Tigerhawk asks: "If the CEOs of banks that take federal money, including those who took
federal money only after Hank Paulsen essentially ordered them, have
their salary capped at $500,000, under what principle do we allow
universities that request federal funding to pay their own presidents much more money?"
I spent ten minutes trying to come up with a rationale. Is it that the universities aren't being bailed out? No--at least to hear them tell it, the system would fold up and die without federal grants. Is it that they're performing a service we want? Well, presumably we also want banks to be providing capital to the private sector. Perhaps it's that they haven't just cost us a lot of money? Beg pardon, but aren't educational costs some of the fastest rising major expenses Americans face? Indeed, the industry's power is so entrenched that many universities are actually raising tuition in the teeth of the recession.
Maybe the reason I find it so hard to figure is that universities are in a mental basket along with investment banking: services that seem to cost too much for no good reason. I never could figure out how, in an allegedly competitive industry, bankers were able to charge 7% on their transactions. And I don't understand why tuition costs rise out of all reason. They seem to have no link to personal income, the payoff from a college education, or any other metric I can think of.
Maybe you can do better.
Copyright © 2010 by The Atlantic Monthly Group. All rights reserved.
Higher education is, for the most part, a total scam.
Well, it's mostly politics and appearances, and the current massive unpopularity of bankers. Still, you could make an argument that, in the post-crisis future, bank CEOs will return to earning stratospheric sums. University presidents will still just be merely wealthy
I won't argue with the logic, but then shouldn't every type of firm that receives government subsidies have their CEOs' salaries capped? Agriculture, construction, pharmaceuticals...
Perhaps that is the easiest way to balance out the disparity of wealth in this country.
Are you serious?
How about:
1. The banks in question were complicit in bringing about the current crisis.
2. It is well established that the public benefits of banking can be obtained through a (regulated) competitive private sector; it is equally well established that this is not true of universities.
Speaking as a grad student/wannabe professor:
Everybody wants to make higher education more affordable, but nobody ever addresses rising costs. More student loans and financial aid are a good thing, but nobody ever asks why tuition and fees keep going up and up and up and up.
If the public knew the kind of BS perks and luxuries that tenured professors bestow upon themselves -- the travel-to-obscure-conferences-in-Hawaii, the new grants to research racism in penguins, the NEH and NEA-funded studies about how the NEH and NEA are just agents of bourgeois capitalism and false consciousness -- they would definitely demand more accountability. There would be pressure for universities to cut costs by eliminating frivolity from their budgets.
I have many personal anecdotes of the inefficiency of a large state university. Money is made available to departments, and if they don't use it, they lose it; there are no allowances for rainy days. So efforts are made to spend money even when it's unnecessary.
Does it really contribute so much to Personkind's Pursuit of Truth to pay a professor's old grad-school buddy to come and give a Visiting Lecture? He gets a $500-$1000 honorarium, plus a lavish catered luncheon, plus airfare for his whole family, plus hotel -- all to read straight out of his upcoming book for forty minutes to an audience consisting of eight people. All of that "learning" could have happened online for free. (And this is what happens in the perpetually "underfunded" humanities; I don't know about the sciences.)
But since professors are the people consulted on how to fix the economy, don't expect them to take a look in the mirror anytime soon. The problem will NEVER be rising costs; it will ALWAYS be insufficient federal student aid.
I can't let that one go by, Fletcher. Since I work in the drug industry, I have to say that I have not noticed any Federal grants rolling in, TARP or university style. And I really hope that you're not going to tell me that drugs are really found by the NIH and that we just market them, or some variation on that. . .
Actually, it is a pretty piss-poor question.
One form of payment is a "here's some cash to try to save us from the financial chaos you created with the horrid decisions you made."
The other form of payment is "as a nation, we value education and support that education. Here is cash that will allow you to open up your doors to folks who may not be able to afford this level of education otherwise."
It's an apple/orange comparison. Just as apples and oranges are both good for you (and both forms of payments are beneficial), they are not the same thing.
Another way to look at it: For years we have paid Defense contractors (McDonald Douglas, Boeing, etc) for products (same for road builders, IT suppliers, etc). Should we automatically limit their top earners to $500k just because the funds come from the feds? Under normal circumstances, no. However, if Boeing filed for bankruptcy and the federal government financed the restructuring, it would not be unreasonable to limit what they are paid.
"And I don't understand why tuition costs rise out of all reason."
Price elasticity of demand
Tuition will rise because people will pay.
Grundle,
The inefficiencies you describe sound to me like the typical expenses of major corporations. Do you honestly believe that bankers junkets are anywhere in the same ballpark as those Hawaii trips? Let me clue you in. At Citibank's corporate headquarters you can see a stuffed lion killed by one of the board members on a client safari. Corporate pay packages don't look anything like university pay packages. They are in an entirely different league.
M McAddle begins
"Tigerhawk asks ..."
To paraphrase something I read elsewhere on the internet: you might as well have begun by saying
"Simplicio asks ..."
The guy is a dolt.
I'd also note that while I was in grad school each year my tuition increased by around 10%. And while I was upset, I was also angry at my state was cutting back substantially on their funding obligation. So while I complain about waste and inefficiencies at the administration of universities, what does the perennial cutting of funding to higher education say about the state of our society?
The analogy makes no sense. Federal funding for research amounts to the taxpayers buying a service from the universities. We could argue about the value of that service, but that's the essence of the relationship. This relationship has existed for many decades - it has not suddenly been sprung on the taxpayers - and the costs are quite small compared to TARP. By most measures, the U.S. research enterprise is highly productive, brings great returns to the economy over time, and is the envy of the world. So what is the logic for penalizing the CEOs of these enterprises?
In contrast, bailout money to banks is... bailout money to banks. The taxpayers are not buying anything from the banks with TARP money other than (perhaps) the solvency of institutions that have suddenly been revealed to have made grave errors. These CEOs might be out of work were it not for the taxpayers riding in on a white horse. The taxpayers are essentially being coerced into the rescue because of fears that bank failures could cause worse problems for taxpayers. The expense is massive by any measure. So there is some logic to penalizing the CEOs of these failing institutions that have arguably betrayed the public's trust at great cost to the taxpayers.
SteveL,
I can't tell if you're kidding or not.
I had a less than sign in my last post that didn't show up.
It should ready: Price elasticity of demand is less than one.
There could be a lot of reasons why students aren't that sensitive to price. Students spending a combination of their parents' money, government's money, and their own future self's money (via borrowing) could explain some of this lack of price sensitivity. The university as a monopolistic competiton market could too.
Either way, presidents of universities seem to be in pretty good positions when they can continue to raise prices and continue to raise revenue.
The reason (let's have no nonsense about justification) for the difference in treatment is that University administration is always behind the curve. So the time when we expect to cut University presidents' pay to match the cuts in bankers' emoluments will be when we are cutting the Federal defict; as we climb out of the recession.
As Fletcher mentions, University Presidents will be far from alone when it happens.
Tuition fees soar, and will be slow to dip, for two reasons; only very loosely connected to Presidents' pay. The first is that some students (or more likely their parents)see high fees as meaning high quality. Raisng fees can increase demand. Second, academics at Universities with high reputations are milking their brands. Any organisation can get away with doing that for a while. An organisation whose reputation for quality depends in part on its prices being high can do that for a long while.
Dean Wormer, two wrongs don't make a right. I don't approve of Citibank's frivolities either. Do theirs somehow excuse the universities' luxuries?
Besides, there is a big difference you are forgetting: Citibank's excessiveness only became the taxpayers' business recently. Universities have been wasting our money for decades.
Tom Woolf, do you really think that federal money that goes to universities pays them to "open up their doors to people who couldn't afford it?" I thought federal loan programs did that; they give that money directly to students.
No, most federal and state education monies go to fund operation costs, research, and expansion. And those are good things, but I'm just trying to disabuse people of the completely unfounded faith that universities don't waste such funds on perks, luxuries, and frivolities. Being professors does not make one any less likely to be greedy and wasteful than, say, a banker.
Good points, I haven't heard a good explanation of why education costs have risen so much over the last couple decades, though maybe there are some. One would think competition and technology would force prices lower if anything.
Maybe we notice "delta's" or rates of change more than absolute values. There is a huge rate of change in the amount of government involvement in the financial and automotive industries. Therefore we take notice and get upset with huge salaries on our dime. But if it had been a gradual process over decades we wouldn't really notice.
I don't think there's any call to limit the salaries of other entities that are already in the "mental basket" of depending on government funding, universities that do research funded by gov grants, private military contractors, etc.
University presidents don't get stock, stock options, golden parachutes (normally), golden coffins, COLI, personal drivers (?), and a zillion other perks that represent theft of shareholder wealth aided and abetted by BOD's that are in the pocket of the CEO. Most highly-paid university presidents are accountable to alums who are major contributors and care about the performance of the president. They are more like CEOs of privately held companies, in that regard.
I'm not saying university presidents are not overpaid, but there's no logic to the analogy presented here
Grundle, You are right that money is wasted on such things. One has to accept some level of waste in any human endeavor, including those partially funded by the taxpayer. Nevertheless, in order to attract and retain the best and brightest people to our university systems, we have to pay a good wage. After all, many of these people are among the smartest people in our society. You can't think that you are going to attract them with a garbage collector's salary do you>
re investment banking - that's easy to explain. Investment bankers are courtesans, winning business with flattery and flirting - a 7% markup is a small price to pay for that service for some people, especially since so many of the decision makers are agents and not principles. Lower-cost option like PIPES are available for the cost conscious.
The airline travel - why would anyone book a hideously expensive first class ticket if a coach fare were available at 1/20th the price? Obviously, they like the better service. And they have often have nice expense accounts, too.
Greg, its basically a scam. University presidents encouraged private lenders to give private loans, and then promoted the diea that everyone should get a college degree. Lefties, through AA, pushed this idea as well. Then they raised rates but stubbornly resisted any ranking system--U.S. News was basically fighting them tooth and nail. And, finally, the XY boom of the late 80s create a glut of demand that allowed prices to rise.
I paid $50,000 a year to go to school at a city university. That is ridiculous.
In Megan's world, if you walk away from your underwater home, you're a reprobate.
And, all institutions that "take federal money" are the same. Because, y'know, bankers and university presidents are equally culpable for the black hole of misery that's coming.
Methinks Megan should stick to economic analysis and leave issues of morality and blame to someone with more finely-tuned instincts.
Faux Basic,
You paid 50 grand for an education? I got my education for free in France. Who is the fool now dickweed?
I work at a university. Faculty salaries are going to drop, and I think that the real story on tuition is that while the headline payments might rise, the real payments--once you adjust for scholarships, grants, and so on--are going to drop soon as well.
But some universities are going to get richer; the NIH, the NSF, all got great big increases in their funding from the stimulus package.
And there will be a transfer within departments at the universities,away from non grant getting departments to grant getting departments-away from law schools and business schools towards big science.
re tuition costs, I've never seen any research on this, but I suspect that the top college charge a fairly fixed % based on estimated future earnings of their graduates. As society become increasingly winner-take-all, top college grads can expect future earning rising far faster than overall incomes. Thus ever increasing tuitions.
Lesser college simply follow the tops' lead on tuitions, basing theirs on a fraction of the bigs'.
unclear says
"And there will be a transfer within departments at the universities,away from non grant getting departments to grant getting departments-away from law schools and business schools towards big science."
A silver lining in this financial crisis after all!
I dunno which is more valuable? In these times, universities create value. Banks destroy it.
Dean Wormer,
You are correct. And I personally hope that I am compensated well for my work when (if?) I actually get an academic job. I'm just resistant to the mindset that universities are temples of virtue. They are not, and even if they are profligate to a lesser degree than I-banks, there are many, many ways that universities could be made to be more efficient, transparent, and accountable with taxpayer money. We are all expected to tighten our belts; we justifiably watch TARP banks skeptically, but there is no reason we shouldn't also demand less waste from the academic world.
"He gets a $500-$1000 honorarium, plus a lavish catered luncheon, plus airfare for his whole family, plus hotel -- all to read straight out of his upcoming book for forty minutes to an audience consisting of eight people."
I don't believe it. I'm in math, which is usually better funded than the humanities, and at MIT, which is certainly one of the wealthier universities. I organize one of our seminars, and I travel frequently to speak at other universities. I'm not trying to say academia isn't a good life, because I love it. But it's nothing like this.
As a speaker, I expect my plane fare to be covered and I expect my hosts to either cover a hotel or find me a postdoc with a couch. Also, if there is a seminar dinner, I expect them to cover my meal. I will try to get myself booked at several neighboring schools when I travel, to reduce their costs (and increase my profile). On the occasions that my wife has traveled with me, I have always paid for her (out of pocket, not grant funds) with the exception of when I was being recruited for employment. Lunch seminars at MIT are catered by local take-out -- Thai, sandwiches or pizza -- I haven't seen them at other schools.
I don't think I should post the budget information for the seminar I organize. I will say that we have about 5 out-of-town speakers a term and 15 Boston-locals; if we ran things the way you suggest, we'd be broke after the first one.
I actually agree with some of your other points: university budgeting encourages people to spend now before the money is taken a way; a lot of collaboration could be done online rather than in person. But the fat life you describe is nothing like what I've seen.
Grundle,
I agree, but I'm still putting you on double secret probation
Megan has asked an economic question -- namely, what explains the discrepancies between how we view different recipients of taxpayer money? Some people have answered with good economic explanations, like brand-name recognition, inelastic demand, and luxury pricing.
Other people (the usual suspects) insist on understanding the question in moral terms. Purely utilitarian questions are always uncomfortable for them. Executive pay, duh, should be limited because bankers are bad people. The $500K cap, then, is for them a punishment (moral argument), rather than a means of making taxpayer bailouts more efficient (utilitarian).
Perhaps Obama's genius is in finding ways to appeal to our self-appointed moral stewards (bankers should be punished for their greed) while at the same time appealing to the more economically/utilitarian minded (TARP money should not be used for CEO excess).
PS Basic Fact, your education in France was not "free." It was paid for by the French people, who have decided that a mediocre education is worth high marginal tax rates, a stagnant economy, high structural unemployment, a dearth of innovation, and loads of creative people moving to New York, Montreal, and London.
We've been seeing a lot of demonstrations recently of the power of Stein's Law ("If something can't go on forever, it won't"). It seems that the application of this law to universities (and especially university tuition) is overdue.
University tuition has been rising faster than inflation for decades, while the value-add of universities has been heading in the other direction. It's gotten to the point where it's really hard to think of a more egregious rip-off than the 100 and 200-level lecture courses my kid has been taking at a state university -- tens of thousands of dollars for learning that could be accomplished far more quickly and and effectively (via books and online study) for a minuscule fraction of the cost. And that's at a state university where students aren't even paying full rate (taxpayers are kicking in a big fraction of the cost of running the place).
As an economist, a professor and an adviser to my state legislature, I take seriously the issue of rising costs in education.
Part of it is an ever increasing focus on research at the expense of teaching. The solution, however, is not obvious.
Students have a choice in Universities and even when they are paying private tuition students regularly choose institutions with strong research programs over those with a teaching influence.
Even the state level subsidy for many research universities seems to primarily advantage students. At my school, there is constant pressure from the legislature to take on more in state students even though full paying out of state students of high quality are rejected in large numbers.
There are a number of state schools that are requesting to become free agents so that they can raise tuition and take a larger fraction of out of state students.
So, it is not clear to me that the basic government subsidy is a large driver.
The federal grant program makes even less sense as a culprit for cost increases or as an equivalent to the bank bailouts. As mentioned before the University provides fee for service. That is research is conducted for the federal government in exchange for funding.
That having been said I don't think that CEO salary caps are appropriate either.
I recall reading in Mankiw's Principles that universities were a clear case of Baumol's cost disease. I can't say I know that much about the topic, but it sure sounds like a good starting explanation for why costs increase.
A truly minor note: most of the people employed by universities--professors and TAs (janitors too?)-- seem to think that university presidents are overpaid. Though if you really want to see an academic's head 'splode, bring up the football coach's salary.
My sense is that the salary of a professor relative to ordinary middle class wages has decreased over the long haul. And more and more of the teaching work is being done by adjuncts and TAs. No one will charge that their pay is bankrupting the university...
@Slocum
Here in NoVa, and across the River in Md, courses at the community colleges map directly to the ones in the Big State Schools. English 101 at NVCC is the same as English 101 at GMU. Ditto for MC and UMd. I know several people who do all the low level courses at community college, and then go to the the main campus for only 2 years.
@ Grundle-- As a university employee, i can tell you that we are suffering the same cutbacks as everyone else in the economy-- layoffs, cutbacks on everything. We were told bring in your own post-it notes, pencils, pens, kleenex-- no money left except for the salaries of those left standing.
Grundle,
If this is the kind of cogent analyis that leads you to scoff at my French taxpayer funded education then I needn't worry about my ability to compete with you Anglos. For your enlightenment, I would also ask you to peruse the latest UNDP Education index which ranks France isance higher than the U.S. I'll also throw in a little anectdotal evidence for your edification. Back in the 90s, I managed to take some classes at a little ole school called Yale University and I was singularly unimpressed with the student body and the lack of basic knowledge that was in evidence among them. The level of writing skills in particular were embarassing. One can only hope that this was an anomaly. In any case, my level of high school knowledge was much higher than those of most of my seemingly hillbilly classmates.
Other people (the usual suspects) insist on understanding the question in moral terms. Purely utilitarian questions are always uncomfortable for them.
McMegan:
Yes, all we're talking about is pure utilitarian calculation on this blog. How could I possibly think differently?Grundle, the moral can also be utilitarian. Penalties for sub-par decisions may deter such behavior in the future. In general, I find the notion of the gov't placing rules on CEO pay abhorrent. But in the case of bailouts this "moral" judgement may deter CEOs from making dumb decisions in the future, and may deter some CEOs of institutions on the cusp from turning to the taxpayers at all. If so, utility is gained. The point is not to punish "greedy bankers". It is to deter bankers from making dumb, costly errors.
An interesting question is what the outcome of imposing the TARP salary conditions on universities would be. I imagine that universities would universally accept these conditions. I don't think that the same can be said for the banking industry.
Why does tuition continue to rise? Simple: we, as a society, have found no upper limit on what we're willing to pay for the benefits of a college education. It is taken as both a gospel and a fundamental scientific fact that a college degree is an unassailable good thing for every person without exception. Our government has aided and abetted us in this belief and when our own funds fail to cover this fundamental human right the government steps up with free and low cost money to help us over the hump.
Until we become more critical consumers of higher education and the government stops subsidizing our educational spending spree, tuition will continue to rise.
I'd also note that while I was in grad school each year my tuition increased by around 10%. And while I was upset, I was also angry at my state was cutting back substantially on their funding obligation. So while I complain about waste and inefficiencies at the administration of universities, what does the perennial cutting of funding to higher education say about the state of our society?
Maybe that the state was dodging their obligation to demand accountability for an eduacational cost that was rising faster than the rate of inflation, by indirectly deferring the matter to federal funding via student loans?
That is, unless the absolute rate was actually rising the same or lower than inflation, and the rest of that 10% was being passed to you by virtue of the state funding cuts.
Are universities getting direct federal grants not attached to specific research projects? If so, why? Wouldn't it make loads more sense to put the same money into a national scholarship program (yes I am aware that such exist, but perhaps this would make an order of magnitude difference)? The program like that could be tailored to take into account not only the prior achievements of the students and their financial conditions (and OK, even affirmative action and whatnot) but the perceived demand in the professions they intend to spend the money acquiring. Presumably DoL is good at this particular form of prognostication so they could provide their input...
The reason that colleges can get the ever increasing tuition is that people are willing to pay it and can lay their hands on the money via student loans.
The reason that people are willing to pay it is that the high school diploma has been so devalued. It's become devalued because of the poor standards in elementary and high schools. A high school diploma no longer guarantees that you can even read, write, and do basic math; hence the need for the BA.
If, like me, you started working in the corporate world in the early seventies, you dealt with any number of middle (and even upper) managers who were high school grads of the WW II and Korean War generations. That hardly exists today and has not existed much for some time. Now it can cost 80 to 120 grand to get the job obtaining credentials that past generations got for nothing in grammar and high school.
Today, the value of the BA is becoming devalued. This is because a number of kids with the degree are found to be rather stupid. That has increased demand for graduate degrees. The explosion in MBA programs has only taken place in the last 20 years or so. Now you have increased demand for graduate school and tuition goes up, fueled once again by easy to obtain loans.
If things really progress, you'll need a PHD to manage the local supermarket.
"And I don't understand why tuition costs rise out of all reason. They seem to have no link to personal income, the payoff from a college education, or any other metric I can think of."
Ask yourself what higher education has in common with housing. As I wrote elsewhere last fall,
@ Basic Fact
Please don't put me in the position of having to defend US secondary education. I will gladly concede the superiority of other systems (for example, Belgium or Finland). As for post-secondary education, I know idiots at Ivy Leagues and I know geniuses at my own humble state college (students and faculty). My only objection was to your calling your French university "free." It's "free" in the sense that socialized medicine is "free." The costs are merely repackaged and hidden in a multiplicity of other parts of the economy. (Also, why do you presume me to be "Anglo?" My Lebanese parents would not agree. Or maybe you are just using the preferred French pejorative for anything non-Gallic. Very well.)
@ Prof. Speyer, regarding the visiting lecture anecdote, I admit that I used one egregious outlying example that left me dumbfounded and then universalized it. But even so, surely if our staff and other univ. employees are having to cut back during the recession, professors can find more efficient uses of their research/conference allowances? Unfortunately, I do not have any answers for this issue that doesn't also lead to sacrifices of academic quality (for ex., the unquantifiable-yet-invaluable informal "collaboration" that happens during conferences and visiting lectures).
@ Rel - you make a good point. And a good politician (like Obama) can exploit those convergences -- when they occur -- between the utilitarian and the moral. In those cases (as this one), I would still venture to say that, even though you can make a very strong utilitarian argument for limits on executive pay under TARP (and I largely accept it), a lot of people are unmoved by that argument, and instead are eager for something more closely resembling vengeance or moral comeuppance.
@ Nathan Salto - you gave an example from a completely different post, where the issue there was indeed a moral rather than utilitarian question. To which I answer, so what? I didn't say that "this blog," as a whole, never dealt with anything but the coldest of utilitarian questions. Geez, sometimes it deals with where Megan ate dinner last weekend. But, in this post, Megan asked an economic question, and some people insisted on responding on moral grounds. I just pointed that out.
All that being said, I certainly don't believe that, as a whole, universities are threatening our wealth, prosperity, and growth as much as bad banks. But just because banks are bad doesn't mean we can't also discuss other structural problems.
Grundle, the point is that, having injected taxpayer money into these institutions, we should expect that that money will serve the intended purpose of stabilizing the company in question, rather than being taken by executives whose malperformance created the need for the injection in the first place.
Granted, the salary cap is a very blunt instrument, and we can argue about efficacy. Granted also, there is an element of moralizing underlying these proposals. I don't see any lack of clarity about the intended practical purpose, however, which is seeking value for taxpayer dollars. Can there be any dispute that the taxpayers need better control over spending by recipient banks than they have been getting?
and no, jmo, I was not kidding.
I teach at a major research university, so these comments may be less than totally ignorant:
a) Max, to my knowledge the bulk of federal funding to universities comes via grants tied to specific research projects and via tuition subsidies in the form of federal grant and loan programs to students.
b) When it comes to rising costs of tuition, specter and others have hit the nail on the head. Costs rise because the market is willing to pay. The market is willing to pay because it does not critically evaluate the quality of the product. The same is true at the K-12 level, which is why we have devolved into the situation that Maxwell nicely summarizes. Colleges are increasingly doing remedial work with students.
c) That said, it's not clear how to measure quality of the college experience. For example, slocum mentions large 100-200 level classes as a problem. Maybe. However, back in the day, Michael Sandel's "Justice" course at Harvard had 800 or so students and was routinely considered one of the best courses around. There is much to be said for the notion that the value of college education has more to do with what you learn from your peers outside the lecture hall.
d) Some of the best learning happens via faculty-intensive experiences at the junior and senior levels - especially for students motivated enough to do honors-level work. If you want a college to have faculty with the time for those sorts of interactions, and the time to manage programs that provide undergraduate research opportunities, then the price is a more wholesale model in the first and second years. You could make lower-level classes smaller by throwing more faculty at those classes, but the price would be less faculty time to devote to exceptional students in the later years.
@basic fact: there are two "r"s in embarrassing, just as there are in its French equivalent.
SteveL,
"1. The banks in question were complicit in bringing about the current crisis."
University Presidents were complicit in creating a system that burdens millions of kids with crippling student loan debts. Bankers have conspired to burden millions of homeowners and taxpayers with crippling mortgage debts. I can a erry parallel.
"2. It is well established that the public benefits of banking can be obtained through a (regulated) competitive private sector; it is equally well established that this is not true of universities."
Do you mean private universities provide less public benefit than public? I would venture to argue that Stanford, Harvard, MIT, provide more public benefit than LSU or Arizona State.
"I can a erry parallel."
Should read "I can see an eerie parallel."
The job of a university president is to raise money. The reason some get paid so much, arguably, is the same reason college football coaches are paid so much -- presumably because a good one brings in far more money than he or she costs. In reality, of course, not all university presidents are worth their price tags. But the same can be said of most corporate CEOs, where compensation is only loosely linked to performance.
As others have said, the issue with the banks is that we KNOW the pay isn't linked to performance. If they were performing well, they wouldn't need the government cash.
Grundle,
I understand....and we certainly did pay for it out of our taxes, along with healh insurance (don't get me started on that). What I am suggesting though, is a system through which competition through the private sector universities leads to poorer outcomes (or equal outcomes) while at the same time, putting working class and middle class students in tremendous debt, is not a system that anybody should want to emulate.
Basic Fact,
" is a system through which competition through the private sector universities leads to poorer outcomes (or equal outcomes)"
I'm only familiar with Germany but, in comparison, American universities are better measured by every conceivable metric.
jmo,
Since I teach at Arizona State, I've gotta' defend my Sun Devils (even if I went to school at Harvard)...
Seriously, I don't think you fully grasp the economics of higher education. I don't have the numbers in front of me, but I will bet you dollars to donuts that Stanford, Harvard and MIT receive more federal funding per student, and even in absolute terms, than does ASU. This funding comes in the form of federal research grants and tuition loans and scholarships. They are "private" in the sense that faculty salaries and some portion of facilities are covered by high tuition fees and endowment returns, whereas at ASU these costs are covered by a combination of tuition fees and state gov't funding. But the federal gov't has a heavy influence on the entire higher education "industry".
SteveL is correct that the marketplace cannot replicate what the universities provide on the research side (which is where federal grants are at play). There have been great private research labs - the legendary Bell Labs come to mind. However, the fundamental research in those labs was supported by a monopolistic business. When the telecom industry was made more competitive, fundamental research faded away; the Bell Lab scientists fled to academia.
I'm a free marketeer, and think higher ed is too insulated from healthy criticism, but the fact is that free markets can't do everything. If you want to build the first atom bomb or put men on the Moon quickly, the free market won't do it. And the free market won't support the basic research that trains and sustains an intellectual talent pool for the society to tap when it needs to undertake such major efforts.
[Grundle / Speyer] "He gets a $500-$1000 honorarium, plus a lavish catered luncheon, plus airfare for his whole family, plus hotel -- all to read straight out of his upcoming book for forty minutes to an audience consisting of eight people."
I don't believe it.
Well this June, I'm getting a $500 honorarium and several well-catered meals (mmm... open bar) to give a 4-hour tutorial at a university.
Now, I'm not flying and my wife's travel is not covered nor is my hotel. And for that matter, I'm going to plow the $500 right back into the university to offset event fees for an employee.
And once when I was still a PhD student (not that I'm that far removed now), I got a $500 honorarium, catered meals, hotel paid for, and flight fare to give an invited 30 minute talk at a university. (FWIW, it was in Korea and I wouldn't have gone if I had to pay my own freight and it was to an audience of about 200.)
So in my experience, Grundle's example seems like more renumeration than normal, but not incredibly so.
All that being said, I started my own company rather than hang around in academia because (among other reasons) I thought the compensation would be better. (wasn't the first year, is now)
JMO,
Really? I guess you aren't part of the "reality based" community.
Rel: However, back in the day, Michael Sandel's "Justice" course at Harvard had 800 or so students and was routinely considered one of the best courses around.
OK, let's suppose that's true. But think -- if you are one student of 800, what is the added value of sitting in front of a Prof Sandel live as opposed to watching Prof Sandel's lectures on video? After all, any individual student out of 800 can't effectively ask questions or engage in discussions with the lecturer in either case (and only the tiniest fraction could ever stop by during his office hours or he'd be swamped). On the other hand, the students watching on video could watch comfortably at their own convenience, skip the boring parts (or the stuff they already know), back up and watch the puzzling parts again, stop for a break when they get tired, etc, etc. No need to frantically scribble notes and try not to miss anything either. So it seems like, on balance, the advantages are in favor of video vs live presentation.
If lectures by the best teachers are the most effective way to learn a subject, then let's make those available to all students everywhere (as we do with texts). My kid, I'm sure, would have been much MUCH better off with, say, videos of Mankiw's economics lectures to go along with Mankiw's text than with what she got -- which was a travesty. A 300 student, 3-hour evening class given by a non-tenured lecturer whose main redeeming quality was he made all his PowerPoint notes available beforehand so students didn't have to suffer through 3 straight hours of macro, not finishing until 10pm.
jmo:
1. The current crisis is not that millions of homeowners have mortgage debts, it is that the banks are insolvent.
2. I made no distinction between private and public universities. Both are the recipients of large amounts of public funding, e.g. research grants.
Jody,
You are being paid $500 for 4 hours of instruction. Figuring that each hour of instruction required at least an hour or two of prep, let's ballpark your total hours invested as 10 hours. So you are getting $50/hour for this teaching, plus a couple of nice meals. It doesn't sound all that lavish.
I can't speak to your Korean example. That does sound exorbitant. But it is not typical. I've been a tenured or tenure-track professor for over 10 years, and am more successful and productive than the average by any metric. I've probably given 50 - 100 invited talks at other universities over the years. Yet I've never been paid a significant honorarium for such events that I can recall (and certainly never as a student). Maybe I just don't know the right people!
Slocum,
Fair enough. I agree that the large lecture model of instruction is pretty stale, and doesn't take intelligent advantage of the communication revolution. However, when I took Sandel's course I benefitted from the students next to me, the students and TA in the weekly discussion section, and the many discussions with fellow students about our lecture and reading material in the cafeteria. There is also a psychological benefit that can enhance engagement when you are at an event life rather than watching on a small screen. My point is not to defend large lectures, or even to argue that those other experiences couldn't be matched in a virtual mode (witness this blog discussion, which is pretty effective). Rather, I simply wanted to point out that a large lecture course may have much more going on beneath the surface than is evident from the lecture alone. That's one reason among many that it can be difficult to evaluate the quality of higher education. Of course, a large lecture course can also be lousy, and more often than not that is probably the case.
"1. The current crisis is not that millions of homeowners have mortgage debts, it is that the banks are insolvent."
Why are they insolvent? In short, easy credit lead to a bidding up of home prices by people without the ablity to service such large mortgages. The same thing happened with student loans. The easy availablity of credit allowed universities to raise tuition at a rate higher than inflation. The mechanisms that lead to double digit growth in home prices are similar to the mechanisms that lead to the exploding cost of higher education.
"The level of writing skills in particular were embarassing."
The level were embarassing (sic), were it? Of the writing skills?
I'd throw college sports coaches into the mix as well. The fact that many of these guys are pulling in over $1,000,000.00 a year is absurd. Half that is absurd. A quarter of that.
Yes Sean, quite embarassing. And I would point out that the fact that you chose to spend the past thirty minutes poring over Warriner's in a lame attempt to embarass me says alot more about your lack of education than it does about mine.
E.D.
How is it absurd? If you have a losing team and you bring in 20 million a year in alumni donations and 250k in licensing and you can find a coach that can turn the team around and you start getting 120 million in donations and 20 million in licensing - why shouldn't the coach get a chunk of that money?
Grundle:
You gave an example from a completely different post, where the issue there was indeed a moral rather than utilitarian question.
Golly, my mistake. Perhaps, in the future, McMegan could clearly label her posts UTILITARIAN-ONLY for clarity (or, alternatively, MORAL CONSIDERATIONS PERMITTED) for us simpletons.
And, it's ethan salto, not "Nathan Salto," fucknut.
jmo-
They are insolvent because their liabilities exceed their (marked-to-market) assets.
Also, lead is an element, led is a past participle.
A Son,
ED's issue is a sympton of hubris and entitlement. It is extremely common in people I deal with in academia or less highly paid professions. They feel like their value judgments are correct and universally applicable - thus we should pay their preferred people more and others less.
It is common with athletes and coaches, as people who don't like sports resent that people doing 'unimportant' things are highly paid, while (grad student stipend / current persons salary) is so low.
You also see it in articles on NGO and non-profit workers with a B.A. barely making minimum wage and decrying society's lack of value for their work.
A son, because E.D. obviously knows the "true" worth of all activities to a degree of accuracy far beyond what the people engaged in the actual transaction are able to understand.
Maybe he should be Fed Chairman. Or what's Megan's new one? Supreme "Systematic Risk Regulator"?
"They are insolvent because their liabilities exceed their (marked-to-market) assets."
Why did those assets fall in value?
It my mind it was because the prices of homes began to rise faster than the rate of inflation due to the availability of cheap credit. The same thing that is going on with college tuition.
And I don't understand why tuition costs rise out of all reason.
Because the ongoing transition to an ever more high-skill economy requires more and more education. Of course, even lower level education is becoming more expensive due to the powerful teacher's lobby.
Mostly, though, the market is driving costs. Because it's difficult to measure learning, value is conferred to some degree by going to a respected school, though depending on one's field it may not be worth the price.
Lloyd Blankfein's trip to Harvard surely helped make the difference for him...given that his father was a clerk with the postal service.
jmo,
Only for Communications majors.
College is really a very nice little system for rewarding rational actors. If you major in something like English or history, you're probably not going to get as much employment value as people who get technical or business degrees.
At the same time, it is possible to identify schools with good programs in a field that cost less, or identify a field your school excels in. Most schools do salary surveys of recent graduates now, so it's fairly easy to determine whether you're getting bang for your education buck.
Megan asked, "Beg pardon, but aren't educational costs some of the fastest rising major expenses Americans face?"
The answer is not obvious. Tuition rates have skyrocketed, but that isn't the same thing as educational costs. Rather than ask what has tuition done, one might ask, what has happened to the average out of pocket expense (tuition less scholarships, grants, waivers, etc...)
In my state, state funding has plummeted and tuition has increased to make up the difference. At the same time, the state has provided two kinds of scholarships funded by the lottery. One based on merit the other on need. The scholarship basically makes up the difference between what the state once provided directly and what is now provided by increased tuition. So a needy student or a student with good grades is paying roughly the same tuition as what the typical student paid 15years ago.
Perhaps schools in other states have experienced the same thing since the early 90's: direct state support dropped, tuition increased to make up the difference and state funds scholarships to make up the difference...seems fair enough.
In addition, the all important USN&WR rankings include the fraction of students who get financial aid, so a lot of schools (esp. private) have increased aid packages and tuition at the same time. I don't know what fraction of the increase this explains, but I suspect it is significant.
The more pertinent questions are what has happened to the operating budget of universities, where does the money come from, and where does it go. Some of it is a closed system. Regulatory burdens from federal granting agencies is expensive (we have to hire auditors), but it is paid for by overhead on research grants. This doesn't impact the out of pocket expense for a student.
Nor is it as simple as measuring the average debt of a student as he/she leaves. If a student buys a new car, has satellite TV (you wouldn't believe the number of dishes behind some of our dorms), purchases expensive electronic gadgets, eats out at restaurant regularly, etc... and builds up a lot of debt, that isn't the fault of the university.
The lack of transparency in the budgets at Universities is troubling. Getting these numbers right is a crucial first step to debate about the funding of colleges.
The stipulations in the bailout package money are a great idea. This is in effect, welfare for badly run banks. Instead of complaining about how many jets the government says you can own, don't take the money or simply give back what you got. You want to pay your CEO's more? Then get your goddamn house in order - welfare queens.
University tuition is an ongoing scam. I believe every conspiracy theory mentioned above - dimwitted leftist professors; Ann Coulter speaking fees; moronic research - regardless, higher 'education', like much of America these days has come to view waste, greed and inefficiency as vital to their survival as air and water.
Rel: Rather, I simply wanted to point out that a large lecture course may have much more going on beneath the surface than is evident from the lecture alone.
Yep. Texting, for example. Or web surfing. Or sleeping (both by students who are there and students who are no-shows). Probably even a bit of old-fashioned day-dreaming.
That's one reason among many that it can be difficult to evaluate the quality of higher education. Of course, a large lecture course can also be lousy, and more often than not that is probably the case.
The problem isn't even that big lectures are mostly lousy (though I believe they are) -- the point is that a $1000-$2000 'Intro to Macro' just cannot be justified. The basic principles of econ are well established -- there's no reason for such an expensive, inefficient means of learning them (the cost of which will help put students into serious debt that they'll spend a decade or more digging their way out of).
Bottom line -- universities use their their credit-granting, degree-granting cartel to exploit students (and their families). That's pretty harsh, I know, but given the massive debts students are stuck with (and the massive tax revenues poured into higher education systems), I think that's a defensible assessment.
jmo-
Are you seriously suggesting that university presidents played a comparable role in the current global economic crisis as executives of large now-insolvent financial institutions?
I note further that though Megan repeats the implicit claim that universities have requested federal funding to pay their own presidents much more money, the link in question says nothing of the sort.
What bankers charge 7% on their transactions? That's at the high end for IPOs but debt underwriting fees and particularly merger advisory fees are nowhere near that close.
FYI, the reason underwriting fees are high, and higher the riskier the instrument being issued (i.e., equity > high yield bonds > senior bank debt), is because the bank is putting its capital at risk. That's what "underwriting" is. If a bank underwrites a bond issuance (and oftentimes, provides bridge financing guarantees to close an acquisition, etc), and then isn't able to sell the bonds to investors, it's stuck holding the bag. So the bankers are compensated for taking on this risk.
SteveL,
"Are you seriously suggesting that university presidents played a comparable role in the current global economic crisis as executives of large now-insolvent financial institutions?"
For the average American with both student loans and an underwater mortgage I would say that yes, the bank president is about as resonsible for the underwater mortgage as the university president is responsible for the $547 a month student loan bill.
If you want to argue that more people have mortgages than went to college - that is a valid argument. But, for the average 30yo with student loans and a mortgage the bank Pres and the university Pres both did a fine job of f**king over their "customer".
reylT, what are you talking about at 12:56 above?
PIPEs are the most expensive source of capital. Think Buffett's investments in Goldman and GE. Companies seek private equity investments when they don't have another readily available source of capital, not because they're averse to cost. Quite the opposite.
SteveL,
Also, I would imagine that Salie Mae will have to get a bailout as all those newly unemployed exhaust the deferments on their student loans.
Some of the commentators above make a good implicit point worth making explicit:
Providing more student loans and grants won't make education much more affordable; because of limited slots and competitive demand, it will instead cause price increases nearly equal to the extra money pumped in.
When my daughter was getting ready to go to college, I had this fantasy on how I thought determining the cost would go. In my fantasy the college administrator would sit on one side of a desk and I on the other. I would start, “So how much does this cost?” He would take out a legal pad and start writing, “Well, let’s see. We have to pay salaries, there’s administration, room and board, the cost of buildings and upkeep…..So these are our costs. Then we expect to make a fair profit. So, this is your cost.”
After going through the system, I realize the first part of the simplifying fantasy was correct. I start with how much does this cost. But, in the more correct fantasy the college administrator looks at me from across his desk and says, “How much can you get?”
I have this feeling that if, on Monday, the Federal Gov't makes 20% more money available to colleges (grants, loans, etc...) by Friday the price will go up 25%.
BF, I freely admit to my lack of a formal education mad ritin' skillz.
I don't know who this Warriner guy is, but I thought the error was completely obvious on first read. I assumed it was a careless typo, unremarkable except that it occurred in a sentence criticizing the writing skills of others. Ironic, but not telling (it was ironic, right BF?).
The fact that you think it would take a half-hour and a reference manual to ferret that out though, does make your criticism of Yalies seem somewhat less ... credible?
The job of a university president is to raise money.
A president of a Big 10 school supposedly once said that the job of a university president was to provide 3 things:
- sex for the students
- parking for the faculty
- winning football for the alumni
"I don't understand why tuition costs rise out of all reason. They seem to have no link to personal income, the payoff from a college education, or any other metric I can think of."
At least at the top end of the higher education sector (elite private universities), where tuition rates are now $30000+ per year, I think the answer is: price discrimination. The setting is ideal: Universities have substantial market power (ability to price above marginal cost), they can directly observe which consumers have a high or low willingness-to-pay (by collecting tell-all financial aid applications from anyone who asks for a discount), and educational services cannot be resold.
Harvard's $32557 per year tuition is paid only by those consumers who cannot prove their inability to do so; i.e., the very well off. Everybody else --- for example, talented poor or middle-class kids --- gets a discount that depends on their documented income and assets. The de facto price of (or "family contribution" towards) these fancy educations can be anything between the sticker price and zero, with the remainder covered by fictional "grants" that the universities pay themselves (plus maybe some loans, work-study, etc.).
So the explanation of tuition rates rising well above inflation would be that the willingness-to-pay of the wealthiest consumers in the higher education market (e.g., the children of robber barons, hedge funders, and the like) have been growing rapidly and the elite universities have adjusted their price discrimination schemes accordingly.
"And I don't understand why tuition costs rise out of all reason."
1. Congress appropriates an additional $X for tuition aid per student.
2. Universities raise tuition by, remarkably, $X. It's absolutely uncanny how that works.
3. Go to 1.
As for the value of higher education:
Those who can do, those that can't stay in
school forever, becoming teachers and professors.
jmo:
Given that you didn't answer my actual question I'll take it your answer is 'no,' which comes as some relief.
Nonetheless, the comparison you - and Megan - put forward is inapt on many levels:
The bank executive made a decision to make a mortgage loan, or buy a MBS; the U president did not make the decision to make a student loan - rather it was... a bank!
Bank management made decisions as to what investments to make; university tuition is a function of state legislatures, boards of regents and others - the university president has relatively little influence here.
Banks are for-profit institutions, with strong incentives to inflate profits and take the bonuses, future be damned; not so universities.
Megan's lame assertion notwithstanding, the universities are not being bailed out.
There is a very simple distinction here - that between an owner and a customer.
If I am a customer at McDonalds, I am uninterested in the exact pay of the burger flipper - I am interested only in the quality of my burger and the price I pay for it.
If I own a McDonalds, on the other hand, I do things like set pay.
Getting back to the banks...
I won't argue with the logic, but then shouldn't every type of firm that receives government subsidies have their CEOs' salaries capped? Agriculture, construction, pharmaceuticals...
Fantastic idea. This is the best politically viable method ever to slash the ever growing amount of corporate welfare. I would think you could get everyone from populists to socialists to libertarians behind this move.
"1. The banks in question were complicit in bringing about the current crisis."
I'm sorry, Stevo. The educators failed to properly educate the bankers or this mess never would have happened. I don't see any high school drop-out bank presidents. That's what we like to call "complicity".
If unis ever ask for a gov't bailout because they so fucked their accounts that they'll be bust without one, then we can consider capping the dean's pay. Until then, just another piece sucking off the corporates.
"Do you mean private universities provide less public benefit than public? I would venture to argue that Stanford, Harvard, MIT, provide more public benefit than LSU or Arizona State."
MIT gave us the quants.
Harvard gave us the bankers.
I think LSU and Arizona State have done a lot less damage than the Ivies. Whoever heard of an ASU graduate wiping out billions of dollars because his boss from LSU implemented his risk model before the kinks got worked out?
I would say part of the problem is simple ol' supply and demand. The university degree is largely a status symbol, relatively valueless in itself (except for certain quantitative disciplines), but increasingly valuable as a marker of superior status.
Indeed, especially on the political left, education has now reached the totemic status that "breeding" did for the Victorians. It matters more than nearly anything -- more than native intelligence, morals or character, and relevant working experience. Can't tell you how many times I've heard someone of that stripe say no I don't like his politics/ethics/goals but he's got an MBA from Harvard or PhD from Stanford, so I guess he's OK -- at least he's smart! For these people a Nazi with a PhD is preferable to an honest plumber with a GED, almost.
The problem is, the value of the status symbols is tightly connected with the name and history of the university, and therefore the supply of these symbols is fairly fixed; it amounts to the number of degrees Harvard, Cornell, et cetera can offer each year.
Unfortunately, the college-going population of the United States is probably about 100 times larger in 2009 than it was in, say, 1809 or maybe even 1909, from sheer population growth if nothing else.
In principle, this huge growth in demand should've sparked a boom in college-founding, a steep rise in supply, and a fall in prices. But of course it hasn't, because while you can certainly hire top-notch faculty and build a campus in 18 months, the mere quality of your teaching doesn't mean squat, vide supra -- it's all about status and prestige, and you can't put together in 18 months a centuries-old "tradition" and reputation, including a long string of Presidents and Supreme Court Justices who are alumni, a double handful of octagenerian emeritus faculty who've won Nobel Prizes (but still turn up to grace the occasional seminar), a traditional Big Game with Cal, or even a sizeable crowd of nostalgic alumni who'll gladly pay premium prices to see Junior graduate from the same hallowed halls.
So this is why we see arguments that only way to force down the price of college is to use extra-market forces (government) or just not go at all, get an apprenticeship or go to community college, feh a college degree is vastly overrated, et sour grapes cetera.
Hardly anyone gives the obvious free-market solution, which is that someone should start a competitor (or three) of e.g. Stanford in the Bay Area, with just as good faculty and facilities, and with a student body sporting equally sky-high SAT numbers, and that this will then push down Stanford tuition. Weird when you think about it.
"If unis ever ask for a gov't bailout because they so fucked their accounts that they'll be bust without one, then we can consider capping the dean's pay."
Isn't that the entire business model of a significant portion of universities? How many would survive the year if all their grant funding disappeared tomorrow?
Universities are suppose to get federal money.
It is a key feature of what makes a research university a research university. It is the way the system is designed to work.
Getting federal money means the university president is doing their job, just the opposite of what it means for a private bank CEO.