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Wealth hoarding at elite universities


In recent weeks top administrators at elite American universities have been talking about potential furloughs and layoffs for staff and non-tenure track faculty, because of the financial damage being wrought by the pandemic.

These statements illustrate the extent to which such institutions have become obsessed with increasing their on-paper net worth (which has exploded over the last several decades), to the detriment of all other considerations.

In this regard they reflect the spirit of the new gilded age more generally, in which the obsession with hoarding wealth has been transformed from a vice into one of the highest of social virtues.

I have a piece on this, which points out that the endowments of such schools could easily be tapped for the benefit of their many low-paid and otherwise vulnerable employees. Why then is the almost automatic reaction of the top administrators at these places to such a suggestion is that this isn’t doable? Consider this quote from Princeton’s Christopher Eisgruber:

People sometimes mistakenly regard endowments as though they were savings accounts or “rainy day funds” that can be “tapped” or “dipped into” during hard times.   . . .  Our budget model in fact presupposes that we will “tap” or “dip into” our endowment every year.  We spend about 5 percent of our endowment each year by design. . .  We spend at a rate such that, absent growth, the entire endowment would be gone in 20 years. . .  We believe that an average annual endowment spend rate slightly above 5 percent is in fact sustainable.  With this year’s decline in endowment value, however, we expect to be spending more than 6 percent of our endowment.  That rate is not sustainable. 

This is very disingenuous. Princeton’s endowment has grown by an average of 9.2% per year over the last forty years even as it expends an average of five percent of that endowment every year. The only “damage” that Princeton and similar schools would sustain if they tapped endowment funds to avoid layoffs and furloughs during the pandemic would be that the paper value of these schools would decline slightly for a year or two. And the only reason they don’t do this is because they consider the economic calamity that austerity measures will bring on their most vulnerable workers to be less important than a slight temporary decline in their institutions’ putative actuarial value.

Ultimately, the fact that this is even a debate raises basic questions about the financialization of American higher education. The Princeton community might well get the impression from President Eisgruber’s remarks that the institution’s most important function was to protect its endowment, rather than vice versa.

For a generation now, while many institutions of higher education have struggled to pay their bills, America’s richest universities — like so many of our richest institutions and individuals — have been obsessed with hoarding their ever-more staggering fortunes. This obsession brings to mind a prediction John Maynard Keynes made 90 years ago about a post-scarcity future:

“The love of money as a possession — as distinguished from the love of money as a means to the enjoyments and realities of life — will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease. All kinds of social customs and economic practices, affecting the distribution of wealth and of economic rewards and penalties, which we now maintain at all costs, however distasteful and unjust they may be in themselves, because they are tremendously useful in promoting the accumulation of capital, we shall then be free, at last, to discard.”

Clearly Keynes was an optimist. Still, in the time of Covid-19, we should encourage our elite institutions to embrace that particular love with a little less fervor.

The broader significance of all this is that hyper-wealthy elite institutions set the norms that are copied by the vast number of far less wealthy places that aspire to be like the elites. It would actually take some real sacrifice by the well-off members of the average university community to protect that community’s more vulnerable employees, but what chance is there of that happening when HYPS etc.’s attitude is that wealth maximization is always more important than literally anything else?

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