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