Free Ride

What is the most powerful word in advertising?

Anyone who has ever taken a marketing course or an advertising seminar knows the answer to that question. The word is “free.”

I’ve worked in and around advertising for most of my life, and consider myself relatively cynical and inured to its charms, but the magic word still works on me as though it were somehow encoded in our DNA. I’ll give you one recent example.

I spend much of the winter in Florida, and there’s a place down there that I will often stop into of an evening. It’s an old barn that offers an appealing mix of blues bands, draft beer and fried seafood, but I was looking at their monthly event calendar the other day and noticed an interesting anomaly.

On many nights there is a $5 cover charge at the door, but there is never a charge on Tuesdays or Thursdays. Without realizing it, I had been choosing these nights to patronize the place, even though at this point five dollars can make little difference to my life one way or another.

If the word “free” can affect the behavior of a person like me, when the stakes are so low, just imagine how powerful it could be when coupled with something really significant. Would it get your attention if somebody offered you a free house?

Politicians figured out this dynamic a long time ago, and have been promising free stuff to prospective voters for generations past. To avoid implications of buying votes with public money, the word itself was not normally spoken. Until recently, that is.

This presidential season has been surprising, to say the least, in many respects. One of the surprises has been the nearly complete rejection of what they call “identity politics,” or the assumption that voters will side with candidates from their own demographic. Women have not really embraced the female candidates, nor have Hispanics backed Hispanics. The rich guy in the race has been heavily supported by lower-income people.

Bernie Sanders, at 74, was the oldest of the 21 major presidential hopefuls, but his support in the primaries came largely from college students and twenty-somethings. In his case the disparity between the supporters and the supported was very easy to understand. At every opportunity, Bernie proclaimed that all public colleges and universities should be made tuition-free, in order to provide America with “the best-educated workforce in the world.”

The appeal of this notion is obvious. Since the 1970s, the cost of higher education has risen faster than any other commodity, two to three times the rate of inflation, creating a crushing burden on students and their parents. College loan debt has now reached $1.2 trillion.

After the cheering at a Sanders rally died down, though, even college students had to realize that the government paying for something doesn’t make it free. As a matter of fact, the government tends to pay a whole lot more for things than anyone else does.

The price tag that Bernie attaches to this proposal is $70 billion per year, which reflects the tuition revenue that is currently being collected by state and local governments. He says he will pay for it by applying a new tax on investments made by Wall Street banks.

Economists are skeptical about the math, but for the sake of argument let’s just assume that it works. That makes the whole thing seem very tidy, but there is a quote from Ronald Reagan that I always use to analyze proposals from politicians. “If you want more of something, subsidize it; if you want less of something, tax it.”

What do you suppose would happen to investment in new business ventures if there were a large tax imposed on it? I won’t pretend to know the answer to that question, but I’m guessing that it would not be good news for the job market.

The subsidy side of the equation may be even more problematic. Assuming that more people would attend public colleges if they were tuition-free, the cost to the taxpayers for operating those institutions would be much greater than it is now.  Physical plants are already stressed, so there would have to be new academic buildings, plus professors, administrators, housing, food services, security, maintenance, parking, and so on.

Those taxpayers, by the way, may not be too thrilled about paying the tuition for other people’s kids to attend a school that their own kids can’t get into. That scenario will be commonplace, as the more exclusive public schools will presumably become even more selective.

Then there is the effect that Sanders’ plan would have on private colleges and universities. The wealthy and prestigious old schools would probably not suffer to seriously, especially seeing as some of them have such huge endowments that they could get by without charging tuition themselves if they had to, but there are hundreds that could not. The less exclusive private schools are collectively an important part of our higher education system, and many of them could not survive with smaller enrollments.

Aside from the possibility of unintended consequences, there are a couple of other points that are worth considering in regard to the idea of eliminating public-college tuition. One is that it isn’t a program aimed only at the poor. Bernie Sanders makes clear that it is free tuition for everybody, and 56 percent of the students who currently attend public colleges are from families with above-average income.

Sanders likes to tell audiences that his ideas work in other countries, but in this case that can be somewhat misleading. There are countries with state-paid tuition, and there are countries with better-educated workforces than our own, but they are not the same countries.

The U.S. ranks ninth in the world for post-secondary educational achievement. The top three, South Korea, Japan and Canada, do not subsidize college tuition, and are actually dealing with the same college-loan debt problem that we are.

I have a number of problems with the zero-tuition idea, but ultimately there is one issue that makes the rest seem like quibbles. Government is simply not as good at controlling cost as private citizens and businesses are, because it does not have the same incentives to do so. If you think the cost of a college education has risen rapidly in the past, just wait until it becomes socialized.

As the late Yogi Berra might have put it, those free things are expensive.

Two of the true pioneers in the school supply industry, Luella Connelly and Peter Li, passed away in March. Both were friends and mentors to me, and I will never forget their kindness.
(See page 42.)

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