The Case for Reform in Education and Health Care

This morning I delivered a speech before the Association of American Universities, an association of 62 major public and private research universities in the United States and Canada. The slides from my talk can be found here (pdf).

The talk examined both education and health care from the perspective of both hard heads and soft hearts (taken from the title of a book* written by Alan Blinder about twenty years ago, which had a major influence on my thinking regarding economic policy). 

My talk first addressed education. Substantial evidence exists that growth in educational attainment has been a key engine in generating U.S. economic growth over much of our nation’s history. This is why it is troubling that the growth rate in U.S. educational attainment has slowed dramatically for the generations entering adulthood around 1970 and thereafter. Consider this: the average educational attainment of natural-born U.S. citizens jumped from just over seven years of schooling for those born a decade after the Civil War to just under 14 years of schooling for those born in the years immediately following World War II. By contrast, the average years of schooling for those born in 1950 versus those born in 1975 rose only by about one year.

This slowdown in the growth rate of educational attainment is a problem both in terms of attenuated economic growth (the hard head part) and increased economic disparities (the soft heart part). As Claudia Goldin and Lawrence Katz have shown, both effects are traceable to a decline in the relative supply of highly educated workers – which dampens economic growth while also increasing the wage premium for being a college grad. Said differently, the fewer college grads we produce, the slower overall economic growth and the higher the salaries for those fortunate enough to go to college. And since we know that those from lower-income families are less likely to go to college and graduate (as compared with students from higher-income families with similar test scores), the overall result is that we perpetuate inequality.

This is why the Administration worked to temporarily expand the maximum Pell Grant award in the Recovery Act to $5,550 and why the President’s Budget has called for making that expansion permanent. We also have proposed to make Pell a stable and predictable mandatory program that is indexed in future years to better keep up with the growth in tuition costs. It’s also why we proposed to dramatically simplify the federal student aid application. And it is why the Administration is increasing investment from early childhood to high school, while pursuing a host of reforms to improve elementary and secondary schools’ quality – from strengthening the effectiveness of teachers, to refining accountability systems, to unleashing more successful charter schools to serve students most in need. Taken together, this will make it easier for lower-income kids to apply and go to school and move us closer to the President’s goal of leading the world in college graduation rates by 2020.

One might think that health care costs were unrelated to educational trends, but that would be wrong. For years now, there has been a long-running trend toward declining State investments in public universities, as growing health care costs come to crowd out States’ investment in higher education. For example, from the late 1970s to the early part of this decade, State appropriations for higher education have declined from about $8.50 out of every $1,000 in personal income to only a little more than $7 out of every $1,000 in personal income – a decline of roughly 15 percent. The declining rate of investment by States in their institutions of higher learning can also be seen in the declining salaries that faculty members at public universities have commanded over the past three decades relative to their counterparts at private universities. At the same time, these pressures yield tuition hikes, program cuts, and a general strain on our public universities.

Now, many of you have heard me go on about how important it is to reform health care in order to bend the curve on long-term costs and get our nation on firmer fiscal footing – and this data shows how critical that effort is. When we say that health care is consuming too much of our GDP, we are not just citing an abstract statistic. These costs have real implications in sectors across our economy, limit our economic growth, reduce opportunities, and harden inequalities.

This is why the Administration is making historic investments through the Recovery Act in efforts that will be crucial in bending the curve on the growth of health care costs while improving the health outcomes we can expect from our medical system. We are investing over $19 billion in health information technology to help computerize Americans’ health records, which will reduce medical errors and enhance the array of data that physicians and researchers have at their disposal. We are investing $1.1 billion in comparative effectiveness research, which will yield better understandings of which medical treatments work and which do not. And we are investing $1 billion for prevention and wellness interventions, which will help reduce the impact of chronic diseases and reduce costs.  And in the President’s budget, we make a historic down payment on fundamental health care reform – a commitment also embodied in the budget resolutions passed in Congress.

Improving the efficiency of health care is hard-headed, but it’s also soft-hearted. For example, while life expectancy in the United States has been steadily increasing for the past several decades, these recent gains in life expectancy have not been shared equally across socioeconomic groups, and health differences by educational attainment and income have been growing. Health reform could help to attenuate these trends.

Our goal, plain and simple, is to get health care reform done this year.  It’s a goal that all Americans should embrace including our universities.  After all, if we can get costs under control, it will make it easier to invest in opening the doors to college for all.

* Alan S. Blinder, Hard Heads, Soft Hearts: Tough-minded Economics For A Just Society (1988)