It's not inflationary as much as it is inefficient. Schools are expensive because there is no profit/loss system to reign in costs. Why keep costs low?
I explain the problem with social insurance programs here, using a "universal car insurance" metaphor: Why Not Universal Car Insurance? The relevant section is "It's Just Bad Economics":
The entrepreneurial and moral case against social-insurance programs, like our hypothetical universal car insurance, has already been established. A loss of entrepreneurship, however, is not the only economic loss that results from a forceful monopolization of an industry. Less abstract than the relationship between liberty, property rights, and economic growth are the direct negative consequences of the monopolies that arise out of public insurance systems: rising costs; opportunity for an infinite increase in quantity demanded; incentives to reduce quality. Imagine a public car-insurance system devised by the government to cover "essential automobile-related necessities." The government could cover collision damage and maintenance checkups; and, if you are particularly needy, you could also opt for coverage of necessary parts when yours wear down (only if you meet the necessary income requirements, of course). If we are to believe government, all of this can be delivered in an affordable package — let us put a price tag of $800 million on it (not to worry, the Federal Reserve can just "loan" the state the money). The truth is, however, that a monopolistic insurance program is anything but affordable. Insurance companies, in a free market, work through competition. They compete by offering better prices or better services to their customers. Over time, different firms will devise different ways of lowering production costs, allowing them to offer lower prices to their customers and still maintain profit margins. They do this to gain larger shares of the market and, therefore, to earn greater revenue. In a government-organized monopoly, this does not remain true. Insurance companies no longer compete for multiple clients, but for just one — this is called a monopsony. The amount of eligible insurance companies quickly dwindles. First, some companies will immediately become unprofitable, given that if they fail to quickly gain a government contract they no longer take in an income. Second, insurance companies have to be able to meet certain government-set requirements. Limiting the amount of suppliers raises prices, as there are fewer buyers competing against each other. Third, once contracts are offered, those who were not awarded contracts will cease to exist, and thus a legal monopoly is created. With no potential competitors, these firms can now raise prices almost at will. What is the danger of getting into an accident (other than to one's health, of course)? What would result in higher insurance costs in a free market — and therefore serve as a disincentive to drive carelessly — is free of cost in a world of universal coverage. Rising costs do not equal rising quality. While government may be investing in research programs to develop better automobiles that have longer life spans, insurance companies themselves will work toward lowering costs of production in order to garner higher profit margins. When the only client is the government, insurance firms have no incentive to maintain their clientele by offering better services or by lowering costs. The exact opposite will happen. Over the long run, government-sponsored monopolies tend to become more expensive, and, eventually, fiscally untenable, while quality diminishes. Thus, a universal car-insurance program is bound to fail.
The entrepreneurial and moral case against social-insurance programs, like our hypothetical universal car insurance, has already been established. A loss of entrepreneurship, however, is not the only economic loss that results from a forceful monopolization of an industry. Less abstract than the relationship between liberty, property rights, and economic growth are the direct negative consequences of the monopolies that arise out of public insurance systems:
Imagine a public car-insurance system devised by the government to cover "essential automobile-related necessities." The government could cover collision damage and maintenance checkups; and, if you are particularly needy, you could also opt for coverage of necessary parts when yours wear down (only if you meet the necessary income requirements, of course). If we are to believe government, all of this can be delivered in an affordable package — let us put a price tag of $800 million on it (not to worry, the Federal Reserve can just "loan" the state the money).
The truth is, however, that a monopolistic insurance program is anything but affordable.
Insurance companies, in a free market, work through competition. They compete by offering better prices or better services to their customers. Over time, different firms will devise different ways of lowering production costs, allowing them to offer lower prices to their customers and still maintain profit margins. They do this to gain larger shares of the market and, therefore, to earn greater revenue.
In a government-organized monopoly, this does not remain true. Insurance companies no longer compete for multiple clients, but for just one — this is called a monopsony. The amount of eligible insurance companies quickly dwindles. First, some companies will immediately become unprofitable, given that if they fail to quickly gain a government contract they no longer take in an income. Second, insurance companies have to be able to meet certain government-set requirements. Limiting the amount of suppliers raises prices, as there are fewer buyers competing against each other. Third, once contracts are offered, those who were not awarded contracts will cease to exist, and thus a legal monopoly is created. With no potential competitors, these firms can now raise prices almost at will.
What is the danger of getting into an accident (other than to one's health, of course)? What would result in higher insurance costs in a free market — and therefore serve as a disincentive to drive carelessly — is free of cost in a world of universal coverage.
Rising costs do not equal rising quality. While government may be investing in research programs to develop better automobiles that have longer life spans, insurance companies themselves will work toward lowering costs of production in order to garner higher profit margins. When the only client is the government, insurance firms have no incentive to maintain their clientele by offering better services or by lowering costs. The exact opposite will happen. Over the long run, government-sponsored monopolies tend to become more expensive, and, eventually, fiscally untenable, while quality diminishes. Thus, a universal car-insurance program is bound to fail.
I just want to make sure I get this.
So the schools compete not for students but for government subsidies? And then those that do not get the subsidies go bankrupt. Only a few are left which means less supply which leads to higher prices?
In the case of schooling, private schools don't necessarily go bankrupt. Their prices are just bid up, as the pool of those demanding their services shrinks - why should anybody pay for private school, when you can go to public school for "free". But yes, public schools are chartered by the government and are funded by the government, and so suffer from increasing prices due to an increase in quantity demanded and a decrease of supply - the latter being a huge problem recently - and a decrease in quality.
What confuses me is how subsidization of schooling and medicine is different from subsidization of food. If you subsidize food you get huge surpluses that result in very low prices domestically or are dumped in poor countries. But when you subsidize education and health care you get the opposite.(Not pertaining to the health care in US which is a matter of forced insurance and therefore a different topic)
I come from a family of heavily subsudized farmers in Spain. Subsidized farming tends to create surpluses of certain crops, and shortages of others. Instead of responding to actual consumer demand, farmers instead farm what they make most off in government subsidies. For example, we focus heavily on vineyards and barley, because those are very heavily subsidized by the Spanish government. So, subsidization does tend to get more expensive, because there is an increase in quantity supplied as farmers shift to the subsidized crop.