Good morning.
For those of you who celebrate it, Merry Christmas!
I messed up. The economist who developed the notion of the
"cost disease" was William Baumol, not Baulmol. Argh.
* * *
As long as
I'm dwelling on economists, I may as well mention William Bowen, another of the
20th century's great economists.
Bowen
posed another theory, different from but complementary to Baumol's cost disease: the revenue theory of costs. Simply put (the italicized language is a
quote from a blog by Josh Russell on the Ewing Marion Kauffman Foundation
website):
1.
The main goal of higher
education instructions is excellence, prestige, and influence.
2. There
is virtually no limit to the amount of money that can be spent to increase
these.
3. Each institution raises as much money as
it can.
4. The institution spends all the money it
raises.
The cumulative
effect of these four rules is increasing expenditure. Bowen’s rule fits perfectly with the
alternative theories of decreased state funding and increased competition. As
states decrease their funding, schools strive to continue raising money to
support their goals, thereby increasing tuition to make up for (or surpass) the
difference. As more schools enter the
education landscape, each institution must strive even harder to obtain
prestige and influence. To do so, they
must raise money, and one of the simplest ways to do this is increase tuition –
which, in turn, raises perceived prestige.
The revenue theory of costs applies to virtually all
non-profits, not just higher education.
One
research study, "Baumol and Bowen Cost Effects in Research
Universities," found that
the
effect from Baumol’s cost disease caused a 23 to 32 percent change in total
cost, while the effect from Bowen’s rule caused a 29 to 64 percent change in
total cost (depending on school type and monetary constraints). Overall, they estimate that the combined
effects account for 74 percent of public university change in total cost and 63
percent of private university change in total cost from 1987 to 2011.
So they are not just "theories" in the way the
public usually misunderstands the term.
My take on
those four points is that they miss a central issue, especially about the state
universities: they have multiple
missions. My friend Bruce Nelson at the
University of Edinburgh captured it in an email exchange we had about Baumol:
The
mission point was well made to a meeting of our governing body a few years ago
when an external member was standing down at the end of his six years of
membership. He said that when he joined
the Court [the governing body of the University of Edinburgh—their
trustees/regents] he thought that this would be a very simple rule compared to
his day job which was Deputy CEO of one of the UK's largest insurance
companies/investment houses. At his
final meeting he said that he had eventually been humbled by his realisation
that running a University was a much more complicated job than running an
insurance company, because of the multiple missions and stakeholders. Essentially there was almost no issue of
interest to society that the University was not expected in some way to make a
contribution towards, while responding to multiple competing views from a
myriad of stakeholders and with politicians sticking their oars in.
I think
Bruce is correct. The revenue theory of
costs is, realistically, more than just an institutional quest for
"excellence, prestige, and influence." What Bruce wrote describes the University of
Minnesota—and of Wisconsin, Michigan, Iowa, Arizona, Texas, Virginia, Florida.
. . . These institutions, and some of
their counterparts in the private/non-profit sector (Harvard, Yale, USC, Rice,
etc.), are expected by society to do far more than they can with the resources
they have. Minnesota and other
land-grant institutions are chartered to aid agriculture and industry—but also
to provide liberal arts education and, accumulated over the years, medical,
legal, dental, teacher, veterinary, etc., education. Plus do cutting-edge research leading to new
inventions and treatments for disease and novel artistic endeavors and on and
on—and, in addition, work cooperatively with industry, education, arts
organizations, health-care organizations, and so on, to help them
improve/advance. There's never enough
money to do all of that, so the schools raise as much as they can and spend it
all.
What the public should hope—expect—is that the public
institution in particular will spend the money wisely, in ways that best
benefit both students and society. From
being involved for decades in one institution's discussions about how to spend
money wisely, I can attest that few of the decisions are easy because it is
almost always a matter of deciding between dozens of options (almost all of
which are meritorious).
* * *
Revisiting Kondo and decluttering: A friend alerted me to an article in our
local newspaper about an instructor at the University of California who wrote a
book that "aims to debunk the bestselling Marie Kondo method of extreme
decluttering." Suggesting a need
for "healthy clutter," the author, Christina Waters, makes an argument
that strikes a chord with me. Opposed to
tossing out everything, Waters views Kondo's approach as "a war on our
personal history. 'Our stuff is a
personal link to our past; it makes us who we are.'" I can agree wholeheartedly with the first
clause in the inside quote, the second?
Not so much. I don't think my
possessions make me who I am, but they are certainly a link to my past in many
cases. It does indeed reflect
"where we have been" if we have mementoes of trips, for example, or a
gift from a parent or child—and who among us does not?
Just as I was thinking about this a friend of mine
"liked" a Facebook post from a friend of his. The post talked about the trials of moving
elderly parents out of home they had lived in since 1976. The person posting wrote, "The problem is that
every single thing they have holds memories.
In Mom's eyes, she is being asked to discard major portions of her
life." I can imagine.
Waters
uses criteria for judging whether to retain or discard different from
Kondo. She suggests that if something
makes you smile, or has "the perfume of nostalgia," you should keep
it. She is also irritated with the idea
of stripping down to bare essentials just because a current social movement
says you should—why get rid of special things just to meet a standard of
Spartan interior that few among us can achieve anyway? She also argues that "keeping a wealth
of items in your life—objects, treasures, old souvenirs, memorabilia, tiny love
notes, childhood toys, seashells, polished rocks—is proof of your unique
identity and never-to-be-repeated journey."
At one point Waters suggests that throwing away everything
involves a loss of coziness. One can
perhaps imagine, if she were aware of it, that she'd make the link with a
hyggelig home.
She
provides a room-by-room description of the kinds of things to keep. She'd keep a lot more in the kitchen than I
would; I regard pots and pans and utensils as totally fungible. I would think the only items to keep are
those that are hardy and work well; anything else gets pitched when it wears
out or doesn't work any longer (e.g., I have some steel pots from my
grandmother that will last for centuries).
I love her dining room: speaking
of centerpieces, she asks why not "pomegranates and baskets filled with
seashells or driftwood? If you've
collected it, you can probably make a killer centerpiece out of it." Aha! A
use for our seashells! Her sentiments
about a bathroom echo mine: "a
great place to intersperse whimsical objects." For those of you who've been to our house,
you know it's flamingos. Most haven't
used the family bathroom upstairs, which has, inter alia, plastic renditions of
Australian road signs.
A more
heartrending problem arises for me at the end of the year. Even though we donated much, I'm still
sitting in a room surrounded by Krystin's belongings: photos, trip mementoes, diaries, framed
pictures, collected letters and papers.
I just can't throw any of it away, at least not yet. Talk about a link to the past.
* * *
So I'm not tossing
out as much as Ms. Kondo might urge. Kathy's
approach might be more aligned with her than with Professor Waters. As always, I go with the faculty advice ;-)
* * *
Just as I
was writing these paragraphs on decluttering, I came across an article in Next
Avenue titled "What to Do With Photos of a Late Loved One?" This is certainly an issue for me. I have a large covered plastic tub filled
with Krystin's photo albums and boxes of photos, hundreds of photos. The author of the article, Jill Smolowe,
maintains that unlike most of the "what do I do with. . ." questions,
the one about photos recurs (unless you make the harsh decision to toss them
all out).
Smolowe
was dealing with photos of her late husband and family photos over the
years. She decided to treat them like
art: she curated and framed them and
covered one wall on the second floor of her house. She described it as the solution with which
she was most comfortable, although initially seeing the photos—from all 28
years of the relationship—made her eyes tear up. Later, the tears were replaced with fond
memories. She also asked their daughter
about the display; the daughter said she liked them, which ended any thought
about taking them down.
Smolowe
counsels that there's no right or wrong decision. Some leave photos in a drawer and only
revisited later. Some go into scrapbooks
or envelopes, and some go into the trash.
"A photo captures a moment in time, often a happy one. Tucking it away may feel like consigning that
moment to the dustbin of personal history.
Leaving it out may prove a persistent, unwelcome reminder of a happiness
that has evaporated." That's
exactly how I feel. Smolowe also
observes that one's feeling about photos can change over time, and that, too,
is to be expected. In her case, she
later dated and then married another guy who was a widower; what they did is
divide up the wall, with his family photos on half and hers on the other half.
I haven't
decided anything. I'm going with her
advice: do what feels right. At this point, doing nothing feels right. I'll see how I feel as the months and years
go by.
* * *
In the process of haphazard decluttering, with no
philosophical or logical basis for decision-making, one set of (a dozen or more
Xerox) boxes in the basement I could not toss out: the Legos.
When he was younger, Elliott and I would spend days building castles
together, and in order to be able to build bigger and bigger castles, I ordered
more and more bricks, primarily from a website called "brickbay" (get
it? like eBay?) except that there was no
bidding, it was simply a virtual shopping center for Lego pieces. I was looking primarily for gray bricks, in
all sizes, and could often find the same piece for wildly varying prices,
depending on who was selling. In the
end, I think I was on verge of cornering the market on dark gray bricks. In any event, we would have long periods of
time together building and talking—and sometimes grousing because what we'd
just built we'd have to tear apart and rebuild because we changed our minds on
some aspect of castle architecture.
Here,
reflections on Lego as a toy, based on an article in New York Magazine last year by Genevieve Smith.
Legos are
amazingly durable plastic and unchanging in fundamental design (you can buy one
today and it will fit with those first made in 1949—so the more you own, the
more and larger you can build). There
are, as of 2016, about 6500 different Lego pieces; "the standard brick has
a variation of just 0.004 millimeters, which means Legos are more precisely
crafted than your coffeemaker, your television, even your iPhone." Smith maintains that they allow kids to build
whatever their imaginations conjure up; for parents, they encourage creativity,
they embody Scandinavian craftsmanship, they are wholesome, and they're tactile
rather than on a screen.
Lego was
nearly broke in the early 2000s after sales had shrunk during the 1990s and it
had embarked on offering a variety of "action figures and baby toys and
things that were scarcely recognizable as Legos." So the company returned to its bricks. It quit making non-bricks and, probably as
important, laid off 1200 people and moved its U.S. plant to Mexico. It also partnered with movies and videos to
create Lego versions of sets and characters (e.g., "SpongeBob SquarePants,
Indiana Jones, Mickey Mouse, Batman, The Simpsons, Toy Story, Pirates of the
Caribbean, the Disney princesses, and Lord of the Rings"). There was also the Lego movie. Ever since then it's had significant revenue
growth every year and is the second-largest toy company in the world. "The conviction that building toys in
general, and building with Lego in particular, is actually good for you is
central to Lego’s incredible success."
Smith
reports that Legos are not just for kids, a proposition for which I stand as
testimony to its accuracy. I concede I
have an appetence for them, as much as Elliott.
I've threatened to dispose of the boxes of Legos and Elliott resists, but
I think he knows I never would.
"Lego has a rabid following of grown-up enthusiasts, who refer to
themselves as AFOLs, 'adult fans of Lego,' and who fill message boards and fan
sites with obsessive documentation of all the company’s doings."
The company keeps all its developments secret, as a result,
in large part to protect itself because the patent protection on the bricks
expired in 1975. It has to rely on
quality (and the precision of the measurements), design, and licensed products.
The end of the patent protection may explain why Elliott
and I both saw YouTube videos last spring promoting a flexible, adhesive Lego
tape, so you can run Legos up the wall and in all sorts of places and
directions. I wondered at the time how
the manufacturer—not Lego—could get away with making a "tape" with
Lego dots on it. Elliott texted me: "Where was this stuff when we were
building castles?"
There's a debate about whether Legos foster
creativity. I'm not going to review the
arguments on each side because it's too messy a proposition, in my
opinion. All I can say is that Elliott
and I had wonderful times together building up and tearing down castles; it is
a time we both remember with great fondness.
In fact, when I mentioned this article about Legos to him, he wanted to
clear off the dining room table and bring up all the Legos so he could build a
castle.
* * *
Legos came up in another article I happened to read, about
a German daycare center that puts away all toys, including the Legos, and makes
the kids play without toys. The teachers
do not tell them what to do. The toys remain
gone for three months. The idea is
"to improve the children’s life skills to strengthen them against
addictive behaviors in the future."
Without toys, the children play with each other and develop their own
games. The director of the outfit that
promotes toy-free times contends that the children develop competencies that
"include understanding and liking oneself, having empathy for others,
thinking creatively and critically, and being able to solve problems and
overcome mistakes."
The practice has spread some in Europe. It has not been adopted to any extent
whatever in the U.S.
There are critics, who say removing toys is not effective
in achieving the goals and who claim it borders on child abuse. Parents have worried that their children will
be so bored they won't want to go to school.
Small bits of research, however, have "indicated that children who
had participated in toy-free time showed increased social interaction,
creativity, empathy, and communication skills." The advocates have made concessions in the
face of concerns, shortening the time and adjusting it during the school year
so the kids can play outside when the no-toys rule is in effect.
Without having read what little research there is, it
doesn't strike me that this is a bad idea in principle. We pretty much pushed our kids into the back
yard to play in the sandbox and on the swing set. There weren't many toys there. They did play imaginative games with their
friends. Now everybody's glued to a
screen of some kind. (And, as Elliott
has pointed out on several occasions, they also got exposed to all kinds of
germs—and, the evidence suggests, improved their immune systems.)
But keeping the Legos away would be out of the question.
* * *
There was
a piece on bloomberg.com reporting that some financial advisers are urging
clients to spend more of their retirement savings ("decumulate"). It seems that the Baby Boomers are hanging on
to the principal. Looking at three
different "wealth groups," those with little money at retirement,
those with about $300,000, and those with roughly $1 million, even after 18
years into retirement they have anywhere from 77-83% of the principal. You're supposed to save when you're young and
spend when you're older.
The
article goes on to point out that
these
baby boomers have a lot of cash to throw around. But Generation X and millennials won’t be so
lucky by the time they hit 65. Boomers
have defined benefit pension plans and they’ve profited from long-term real
estate appreciation. They’ve also
enjoyed a long period of above-average market returns. The increasing likelihood of Social Security
and Medicare cuts however may force future generations to use more of their
savings just to get by.
It seems that it's hard to get people to change their minds
about what to do—after setting aside money for decades, people can't just turn
around and start spending.
I tremble to think I'm going to disagree with a battalion
of financial advisers, but if I may exeleutherostomize,
I have to say that I think this is dumb advice.
Maybe if you have oodles of money, spending more would make sense. But $1 million, drawing only enough that the
principal remains intact, generates $40,000 – 50,000 income in today's market. (I'm setting aside the enormous increase in
the paper value of securities in the last couple of years. We know that won't go on forever.) If you don't know how long you're going to live,
or what your needs will be, spending down the principal (and hoping like hell
nothing goes wrong when you hit your 80s or beyond, assuming you live that
long) seems to me to be unwise.
Moreover, and what seems to me to be sort of a
"duh" moment, if the gloomy prospects for Millennials are correct,
presumably some Boomers want to protect the retirement funds so that their
Millennial children will actually have money to retire on. It's foolish to try to predict what the
circumstances will be when Elliott retires in about 40 years (even assuming
"normal" retirement age is still the mid-60s), but inheriting money
from his concerned parents will make all three of us feel better.
Of course,
the foregoing "problem" is only for people who have money invested
for retirement. I read an article on the
Minnesota Public Radio website about a year ago and it has bothered me ever
since.
The
top 10 percent of U.S. households made more than $162,180 last year, up 6
percent from a decade earlier after adjusting for inflation. For middle-income Americans, incomes have
barely stayed ahead of inflation.
Lower-income households are making less than a decade ago.
This information came in an article about how few Americans
were prepared for retirement. The
top-10% figure didn't surprise me; anyone who's read any news in the last
decade knows that there has been growing income (and asset) inequality in the
U.S. What I found newly bothersome was
the implication of this skewed distribution embodied in the article
headline: "Easy retirement? Only
for a privileged few." What the
article pointed out is that it is largely the top 10% who have access to
retirement plans that provide a comfortable income. (80% of the top earners have a 401(k) or
similar plan; only 35% of the others do.)
As someone
who has retired, and whose income is reasonable, I feel sad and bad for the
apparently large majority of Americans who aren't in that same position. I'm enjoying myself and wish that others
could do so as well. I could go back to
work and probably find something I'd enjoy, although I'm not looking to do so.
What makes these data even more distressing is that the
wage earners in the lower-income brackets have the crummiest jobs—jobs they
probably don't enjoy but at which they have to keep working into their 70s in
order to avoid destitution. Their one salvation,
modest though it is, is Social Security.
The role of Social Security for the least well off is reason enough for
me to oppose efforts to reduce the benefits.
As the article makes clear, it isn't as if those lower-income recipients
had ample opportunity to save money for retirement during their working
careers; most of them were living hand-to-mouth, paycheck-to-paycheck, barely
able to cover living expenses, and without an employer-sponsored retirement
plan. (And they certainly weren't
sending their kids to college.) I think
that after long years of often unpleasant work, people who've done it should
get a respite at the end of their lives.
With warm regards—
Gary
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