Last week NY hedge fund manager John Paulson took a lot of grief for his record $400 million gift to Harvard University, his business school alma mater. Personally, I admire Mr. Paulson for supporting higher education. It is a noble gesture. He could have spent that cash on private jets or his own third world island nation. But Mr. Paulson made a glaring mistake: he gave his money to a school that does not need, and does not deserve, that money–and the $200 million or so he’ll save on taxes would do America and the state of New York more good than Harvard University.
[note: a slightly different version of this post originally appeared on my Yahoo! Finance contributor page]
I’m a sports fan, but I don’t plan on watching the Final Four this weekend. Sure, the players are inspiring and the games are usually exciting and dramatic. I just can’t bring myself to tune in to a bunch of unpaid employees generating billions for one of the most corrupt rackets in the world, the NCAA. But–as regular readers of this blog know all too well by now–my distaste for so-called amateur athletics pales next to the utter disgust I feel for our broader system of higher education.
Talk about an industry desperately in need of disruption.
Last fall, I blogged about possible ways to disrupt and improve our vastly overpriced and underachieving higher education system. One of my bright ideas went as follows:
[T]here’s no reason [Harvard] shouldn’t build more campuses in other locations, increasing enrollment even more. If its product is so great, why not scale it out?
Fast forward to this week when I opened the latest Barron’s and discovered that Harvard’s biggest rival is already doing just that:
Yale University has done something that no other Ivy League school has attempted: built a new version of itself halfway around the world, in Singapore.
I believe we’ve got things backwards in this country when it comes to higher education. In my opinion, a university’s reputation shouldn’t be based on how exclusive and expensive it is–that is, how much it costs and how few young people it educates. I think we should reverse that equation and judge our elite institutions by how many quality educations they provide, and at what value. Yale’s experiment in Singapore is a good first step in the right direction (even if it is in China), but it’s not addressing the biggest problem in higher education today:
It costs too damn much!
I glanced at a recent issue of the Stanford alumni magazine the other day. It featured an interview with former school president Gerhard Casper and an excerpt from his book on “addressing the challenges of higher education.” The piece was underwhelming, to put it mildly. There was the usual pabulum about school rankings, measuring outcomes, and fostering diversity. But there wasn’t a single word about the biggest problem facing higher education today:
It costs too damn much!
Our nation’s universities, public and private, have crushed an entire generation with debt. All told, young adults owe more than a trillion dollars in student loans. That’s a huge drag on our economic growth. And where is all that borrowed money going (besides the Wall Street banks that underwrite many of the loans)? It’s propping up one of the most backwards and wasteful industries in the world: academia.
This isn’t about investing or the world of finance (though it is about one of the most profitable businesses in the world), but I’d like to take a moment to acknowledge the football players at my graduate alma mater, Northwestern. Tomorrow, they’ll be voting on whether to form a union. I hope they vote yes but no matter what happens, I admire their guts and the strength of their ideals.
I’d like to expand on something I wrote near the end of my last post on the current boom in Texas. As I said, buying into or shorting secular trends is a key investment strategy for me, and Texas’ explosive growth is a major opportunity. But I don’t think most people understand why the state is doing so well. It’s not just because of its low taxes and hands-off regulatory regime. If that were the case, low-tax backwaters like Alabama and Mississippi would be thriving, too. What sets Texas apart is education, especially the public UT system, which possesses the third largest endowment in the country behind only Harvard and Yale.
Dynamic, innovative economic regions–with the highest per capita incomes–always benefit from quality educational systems. Silicon Valley and the Northeast are the most obvious examples. But other places like North Carolina’s research triangle have also been fueled by great schools. The reason for this isn’t rocket science. You simply can’t have sustained economic growth without a steady supply of smart, highly educated people.
The problem is that schools cost a lot of money. And most states these days–especially the state where I live, California–spend far more on prisoners, public employees, and old people than education. It’s a disturbing secular trend, so disturbing that if California were a stock, I’d short it.
Austrian economist Joseph Schumpeter coined the term “creative destruction” to describe the positive impact of business failure on free market economies. It’s a simple concept. As better ideas for products or services emerge, old ones dies out. The classic example is the automobile coming on the scene and displacing horses and buggies. More recently, the internet has been a very creative destroyer. From retailers to travel agents to media companies of all types, it’s been steadily remaking just about every industry out there.
But often the companies and industries ripe for creative destruction aren’t as obvious as video rental shops or horse-drawn carriages–and they use their social and political connections to hold out far longer than they have any right to. That’s definitely the case in two sectors right now: real estate and higher education.