Keynesian Community College

Susan Dynarski had a good piece in The New York Times last week about public colleges and universities as economic shock absorbers. The short version of the piece is that economic booms lead to declining enrollments, especially at community colleges, because robust job markets increase the opportunity cost of education. But policy makers shouldn’t allow colleges to slip into free fall, because (among other reasons) the beast of economic cycles has not been tamed. When the next recession hits, and it will, people will flock back to public colleges. If those colleges have been sold off for parts in the meantime -- hat tip to Sarah Kendzior for the metaphor -- then they won’t be ready (or worthy) when they’re needed. At that point, people will once again be easy prey for unscrupulous operators, especially now that the Department of Education has done the groundwork to allow accreditor shopping.

There’s a lot going on there, but it rests on a simple, if poorly understood idea: Keynesianism.

In academic political economy circles, Keynesianism is regarded as somewhere between yesterday’s news and a catchall term implying either approval or disapproval, depending on your angle to the universe. (For those keeping score at home, I’m intrigued by modern monetary theory. But that’s a post for another day.) For policy-making purposes, though, it’s pretty straightforward. It’s the idea that by acting as a counterweight to the rest of the economy, the government can keep things from going off the rails. If the economy starts overheating, this theory holds, the government can and should raise taxes to prevent inflation from getting out of hand. If the economy skids, the government should borrow and spend to generate demand and get things right again. By zigging when the rest of the economy is zagging, it prevents the economy from leaning too hard in either direction and capsizing everything.

It sounds easy, and at one level, it is. But people get it wrong all the time. No Keynesian would ever say, for instance, that the government should be run like a business. It manifestly should not. It should act as a counterweight to business, as well as an umpire.

Public institutions like community and state colleges, public libraries, and job-training programs function sort of like Keynesians say the government should: they serve more people when the economy tanks and fewer when it’s doing well. The catch, though, is that they need to maintain capacity during the slow times, because they can’t ramp up very quickly. For instance, if we were to react to enrollment shifts by eliminating the automotive tech program, as some of our neighboring colleges have, we’d save money in the short term. But when the next recession hits and students come looking for something employable, we wouldn’t have the program anymore. We’d have to rebuild; by the time we did, years would have passed. Maintaining it when enrollments are slack requires funding to replace lost tuition.

When tuition was a relatively small piece of the budget, it worked well as a sort of Keynesian stabilizer. It went up when enrollment did, mostly covering the marginal cost of the next students, but we had operating funding to cover the base when enrollment dropped. Over the years, though, tuition has become the majority of the budget. When that happens, we’re basing permanent commitments -- like tenure -- on fluctuating revenues. That’s not sustainable. Colleges sometimes compensate by moving more of the faculty to contingent status, but that just offloads the unsustainability from the institution to individual people. And over time, it can have negative effects on quality, thereby defeating the purpose.

Recessions happen slowly, and then quickly. We need to be ready when they do. That requires not asking Keynesianism to do more than it can handle. When tuition is a smallish part of the budget, it works according to the theory. But when it’s a majority of the budget, the only way to get through the lean years is by reducing capacity. It’s a mistake, and an avoidable one.

Brookdale’s enrollment peaked (as did Holyoke’s) about a year after the Great Recession hit. Both colleges were in a position to handle it because they were coming off years of steady growth. After years of steady cuts, the next recession will be much harder to handle. Given that other Keynesian mechanisms are about as cheap as they’re going to get right now, this is the time to reinvest and rebuild that capacity. If we wait for tuition, it’ll be too late.