Whos Paying the Bills at the Nations Top Public Universities?

sofla951 · September 23, 2009, 4:05pm

University probe is where I got the 7000 dollar figure from thats why I put it in my first post. Also I disagree with Sakky’s view that undergrads should be paying the bill for research but I guess we will have to agree to disagree. Also I would love for someone to explain to me why the cost of education has skyrocketed since 2000 at a rate far outpacing inflation. Sakky do you have any info? Also since 2000 endowments have soared in a similar fashion to real estate. I tend to think there was an education bubble over the past ten years between elite universities vying to climb the ranks and lure faculty and prestige through bloated budgets that were sustained by their skyrocketing endowments. Many privates have seen there endowments fall over 30 percent and many are taking bonds just to cover operational costs. It wouldn’t surprise me if the disparity of financial resources between publics and privates shrinks considerably, even with publics being cut at the same time. Many privates are just as or even more dependent on their endowments than publics are on state funding.

bclintonk · September 23, 2009, 4:19pm

This is not a credible source. It’s basically a one-person operation, a crank website produced by a disgruntled retired physics professor and self-appointed “expert” on university finances. I wouldn’t trust the information on a site like that as fas as I can spit.

hoedown · September 24, 2009, 10:51am

I’m not sure which “they” is referring to the State of Michigan and which “they” is referring to U-M, so it’s hard to comment. I will echo the previous remarks about the complex relationship between U-M and the State. U-M is a public entity, and it receives appropriations from the State. But the relationship is not as closely linked as you might think. Voters do have some say in how things are run, in that they elect the Regents. But the State does not control the University’s property, employees, or anything else.

More to the point, though, it isn’t clear to me that some 3rd-party ownership of the stadium would somehow improve the economic condition of the U or the state.

sofla951, I don’t know much about that particular source. However, that figure of $7000 seems entirely unsupportable to me.

hoedown · September 24, 2009, 11:01am

The usual reasons given run like this:

Higher Education does not experience the same kind of inflation that you and I do. The Higher Education Price Index (HEPI) is greater than CPI, so the gap between rising tuition and rising inflation" isn’t as great as first supposed.

Another factor: as labor-intensive organizations, universities are hit very hard by increases in health care costs.

Also: Due to the nature of the enterprise, higher ed doesn’t yield the same productivity benefits from technology that many firms do. It still has to make substantial investments in technology, but it rarely results in being able to educate more students with fewer employees, or educate them faster. So it doesn’t recoup those costs like other companies would.

Also: Since they are considered our repositories for human knowledge, universities and colleges can’t shed things. Although they are always adding (and investing in) the new, they still have to keep teaching the old. When you add bioinformatics, you don’t ditch Greek and English. When you add the latest year of an expensive science journal, you don’t clear off a shelf of older volumes. You typically have more and more you are expected to maintain and preserve.

And there are the things you cite–needing to offer top research facilities to lure & retain the best faculty, etc etc.

Those are the main arguments, off the top o’ my head.

sakky · September 27, 2009, 10:16pm

The only sense in which Michigan Stadium or any other asset of the University, real or personal, is “owned by the state” is that these assets are owned by the University of Michigan, an autonomous arm of the state created by the state constitution. The only body empowered to sell off Michigan Stadium or any other asset of the University is the Board of Regents, acting on behalf of the University. The only body entitled to the proceeds of any such sale would be the University, as the sole owner of the asset. The legislature has no more right to sell Michigan Stadium and pocket the proceeds than to sell Kalamazoo College (a private LAC) or my mother’s house. And the only way that could change would be by an amendment to the state constitution, effectively dissolving the University—and under the Michigan Constitution, that can happen only by a vote of the people.

Exactly - so you admit that ultimately all of the assets of UM exist with the (implicit) good graces of the taxpayers of Michigan. {Note, when I said ‘the State’ before, I was not referring to the state legislature, but rather to the people of Michigan.} If Michigan taxpayers wanted to dissolve UM, or just sell off Michigan Stadium, they could do it, through popular referendum. Granted, that’s unlikely to occur. But it is possible. If the taxpayers wanted to sell off the stadium of any other UM asset, or the entire university entirely, and distribute the proceeds amongst the taxpayers, they could do it.

sakky · September 27, 2009, 10:30pm

Uh, ‘zero’ proof? Why do I need proof? I am not the one who made the assertion. Take it up with the other poster who asserted that it somehow ‘costs’ $40-100k per annum to educate the average undergrad: where’s the proof of that? I am simply questioning that assertion.

Bluebayou, normally your logic is sound, which is why I find your posts here so surprising. Too bad. The person who makes initial assertions is the one who is supposed to be providing the proof. Did you question those assertions? Did you demand proof? I think not, yet I find it most interesting that you would ask for proof from me. Again, it’s not my assertion. Take it up with the person who made the assertion.

It’s pretty easy? So why are people obtaining PhD’s and spending their whole lives studying the topic? Why are there entire academic journals devoted to this topic. Why did, for example, Robert Kaplan become a world-famous accountant for his publications on activity-based costing? If this material is so easy, then all of these academics are simply wasting their time, right?

Again, if it was so easy, then why does the managerial accounting academic discipline even exist at all? I invite you to attend the next American Accounting Association conference and tell them that they’ve all been wasting their time. Next meeting is July 31, 2010 in San Francisco. I expect you to be there.

sakky · September 27, 2009, 10:52pm

Uh, no, that is precisely the opposite of my view. What I have said is that that is happening right now, if you believe the $40-100k per annum figure that has been batted around.

The central point is that faculty at the top research universities spend most of their time researching as opposed to undergraduate research, and it is highly questionable whether undergrads receive much benefit from that research. I agree that some undergrads do benefit by participating in research themselves, but most undergrads will not do so. It is therefore questionable to ascribe research costs to the undergrads as part of an educational package deal. K-12 education may be inefficient, but at least the teachers are paid only to teach, and not to engage in another activity that consumes most of their time and with questionable benefits for the students.

In summary, I think my detractors can take 1 of 2 positions, none of which seems particularly palatable:

<h1>1 They can admit that undergrad education is indeed extremely costly to provide (i.e. ~ that $40-100k figure that has been proposed) and so undergrads are indeed receiving a bargain, but then that begs the question of why does it have to be so costly, and where exactly do these costs come from. If those costs do not stem from research, then from where?</h1>

**But even more importantly is my question that is heretofore still unanswered: if undergrad education is so costly to provide, and undergrads do not pay the full costs of their education, then why exactly do schools compete so vigorously to bring in undergrads? If anything, schools would be expected to repel undergrads, because each one represents a large financial loss. **

<h1>2 - Undergraduate education is truly not costly to provide at all, i.e. probably not much more than it costs to educate the average high schools student. Heck, it may arguably cost less to educate the average college student due to the large economies of scale available within the university setting. {For example, I never had a high school class larger than 40 students, but I had numerous college classes that exceeded 400 students.</h1>

Similarly, high school days would consist of 6 hours of classroom instruction per day, every day, not counting lunch, whereas college students are rarely in lecture for 6 hours per day, every day. A typical college student takes 4 classes per term, of which 2 will meet on MWF, and the other 2 on T/Th, and even after adding in required labs and discussion sections, the average actual classroom time of any particular day rarely exceeds 4 hours. Now obviously college students expend significant time on homework and study, but they don’t have to use school facilities to do that.}

But if a college education is actually rather cheap to provide, then that means that undergrads are not receiving much of a bargain. Recall that a bargain is defined to be something that costs more to produce than what you are paying.

** * In other words, if undergrads are truly receiving bargains, then that begs the question of why the schools would be so willing to give away bargains. If the undergrads are not receiving bargains, then nobody should assert that they are.* **

xiggi · September 27, 2009, 11:36pm

Then take any junior faculty remember at a top research university, and investigate exactly how much undergrad teaching he performs every year. It is in fact well understood that most faculty will be teaching no more than a handful of undergraduate courses during the year, and that he will be expected to spend the bulk of his time researching. 

I would argue that the true cheap shot is to ignore the well-understood fact that research universities are devoted mostly to research and to imply that faculty actually spend most of their time and effort actually teaching undergrads. They do not, and this is a topic that should be so well understood that I am frankly surprised that I have to state it here, as if I needed to point out that the sky is blue. To argue otherwise: that’s truly a cheap shot all around.

Sakky, the fact that research universities are devoted mostly to research and to imply that faculty actually spend most of their time and effort actually teaching undergrads is not only NOT well-understood in this particular section of CC but is easily the most “derided” statement one can make as it seems to offend a very peculiar group of research university cheerleaders. For this group, the “coexistence” phenomenom that allows massive numbers of undergraduate to share facilities and, at times, the same space with known researchers is synonymous to obtaining a great education.

For the same group, exposing the lighter loads of the junior faculty is considered misleading; daring to bring up the quasi absence of the “star” faculty from the undergraduate teaching world represents … an unforgivable sin. And, of course, attempting to discuss with a modicum of objectivity the entire model of education that relies on a modern version of indentured servitude and cheap labor is simply impossible in THIS forum.

Fwiw, it is fascinating to see that the same people who love to deny the existence of TAs and GSIs actually TEACHING undergraduates will be quick to defend the economic impact (and financial benefits) when the issue of budgets and income raises its ugly head.

The sky is indeed blue only when ones wants it to be!

barrons · September 28, 2009, 11:52am

I did not see many people supporting those high numbers at state U’s. The actual number today would be closer to $15-$20K. The rest has been argued to no end and it remains true that top profs at both state and private U’s don’t spend all their time with undergrads but most spend some time with them. With teaching loads that average around 2-2.5 classes per semester they have sufficient time for their teaching and research functions. People can do two things well over a 50 hour week.

bclintonk · September 28, 2009, 2:34pm

There’s just so much misinformation about this, most of it based on gross generalizations and/or rank speculation. I downloaded the entire course schedule for the philosophy department at the University of Michigan, my undergrad alma mater. This semester, the department is offering 32 undergraduate and 19 graduate courses. Of the 32 undergrad courses, 23 are taught by full-time tenured or tenure-track members of the philosophy faculty; 4 are taught by Ph.D.-holding lecturers (teaching specialists not on the tenure track), 3 are taught by GSIs (advanced graduate students), 1 is taught by a tenured full professor visiting from another school, and 1 is taught by a tenured professor in another department.

Of the 19 graduate-level courses, 1 is taught by a tenured faculty member from another department, 1 is taught by a lecturer from another department, and 1 is taught by a visiting tenured faculty member from another school. The number of graduate courses is misleading, however, as 5 of the 19 are cross-listed as undergrad courses—they’re open to both grad students and advanced undergrads, and every undergrad philosophy major must take at least 1 course at this level, or at least 2 if they’re seeking an honors degree. That leaves 14 exclusively grad-level courses, of which 1 is taught by visiting faculty and 1 is taught by a faculty member from another department. But of those 14, 5 are independent research and reading courses requiring some faculty supervision but relatively little in the way of demands on faculty time, and 3 are 1-credit technical courses on how to plan and execute a Ph.D. candidacy, training for GSIs, and so on. That leave 6 graduate-only substantive courses taught by full-time faculty in the department.

Thus the bulk of faculty teaching time–roughly 80% of it–is devoted to undergraduate teaching, and the faculty doing that teaching range from assistant professors up through distinguished full professors holding endowed chairs. I could not identify a single member of this faculty who taught only graduate courses.

Do the Michigan philosophy faculty do research and produce high quality scholarship along with their teaching? Of course they do, just like the philosophy faculty at their peer institutions which in this field would include the likes of Princeton, Stanford, and Harvard, among others; and just like the philosophy faculty at the LACs with the strongest philosophy faculties, which would include the likes of Swarthmore, Amherst, and Wellesley. To pitch this as a public-v.private or big school-v.-small school thing is just absurd. Faculty at the top publics spend their time exactly the same way faculty at the top private universities do; and in the humanities and social sciences, it would be hard to tell the workday of a professor at a research university from that at a top LAC. The biggest difference is in the sciences and engineering, where big research grants are available to faculty who are able to put together the best research teams and the best research proposals, and generally that’s the major research universities because they have larger and more complete faculties, top grad students and post-docs to work as researchers and research assistants, and the sophisticated labs and facilities necessary to do the most complex and cutting-edge research. In some of those fields, undergrads may not see certain faculty members for extended periods; but it’s not because the undergrads are subsidizing the faculty to do research. Quite the contrary; big research grants are a cash cow that subsidize faculty salaries, pay for the labs and science buildings, and contribute substantially to central university support through “indirect cost recovery” which allows the school to recover a fraction of its total overhead from the research grant itself.

middsmith · September 28, 2009, 2:53pm

sakky:

Uh, no, that is precisely the opposite of my view. What I have said is that that is happening right now, if you believe the $40-100k per annum figure that has been batted around. 

The central point is that faculty at the top research universities spend most of their time researching as opposed to undergraduate research, and it is highly questionable whether undergrads receive much benefit from that research. I agree that some undergrads do benefit by participating in research themselves, but most undergrads will not do so. It is therefore questionable to ascribe research costs to the undergrads as part of an educational package deal. K-12 education may be inefficient, but at least the teachers are paid only to teach, and not to engage in another activity that consumes most of their time and with questionable benefits for the students.

UG benefit from putting a high-PA scored alma mater on their resume. Tuition-driven schools aren’t known for their research output. The profs must teach 3-4 classes/year. Prestige, well connected with the industry, etc… are some of the intangible benefits.

</h1>

Take a liberal arts college like Williams, they claim it costs more than 80k to educate a student. That number comes from operation cost/# students. Research money does not come into “operation cost” unless you start counting the profs’ salary.

No, schools would be expected to add more undergrads to drive down the cost as operation cost is fixed. You still pay 10 profs + 10 admissions officers + 10 cleaning ladies, etc… If there are 10 students, the cost per student is huge. Add 5 more to the population, the cost per student is still huge, but less. They just can’t add too many because the students:prof ratio will go up, thus, hurting their US News rating. Yale school of engineering student:prof ratio is 1:1. That’s why their cost per student is out of this world. If they repel undergrads, the cost/student will go up.

sakky:

<h1>2 - Undergraduate education is truly not costly to provide at all, i.e. probably not much more than it costs to educate the average high schools student. Heck, it may arguably cost less to educate the average college student due to the large economies of scale available within the university setting. {For example, I never had a high school class larger than 40 students, but I had numerous college classes that exceeded 400 students.</h1>

Similarly, high school days would consist of 6 hours of classroom instruction per day, every day, not counting lunch, whereas college students are rarely in lecture for 6 hours per day, every day. A typical college student takes 4 classes per term, of which 2 will meet on MWF, and the other 2 on T/Th, and even after adding in required labs and discussion sections, the average actual classroom time of any particular day rarely exceeds 4 hours. Now obviously college students expend significant time on homework and study, but they don’t have to use school facilities to do that.}

HS students are taught by HS teachers who make 10 bucks/hr.
HS students don’t get to play in the Intel-donated fab lab run by technicians who make more than 10 bucks/hr.
HS students don’t get to take class with the guy who wrote the textbook. 
That’s like asking why the cost to educate a lawyer is so expensive. Well, because a lawyer is likely to make more money than a HS grad without any specific skill. Actually, I retract that. In this economy, lawyers make about the same as HS grads. =)

hoedown · September 28, 2009, 5:01pm

Are you sure of this? I could see how they could do it by electing a board of regents who agreed to sell it off, but I find it incredible that they could put the asset of a constitutionally autonomous body on the auction block, simply by referendum. Do recall that the research universities in Michigan are unique in this manner–just because you know this can be done in the other 49 doesn’t mean it can be in Michigan.

bclintonk · September 28, 2009, 7:00pm

^ hoedown is (mostly) right. The University of Michigan owns Michigan Stadium. The University is recognized as a constitutionally autonomous body, run by an elected Board of Regents which has sole responsibility for managing its assets, including Michigan Stadium. The Regents could vote to sell off Michigan Stadium, but they do not have authority to dissolve the University; that can only be done at this point by a constitutional amendment.

The Michigan constitution provides two methods of amendment. First, by a 2/3 vote of both Houses of the legislature, a proposed constitutional amendment can be put to a popular vote. That rarely happens because the required legislative supermajority is so difficult to achieve. Second, voters may petition to place a constitutional amendment on the ballot. To get a constitutional amendment on the ballot by petition, you need the valid signatures of registered voters equal in number to 10% of those voting in the last gubernatorial election. That’s a very high number. A little over 3.8 million people voted in the last gubernatorial election, in 2006, so you’d need a little over 380,000 valid signatures, which means you’d probably need at least 500,000 signatures, probably more, to be sure of getting 380,000 valid ones. But the added wrinkle is that the state constitution empowers the legislature to make additional rules governing the petitioning process, and state law in Michigan essentially requires that all petition signatures need to be gathered within a 180-day window. That makes the constitutional petitioning process very difficult. It does happen, but unlike, say, California, it’s relatively rare in Michigan because the requirements are so demanding.

This whole discussion is purely hypothetical, however. No one is seriously proposing selling off Michigan Stadium, nor is anyone seriously proposing shutting down the University. Moreover, even if the voters were to get a wild notion to sell the stadium, there’s still a very strong argument that it would be the University and not the state’s general fund that’s legally entitled to the proceeds. You’ve got to remember, under the Michigan Constitution, the University is effectively a separate “fourth branch” of state government, in principle completely autonomous and independent of the legislature, the executive, and the judicial branches (though of course happy to accept legislative appropriations, though these have become rather meager over the last decade or more). So you’d need to amend to constitution to pretty much abolish the University as it presently exists to get at any of that money. And realistically, that’s just not going to happen.

bclintonk · September 28, 2009, 7:36pm

^^ re: post #71

Middsmith is exactly right. Sakky is confusing the average cost of educating a student with the marginal cost. Many of the costs of education are fixed; you can bring down the average cost a little by adding more students, because the marginal cost of the last incremental student is lower than the average cost. But there are trade-offs.

Williams is a great example because the numbers are so simple. It has a 2009-2010 budget of just over $200,000,000, and about 2,000 students. That works out to a cool $100,000 per student per year, or roughly twice what it costs to attend there for a full-pay. And what does Williams do, other than educate undergrads? That’s its sole raison d’etre. Of coruse, in addition to being teachers, many of its faculty are top scholars in their respective fields—they do (gasp!) RESEARCH—but I guarantee you they see their scholarship as being inextricably tied to their undergraduate teaching, which is actually better because they’re actively engaged with cutting-edge developments in their disciplines. It has no graduate students. It provides some bells and whistles like a terrific art museum, but Williams would argue that, too, is a critically important part of what it offers in undergraduate education, even if not every student uses it. So the school can plausibly claim that it spends on average $100,000 per undergraduate, or twice what it takes in in tuition & fees plus room & board. And it makes exactly this pitch to its alumni when it’s seeking contributions.

That seems awfully expensive per student. So maybe it could save money by just eliminating students? What would happen if it reduced its student body, say in the limiting case to just a single student? Well, it would lose half its revenue (i.e., tuition and fees from the 2,000 or so students it no longer has), so now it has an operating budget of $100 million, give or take $50,000. But it would raise its “average” cost per student to $100,000,000 per student per year in the process. But with that big a budget reduction, it would also need to get rid of half its faculty and staff, close a lot of buildings, maybe shutter the art museum, whatever. The remaining student would enjoy a terrific student-faculty ratio, but in important ways her options would be limited because the faculty would be more limited.

So suppose Williams went the other way and added students—say by doubling its student body, to 4,000? Well, that brings in another $100 million in tuition revenue (assuming they’re all full pay) and possibly allows the school to add some faculty, programs, facilities, etc, while at the same time reducing the average cost per student to $75,000 ($300 million/4,000 students). Sounds like a smarter move, in a way. But there are trade-offs. Unless it hires more faculty, its student-faculty ratio jumps from the current 7:1 to 14:1. It can bring that down somewhat by adding faculty, but since faculty salaries and benefits are its largest single expenditure item, it probably can’t double the faculty to hold the s:f ratio constant just on the additional tuition revenue. Besides, more faculty will require more faculty offices, more classrooms, more faculty parking, probably a bigger library, more secretaries, janitors, and other support staff. More students will require more dorms, more dining halls, more people in the career placement office, and on and on. They just don’t want to go there, because too-rapid expansion is deadly, too, with costs ballooning and important aspects of educational quality declining.

In these challenging economic times, a lot of schools are incrementally creeping in the direction of bigger student bodies to take advantage of those incremental student tuition dollars and the fact that the marginal cost of each incremental student is less than the marginal tuition revenue that student brings in, up until some key tipping points—even though the average cost per student remains well above the average tuition revenue, because most of the biggest costs are fixed and not variable. But in doing so, they’re shading their s:f ratio, making classes marginally larger, and so on.

hoedown · September 29, 2009, 2:14pm

Yes, you’re right–but I think it’s an example of how sometimes things are stated with assurance on the forum, when in fact the truth of the matter is less clear than might be inferred by the post. It’s a good reminder that many of the topics we discuss here have nuances, despite our tendency to argue about them like they are black and white.

kvilledeac · September 29, 2009, 5:09pm

This thread has great discussion in it, and I’d love to see a follow up with real numbers given the stated reasons why the first set is flawed.

middsmith · September 29, 2009, 6:27pm

Re: Post 74.

That’s why I blame USNews for putting many schools and many students in their current economic predicament. Whatever criterias they used for rating/ranking are actually harmful to the current generation and the future generation.

Is it really a coincidence that the rise of US News correlates to the unsustainable rise in educational cost?

faculty:students ratio led to crappy schools like Brown to hire Achebe and have him teach 2 kids to claim their ratio approaches infinity. Does it add anything to your education?

endowment/student led to fancy exotic investments that backfired. All of the top schools have an investment firm and pay them like they’re Britney Spears.

sakky · October 12, 2009, 6:37am

Uh, that is not what I am talking about (although it is perhaps what others were talking about).

Sure, it may well be true that the bulk of the faculty teaching time is indeed devoted to undergraduate teaching. But the issue at hand is to what the bulk of the faculty overall time is devoted, and the fact remains that at research universities, relatively little of overall tenure-track faculty time is devoted to teaching, whether of undergrads or of grad students. It’s devoted to research.

{Now, I can agree that the bulk of the time of lecturers and adjuncts are probably devoted to teaching, and indeed they are often times hired for the express purpose of lightening the teaching load of the regular faculty. However, the fact remains that the overall time of the regular faculty at the major research universities is devoted to research. That is why they are called research universities. In fact, the way that the top schools often times try to entice top new hires to join them as opposed to some other school is by offering few teaching requirements.}

I have never once said that the top publics behave in any manner different than the top privates. {Perhaps others have attempted to make that argument, but not I.}

However, that does beg the question of why we then need the top publics to do research at all, if the top privates accomplish the same task. For example, while the University of Michigan and other top public schools do indeed produce top-quality research, so do top private schools such as Stanford, Harvard, and MIT. Hence, it is entirely logical to ask why should a public entity exist to provide an output that the private sector already successfully provides.

sakky · October 12, 2009, 6:57am

I partially agree with you, but that then means that it’s basically a ‘game’ of marketing. The tenure-track faculty exist largely to conduct research with relatively little true benefit accruing to the undergrads, however, everybody, including the recruiters, seem to think that they benefit, thereby enhancing the prestige of everybody involved.

However, while I can agree with the general sentiment, allow me to offer a counterexample. Dartmouth and Brown are not particularly known for extensive research output - indeed their PhD programs and departmental rankings are rather average. Yet those students draw many of the most elite recruiters in the world, particularly from the consulting and finance ranks that seem to so bewitch the modern college student.

Williams is either lying about their operating costs or being irresponsibly profligate with their operations (probably the latter).

But hey, just because Williams is lying or profligate doesn’t mean that UM or any other public school ought to do the same.

I agree completely, but that only means that the $80k figure (or whatever figure was batted around before) is seriously misleading. If most of the ‘operating’ costs truly do represent fixed costs as you have argued, then the operating cost is not the relevant cost to use: the relevant cost would be the marginal cost. After all, sunk cost is sunk and should therefore no longer be a relative metric for future pricing of the product in question. For example, if a state has already built a bridge that costs millions to erect, but now costs effectively zero per driver to maintain, then even a bridge toll of a single penny is ‘profitable’ to the state.

But I would dispute the notion of why college fixed costs need to be so high. To extend your example, why exactly does the school need to always employ 10 profs, 10 cleaning ladies, and 10 admissions officers, regardless of the size of the school? Why can’t the school just lay some of them off, or hire more, as the school population dictates? If the problem is with infrastructure, I would ask why does the school always need to own all of its infrastructure? Why can’t it simply rent/lease buildings as necessary, and then not renew those leases if the school shrinks? That’s precisely what Stanford did a few years ago: when Stanford ran out of dorm housing due to unexpectedly high yields, Stanford simply leased some local apartment buildings, converted them to dorms, and then allowed those leases to expire as those students graduated. Stanford certainly didn’t instigate a construction boom which would have now left the school with extra dorms that it no longer needs.

sakky · October 12, 2009, 7:14am

This whole discussion is purely hypothetical, however. No one is seriously proposing selling off Michigan Stadium, nor is anyone seriously proposing shutting down the University. Moreover, even if the voters were to get a wild notion to sell the stadium, there’s still a very strong argument that it would be the University and not the state’s general fund that’s legally entitled to the proceeds. You’ve got to remember, under the Michigan Constitution, the University is effectively a separate “fourth branch” of state government, in principle completely autonomous and independent of the legislature, the executive, and the judicial branches (though of course happy to accept legislative appropriations, though these have become rather meager over the last decade or more). So you’d need to amend to constitution to pretty much abolish the University as it presently exists to get at any of that money. And realistically, that’s just not going to happen.

Nobody, least of all I, has ever argued that any of these proposals had any serious chance of coming to fruition.

What I have said is that it could happen, however unlikely the chances may be. At the end of the day, UM is a branch of the state and therefore ultimately exists only at the pleasure of the taxpayer. Hence, regardless of whether the university may be realistically dissolved or not, it is nevertheless a valid question to ask how the state taxpayers as a whole - as opposed to the students or those who happen to live near Ann Arbor - benefit from the arrangement, and how the the mutual relationship may improve. Similarly, while we can all agree that Medicare will never realistically be abolished in our lifetimes, it is still valid to ask whether Medicare truly benefits our society as a whole and how and whether the system requires reform.

Wrong. Trust me, I understand the costs quite well. I am not confused in the least about the costs.

What I am confused about are the arguments put forth by others, particularly regarding the ‘average’ costs supposedly incurred to educate an undergrad, whether at Michigan, Williams, or any other school. Keep in mind that I never put forth those arguments.

You got it exactly right, and finally we agree on a particular topic.

But what we then agree upon is then that the notion of ‘average costs’ of a particular university is deeply misleading, particularly when it comes to the average costs of a joint product. {Note, I’m still waiting for my detractors to explain to me, if the managerial accounting of joint product costs are so easy to calculate, why so many accounting professors and PhD students devote their professional careers researching this very topic?} What that means is that the ‘average’ cost to educate a given undergraduate is not only irrelevant, but also deeply misleading. A far more meaningful figure would be the marginal cost of a student.

For example, if a bridge costs millions to erect but nothing to maintain afterwards, then a bridge toll of even a penny per driver would still represent a profit to the bridge, even if such toll collections to eternity never ultimately pay back the fixed cost to erect the bridge in the first place. What matters for future pricing decisions is not the fixed sunk cost, for sunk cost is sunk. {Note, the fixed cost may affect your decision to build the bridge in the first place or build future bridges, but once built, the cost of that bridge becomes irrelevant for future pricing decisions.} Similarly, as a student at UM, Williams, or any other school, I don’t care about the original costs to build the school, and those costs do not have to be foisted upon me, no matter what sort of deceptive accounting tactics the school may choose to employ. The only relevant cost is the marginal cost incurred to educate me.

But to repeat what I said in post #67:

…if undergrads are truly receiving bargains, then that begs the question of why the schools would be so willing to give away bargains. If the undergrads are not receiving bargains, then nobody should assert that they are.

Therefore, if a student is paying more in tuition than his marginal cost (as opposed to the highly misleading ‘average’ cost), then that student is not actually receiving a bargain.

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