It baffles me that the first instinct of some students in response to massive budget deficits is to protest budget cuts and layoffs. They should move to California when they graduate, they would fit right in. I was on the mailing list of a few organizations that urged me to fight the state government's plans to cut back staff positions and hours in response to our multi-billion dollar hole. What do they think we should do, close our eyes and wish the deficit away?
Small subset, fun for author of article to profile. The one person I know personally who protested was concerned that the lowest paid, most vulnerable workers (janitors, contract security guards, etc.) were the first to feel the bite, ahead of the 'fat cats' who had the power within the institution to fight back to protect their turf.
Most of us just said, "Eh, that's too bad" and went back to work.
It's not that the 'fat cats' have power to fight back. It's that they're less easily replaced. If you get rid of a janitor and need to replace them in a couple months because you really needed them, it's an easy HR process. If you get rid of a 'fat cat', there will be months of interviews to replace them, you might not get someone as good, etc. It's not that you have power in the institution, it's that you have other options and are of higher value to the institution.
I mean, I'm a lowly computer programmer a couple years out of college. But if they wanted to replace me, there'd be a long interview process and then a huge learning curve as they brought the new person up to speed on the byzantine systems we have. So, they can't let me go as a test of whether they could get by without me because the cost if they're wrong is high.
That doesn't make it righteous, it just means that it isn't simply having power in the institution so much as being of less easily replaced value to the institution.
Harvard is a federation of many nearly autonomous entities. The Business School cannot tell the Medical School what to do, etc. By 'fat cats' I meant power centers who can't be commanded to downsize -- at least, not quickly -- by anyone.
The people protesting layoffs were, essentially, protesting this structure, whether they realized it or not. Some of them did realize it, and so were a little more aware than the G-G-P's hypothetical Californian voting for http://en.wikipedia.org/wiki/Bread_and_circuses.
Presumably the people poorer than them also feel the same way?
If you look at the numbers - at what percent of people pay what percent of the total collect from income tax - the inescapable conclusion is that a lot of people aren't pulling their weight, and those aren't the highest earners...
You're starting your rebuttal from the wrong point. Those who earn more are indeed contributing more tax. But why are they earning more? Is it that their contribution is worth so much more to society? Doubtful. More, perhaps, that much more, unlikely.
For example in the article the guys earning 30million a year (10% of their gambling wins) are only able to earn large amounts because they're on a buoyant market. It's largely random fluctuations - they win for 15 years and then lose it all (except they don't personally lose of course); others win for 15 days and lose it all.
So, the guys paying the most tax, the investment managers &c. are adding little to overall productivity (except some lubrication which could be provided without the ineffecient losses of traders wages) but are creaming off inordinant amounts of wealth from the top all the time simply because of a mathematical glitch -- if you waited 100 years and analysed the gains of any investment firm I'll guess they do marginally better then inflation but extract far more worth for the traders.
Those doing productive work, even the highly paid Harvard professors are earning pennies compared to the investment teams.
So are the investment managers pulling their weight in society by creaming off the wealth by gambling with other peoples money? I don't think so.
Capitalism means the rich get richer, some clever people manage to use other peoples money to be rich first. The rest of us are being suckered.
You're starting your rebuttal from the wrong point.
No, you are :-) It's not a zero-sum game like a casino. There is value created by the allocation of resources. That's what Warren Buffett does. OK so it's not what LTCM did, but that's a flaw in the implementation, not the theory, of capitalist economics. The gambling metaphor simply doesn't fit.
Capitalist economics is pretty useless as a theory, if it doesn't work in practise then it's no use. Define "work". The purpose of capitalism AFAICT is to make money for wealthy capitalists and it does a pretty good job at that. The social fixes added by governments to avoid the capitalists destroying the workforce (eg social security, min wages, health care) are the only reason it can continue. And now of course we have the bailouts, without which the capitalist economy would be dead already rather than groaning in death pains.
I'm pretty /au fait/ with the concept of borrowing to leverage larger sums of money to optimise efficient growth - floatation works IMO only if those buying have altruistic reasons as well; everything is too open to abuse from the big investors. Efficient allocation of resources is not the net effect IMO.
Another example, I can see how you want to mitigate against changes in currency destroying your profit on a large / long-term cross-border project by ForEx deals, but this isn't only how ForEx is used.
I don't see how gambling doesn't encompass a naked-short-sell (say) unless you have opportunity to influence the market by some insider trading, which is both [normally] immoral and illegal, or predict the market by being privy to some deals before they are made (as in the recent expose of the NYSE network being sniffed).
Capitalism has no "purpose" other than an optimal allocation of existing wealth with the objective of creating new wealth. It's an algorithm or a technology, not an ethical system. This is where many critics of capitalism stumble.
The bailouts are emphatically not capitalism. Capitalism says let the banks go bankrupt, let the investors lose their shirts, they knew the risks, they knew the profits they were making were in return for taking those risks. The bailouts are entirely political (oh shit! we need those Detroit votes!).
Harvard professors are the highest paid in the nation. The students want professors to give something up. People responsible for cost cutting rarely apply the same logic to themselves and their own organization as they do to others.
"That Summers suggested women lacked a natural ability for sciences did not help matters one bit."
That isn't quite accurate. Summers had prefaced his remarks saying "I'm going to provoke you", then pointed out that math and science test scores were higher for high school boys than for high school girls. No one understands why, he continued, but is it possible that genetics plays a part, and it is not strictly a socialization issue?
He was castigated by some faculty members for those politically incorrect remarks. How DARE he even ask the question?
I think he actually argued that men might have a different distribution for mathematical ability than women. Specifically, he suggested men might have a higher variance in their distribution, meaning more men in the tails at both sides. But the distributions would still have the same mean. So men are not 'better than math' than women -- there would be more dumb ones and more smart ones, and less in the middle, effectively.
This phenomenon, by the way, is commonly observed in other species for various genetic traits. From an evolutionary perspective, it makes sense for the males to "roll the dice" and have a higher variance for many traits. For example, one superstar male frog can have many more offspring than one average male frog. But one superstar female can really only have as many offspring as the average female. That's a crude over-simplified explanation, but the idea is sound.
he suggested men might have a higher variance in their distribution, meaning more men in the tails at both sides
That's my understanding as well.
A professor I respect a lot presented his analysis of Summers' argument in a lecture I went to. This professor said that Summers' argument was statistically invalid, since the number of outliers in the tails of the IQ distribution was insufficient to tell if the distribution was in fact different at the tails between men and women.
It's fair to say that this rebuttal was not the one Summers got when he presented his idea to the faculty. :)
Honestly, the article comes off kind of like someone who was a billionaire complaining about how they've become a millionaire. We don't get free coffee or free hot breakfast every weekday morning in the dorms at my school.
The Harvard brand provokes a lot of resentment, and writers of articles like this one tap into that resentment by going on about these luxuries.
And maybe that's how it is for undergraduate athletes, or business school students, but let me assure you: it is not so luxurious for this particular neuroscience graduate student.
But I can't complain -- I still find it remarkable that I get paid -- albeit a barely livable stipend, but still, paid -- to do science. I am grateful to be a well-educated American during the most prosperous era in human history, and I will do my utmost not to waste the opportunity: I will do as much science as I can, while the good times last. Maybe my whole lifetime, maybe just another five years, who knows? But this is the time when it can get done.
Well, I'm not trying to be flippant, but if I was paying $50k a year (tuition + board) to attend Harvard, a free hot breakfast is the least they could do.
But yeah, I can agree it's a poor example to throw out there as 'experiencing hard times'.
Colleges like Harvard have a large ecosystem and keep a lot of people employed either directly or indirectly, like cooks, cashiers, groundskeepers, IT staff, teaching and research assistants, companies that make technology for them to use, architects and engineers who design, construct, and maintain their buildings, and more.
However hard it is for someone attending Harvard to go without breakfast, it's much harder for the cook supporting a family on $10/hr or whatever to suddenly have 0$/hr and no heath insurance.
Harvard never got free hot breakfast on weekday mornings. There is a nearly $800 a year meal plan, from which hot breakfast was just eliminated without changing the cost. Very different than losing the free coffee.
To be fair, many other "elite" (translation: you pay a ridiculous amount of money to attend) do receive these benefits. I believe our breakfasts are part of our meal plan at Northwestern, but I would assume that Harvard has some kind of similar student meal plan.
I was thinking that too. Those poor diddumses! Next thing you know they'll have to do their own laundry.
Harvard's demise might be a sobering economic indicator, but I wonder if there'd be many who actually mourned its passing? To me it's nothing but a old boy's club filled with entitled trust fund brats, and the only real benefit of going there is that you then get hired by the previous generation of intolerable WASP twats. And members of this little club seem to have made an outsize contribution to the ills of wall street, law, government and the current crisis.
I respect Harvard; they do great work. I think the world would significantly miss it if Harvard, it's really hard to respond to such a poor argument, but the medical school alone is a world changing institution.
Well, looks like their PR department does great work, indeed. But it's not just their token medical school - I think their business school and law departments have also been "world changing institutions", just maybe not in a positive way.
Anyway this idea of having elite schools for an elite class is dangerous. Just look at the list below. Nepotism and class segregation by proxy, that's all Harvard is. Oh lookie, there's Obama! He went to Harvard, replacing GWB, who - surprise - went to Harvard. And the CEO of Goldman Sachs, who replaced the old CEO who also went to Harvard! What a coincidence.
Make no mistake. Harvard is "The Man" writ in bricks and stone. I am not very much a fan of The Man, which is why I am not unhappy to see The Man in trouble financially. But no worries, if things really get bad I'm sure a bailout's on the way.
Do you not consider it possible that Harvard selects intelligent, talented applicants likely to succeed, and that a few of them do go on to succeed? Why do you assume there is some upper class conspiracy?
Edit: I'd love to understand why this comment was downvoted - I can't see what's wrong with it.
The undergraduate population often sound like a bunch of snots, which .. they probably are by and large. But that's true at every university. Rare indeed is the undergraduate who actually has something worthwhile to say. As a grad school and research institution though, Harvard rocks. Every single department has one or more faculty who are at the top of their respective field. Think about that statement, it's pretty amazing.
If I was paying the cost of Harvard tuition, I would demand a free, hot breakfast. Borne aloft on a bed of feathers and myrrh by six naked, greased eunuchs.
I thought that Alan Dershowitz' comment was particularly interesting:
Apparently nobody in our financial office has read the story in Genesis about Joseph interpreting Pharaoh’s dream—you know, during the seven good years you save for the seven lean years. And now they’re coming hat in hand, pleading to the faculty and students to bear the burden of cutbacks. It’s a scandal! It’s an absolute scandal, the way Harvard has handled this financial crisis.
The issue that a lot of organizations and businesses seem to be facing now is that they're doing like he says and spending in the fat years what they have which makes the lean years painful. However, this also applies to spending on salaries. As the article notes, Harvard spends a lot more on professor salaries than other Universities because, during the fat years, they spent what they had giving it to professors. And now Professor Dershowitz complains that he has to share in the lean years just as he shared in the fat years.
There are only two plausible ways to do it. Either salaries stay at a pretty steady rate and don't rise in the fat years and hurt in the lean years because the rises are smaller -or- salaries run in tandem with the fat and lean years. You can't get huge raises in the fat years and expect it through the lean years as well.
Now, clearly Harvard's building spree is the cause of some of the hurt, but it isn't like the faculty and students haven't taken their cut of the fat years with the highest professor salaries around and students who pay next to nothing in tuition. If you want in on the fat years, you get in on the lean years.
The issue that a lot of organizations and businesses seem to be facing now is that they're doing like he says and spending in the fat years what they have which makes the lean years painful.
It doesn't work like that tho'. Here in the UK we have lots of underfunded pension funds. So why didn't the companies overpay into their pension funds during the good years? Because if you do that, you'll get raped by the taxman who thinks you're trying to conceal your profits. I don't know what the regulations are around Harvard's endowment, but I bet the people managing it aren't that stupid.
Well, if he didn't, then why would he complain about cutbacks?
I'm not trying to pick on him or anything, it's just that he's quoted. But if your salary is increased from $150,000 to $200,000 and then you're asked to cut it down to $150,000, well, if you didn't approve of it in the first place the chances are that you'd be ok with going back.
We often don't get to make those choices as individuals, but usually no one complains about their salary increasing. It's also totally possible that he's protesting on other people's behalf as I doubt he's hurting as a successful book author and probably one of their more well paid professors.
But generally speaking, when a company is having fat years, people generally want a piece of it. I don't mean any disrespect to Professor Dershowitz. It's just that most people act like he acts - it's human nature. It's annoying when fat years are here and we don't get a cut. It's annoying when lean years come and people want us to make concessions. I feel that way too. It's completely devoid of reality, but it's an interesting part of our psychology.
I'd have to re-read to be sure but I don't think Prof Dershowitz was commenting on salaries at all. The salary of the professors shouldn't be linked to the Uni's investments. The Prof to me was saying that if they'd been less inclined to blow all the money in the rich years then they'd have the reserves needed to tide themselves over the lean years without having to dick about with peoples salaries, etc..
Also, them overspending 100Million on a building has got to bite a bit when they then announce they're going to cut back on your breakfast. $100Mil buys a lot of breakfast.
Most interesting was the idea of conservatism as an asset for some classes of enterprise:
“Harvard, institutionally, never had change when I first came here,” the law professor Alan Dershowitz told me. “It was like the old baseball teams; you were born here and you died here.... But the turnover now has become like corporate turnover—and that always takes a toll.”
It's been amazing. A good friend was laid off from what should have been a job for life there. I don't see how they're going to operate while eliminating people from nearly critical positions.
If this would happen to my company, I'd expect the doors to close. If it happened to any of our competitors, we'd be throwing a victory party.
If it happened to any of our competitors, we'd be throwing a victory party.
Instead of celebrating, you should be taking a very hard look at your business plan, and industry as a whole, possibly drawing big red question marks beside your previous hopes and assumptions. It's frightening to see your competition die.
I think there's probably a decent chunk of government or quasi-government jobs (post office, amtrak) that are pretty reliable, but this recession has certainly shaken things to their core. Who knows these days?
The important details are on the second page, and the explanation isn't very clear. But at it's core this is a liquidity crisis. Harvard hasn't lost all that much (maybe 25% if the $8B number holds up). But as a result of the recent aggressive investments, huge chunks of its endowment is in illiquid assets that can't themselves be used to fund the university. Combine that with some very liberal spending projects in recent years, and suddenly this very wealthy university can't actually pay its bills.
Which is another way of saying:
Harvard is still in denial.
They (like many) are refusing to admit that they made bad investments that are no longer worth what they once were. So they're trying like hell to avoid realizing those losses, because that red ink would go on their permanent record. Which is tantamount to career suicide. (Hence the blame-gaming at all levels)
Selling in a down market can often be worse than debt.
The cuts are extreme because they need to start thinking 1/2 the ROI * 70% of the endowment or ~35% of last year’s income. They must do a huge drop in spending over the next 10 years or they are going to actually run out of money.
Not me. Typically the last line I read in an article like that is the one that says "Page 1 of 6." I was curious to discover what happened to the $37 billion, but it was clear the author had other plans.
Sorry, I should've been clearer: I wasn't complaining about the pagination, I was complaining about the lack of anything resembling editing. You don't need six long pages to explain the presence of financial mismanagement at a large institution. It would be nice if I had the personal bandwidth to read that much text to get a simple summary of the issues, but I don't.
I found it interesting that my comment was modded down lower than another that questions the whole point behind Harvard's existence.
I actual appreciated the historical background, the information about the Management Company, the loose focus on the main issue, the commentary and evidence gathering.
It is a complicated situation with multiple reasons for the failure and with wide ranging repercussions, I paragraph wouldn't real do it.
If you want the executive summary then - Uni financial managers got rich, bailed, made greed based short term decisions which when recessions came wiped out most of the financial reserve; other managers locked up the rest in assets with poor liquidity.
I think many journalists are paid by the word. I'm not sure if this worse or better then programmers being paid based on number of bugs found and fixed.
