|
|
|
|
|
|
by absherwin
2724 days ago
|
|
|
I agree wholeheartedly with the larger point that we have a higher education bubble. I’m skeptical both that: Lower tuition would make taxing endowments more likely and that universities believe that that’s the case. In a world with lower tuition, endowments grow somewhat more slowly and are easier to justify because they are the thing that enables low tuition. For a more direct set of examples of how much inertia we have, consider the way wealthy individuals use foundations to avoid taxes. I haven’t heard people crying out to tax the Gates Foundation despite its endowment growing over time because it can’t keep up with its contributions. Nor is there a massive uproar about donor advised funds which (particularly in CA) can be 80%+ taxpayer funded while effectively lacking minimum disbursement requirements as part of a larger organization. |
|
|
Yes, if the tuition were reduced by increased endowment subsidy, the political cover for the endowment would not be much affected.
But that strategy would limit the value of that cover (for the university staff) by 1) ultimately limiting the size of the "politically justified" endowment and 2) limiting the overall resources they control.
Re: 1), if the university contains cost inflation below endowment retained returns, the endowment eventually grows to fund 100% of tuition. At that point, the question "why do they need more?" becomes obvious and unanswerable.
Re: 2), note that the article implies an "agency" effect with university personnel, in that they benefit by their control of the institution's resources. In companies, such effects are seen in executives taking higher than market salaries and excess perks. All that diverts income from equity owners to managers. In a university these might be above-market salaries, research budgets, job security, prestige, trips, subsidized housing, etc etc etc -- diversions of endowment returns from "teaching" to the staff.
The agency model argues that university staff benefit from _growing_ costs, which give them more resources to control. The story that education costs rise faster than inflation and middle class incomes removes the limit on the size of the cost base / resources controlled. It also "politically justifies" an ever-growing endowment.
Thus lowering tuition simply by paying ever increasing portions of tuition does not serve the university staff. The point of the article, I believe, is that those staff have an ongoing interest in _increasing_ the costs to be subsidized by the tax-free growth of their endowments.
(It is also worth noting that such arguments justify more than protection of endowment returns: state funding for public schools, federal "overhead" payments for research grants, etc. We might even wonder if the endowed universities play a "cost-setting" role for higher education generally. They operate at ever-higher cost, sustained internally by the endowment returns; those costs then help justify the budgets of unendowed schools. "Hey, if you want the kids of Michigan to have a first-rate education, this is what it costs, just look at Harvard." If so, and MIT, Harvard et al began controlling costs, those controls would then ripple over time throughout the whole system through those benchmarking effects. Thus even unendowed schools would have long-term political interest in protecting those endowment returns.)
Note that we don't have to fully believe the whole story to learn from it. The "market" for higher education market is clearly pretty weird, and explaining that will require so pretty involved stories.