PERFECT PRICE DISCRIMINATION? Several posts consider the future of state subsidized universities. At Inside Higher Ed, Wick Sloane wonders when the legislatures broke the old social contract under which taxpayers picked up much of the tab for in-state students. But dig deeper. Why ought there be a public subsidy for purely private benefits? Particularly when the beneficiaries are either currently well off or likely to be well off in the near future?

Our national policy is that we can’t find more money for student aid. Yet billions appear for Katrina overnight. This may be deficit spending and raises all sorts of questions to debate. It is our policy that Katrina is more important than creating a work force to sustain the nation.

This was a chief financial officer of a major university?? And he doesn't grasp fiscal stimulus? There is a more challenging point, namely, ought the national government be the insurer of last resort against acts of nature. Or, one might view the government spending as isomorphic to a liability settlement. It was, after all, the government's flood walls that gave way.

But all of those are different from workforce development, which is properly a private function. There is nobody in the academy or in government clever enough to anticipate the skill requirements of the U.S. or the world economy in five years, let alone fifty. The best we can do in the university is equip our charges with the ability to think for themselves and adopt on the fly. But those are purely private benefits, to be appropriated by graduates as employees and by their employers, and the academy ought properly harvest its share of gains from trade.

Mr Sloane's focus is on the consequence of policies that, in his view, shut out determined but poor students. Perhaps his point is that financial aid policies, including state-specific tuition subsidies, limit access to strivers. Something similar seems to be motivating James C. Garland of Miami of Ohio (that's the mid-major, not the street gang), who notes,

When states pay their universities to hold down tuition charges, they are indirectly subsidizing wealthy and poor students alike.

Regular readers of these pages know this. Higher education offers many possibilities for identifying reservation prices and selling to marginal buyers at cost, or below cost. That universities have the ability to sell at or below costs to low-income strivers but increasingly reveal a preference to offer those benefits to high-achievers irrespective of ability to pay might suggest that there are relatively few low-income strivers. So-called "need based" financial aid might be attracting students of little ability and life-management skills to match.

What would Mr Garland have the legislators do?

Finally, reallocate the freed-up subsidy dollars to scholarships for new undergraduate and graduate students. The scholarships, valid at any accredited four-year college in the state, would go primarily to middle- and low-income students, with some reserved for engineering majors, math teachers and other groups that meet state needs.

Consider the consequences of this change:

Middle- and low-income students' degree costs would significantly decrease; others would pay a larger share of their college costs.

Universities and colleges would scramble to attract scholarship-holding students. Students would choose schools that offered them the highest-quality programs, the most value and a competitive tuition. Colleges that lost market share would either improve their offerings, lower their prices or risk going out of business.

Lacking an automatic pricing advantage, formerly public colleges would raise tuition to make up their revenue shortfall, but no more than the market would allow.

I wonder if Mr Garland favors vouchers for primary school, as this is essentially what's proposed here, along with elements of industrial policy. Math teacher scholarships? What good will these be without better working conditions for math teachers? Will financial aid offices still be able to practice yield management? Given the college degree premium particularly in technical fields, there is likely to be some upside potential in tuitions. That makes the gushing praise the American Council of Trustees and Alumni weblog offers Mr Garland look less good.

Garland's is a neatly libertarian model of how to use market forces both to liberate public institutions and to regulate them. By freeing themselves of dependency on subsidies that are at once grudgingly given and never enough, colleges and universities recover the freedom to use the funds they generate as they see fit. And, by competing openly with one another in the marketplace, colleges and universities will be forced to ensure that they spend their money well and that they offer a reasonably priced product. Meanwhile, privatization becomes, ironically, the means of restoring financial accessibility to a higher education system whose skyrocketing price tags have made it increasingly exclusive and anti-democratic.

Um, if enterprises that rely on subsidies are to lose their subsidies, won't there be fewer such enterprises? If that's the case, won't the supply curve shift to the left and the equilibrium price tend to rise? Somehow, we're going to get a leftward shift in supply and sufficient fat squeezed out that on net the equilibrium price will be lower?

Perhaps, but not the way Mr Garland envisions it. First, colleges and universities have to generate the funds in the first place. State-supported universities will have to replace the subsidies, either by landing more voucher students or by raising their visibility, or drop some programs, or close. It is thus doubtful that the proposal would have the anticipated effect on competition. Furthermore, whether you want to call the third-party payment a voucher or a guaranteed loan or a subsidy, it is still a third-party payment. Students will have less incentive to shop around and administrators less incentive to cut out the expense-preference behavior. To obtain lower tuitions and greater enrollment requires both shopping around and an end to that behavior.

Reason's Neal McCluskey gets it.

Student aid, for one thing, has been plentiful for years, and has been growing faster than college costs. According to data from the College Board, while over the last decade the average, inflation-adjusted, per-pupil cost of tuition, fees, room, and board grew 32 percent at private four-year institutions, and 42 percent at public four-year schools, aid per full-time equivalent student ballooned 62 percent. Moreover, despite what student advocates try to tell us, the increase in assistance hasn't come primarily through loans. Inflation-adjusted grant aid per full-time equivalent student, which recipients never have to pay back, grew 51 percent between 1994–95 and 2004–05, from $2,965 to $4,479.

Of course, someone has had to pay for all this unappreciated generosity, and as is so often the case that someone is you, the taxpayer. Between 1994–95 and 2004–05, total inflation-adjusted student aid provided through state and federal grants and subsidized loans ballooned from $37 billion to almost $69 billion.

In those sums, plenty of money for climbing walls and dorm suites with floors reinforced for big-screen entertainment centers.