I read The Fall of the Faculty a couple months ago, partially because it was cited in an ongoing discussion on our campus about what is to blame for higher educational costs. My general operating assumption is that of all influences on educational cost, cost disease has the biggest (and most relentless) impact. I was hoping The Fall of the Faculty would provide a strong counter-argument, but what it provided instead was an unsupported hypothesis — the costs are all the result of administrative bloat, brought on by a 1980’s takeover of the university by pointy-headed management types.
I was reminded of that reading Bowen’s excellent lecture on Cost Disease and higher education, especially when looking at this graph:
These are privates, of course, but if you look at the graph (which covers costs from 1905 to 1965) it’s pretty obvious that any theory of increasing educational cost that treats it as a recent phenomenon is seriously flawed.
Most attacks on the cost disease theory I’ve seen fail to deal with this fact at all. Conservatives want it to be Pell Grants distorting market efficiencies, whereas liberals want it to be the evil corporatization of the university (The Fall of the Faculty takes this to the extreme). It’s hard to look at this graph and see either of those explanations as sufficient.
Hapgood 
At no point in Bowen’s lecture does he explain why the Baumol effect should lead to a differential increase in the cost of education (as compared with other sectors). He asserts it, sure, despite the fact that the Baumol effect seems to be only an account of how wages in all sectors rise proportionately, despite differential productivity gains.
He shows a graph that says education costs are indeed increasing disproportionately, fine, but that’s hardly an explanation of why the Baumol effect would be the mechanism behind this. The theory behind the claim seems very weak.
In other words, the Baumol effect may tell us why we don’t pay teachers the minimum wage, despite the fact that manufacturing productivity has rocketed past teaching productivity, but that’s not at all the same as explaining a differential increase – why education should be increasing so much faster.
So I must be missing something in the logic.
Well, the key to the link there is that the CPI is an average. As other industries get cheaper, they pull the average down. Something that is for all intents and purposes the same productivity becomes more and more expensive relative to the average. On a weighted basis, by definition, as many things in the basket have to get more expensive as get cheaper….Am I understanding the question right?
One way to visualize it is an exam that is renormed yearly. Or IQ. Most of the world scores better or the same on IQ tests as they did 100 years ago. But any demographic whose intelligence has stayed the same will see their scores plummet. The will be getting “dumber” the same way education is getting “more expensive”. (If I am not getting your question let me know)