By Richard Vedder
Of the many scams in higher education, one of the biggest relates to overhead on research grants. Typically, there are elaborate negotiations over what those overhead amounts should be, and often they are 50 percent or more. So if the direct costs of a research project are, say, $200,000, the overhead costs (to ostensibly cover building use and maintenance, administrative services, etc.) will often exceed $100,000, making the total grant over $300,000. I have long suspected that a lot of the research money actually is in the form of what economists call economic rent -- compensation that does not actually result in the provision of additional goods or services. A perfect example of economic rent payments occurred recently, when Ohio State paid retiring president Karen Holbrook a $250,000 going away bonus --a six digit amount larger than potentially payable under her contract. Our CCAP research shows a striking positive correlation between the growth of faculty salaries and the amount of research grants awarded. When the government drops money out of airplanes over campuses, or the equivalent, the people picking up the money spend some of it on themselves.
This all came into mind when I read that the House of Representatives was contemplating putting a 20 percent cap on overhead payments for Department of Defense research. The colleges, of course, are howling, claiming our national security will be imperiled and life as we know it is about ready to cease.
I have long advocated a national research overhead amount, and one at the lower end of the range of payments currently made. This would cut out wasteful administrative costs, game playing, etc., designed to raise overhead payments, and would not allow extravagant schools with big bureaucracies to pass along the cost of their wastefulness to the general taxpayer.
I don't know if 20 percent is the right cap (it strikes me as a tad on the low side, but only a tad), but some uniform amount is a good idea. This House of Representatives has been a disappointment, but in this bill is the seed of a good idea.