Tuesday, February 17, 2009

The Holy Trinity: Greed, Stupdity and Arrogance At America's Universiities

By Richard Vedder

Barack Obama is signing a bill today that will once again allow American university presidents, at least at public schools, to continue on their inefficient ways. The stimulus package contains enough dollars to allow most colleges to have a merely mildly uncomfortable budget adjustment instead of a fundamental reinvention of the delivery of higher education services. Aside from budgetary funds directed specifically for education, there are lots of dollars for enhanced spending by organizations like the National Institutes of Health and the National Science Foundation, much of which will filter down to campuses.

Universities have gotten fat, rich and arrogant during the last generation. The National Center for Education Statistics (and a calculator) tells us that in 1976, there were 3.15 full time administrators or "other professionals" working at universities for every 100 full time equivalent students. By 2005, that number had nearly doubled, to 6.06. In 1976, it took 10 professional staff to educate a 100 students; today, it takes more than 14.

Rather than embracing technology to lower labor costs, we in higher education have expanded bureaucracies --simply because we could. And we have started to pay them princely salaries, arguing that we have to compete with corporations. Bull. Facing far greater risks and financial consequences than higher education, corporations have cut staff to the bone, and have raised productivity to remain competitive. Higher education has done the opposite, and does not either deserve nor require corporate level salaries.

Let us look at higher education then and now. I will use my own university as an example. Forty years ago, in 1968-69, the dean of the business school made $22,000 a year. Today's counterpart makes $242,500. Allowing for inflation, that is a real doubling in salary (particularly since the inflation adjustment, the CPI, is generally acknowledged to have overstated inflation in that era). This ignores soaring fringe benefits, and is dramatically more than real compensations per hour in the private sector (about 60 percent). And that is not an isolated example. The head football coach in 1968 (a campus legend with a great record) made $20,400 a year, one third the inflation adjusted salary of the current $330,000 (with bonuses extra) coach. While some positions have seen real gains in pay of "only" 60-70 percent, on the whole the administrative bureaucracy has grown not only enormously in size, but also in emoluments, relative both to the American population and to the faculty (who have not, however, done badly either --salaries for new assistant professors of economics, for example, rose around 50 percent in inflation-adjusted terms, and probably 60 percent when fringe benefit expansion is considered).

Here is the hustle. University presidents and other academic hookers go to the legislature, DC, or to private donors and beg for more money --to make college more affordable, to promote economic growth, to reinvigorate the American Dream - the spiel du jour used in this con game varies with time and place. A naive but well intentioned public gives us university folks more or less what we want (although, ironically, we rarely say thank you), and we use some of it to line our pockets, some to lower our teaching load (faculty), increase our power (administrators), etc. And of course, we sock it to the students too --raising tuition fees constantly. Without the pressure of market discipline, we become arrogant and greedy.

What about the "stupidity" in the title of this blog? Aren't university officials pretty clever to be able to convince Americans to subsidize them in the good life? Yes, but greed sometimes makes them stupid - even from the standpoint of their own narrow self-interest. Today's INSIDE HIGHER ED has a great story showing how public and campus opinion is turning strongly against presidents who have taken huge bonus payments in the midst of national economic suffering and campus cutbacks (one is my own president, Rod McDavis, who apparently refuses to return a cent of the $85,000 pay hike he received back to the university). Astute presidents (David Hodge of Miami University comes to mind, but there are others) have rejected these bonus payments, knowing how they create enormous resentment on campus and anger in the broader community. For some, greed trumps common sense, leading to stupidity.


capeman said...

Yeah, Doc, by your reasoning the head football coach should be making about $110,000. Go into your beloved market and see what kind of coach you can get for that kind of dough. Ditto for the business school dean. His pay is what, about 0.1% of the most egregious corporate cases? Who are these risk takers the Doc is talking about? Bernie Madoff? OK, John Thain? Robert Rubin?

maxheadroom said...

The Times of India reports that Barack Obama has appointed seventeen lobbyists to high government positions in his administration. Politico provided a handy reference with which we can start building our list of “exceptions” to the Obama Administration Ethics Policy:

Eric Holder, attorney general nominee, was registered to lobby until 2004 on behalf of clients including Global Crossing, a bankrupt telecommunications firm.

Tom Vilsack, secretary of agriculture nominee, was registered to lobby as recently as last year on behalf of the National Education Association.

William Lynn, deputy defense secretary nominee, was registered to lobby as recently as last year for defense contractor Raytheon, where he was a top executive.

William Corr, deputy health and human services secretary nominee, was registered to lobby until last year for the Campaign for Tobacco-Free Kids, a non-profit that pushes to limit tobacco use.

David Hayes, deputy interior secretary nominee, was registered to lobby until 2006 for clients, including the regional utility San Diego Gas & Electric.

Mark Patterson, chief of staff to Treasury Secretary Timothy Geithner, was registered to lobby as recently as last year for financial giant Goldman Sachs.

Ron Klain, chief of staff to Vice President Joe Biden, was registered to lobby until 2005 for clients, including the Coalition for Asbestos Resolution, U.S. Airways, Airborne Express and drug-maker ImClone.

Mona Sutphen, deputy White House chief of staff, was registered to lobby for clients, including Angliss International in 2003.

Melody Barnes, domestic policy council director, lobbied in 2003 and 2004 for liberal advocacy groups, including the American Civil Liberties Union, the Leadership Conference on Civil Rights, the American Constitution Society and the Center for Reproductive Rights.

Cecilia Munoz, White House director of intergovernmental affairs, was a lobbyist as recently as last year for the National Council of La Raza, a Hispanic advocacy group.

Patrick Gaspard, White House political affairs director, was a lobbyist for the Service Employees International Union.

Michael Strautmanis, chief of staff to the president’s assistant for intergovernmental relations, lobbied for the American Association of Justice from 2001 until 2005.

What kind of governing philosophy is this, if not a big “For Sale” sign on the White House?

maxheadroom said...

In the echo chamber of Our Dear Leader many an Obot dwells. Gathering his followers like the Pied Piper of Hamlin, The Messiah beats his drum of Hopenchange™ and uses their ignorance against them.

Going as far back as August 2007, Obama noted, "Freedom must mean freedom from fear, not the freedom of anarchy." For two years, throughout the presidential campaign, he accused his rivals of using the politics of fear calling them fear mongers.

Here’s the problem:

Now firmly ensconced in the Oval Office, our President-in-Training finds he needs to motivate the uninspired, the unmotivated, the uneducated with gratuitous fear mongering because it serves his purposes. He repeatedly raises the specter of the Great Depression, both explicitly and by constant allusion, to a skeptical public.

Recently he bellowed, "We start 2009 in the midst of a crisis unlike any we have seen in our lifetime—a crisis that has only deepened over the last few weeks. If nothing is done, this recession could linger for years."

In Elkhart, Indiana, the center of recreational vehicle manufacturing, he is quoted as saying that the country is in, "an economic crisis as deep and as dire as any since the Great Depression and our nation will sink into a crisis that, at some point, we may be unable to reverse."

Summoning the boogeyman of the Great Depression in his televised press conference on February 10th, he warned, "...we also inherited the most profound economic emergency since the Great Depression..." and, "So what I'm trying to underscore is what the people in Elkhart already understand: that this is not your ordinary run-of-the-mill recession. We are going through the worst economic crisis since the Great Depression..."

There are many more instances of Obama's fear mongering in recent weeks, but there is a larger point here as well. All of these comparisons of the country's present financial crisis to the Depression are specious; we are a long ways from the depths to which the American economy sank during the 1930s, and even on into the 1940s, and it is dishonest of the President to prey on the fears of the public by drawing these comparisons.

In a well-written and researched essay published in The Wall Street Journal, Bradley Schiller, a Professor of Economics at the University of Nevada at Reno notes, "President Barack Obama has turned fear mongering into an art form. He has repeatedly raised the specter of another Great Depression."

Schiller goes on to point out a number of areas in which the conditions the country experienced during the Depression were much more severe than those we are currently experiencing. He further notes that a better, more accurate comparison would be with the recession of 1980-'81, from which the economy rebounded into a period of strong growth.

Schiller notes: "Consider the job losses that Mr. Obama always cites. In the last year, the U.S. economy shed 3.4 million jobs. That's a grim statistic for sure, but represents just 2.2% of the labor force. From November 1981 to October 1982, 2.4 million jobs were lost—fewer in number than today, but the labor force was smaller. So 1981-82 job losses totaled 2.2% of the labor force, the same as now.

"Job losses in the Great Depression were of an entirely different magnitude. In 1930, the economy shed 4.8% of the labor force. In 1931, 6.5%. And then in 1932, another 7.1%. Jobs were being lost at double or triple the rate of 2008-09 or 1981-82."

Plying his fear mongering to near-perfection, Our Dear Leader is exaggerating the effects of the current recession. By connivance, he is linking it to the Depression, thereby playing on the fears of the public. President Hopenchange™ is almost certainly guaranteeing that his doom-and-gloom predictions and pronouncements will become a self-fulfilling prophecy. Ours is a consumer-driven economy. The more afraid consumers are of the potential of losing their jobs, their savings and even their homes, the more likely they are to cut back their spending, and thus worsen the recession.

maxheadroom said...

Tuesday , February 17, 2009

It isn't all in the pedigree.

The executives who ran the nation's biggest banks and corporations were trained at some of the country's top universities — but that's been no guarantee of success.

From John Thain, the ousted head of Merrill Lynch, to Circuit City's Philip Schoonover, who drove the electronics retailer into bankruptcy, these crown jewels of corporate America haven't looked so resplendent in recent months.

FOX News compiled a list of the schools where America's captains of industry got their training before they ran their corporate ships aground — and community college is looking better by the minute. Don't forget to check below to see a scorecard of the schools and programs that have won the dubious distinction of having these troubled alumni.

JPMorgan Chase
• James L. Dimon, CEO and Chairman: Harvard Business School (1982), Tufts University (1978)
• Barry L. Zubrow, Executive VP: University of Chicago Law School (1980), University of Chicago Business School (1979), Haverford College (1975)
• Frank Bisignano, CAO: Newport University

• Vikram Pandit, CEO: Columbia Business School (1986); Columbia University MBA (1980), M.S. (1977), B.S. (1976)
• Lewis Kaden, Vice-Chairman and CAO: Harvard Law School (1967), Harvard University (1963),
• Stephen Volk, Vice-Chairman: Harvard Law School (1960), Dartmouth College (1957)
• John Havens: Harvard (1979)

Bank of America
• Kenneth D. Lewis, Chairman, CEO and President: Executive Program at Stanford University, Mack Robinson College of Business at Georgia State University (1969)

Morgan Stanley
• John Mack, Chairman and CEO: Duke University (1968)
• Walid Chammah, Co-President: American Graduate School of International Management (1977), American University of Beirut (1976)
• James P. Gorman, Co-President: MBA Columbia University (1987); BA, JD University of Melbourne

Wells Fargo
• John Stumpf, President and CEO: MBA University of Minnesota, BA St. Cloud State University
• Richard M. Kovacevich, Chairman: MBA Stanford University (1967), BA Stanford (1965)

Goldman Sachs
• Lloyd Blankfein, Chairman and CEO: Harvard Law School (1978), Harvard University (1975)
• Jon Winkelried, President and Co-COO: University of Chicago Booth School of Business (1982), University of Chicago (1981)
• Gary Cohn, President and Co-COO: American University (1982)

Washington Mutual
• Kerry Killinger, CEO: University of Iowa, MBA (1971), BBA (1970)
• Alan Fishman, former CEO: Columbia University (1969), Brown University (1967)
• Stephen Rotella, President/COO: State University of New York (1978)

• Michael Perry, CEO: California State University, Sacramento
• Scott Keys, CFO: Loyola Marymount University in Los Angeles

Bear Stearns
• Alan Schwartz, President and CEO: Duke (1972)
• James Cayne, former CEO: attended Purdue

• Edward Liddy, CEO: MBA from George Washington University (1972), Catholic University of America (1968)
• Robert Willumstad, former CEO: attended Adelphi University

Lehman Brothers
• Richard S. Fuld, Chairman: MBA from NYU Stern School of Business (1973), University of Colorado at Boulder (1969)
• Herbert H. McDade, President and COO: MBA University of Michigan, BA Duke University
• Ian T. Lowitt, CFO: BSc. and MSc. University of the Witwatersrand (Johannesburg), BA and MSc from Oxford

Merrill Lynch
• John Thain, Chairman and CEO: Harvard Business School (1979), MIT (1977)
• Peter Kraus, Executive VP: MBA from NYU (1975), Trinity College (1974)
• Thomas Montag, Global Head of Sales: Stanford (1979)

Bernard Madoff
Hofstra College (1960)

GM: Richard Wagoner, CEO. Harvard Business School (1977), Duke University (1975)

Chrysler: Robert Nardelli, CEO. University of Louisville College of Business (1975), Western Illinois University in Macomb (1971)

Circuit City: Philip Schoonover, former CEO: University of New Hampshire (1978), Boston College; James Marcum, CEO: Southern Connecticut State University (1980)

Sprint: Dan Hesse, CEO: MA, MIT (1989); MBA, Cornell University (1977); University of Notre Dame (1975),

Charter Communications: Paul Allen, CEO. Attended Washington State University

Sirius/XM Radio: Mel Karmazin, CEO: Pace University (1967)

Midway Games: Sumner Redstone, Majority Owner: Harvard Law School (1947), Harvard University (1944); Shari Redstone, Chairman. Tufts (1975)

The final tab:
Harvard: 11
Columbia: 6
Chicago: 4
Duke: 4
Stanford: 4
American University: 2
MIT: 2
NYU: 2
Tufts: 2
University of Iowa: 2