Atlas Shrugged and the Decline of New York

This past Tuesday I had to take my wife to her dentist in Manhattan, so I spent a little time walking around our old neighborhood, the Upper West Side, while she got her crown.  I learned that apartment buildings now have policies that can ban smoking outside the building; supermarket plastic bags are now illegal; if you want to use paper bags, you must pay a 5-cent penalty.

With so many meddlesome laws, New York is not a place in which I care to live. I first realized that the city had gone past the point of no return in 2000, when I sat on a Manhattan narcotics grand jury.  The grand jury was in the New York Supreme Court Building, 60 Centre Street, where the 1957 movie 12 Angry Men takes place.  In interacting with my fellow Manhattanites, I realized that the people of New York had gone far down the left-wing path, that they no longer believed in the rule of law, and that the ultimate result would be increasing socialism and moral chaos.

I was just rereading Atlas Shrugged, which I assigned to my class as an extra credit assignment. When I was in Manhattan on Tuesday, several things reminded me of it.  It is about the exodus of industrialists, managers, and the competent from a United States increasingly dominated by socialist looters, with an end result of the country's reverting to 18th century standards—a goal advocated today by  environmentalists.   

This passage is an example of Ayn Rand's perception of how backward-trending socialist law works.  A bureaucrat named Dr. Ferris explains the process to capitalist Hank Rearden, inventor of Rearden Metal:

“Did you really think that we want those laws to be observed?” said Dr. Ferris.  We want them to be broken. You’d better get it straight that it’s not a bunch of boy scouts you’re up against—then you’ll know that this is not the age for beautiful gestures.  We’re after power, and we mean it. You fellows were pikers, but we know the real trick, and you’d be better get wise to it. There’s no way to rule innocent men. The only power any government has is the power to crack down on criminals.  Well, when there aren’t enough criminals, one makes them. One declares so many things to be a crime that it becomes impossible for men to live without breaking laws. Who wants a nation of law-abiding citizens?  What’s there in that for anyone?  But just pass the kind of laws that can neither be observed nor enforced nor objectively interpreted—and you create a nation of lawbreakers—and then you cash in on guilt.  Now that’s the system, Mr. Rearden, that’s the game, and once you understand it, you’ll be much easier to deal with.

 I can picture a Democratic Party policy adopted by di Blasio, Warren, Sanders, Ocasio-Cortez, et al. whereby neighbors are encouraged to inform on each other:  "Hello, police? I just saw my neighbor,  Mrs. Taggart, entering her apartment with a plastic bag of groceries.  Yes, we're at 140 Riverside Drive, Apt. 16-k. Please send a squad car."

New York Now a Toxic City

Bigotry takes many forms.  One form of bigotry involves intolerance of others' political views or economic behaviors. Such bigotry can be as violent as racial or religious hatred.  Dissidents in big-government states have been prevented from working, have been incarcerated, have been tortured, and have been killed.  Examples include the McCarthyism of the 1950s, when communists were prevented from working in the film industry; the suppression of the Soviet Union and China, which often involved incarceration in prison camps, torture, and murder; and the  suppression of dissidents, along with Jews, Gypsies, and uncooperative Catholic leaders, in Nazi Germany.* 

New York increasingly exhibits political bigotry.  The New York Post reported on June 4 that 26 of 51 New York City Councilmen wrote a letter to Wal-Mart demanding that the firm stop giving charity in New York.  The Post reports that Wal-Mart had announced $3 million in gifts to New York this year. It adds, "Council Speaker Melissa Mark-Viverito called the donations “toxic money,” and accused Walmart of waging a “cynical public-relations campaign that disguises Walmart’s backwards anti-job agenda."

Rather than Wal-Mart's charity being toxic money, New York has become a toxic city. It is New York that destroys jobs and destroys wages through its inept regulatory regimes, specifically including the state ban on fracking, whose harms are vastly exaggerated. The high cost of regulation in New York has driven hundreds of corporate headquarters out of the city.  When I was a child, a quarter of the industrial firms still had headquarters there. Because of the policies of jobs-destroying politicians like Melissa Mark-Viverito, three quarters of the headquarters are gone.
 
*When I visited the Dachau concentration camp in 1975, I learned that many Catholic priests had been imprisoned there along with Jews.  American universities today are frequently anti-Catholic and anti-Semitic, just as Hitler and Stalin were.

A people who allow a tyrant to tell them how much they can eat and drink are beneath contempt.

A people who allow a tyrant to tell them how much they can eat and drink are beneath contempt.

Slime Beneath the City's Fallen Snow

New York City Counicilman Dan Halloran is New York's only major elected official with a libertarian background.  Last week, a major snow storm afflicted the Big Apple.  Just as in 1969 during the mayoralty of the late John W. Linday, the Sanitation Department failed to perform.  There was public snit about the lack of snow removal.  My good friend Glenda McGee forwarded a December 30 New York Post article quoting Halloran as saying that managers from within the Sanitation Department had ordered a work slowdown.  If it occurred, it lead to deaths and other serious harm.  According to informants who brought the information to Halloran, the protest concerned promotions and budget cuts.  Union officials Harry Nespoli and Joseph Mannion as well as Sanitation Department spokesperson Matthew Lipani deny a slowdown occurred.  However, the Post asserts that multiple Sanitation Department sources have said that:

"angry plow drivers have only been clearing streets assigned to them even if that means they have to drive through snowed-in roads with their plows raised...One mechanic said some drivers are purposely smashing plows and salt spreaders to further stall the cleanup effort."

Mayor Bloomberg's absurd response was to blame residents for shoveling snow into streets.  But according to Halloran, "snitches" said that:

"they were told [by supervisors] to take off routes [and] not do the plowing of some of the major arteries in a timely manner. They were told to make the mayor pay for the layoffs, the reductions in rank for the supervisors, shrinking the rolls of the rank-and-file."

It is time to privatize the Department of Sanitation.  Competition has drastically improved the dismal telephone service of the former New York Telephone (I remember when one had to restrict long distance calls because of high costs, for instance). New York's sanitation workers are paid much more than comparable private sector workers.  Here in rural Olive, New York snow removal usually is complete within a day or at most two after a storm despite higher highway mileage per capita.  The little city of Kingston, NY, 25 miles from here, also has a public sanitation department that is inefficient and in need of privatization.

Mayor Bloomberg's response to the accusations of shirking and inefficiency in his Santitation Department has been cowardly.

I wrote the following letter to Mayor Bloomberg:

PO Box 130

West Shokan, NY 12494

Mayor Michael Bloomberg

City Hall
New York, NY 10007

Dear Mayor Bloomberg:

As someone who relies on New York City to earn my livelihood, I urge you to privatize the New York City Sanitation Department.  According to Councilman Dan Halloran and the New York Post, the recent John Lindsay-like problems that you have suffered result from an illegal, irresponsible and murderous work stoppage. 

The Sanitation Department is not functioning competently or morally.  Its workers are overpaid and under-productive.  The irresponsible stoppage caused people to die. You are the person ultimately responsible to investigate and ferret out the malefactors.  But much more important action is needed.  It is time to eliminate a white elephant that New Yorkers cannot afford.

Sincerely,

Mitchell Langbert

Socialism in Action

Socialism is such an inspiration. The AP's Eliane Engeler's description of North Korea on Yahoo! reminds me of the New York City subway system under Mayor Ed Koch.


>GENEVA – A U.N. human rights investigator accused North Korean authorities Monday of committing widespread torture in prisons that he called "death traps."

Life in the reclusive communist-ruled country is "dire and desperate," said Vitit Muntarbhorn, adding that people are denied enough food to survive.

Muntarbhorn told the 47-nation Human Rights Council that whole families are routinely sent away for the crimes of one member. Once imprisoned, they suffer greatly.

New Yorkers Turned New York into A Hellhole--Now They're Doing The Same to Florida

New York City exemplifies the terrible destruction that the "progressive" or social democratic ideology has wrought. Once a center of innovation, the corrupt Ochs Sulzbergers and their minions, Robert Moses and the long list of social democratic bozos, have turned New York City into a playground for the super rich. Destroying the light manufacturing and business base; imposing regulation that destroys innovation; attacking business and private initiative through taxes; only the highest-margin service businesses, law, advertising, consulting and investment banking remain in New York. Destroying the housing stock through regulation, labor unions and rent control, the Ochs Sulzbergers and their mindless supporters trumpet how they help the poor and middle class, while they have ghettoized and made the lives of the poor and minority groups hopeless.

New Yorkers have fled the disaster that they have created. But brainwashed by the city's ideological elementary and high schools and by the city's ignorant mediazvestia, New Yorkers continue to advocate the very policies that have made it impossible to remain in New York. One must suppose that in the coming years places like Florida and California will continue to become incompetently run centers of decline, much like New York City.

A Call to Mayor Giuliani, New York's Great Mayor

I have sent the following e-mail to Mayor Giuliani. Please consider joining me.

>Dear Mayor Giuliani:

I urge you to consider running for Mayor of New York City or, alternatively Governor of New York State. In 2001 you obeyed the law and stepped down despite the impressive service you had just performed at a time of crisis. The current New York City Mayor, a turncoat Republican with a poor to mediocre record, has taken it upon himself to change the law to suit his inexplicable whim to serve for a third term. You had the good ethics to step down. Despite a record much inferior to yours, Mayor Bloomberg does not.

I urge you to run as a Republican. I know that the New York City mayoralty is not a job that someone who has served eight years should be asked to serve again. But the state and the city need your vision.

Sincerely,

Mitchell Langbert, Ph.D.

Congestion Tax No, Fee Yes

I met Saul Weprin, who was David Weprin's father, in 1991 when I briefly worked on the staff of the New York State Assembly. Saul, who later became speaker, was chair of the ways and means committee.

David Weprin is a member of the New York City Council. He has an op ed in the June 25 NY Sun about Mayor Bloomberg's plan to tax vehicles that enter mid-town Manhattan. He argues that the tax will cost commuters as much as $2,000 per year and firms as much as $5,000 per year, devastating them financially and forcing them to take the subway, which Weprin does not mention is in terrible shape after 70 years of city and state management.

Weprin is right that Mayor Bloomberg ought not to raise taxes when the bulk of industry has already fled New York and the rest is likely to do so. Weprin is wrong if the tax is really a use fee aimed to capture the costs that motor vehicles impose on the public in the form of congestion and pollution. A nation-wide use fee would be preferable to a tax aimed to shield the Mayor's wealthy friends from traffic.

Mayor Bloomberg's congestion tax proposal needs to be viewed in light of the paradoxes and unintended effects that government subsidies create. In the 1930s the city took possession of the previously private subways and allowed them to deteriorate. In the 1950s and 1960s, the federal and state governments, coordinated by Robert Moses, subsidized interstate highway construction and guaranteed loans for suburban single family home construction. New York City responded to the deterioration of its tax base because of "white flight" (that resulted from the federal subsidies to interstate highways and single family homes) by raising taxes. By the 1970s, the city was in a major state of deterioration. This is evident in movies made from 1965 to 1990 or so, such as Martin Scorsese's Taxi Driver.

Subsequently, the city had a rebirth that Mayor Koch conceived and that was delivered under the Giuliani administration whereby increased emphasis on law enforcement, subsidies to real estate developers, high taxes and low-quality services maintained an equilibrium of special interest pressure groups (unions, service industries, the welfare industry). The Koch-Giuliani model permitted the very affluent to develop the city into a consumer center but also permitted those on welfare to to remain. Those with jobs that led to average or above-average incomes (ninety percent of the American population) left, with some continuing to work in the city as commuters. High-margin service firms could continue to function, but many of their employees could not afford rent, which, even in nearby places like Brooklyn and Hoboken that were once butts of jokes, is now often five times the national average.

Now, Mayor Bloomberg suggests a commuter tax that would dissuade vehicles from entering the city without addressing the stratospheric taxes and other city policies that have forced firms to leave and that encourage commuters to avoid the subways.

If commuters choose to take the subways instead of driving, they will incur significant psychic costs. If commuters choose to drive, they will have to pay the congestion tax on top of the already very high taxes. This is likely to stimulate further exodus of business from the city as commuters demand higher pay to compensate for the increased costs (psychic or financial) of commuting.

While avoiding taxes, the nation should consider road-use fees to fund all highway and local street use. There is no reason why the public should subsidize drivers and consumers of trucked merchandise. However, such a fee should be applied based on computer monitor-based charges and should not favor one economic class over others, as Mayor Bloomberg's proposal would. Heavier drivers and trucks should pay larger fees. Those who do not have cars and who consume less, i.e., the poor, should not subsidize the wealthy.

Would a President Giuliani Cut Taxes?

Norma Segal and I have been debating the merits of Rudy Giuliani. I have some concerns about Rudy. Specifically, he tended to obsess on minor conflicts. For instance, there was a battle with the taxi drivers that I recall caused him to redirect all of the police one day to a taxi demonstration. This was a conflict that Giuliani precipitated, similar to his threatened law suit over a New York Magazine ad. Giuliani's anti-crime initiative of ticketing minor offenses was intrusive. I recall getting parking tickets for parking five feet instead of six feet from a hydrant on 87th Street, or something like that.

Steve Malanga of City Journal argues that:

"Giuliani changed the primary mission of the police department to preventing crime from happening rather than merely responding to it...William Bratton, reorganized the NYPD, emphasizing a street-crimes unit that moved around the city..."

But I have had a long conversation with several NYPD officers and executives who said that Giuliani did not support the police in substance and left the police department with low morale and in weak organizational shape.

I am skeptical that reductions in crime rates during the 1990s were due to anything other than demographic shifts. In particular, the aging of the baby boomers reduced the percentage of the population most likely to engage in violent crimes. Also, Mario Cuomo had invested in expensive prisons during the 1980s, and these likely kept felons off the streets. I think it is a stretch to attribute reduced crime rates in New York City to Mayor Giuliani.

Malanga agrees with Norma about Giuliani's tax policies. He argues that Giuliani is a "conservative" because he cut city spending by 1.6 percent his first year in office. He also contends that Giuliani:

"reduced or eliminated 23 taxes, including the sales tax on some clothing purchases, the tax on commercial rents everywhere outside of Manhattan’s major business districts, and various taxes on small businesses and self-employed New Yorkers."

In a city that suffers from taxphilia to the degree that New York does a 1.6 percent cut in spending is a major improvement. In the scheme of things it is small change given that New York's spending is out of line and that much of it goes into wasteful government operations and mismanagement.

On August 4, 2001 Marcia van Wagner of the Citizen's Budget Commission wrote the following letter to the New York Times.

"...The common perception that Mr. Giuliani has reined in spending results from misleading city budget reporting practices that omit increased spending on debt service and do not adjust for the transfer of one year's surplus to the next.

"Accurately reported, New York City spending grew 6 percent a year from fiscal year 1997 to 2001, while inflation averaged 2.3 percent. In a comparable period (1985 to 1989) under Mr. Koch, spending grew 6.7 percent a year while inflation averaged 4.5 percent.

"New Yorkers should not believe that the recent growth in the number of police officers and teachers was accomplished with budget restraint."

According to the New York City Independent Budget Office , the city's spending increased from $32.1 billion to $36.0 billion, or 12 percent from June 1996 to June 2000. During the same period the Consumer Price Index increased by nine percent, from 157.8 to 173.7. Thus, Mayor Giuliani did not cut spending during his last four years in office, although he did not increase it very much. There may be budget shenanagans that cause these numbers to be understated, as Ms. van Wagner argues. In any case, these numbers do not qualify Mayor Giuliani as a tax cutter or as a supporter of limited government. It is true that holding the line in tax-and-spend New York is an achievement.

Can a small government Republican emerge from tax-and-spend New York?

Regarding spending, Mayor Giuliani probably is better than President Bush. But he is not a standard bearer for reductions in the scope of government or free markets. If he aims to be, he needs to make a stronger case that he is.

Interview Aired on WCBS All News Radio 880 in NYC

Ginny Kosola: Experts Explain the Pension Issue
NY State Law Requires New Tiers for any Changes


Dec 19, 2005 1:49 pm US/Eastern
NEW YORK (WCBS) A two-tier pension system like the one being sought by the MTA in talks with the TWU is not unusual, says human resources expert Mitchell Langbert, an associate business professor at Brooklyn college.

The pension proposal, perceived as the main sticking-point in the talks between the union and MTA is actually not legally negotiable, says Edmund McMahon, director of The Manhattan Institute think tank.

Langbert says multiple-tiered pension plans have existed in New York state for many years, "I myself as a professor at Brooklyn college, part of the City University of New York, am part of a multi-tiered pension plan." Langbert says his benefits are not as generous as those of colleagues who have worked for the city longer.

The reason there are multi-tiered systems, and the MTA is seeking the two-tiered plan, is New York State's constitutional prohibition on reducing accrued benefits for existing workers. For the government to save money, it can only offer different benefits for new hires.

"What's unusual about this is that, in fact, pension benefits are not dictated by labor contracts in New York City and New York State government. Penison benefits are actually set by state law," says McMahon.

The state constitution absolutely guarantees that there can't be any reduction in a pension benefit for an employee who is on the payroll, says McMahon. The union is actually correct in making its argument to the Public Employment Relations Board (PERB) that pensions actually are not a bargaining issue. PERB, he explains, acts as a mediating panel between the government and unions.

"Although the Taylor Law clearly outlaws negotiations, formally, around the issue of pension benefits, unions have been happy in the past to negotiate side benefits and side deals for changes in the laws to increase their pensions." But, McMahon explains, those side agreements must then be approved by the state legislature and signed by the governor.

As for where he stands on the pension issue for new MTA hires, McMahon believes the best solution would be to pay the workers more now, and give them a "defined contribution pension," such as a 401-K. "Very few of the people who ride subways and buses and pay the taxes to subsidize them can dream of retiring at age 55 with a full pension," he notes.

Ginny Kosola

Paris on the Hudson

My following Op Ed appeared on page nine of the New York Sun of November 28 and is copied here courtesy of the New York Sun.

November 28, 2005 Edition > Section: Opinion > Printer-Friendly Version
Paris on the Hudson
BY MITCHELL LANGBERT
November 28, 2005
URL: http://www.nysun.com/article/23606
When considering the recent rioting in France, it is more important to remember that the rioters were poor than that they were Muslim - it was a case of economic, and not merely religious, strife. As such the episode should give New Yorkers pause. Just as the world witnessed a collision of two Frances, one of mostly ethnically French "insiders" and another of more diverse "outsiders," New York has increasingly become a city divided along class lines, with the lower stratum dominated by African Americans, Hispanics, and a perennially emigrating white working class. Is the lack of opportunity for the poor of both Paris and New York a coincidence?
Arguably not. Rather, it is in both cities a function of dirigisme, government intervention and control in the name of social cohesion and welfare. However wonderful it might sound in theory, in practice it is all too clear that "social cohesion" and "welfare" ends up excluding the poor.
In the post-World War II era, government played a large role in France's economic development. The emphasis was on creating a technocratic elite based on merit and a high degree of government influence on the economy. In the early 1980s, the socialist prime minister, Francois Mitterand, first aimed to intensify dirigisme, but because of the problems that nationalization created he reversed course and liberalized the economy. However, the liberalization did not do away with labor regulation. A 35-hour week was enforced and restrictions on firing that make hiring expensive were retained.
Like France, New York has a history of dirigisme. In the 1920s, Al Smith pushed for reforms that later became the basis for the New Deal. In reducing the influence of the patronage system of Tammany Hall, Fiorello La Guardia encouraged a meritocratic approach to hiring. The state's intervention in the economy intensified in the 1940s and 1950s with urban renewal and public housing laws that rebuilt the city's infrastructure. Due to this interventionist history, New York's economic philosophy today is closer to that of Paris than to that of Phoenix. New York's taxes are among the highest in the United States. Its rent control laws raise the rents for newcomers including the young and recent immigrants, creating homelessness. Just as French elites fear American culture, so the New York City Council passed a health insurance regulation in October targeting Wal-Mart and other big-box stores, cultural icons that are popular almost everywhere else in the country.
Regulation imposes costs on employers that make them less likely to hire. At 10%, French unemployment is higher than New York's, and among France's Islamic and African minorities unemployment levels are higher still. Tens of thousands of young people in France have given up looking for a job, and the unemployment rate for those under 25 is 25%.In New York, the unemployment rate is about 5.7% but, as in France, among teens it is 23% and for African Americans it is 10.6%. According to the Community Service Society, in New York in 2004 the black employment rate was 60.7% while for whites it was 76.6%.
In both Paris and New York, heavy regulation makes jobs scarce for those with the least power. In both cities a veneer of politically correct diversity rhetoric cloaks economic policies that benefit the median citizen such as middle class public employees while squeezing those at the margins, specifically marginal racial minorities.
Perversely, increasing labor costs through regulation creates incentives for employers to be more selective in hiring, which can mean indulging discriminatory preferences. Since regulation makes firing costly, it reduces employers' willingness to take risks on ambitious employees who lack conventional qualifications but may be willing to work longer and harder. For ambitious workers from underprivileged backgrounds, the way around discrimination often is competition through the acquisition of skills, but regulation limits the possibility of their acquiring skills by raising the cost to employers of hiring employees from diverse backgrounds that do not fit employers' stereotypes. Those who gain admission to the most prestigious schools and can afford the tuition, and those whose parents have trained them to be most articulate and socially adept, have an enhanced advantage under dirigisme. Those whose ability is harder to discern because it has not been as carefully cultivated and those who are most eager to work hard to succeed despite disadvantages are the ones likely to suffer most from marginalization.
In Paris the 35-hour workweek serves to reinforce the privileges of capital by preventing poor, would-be parvenus from working extra hours to compensate for their poverty. In New York, the state and city saddle employers with high taxes while the schools teach neither basic skills (reading, writing, and math) nor self-discipline. Instead, the students are taught to have self-esteem. The result is that the higher-end firms that can remain in New York are decreasingly likely to hire New Yorkers.
The French regularly denounce racism in the United States. Yet, when it comes to hiring, they are strikingly discriminatory. In New York, the diversity rhetoric is coupled with the eviction of Wal-Mart and the managed decay of the educational system, policies that cripple the poor while subsidizing special labor interests.
In both Paris and New York, large, established firms find it easy to comply with complicated regulations while small entrepreneurial firms find it difficult. Middle- to upper-income consumers don't mind spending more at a department store, while lower-income consumers are in need of the price reduction Wal-Mart offers. Most importantly, those who have not been able to graduate have a greater need for work experience in modest-paying jobs with longer hours and will benefit most from the experience that marginal jobs offer. But such jobs are driven out by dirigisme in Paris and New York.
Perhaps the biggest difference between France and New York is that dirigisme is a policy that influences all of France, while New York's state intervention does not cross the Hudson. Since the days of Horace Greeley, New Yorkers have tended to emigrate westward. In recent decades, the reason has been New York's war against the poor. The working-class youngsters in the French suburbs do not have a larger nation with a free market philosophy to which they can emigrate to escape the assault of dirigisme. As a result, the young French increasingly emigrate to London, much as New Yorkers have increasingly emigrated to Texas, California, and Colorado. Policies that claim to be communitarian are precisely those that are decimating communities in Paris and New York.
Mr. Langbert is an associate professor of business and economics at Brooklyn College.

Gotham's Colleges

My following article appears in the December 6,2006 issue of the New York Sun based on an article I wrote in the Spring 2006 issue of Academic Questions.

Gotham's College$
By MITCHELL LANGBERT
December 6, 2006

The College Board recently reported that the cost of a four-year college degree is up 35% from four years ago after adjusting for inflation. At four-year private colleges, costs are currently $13,200 after financial aid adjustments, and at public colleges they are $5,836. The College Board estimates that from 1989 to 2005, college tuition inflation was almost double the rate of general inflation, 5.94% versus 2.99%.The reason for the ever-increasing costs is lax management. The solution is improved university governance.

The adjacent table shows that, in the New York region, baseline tuition ranges from $36,088 at Sarah Lawrence College to $4,157 at the City University of New York. Baseline tuition at Columbia and New York University is $35,166 and $33,420, respectively. University presidents' salaries similarly vary. They range from Shirley Kenny's $287,000 at SUNY Stony Brook to John Sexton's $789,989 at NYU. Note that, with a couple of exceptions, presidents at the higher-priced institutions tend to earn more than presidents at the lower-priced institutions.

Lax administration rather than faculty salaries explains high tuitions. An increasing percentage of professors are adjuncts, parttime faculty members paid on a per course basis. Adjuncts earn peanuts. CUNY's heavy reliance on adjunct faculty explains its modest tuition. Most adjuncts earn under $5,000 per course, even when a large lecture course generates $180,000 or more in revenue. In 2005, the Chronicle of Higher Education reported that while nationally, colleges employed 60,000 more professors in 2003 than in 2001, the increase for full-timers was only 2% whereas the increase for adjuncts was 10%, resulting in a 50-50 ratio of full-timers to adjuncts. This trend may be related to adjuncts generally not receiving health insurance as well as to their low direct pay.

Moreover, average full-time faculty pay excluding health insurance has approximately tracked inflation. In 2004, inflation was 1.9%, while full-time faculty pay increased on average 2.1%. If the average associate professor makes $90,000, including health and retirement benefits, while the average adjunct makes $25,000, the average of the two is $57,500 including benefits. The result of averaging the modest pay increases for full-time faculty with the low salaries of adjuncts suggests that faculty salaries cannot explain tuition increases. Indeed, executives in many other industries would envy universities' ability to substitute part-timers for fulltimers.

Insiders know that administrative and facilities' costs are a large percentage of total higher education costs, though it is difficult to get universities to admit to how much. Currently, the federal government caps the percentage of administrative costs of university research grants — for which colleges have to delineate all expenses — at 26% and allows an unlimited amount for facilities. Yet, colleges argue that the cap is restrictive and should be eliminated.

In the spring 2006 issue of the journal Academic Questions, I wrote an article in which I correlated university expenses, student characteristics, endowment growth, denominational affiliation of the university, geographic region, ranking, and category of institution with university presidents' pay. The strongest correlations are between presidents' pay and revenues and between presidents' pay and expenses. In addition, revenues and expenses per student have strong, slightly above .5, correlations with university presidents' pay.

Economists like to think in terms of incentives. What are the incentives that university presidents face with respect to tuition? They are that higher budgets and higher costs per student are, at least on the surface, associated with higher presidential pay. Thus, college presidents not only have no incentive to contain tuition costs, they also may have incentives to see that tuition increases, especially if tuition is linked to increases in overall revenue and expenditure.

Some economists have argued that budget size ought to be associated with university executive pay levels because decisions of executives of large universities have larger effects than decisions of executives of small universities. However, this claim is debatable because executives of larger universities have larger staffs to whom they can delegate difficult decisions, have larger budgets for consultants to provide them with advice, and find it easier to obtain funding from public and private sources. Presidents' pay should not be increased because they spend more.

One way to resolve the debate is to see whether factors that are unarguably related to institutional performance, such as the entering students' SAT scores, the school's tier, and the percentage of classes with fewer than 20 students, have a larger effect than factors that are unarguably unrelated to institutional performance, such as enrollment, religious affiliation, and the kind of college, such as liberal arts, university, and so forth. It turns out that enrollment, expenses, religious affiliation, and kind of institution explain most of the variability in college presidents' pay, while performance-related factors such as SAT scores explain almost none.

Universities have expended almost no effort to create incentives that might encourage university presidents to cut costs and constrain tuition. Moreover, it is difficult for outsiders to assess management even in the best of circumstances, yet colleges continue to use not-for-profit financial disclosure methods that are designed to leave outsiders in the dark about what university managers are doing.

Thus, those who are concerned about rising college tuition should look to reform the management of universities. In that regard, two steps would be effective. First, parents, students, and government should insist that universities issue financial statements that include information that is specifically relevant to colleges, such as facilities, operations, and instructional costs per student. Second, they should insist that university trustees begin to grapple with the design of appropriate incentives that will motivate university presidents to constrain rather than to expand costs.

A number of approaches are available. For example, university presidents could be paid bonuses when tuition is reduced. They could also be rewarded for improvements in faculty research productivity, students' participation in extracurricular activities, and improvement in performance on achievement tests. Trustees who have the skills and motivation to monitor presidents could be hired, and such trustees could develop strategic plans, linking presidents' pay increases to achievement of specific objectives. Trustees could also increase their interaction with faculty and administration to learn about cost-saving ideas. They could base merit pay for faculty and administration on cost reduction and increased student performance.

To implement such management policies, universities would need to develop objective measures of student performance, student participation, and faculty research productivity that would be made public. The sunlight of public disclosure would likely prove effective in limiting tuition hikes.

Mr. Langbert is an associate professor of business management and finance at Brooklyn College and may be visited at democracy-project.com.

New York's Coming Bankruptcy and Why the Feds Should Not Help

History repeats itself and we once again see the State on a large-scale spending binge. According to some reports, New York's Medicaid system is larger than Texas's and California's combined. Both Texas and California are larger than New York, which was the largest state within the past 40 years. Pensions to state, city and local workers are mushrooming. Property taxes are escalating. Alphonse D'Amato, a former senator, runs an influence-peddling firm in lower Manhattan that has made him one of the richest men in New York, yet none of the newspapers investigates how. The State has elected a former Attorney General, Eliot Spitzer, who claims to oppose corruption, but so far there has been scant indication as to whether Spitzer's anti-corruption credentials stop at his political colleagues' doorsteps. (The exception is the trivial Hevesi scandal.)

In response to bloat and rot, Mayor Bloomberg has issued a plan projecting a 15% growth rate and recommending that New York do the same things it did in the three decades leading up to its virtual bankruptcy in 1974: Go on a spending binge building parks, bridges and housing (supposedly for the poor just as the 1950s and 1960s urban renewal programs claimed).

Organization theory, which I teach from time to time, suggests that there are five stages of response to organizational decline (see Weitzel and Johnson, Administrative Science Quarterly, March 1989). The stages are:

1. Blinded
2. Inaction
3. Faulty Action
4. Crisis
5. Dissolution

Stages 1-4 can be redressed. By the end of stage 4 it is too late. Since working at Brooklyn College in 1998 I have noticed that New Yorkers are very much blinded. They are in denial about the quality of their subway system, the effects of their high taxes, and the decline in New York's attraction to entrepreneurs. I have also noticed that stage 2 is long past. NYU's Brennan Center rates the state worst-run in the country. Its legislature is dysfunctional, and the legislators are given a $250 million piggy bank which the members use for personally-determined purposes. Even the New York Times, which is very much part of the corruption, noticed that there is at least $1 billion in Medicaid fraud a year.

Yet, New Yorkers have not demanded change.

Mayor Bloomberg's plan represents the third step. The plan's assumption that there will be a 15% growth rate in population in the next 25 years, when the city has grown by a few percent over the past 40 years, is absurd. Moreover, the trends that led to the city's decline in the 1970s have only gotten worse.

But how is it possible that the city can be so resilient, with chain stores like the GAP, Bannana Republic and Coach opening everywhere, expensive condos being built everywhere and the hotels booked? The answer of course is Wall Street. New York has very much benefited from a 25-year-old bull market. The response has been the assumption that the decline in the 1960s and 1970s has been stopped. But such an assumption begs the question: why?

The answer suggests that New York is headed for the crisis stage. There is only one industry in New York that has prevented the corruption from destroying the state: Wall Street. But Wall Street is a cyclical industry, and its fire is almost out. There will be corrections, and perhaps a crash, and when it comes there will be sharp drops in spending. Tax receipts will fall.

New York is now at the faulty action stage, represented by the Bloomberg mayoralty. When the stock market declines, New York will reach the crisis stage. Its constitution does not allow it to reduce pension accrual formulae for state workers. Thus, city workers on $90,000 pensions will continue to collect as the state goes bankrupt. But the pension funds will be underfunded. The city and state workers are not covered by the Pension Benefit Guaranty Corporation. The State will be in crisis and will need to amend its constitution, in part because of pension underfunding.

In 1974 a similar crisis led to the City's request for federal backing. In a similar scenario in the coming years, the federal government should say no. New York has subsidized corrupt real estate developers, former politicians, and state workers. It has harmed millions of former New Yorkers who have been forced to flee the city because their livelihoods have been destroyed by urban renewal, taxes and regulation. The state's public has been indifferent. The city's newspapers have been indifferent.

When the state reaches the crisis stage, it should be required to dissolve. It should be required to reorganize, to clean up the cesspool and to start anew. Other Americans should not be required to bear any costs of New York's arrogance, indifference and waste.