Subsidies Raise Prices
By Arnold Kling
Steve Pearlstein uses his column to explain some freshman economics.
What two things do a college education, health care and housing have in common?
One is that the price of these things has been rising at least twice as fast as other prices. The other thing is that they are all subsidized by government…
Let’s take college tuition…But the reason, in the end, that they do raise prices is, like any business, because they can. And one of the big reasons they can is the ever-increasing amount of public money pumped into the system in a losing effort to keep college “affordable.” In effect, these well-intentioned subsidies have the perverse effect of shielding colleges from the kind of market discipline that would have forced them to hold down prices by constantly improving their productivity and efficiency, as happens in just about every other industry.
For Discussion. How could subsidies be constructed so that they serve to help the intended beneficiaries (poor people wanting to attend college) with minimal effect on the overall cost of college?