Keynesianism at One Remove

"It's not just Illinois and New Jersey."

Eight years into an economic recovery -- as Janet Yellen has noted, recoveries don't die of old age -- public higher education in most states is still struggling just to tread water financially.  

Part of that has to do with the fact that states can't run deficits. And part of it has to do with the political usefulness of blame-shifting.

Historically, states have used higher education as a balance wheel in budgets: cut in bad years, restore and build in good years. But we're at a frustrating point at which we're getting cut in what should be, by most objective measures, historically good years. Illinois finally passed a budget after a standoff that lasted over a year, and it had to override a veto to do it. New Jersey shut down for a few days, leading to a meme-worthy viral photo of the governor, but it didn't really solve its underlying issues.  Arizona has zeroed-out funding to several community colleges. Connecticut is forcing community college presidents to double up, apparently with the goal of firing all but one of them in the next couple of years to save money.

Underlying costs keep going up, of course. Flat or declining subsidies don't take account of that.  

Part of what makes states reluctant to invest is that most of the services they fund are labor-intensive. K-12, corrections, and Medicaid are expensive, and mostly lack alternate revenue streams. And since most states aren't allowed to borrow for operating budgets, they can't do the sort of Keynesian counter-cyclical stimulus spending that the Feds can. The closest they can get is to shift more college costs to students, who can then access Federal financial aid to pay for it; it's Keynesianism at one remove, but with more convenient politics. A legislator who supports taxes to pay for higher education becomes a target of predictably nasty campaign ads; a legislator who forces colleges to raise tuition instead gets to run as a fiscal watchdog, and gets to bash out-of-touch academics at the same time.  

Every so often a recession comes along and provides a brief Keynesian stimulus in the form of enrollment spikes, but regression to the mean kicks in after a year or two. Recessions offer reprieves, as opposed to solutions.

When one funder can go counter-cyclical and the other can’t, things get off balance quickly. Doing Keynesianism correctly implies that when states are flush again, they would put the money back. But they don’t. Instead, we get stuck in a gradual ratcheting-down. In the case of my own college, for instance, the state is supposed to supply 33% of the operating budget; it’s currently supplying 13%. And that’s after eight years of economic expansion.

(At the Aspen program, I mentioned to a colleague from Arizona that now that he had been zeroed out by the state, he’d never endure another cut again. He smiled and allowed that I had a point.)

I’m glad that Illinois and New Jersey ended their shutdowns, but that doesn’t mean that the issues are solved. At a really basic level, I don’t think they’re even understood.