Distilled Faculty Outrage

Via Inside Higher Ed this YouTube video is pretty much a distillation of faculty reaction nationwide to higher education’s response to the world economic crisis:

The IHE link gives a little more context to the video, and some of the reaction to it. The arguments here are not all well-founded– science and engineering will necessarily receive more funding than the liberal arts because teaching and research in science and engineering are vastly more expensive than in the humanities, and many of those central administrative salaries are going to support multicultural and mental health programs that faculty would be outraged to see eliminated– but they’re presented clearly and concisely. If you want to know what many faculty are thinking, this is it in three minutes.

I make an effort to avoid discussing internal college politics here, so I won’t talk in detail about the applicability of this to Union. I will say, though, that we have thus far been shielded from the worst of the financial crisis, thanks to our moderately large endowment, the generosity of many alumni who have increased contributions in spite of the general economic crisis, and generally good management from the current administration. While we’ve seen some cuts in funding, and while I might quibble about some of the allocation of those cuts, for the most part, I’ve been satisfied that our administration is doing their best to act in the best interests of the institution and the faculty, and that’s as much as you can realistically hope for (the days when the college operations could be sustained by Frank Bailey dipping into his own pockets to make up end-of-year shortfalls are, alas, long gone).

My personal pet cranky suggestion is that institutions with substantial endowments ought to be willing to draw more from those endowments to help sustain their local communities through these bad times, even if that means dipping into the principal a little. Given that we’re in the middle of the worst economic crisis since the Great Depression, I’d like to see a little more helping and a little less hoarding, but higher education has come to see endowments as more of a funding source/ scorekeeping mechanism than a hedge against bad times. We’ve got hundreds of millions of dollars (over a billion, in the case of my alma mater) sitting there, a fraction of which would be enough to provide jobs for people who are otherwise unemployed, and as a bonus inject some more cash into the stalled economy to help everyone else. That seems like a good deal, even if we come out of the crisis slightly less well endowed than our comparison schools.

This is, in its own way, as unrealistic a suggestion as “Let’s get rid of all our athletic programs!” But as long as we’re throwing crazy ideas out there, that’s mine.

Comments

  1. #1 Dennis
    July 27, 2010

    “My personal pet cranky suggestion is that institutions with substantial endowments ought to be willing to draw more from those endowments to help sustain their local communities through these bad times, even if that means dipping into the principal a little.”

    Truth.

    I’m a chemistry grad student at a school with a large endowment, and I’m getting really tired of hearing of all the things the university can’t do because they ONLY have 16 billion dollars.

  2. #2 Eric Lund
    July 27, 2010

    One major problem with the current paradigm for university endowments is the built-in assumption that there exists a safe category of investments which yield 5% or more per year. This assumption worked quite well from the end of World War II up until the early part of the last decade. Then Greenspan and company slashed the federal target rate, severely reducing the yield on safe bonds and similar instruments. CDOs were marketed as one way to get around this problem, since they were allegedly safe investments with sufficient yield to run things like university endowments–I’m not privy to details, but I strongly suspect that university endowments were among the suckers to invest in CDOs. Then the credit markets blew up, and even that workaround became unavailable, while the need for instruments with higher returns remains (and indeed has become even more acute, with 10-year Treasury yields hovering near or below 3%).

    The dilemma here is whether you think the economic slowdown is a short-term thing or the beginning of another Great/Long Depression, and whether you expect strong inflation or deflation to be a more significant factor in future expenses. If you think this is a short-term downturn, or you expect inflation to be important, spend the money now to keep the community going (and before inflation eats up your principal). If you think this is the start of a depression and you expect significant deflation (which would have been the way to bet during the last two years), sitting on your cash becomes much more attractive, as it will improve the chances that you’ll still be around when the economy picks up again–going bankrupt and shutting down would definitely not be good for the local community, especially if (as is true in many college towns) your organization dominates the local economy.

  3. #3 Paul
    July 27, 2010

    Chad: “My personal pet cranky suggestion is that institutions with substantial endowments ought to be willing to draw more from those endowments to help sustain their local communities through these bad times, even if that means dipping into the principal a little.”

    The problem I can see with such a noble idea is that once you started it would be very hard to pull out. Some of the public would quickly feel entitled to that money and consider it their rainy day funds.

    It would put universities under constant pressure to help troubled communities and if they refused they would risk being made into scapegoats.

    Finally politicians would also feel entitled to that money and would find some way to get it whether the Universities agreed or not.

  4. #4 Steinn Sigurdsson
    July 27, 2010

    Until recently it was illegal to spend the principal of an endowment like that – in most states, this is on state-by-state basis, in the US – there was a big push in the last decade to both homogenise the law, which was partially successful, and to liberalise it to permit such spending.
    This was somewhat successful just in time for it to be catastrophic.

    A lot of the big endowments are also in cash flow trouble, not because of declining principal – any half-sensible finance officer box-car averages to smooth out market fluctuations – and not because of CDOs or other crazy investments, but because a lot of their private investment deals require anteing up, basically the endowment funds are contractually required to double-down on choice investments if they don’t cashflow temporarily.
    That eats endowment income, temporarily

  5. #5 IP freeley
    July 27, 2010

    I think that’s an interesting point–universities could dip into their endowments to essentially create their own economic stimulus packages. I don’t think a university should be a charity–but they could notice that now would be a good time (socially and economically) to make more temporary job hires than usual. They can build buildings, redo landscaping/make parks, build sport fields, lay down better computer networks…just pile on the infrastructure.

    It would be interesting to show that by stimulating the economy now, universities will win in the long run compared to letting their endowments sit and fester in a slow economy. I imagine it only works if a school’s investments are local–but maybe they should make more local investments. Would it help of hurt a school if people could get better mortgage rates from university backed investments?

  6. #6 Alex
    July 27, 2010

    Finally politicians would also feel entitled to that money and would find some way to get it whether the Universities agreed or not.

    Not to mention that university administrators would feel entitled to spend that “community investment” money however they like, and who knows what form that might take?

  7. #7 Chad Orzel
    July 27, 2010

    The problem I can see with such a noble idea is that once you started it would be very hard to pull out. Some of the public would quickly feel entitled to that money and consider it their rainy day funds.

    It would put universities under constant pressure to help troubled communities and if they refused they would risk being made into scapegoats.

    Of course, that sort of pressure already exists. Most “town-gown relations” stories are built around this sort of thing– the local community feels it’s not getting enough benefit from the wealthy academic institution in town. The better schools try to do something about this, in one way or another (usually by buying up depressed real estate in one form or another), with mixed success.

    I’m not thinking so much of a local grants program or anything that would be quite so obvious an entitlement subject to capture by local interests. Just not laying people off would be enough– lots of colleges and universities have canceled building projects and cut staff in response to the economic crisis. Dipping into the endowment to keep those people on, and provide construction jobs (which might actually end up being cheaper than anticipated) would do a lot to shore up local economies, without being too much of an entitlement program.

  8. #8 Steinn Sigurdsson
    July 27, 2010

    My impression is that Yale did this for New Haven, with some success.
    My impression is that it was also done both for student retention and as a business investment, and community relation was a tertiary issue, though I could well be wrong on that.

    A fair number of Big State Universities are used to keep politically important construction firms busy through cyclic downturns, keeps them busy and crews together when economy is rough. More as local graft then macroeconomic policy, but effect is mostly the same

  9. #9 CCPhysicist
    July 28, 2010

    Didn’t your corporate overlords point out to you that this story came to you via IHE … from Scienceblogs? I read it there (pharyngula) quite some time before I saw the story in IHE.

  10. #10 agm
    July 28, 2010

    She should spend some time reading Dead Dad…

  11. #11 EdK
    July 30, 2010

    The endowment situation seems to be yet more thing that points to American higher ed as financially dysfunctional. Until major structural issues are addressed adding more money won’t help keep faculty and courses. Its like trying to fill a bathtub with the drain open.

  12. #12 EdK
    July 30, 2010

    And then a timely news story related to all this:
    http://news.yahoo.com/s/nm/20100729/lf_nm_life/us_usa_books_universities
    I would have to read the book (rather than a news report) to see what it actually says and don’t agree with the assertion that all undergrad degrees should be simple “liberal arts” degrees. But I do agree with the statement that “Prices got to where they are because both universities and administrators spent like drunken sailors,”