According to data they report to the federal government, state universities in Michigan have not experienced dramatic financial cutbacks during years of state budget stringency. The reduction in appropriations to those schools in the first half of this decade made sense not only fiscally, but also in broader economic terms, as there is no good evidence that state spending on higher education has positive growth effects.

What our analysis suggests is that the alleged "positive externalities" — or spillover effects of higher education — appear to be overblown, at least regarding economic considerations. Indeed, the opposite appears the case: more university spending might actually lower living standards for all, having negative spillover effects. The benefits of higher education accrue primarily to the users, specifically individual students with in-demand degrees, wherever they choose to make their homes after graduation.

It would be a mistake for Michigan to rely on greater efforts in higher education as a primary means of promoting growth. Empirical evidence suggests that a more promising approach would be to constrain government and universities in their spending growth, using the fruits of higher tax revenues over time to lower the tax burden. With respect to universities, spending constraint could come from reductions in non-instructional staff, increasing the teaching loads of faculty, using buildings year-round, increasing the use of technology to reduce labor costs and through other means.