Monday, December 26, 2011

Why Academics are Pro-Fed Ideologues

"Tuition has been rising at leading institutions for the past quarter century at rates far ahead of inflation, reflecting the rising prosperity of the top 5 or 10 percent of the wealth distribution. Philanthropists continue to lavish large donations on prestigious institutions.  College and university endowments, fueled by the stock market boom of the past quarter century, have reached levels never dreamed of before.  In 1981 only one institution (Harvard) had an endowment exceeding $1 billion; as of 2007, more than sixty institutions had endowments in excess of $1 billion.  Harvard's endowmnet reached $29 billion in 2006.  Yale's $18 billion, Stanford's and Princeton's  $14 and $13 billion respectively.  Princeton's endowmeent is nearly $2 million per student, which effectively yields about $100,000 per student annually, a sum tht is more than double the annual tuition.  Many state universities, such as Michigan, Virginia, and Texas, have accumulated large endowments even though they receive annual subventions from the public treasury."

--James Piereson, "The American University: Yesterday, Today, and Tomorrow" in Robert Maranto, Richard E. Redding, and Frederick M. Hess, editors, The Politically Correct University. 

Without the Fed, endowments would be at 1981, or perhaps 1937, levels. There would be much less income inequality because the only possible explanation for a rising stock market is subsidy from the Fed at public expense.  This occurs because consistent reductions in interest rates increase the present values of future corporate earnings--the chief determinant of stock prices. Hence, the Fed's low interest rate regime directly subsidizes stockholders at the expense of the general public.  Income inequality results from the same Fed policies.  The wealth consumed by stock and real estate investors, including universities, who produce nothing (in the case of universities, less than nothing) but enjoy increases in asset values, comes from wage earners in the form of an increasing gap between productivity increases and wages.  That gap cannot continue.  Eventually, the public will either stop working or vote the bums who have subsidized the super-rich, including university endowments, at the expense of the producers of wealth, out of office.  Or, perhaps, the nation will simply collapse due to public mismanagement.

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