The American Institutes for Research (AIR) recently assessed the literacy of 1,800 graduating seniors from 80 randomly selected two- and four-year colleges and universities. What they found was not pretty.

Twenty percent of U.S. college students completing four-year degrees have only what the researchers describe as basic quantitative literacy skills, meaning they are unable to estimate if their car has enough gas to get to the next gas station or calculate the total cost of ordering office supplies. The study also finds that more than 50 percent of students at four-year colleges have only the most basic literacy skills, meaning they can't do a basic task like summarize the arguments in a newspaper editorial.

The implications of these reports are profound. Universities nationwide have been asking for increased taxpayer subsidies and tuition for decades without anyone seriously questioning their return on investment.

Universities make outlandish claims about spurring economic development and leading the way to a new knowledge economy. Yet somehow in the process, they stopped teaching their students basic civics, or apparently, requiring them to know how to read.

American universities suffer from a deadly combination of an almost complete lack of transparency, massive indirect government subsidies, and inelastic demand. Higher education costs have raced ahead of even health care inflation without any evidence that students are learning more today than they did in the past.

A wise man recently told me that every system is perfectly designed to produce the results it achieves. The higher education system produces a surprisingly high number of semi-literate graduates who know little about their history and government.

A serious reappraisal of higher education policy is long overdue, both at the state and federal levels.