QUOTE OF THE DAY. The latest reckoning of tuition "inflation" is out, and again, the grousing is loud.

"When public companies face budget shortfalls, they search for ways to become more efficient, and to cut their costs," said James Boyle, president of the group College Parents of America. "For colleges and universities to continue to hold the public trust, they must also look for ways to hold down their costs, and not simply continue to raise the price they charge to students and their families."

Accounting for grant aid -- from the government and other sources -- the actual cost for the typical student is substantially lower than the sticker price: about $2,700 in 2006-07. But that's 8 percent higher than last year.

Memo to Mr. Boyle: go after the providers of grant aid, and ask yourself by how much the premium to a degree has increased.

The quote of the day comes toward the end of the article.

Colleges defend the increases by pointing to growing enrollment demands, and saying teaching and research aren't like other businesses, where the main costs can often be reduced through greater efficiency without harming quality.

"I could cut costs immediately by just having everybody in a larger class. I could also cut costs by not recruiting the best faculty," said James Moeser, chancellor of the University of North Carolina-Chapel Hill, which has recently significantly expanded access for low-income students.

A university administrator inevitably must follow a correct statement with a howler.

But, he added: "low tuition with low quality is no bargain." In such a world, low-income students would scrape by to subsidize "the children of bank presidents." The better answer, he said, is prices that reflect true costs and financial aid for those who need it.

Well, no, the children of bank presidents would be active in the positional arms race. The excess demand is for Chancellor Moeser's neighbor to the northeast and the institutions further northeast that it claims to emulate.

Apparently the Spellings Commission doesn't get it either.

But a national commission on higher education, while calling for more government funding, also said colleges deserve some blame for rising prices. Its report, finalized last month, noted colleges have few incentives to lower spending because doing so lowers their prestige. It also says they are using much of their revenue on dubious student services like "state-of-the-art fitness centers and dormitories."

I'd better get a tutorial together on the Principle of Derived Demand. The advanced theory class is grappling with the logic of factor price equalization and the Stolper-Samuelson theorem, and the idea of product prices determining input prices, rather than the other way around, still poses a challenge.