EXCESS DEMAND FOR ONE TYPE OF UNIVERSITY, EXCESS CAPACITY IN ANOTHER?  Tyler Cowen sees the opportunity for universities to move up the academic food chain, should they be so inclined.
The price of higher education is rising -- rapidly -- and yet a) individual universities do not have strong incentives to take in larger classes, and b) it is hard to start a new, good college or university.  The key question is how much a) and b) are remediable in the longer run and if so then there is some chance that the current structure of higher education is a bubble of sorts. 
A bubble there might be, and at the same time it coexists with a positional arms race. Thus, the fix.
I never see the authors utter the sentence: "There are plenty wanna-bee professors discarded on the compost heap of academic history."  Yet the best discard should not be much worse, and may even be better, than the marginally accepted professor.  Such a large pool of surplus labor would play a significant role in an economic analysis of virtually any other sector.
To some extent, that pool is wasted. Interview with a few top departments and a few middling departments, don't make the cut at the top departments, now deal with we're-not-as-good-as and don't-make-us-look-bad and with the guilt trippers who will enable weak students and call it access.

Matt Yglesias suggests that more subprime capacity will help contain costs.
What you could plausibly hope to see happen is the creation of an institution of higher education that’s (a) much worse than the University of Michigan, (b) better than nothing, (c) radically cheaper than the University of Michigan, and (d) scalable. Then you could imagine a model like that moving incrementally up the quality ladder.
Isn't it simpler to have the institutions closer in mission, staffing, and student body to Michigan to be more like Michigan, and for the institutions closer to Eastern Michigan to be more like Eastern Michigan, and so on ... the institutions not capable of lifting their game at all, or of finding students who can meet the demands, get shaken out?

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