> Based on the size of these “rainy-day funds” alone, the two universities, with a combined student body of 37,000, have enough wealth to rival Ghana, with a population of 35 million.
This is not correct at all, as the author is comparing a stock to a flow. The citation for this is a link to the World Bank's listing of GDP by nation. Ghana had a GDP in 2022 of $73 billion, but that is not Ghana's collective wealth.
Not a great start to an opinion piece on a huge tax policy proposal: the proposed projected figure of $2.5 billion would be the equivalent to 5% of Massachusetts's current annual tax revenues.
Virtually all non-specialist reporting that touches on economics or finance is littered with grievous errors, in my experience, the more so if it highly partisan.
Grievous is absolutely the right word -- stocks, flows, and dimensions are cherry picked to have maximum verbal impact without looking at whether the underlying measure even makes sense.
One of my favorites is something like "the richest 10 people have more net worth than the bottom 40% of Americans SUMMED". Well the bottom 40% of Americans are in debt, so if you have $1, the above statement is true for you too!
The sleight-of-hand happens with the word "net worth" which usually means financial or in-bank net worth. For most of the population, their actual worth is stored in their human capital. If you account for that, I assure you the top 10 or even 100 richest Americans do not have greater worth than 150 million bottom Americans (to proxy this, look at income).
A easier way to visualize this is to consider the statement "Joe Biden owns more cars (3) than the bottom 30% of the US SUMMED (0)". Cars is such a weird dimension of inequality.
It's not clear how that makes inequality sound any better.
> For most of the population, their actual worth is stored in their human capital.
What does that even mean?
> Cars is such a weird dimension of inequality.
How so? Cars are freedom. Almost everything in life is more difficult without a car. It's difficult to shop. Difficult to find a good job and commute to that job. Difficult to move to a better city with more jobs and/or housing.
The bottom 40% of Americans have consumed goods and services in excess of their current resources. There was a time early in my career when I was in debt (school loans, mostly). Someone had lent me money that my family and I didn't have and I was able to use that money to attend college. I was able to use that college degree to help me start my career.
I was able to buy my first car before saving up the full amount for it. I was able to buy my first house (and later our current house) without saving the full amount.
Debt, used properly, can be a very useful and productive tool. Banning debt doesn't help all poor people and surely hurts many of them.
I was going to write a post on this, but this one nails it succinctly. The Dave Ramsey view of the world that says that all debt is bad is probably too simplistic.
If you're borrowing to buy a car you could never afford to impress your neighbor, that's probably not a good idea. If you've just had a kid and can't afford to pay cash for a car that has room for a seat and you have the choice of saving up for three years to buy one, or taking a 36 month loan now, then that interest is probably excellent value for money.
We start our lives in debt to the bank, and the bank ends up in debt to us - the "zero" point is actually not that interesting.
>> For most of the population, their actual worth is stored in their human capital.
> What does that even mean?
for a person with no savings, i.e. no investments, it means that income from their wages is all the income they have.
if you have $500,000 invested in the stock market, you would expect income on average to be 7% of that per year, or $35,000. It's a nice boost to your income, but probably not enough to quit your job. If you job also paid you $35,000 a year, we could say that 50% of your worth is in your human capital because your wages are half of your income stream so it's pointing out an equivalency between an investment that returns $35K a year and a job that returns $35K a year. Other than literally being a value judgement, it's not a value judgement.
> it means that income from their wages is all the income they have.
That's clear enough, but income, regardless of source, is already figured into net worth.
Whereas the OP seems to be talking about net worth being a bad measure, and instead there's some amorphous "actual worth" that's "stored" somewhere (obviously not in a bank account or other investment).
If it makes you feel better, its credit and debt all the way down. Your money can only be created through the creation of a corresponding debt, for which the money for interest was never created. Its not only the bottom 40% in debt, it's the entirety of human civilization.
This would logically be read as "bottom 30% of Americans, ranked by car ownership [rather than net worth or income]". I suspect that there are in fact more than 30% of Americans who own zero cars.
18% of Americans are 14 years old or younger [and presumably almost none of them own a car], so if 15% of those 15 years old or older don't own a car, the total is over 30%.
> One of my favorites is something like "the richest 10 people have more net worth than the bottom 40% of Americans SUMMED". Well the bottom 40% of Americans are in debt, so if you have $1, the above statement is true for you too!
That interpretation is even more shocking than "the rich are so rich". Like, a very significant part of your population have to resort to borrowing money in a death spiral to bankruptcy, just to survive. While 40% just barely surviving paycheck to paycheck is bad enough, 40% in debt is even worse because the people who barely make do come on top of that.
The lower class minority struggles day to day, and the fat cats at the top make bank despite the world being embroiled into a multitude of parallel crises.
>That interpretation is even more shocking than "the rich are so rich". Like, a very significant part of your population have to resort to borrowing money in a death spiral to bankruptcy
What. No, look, for example: assessed from a "net worth" perspective, almost every single college student is in the "debtor" column, because the net present value of a college education isn't something that shows up in the calculation.
If I borrow money to buy a car, but have no substantial savings, then I'm a debtor - but if I can easily afford the payment then there's no problem, is there?
You're making one of the exact same semantic errors as the OP was talking about.
> What. No, look, for example: assessed from a "net worth" perspective, almost every single college student is in the "debtor" column, because the net present value of a college education isn't something that shows up in the calculation.
And that's completely correct, given that there is an absurd amount of garbage colleges/degrees out there, that there's a massive oversupply of people with degrees, and that companies nowadays require degrees even for underpaid paper pusher jobs because it allows them to legally discriminate against otherwise protected classes. It's fundamentally impossible to assign any positive value to a college degree unless the person is actually employed.
> the net present value of a college education isn't something that shows up in the calculation.
Sometimes it never shows up. Mine never did. And I still have student loan debt.
When you're calculating values, consider that different students have very different levels of student debt despite receiving the same education. Rich kids with the bank of mommy and daddy don't need to borrow at all.
> If I borrow money to buy a car, but have no substantial savings, then I'm a debtor - but if I can easily afford the payment then there's no problem, is there?
It really depends on what "substantial" and "easily" mean.
If you're truly living paycheck to paycheck, then you are actually in danger, because paychecks can easily stop, e.g., layoffs, and then you won't be able to "easily" afford your car payment.
This is not even mentioning other unexpected expenses that can arise and suddenly make your easy car payments not so easy.
> The fact that the richest 10 people ALSO have more than those 40% doesn't really add anything to it.
Oh yes, socially this point definitely adds to the discussion. Cap everyone's maximum wealth at 1 billion $ - that is more than enough for anyone and their descendants to never have to work a single day in life again - and tax and distribute the rest towards the poor.
You'd lift a massive amount of people out of utter poverty that way, while not even inconveniencing the fat cats riding on the backs of their employees - and you'd get a nice economic boost on top, like with the covid stimulus funds.
reminds me of working on a derivative sales desk for an investment bank - they wanted me to write something everyday about what was happening in the market to send to clients, but then my boss would criticize me for "being too much of a scientist" i.e. requiring facts and logic...
Hence why they are so worried about AI. I’ve stopped reading the news about technical matters. The mistakes are too numerous and their analyses are no better than the layman’s.
With time you'll notice in most complex situations and subjects - many articles are of the wall in poor details and erroneous information - but especially on background. I regularly read these with one eye closed...
Michael Crichton used to call this the "Gell-Mann Amnesia Effect." That non-specialist reporting is usually grievously inaccurate about everything. But we tend to only notice when it's inaccurate about a subject we are trained/educated in, and then assume that it's accurate everywhere else.
In this case it was a staff writer, by the looks of it:
> Helen is a Colorado-based reporter focused on health care. She has been published in KFF Health News, Scientific American, the New York Times, and more.
Doesn't make it any better. It's wild you can have an MS and mix up wealth and GDP.
2.5% a year on the total endowment of a university is higher than the wealth taxes of virtually every country in the world that implements them.
This wouldn't be treating them the same as trillion dollar corporations, this would be treating them worse. The original Jacobin article says:
> And unlike the federal tax, this tax would be on the schools’ total endowments, not just the income they make from it every year.
I think it's unlikely this bill will pass because if it does, it would be tax-advantaged to operate a for-profit corporation for the sole purpose of making yearly donations to a school than just giving the money to the school directly. 21% corporate federal income tax + 8% massachusetts state tax of a 5% yearly return is effectively a 1.45% tax on wealth which is a better rate than schools get (there is no corporate wealth tax in America).
Even if one agrees with taxing universities the same as any business, this particular implementation treats private universities worse than businesses.
I think it's perfectly reasonable to treat them worse, they're a more malign influence than most trillion dollar corporations on society. Segregating by intellect and cognitive ability has been a disaster for society - I think it's a big reason for why social trust has been declining in America for the past 60+ years as elite institutions become more focused on who "deserves" admission because of "merit" rather than who their parents are (which means now it's just fuzzy proxy for parental preparedness).
It's beyond time we transfer wealth from Harvard and MIT to UMass Boston and similar schools that benefit large numbers of Massachusetts residents rather than the few.
Is there anything more to your point than "I dont like them so we should steal your money and give it to someone we like more"? I am inclined to agree, these universities are trash, but you not liking them doesnt justify stealing from them.
"Massachusetts lawmakers want to change that. State legislators are considering a groundbreaking bill that would impose a 2.5 percent annual excise tax on private college and university endowments that are larger than $1 billion. The resulting $2.5 billion raised each year would be more than enough to cover the tuition of every undergraduate student currently attending public colleges and universities in the state."
The chances that they would use that to cover undergraduate education is pretty low. Would 100% go towards other political causes - I have little faith in our political class doing that or using it effectively.
I understand the cynicism, but the current text of the bill explicitly creates a separate trust which receives the revenue, and is restricted so that:
"The fund shall be used exclusively for the purposes of subsidizing the cost of higher education, early education and child care for lower-income and middle-class residents of the commonwealth."
Now, money is fungible so, just like with lottery revenues that are devoted to "education spending" in some states, it could be the case that it won't in fact increase net spending for the designated purpose, since what would have been spent on this purpose will end up being redirected.
On the other hand, the projected tax revenue is so large (>5% of Massachusetts's entire annual tax revenue), that I suspect it would end up being a net increase in funding for the stated purposes, even accounting for fungibility.
> Now, money is fungible so, just like with lottery revenues that are devoted to "education spending" in some states, it could be the case that it won't in fact increase net spending for the designated purpose, since what would have been spent on this purpose will end up being redirected.
The projected revenues from this are way larger than what's currently being spent on that purpose, so in that sense, there's no risk of "redirection" - if the projected revenues come to pass (which is likely, as a tax on an endowment is pretty easy to forecast) then it will result in an increase in funding for that purpose.
They’re Ivy schools; that money was already going to the ruling class and their political causes (e.g., as Supreme Court clerkships, civil service appointments, and etc.). As tax dollars, it will at least serve the useful goal of keeping the state solvent.
If there were a genuine threat of insolvency, they’d solve it today with budget cuts. What are the distinctions as you see them between the ruling class, their political causes, and the state?
Harvard is not the state, they're a fundamentally exclusionary institution. We should tax and contain them, not go out of our way to avoid taxing them.
It seems like a good idea that if the endowments are getting so big that covering tuition for all of their students would still allow them to grow, then it's time to push for more of the money to be used for paying for public colleges.
Although I wonder what the weird second order effects will be.
>the endowments are getting so big that covering tuition for all of their students
This sound bite always comes up. The simple fact of the matter is that for these institutions, the endowment is essentially composed of gifts, and returns on investment of gifts. Many/most gifts are restricted, meaning that the donors gave them to be used in specific ways - like to fund a specific professorial chair, or for a particular library or whatever - and it's just not an option to use them to fund tuition or for other purposes.
Data point: Harvard's endowment has over 14,000 individual funds and the majority of them are restricted.
Harvard's latest financial report (https://finance.harvard.edu/files/fad/files/fy23_harvard_fin...) says that 30% of the endowment is flexible and 20% is explicitly allocated to "scholarships & student support". That's more than $25 billion, easily enough to eliminate tuition forever.
BTW Scholarships etc. are not necessarily fungible; like, if it's restricted to botany PhDs only or whatever.
If you look in that report, you'll see "education revenue" - i.e. people paying to attend in the form of tuition, boarding etc - was 22% of revenues (about $1.3bn) in fiscal 2023. The endowment distributed $2.2bn (about 37% of revenues), based on a ~5% target payout rate.
You can't look at that and say "that $2.2bn per year could easily pay for the $1.3bn in tuition etc" because they're already separate items on the revenue side of the book. If you reduced tuition revenue to $0, i.e. made attendance completely free, you'd have to find an additional $1.3bn a year to fund operations - that's a gigantic hole.
I know how to fill that hole - increase the ~5% target payout rate to ~8%.
Also, I'm not really suggesting they use any of their existing endowment to cover tuition. Just put a lot of it in the bank and interest alone fills the "hole".
>I know how to fill that hole - increase the ~5% target payout rate to ~8%
That's a fantastically glib answer; do you have any reason to believe that's a sustainable rate? The endowment is supposed to last forever, remember. The usual citation for a safe withdrawal rate in retirement is 4%, for example.
>Just put a lot of it in the bank and interest alone fills the "hole".
The Harvard endowment is actively invested and generally substantially outperforms the interest that you'd get "in the bank" - that's the only reason that withdrawal rate of 5% is feasible.
It's condescending and erroneous to dismiss what the OP wrote as a "sound bite." I imagine most people who are comfortable with arithmetic have the same thought when they learn of the size of most Ivy League endowments. Perhaps you work in circles where factoids about Ivy League endowments are passed around as "sound bites" (where?) but it's not as if the essentials of this aren't really obvious.
I'm not criticizing the OP - the fact is that this does often come up as a sound bite from people who are familiar with the facts and are simply trying to foment anger with others whom they believe are not.
"The God that holds you over the pit of hell, much as one holds a spider or some loathsome insect over the fire, abhors you, and is dreadfully provoked. "
Are you implying that divinity is free of corruption and fuckery? Because history tells us that is not true. Rather we should look fist at those who claim any sort of divinity for all the ills of the world.
If I donate 100 million to Penn for the express purposed of building a new architecture building and Penn invests that money and earns 20% on it is that 20% under the same restrictions as the principal?
Also, it seems odd that if the funds are restricted to be used for a specific purpose that they university is allowed to gamble those funds in the market. Something about this doesn't add up.
>If I donate 100 million to Penn for the express purposed of building a new architecture building and Penn invests that money and earns 20% on it is that 20% under the same restrictions as the principal?
It would depend on the facts of the gift; but my understand is that if you give money to be used for a specific purpose, it is restricted to be used for that purpose.
There are also gifts that do not allow the principal to be spent; only returns on it. The gift is given in the expectation that it will be invested.
Your use of "gambled in the market" is quite loaded; I don't think that most people would regard the activities of these investment officers that way.
> I don't think that most people would regard the activities of these investment officers that way.
I recall my university's chief investment officer announcing that the university could tolerate riskier investments after the endowment topped $4bn. She promptly lost nearly $800m.
Malcolm Gladwell has a podcast in Revisionist History where he likens museums to dragons (hoarding art); I think that's wonderfully apt. Whenever I see institutions, like Harvard, endlessly accumulating wealth above-and-beyond what they "need", I always think of them as "another kind of dragon". I think this interacts with Pournelle's Iron Law of Bureaucracy[1].
BTW Gladwell is one of the people who does know better about university endowments and still leads with the anger-inducing high school arithmetic view of the situation (in his podcast, in this case).
Not sure if I understand the question, but assuming it's literally what you asked: it either gets spent for the purpose for which it was given, or it grows the size of the fund.
Yearly tuition is $54,000 for a combined cost, without discounts, scholarships, etc. of $216,000 give or take for a four-year undergraduate degree.
Harvard's endowment could give full rides to 162,037 students.
The fact they don't and instead sit on this mountain of cash is a problem IMO. I understand part of that is to insure the schools longevity but how many billions do you really need in this regard?
I think some number of those endowments should be taxed but I would prefer to see Harvard giving out full rides to many, many more people, or heavily invested in community colleges.
Add churches and a lot of other non-profits to that list. I think all these institutions deserve a close look as to how the money is spent and whether they deserve tax breaks. When I lived in Northern VA I met quite a few non-profit higher ups that made huge salaries and did absolutely nothing for the public good.
Would be hilarious to see Harvard & MIT relocate (in part or in full) to a friendlier tax jurisdiction – New Hampshire? SBF's Bahamas? – to avoid or lessen this tax.
They absolutely should, states are in competition with other states and they should be reminded about why the symbioses with those tax exempt entities exists.
Massachusetts has identified a problem, its too bad that they also have to be tasked with identifying a solution. They really shouldn't be the same people but our social structure doesn't really accommodate that.
And to top it off, the classic “fair share” quip when nobody can reach consensus on a definition. Massachusetts is swinging far harder than its relevancy.
Personally I'd see that as a net benefit - if they want to leave, great! It's an even more beneficial second order effect than billionaires and millionaires moving to avoid taxes.
Eh I’d rather have large ivy leagues use their endowments. I like the direction they’re heading in and would want them to continue doing what they do so well.
What they do well is exclude as many people as possible while maintaining a similar level of academic standards as...UVA and Michigan and UC Berkeley, which aren't fundamentally exclusionary institutions.
How many Presidents, Chief Justices, Nobel laureates, Pulitzer Prize winners, Fortune 500 CEOs has UVA produced? Top institutions don't need to be dragged down to meet the average based on some arbitrary criteria. Harvard's academic standards are fine, and "excluding as many people as possible" is the entire point. If you don't like it, don't apply.
> Presidents, Chief Justices, Nobel laureates, Pulitzer Prize winners, Fortune 500 CEOs has UVA produced
A bunch, what's your point? UVA is a very good institution.
> Top institutions don't need to be dragged down to meet the average based on some arbitrary criteria
"Dragged down" tell us how you really think about the bottom 99.99%! It makes me think you really don't think of the rest of us as proper citizens - should we gate more things to university admissions? Because last time I checked, the current POTUS went to University of Delaware, an institution even less exclusionary than UVA.
> If you don't like it, don't apply.
I think their influence on society should be crushed, because it's been a net-negative since the introduction of "meritocracy" to their admissions policies.
Every institution with a limited number of slots is exclusionary. Berkeley's admit rate is around 15%, 20% for Michigan and UVA, versus Harvard/MIT around 5%, so in terms of "excluding" the vast majority of applicants, there doesn't seem to be much difference.
There's a huge difference between 15/20% with opportunities to community college transfer and 3-5% acceptance rates without that. That's literally a 4-5x difference.
As Morill Act institutions (except for MIT, which is an aberration) Michigan/Harvard/UVA's purpose is also to educate and not to cultivate an elite.
Look, you're the one that set the bar at "exclusionary" - by the numbers, these are all highly exclusionary institutions (more than three quarters of people won't get it) - we're just arguing over the fine details at this point.
If Harvard reduced financial aid, meaning that more people were dissuaded from applying, and that brought the numbers up to the same - would you be happy?
Looking at acceptance rate to define what is good or bad is just weird.
Elite universities themselves target an acceptance rate when targeting advertising and outreach to prospective students. It's an extremely important metric for even selling their exclusivity. It's why BU went from 50% accept rate to ~17% in ~7 years.
Fair, by that metric it is indeed 4-5x "easier" to get into UVA/Michigan than Harvard/MIT. But it's also undeniable that former still excludes the large majority of applicants. And if everyone in America suddenly wanted to start going to UVA, and its admission rate dropped precipitously, would it not then also fit the definition of being "elitist"?
I want exceptional people to be around the rest of us. Everyone benefits from integration as opposed to intellectual segregation in my opinion.
However, your use of the word "exceptional" is intriguing - I want you to be very specific about what you think of "unexceptional" people - do you dislike us? Hate us? What should happen to us? Would you consider yourself to be among those exceptional people? Genuinely curious!
Unexceptional=the rest of us have plenty to contribute to society, but not nearly on par with someone exceptional. Some people are better than the rest given the current paradigm defined by our society.
Interesting, what do you think the rest of us unexceptional people should do if we're condemned to a life like this? Can you name a few unexceptional people that I can consider role models?
I can't look up to my dad, who probably isn't an exceptional person? He didn't go to Harvard at least.
I'm very intrigued now. Who can I look up to, and what is the bar for being exceptional? It's any Harvard admit, or does it have to be a Harvard graduate? Does Brown count? What about Duke or Rice?
As a Massachusetts resident, I'm strongly supportive of taxing the shit out of these freeloaders - it's beyond time we punish these people for what they've done to the rest of us.
Unfortunately, it's true that there's a big emotional reaction to attacking these big institutions - similar to the "temporarily embarrassed millionaires" phenomeon a lot of people seem to think they or their descendents are "temporarily embarrassed HYPSM+ admits"
A large part of what makes Massachusetts amazing is the fact so many people are so well educated. I wouldn’t really call Harvard a freeloader so much as a three hundred year old indispensable part of the community.
I don't understand this distinction. A PhD from UMass Amherst in CS is also "highly educated", as an example.
But I do think we should punish the cognitive elites from the ivory towers (aka not UMass Amherst) who look down on people like me and consider me to be an underhuman.
Should this happen, it will end up driving the tuition higher as the institution passes the costs down to customers (students, perhaps also research grants).
The net effect will be to push customers to lower-cost competitors, limiting the student body to those only highly-monied or with sufficient academic performance to obtain larger subsidies (grants/loans). This might also reduce the level of academic scholarship.
The net effect would be good for competition, on first glance.
Many undergraduates and most graduate students do not pay tuition at Ivies, rather it gets covered by financial aid or research stipends. And whether you get admitted is decided independently from whether you get financial aid. Of course, being rich makes it easier to have the earlier education and CV necessary to get admitted, but that issue is unrelated.
> Based on the size of these “rainy-day funds” alone, the two universities, with a combined student body of 37,000, have enough wealth to rival Ghana, with a population of 35 million.
This is not correct at all, as the author is comparing a stock to a flow. The citation for this is a link to the World Bank's listing of GDP by nation. Ghana had a GDP in 2022 of $73 billion, but that is not Ghana's collective wealth.
Not a great start to an opinion piece on a huge tax policy proposal: the proposed projected figure of $2.5 billion would be the equivalent to 5% of Massachusetts's current annual tax revenues.