HUH?

What's driving all this risk-taking and excitement? Many people are convinced that the MOOCs can rein in the rising costs of colleges and universities. For decades, the price of tuition has outstripped the pace of inflation. Over the past ten years, the average sticker price at private colleges has increased by almost 30 percent (though net tuition has risen less because financial aid has grown even faster). At state universities, the problem has been exacerbated by public disinvestment. For example, less than 6 percent of the annual budget of the University of Virginia is covered by state funds. Last fall, I heard the chief financial officer of an urban public university put the matter succinctly: The difficulty, he said, is not so much the cost of college, but the shift of the financial burden from the state to the student.

There are many reasons why college costs continue to soar: the expense of outfitting high-tech science labs, the premium placed on research that lures faculty out of the classroom (and, in turn, requires hiring more faculty to teach classes), the proliferation of staff for everything from handling government regulation to counseling increasingly stressed students. At some institutions, there are also less defensible reasons, such as wasteful duplication, lavish amenities, and excessive pay and perks for top administrators and faculty.

But the most persuasive account of the relentless rise in cost was made nearly 50 years ago by the economist William Baumol and his student William Bowen, who later became president of Princeton. A few months ago, Bowen delivered two lectures in which he revisited his theory of the "cost disease."1 "In labor-intensive industries," he explained, "such as the performing arts and education, there is less opportunity than in other sectors to increase productivity by, for example, substituting capital for labor." Technological advances have allowed the auto industry, for instance, to produce more cars while using fewer workers. Professors, meanwhile, still do things more or less as they have for centuries: talking to, questioning, and evaluating students (ideally in relatively small groups). As the Ohio University economist Richard Vedder likes to joke, "With the possible exception of prostitution . . . teaching is the only profession that has had no productivity advance in the 2,400 years since Socrates."

This is a true statement--but it unwittingly undercuts its own point: Most people, I suspect, would agree that there are some activities--teaching and prostitution among them--in which improved productivity and economies of scale are not desirable, at least not from the point of view of the consumer.

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