They’re smarter today than in the 60’s. I worked on an Ivy development project prior to the 2008 crash and through part of it and the investment returns were mindboggling. When this college talks present rate of return, I still wonder if they re-define it, somehow.
They’re smarter- probably. But they still take risks. Timber, mining rights, a basket-full of non-liquid and hard to value assets. It’s a great diversification strategy most of the time- except when it’s not. Wouldn’t take much to reveal which endowment managers were over-reaching. The algorithms used for pricing investments in private equity for example- ugh. Trying dumping those in a down market.
@lookingforward wrote:
I’ll say they are. Thanks to one of Swensen (the Yale investment guru’s) progeny - and, some feverish fundraising - Wesleyan’s endowment has recouped all of its losses from the 1970s.
For detail hounds, two links that reveal much perspective.
http://www.thecrimson.com/article/2016/4/4/faust-endowment-tax-exempt/
https://harvardmagazine.com/2016/04/harvard-responds-congressional-endowment-queries
To some extent, it pays to be wary of “institution speak,” to recognize and not accept first impressions.
^Haha. Gotta love how H attempts to deflect by, in effect, throwing P under the bus!
Look at the link in the first article to Faust’s response. P isn’t mentioned. I think it’s commentary in the HM article.
@bluebayou, agree that it is my opinion but it is a moderately well-informed opinion as I’ve been a grad student and professor at some of the universities in question. I think it is incontrovertible that a very large percentage of grad students would not be able to afford to attend if the waived tuition (which greatly exceeds their stipend) were taxed as income and the had no income to cover it. Do you disagree? In the first blush, losing the best grad students to other countries that fund graduate education would be devastating (or do you disagree?). So, I guess the question is whether universities could pay grad students enough to cover their tuitions without meaningful consequences. It would certainly change the cost structure of research.
I’m not deeply troubled by asking grad students to teach or do research in exchange for a) tuition and a relatively low stipend IF there are job prospects out there. I see field like biology that are training many more people in order to have cheap labor for their research when the total job market prospects (academic and otherwise) are not nearly as large as the cohorts they are training. So you see people limping on as perpetual post-docs at low wages. That bothers me because the quid pro quo is not there. But see below.
@bluebayou, have you ever supervised graduate student research or a graduate thesis? It is typically a very inefficient way to get research done. We are getting inefficient research but in so doing are training the students to be researchers. The quid pro quo of low stipend/tuition waiver for training. If we were paying for research work at market rates as you seem to be proposing, we’d hire very different people to get the most from our spending. But, we’d be changing the mission of the institution in so doing.
We have developed a system in this country for financing the pursuit of academic/research excellence in the country. It starts with tax-deductibility of interest in donations to universities. It includes the tax waiver for grad student tuition and the lack of taxation of university endowment income. The point of these two examples was merely to show how much this system as constituted benefits the US economy, as my first post pointed out, there are plenty of other examples (Austin with UT and the semiconductor consortium, Pittsburgh with CMU and Pitt, Cambridge MA with Harvard as well as MIT, San Diego biotech with UCSC, …).
I wouldn’t argue that that system is optimal, but it does seem to work. Tampering with that system to score anti-elite political points seems really foolish unless we have another viable approach to realizing the same economic growth. I don’t see the existing bills as being even remotely helpful. As I said, I don’t see anyone proposing an increase in funding for research – the same folks who are proposing this have also been cutting research funding for a couple of decades if I’m not mistaken. Do you have an approach that would preserve the economic gains that this system makes after you take steps to reduce its effectiveness?
I think the connection you didn’t see is pretty obvious, but perhaps this is clearer: We have a system of financing research excellence that includes a few things including tax-free tuition and tax-free endowment income. The system creates significant economic gain for the country as a whole and for regions around universities in particular (as exemplified in their most effective forms by Stanford and MIT). I believe that most of the economic growth in the US has actually been in these sectors of the economy. I don’t have time to get the most directly pertinent data, but among all publicly traded companies, 38% of all employees are in companies that were venture-backed and 82% of the R&D spend is from companies that were venture-backed (https://www.gsb.stanford.edu/insights/how-much-does-venture-capital-drive-us-economy). To me, this suggests that a lot of the growth in the economy and in employment has taken place in/around universities. Consistent with this conclusion (but far from dispositive) is the fact that something like 87% of all VC-funded companies are located in California, Massachuetts (31% of all VC-backed biotech and 26% of all VC-backed pharma companies are located here, almost all in and around Cambridge), NY, Washington (usually folks who’ve left Microsoft, Amazon or Google), and Austin (https://www.bloomberg.com/graphics/2016-who-gets-vc-funding/). There will be a cost to tampering with the system and it could be quite high. @bluebayou , this is an opinion but seems more likely than that there would be no cost or negligible cost. Taxing grad student tuition is likely to have an immediate effect either in causing them to go to other countries or increasing the cost of research at US universities or both. If the best talent starts to go to other countries, VC money will likely follow them there. Taxing endowments will again increase the cost of research. A small tax probably complicates things but is a foot-in-the-door to higher taxes. Again, as a donor, I might choose to donate in places where the impact is highest (e.g., not where my money is going to fund high-impact research rather than to the government). But, I’m not close enough to this to fully understand the impact – there are often unintended consequences of changes in incentives (like tax deductions) – but I think the proposed changes would have a real effect upon our country’s economy over time. Move 20% of 2019’s startups to Canada (considered one of the top plausible locations for Amazon because of the anti-immigration tone/policies of the current government) and over time, you would likely see significant effect on US employment. Other changes in the tax law could also have significant effects. IIRC, the proposed tax treatment of employee stock options in startups would make these unusable and increase the cost of growing startups.
Returning to your question up above about the quid pro quo of low wages and tuition waivers, I’d make that trade as a country to get the economic gains (provided the quid pro quo I mentioned was in place).
Talking about individual institutions (how big is the endowment, cost of tuition, inflation rates) is interesting but ignoring systemic effects on our economy seems like missing the point.
Mayor Bloomberg (not a stupid man, and not someone who doesn’t understand economics and finance) moved heaven and earth to get the new Cornell/Technion campus built in New York City.
If universities were “fleecing” NYC, he’d have taken a pass. He (and his economic advisory team, some of the sharpest development folks operating in the US) have a much more nuanced view of dollars in/dollars out than the “tax the endowments” crowd. You get one Google incubated as a result of a partnership like this- it sure pays for a lot of public schools, roads, bridge repairs, and firefighters. The university may be tax exempt, but its employees pay payroll taxes, sales taxes every time they buy lunch, and property taxes on the apartments they own (or rent-- their landlords are paying the property taxes).
I’ve already said its a dumb idea.
In other words, living wage for everyone but grad students? Just bcos Unis claim that they can’t afford it is not a good reason for national policy.
Yes, I do, and have suggested one solution on this topic much earlier. The reason I disagree is that I firmly believe in behavioral economics (see Richard Thaler). Unlike the Congressional Budget Office – which does a gazilion static analyses – I have faith that human nature will react to the tax changes and Unis will change the deal over time. (Of course, Behavioral Econ also infers that the feds will not even come close to the expected $63B in new revenue.)
Yup, disagree. Assuming that we can ID the “best grad students”, just give them a fellowship – which presumably will remain tax free.
Your link says 38% of employees at public companies founded since 1979 are in VC backed companies, not among all publicly traded companies.