Making things free only makes them more expensive.
Making things free sounds like a good policy idea. Who doesn’t like free things?
These days, a lot of policy-makers are calling for no prices (or at least lower prices). “Free higher education” is the form this refrain takes the most, especially during presidential debates.
But free higher education is a policy unicorn. Making college free sounds great, but it will bring great harm instead of great benefits.
Free of Charge, but Free to Provide?
Presumably, the goal of making college free is to make it more widely available. We’re facing a problem of scarcity, constraints, and, ultimately, tradeoffs.
The key to human flourishing in a fallen world marked by scarcity is to overcome and, if possible, eliminate tradeoffs. Unleashing human creativity and entrepreneurship is the best way to do this. If college is a path to more entrepreneurship, greater technological innovation, and higher incomes, wouldn’t cheapening the cost of college increase all these things?
Paradoxically, lowering the cost of college will increase the cost on society. And it won’t make entrepreneurship and creativity more widely available, either.
Economics teaches that reducing or eliminating prices induces greater consumption. Think about your favorite ice cream flavor or pair of shoes. You consume more of these things when their price drops. It’s as predictable as gravity.
The same thing will happen with college. If we reduce the price of college to zero, we will encourage inefficient consumption of higher education.
Inefficient? What does that even mean?
College dropout rates are at an all-time high. One-third of all students who enroll in school will drop out before finishing. This is a tragic unintended consequence of inducing more students to attend college, regardless of their needs. This also makes college incredibly expensive for everybody.
Eliminating prices doesn’t change the level of scarcity of any item, college included. Making college free of charge doesn’t make it free to provide. Professors still need to be paid. The lights still need to be turned on. The janitorial staff is still required. Eliminating the price doesn’t eliminate the resources required to provide the education. Somebody still has to pay those costs, even if students aren’t.
So making college “free” just makes it more expensive, because now we have to find a way to pay for all the resources more students will be consuming at higher levels now that the price is (theoretically) reduced. And now we know that one-third of those students will consume those resources only to later drop out altogether.
Prices Help Solve the Problem of Higher Education
Policy makers cannot eliminate prices any more than meteorologists can fend off snowstorms. Snowstorms happen. So do prices. The difference is that prices are critical to better stewardship of our scarce resources.
Prices bring together the people who want to consume college the most with those who can supply it best. Increasing higher-education opportunities and alternatives happens when competition in the supply of college exists. That means opening more universities or providing professional certificates and vocational schooling. This competition will also drive down prices of higher education over time.
If we want more people to be able to afford and attend college, we need to allow the market, through buyers and sellers, to innovate, create alternatives, and compete to lower costs. In college, as with any other good, prices provide transparency and encourage innovation – we need more of that, not less.