Elite higher education in America has long been a Veblen good—a commodity that obeys few, if any, conventional laws of economic activity. In some cases (chiefly among the children of the serene professional elders perusing the Sunday New York Times), the higher the sticker price of a particular college or university, the more attractive it is. Raise the price and then offer a “discount,” and applications will fly in and better students will enroll. Private colleges and universities figured out this marketing strategy about twenty years ago. That’s a major reason that private college tuition has skyrocketed over the same time span, often at more than double the rate of inflation. Because university administrators know they have an essentially captive client base, they can mark up their sticker prices with impunity.
Economists call things “Veblen goods” when they violate standard models of supply and demand—mainly in cases when an ongoing spike in price works, perversely, to increase demand. Veblen goods are usually luxuries, or at least luxury versions of goods that might be considered necessities in general. Higher education seems to comport with the trend: as the prospects dim for earning a decent wage and forging a comfortable life without a bachelor’s degree, we are told we must increase the number of bachelor’s degrees floating around the economy. And as that number increases, some versions of the degree have become even more valuable in the eyes of tastemakers and nervous wealthy people.
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