In my last article I proposed breaking up the big elite college endowments into many different ones so that we could seed a new batch of elite colleges ready to compete with the existing giants. In that article I also made a prediction. As I said, “There will be plenty of critiques of such a policy as unsustainable from the status quo alarmists, and in future posts I’m happy to address such concerns.”
Well that prediction turned real when a history professor at Case Western Reserve University, Mr. Peter Shulman, took an interest in my proposal. This morning Peter decided to create a Twitter thread about why he disagrees with breaking up the endowments. And I’m very happy he did.
I’m happy because Peter’s argument represents the views of many. Harvard and other elite colleges have many guardian angels. They serve as an intellectual shield. In practice, these guardian angels usually concede that Harvard has flaws, but then they focus on ways any meaningful reform is flawed.
I don’t immediately dislike people who make such a critique. Reflexive opposition is only natural when a new and radical idea first emerges. My goal isn’t to criticize Peter, and it also isn’t to criticize the many others who might go further than Peter. My goal is to convince them. Therefore, in this post I go through Peter’s thread, and where his argument is weak I try to help him make it stronger. I also then refute this stronger steel man argument against breaking up the endowments.
Peter’s Argument Annotated:
Peter starts his rebuttal with his conclusion that breaking up endowments won’t expand enrollment in the elite college market. I disagree. We can endow nearly a dozen+ new schools. Obviously, that will expand capacity. Let’s continue.
Peter also claims that I think it will be easy to restructure the elite college market. This is a misinterpretation of my argument. I argue that it is easier to break up an endowment than it is to break up a company like Meta. Frankly, I’m willing to concede that breakups are hard, but I believe we need to do it anyway.
Peter’s says Harvard’s competitive edge isn’t primarily its resources but rather its faculty and brand.
This is a flawed argument because Harvard’s brand is built on the tremendous amount of resources that Harvard has. Resources allow Harvard to be near the top of the US News rankings. In addition, resources allow Harvard to attract famous faculty, students, and donors, building its brand further. If you believe that Harvard’s edge comes from brand, you must concede that resources are a massive part of that.
Then Peter contradicts himself with his next tweet because he concedes that gifted students and faculty exist in plenty of other places. So what makes Harvard different if not the unique amount of resources it has?
Peter then claims that if you break up the endowment at a place like Harvard, you will blow up huge holes in its budget. Peter thinks that leaving Harvard with only $10 billion in its endowment will “destroy” the university.
Cornell has an endowment of $10 billion. Columbia has one that is $11 billion. It is obviously possible to have a still giant $10 billion endowment and continue to survive.
I imagine that Harvard’s budget will begin to look more like these schools when its endowment is broken up. Saying that Harvard can’t survive on a $10 billion endowment is like when the rich kid claims that any cut in his allowance will kill him.
I concede Peter’s point that you will create a big, maybe even multi-billion dollar hole, in Harvard’s budget. But this is precisely the point. At present, Harvard has absolutely no incentive whatsoever to cut costs and find efficiencies. In fact, colleges like Harvard routinely waste money on things that do little to improve the quality of education. Harvard’s spending priorities are based on improving its ranking and its ability to raise donor money. But when Harvard can’t coast on its endowment as much as before, it will have to cut wasteful spending! Further, the methods of teaching at Harvard haven’t changed in a century. Massive lecture halls, midterms, and finals are an old and expensive method of instruction. Harvard can surely invent something better. Now it will have to. Big budget shortfalls will force adaptation. They will force innovation. Harvard will not fail. It will lean out.
Because Peter’s original formulation of this argument was weak, I’ll help him out. The best version of the budget cuts argument is that Harvard will have less money for financial aid, and that breaking up endowments will hurt the poorest students who attend these colleges most.
My response to this argument is three-fold. First, increased competition in the elite market will mean that decreasing financial aid for the best students won’t be viable because if Harvard doesn’t offer a strong aid package, then the best students will go to another one of the new or already existing elite colleges who are desperate to attract them in this new more competitive marketplace. This means that schools will have to cut all other waste before they can arrive at financial aid.
Second, increased competition will increase the likelihood that government subsidies, like Pell grants, won’t be captured by institutions, as they currently are. Presently, as Lesley Turner quantifies, “among selective nonprofit institutions: these schools capture 93 cents every Pell Grant dollar.” As a result, even if students get less institutional aid, they will actually capture more government aid. Also, less institutional capture of government subsidies meant for students will create more incentive for the government to expand things like Pell grants for students in the elite college market.
Thirdly, increased competition and supply will drastically lower the sticker price of an elite college education, and therefore it will make borrowing or income-share agreements more viable for students who are looking to afford it.
Then Peter claims my goal is to destroy Harvard. It isn’t. I nominally want to force Harvard to compete and get better. But my real goal is Harvard-agnostic. I just want for students to have more options, better teaching, and better prices.
Then Peter claims that creating a more competitive elite college market doesn’t get rid of elitism. I don’t want to get rid of elite colleges. They have a place in our society, and they always have. I want to fix the elite college market. Currently, the elite college market undersupplies seats and keeps people who want to get in needlessly out. This is why we have seat scarcity and exorbitantly high prices. Creating more elite colleges, and more elite competition, increases supply and lowers prices. It might also finally restart innovation in elite higher education.
Peter finishes with a complete non-sequitur on the value of public colleges.
I agree. We should better fund public schools. But what does this have to do with my proposal?
There is absolutely no reason we can’t do both. We should fix the elite college market and better fund public colleges. In fact, breaking up endowments to increase competition in the elite college market only helps public colleges because now resource disparity will narrow between the two types of schools.
Break Up the College Cartel!