The Ethics of Philanthropy: Everyone is Picking on Harvard

Hedge fund manager John Paulson recently gave one of the largest gifts ever to an educational institution.  He gave $400 million to Harvard University to build the endowment for its school of engineering, which will be named after Paulson.

The gift has generated significant press both for its size and its beneficiary.  Harvard, of course, has the largest endowment of any educational institution in the world at $36 billion.

Harvard grad Conan O’Brien once joked that Harvard’s fund raising pitch was, “We are Harvard, we don’t need your money, we just want it,” but for many commentators a gift to the richest educational institution in the world was no joking matter:

 “The idea that the superrich are just handing some of their money to the other superrich in a time of need and insecurity just seems obscene,” said Kevin Carey, who directs the education policy program at New America. “There’s literally not another university in America that needs that money less.”

And:

Author Malcolm Gladwell mocked the gift shortly after it was announced Wednesday. “It came down to helping the poor or giving the world’s richest university $400 mil it doesn’t need. Wise choice John!” Gladwell wrote in one tweet. In another: “If billionaires don’t step up, Harvard will be down to its last $30 billion.”

Walter M. Kimbrough, president of Dillard University, put the issue in moral terms, calling the gift an “obscene use of $400M.” He goes on to say:

Harvard’s total cost annually is $62,000. Yes, that’s just the sticker price, but when more than 40 percent of your student body receives no aid at all, we’re not talking about a needy population. Just 17 percent of the student body receives Pell Grants. At my institution, Dillard University, 98 percent of my students receive some form of aid, including 80 percent receiving the Pell Grant.

The Harvard Crimson reported that in the recent freshman class, the average student comes from a family with between $125,000 and $250,000 in annual income, and 14 percent have household income above $500,000, placing them among the wealthiest in America. The median family income in New Orleans, where I work, is $35,000, and for my students is $31,000. The writers for The Crimson said it best in describing the class of 2017: “In Harvard Yard, 14 percent are the 1 percent.”

This gift increases Harvard’s endowment by a little over 1 percent. For me? It would increase it by over 500 percent. In fact, with a $400 million gift, I could use a 5 percent spending rate and pay the tuition and fees for all 1,200 Dillard students — with money left over.

And that’s where we have to mature as a nation.

Then there was the inevitable opportunity cost question, the game of “what else could $400m buy?”  The Chronicle of Higher Education offered a list that included covering the education of all students at Berea College for a decade, building multiple buildings on a campus, covering some state’s higher education budget cuts, funding research to cure disease, paying for thousands of professors’ salaries, etc.

Several observations about this controversy:

First is the obvious point, conceded by most observers, that because the money Paulson gave had been honestly earned and all his taxes legally paid, he could do with what he saw fit.

Second, he did choose to give $400 million away.  He could have consumed it, albeit a daunting task!  He could have given it to heirs.  He could have built an America’s Cup team, raced horses or bought a sports franchise.  But he chose to give it to an educational institution.

Third, when any donor gives to education, it is an investment in the future.  Normally such a gift is viewed as an investment in students.  Those of us in the small liberal arts world tend to focus on investment in undergraduates–especially less well-off students or first generation students where the impact of a good education is so often powerful, readily apparent and lasts a lifetime.  These are the investments in students Dillard’s president focused on.

But many educational institutions are more complicated than residential liberal arts colleges.  To simplify things considerably, educational institutions produce two things: educated graduates (both undergraduates, professional and graduate students) and academic research.  Obviously a donor to higher education can care about any or all of these things.

If John Paulson believed that some of his philanthropy should support improving America’s science and technology, giving money to support Ph.D. students and/or faculty at Harvard’s engineering school might be a good investment.  As one observer said:

Richard K. Vedder, director of the Center for College Affordability and Productivity, says despite the controversy following Mr. Paulson’s donation, for a donor looking to advance world-class research, “I wouldn’t say the worst place to give money is Harvard.” Though there are “poorer schools in the U.S. where at the margin the dollar would work better,” he adds, “there is something to be said for giving money to schools where there is a tradition of excellence in research.”

Finally, those in higher education and elsewhere who are casting aspersions on Paulson’s choice need to be a little careful when they get into the game of making value judgments about philanthropic causes and recipients.  As important and necessary as supporting the mission of higher education is, how does it stack up against other good causes?  Is giving a dollar to a university “better” than giving that dollar to a symphony orchestra?  How about early childhood development?  What about mosquito nets or vaccines in Africa?  Does higher ed want to pit a lacrosse field or even an endowed chair against the face of childhood poverty in Africa?

There is certainly a strong philanthropic case to be made for investing in higher education (and I’ll be happy to make it to anyone interested in supporting a fine Benedictine liberal arts institution in the upper Midwest), but glib value judgments tweeted out to the world are not a serious attempt to engage the moral complexities of philanthropy.

Begrudging Harvard its philanthropic success and criticizing the generosity of John Paulson are not good ways for those interested in supporting good causes to spend time and energy.  Having a compelling mission that can be articulated clearly when your own John Paulson comes calling (or you go seeking) seems like the best way to advance and secure your institution’s future.

The other important lesson from this story is that in the case of most educational institutions it takes a lot less than $400m to significantly move the needle.  Paulson’s gift nudged Harvard’s endowment barely 1 percent.  A couple million for Saint John’s would do a lot more–any takers?

Character and the Misuse of a Liberal Education

student-loan-defaultSeveral weeks ago in Quad 136 I wrote about the fact that Johnnies have among the highest student loan repayment rates in the country. I was reminded of this fact when reading a recent essay in the New York Times by Lee Seigel entitled, “Why I Defaulted on My Student Loans.”

According to his Wikipedia biography, Seigel is a New York writer and cultural critic who has written for Harper’s, The Nation, The New Republic, The New Yorker, The New York Review of Books, The New York Times, The Wall Street Journal, Slate, and many other publications, and is the author of five books.  He also has three degrees from Columbia University.

In his essay he explains that he first applied for a student loan in 1975 when he was 17, to attend a small, private liberal arts school.  After two years, he left that school due to family financial difficulties and enrolled in a state school closer to home.  He does not explain how he finally got his bachelor’s degree from Columbia, but eventually his loans come due.  He writes:

Years later, I found myself confronted with a choice that too many people have had to and will have to face. I could give up what had become my vocation (in my case, being a writer) and take a job that I didn’t want in order to repay the huge debt I had accumulated in college and graduate school. Or I could take what I had been led to believe was both the morally and legally reprehensible step of defaulting on my student loans, which was the only way I could survive without wasting my life in a job that had nothing to do with my particular usefulness to society.

I chose life. That is to say, I defaulted on my student loans.

Seigel is clever and, ironically, his unpaid for education trained him well in the art of sophistry.  Paying back his student loans was unfair he claims because he “had the misfortune of coming from modest origins” and the temerity to think “I deserved better…To my mind, they (those who repay their loans) have learned to live with a social arrangement that is legal, but not moral.”

Like Eve after taking her bite of the apple, Seigel encourages other borrowers to follow his example, to prevent the destruction of their “precious young life” and avoid “self-disgust and life-long unhappiness.”

As difficult as it has been, I’ve never looked back. The millions of young people today, who collectively owe over $1 trillion in loans, may want to consider my example.

In fact, Seigel argues, not repaying the loans is almost a categorical imperative because if everyone did it:

The entire structure of American higher education would change.

The collection agencies retained by the Department of Education would be exposed as the greedy vultures that they are. The government would get out of the loan-making and the loan-enforcement business. Congress might even explore a special, universal education tax that would make higher education affordable.

There would be a national shaming of colleges and universities for charging soaring tuition rates that are reaching lunatic levels. The rapacity of American colleges and universities is turning social mobility, the keystone of American freedom, into a commodified farce.

If people groaning under the weight of student loans simply said, “Enough,” then all the pieties about debt that have become absorbed into all the pieties about higher education might be brought into alignment with reality. Instead of guaranteeing loans, the government would have to guarantee a college education. There are a lot of people who could learn to live with that, too.

Seigel casually mocks the concept of character several times in his essay:

Someone with character would have paid off those loans and let the chips fall where they may. But I have found, after some decades on this earth, that the road to character is often paved with family money and family connections, not to mention 14 percent effective tax rates on seven-figure incomes.

And:

Am I a deadbeat? In the eyes of the law I am. Indifferent to the claim that repaying student loans is the road to character? Yes.

I suspect Seigel has no interest in fellow NYT columnist David Brooks’ new bookThe Road to Character, but Seigel’s rhetoric notwithstanding, it is hard to argue that this essay is about anything but character, or lack thereof.

I’ll take a world of Johnnies and millions of other student borrowers who don’t think the concept of character is quaint, who make a good faith attempt to fulfill even difficult commitments they have made to others, and who don’t misuse their liberal arts education to selfishly rationalize stealing.

Lee Seigel is currently writing a memoir about money.

The Macro Economy and Educational Outcomes

SJU alumnus Adam Quade '10 (right) and his sister Mackensie.

SJU alumnus Adam Quade ’10 (right) and his sister Mackensie.

A recent Wall Street Journal story entitled, “Class Of 2015 Graduates Summa Cum Lucky ,” featured Johnnie Adam Quade’10 to make an important point and sometimes underappreciated point about educational returns: in the job market, sometimes timing is everything.  Or to quote Yankees pitcher Lefty Gomez, “I’d rather be lucky than good.”

The Wall Street Journal article makes a very important point about economic outcomes: they are often not entirely controlled by the individual.  The story contrasts the job searches of Johnnie Adam Quade ’10 with that of his sister, St. Olaf grad Mackensie ’14.  Adam did not have a job by graduation in 2010, and he eventually ended up moving out of state to take a job in Des Moines, though that was not his preference.  (Though I understand Adam’s affection for Minnesota, I would note that Iowa has its charms too!)  Mackensie, on the other hand, said, “By Thanksgiving [of senior year], I was sitting around eating turkey, had a job, feeling great.”  Both siblings were biology majors and graduates of fine liberal arts schools.  The difference, of course, was the state of the overall macro economy.  “When Mr. Quade graduated, the unemployment rate was 9.5%. When his sister graduated four years later, it was approaching 6%.”  As the article notes:

Ms. Quade’s bragging rights are likely to continue for years and the difference has little to do with sibling rivalry, according to economists. Labor market research shows that the lower the U.S. jobless rate at graduation, the better the career prospects for grads, yielding significantly higher wages compared with those who finish school amid higher unemployment….according to economists, [Ms. Quade] will hold a wage advantage for a decade or more. With the unemployment rate now at 5.4%, this year’s graduating class (2015) is among the luckiest in decades. They will be starting first jobs with an unemployment rate below the average of the past 40 years, foretelling career success, according to labor economists.  “There really is something special about that first year,” said Jamin Speer, a University of Memphis economist who has published research showing that students who graduate during a time of elevated national unemployment often have their earnings crimped for years.

This is a well-known phenomenon among economists and has been widely studied.  (See: “The Career Effects Of Graduating in a Recession” and “Born Under a Bad Sign: The Cost of Entering the Job Market During a Recession.” The difficulties for graduates is not only that jobs are harder to find in a recession and wages tend to be lower but, at least as important, is that the match between the employee and the first job is often less than ideal.

The problems begin as soon as a new graduate comes face-to-face with a tough job market and begins making compromises. “People leaving school in a recession are starting at a lower-level job and at a lower earning level,” because there just aren’t that many jobs around, says Lisa Kahn, assistant professor of economics at the Yale School of Management. In many cases, graduates end up taking jobs unrelated to their career plan. “By the time you switch back into your field,” says Kahn, “you are behind.”

johnjreiser via Flickr

johnjreiser via Flickr

Research suggests that the impact on wages does eventually disappear, but it typically takes up to 10 years and can take as long as 20.

The interesting question for graduates and their parents is what to do with this information.  How should it affect a student’s choices and behavior to know that graduates with identical degrees from similar colleges (and in the case of Adam and Mackensie, even similar genetic inheritances) might see very different outcomes in the labor market?  The short answer is that it should not affect behavior at all because the WSJ article did not emphasize an even more important point about labor market outcomes.  While the macro economy can affect economic returns for recent graduates , even for many years, it still pays handsomely to invest in human capital.  While Adam may not have been as lucky as Mackensie in choosing his start date, he still did much better than his friends who did not go to college, as the table below shows.  In 2009, at the depth of the recession, the unemployment rate for those with a bachelor’s degrees was about half that of high school graduates, and college grads earned nearly 60% more than their high school graduate peers.  So even if you cannot insulate yourself from the effects of business cycles, and, other than staying in school to get a graduate degree, most college graduates cannot, it still makes sense to go to college if you care about your economic future.

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In some ways the macro economy is like the weather, you cannot predict it or control it, all you can do is prepare for it.

As a graduate from a fine liberal arts college in a state that knows a little bit about preparing for the weather, Adam will be just fine.

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rabiem via Flickr