- The Washington Times - Wednesday, October 22, 2003

Rep. Buck McKeon, California Republican, has proposed the first-ever federal price controls on college tuitions. While seeking to address a very real concern for America’s students and families, this measure threatens them with an unwritten law as old as mankind: the law of unintended consequences.

Price controls do not work. Throughout history, from ancient times to the present, they have triggered unintended and frequently ruinous consequences: panics, currency devaluations, even famine. That was the result of the price ceilings on goods and labor established by Roman emperor Diocletian in 301 A.D. (with the death penalty imposed on violators), and only 60 years later, Julian’s imposition of price controls also had fateful repercussions for him and the empire. Even when the results have not been so dramatic, their primary impact on the regulated commodities has been to reduce supply. Take New York City’s rent controls, which have had the unintended consequence of reducing the stock of affordable housing.

Since the Nixon wage-price freeze of 1971, even Labor and Socialist governments abroad have recognized the inefficacies and inefficiencies of regulating prices. But now, irony of ironies, a senior Republican is standing up foursquare for price controls on an item — higher education — that, for good reason, is deeply subsidized by its providers, both public and private.

Mr. McKeon’s proposal requires creation of a College Affordability Index determined by taking “the percentage increase in the tuition and fees charged for a first-time, full-time, full-year undergraduate student between the first of 3 most recent preceding academic years and the last of those 3 academic years, divided by the percentage increase in the Consumer Price Index-All Urban Consumer (Current Series) from July of the first of those 3 academic years to July of the last of those 3 academic years?[A]n institution that has a college affordability index that exceeds 2.0 for any 3-year interval?shall provide a report to the Secretary, in such a form, at such time, and containing such information as the Secretary may require.”

Clear so far? There is much more. The Secretary may ask for any information he wants (the era of Big Government is definitely back), but at the least, the institution must provide: 1) an explanation; 2) a management plan; and 3) an action plan with a schedule for maintaining or reducing tuition and fees.

Who can believe Mr. McKeon’s claims that this legislation would “reduce administrative and regulatory burdens”? The costs of compliance would be one of the most certain unintended consequences, adding to students’ costs or diminishing the quality of the education they receive.

Even worse, if all the above sanctions fail, institutions will not be permitted to participate in a number of programs aimed primarily at helping low-income and minority students, such as work-study grants and Perkins loans. While this is not near as harsh a penalty as Diocletian’s, the measure would harm the very students we all want to help.

Mr. McKeon denies that he is proposing price controls. But if sanctions imposed by federal bureaucrats against institutions that raise prices beyond a government-set rate do not constitute price controls, what does? And since price controls inevitably lead to scarcity, all students would suffer: fewer slots for students, and fewer and larger classes. In other words less, not greater, accessibility.

Average tuition sticker prices rose faster than the increase in family income from 1991 to 2001. However, growth in financial aid was even faster: 96 percent. But as revenue-strapped states have cut back on support for higher education, as stock market weakness has reduced endowments, and as universities have improved facilities, technology, and resources for students, tuitions have been pushed upward.

Is there waste? Of course. No large institution, including Congress, is without waste. We struggle against it all the time and are determined to cut costs without harming the quality of education.

Do universities lack accountability? That would be news to public universities, which are accountable to their regents, to their state legislators and ultimately to voters; private institutions are accountable to their boards of trustees and the parents who pay tuition.

Our country boasts the highest degree of access to higher education of any nation in history. This is not only one of our most important engines of economic growth but the source of an unusually high degree of social and economic mobility. We should all be deeply concerned about anything that reduces growth and mobility, including rising sticker prices for education. Colleges and universities must continue to seek sensible ways to control their costs. And we must employ market mechanisms — greater transparency and information for consumers on costs and available aid — not government intrusion into the market — to address this problem.

Together, we must seek new ways to control costs and ensure that families can make informed decisions. That is how we can begin to address this serious issue for America’s families.

Malcom Gillis, president of Rice University, is a market-oriented economist who has taught economics at Duke, Harvard and Rice Universities.

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