I think the policy is kind of unfair to Minnesota residents, but instead of blaming Wisconsin, they need to look closer at why they pay more.

From Scholar's Notebook, regarding the news today that the Universities of Minnesota and Wisconsin might end their reciprocity agreement. But you know what the answer will be, don't you? "Minnesota has reduced its 'investment' in higher education." Richard Vedder discusses whether the investment is wise. There are arguments that the return on the investment could be positive or negative.

The first argument suggests that universities have what economists call "positive externalities" or spillover effects. For example, the knowledge gained through education allegedly makes us more discerning citizens, more likely to elect level-headed leaders and not charlatans. The advance in higher forms of literacy facilitates communication, making markets function better. Tolerance learned in the course of advanced study ultimately reduces divisiveness, rancor, and arguably civil uprisings. Those subscribing to this view argue that since some of the gains of higher education accrue to the broader populace, it should subsidize it --via appropriations for universities, grants for students, etc.

Yet maybe college has "negative externalites" as well. For example, maybe the celebration of multi-culturalisim in universities has reduced social cohesiveness that binds diverse persons together in a nation. Maybe universities preach a moral relativism that ultimately leads to more crime, greater corruption, etc. Maybe universities promote sin more than virtue, ideology more than knowledge. Maybe the taxes used to finance government support have severe disincentive effects on private activity, and that the "crowding out" of such activity by universities lowers GDP since private market activity in general is more efficiently generated than that at our largely not-for-profit universities.

It is very difficult to measure externatlities or spillover effects. The limited work that I have done in the area, however, leads me to believe that the negative externalities may well exceed the positive ones. For example, states that spend more on higher education, other things equal, tend to have lower rates of economic growth. People do not flock to higher education-intensive areas because of their alleged higher quality of life (the reverse is closer to the truth). If the negative externalities dominate, not only should we stop subsidizing higher education, but probably we should tax it (a point made to me first by Milton Friedman in an e-mail).