The University of Impossible-to-Get-Into (Update)

0:00:02 (upbeat music)
0:00:06 – Hey there, it’s Stephen Dubner.
0:00:09 We are publishing an update of a series
0:00:10 that we first ran a couple years ago
0:00:14 about the supply and demand of a college education.
0:00:16 This is part two of that series.
0:00:18 Don’t worry, if you missed the first episode,
0:00:20 this one stands on its own.
0:00:22 And stay tuned until the end of this episode
0:00:25 for a new conversation about the state of college today.
0:00:27 As always, thanks for listening.
0:00:30 (upbeat music)
0:00:38 In 2019, the Department of Justice revealed the findings
0:00:40 of an FBI investigation
0:00:42 with the code name Operation Varsity Blues.
0:00:45 Here today to announce charges
0:00:47 in the largest college admissions scam
0:00:49 ever prosecuted by the Department of Justice.
0:00:53 The scam involved wealthy parents funneling bribes
0:00:54 through a college consultant
0:00:58 to get their children into schools where they didn’t belong.
0:00:59 There were fake test scores,
0:01:01 fake athletic credentials,
0:01:04 and cash payments to college coaches.
0:01:06 The actress Lori Loughlin
0:01:09 and her fashion designer husband Massimo Giannulli
0:01:12 paid half a million dollars to get their two daughters
0:01:14 into the University of Southern California
0:01:18 as recruits to the highly ranked USC crew team.
0:01:20 Even though, as the New York Times put it,
0:01:23 neither girl participated in the sport.
0:01:26 An applicant to Tulane University was described
0:01:28 as an African-American tennis whiz,
0:01:32 even though she didn’t play competitive tennis and was white.
0:01:35 Among the other universities involved
0:01:38 were Yale, Stanford, Georgetown,
0:01:40 some of the most elite schools in America.
0:01:43 All told, 57 people were charged
0:01:45 as a result of Operation Varsity Blues,
0:01:48 including coaches, exam administrators,
0:01:50 and of course, parents.
0:01:54 These parents are a catalog of wealth and privilege.
0:01:57 They include, for example, CEOs of private
0:02:00 and public companies, successful securities
0:02:04 and real estate investors, two well-known actresses,
0:02:06 a famous fashion designer,
0:02:09 and the co-chairman of a global law firm.
0:02:11 A couple parents even went to prison for a bit,
0:02:14 including Loughlin and the other well-known actress,
0:02:16 Felicity Huffman.
0:02:19 This became a huge story, and it led to many questions.
0:02:22 Who knew what at these universities?
0:02:24 How could something like this happen
0:02:26 at such esteemed institutions?
0:02:30 And really, you can just pretend to row crew
0:02:31 to get into college?
0:02:35 But there was one question that answered itself.
0:02:38 Why would the parents do this?
0:02:41 The answer is that slots at these top schools
0:02:45 are incredibly scarce and incredibly valuable.
0:02:47 Getting an acceptance letter from them
0:02:50 is like that scene from Willy Wonka.
0:02:53 ♪ ‘Cause I’ve got a golden ticket ♪
0:02:54 ♪ I’ve got a golden ticket ♪
0:02:56 – As we learned last week in the first part
0:02:58 of this special series on college,
0:03:01 there are some 4,000 institutions of higher learning
0:03:05 in the US, and they fall into two distinct categories.
0:03:07 – The vast majority of those 4,000
0:03:09 are effectively open enrollment.
0:03:12 – Open enrollment meaning you have a good chance
0:03:14 of getting in as long as you have a high school diploma.
0:03:16 That’s one model.
0:03:19 The other model is a more competitive model.
0:03:22 – This second competitive model includes all the schools
0:03:24 I just mentioned from the scam,
0:03:27 Stanford and Yale and Georgetown and USC,
0:03:30 as well as the rest of the Ivy League schools
0:03:32 and the so-called Ivy Pluses like Stanford,
0:03:34 and a few dozen other elite private schools
0:03:36 and some top ranked public schools
0:03:38 like the University of California Berkeley
0:03:41 and the University of Michigan.
0:03:45 And this second model, this competitive model is winning.
0:03:48 Over the past few years and aggravated by the pandemic,
0:03:51 less selective universities and community colleges
0:03:54 have seen enrollment drop.
0:03:56 The elite schools meanwhile,
0:03:58 have set new records for applications.
0:04:03 Harvard was up 42% in 2021 after the school eliminated
0:04:07 the requirement that prospective students submit SAT scores.
0:04:10 This year, amid the Claudine Gay turmoil,
0:04:12 that number dropped 5%,
0:04:16 but Penn, Dartmouth, Columbia, MIT
0:04:20 and other top schools all saw increasing applications.
0:04:22 These elite schools typically charge tuition
0:04:26 of 40, 50, even $60,000 a year.
0:04:29 Even so, they admit only a tiny share
0:04:30 of the students who apply
0:04:32 and these tiny admittance numbers
0:04:35 become part of their appeal.
0:04:37 They could probably double the tuition
0:04:40 and still have no trouble filling up.
0:04:41 That’s what a typical firm would do
0:04:43 in a typical market,
0:04:44 but you can see why that wouldn’t be a good look
0:04:46 for a university.
0:04:49 If however, you did think about universities,
0:04:51 the way we think about firms,
0:04:53 the way an economist might think about them,
0:04:55 there is another solution.
0:04:57 With so much demand,
0:05:00 why not just increase the supply?
0:05:03 Today on Free Economics Radio,
0:05:05 we’ll tell you why elite universities
0:05:07 haven’t grown very much.
0:05:11 And the answer has to do with what they’re really selling.
0:05:13 Reputation matters.
0:05:16 Why do students want these elite schools?
0:05:17 The brand value, for sure.
0:05:21 But can an elite degree really change your life?
0:05:23 ♪ I got a golden ticket ♪
0:05:27 ♪ I got a golden chance to make my way ♪
0:05:32 ♪ And with a golden ticket it’s a golden day ♪
0:05:36 It’s part two of our special series,
0:05:38 Free Economics Radio Goes Back to School
0:05:40 and it starts right now.
0:05:43 (upbeat music)
0:05:53 – This is Free Economics Radio,
0:05:57 the podcast that explores the hidden side of everything
0:05:59 with your host, Stephen Dubner.
0:06:01 (upbeat music)
0:06:09 – Let’s begin with a look at the most selective
0:06:12 of the selective universities.
0:06:13 – Hi, my name is Peter Blair.
0:06:16 I’m an economist at Harvard University.
0:06:18 – Harvard, the first American college,
0:06:22 was founded in 1636 and today admits
0:06:25 about 2,000 new undergraduates each year.
0:06:28 How many people want those 2,000 spots?
0:06:32 This year, they received around 54,000 applicants.
0:06:36 Peter Blair, by the way, didn’t start out as an economist.
0:06:38 – I was a physicist also at Harvard University.
0:06:40 I studied theoretical particle physics.
0:06:43 – But after getting his master’s in physics,
0:06:46 Blair switched fields and got his PhD in applied economics
0:06:48 from the University of Pennsylvania.
0:06:50 His focus is on labor markets
0:06:54 and the economics of education.
0:06:57 One fundamental belief of his profession
0:07:00 is that going to college is among the best things
0:07:04 you can do to improve your life, financially and otherwise.
0:07:06 Blair certainly believes that,
0:07:08 but when he talks about education,
0:07:11 he doesn’t sound quite like an economist.
0:07:14 – One of the best explanations of the purpose of education
0:07:16 is the Reverend Dr. Martin Luther King statement
0:07:20 that education is preparation for citizenship.
0:07:22 And citizenship has to do with voting.
0:07:24 Citizenship has to do with contributing
0:07:27 to your own economic wellbeing,
0:07:29 as well as contributing to the economic wellbeing
0:07:30 of the broader society.
0:07:32 – Blair grew up in the Bahamas
0:07:35 and moved to the States to attend Duke University,
0:07:37 another highly selective school.
0:07:42 This year, Duke admitted a record low 4% of its applicants.
0:07:44 Until Blair got to Duke,
0:07:46 he wasn’t familiar with the American model
0:07:48 of selective colleges.
0:07:50 – At that time in the Bahamas,
0:07:52 we did not have any four-year institutions.
0:07:54 I finished all of my physics courses
0:07:57 at the College of the Bahamas in my first year.
0:07:59 And so I left to get a college education.
0:08:01 When I went to Duke University,
0:08:03 I realized that there were some people
0:08:07 who had been planning since ninth grade to get into Duke.
0:08:09 There are institutions that are perceived
0:08:10 as being more elite than others.
0:08:13 And that this matters for how people see you.
0:08:16 I did not know that before I came to the US.
0:08:17 – Really? – I did not.
0:08:20 – But I mean, you knew the difference between Harvard
0:08:23 and I don’t want to insult someone by naming them,
0:08:27 but, you know, fill in the blank county community college.
0:08:27 That was obvious.
0:08:30 So what do you mean you didn’t recognize
0:08:33 that element of the elite perception?
0:08:36 – I think the conception of Harvard
0:08:39 was that it was the first
0:08:42 at an incredibly distinguished university.
0:08:44 But I didn’t fully,
0:08:47 there was a sense in which just even going to college itself
0:08:48 is a privilege.
0:08:53 – Over the past several decades,
0:08:56 attending college has become something less
0:08:59 of a privilege in the US and more a way of life
0:09:03 as an ever larger share of the population signed up.
0:09:06 But that’s been changing over the past 10 years
0:09:09 or so overall enrollment has slipped.
0:09:11 Also, with more labor shortages,
0:09:15 some jobs that used to require a college degree,
0:09:17 no longer do.
0:09:21 In 2022, the state of Maryland stopped requiring degrees
0:09:23 for thousands of public sector jobs.
0:09:26 Since then, Connecticut and other states have followed.
0:09:30 Big companies like IBM have taken similar steps.
0:09:35 Still, if you look at the US today versus say 50 years ago,
0:09:37 over the past 50 years,
0:09:39 the number of students going to school in the US
0:09:41 has increased almost twofold.
0:09:44 – Within that macro number, however,
0:09:47 Peter Blair spotted a micro curiosity.
0:09:50 – When we look at this expansion of colleges
0:09:52 to absorb this increase in demand,
0:09:55 most schools have been expanding except schools
0:09:57 at the very top.
0:09:59 – The very top meaning what exactly?
0:10:03 – Schools like the Ivy League schools, Harvard, Yale,
0:10:04 Princeton, the Ivy plus schools,
0:10:07 Stanford, Chicago, MIT,
0:10:08 these schools are in the top 2%
0:10:10 of the SAT score distribution.
0:10:11 And that’s a puzzle.
0:10:14 Why is it that these schools are the ones
0:10:16 that haven’t expanded even though we see
0:10:18 more students going to school?
0:10:21 So on average, schools in the top 2% have grown
0:10:26 by about 7% from 1990 to about 2015.
0:10:30 – And that compared to a growth rate of non-elites is what?
0:10:32 – It’s about 60%.
0:10:34 – Can you think of a parallel from another industry
0:10:36 in other words, let’s say it’s the automobile industry
0:10:39 or some other industry where somebody is winning, right?
0:10:41 Somebody is considered the best.
0:10:44 Wouldn’t they want to expand more?
0:10:46 – Yes, in most markets,
0:10:48 what you wanna do is get more market share.
0:10:52 Even companies like Apple are engaged in this process.
0:10:54 What’s surprising about this is that
0:10:57 for most of their lifetime, elite colleges
0:10:59 have been the largest colleges.
0:11:02 So Harvard, Yale at one point, they were the first,
0:11:04 they were the only and they were the largest.
0:11:07 In fact, between 1940 to 1980,
0:11:10 Stanford and Princeton expanded by quite a bit.
0:11:13 And so this puzzle really is a modern phenomena.
0:11:17 Elite colleges have historically expanded
0:11:18 with the population.
0:11:23 – It was in the 1970s and 80s
0:11:27 that the elite schools stopped expanding.
0:11:29 This happened even as demand was rising
0:11:32 and as less elite schools were growing.
0:11:35 Back then, even the most selective schools
0:11:36 weren’t that selective.
0:11:39 As recently as the 1990s, in fact,
0:11:41 admissions rates were much higher than today.
0:11:44 – Yeah, it was close to 40 to 50%.
0:11:46 So it was basically a coin flip to get into
0:11:48 the University of Chicago or the University of Pennsylvania.
0:11:51 And these are phenomenal schools.
0:11:54 The admissions rate at Columbia was around about 30%.
0:11:59 At Stanford and Harvard, it was hovering around about 20%.
0:12:01 When you look at these admissions rates now,
0:12:03 the University of Chicago, the University of Pennsylvania,
0:12:05 it’s closer to eight or 9%.
0:12:06 When you look at Harvard and Stanford,
0:12:09 it’s closer to about four or 5%.
0:12:12 – How much are the lower admission rates
0:12:15 driven by the fact that most students apply these days
0:12:17 to many more schools than they used to?
0:12:19 – It’s not just driven by the fact
0:12:22 that students are applying to more schools.
0:12:25 Students applying to more schools itself is a function
0:12:28 of the fact that elite universities have not expanded.
0:12:31 It’s really about the kinds of competitive dynamics
0:12:33 that gets fostered over time
0:12:36 when the number of spaces at these elite institutions
0:12:39 is capped relatively stable or stagnant over time.
0:12:47 – So why did only these elite institutions stop growing?
0:12:49 To solve this puzzle, Peter Blair
0:12:52 and his fellow economist Kent Smetters
0:12:53 wrote a research paper called
0:12:57 “Why Don’t Elite Colleges Expand Supply?”
0:13:01 It entertains a variety of potential theories.
0:13:03 – So one theory could be universities
0:13:06 want to keep quality the same, the quality of the students.
0:13:07 That doesn’t seem to be the case.
0:13:09 The students that are getting into these universities now
0:13:13 are even more qualified than when I was going to college.
0:13:16 – Okay, so student quality doesn’t seem to explain it.
0:13:18 What about the quality of faculty?
0:13:21 Maybe there just aren’t enough qualified PhDs
0:13:24 to teach a bigger pool of elite students.
0:13:25 – It’s not that.
0:13:28 We see that there are more people graduating with PhDs.
0:13:29 Their CVs look closer and closer
0:13:31 to folks who are on the tenure track.
0:13:34 – Okay, maybe these older schools
0:13:36 just don’t have enough physical space
0:13:38 to put a lot of new students.
0:13:40 – Well, Duke has lots of space.
0:13:41 Stanford has lots of space.
0:13:44 Even Columbia can build vertically, right?
0:13:46 – What about money?
0:13:48 – The amount of resources that universities have
0:13:51 has increased tremendously because of gifts.
0:13:53 Increase returns on endowments.
0:13:56 – This is a very true fact.
0:13:59 Most elite schools have massive endowments.
0:14:03 Harvard’s is the largest, nearly $50 billion.
0:14:06 Yale has almost $41 billion.
0:14:08 Stanford, around 36.
0:14:10 – And so you can go through a lot
0:14:11 of the obvious explanations
0:14:14 and they don’t seem to check out with the data.
0:14:17 – So what other explanation could there be?
0:14:20 As we noted earlier, in a normal market,
0:14:23 firms tend to increase their supply
0:14:25 to meet a rise in demand.
0:14:28 But there is one market where that doesn’t happen.
0:14:30 – The one market where you see this not happening
0:14:32 as much as in the market for luxury goods.
0:14:35 So take, for example, Hermès.
0:14:38 – That’s Hermès, the French luxury designer.
0:14:40 – A part of the appeal is the fact
0:14:42 that the supply is restricted.
0:14:44 That you say, “I have an Hermès purse on Hermès scarf.”
0:14:48 – A double ply mulberry silk scarf, that is.
0:14:50 – And so this is one kind of industry
0:14:53 where you see that scarcity itself
0:14:57 confers value on the object.
0:15:00 – In other words, if anyone could buy that Hermès scarf,
0:15:04 it would just be a scarf, not a statement.
0:15:08 And Hermès scarf says something about you.
0:15:10 It says, “You’re the kind of person
0:15:13 “who can afford a much better caliber of scarf
0:15:16 “than most people who wear scarves.”
0:15:19 Peter Blair began to wonder if colleges
0:15:21 might be sending the same signal.
0:15:24 Could this explain why the elite schools
0:15:27 had essentially frozen their growth?
0:15:30 He and Smetters began to create an economic model
0:15:31 to explore this question.
0:15:34 The model included three steps.
0:15:38 First, students choose which colleges to apply to.
0:15:41 Then colleges decide which students to admit.
0:15:44 And finally, students pick which college
0:15:45 they are going to attend.
0:15:49 As you can imagine, there are a multitude of variables
0:15:51 that affect each step.
0:15:53 The total number of applicants,
0:15:57 the academic and extracurricular quality of those applicants,
0:16:01 as well as net tuition costs and other factors.
0:16:04 And there was one special variable they included
0:16:08 in the analysis, the same one that applies to luxury goods.
0:16:11 – Universities are competing on what we call prestige,
0:16:13 which is a relative measure of how selective
0:16:17 is my university relative to its peer institutions.
0:16:19 Now, Blair and Smetters took their model
0:16:22 and fed into it real world application
0:16:25 and matriculation data from Harvard, Yale,
0:16:27 Princeton, and Stanford.
0:16:28 They did this twice.
0:16:32 First, with the prestige variable turned on.
0:16:35 – We find that when we calibrate the model with prestige on,
0:16:37 we’re able to fit the patterns in the data,
0:16:40 which show that admissions rates have been declining
0:16:45 at elite institutions and also the average SAT scores
0:16:46 have been going up both for applicants
0:16:47 and also for matriculants.
0:16:50 So that’s with prestige on the model fits.
0:16:53 – In other words, their model successfully recreated
0:16:54 the reality.
0:16:57 Then they turned off the prestige variable.
0:16:59 What they find now?
0:17:01 – What we find is that in the absence of prestige,
0:17:03 admissions rates would go up,
0:17:06 the number of applicants would go up,
0:17:08 the number of matriculants would also go up,
0:17:10 the average test scores would go down slightly,
0:17:14 and also the number of applications per slot
0:17:15 would in fact decrease.
0:17:19 And so competition would soften at elite institutions.
0:17:23 – In other words, if elite schools weren’t competing
0:17:28 to position themselves as super exclusive luxury brands,
0:17:29 they would admit more people
0:17:31 and it would be easier to get in.
0:17:35 You could imagine this would make a lot of people happy,
0:17:37 but who might not like it?
0:17:38 Just guessing here,
0:17:42 but how about the elite colleges administrators
0:17:46 and faculty and alumni and current students,
0:17:48 all of whom really like the idea
0:17:51 that their school is so exclusive?
0:17:53 How did it come to this?
0:17:56 How did a college education become so much
0:18:00 like a double ply mulberry silk scarf?
0:18:03 Here’s one fact to consider.
0:18:08 In 1983, right around the time elite colleges stopped expanding
0:18:11 and started becoming more selective,
0:18:12 US News and World Report
0:18:16 issued its first ranking of colleges and universities.
0:18:19 If you have ever been within a mile
0:18:21 of a college applicant or their family,
0:18:26 you know the US News ranking system has become an obsession.
0:18:29 So did the US News rankings cause selective schools
0:18:31 to become even more selective?
0:18:33 – We don’t argue that that’s causal.
0:18:37 What we do in the paper is we show that in a model
0:18:39 in which universities care about prestige,
0:18:41 which itself is a relative comparison,
0:18:43 that you can get the kind of dynamics
0:18:45 that we see in the data.
0:18:48 – So in my experience with college
0:18:52 and university presidents and admissions officers,
0:18:56 there is a strange something going on.
0:19:01 And we hear a lot of public gnashing of teeth about,
0:19:06 oh my goodness, we so wish that we could share
0:19:08 our amazing university experience with more people.
0:19:12 And it’s such a tragedy that our admissions rates
0:19:14 are inevitably so low.
0:19:17 That’s what you hear publicly.
0:19:22 But I have a sense that just behind closed doors,
0:19:26 those universities revel in those absurdly low numbers.
0:19:29 Can you talk about how meaningful that number is
0:19:31 to the universities themselves?
0:19:34 – I would broaden it and say that as a society,
0:19:38 we celebrate exclusivity.
0:19:42 And even for the parents who are preparing their kids
0:19:46 by investing in test prep, investing in coaching,
0:19:50 when you think about the alumni of universities too,
0:19:53 who are looking at the increase in selectivity
0:19:55 of their colleges and looking at as a mark of pride,
0:19:57 when they say, oh, I would not have gotten
0:20:00 into XYZ school today,
0:20:02 but my children are gonna get into it.
0:20:04 I think that there’s a deeper human instinct
0:20:07 that’s not just sitting with university administrators
0:20:09 and presidents, but it’s sitting with parents,
0:20:11 it’s sitting with students, it’s sitting with alumni.
0:20:14 (gentle music)
0:20:16 – All this human instinct was there to see
0:20:19 in Peter Blair’s model and his research paper.
0:20:21 – It’s an elegant paper.
0:20:22 I love the math.
0:20:23 I went through the model.
0:20:24 I thought it was really good.
0:20:26 – That is Morty Shapiro,
0:20:29 former president of Northwestern University
0:20:31 and another economist who studies education.
0:20:34 We met him in last week’s episode.
0:20:37 Northwestern is itself an elite school
0:20:40 and Shapiro was previously president of Williams,
0:20:44 the top ranked liberal arts college in the US,
0:20:48 but he says that in a country with 4,000 institutes
0:20:50 of higher learning, all the attention paid
0:20:53 to a handful of elite schools is misplaced.
0:20:55 – Of the 4,000 colleges and universities,
0:20:57 there’s only about 150 of them
0:21:00 that are really the global name brands
0:21:03 and a small percentage of those,
0:21:05 39 of them are the highly selected,
0:21:07 very heavily resourced privates
0:21:09 and they only enroll, I mean get this,
0:21:10 I don’t know if you knew this number,
0:21:13 they enroll 170,000 undergrad,
0:21:18 so 1% of the undergraduate population of 17 million
0:21:21 go to one of these name brand universities
0:21:24 and yet so much of the research is on that.
0:21:26 Why don’t they expand?
0:21:28 Why don’t they, on and on and on.
0:21:32 – I wanna give you a different example, which is Australia.
0:21:34 – Peter Blair again.
0:21:36 So Australia has a group of eight universities,
0:21:38 they’re called the Group of Eight,
0:21:40 which is the equivalent of the Ivy League
0:21:41 in the United States.
0:21:45 So you have eight universities in Australia,
0:21:48 they’re very best that educate a quarter
0:21:51 and when you look at the doctors and the dentists
0:21:53 in Australia, those universities educate half.
0:21:56 – So does the Australia model mean
0:21:58 the elite American schools should expand?
0:22:01 – Let’s say we went from 170,000 undergrads
0:22:05 to 250,000 undergrads, roughly the world would change?
0:22:08 I mean, 80,000 more out of 17 million,
0:22:09 are you giving me a break?
0:22:11 – So let me ask you this,
0:22:14 it seems that some prestige schools
0:22:17 do find expansion attractive when it’s in a place
0:22:19 where the money just flows,
0:22:22 let’s say the Middle East or some parts of Asia.
0:22:24 I once visited a friend who was teaching
0:22:27 at one of these campuses, he’s a writer, lit teacher,
0:22:31 and the literary journal for his class
0:22:35 was actually subject to censorship from the government.
0:22:36 So I’m thinking at this point,
0:22:39 well, that feels like a cash grab,
0:22:41 that feels like an institution that says,
0:22:42 you know what, I could make, let’s say,
0:22:45 a thousand slots available in the US
0:22:47 for whatever population I choose,
0:22:50 but instead I’m gonna do this, what’s your take on that?
0:22:52 – Well, I’ve never been a fan.
0:22:55 I think it depreciates the value of your brand.
0:22:56 When I was president of Williams,
0:22:57 ’cause we were ranked number one,
0:23:00 there was a delegation from Singapore came over
0:23:02 and they said, we wanna create a liberal arts college.
0:23:04 And I said, you’re talking to the wrong person,
0:23:06 ’cause when I was at University of Southern California
0:23:09 before that, as a dean and a vice president,
0:23:12 we closed some of our international campuses and programs
0:23:15 because it didn’t have our faculty
0:23:17 and I think we were given degrees to people
0:23:20 that conflated with the domestic versions
0:23:23 and it was just not a very good imitation of it.
0:23:26 So I said, boy, did you talk to the wrong people?
0:23:28 And I said, go to one of the other ones.
0:23:30 And they had a deal with David Oxtaby,
0:23:32 one of the great presidents,
0:23:34 he was president of Pomona at the time
0:23:36 and they cut a deal that they were gonna open up
0:23:37 a liberal arts college.
0:23:39 And then I don’t think the faculty liked it
0:23:41 or maybe the deal wasn’t what they promised
0:23:43 and David and the gang pulled the plug on it
0:23:45 and then they went to Yale.
0:23:46 – And Yale did it, right?
0:23:47 For a while.
0:23:49 – They did it for a while and now it’s gone.
0:23:51 So I’m not a fan of that.
0:23:54 If you have a product that’s a prestige product
0:23:56 or people expect a certain level of quality
0:23:59 and then you have a knock-off version of it
0:24:01 that’s nowhere as good, you lose at the end.
0:24:06 – Shapiro may not like the idea, but it’s happening.
0:24:09 New York University has opened out posts
0:24:11 in Abu Dhabi and Shanghai
0:24:13 and several elite schools have opened campuses
0:24:18 in Qatar or Qatar, including Georgetown, Carnegie Mellon
0:24:22 and Morty Shapiro’s own Northwestern.
0:24:26 That campus, which specializes in media and journalism
0:24:30 opened in 2008 before Shapiro came to Northwestern.
0:24:32 He retired in the fall of 2022.
0:24:36 So the Qatar campus outlasted him.
0:24:39 I didn’t know about the Qatar branch of Northwestern
0:24:40 when we interviewed Shapiro.
0:24:44 We later asked for comment and he emailed back to say,
0:24:46 I’m a big fan of what we do in Qatar
0:24:48 and we would never have renewed the program
0:24:49 if I had any doubts.
0:24:52 Usually remote campuses struggle
0:24:55 to replicate the excellence at the home campus,
0:24:56 but not this one.
0:24:59 It may not surprise you that elite schools
0:25:02 would open outposts in some of the richest places
0:25:03 in the world.
0:25:06 These universities are, after all, global brands
0:25:10 and there are rich customers all over the world.
0:25:13 On the other hand, a university is meant to represent
0:25:14 something radically different
0:25:18 from a global brand like Hermes or Apple.
0:25:21 Universities are devoted to research
0:25:22 and the spread of knowledge.
0:25:25 So why not open a few satellite campuses
0:25:29 in some deserving low income countries?
0:25:31 Yes, that might eat into their endowments a bit,
0:25:34 but would it perhaps be more successful
0:25:37 in boosting the prestige of these schools
0:25:40 rather than skimming some money from oil kingdoms?
0:25:43 Coming up after the break,
0:25:47 a potential solution to America’s elite university problem.
0:25:49 – So this would be very similar to what’s happening
0:25:52 with the Paris Accords around climate change.
0:25:55 – Free Economics Radio goes back to school right after this.
0:26:07 (dramatic music)
0:26:11 When economists analyze something
0:26:13 like the U.S. university system,
0:26:15 they tend to look at it as a market,
0:26:17 even though there are some obvious differences
0:26:20 between going to college and buying a new laptop
0:26:22 or deciding where to eat dinner.
0:26:24 One of the differences, as we heard earlier,
0:26:27 is that elite universities work more like luxury goods
0:26:30 than normal goods, which means that scarcity
0:26:33 and prestige play a big part.
0:26:37 But there’s another reason that college is a strange product.
0:26:39 – If you consume a college education,
0:26:42 you tend to basically consume it once in your life.
0:26:44 – Miguel Urquiola is an economist
0:26:46 at Columbia University in New York City.
0:26:48 He studies the education market.
0:26:50 – You go once and then forevermore,
0:26:52 you will go around with a sticker
0:26:55 that says Johns Hopkins on your forehead.
0:26:58 And so when you invest, you’re very careful when you choose.
0:27:02 – How much does reputation matter to college students?
0:27:05 That’s a hard question to answer empirically.
0:27:07 To get some anecdotal answers,
0:27:10 we went up to Urquiola School, Columbia,
0:27:11 which is currently tied for 12th
0:27:13 in the U.S. News and World Report ranking
0:27:16 of best American universities.
0:27:18 We asked students what they valued more,
0:27:20 the Ivy League education they were getting,
0:27:24 or the Ivy League brand attached to it.
0:27:26 – It’s a very difficult question.
0:27:30 – We did hear a fair amount of pro-education sentiment.
0:27:33 – The education here is obviously incredible.
0:27:36 I don’t always love Columbia’s brand,
0:27:38 so I’m more proud of my education
0:27:40 than the fact that I’m at Columbia.
0:27:42 – I don’t wake up every day and say,
0:27:44 “Oh, I’m so excited to engage in this prestigious experience.”
0:27:46 I say, “I’m so excited to learn about this particular thing.”
0:27:48 So probably education.
0:27:50 – I think that Columbia does a good job
0:27:53 of collecting people who care about knowing things
0:27:55 and who care about asking questions.
0:27:59 And to be in that kind of environment really does push you.
0:28:01 – But the vast majority of the students we spoke with
0:28:04 had a different answer about what mattered most.
0:28:06 – The brand value, for sure.
0:28:07 – You could get the same education
0:28:11 at like a not Ivy League school and like not top 50 schools.
0:28:12 – Especially with classes being online,
0:28:14 it maybe leans slightly more towards the brand value
0:28:15 than the education.
0:28:18 – The reason why they can justify charging 80K a year
0:28:20 is probably the brand name.
0:28:23 Whether it’s worth that or not, like, I don’t know.
0:28:24 – I mean, you could get a very good education
0:28:26 at most schools in the country, right?
0:28:28 Like it’s, anyone will give you a very good degree
0:28:29 and you’ll learn a bunch,
0:28:31 but having that brand name is what makes it worth
0:28:32 going to a school like this.
0:28:33 – It’s pretty much just like the diploma
0:28:35 to be able to say you went to an Ivy League school.
0:28:38 – I think you can get like an amazing education anywhere.
0:28:40 I mean, obviously it’s top notch here,
0:28:43 but it’s like the connections you have after college too.
0:28:44 – When you apply to a place
0:28:47 and you have that brand on the top of your CV
0:28:48 and the network that comes on top of it,
0:28:49 there’s a reason why a lot of people
0:28:52 can’t get into the school and it’s so prestigious.
0:28:55 – This may be a good time to talk about
0:28:58 what you actually get when you get a college education.
0:29:01 There is, of course, the acquisition of knowledge,
0:29:04 although many top universities will help you acquire
0:29:09 that knowledge for free in the form of online courses.
0:29:12 If knowledge acquisition was all that college offered,
0:29:14 why bother to pay a few hundred thousand dollars
0:29:16 for a four year degree?
0:29:18 Another thing you can get at college
0:29:22 is a lifelong network, friends, business contacts,
0:29:24 maybe a romantic partner.
0:29:27 You’re also taking advantage of what are called pure effects,
0:29:29 surrounding yourself with other
0:29:32 smart, ambitious, disciplined people.
0:29:35 And there’s one more thing you’re getting, status.
0:29:38 As we mentioned in the first episode of this series,
0:29:43 fewer than 40% of US adults have a bachelor’s degree.
0:29:46 And if you have a degree from a well-regarded university,
0:29:49 that puts you in even more rarefied air.
0:29:52 The economist Brian Kaplan in a book called
0:29:55 The Case Against Education,
0:29:58 argues that one major function of a college degree
0:30:00 is to act as a social signal,
0:30:04 a way to tell the world that you are worth hiring,
0:30:05 worth being friends with,
0:30:08 perhaps worth being intimidated by.
0:30:11 In Kaplan’s view, this has driven
0:30:13 a kind of credential inflation,
0:30:16 where more and more education is required
0:30:18 to have a good career.
0:30:22 One study has found that from the 1970s through the 1990s,
0:30:24 the average level of education
0:30:27 within 500 occupational categories
0:30:29 rose by 1.2 years,
0:30:33 even though most of the jobs didn’t change much.
0:30:35 You can also see a link with the rise
0:30:37 in credentialism generally.
0:30:41 In the 1950s, only about 5% of US workers
0:30:45 needed an occupational license in their chosen field.
0:30:48 Today, it’s about 25%.
0:30:50 Of course, the world is vastly different
0:30:51 than it was in the 1950s,
0:30:55 and a lot of our progress has plainly been driven
0:30:59 by education generally and university research,
0:31:00 in particular.
0:31:02 Still, the Kaplan argument says
0:31:06 that a college degree is a bit like a peacock’s plumage,
0:31:09 something you spend a lot of resources on,
0:31:14 primarily to elevate your status among the lesser plumed.
0:31:17 How is this signaling theory argument received
0:31:20 by a president of an elite university?
0:31:24 – I think that’s a gross mischaracterization
0:31:26 of American higher education.
0:31:28 – That’s Morty Shapiro, again,
0:31:30 the former president of Northwestern.
0:31:32 – It’s just not the reality.
0:31:34 I mean, if it were only a signaling thing
0:31:36 or a screening thing,
0:31:40 somebody would invent a less expensive screen or signal.
0:31:41 I mean, that’s the market.
0:31:44 Trust me, we know as economists, that would happen.
0:31:46 I’ve done some studies of peer effects,
0:31:48 and a number of my co-authors have done
0:31:49 some really good ones.
0:31:52 You are deeply affected by the random assignment
0:31:53 of your first year roommate,
0:31:56 and we can show that in terms of your ultimate GPA,
0:31:59 but it also has impacts in your political views,
0:32:01 your social views.
0:32:02 It’s not just about getting connections
0:32:05 so you can get a job at Goldman or McKinsey.
0:32:08 A lot of the human capital accumulation
0:32:09 takes place outside the classroom.
0:32:12 It’s study groups and things like that.
0:32:14 – Okay, so Shapiro is arguing that the value
0:32:19 of the college experience is real and large and variegated,
0:32:23 and there is a lot of economic research to back this up.
0:32:27 But let’s connect this to the prestige idea.
0:32:30 If, as Shapiro says, the college experience
0:32:32 produces all these benefits,
0:32:37 does a prestigious college produce more of these benefits?
0:32:40 This is a hard question to answer.
0:32:43 The students who are admitted to the most prestigious colleges
0:32:46 are necessarily smart and motivated.
0:32:49 So if they do well later in life,
0:32:53 how much of that success was due to their college experience
0:32:56 versus their underlying smarts and motivation?
0:32:59 Can we find someone to talk about that?
0:33:01 – Sure, I’m happy to talk about it.
0:33:03 – That is Amalia Miller.
0:33:05 – And I’m a professor of economics
0:33:07 at the University of Virginia.
0:33:09 – Miller told us about a research paper
0:33:12 by Stacey Bergdale and Alan Krueger
0:33:14 called Estimating the Payoff
0:33:17 to Attending a More Selective College.
0:33:20 – This is a paper that was published in 2002.
0:33:23 And basically, it tries to measure the relationship
0:33:26 between attending a more selective college
0:33:27 and later life earnings.
0:33:30 They tried to find a way to get beyond correlations.
0:33:34 So not just comparing people who went to more selective schools
0:33:36 and people who went to less selective schools.
0:33:38 – They were able to do this because they had data
0:33:40 on where people applied to college,
0:33:42 where they’d been accepted and rejected
0:33:45 and which college they attended.
0:33:48 They also had data from their incomes later in life.
0:33:51 – You might imagine Penn State and Yale.
0:33:52 And so you could have someone who applied
0:33:55 to both those schools and got into both
0:33:56 and one of them goes to Yale
0:33:58 and the other goes to Penn State.
0:33:59 And let’s look at their earnings.
0:34:01 We’re not gonna compare the student
0:34:04 who went to Penn State and didn’t apply to Yale.
0:34:05 And we’re not gonna compare a student
0:34:08 who went to Penn State, applied to Yale
0:34:09 and got rejected from Yale.
0:34:11 We’re gonna compare students who applied to
0:34:13 and got into the same schools,
0:34:16 but then ended up attending other schools.
0:34:19 Their analysis included more than 14,000 students
0:34:21 from 30 colleges.
0:34:22 – What they find in the data
0:34:24 is they first find the raw correlation
0:34:27 that kind of fits with expectations and perceptions,
0:34:29 which is that the students who attend more selective schools
0:34:33 do have higher wages and better labor market outcomes.
0:34:34 That’s the raw correlation.
0:34:36 – Okay, that’s what you might expect.
0:34:40 The graduates who attended better schools earned more money.
0:34:44 But again, was the school responsible for that?
0:34:47 Did the student who got into both Penn State and Yale
0:34:49 and went to Yale do better
0:34:51 than if they’d gone to Penn State instead?
0:34:54 – Their result is that there was on average no benefits
0:34:58 in terms of higher earnings to attending a more elite school
0:35:01 or a more selective school than a less selective school.
0:35:04 – In other words, once you hold everything else equal,
0:35:08 the more elite schools did not boost earnings.
0:35:11 Although we should know that’s on average, as Miller said.
0:35:14 The researchers did find that elite schools
0:35:16 boosted certain subgroups.
0:35:19 – They actually have a follow on paper that uses more data
0:35:23 and they do find potentially a wage benefit for people
0:35:26 from more economically disadvantaged groups
0:35:29 and minority students.
0:35:31 – Morty Shapiro has also seen this effect.
0:35:34 – The return to selectivity is much higher
0:35:37 for people of color and particularly for black men
0:35:40 and particularly for first generation students.
0:35:42 And Miguel Urquiola again.
0:35:44 – For certain types of students going to a school
0:35:47 like Harvard get you into the right clubs.
0:35:49 My guess is that parents believe it’s very valuable
0:35:53 and that parents may be looking at a variety of outcomes.
0:35:55 – Let’s talk about professors for a moment.
0:36:00 So if elite universities are often optimized
0:36:03 to produce really great academic research,
0:36:05 to what degree is that at odds
0:36:09 with also producing really good instruction
0:36:12 for the paying students and the paying parents?
0:36:17 Because it strikes me that the best researchers,
0:36:19 often at least the ones I know,
0:36:21 don’t have that much interest in teaching
0:36:24 and that’s exactly what the students and the parents want.
0:36:27 – Yeah, I think that there could definitely be a trade-off
0:36:27 in this regard.
0:36:29 So for example, it could very well be
0:36:33 that some economics instructors at a place like city college
0:36:36 or Rutgers are better than some economics instructors
0:36:37 at Princeton.
0:36:40 And this could be in part because the people at Princeton
0:36:43 are selected on their research output
0:36:46 and they may have less energy devoted to their teaching.
0:36:47 – Let’s just pluck one out of history.
0:36:50 How was Sir Isaac Newton as a professor?
0:36:54 – There’s anecdotal evidence that he wasn’t very good.
0:36:56 Many people were sleeping in the class.
0:37:00 And anyone who’s been to university particularly knows
0:37:02 of cases where someone who’s very brilliant
0:37:06 on the research front is just disorganized or boring.
0:37:09 I have the chance to have an instruction
0:37:11 from Nobel winners who will go nameless.
0:37:13 – No, not nameless, we always name them here.
0:37:15 – Who seem to be particularly disorganized.
0:37:20 – Morty Shapiro wearing his economist hat
0:37:22 and not his college president hat
0:37:26 has analyzed the impact of faculty skill.
0:37:28 He wanted to compare how students did
0:37:31 if they had an intro course taught by a tenured
0:37:35 or tenure-tracked professor versus a non-tenure-tracked
0:37:37 professor including an adjunct.
0:37:39 Adjuncts are essentially freelancers
0:37:42 who get paid much less than tenure-tracked professors
0:37:46 and who are leaned on extensively by even elite colleges
0:37:48 to teach a lot of classes.
0:37:51 Shapiro found that students who took intro courses
0:37:55 with non-tenure-tracked professors did better
0:37:58 in more advanced courses than if they’d had a tenured
0:38:02 or tenure-tracked professor for the intro course.
0:38:05 One reason tenured professors may not be as good at teaching
0:38:07 is that as we mentioned earlier,
0:38:10 the top schools may value research
0:38:12 over classroom instruction.
0:38:17 Still, if you are the student or the parent of a student
0:38:20 at an elite school, shouldn’t classroom instruction
0:38:23 be pretty important?
0:38:27 Miguel Urquillola says that reputation and prestige
0:38:31 tend to trump the actual quality of instruction.
0:38:35 One thing I always like saying is, if you’re in, say,
0:38:37 New York City and you have a very reputable restaurant
0:38:40 and you stop cooking well, it won’t take long
0:38:42 before you’re out of business. You’ll die.
0:38:45 On the other hand, you could mismanage an elite American
0:38:48 university for decades and you’ll still be there.
0:38:50 You have a lot of margin of error.
0:38:53 The preservation of that elite status,
0:38:59 would you consider that a useful and perhaps even noble
0:39:03 incentive or a selfish incentive for the universities?
0:39:05 I think it has both features.
0:39:08 So it is selfish and, in a way, can be viewed very negatively
0:39:10 because why don’t you just take more people?
0:39:12 Why are you trying to keep this sort of club
0:39:13 and this sort of prestige?
0:39:16 The other way of seeing it is that that prestige
0:39:19 is what enables these schools to have access to a tremendous
0:39:21 amount of resources and lots of talent.
0:39:23 And one way you could rationalize it,
0:39:25 and I think it’s perfectly defensible, is to say,
0:39:28 if I’m Stanford or if I’m Johns Hopkins,
0:39:30 my job is to be doing, for example,
0:39:34 research and producing knowledge that does serve the common good.
0:39:38 People at Penn were involved in the creation of the COVID vaccine.
0:39:41 People in Peru are extremely grateful that this happened
0:39:43 and people in Ghana.
0:39:46 So let’s talk about this from the perspective of, let’s say,
0:39:48 a high school sophomore or junior,
0:39:50 maybe the parent of that student.
0:39:54 Can you talk for a moment about the best way to think about
0:39:56 the college choice, especially along two dimensions,
0:39:58 that I see a lot of people struggling with?
0:40:01 One is reputation and one is fit.
0:40:04 So with reputation, it seems that in certain circles,
0:40:10 almost all students want to attend the highest status university
0:40:12 to which they can be admitted.
0:40:16 And if they’re admitted to University of Chicago and Princeton,
0:40:18 then maybe there’s a little bit of a debate,
0:40:20 well, Ivy versus Chicago, et cetera, et cetera.
0:40:22 But I sense that in other circles,
0:40:25 there’s more of an interest in finding the right fit
0:40:28 and that fit may have to do with the academic programs,
0:40:30 the general environment,
0:40:34 the kinds of people that attend the University of Students,
0:40:37 the kinds of people that are faculty there,
0:40:39 the cost of the University and so on.
0:40:43 So can you give some general advice to that parent or student
0:40:46 about how to think about reputation versus fit?
0:40:48 Yeah, what I would put generally in the category of fit
0:40:50 is like, what will this school do for my kid
0:40:52 in terms of teaching them something that they like
0:40:54 or teaching them good skills?
0:40:56 And the reputational side is more,
0:40:58 what will this school do for my kid in terms of the brand
0:41:00 that will be attached to my kid?
0:41:02 Reputation matters.
0:41:04 There’s evidence that it matters on the labor market.
0:41:07 We end up going for the reputation rather than for the fit
0:41:10 because the fit is going to be something that’s hard to measure.
0:41:13 You cited evidence of a positive relationship
0:41:15 between university status and the labor market.
0:41:18 How strong is that evidence?
0:41:20 That’s a good question.
0:41:22 So I have found in research in the country of Columbia
0:41:24 that it’s extremely important that it basically puts you
0:41:26 on a different trajectory.
0:41:28 Like if you go to a more selective school,
0:41:30 you’re going to get a better job initially,
0:41:32 and your advantage will in fact expand.
0:41:39 Wall Street almost exclusively comes to the most elite universities
0:41:41 in the U.S. and says only these universities
0:41:44 are going to have direct access to Wall Street.
0:41:47 That again is the economist Peter Blair,
0:41:51 co-author of the paper Why Don’t Elite Colleges Expand Supply.
0:41:56 So I think it’s more a function of the intentional strategy
0:42:00 on the labor demand side of firms than it is on the student side.
0:42:03 And then as students know that they’re going to be recruited,
0:42:04 they’re going to make a lot of money,
0:42:06 and that this is going to be a signal to their peers
0:42:07 and to the broader society,
0:42:11 then that is a more well-paved path.
0:42:13 This brings us back to the central conflict.
0:42:17 Elite schools confer advantages on their students
0:42:20 in part through the promise of exclusivity.
0:42:23 But they can’t expand their supply.
0:42:26 They can’t make their excellence available to more students
0:42:29 without diluting their exclusivity.
0:42:32 That at least is how these schools appear to operate.
0:42:35 Remember, as Blair told us earlier,
0:42:38 elite schools in the U.S. have grown by only a little bit.
0:42:43 Schools in the top 2% have grown by about 7%.
0:42:46 And the growth rate of the non-elites?
0:42:48 It’s about 60%.
0:42:50 So here’s an obvious question.
0:42:53 Is it possible for an elite school to get bigger
0:42:56 without diluting its prestige?
0:42:58 Peter Blair thinks so.
0:43:00 And he says there’s one university,
0:43:03 actually one university system that’s figured it out.
0:43:06 Where we see this happening quite successfully
0:43:08 is with the UC system,
0:43:10 the University of California system.
0:43:13 UC Merced, UC Irvine, UC Davis.
0:43:16 These are all relatively new universities
0:43:19 that have been created in the past 50 or 60 years.
0:43:21 And in a very short time,
0:43:24 these universities have become powerhouses.
0:43:28 The University of California has grown to a far greater extent
0:43:31 than certainly any private university in the U.S.
0:43:34 and almost any public university.
0:43:36 That is Zachary Bleemer.
0:43:39 It’s doubled in size and more over the last 30 years.
0:43:41 Bleemer is an economist at Princeton.
0:43:44 He used to do research at Opportunity Insights,
0:43:46 a research group at Harvard
0:43:49 that tries to identify the barriers to income mobility.
0:43:51 In other words, they try to figure out
0:43:56 why the American dream seems to have faded away for many people.
0:43:59 But Bleemer says the University of California story
0:44:00 is a bright spot.
0:44:02 Now, how’d that happen?
0:44:05 The University of California was charged in 1960
0:44:09 by the California Master Plan for Higher Education
0:44:12 with educating the top 12.5%
0:44:14 of California high school graduates.
0:44:17 As a result, the University has grown
0:44:19 with the state of California’s population,
0:44:21 which, as many people know,
0:44:24 has grown very dramatically over the last 50 years.
0:44:27 How have they been able to expand so aggressively?
0:44:31 One way that the University has attempted to expand enrollment
0:44:33 has been to build a new campus,
0:44:36 a relatively unusual proposition in the 21st century
0:44:40 that California has used with unusual success.
0:44:44 So the University of California campus at Merced
0:44:45 opened in 2005.
0:44:48 It now enrolls over 10,000 undergraduates.
0:44:51 That’s been an important way for the University
0:44:53 to provide access to a lot of students
0:44:56 who would otherwise not be able to enroll
0:44:58 at a similar quality university.
0:45:01 And what kind of quality are we talking about here?
0:45:05 Today, there are 10 University of California campuses,
0:45:08 four of which are in the top 25
0:45:10 of the U.S. News and World Report ranking
0:45:12 of best global universities.
0:45:16 Berkeley ranks fourth, just above Cambridge.
0:45:19 This quality begets funding.
0:45:22 The UC system takes in billions of research dollars
0:45:25 every year from the federal government,
0:45:28 and this funding begets more quality.
0:45:31 It’s a lot easier to hire great professors and researchers
0:45:34 with research money in place.
0:45:37 The California schools have another hiring advantage
0:45:40 because California is such an appealing place
0:45:42 for many people to live.
0:45:45 That’s made it a draw for very high quality faculty
0:45:48 who are often willing to forgo higher salaries
0:45:52 or other perks at other elite universities.
0:45:54 And that’s because even East Coast prestige
0:45:57 has a hard time competing with California weather.
0:46:00 I was a couple of minutes late to this interview,
0:46:03 slip sliding my way across sheets of ice.
0:46:06 The amenity value of living in California is very appealing.
0:46:08 It’s in my face at the moment.
0:46:10 What if you want to replicate
0:46:12 the University of California’s success,
0:46:16 but you can’t offer the benefits of California itself?
0:46:19 Yeah, it would be difficult for universities
0:46:22 and other states to replicate California’s weather.
0:46:27 But what is available to schools anywhere in the U.S.
0:46:30 is, I think, a growing body of research
0:46:34 that suggests that direct educational expenditure,
0:46:37 which means having high paid faculty
0:46:40 and top graduate students,
0:46:46 providing education to undergraduate students
0:46:50 from all walks of life and from all backgrounds,
0:46:53 is extremely valuable to those students in the long run.
0:46:56 Similarly, providing strong student services
0:46:58 to help struggling students
0:47:00 and to keep students in school
0:47:04 is extremely valuable in the long run to those students.
0:47:06 There’s one more advantage.
0:47:09 The University of California system has a structural advantage,
0:47:11 which can be replicated.
0:47:15 Because the UC schools are all part of the same network,
0:47:17 not only do they share a lot of resources,
0:47:20 but they also aren’t competing against one another
0:47:24 in the same zero-sum way that independent schools do.
0:47:28 Imagine that Harvard decides to admit more students each year
0:47:32 to expand access to its world-class institution.
0:47:36 But what if that expansion diminishes Harvard’s exclusivity
0:47:39 to the point that it slips in the rankings?
0:47:42 That’s good news for Princeton and Yale.
0:47:46 So Harvard doesn’t have much incentive to do that.
0:47:50 Here, again, is Peter Blair, the Harvard economist
0:47:52 who built a model to understand
0:47:55 why elite colleges don’t expand.
0:47:58 What we find in the model is that the inability
0:48:02 of an individual university to shift the norm
0:48:05 towards expanding, that’s the challenge.
0:48:08 But let’s say the University of California’s San Diego
0:48:12 were to slip in the ranks, perhaps to the benefit
0:48:15 of UC Irvine or UC Davis.
0:48:18 Well, for the University of California system,
0:48:20 that’s not such a big deal.
0:48:23 You could imagine the Ivy League schools
0:48:25 doing something similar, getting together
0:48:29 and agreeing to admit 10% more students
0:48:30 over the next few years.
0:48:32 Could this actually happen?
0:48:34 So this would be very similar to what’s happening
0:48:36 with the Paris Accords around climate change,
0:48:39 where we’re coming together as countries from around the world
0:48:43 and committing to reducing the amount of carbon that we emit.
0:48:44 But doing that collectively,
0:48:46 that creates a sense of shared responsibility
0:48:50 where nobody is going to unilaterally reduce their carbon
0:48:52 and then become less competitive
0:48:54 and then be overtaken by a peer country.
0:48:58 Imagine, Steven, if the president of the Ivy League
0:49:02 and the Ivy Plus universities came along with their boards
0:49:05 and with alumni associations and with current students saying,
0:49:08 how can we work together to make these experiences
0:49:10 accessible to more students?
0:49:12 I am trying to imagine that, Peter,
0:49:14 but I’m having a little bit of a hard time.
0:49:17 Let me give a parallel example or a parallel explanation for why.
0:49:20 I think back to a little under 10 years ago
0:49:25 when Yale had opened a campus in Singapore,
0:49:28 and at the time, Drew Faust, the president of Harvard,
0:49:31 was asked if Harvard would do something like that,
0:49:33 and she said no, that they weren’t interested
0:49:36 in establishing an undergraduate campus abroad.
0:49:39 But then further, Harvard’s vice provost
0:49:41 for international affairs, George Dominguez,
0:49:45 said, I’m not in the McDonald’s franchising business.
0:49:47 And that sounded to me like a person
0:49:49 who understood that his brand, Harvard,
0:49:53 was an extraordinarily powerful and attractive brand,
0:49:57 and it would be foolish to consider watering it down.
0:50:01 And so while I’m trying to envision this interesting
0:50:05 and perhaps utopian world where the Ivy’s and Ivy Pluses,
0:50:07 as you put it, would come together to come up with a way
0:50:12 to smartly create more supply for this overwhelming demand,
0:50:15 and at the end of the day, and I think you would probably know
0:50:17 this better than I as an economist,
0:50:19 people respond to incentives in university.
0:50:22 Presidents and provosts and vice provosts are people.
0:50:26 And so I wonder if there’s just not too much private incentive
0:50:29 there for them to keep their prestige as high as they can
0:50:33 at the expense of the potential beneficiaries
0:50:35 of expanded supply.
0:50:38 Wow, wow, wow, that’s a million dollar question, right?
0:50:40 What our paper does is it provides a roadmap
0:50:43 for understanding how universities can expand.
0:50:46 And the key message there is that there needs to be coordination.
0:50:51 We don’t think that the goal is to try and point the finger
0:50:54 at universities, and in fact, what the data and the model
0:50:57 are showing us is that the lack of expansion
0:51:01 is not because universities are acting selfishly, right?
0:51:04 It really is because of their inability to coordinate
0:51:07 more broadly, and in fact, they’re constrained by the law
0:51:09 which reduces their capacity to coordinate.
0:51:13 And so at the highest level, there’s a policy question
0:51:16 which is should we look at this as a context where
0:51:19 we ought to rethink what we know about the rule of antitrust.
0:51:21 So that’s the first level.
0:51:24 And then the second level is can we convene a group of universities
0:51:28 to say we recognize that we are in a situation
0:51:31 where we’re pitted against each other in terms of rankings.
0:51:33 And this isn’t good for us.
0:51:36 This is not good for students, and this is not good for society.
0:51:40 So how can we work together to preserve the quality
0:51:43 that we have as institutions and do that in a way
0:51:46 that also expands access by increasing the number
0:51:48 of spaces that are available?
0:51:51 Have these elite universities ever had any discussion
0:51:54 about that sort of pro-social collusion?
0:51:55 So yes, they have.
0:51:57 I think this was in the 1990s.
0:52:00 Universities used to coordinate on admissions decisions
0:52:05 and financial aid, and this was ruled illegal by the FTC.
0:52:09 The Sherman Antitrust Act makes it illegal for universities
0:52:12 to collude, in part because the general thinking
0:52:16 around this type of cooperation is that oftentimes
0:52:19 it works in the interest of producers
0:52:21 and not in the interest of consumers.
0:52:25 And a key insight of our paper is that this is a context
0:52:28 where if universities were able to coordinate
0:52:31 or to cooperate, they could actually increase
0:52:33 the social surplus, not decrease it.
0:52:38 It is a lovely notion, as Peter Blair puts it,
0:52:42 to increase the social surplus rather than decrease it.
0:52:45 Isn’t that the whole idea behind the university
0:52:47 in the first place?
0:52:52 But one reason this sort of collusion isn’t likely
0:52:55 and why universities probably won’t receive
0:52:57 an antitrust exemption anytime soon
0:53:00 is because of a different sort of collusion
0:53:02 they’ve allegedly engaged in.
0:53:05 Earlier this year, eight colleges, including Columbia,
0:53:09 agreed to pay more than $100 million to settle claims
0:53:13 that they colluded to limit financial aid to admitted students.
0:53:16 The settlements came after 17 schools were taken to court
0:53:19 when former students filed the class action lawsuit.
0:53:22 Their lawyers estimated that roughly 200,000 students
0:53:26 were harmed by what they called a price-fixing cartel.
0:53:31 Headlines like these and research like Peter Blair’s
0:53:35 and scandals like Operation Varsity Blues,
0:53:37 all of this makes it hard to believe
0:53:40 we’re actually heading for a big change.
0:53:44 It can also make it hard to even root for universities.
0:53:47 Miguel Urquiola again from Columbia.
0:53:50 Politically, I think the U.S. has gotten into a situation
0:53:52 in which sometimes I joke that the university
0:53:54 doesn’t have a lot of friends.
0:53:56 From the right wing, there seems to be a lot of suspicion
0:53:59 of the university because it often is perceived
0:54:02 to be friendlier towards a more left-leaning orientation.
0:54:06 From the left wing, the universities viewed very badly
0:54:08 because they’re basically perceived as this machine
0:54:10 for perpetuating inequality.
0:54:12 And so sometimes I think the university
0:54:15 is basically left abandoned and no one’s going to protect it.
0:54:19 Okay, that was an update of our 2022 episode,
0:54:22 “The University of Impossible to Get Into.”
0:54:24 Coming up after the break,
0:54:26 a new conversation with Peter Blair
0:54:29 about why he thinks the idea of the university
0:54:31 needs protection.
0:54:33 I’m Stephen Dubner. This is Freakonomics Radio.
0:54:35 We will be right back.
0:54:47 In the two years since we first published
0:54:49 this series on American higher education,
0:54:52 public opinion about college has fallen even farther.
0:54:55 A recent Gallup poll found that fewer than 40%
0:54:58 of U.S. adults express either a great deal
0:55:01 or quite a lot of confidence in higher education.
0:55:03 Harvard University in particular
0:55:07 has attracted a lot of criticism from many directions.
0:55:09 The school’s president, Claudine Gay,
0:55:11 resigned after her academic work
0:55:13 was found to have contained plagiarism.
0:55:16 That was shortly after her disastrous testimony
0:55:18 to Congress about Harvard’s handling
0:55:21 of anti-Semitism on campus.
0:55:24 At Harvard, one New York Times headline read,
0:55:28 “Some wonder what it will take to stop the spiral.”
0:55:30 We wondered too.
0:55:33 So we gave another call to Peter Blair,
0:55:36 the Harvard economist you heard from earlier in this episode.
0:55:38 Although Harvard pays his salary,
0:55:40 Blair has been critical of the institution
0:55:42 and other elite colleges.
0:55:45 So I figured we’d get a balanced view.
0:55:48 This conversation was recorded in mid-July.
0:55:49 Peter Blair.
0:55:51 Stephen, how are you?
0:55:53 I’m great. Nice to hear your voice.
0:55:55 It’s good to hear your voice too.
0:55:57 So the last time we spoke, Peter,
0:55:59 we were talking about a paper you had written
0:56:02 called “Why Don’t Elite Colleges Expand Supply,”
0:56:04 published in 2021.
0:56:08 What’s been the response to your argument
0:56:10 or your findings in that paper?
0:56:12 And I’m especially curious to know
0:56:14 what kind of conversation it may have spurred
0:56:16 at Harvard itself.
0:56:18 The paper has had a really phenomenal reception.
0:56:20 So every so often, someone will ask the question,
0:56:22 “Why is it that elite universities are so small?”
0:56:24 And a colleague would say,
0:56:25 “Well, Peter Blair and Kent Smithers
0:56:26 have written the paper on it.
0:56:27 You should go and read it.”
0:56:29 It always feels good when you have a paper
0:56:31 that’s viewed by many of your colleagues
0:56:33 as making a seminal contribution
0:56:36 to how folks understand a question.
0:56:40 I think that, especially with Operation Varsity Blues
0:56:43 and then also with the cascading down to zero
0:56:45 of the admissions rates at places like Stanford,
0:56:47 Harvard, and many of the other elite schools,
0:56:51 there’s this growing concern that many of our elite schools
0:56:53 are nearly impossible to get into.
0:56:55 And a very legitimate question is,
0:56:56 “Why haven’t they expanded?”
0:56:58 I would add to Stephen something else that’s changed
0:57:01 since you and I last were on the Freakonomics podcast
0:57:05 is that the Supreme Court’s decision about affirmative action,
0:57:07 which was specifically about Harvard.
0:57:10 This is students for fair admissions versus Harvard.
0:57:11 Exactly.
0:57:15 And so in a lot of ways, I think we’re in an environment now
0:57:18 where there’s increasing scrutiny on elite universities
0:57:21 in terms of thinking about who is there,
0:57:22 who gets to go there,
0:57:24 what’s the admissions criteria that’s there.
0:57:27 And quite frankly, the fact that we haven’t expanded
0:57:29 in the past, say, four decades,
0:57:32 that puts even more of a spotlight on these universities.
0:57:33 I’ll give you one tidbit.
0:57:38 Princeton University first admitted women in 1969.
0:57:41 So my mom, who was born in 1946,
0:57:44 she would not have been eligible to go to Princeton
0:57:46 because she is a woman.
0:57:48 And so that’s mind-blowing, right?
0:57:53 So effectively, the pool of qualified applicants to Princeton
0:57:57 has doubled, women, minorities, many other groups
0:58:01 who are eligible and qualified to go to elite universities.
0:58:03 Yeah, I just wonder, it seems from the outside
0:58:06 like such an obvious solution that elite universities
0:58:09 in particular have pushed for an increase in racial diversity.
0:58:12 The Supreme Court has just made that path
0:58:15 either more difficult or certainly different.
0:58:17 And of all the ideas that have been discussed
0:58:19 about how to increase diversity,
0:58:22 or let’s call it increase opportunity for more people
0:58:24 rather than just diversity
0:58:27 according to some kind of demographic checklist or something,
0:58:32 wouldn’t expanding supply be a really obvious solution
0:58:34 even for an institution like Harvard
0:58:37 that’s been generally reluctant toward that solution?
0:58:39 Yeah, we have to ask ourselves,
0:58:41 what is the product that we’re selling?
0:58:43 Are we selling a product where we believe
0:58:46 that the quality of the education that we’re producing
0:58:48 is what is going to create value?
0:58:50 Because if we think that that’s going to create value,
0:58:52 then we want to make sure that that’s available
0:58:54 to a lot more people.
0:58:56 If instead what we think we’re creating
0:58:58 is a very scarce luxury good,
0:59:00 then we want to make sure
0:59:03 that we’re artificially keeping the supply restricted
0:59:05 because then it becomes something that’s coveted.
0:59:08 It’s like getting into a really exclusive club in New York
0:59:10 when they’re only 10 tables.
0:59:12 You don’t want to expand tables
0:59:15 if what you’re really selling is that exclusivity.
0:59:18 You know, one dimension upon which this conversation
0:59:21 becomes especially salient to me
0:59:23 is when I look at university endowments.
0:59:26 So Harvard is, I believe, still the biggest in the world
0:59:29 with about $50 billion of endowment.
0:59:31 When you look at endowments at the top ranked universities
0:59:34 in the world, many of them are just massive,
0:59:36 including the California public schools.
0:59:39 It’s tempting to look at a place like Harvard
0:59:41 if you are cynical,
0:59:45 if you have some either political or social
0:59:48 or other reason to bring some negativity to it
0:59:51 and say, you know, what it really is
0:59:55 is a hedge fund with a few classrooms and some dorms.
0:59:58 Or maybe it’s a status factory,
1:00:03 but it’s certainly not fulfilling some greater good
1:00:06 of the type that maybe John Harvard himself
1:00:08 would have envisioned.
1:00:11 So what do you say to that cynical argument?
1:00:14 Yeah, I sit here in this dual role.
1:00:16 You know, there’s the kid who grew up
1:00:18 in the Bahamas selling fruits and vegetables
1:00:20 who many people would have thought
1:00:22 may have never gone to Harvard as a student,
1:00:24 much less become a professor, right?
1:00:26 And so there’s that outsider looking in
1:00:29 and then also someone who is a custodian
1:00:32 in many ways of the work that we do at Harvard.
1:00:35 I think that to say that the university is just
1:00:37 a hedge fund with classes is a bit uncharitable.
1:00:39 I do think that the research work that happens
1:00:41 at universities is incredibly vital.
1:00:44 So take, for example, the COVID vaccine that was developed
1:00:47 by researchers at the University of Pennsylvania,
1:00:51 or at least the underlying science for that type of vaccine.
1:00:54 You also have a colleague at the Harvard School of Public Health
1:00:58 who was a part of developing the actual vaccine at the NIH.
1:01:01 That saved millions of lives, right?
1:01:04 And so it’s important for us to keep that in mind
1:01:08 that the research that we do has a phenomenal impact.
1:01:11 If you think about the companies that have been created
1:01:14 by our graduates, you think about Elon Musk,
1:01:16 who’s a graduate of the University of Pennsylvania,
1:01:18 and he’s created SpaceX, he’s created Tesla,
1:01:21 you think about Microsoft that was created by Bill Gates,
1:01:24 or Facebook that was created by Mark Zuckerberg.
1:01:26 Well, dropouts, but they started.
1:01:29 Yeah, I mean, but a lot of the, in a sense,
1:01:32 like even being a Harvard dropout or a Penn dropout,
1:01:36 is something that has currency in Sand Hill Road
1:01:38 when they’re looking for venture capital money,
1:01:40 in addition to their ideas, the networks that they get connected
1:01:42 to, the people that they’ve become a part of.
1:01:45 And so universities are in the business of creating research
1:01:48 and creating ideas. I don’t want to lose that.
1:01:51 Now, one thing I would say is that if we expand supply
1:01:54 and we open up our doors to more people,
1:01:56 we’re exposing ourselves to the possibility
1:01:59 of finding more Zuckerbergs and more Musk’s,
1:02:01 but who might be coming from places
1:02:03 where we traditionally don’t look,
1:02:06 precisely because there is more opportunity.
1:02:09 America’s confidence in higher education
1:02:11 has been in decline for a while.
1:02:14 A lot of it was thought to be mostly
1:02:17 among conservatives and Republicans
1:02:21 who didn’t feel welcome on a lot of the elite campuses
1:02:25 and felt that a lot of the whole college ecosystem
1:02:27 is just too liberal.
1:02:30 And there’s a lot of data to show that the professoriate,
1:02:33 at least, is overwhelmingly aligned with liberal
1:02:36 or democratic politics. That’s indisputable.
1:02:38 But recently, there was a Gallup poll
1:02:41 that found that Democrats also now have much less faith
1:02:43 in higher education.
1:02:45 So let me just ask you baseline.
1:02:49 What do you think is causing this decline in public confidence?
1:02:54 And if you have ideas to reverse that decline,
1:02:56 what would your best ideas be?
1:02:59 I think that one of the big reasons
1:03:02 is the increasing sticker price of colleges.
1:03:05 So it’s not uncommon for the sticker price of tuition
1:03:07 to be $60,000 at many colleges.
1:03:10 Some colleges, it’s $70,000.
1:03:13 Now, it’s a bit of a symbol of excess
1:03:17 that the sticker price for tuition is just so incredibly high.
1:03:22 When you look at what money is being spent on at many universities,
1:03:25 oftentimes it’s being spent on amenities,
1:03:30 a nicer stadium, pools, gyms, a good cafeteria.
1:03:34 A lot of these auxiliary functions that do not to the public
1:03:38 appear to be critical to the educational mission of the institution.
1:03:40 And so then that looks like waste.
1:03:43 When it comes to the political dimension of this,
1:03:47 I do think that there is a way in which university campuses
1:03:52 have become a place of intellectual safety
1:03:54 as opposed to intellectual growth.
1:03:58 And I’ll tell you a story where, for me, it really hit home.
1:04:01 I’m a graduate of the University of Pennsylvania.
1:04:06 And I remember in 2016, this was right after the Trump election,
1:04:10 I was on Facebook scrolling through when I saw this headline,
1:04:13 and effectively was seeing how after Trump got elected
1:04:16 that there were support rooms with support puppies
1:04:18 and coloring books and dogs.
1:04:20 And I thought this is very embarrassing
1:04:23 because what happened was democracy happened.
1:04:26 You had two people running for the presidency.
1:04:28 One of them is going to win.
1:04:29 One candidate won.
1:04:31 Maybe it wasn’t your preferred candidate.
1:04:34 But what you do is you organize, you bring out the vote next time.
1:04:38 And it was very disturbing to me that at an institutional level,
1:04:40 it seemed as if this was the appropriate response.
1:04:43 And that problem just got worse over time.
1:04:48 There was a famous-ish report out of the University of Chicago in 1967
1:04:51 known as the Calvin Committee Report.
1:04:55 It basically said that the university should not play a prominent role
1:04:57 in political and social action.
1:04:59 That’s not the role of the university.
1:05:02 And, you know, Chicago has been a bit of an outlier
1:05:05 for elite universities in the past 30 or 40 years.
1:05:09 But now, especially after the demonstrations on campuses
1:05:13 and especially after, you know, two of the three college presidents
1:05:17 went to testify on Congress and were effectively removed
1:05:20 from their positions shortly after your president at Harvard
1:05:23 and the president at Penn as well, it seemed like a lot of colleges,
1:05:25 a lot of universities are now saying,
1:05:28 “Oh, yeah, we like the Calvin Committee Report idea.
1:05:32 We like the idea of staying politically and socially neutral.”
1:05:34 Even though that had not been the case,
1:05:38 there had been strong endorsements of certain political or social movements
1:05:40 and total silence on others.
1:05:44 I’m just curious, Peter, especially as you’re coming here
1:05:48 into this educational ecosystem from outside the United States,
1:05:52 what you see as the role of the university in that regard
1:05:55 and whether you think this late-stage embrace
1:05:58 of the Calvin Committee Report is actually a good idea
1:06:00 or is it maybe just more cowardice
1:06:02 because by putting themselves forward,
1:06:04 these universities have gotten spanked
1:06:06 and all they want to do is stop the pain
1:06:09 and therefore, hey, let’s try to embrace this report
1:06:12 and maybe that will make people not be so angry at us anymore.
1:06:17 Yeah, I think this is something that many campuses are wrestling with internally
1:06:21 and the fact that the adoption of institutional neutrality
1:06:24 is in response to universities taking a position
1:06:28 that was deeply unpopular with both sides within their campuses
1:06:32 and outside of the campus, in a sense that gives me a lot of concern
1:06:37 because it’s not about believing in the fundamental principle of institutional neutrality.
1:06:41 It is a bit of we want the pain to stop and I don’t like that.
1:06:46 I also think that it’s out of step with what students are requiring these days
1:06:49 because in a lot of ways, universities taught students
1:06:51 that what’s important is social justice
1:06:56 and using your voices and then layer that in with the proliferation of social media
1:07:01 where there are some individual students or individual faculty members
1:07:05 who on social media may have a larger platform than an entire university.
1:07:07 That’s not a tenable approach.
1:07:09 I have one last question for you.
1:07:15 One solution that you offer is to allow universities to collude on admissions
1:07:18 which is illegal under the Sherman Act
1:07:20 but apparently you have a way to make it sound better.
1:07:24 Is there a way in which the federal government should consider an exception here
1:07:26 and what would that accomplish?
1:07:28 You have a way of asking questions, Stephen.
1:07:34 So what we show in the paper is that the challenge that universities face is the following.
1:07:39 If they’re in this prestige game where they’re trying to have an admissions rate
1:07:41 that’s lower than the admissions rate of their peers,
1:07:45 then effectively if one university said unilaterally,
1:07:48 “Okay, we’re going to open up the aperture a bit more,”
1:07:51 that university becomes less selective relative to its peers
1:07:54 and its peers are not going to voluntarily disarm.
1:07:58 And so you have a situation that’s similar to a prisoner’s dilemma game
1:08:02 where it’s in everybody’s best interest to expand supply
1:08:05 but then no one’s unilaterally going to do it.
1:08:10 One great example of this would be I think it was 2007 to 2010.
1:08:16 Harvard, UVA, and Princeton all did away with their early decision and their early action programs.
1:08:18 And the thinking was the following.
1:08:22 By having a two-tiered admission system where you allow some people to apply early
1:08:24 and have a higher probability of getting in,
1:08:27 you’re privileging people who are wealthier, who go to better schools,
1:08:29 who are a lot more connected.
1:08:34 And the thinking was that other universities would follow Harvard, UVA, and Princeton in doing this.
1:08:36 You know what happened?
1:08:39 Yale, Stanford, and others did not follow.
1:08:45 And it was exactly during that time that Harvard’s admissions rate went up relative to Yale and to Stanford.
1:08:50 And then Stanford leapfrogged Harvard as the most selective university.
1:08:54 And in 2011, Harvard reversed course.
1:09:00 Now all of the equity arguments that were made in 2007 still applied in 2011.
1:09:02 What changed?
1:09:04 Stanford was cleaning our clock.
1:09:06 So we’re not advocating for collusion.
1:09:14 But what we’re saying is that this is a situation in which you need some form of cooperation between universities.
1:09:22 This might be something where the government says, “Look, we want you to expand supply as a condition of getting additional resources.”
1:09:27 Or maybe we will start taxing your endowment a little bit more aggressively until you expand supply?
1:09:35 I do think that universities face a lot more scrutiny unless we’re able to make a really clear argument for the ways in which we’re serving the public.
1:09:43 And I do believe that by expanding, this is a very clear demonstrable signal that you’re opening up opportunity to a lot more people.
1:09:45 I think it’s an easy win.
1:09:50 I’d like to thank Peter Blair for this conversation.
1:09:53 I learned a lot from it and I hope you did too.
1:09:59 Coming up next time on the show, we conclude our updated series on the economics of higher education.
1:10:01 Until then, take care of yourself.
1:10:04 And if you can, someone else too.
1:10:09 Freakonomics Radio is produced by Stitcher and Renbud Radio.
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1:10:22 This episode was produced by Zach Lipinski with help from Dalvin Abouashi.
1:10:33 Our staff also includes Alina Kulman, Augusta Chapman, Eleanor Osborne, Elsa Hernandez, Gabriel Roth, Greg Rippin, Jasmine Klinger, Jeremy Johnston, John Schnars, Julie Kanfer, Lerick Bowditch,
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1:10:45 As always, thank you for listening.
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