The chief reason the government is $18 trillion in debt is that we spend money we don’t have, and Mrs. Clinton’s idea will make sure that “it don’t have” even more money in the future...let’s say, ten years, because her plan calls for the federal government to spend $350 billion in ten years on this “free” tuition. A succinct bon mot current a few years back was, “If you think healthcare is expensive now, just wait until it is free.” Obamacare has brought that expression to reality, and Mrs. Clinton’s plan will do the same.
To be fair to Mrs. Clinton, her idea was not entirely original. Earlier this year, President Obama proposed making two-year college free, and in typical “anything you can do, I can do better” style, Mrs. Clinton is upping the ante. Sad to say that both plans ignore economic reality and will do nothing to control the costs of education, which continues to spiral out of control even as governments feed more money into it. Hmm...could there be a relationship, a cause and effect, at work here?
An expensive good does not become cheaper if its consumers are shielded from its cost. But that is what “third-party” payers claim as their motivation – the cost is exploding and they will help keep it affordable by giving you money to spend on it. That’s why the word “affordable” is the first word in Obamacare’s official name, and it also is why Obamacare is not affordable.
The cost of college is out of control for many reasons, but perhaps the chief one is that we continue to underwrite the expense even as the cost soars. Look at how much more expensive college is today, despite the billions of dollars of low-interest loans, grants, scholarships, subsidies, and so on. Those things are intended to protect the college student from the full brunt of the cost, but instead the cost of college keeps pushing higher and higher.
Question - How can a business thrive even if its goods are priced higher than the market will bear? Answer - When someone subsidizes the cost of that good. Subsidies remove the signals that the price system sends. They distort the market. They create a floor under prices (and often, a “rising floor” that grows higher with time). Ethanol is an example of this; subsidies for green cars or green energy are another. The whole system of tax credits – which were approved in order to ease the burden for users of certain products – has the effect of keeping the cost of those products higher than it would otherwise be.
College is one of the more visible examples of the unintended consequences of subsidies. It was growing expensive, so politicians decided to help out by sharing the cost, that is, providing cheap loans or tax deductions or credits or something similar, or perhaps providing outright cash. But actually, this keeps the consumer from knowing the full cost of the good; thus allowing the producer to keep his cost high because someone else is paying for it. Surprise! The cost continues to rise, and who is on the hook? The taxpayer, of course. But, come election time, the voters will remember who “tried to do something” about the cost of college. This formula also drives up demand for the good, and just as health insurance companies got on board with Obamacare because it promised them “forty million new customers,” so too will most college administrators get on board with the President’s community college plan and Mrs. Clinton’s four-year college plan, because it will guarantee them more customers. The item may be more expensive than you can afford, but don’t worry, the “government” will make up the difference, so go ahead and buy it anyway.