Home > Uncategorized > Free college and pay-by-the-mile auto insurance

Free college and pay-by-the-mile auto insurance

from Dean Baker

Recently, Washington Post columnist Catherine Rampell reported on the negative reactions of college presidents to the idea of free public college. The context was a media dinner with a dozen college presidents, most of whom were leading non-flagship public schools, according to Rampell.

The presidents were asked if they thought it was likely that the government would adopt free college along the lines proposed by presidential candidates Senators Bernie Sanders and Elizabeth Warren. Rampell reports that no one raised their hand. When asked whether they thought free college was a good idea, again, no one raised their hand.

The negative response to the proposal of free college from a group of college presidents, assumed to be authorities on the issue, was presented as evidence that it is a policy without merit. But my experience on a completely difference issue — the case of pay-by-the-mile auto insurance – offers an alternative perspective.

A bit over two decades ago, Jim Barrett, my then-colleague at the Economic Policy Institute, and I became interested in the idea of pay-by-the-mile auto insurance. The logic is that insurance generally is paid as a lump sum, even though accident risk obviously increases with miles driven. If people paid insurance on a per-mile basis, rather than as a lump sum, it would provide a substantial disincentive to drive. (Most insurers offer low mileage discounts, but these don’t come close to capturing the difference in risk, and people still pay a lump sum for their policy.)

The arithmetic on shifting to pay-by-the-mile policies is striking. A typical policy costs roughly $1,000 a year. With most drivers traveling close to 10,000 miles in a year, this would mean that insurance would cost 10 cents for each mile driven. Having insurance paid on a per-mile basis would provide an equivalent disincentive to drive as a $2.00 a gallon gas tax for a car that gets 20 miles a gallon, and the same disincentive as a $3.00 a gallon gas tax for a car that gets 30 miles to a gallon. (The per-mile charge would vary depending on age, driving record, and other risk factors.)

Given the enormous political obstacles to a gas tax, pay-by-the-mile insurance seemed like a more politically feasible way to discourage driving and reduce greenhouse gas emissions. Jim and I decided to talk to the auto insurance industry group to get their thoughts on the issue. We hoped that they would be open-minded since the proposal didn’t in any way directly threaten their profits; it would just mean changing the way they charged their customers.

We had a couple of useful meetings where they raised potential problems in design. We tried to work through these issues and got helpful feedback.

Our next step was to have a roundtable, where we would include industry people and various policy types interested in the issue. As we tried to arrange the event, we were surprised to get a letter from the industry group telling us that they were not interested in pay-by-the-mile insurance and would not be involved in further discussions on the topic.

As a longtime Washington insider explained to me, the insurance industry was doing fine with the current system. Saving the planet was not their concern. Why should they play around with an alternative billing system?

What does this have to do with the college presidents and free college? Simple: These college presidents are all collecting high six-figure (and possibly seven-figure) salaries. Free college would be a major disruption of the way their schools operate. Why would they be interested in making their lives more difficult?

That might seem an overly cynical view of these college presidents, but if there is one lesson learned from spending a quarter of a century in Washington, it is that you can never be overly cynical about the motivations of people with power. Assuming they take the path of least resistance is generally the best bet. That doesn’t mean that these presidents don’t care about expanding access to a college education. Rather, they would prefer routes that do not seriously disrupt their institutions.

Rampell did note serious objections the presidents raised. Most importantly, she pointed out that if the actual provision of free college was left to the states (with massive federal subsidies), many might leave the money sitting on the table, as they have done with the expansion of Medicaid under the Affordable Care Act.

This and other design issues must be taken seriously by the proponents of free college. However, no one should take the negative reaction of the college presidents as a decisive factor in rejecting the proposal. Instead of being the best people to ask about free college, these presidents, given their self-interest, might well have been the worst.

  1. January 7, 2020 at 4:30 pm

    I don’t understand. Presumably admission criteria won’t change. If a student matriculates then the difference is who deposits the check. What this does is eliminate the fiscal “stick” to attract students and it reduces the administrative overhead in managing finances from multiple sources.

  2. Ikonoclast
    January 7, 2020 at 9:07 pm

    If it ain’t broke don’t fix it. That adage is attributed to T. Bert (Thomas Bertram) Lance from the Carter administration. Of course, the perception that it ain’t broke exists, or not, in the eye of the beholder only. Anyone who earns a six-figure sum annually is quite unlikely to think that any part of the system which touches him (it’s usually a “him”) is broken. At this level, I agree with Dean Baker.

    However, the real problem, in the final analysis, is not the schemes and systems of corporate capitalism. The real problem is the supine “bought-off” nature of the middle class masses. While the baby boomer middle class is comfortable and each household can afford a house (obviously), two or more cars including a large pickup truck, a boat and an annual holiday, nothing is going to change.

    However, this is going to change generationally. Their children if they get a college degree end up with a huge college debt. They cannot afford a house, they cannot afford household formation and they cannot afford indulgences. When the baby boomer generation die off, as they inevitably will, the new class of mature people will struggle to be middle-class at all, except for the one percent. Resentments will rise: ressentiment contre les rentiers.

    The economy will be collapsing due to climate change and resource depletion. An unequal distribution of wealth and rewards will exacerbate matters. Capitalism cannot be reformed, especially not by piecemeal and incremental reforms. Least of all can the system be reformed by market reform. The capitalist market, finance and money system is the problem not the solution.

    Money is not a measure of value. It is a measure of power. Those who possess money possess a prime instrument of power in our system. Only two powers potentially stand above the power of money. These are the powers of education and persuasion on the one hand and the power of violence on the other. Money is backed by violence. The state’s monopoly on violence backs the power of money for and on behalf of the one percent. The middle class comply while they remain bought off. In the West, the middle class (white collar workers) and the working class (blue collar workers) became the “aristocracy of labor”. They were bought off by a portion of the profits from colonialism and imperialism. This includes me off course. I would not be sitting on my ass typing these words if I were not a retired example of the aristocracy of labor.

    This system is breaking down. The flight of manufacturing to China, India, Mexico, S.E. Asia and others is based on the internationalization of capitalism taking advantage of global labor arbitrage. The children of the baby boomers in the West face the loss of their privileged position which it is their destiny to possess only in childhood and youth but not in maturity. The revolutionary resentment of this class will be enormous.

  3. January 8, 2020 at 6:04 am

    No, When the baby boomers die off, their wealth will pass down to their heirs,It won’t just vanish. There will be a lucky cohort who benefit from inheritance. In olden days when people died their estate was subject to estate taxes. Should we bring that back?

  4. ghholtham
    January 8, 2020 at 6:05 pm

    Yes of course we should bring back estate duty. But here’s a question: why is estate duty unpopular even with people who won’t have to pay it? It’s a question for a social psychologist rather than an economist. Until it is answered, the politicians won’t move.

  5. John deChadenedes
    January 9, 2020 at 2:29 am

    I have never been clear about who moderates this blog (if that’s the correct term here). What I can say is that I have now sent in two responses to the “free college” posting by Mr. Baker and neither has appeared on-line. What they have in common: A suggestion that maybe inherent bias (i. e., unconscious racism) on the part of white college presidents might account for at least part of their opposition to the idea of free college. Is that a preposterous thing to suggest? Hint: No, it’s not. But are economists willing to consider motivations other than financial ones in their theories and explanations, even ones that are well-supported by experimental evidence? I will leave it to you to answer this one.

  6. Ken Zimmerman
    January 10, 2020 at 12:29 pm

    How about this for a plan for free college in America? Have an election (assuming we can keep Russia, China, Iran, etc. out of it) in which each state chooses free college — yes? no? For the states that vote yes, move forward with a new federalism plan for federal, state, and local funding of higher education so students pay minimal tuition. For the states who vote no, while their students would still be eligible for federal loans, scholarships, etc., the states would receive no federal funding for higher education.. Everyone gets what they want. Politically, anyway.

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