Paying Campus Speakers?

clintonThere has been a controversy lately surrounding Hillary Clinton’s speaking fees.  She typically commands $200,000  or more for a speaking engagement.  The usual audiences are business groups, where it is shareholders who ultimately pay the bill and must decide if the speech was worth it.  But Hillary is also a popular speaker on the academic circuit, recently speaking at as many as eight universities, including UConn, UCLA UNLV, University at Buffalo, Colgate University, Hamilton College, Simmons College and the University of Miami in Florida.

Such visits by speakers raise interesting questions for universities.  Among the issues:

  1. Is there a “fair” price for a lecture?  Most academics would speak for a modest honorarium, say $500-1000 and travel expenses, and many will speak for free.  On the other hand, there is clearly a market for more famous names and Hillary is among the most well-known.  If one takes markets seriously, as we do in most other areas of the economy, if Hillary’s market price is $200,000 for a speaking engagement, we should hardly begrudge her that.  Each individual has their own definition of a “fair” price, but movie, music and athletic superstars earn similar amounts with little controversy.
  2. Does it matter if the money comes from a university foundation or donor rather than tuition?  Arguably, external sources are better than tuition dollars, but money is quite fungible and the foundation or donor could well have spent that money on another university budget item that would have offset tuition dollars, so in most cases the dollars are coming at least indirectly from students or other donors.  It is the rare case that a donor says, “Here is $200,000 for a speech by Hillary Clinton.  If you don’t use it for that, there is no other use in the university that I will support.”
  3. Does it matter if the speaker gives the money into a charitable cause?  All of Hillary’s fees have ben paid to the Clinton Foundation.  In short, no.  If students, faculty or alumni want to support a charitable cause, they can do so directly.  To argue that the university should be comfortable funneling money to a “good cause” through speaker’s fees would open up questions of who gets to define the “good cause” and would turn universities into pass through organizations for charitable causes when the only charitable cause any university should support financially is the university itself.
  4. Opportunity cost.  This is the crux of the matter.  What is the best alternative use of the speaker’s fee?  How would the benefits of that expenditure compare to the benefits of the speaker’s visit?  We must acknowledge that, assuming the speakers does a decent job, the audience benefits from the insights offered and the university gets the public relations and media benefits.  (Unless they are criticized for paying too much!)  “Having a political figure with the prestige of Hillary Clinton I think is a positive thing,” said UConn student body president Mark Sargent.  But what is the best alternative use of those dollars?

Certainly every college campus benefits from having outsiders come to campus to share their views and those benefits only occur if there are students, faculty and staff in the audience.  At the same time, multiple academic visitors (who receive much more modest honorariums than famous guests) would likely attract smaller audiences but might collectively provide more benefits.

These are obviously complicated calculations where the costs are clear but the benefits are harder to measure.  And the calculations might well be different for a large university like UConn than for small liberal arts schools like the College of Saint Benedict and Saint John’s University.  For a major research university to forgo the equivalent of 2-3 full-time faculty for a year might be much less of an issue than it would be for a liberal arts college.

Maybe the answer is to invite the speaker for commencement and give them an honorary degree rather than an honorarium!  Ahh, but that has its own challenges.

Some Good (Which is to Say, Accurate) Student Debt News

debt-graphicThere is much hand wringing about student debt, as we have noted here previously.  Student loans top $1 trillion; millenials can’t buy homes or afford to get married because of student debt, etc. etc.  See The College Debt Crisis: A CNBC Special Report or “Student Debt Crisis” in the Huffington Post.

Then take a few minutes to look at work done by policy analysts at the Brookings Institute rather than hyperbolic reporting done by journalists.

Using household level data, two Brookings Fellows from the Brown Center on Educational Policy find three important things:

  1.  Roughly one-quarter of the increase in student debt since 1989 can be directly attributed to Americans obtaining more education, especially graduate degrees.
  2.  Increases in the average lifetime incomes of college-educated Americans have more than kept pace with increases in debt loads.
  3.  The monthly payment burden faced by student loan borrowers has stayed about the same or even lessened over the past two decades.*

As analyst Matthew Chingos says in a New York Times article, “We are certainly not arguing that the state of the American economy and the higher education system is just great, but we do think that the data undermine the prevailing sky-is-falling-type narrative around student debt.”

Writing in the Times, David Leonhard hypothesizes about why the debt crisis meme is so powerful.  “I think it stems in large part from the fact that Americans are legitimately frustrated about the economy’s performance over the last 15 years. But when you start looking at the evidence that blames student debt, it can be flimsy.”

The general conclusion of the analysis is straightforward and important: getting a college education, even if it requires taking out some student loans, is a smart decision. Co-authors Beth Akers and Chingos conclude that “typical borrowers are no worse off now than they were a generation ago,” and with increasing returns on education, most of them are better off in the long run.

*As a simple rule of thumb, the average monthly debt payment for student loans at typical interest rates and paid back over ten years is about 1.1% of the loan principle.  So with total debt of $30,000, a borrower would have a monthly loan payment of about $330.

Heartless Economists

No-heart copy copyAmong themselves, economists occasionally lament how misunderstood we are.  The world seems to think we are heartless and immoral when we are just trying to help the world by making things a little more efficient.

In a recent Bloomberg posting, Megan McArdle notes that New York City just outlawed surge pricing by the private car service company Uber.

Basically, New York has decided to try and suspend the laws of supply and demand and keep ride prices fixed during emergencies, even as policymakers know that allowing prices to rise with an increase in demand will bring about an increase in supply.  Some call this price rise gouging.  It often is decried during emergencies when gasoline, water or generators see their prices rise.  Economists call it efficiency and admire the beauty of the market—the matching of willing buyers with willing suppliers.  Those who want the product most will have it provided to them through the price mechanism.

Yes, those with more resources (those who are richer) will often get these scarce commodities, but the increase in supply brought about by the price increase will also mean that more individuals overall will get these needed goods than if the prices are fixed.

Trying to fight supply and demand is like fighting the weather or gravity.   Can’t be done without causing more harm.

When I taught introductory economics classes and used the emergency provision of water or gasoline and surge pricing as an example, those who loved the efficiency of the market were most likely to be economics majors.  Those who criticized suppliers for “price gouging” often ended up in the humanities.  The natural scientists tended toward efficiency but often with some qualms.

The beauty of the liberal arts experience: living and studying with others who have different views of the world!