business formation and expansion, while Florida has opted for a different approach.  While the national government has adopted policies that subsidize and protect high tax states such as New York, such policies cannot prevent the inevitable results of competition between the states for labor and capital.  Unless New York reverses course, the "Empire State" will slowly fade into political and economic insignificance.

Friday, January 16, 2015

On the Myth of State and Local Regressive Taxation


In an Op-ed entitled "How Government Helps the One Percent" in yesterday's Washington Post, E.J. Dionne claims that state and local taxes are "regressive" and have the effect of "exacerbating inequality," unlike federal taxes which, he concedes reduce inequality by redistributing income from rich to poor.  In support of his claim about state and local taxes, Dionne cites a study by the Institute on Taxation and Economic Policy (ITEP).  The study concludes that:

"[I]n 2015 the poorest fifth of Americans will pay, on average, 10.9 percent of their incomes in state and local taxes and the middle fifth will pay 9.4 percent.  But the top 1 percent will pay states and localities only 5.4 of their incomes in taxes."

From these figures, Dionne concludes that:  "[a]t the state and local level, government is indeed engaged in redistribution --- but it's redistribution from the poor and middle class to the wealthy."

Dionne's claim echoes what has become a Progressive article of faith, namely, that state and local taxes are, "extremely regressive" or "highly regressive," because the wealthy pay a smaller proportion of their income in taxes than the poor. However, like some other Progressive articles of faith, this nostrum lacks a factual basis.  That is, any claim that state and local taxation redistributes income from poor to rich is demonstrably false, ignoring as it does the distinction between tax rates, on the one hand, and actual taxes paid, on the other.  Yes, the "top 1 percent" might experience lower effective tax rates than individuals of more modest means.  However, those in the top 1 percent also (by definition) earn far more income to which these rates are applied.  As a result, these wealthy Americans pay far more in state and local taxes than their fellow citizens of more modest means. 

A simple numerical example using Dionne's own figures will help illustrate this point. According to this study by the Congressional Budget Office, the average household in the "top 1 percent" earned $1.22 million before taxes in 2009.  By contrast, individuals in what Dionne calls the "poorest fifth of Americans" earned an average of $23,500 per year before taxes. If we apply Dionne's assumed state/local tax rates to such individuals, we learn that the "top 1 percent" paid on average $65,880 in such taxes in 2009, while the poorest fifth of Americans paid $2561 in such taxes in the same year. In other words, despite paying lower tax rates, the average household in the "top 1 percent" paid more than twenty five-fold more in state and local taxes than the average household in the bottom one fifth of the income distribution.  (2009 is the most recent year for which I was able to locate data on the average income of individuals in the top 1 percent.)

To be sure, the mere fact that the top 1 percent pay on average twenty-five fold more in state and local taxes than the poorest fifth of Americans does not necessarily establish that states and localities are redistributing income from rich to poor.  Dionne's point would still survive scrutiny if states spent more than $65,880 on services provided to the top 1 percent, and less than $2561 on services provided to those in the lowest fifth of the income distribution.  Such spending patterns would, when combined with the taxes paid by each group, demonstrate the sort of redistribution from poor to rich that Dionne decries. However, neither Dionne nor the ITEP study he cites provides any evidence that, for instance, states and localities lavish more than $65,880 on the average member of the top 1 percent each year.  Nor can this blogger imagine what sort of programs would result in such skewed expenditures. Moreover, publicly-available data demonstrate that states and localities spend significantly more than $2561 per person on services provided to individuals in the poorest fifth.

Indeed, Medicaid alone seems to account for transfers to the poorest fifth that approach the amount these individuals pay in state and local taxes.  According this report by the National Association of State Budget Officers ("NASBO"), Medicaid covered 60 million people in 2009, a cohort roughly equivalent to Dionne's "poorest fifth."  (The U.S. Population in 2009 was 307 million.)  The same study concludes that states spent $132,540,000  on  Medicaid in 2009, an amount equal to $2209 per Medicaid recipient.  Of course, Medicaid is not the only program that confers benefits on individuals in the "poorest fifth."  States and localities also spend significant resources on: (1) other forms of public assistance, (2) K-12 education, (3) police protection, (4) fire protection, (5) roads, (6) public transportation, and (7) higher education.  Indeed, according to the NASBO report cited above, states and localities spent just over $280 Billion on K-12 education in 2009, or $912 per person.   States spent another $145 billion, or $472 per person, on higher education.  It may well be that individuals in the poorest fifth received less than a pro-rata share ($1384) of such expenditures.   Nonetheless, even if we assume that the poorest fifth receive the equivalent of $500 annually from this source, state and local expenditures on such individuals would substantially exceed the $2561 that the average individual in the poorest fifth of the income distribution pays in state and local taxes.

In short, any claim that states and localities are redistributing income from rich to poor is apparently false.  Instead, state and local taxation and the spending programs that such taxation supports redistribute income from rich to poor and are in this sense "progressive."  It may well be that the national government's policies are even more progressive, given the relative ease with which wealthy individuals may "exit" states that impose high taxes.  The threat of such exit, which drives competitive federalism, discourages redistributionist policies.   (It is, of course, more difficult for such individuals to exit the United States as a whole.)  Perhaps Dionne believes that state and local systems are not progressive enough.  Perhaps he is correct, but he should ground such an argument in data that reflect the actual impact of state and local systems.

Some might reply that Dionne and this blogger have erred in defining as "regressive" those systems, and only those systems, that redistribute income from poor to rich.  Instead, this argument might continue, a tax system is regressive whenever the poor pay higher tax rates than the rich.  However, such a definition of "regressive" would, by ignoring the uses that states make of tax revenue, rob the term of any useful meaning in policy debates.  After all, a tax system could be "regressive" in this sense even if the State spent every penny of tax revenue on transfer payments to the poor, thereby substantially reducing inequality. Such an approach would also label as "progressive" any system in which the rich paid higher tax rates than the poor, even if states spend all tax revenue on programs aimed solely at the rich.  Any useful definition of "regressive" or "progressive" should account for the actual distributional effect of the policies that scholars and pundits are evaluating.