Stimulus for Us, Too: The Higher Education Investment Act

By Richard Vedder

I have been increasingly disenchanted and even alarmed by the spending spree that the Obama people are planning on unleashing in the name of stimulus. And, as expected, every rent-seeking group in the country is trying to get its hands on some of the money, which will be financed by massive U.S. government borrowing and, I fear, the equivalent of the printing of money (the monetizing of the debt). The "stimulus package" is a bad idea to begin with, as any one who has studied such infrastructure stimulus packages in the past, ranging from the Works Progress Administration (created in 1935) through the Japanese deficit-financed infrastructure splurge of the 1990s that wreaked havoc on that great country.

But a bad idea is getting worse, thanks to our friends in the higher education community. They see a crying need for new higher education infrastructure --say $40 or $45 billion worth. The Establishment (via the Carnegie Corporation of New York, run by former Brown University president Vartan Gregorian) has purchased a two page ad in the New York Times requesting far more money than the automakers asked for.

Many of the big names in higher education are on the list of signers: Charlie Reed from the Cal State System and Mark Yudof from the University of California; Brit Kirwan from Maryland, Joe White from Illinois, Graham Spanier from Penn State, John Casteen from the University of Virginia. Not to mention big trade association types, the Mandarins of DuPont Circle, like Molly Broad from the American Council of Education and Peter McPherson of NASULGC.

The first thing that can be said about college "infrastructure" is that it is scandalously poorly utilized. Whereas a typical office building at, say, IBM or Procter & Gamble is probably utilized heavily 9 hours a day for 250 days a year, the typical university office building is utilized far less, and most classroom buildings likely have far less than 50 percent space utilization by any measure (with classrooms virtually empty on Fridays, evenings, summers, etc). The exception: the for profit schools, which rent facilities, using them intensively day and night (they know that capital is not costless).

The second thing that can be said about college "infrastructure" is that increases in building square footage per student raises the fixed costs of college attendance. What is built must be maintained. Today's "stimulus" is tomorrow's cost enhancement. The third thing that can be said is that colleges have squandered billions in recent years building luxury facilities instead of utilitarian structures. One of my university's newer classroom buildings has a huge atrium, another a "Rotunda", which is essentially a large empty room with perhaps a 35 foot ceiling that is used for parties. Princeton has a dorm with a per bed cost comparable to that at a new Donald Trump tropical resort. This is not to mention all the stadium sky boxes and other amenities added to allow drunk alums to watch in comfort as college kids throw balls.

I will make a prediction. The Misery Index --the combination of the inflation rate and unemployment rate in 2009 and 2010 will exceed that of any two year period in the Administration of either Bill Clinton or Junior Bush. The economic growth of the nation will remain sluggish. Real stock market values at the end of 2011 will be lower than they were a decade earlier. And a lot of the spending done in the name of stimulus, truth, beauty, equality, global warming, etc. will be money down the drain. To borrow two trillion dollars and then use some of it to finance some of the most inefficient segments of American society is economic lunacy. Perhaps the Obama people are smart enough to just say no to the rent seeking Mandarins of DuPont Circle and their friends throughout the nation.

University presidents should be concentrating their efforts on rationalizing their institutions in the face of financial stringency -- reducing staff, consolidating programs, selling off non-strategic assets, etc., the things corporate executives do in recessions. And they should spend less time acting like pimps in academic houses of prostitution.