Corner of Berkshire & Fairfax Message Board

General Category => Politics => Topic started by: stahleyp on September 02, 2018, 06:23:24 AM

Title: A couple easy fixes to CEO Pay and college costs
Post by: stahleyp on September 02, 2018, 06:23:24 AM
Perhaps there are plenty of holes with the couple approaches here but why couldn't the government do something along the lines of this?


1) To help control college costs, the government could link college costs to inflation. In order to qualify for any government assistance/loans colleges could not increase total price of education above the level of inflation. If they violate this, they lose funding for a certain amount of time.

2) Tie executive compensation to median workers' compensation. The IRS could basically say that if executive pay is more than 100x or 150x (or whatever) then none of the expenses associated with salaries for any employee is tax deducible. Sure, you run the risk of companies laying people off but I think the more likely scenario is to stop over paying executives.


I think almost everyone, regardless of political party, thinks college costs are crazy and so is executive pay.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: clutch on September 02, 2018, 06:41:41 AM
If you were to link college costs to anything, I feel like it should be the average wage of new graduates. Costs should also differ between departments, e.g., liberal arts vs engineering, based on the respective average wages.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: ERICOPOLY on September 02, 2018, 07:19:19 AM
The average person is more likely to need to hire an attorney than to need to hire a CEO. 

But an attorney makes at least 10x what the average person makes.

I see that as a bigger social problem.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: Cigarbutt on September 02, 2018, 07:28:42 AM
Paul,

The two issues you describe are significant and I plan to contribute if value can be added but, while doing research/thinking, before asking how the government could "solve" the issues, perhaps reasonable to use inversion and try to define the underlying causes or driving forces behind the two phenomena?
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: cubsfan on September 02, 2018, 08:09:27 AM
There are standardized tests to enter college - SAT & ACT - there should be standardized tests to EXIT college.
This would eliminate much of the nonsense going on in college - as those programs that do not teach anything of value would be exposed.
It would force academics to provide real education on important skills - that could be measured upon graduation.

A lot of foolishness would be eliminated - and eventually folks would wise up and not pay for much of this garbage.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: cubsfan on September 02, 2018, 09:04:51 AM
Paul,

The two issues you describe are significant and I plan to contribute if value can be added but, while doing research/thinking, before asking how the government could "solve" the issues, perhaps reasonable to use inversion and try to define the underlying causes or driving forces behind the two phenomena?

I think much of the "cause" is government backed and guaranteed loans. This has allowed the universities a pork barrel they can not resist.
Therefore, they bump up their course offerings of useless skill courses (minorities "studies", LGBT "studies", etc, etc) - all these social awareness
and useless skills that attract students, all the time knowing they will get paid - but also insuring that the students graduate knowing nothing.
The administrations have increased staffing with so many positions as well - no wonder the tuitions have sky rocketed - but the schools will get paid.

They can't resist the money - but the quality of real education and work preparation has gone down.

We are badly in need of a shakeout and back to the basics of education.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: DTEJD1997 on September 02, 2018, 11:44:38 AM
The average person is more likely to need to hire an attorney than to need to hire a CEO. 

But an attorney makes at least 10x what the average person makes.

I see that as a bigger social problem.

An attorney makes at least 10x what the average person makes? 

What planet are you on, how do I get there?

Most attorneys are broke.  Most attorneys have mortgage sized+ student loans to pay back.  The job market is terrible (a lot of young attorneys never get a job). 

In the Michigan market...you can hire teeming HORDES of attorneys for about $40k a year.  A few years ago, it was even worse than that.

About the top 10% or so of attorneys make OK money....but the vast majority do not.  It is a very bi-nomial distribution....The top makes good money...very little in the middle AND HORDES of attorneys making very little $.

Why are there some many lawsuits against the law skools?  Why is there so much substance abuse & mental illness in the profession?  Why are there so many websites on the interwebs RAILING against law skools and the profession?

Why are there so many articles about what a mess law skools are in?  Please see:

https://www.theatlantic.com/magazine/archive/2014/09/the-law-school-scam/375069/


The idea that becoming an attorney is a pathway to a middle class standard of living is a wide spread myth.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: stahleyp on September 02, 2018, 12:21:59 PM
clutch and cubs,

I agree. Before the government got involved, college costs were significantly lower than today. One would think that with larger enrollments, colleges costs would decrease over time. After all, it doesn't cost much more to have 30 students or 40 students in a class. There needs to be some level of accountability. I admire the government wanting to make college more affordable but there needs to be restraints.

Eric, I think your recent encounters with attorneys is affecting your feelings towards them. I don't blame you for that though!

Cigar,

I think I know the underlying causes. And they both stem from government involvement. I think it was in the 90s when the executive pay was required to be disclosed. After that, everyone had a benchmark. As it is with active investors, everyone tries to beat the benchmark (even though most fail!) but still want to be rewarded. I figure it's hard to get the genie back in the bottle so one needs to look at ways to try to make things proper. If a CEO is going to be paid a massive amount of money then they need to be taking some downside too (firing is not downside if you walk away with $100 million for failing).  And the college issue I talked about above.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: LC on September 02, 2018, 12:31:11 PM
Paul,

The two issues you describe are significant and I plan to contribute if value can be added but, while doing research/thinking, before asking how the government could "solve" the issues, perhaps reasonable to use inversion and try to define the underlying causes or driving forces behind the two phenomena?

Agreed - the underlying causes need to be addressed.

With tuition it is twofold IMHO: (1) inability to discharge or modify the  loan in bankruptcy, and (2) no skin in the game from the college.

With CEO salary also twofold: (1) lack of true metrics to determine CEO impact. This is likely unsolveable but I believe can be improved. And (2) lack of shareholder power to enforce controls on management. Shareholder base is too out-of-touch and slow to respond because they are usually poorly informed and no close enough to the business.  This results in poor pay incentive structure (cash bonuses, clawbacks) and poor oversight over management behavior.

To address these, I believe tuition loans should be modified in bankruptcy after a period of time (7 years?). Colleges should be forced to retain a % of the loan amount.

CEO pay I agree with the original poster - tying it to median employee pay will probably get us 80% there. Better incentive structure will get another 10-15%.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: ERICOPOLY on September 02, 2018, 01:53:55 PM

Eric, I think your recent encounters with attorneys is affecting your feelings towards them. I don't blame you for that though!


My Sacramento divorce attorney charges a crippling $450 per hour.  It is the going rate.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: boilermaker75 on September 02, 2018, 02:38:10 PM
When I started at Purdue as an undergraduate in 1971, the in-state tuition was $350 per semester, that would be $2,168 in today’s dollars. Currently the in-state tuition is around $6,000 per semester for engineering. (Tuition is around $5,000 per semester and some programs have additional fees.) This is almost three times greater than inflation and this is with no tuition increases the last 7 years.

https://www.purdue.edu/newsroom/releases/2018/Q2/purdue-president-daniels-announces-unprecedented-7th-straight-year-of-tuition-freeze.html

(An aside, Indiana had, still does, a program of reduced tuition for children of disabled veterans. My dad was a disabled WW II vet. So, my tuition was $90 per semester; my BSEE cost be $720 in tuition.)

A culprit in the faster than inflation rise has been university rankings. US News began ranking universities in 1983. For universities that are members of the American Association of Universities, the top 62 research universities in the US, rankings have little to do with teaching. They are mainly based on research. Research funding per faculty member, number of Ph.D.s graduated per year per faculty member, number of faculty that are members of the NAE, etc.

To raise your ranking, or even just to maintain, you have to pour more dollars into research related functions, not teaching, each year. So there has been an arms race created by these rankings.

And where do the dollars come from that pay the salaries of faculty to do research? Undergraduate tuition.  (Today it is not uncommon for star faculty to be making well over $300,000 per year with many not ever teaching undergraduates.) Much of the increased cost of undergrads going to college is the cost of the ever-greater research programs, and star faculty salaries, needed to maintain, or increase, rankings.

I suspect as part of this arms race is faculty teach fewer classes per year. This means a larger faculty and each faculty member has more time to devote to research.


Edit: Also universities want to move in, and stay in, the Association of American Universities, which is based on amount of research. Univ. of Nebraska and Syracuse University were removed in 2011. I know Indiana University is worried so they are trying to start an engineering program in hopes of more research funding.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: DTEJD1997 on September 02, 2018, 02:59:45 PM

Eric, I think your recent encounters with attorneys is affecting your feelings towards them. I don't blame you for that though!


My Sacramento divorce attorney charges a crippling $450 per hour.  It is the going rate.

Eric:

That very well may be.  I am also sorry to hear that you even the need the services of a divorce attorney...

HOWEVER, I am going to guess that you are going to a top 10% divorce attorney...perhaps even a top 1% divorce attorney.  Sure, those guys MIGHT make plenty of money, but they are far removed from the average.

Also, just because somebody charges $450 does not necessarily mean that they bill 2,000 hours in a year.

I have an attorney friend who does primarily business law.  He is tied in to a wealthy ethnic minority in the metro area.  He does not charge $450/hour, but he bills at a good rate for the area....He has a few problems though.

A). He has to maintain an office.  Nothing outrageous, almost modest...but it is in a better part of town.  In the office he needs a phone & internet.  He also needs Westlaw/Lexis access.  He also needs state court rulings (books & updates).

B). He needs to maintain professional liability insurance

C). He needs to ADVERTISE in the ethnic newspapers.

His business is also variable.  Some months are good, some months are TERRIBLE.  When he pays for his necessary expenses...he is NOT making that good of a living.  In fact, he is making a TERRIBLE return on his time & investment.  He would have been WAY better off getting a "regular" job.

A lot of attorneys who can sometimes bill decent rates, get killed on the overhead & downtime.

Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: Munger_Disciple on September 02, 2018, 03:14:32 PM
Quote
It is a very bi-nomial distribution....The top makes good money...very little in the middle AND HORDES of attorneys making very little $.

My experience with business lawyers is similar to Ericopoly's. Most of the decent attorneys charge way too much per hour and seem to be getting away with it. If most lawyers are poor, why is this happening? 
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: LC on September 02, 2018, 04:00:10 PM
Lots of people go into law, make barely any cash, and eventually leave the profession.

BLS stats:

Quick Facts: Lawyers
2017 Median Pay   $119,250 per year
$57.33 per hour
Typical Entry-Level Education   Doctoral or professional degree
Work Experience in a Related Occupation   None
On-the-job Training   None
Number of Jobs, 2016   792,500
Job Outlook, 2016-26   8% (As fast as average)
Employment Change, 2016-26   65,000
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: doc75 on September 02, 2018, 05:00:11 PM
About the top 10% or so of attorneys make OK money....but the vast majority do not.  It is a very bi-nomial distribution....The top makes good money...very little in the middle AND HORDES of attorneys making very little $.

Just an FYI, and not intended to distract from your point:  You mean bimodal.  A binomial distribution is what you get when you flip a (possibly biased) coin and count the number of heads.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: Cigarbutt on September 02, 2018, 05:51:57 PM
Perhaps there are plenty of holes with the couple approaches here but why couldn't the government do something along the lines of this?

1) To help control college costs, the government could link college costs to inflation. In order to qualify for any government assistance/loans colleges could not increase total price of education above the level of inflation. If they violate this, they lose funding for a certain amount of time.

-----)

In the US (the comments do not reflect the conditions in my area as American fellow members could not believe the tuition fees paid for my children going through higher education), tuition fees are reported to have grown at much higher rates than inflation, often typically as follows:
https://www.businessinsider.com/this-chart-shows-college-tuition-growth-since-1980-2016-8

However, digging deeper, reported tuition fees, as reported, are gross numbers. When you look at net tuition fees (net of grants and tax benefits, without taking into account student debt), the long-term trends, in the main, show much lower cost inflation and, in under many scenarios, flat trends. Higher education enrollment has increased but public funding per enrollee has decreased. However, the net result is that the headline numbers significantly inflate the "real" median underlying net trend. The underlying reasons behind the huge increase in student debt are controversial but I humbly submit that this may be an issue that maybe should be discussed around the kitchen table or perhaps complemented by a short course on basic financial literacy in high school.

Despite the mitigating factor described above, higher education is expensive in the US and, for many, increasingly more so. I understand that "explanations" for this situation can be grouped under two headings: "revenue" issues and "cost" issues.
The revenue side (Bowen) is related to the concept that higher education costs will be driven by the revenue the institution can raise per student unit as part of a political process. IMO, the big contributors here are mission drift, curriculum bloat, the notion that higher "productivity" and cost control will automatically result in lower quality in education (similar concept appears in healthcare) and especially the fact that the pressure felt by institutions concerning decreased direct public funding has been more than compensated by increased implicit and explicit federal government support through debt to students, with a net result of more and more applicants.
The cost side (Baumol) which I referred to some months ago when discussing a healthcare topic has to do with the fact that the relatively high costs allocated to tuition and education have to do with the high standards of living that the US has achieved. Like other related sectors where educated labor and services are involved and where international out-sourcing is difficult or impossible, think healthcare and others (contrary to manufacturing for instance), "productivity" measures have not had meaningful impacts on costs.

IMO, like in healthcare, culture change (like a company restructuring) is necessary based on better measurement of outcomes, a focus on the cost/quality mission and efficient integration of technology (ie online learning) if the goal is to match rising higher education costs with the long term trajectory of the underlying economy. Another issue with political ramifications since "public" involvement will continue to be part of the picture.

(-----

2) Tie executive compensation to median workers' compensation. The IRS could basically say that if executive pay is more than 100x or 150x (or whatever) then none of the expenses associated with salaries for any employee is tax deducible. Sure, you run the risk of companies laying people off but I think the more likely scenario is to stop over paying executives.

I think almost everyone, regardless of political party, thinks college costs are crazy and so is executive pay.

-----)

Another tough issue. I would agree that, despite noble intentions and personal interest when reading proxys, mandatory disclosure of top executive pay has been a major cause of relative envy and outbidding. CEOs can be fired and tenure duration has come down but I think that at least part of the solution is to correlate downside to the huge upside that top executives have been able to reap. For example, clawback of previous compensation in relation to poor results or even personal financial responsibility (to a certain degree) in the event of a bankruptcy-related event. Also, the structure of compensation can be tailored to long term value creation.

(-----

Separate comment related to legal costs in the US: The number of lawyers per capita is off the chart in terms of international comparison and that tends to create a lot of competition across the spectrum. Given the tendency to reward according to talent (meritocracy vs inequality), some lawyers tend to do very well.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: Schwab711 on September 02, 2018, 06:06:51 PM
Good post boilermaker.

For CEO/exec pay, the issue is it's actually cheaper to pay employees with stock options/RSUs than cash. The reason is there's a excise tax on salaries greater than $1 million for your five highest-paid employees. Thus bonuses went from 10%-25% to > 100%. The bonus is more tax effective if given as contingent equity so it's often paid in that form. Much of executive pay outpacing average workers is just tax incentives.

Get rid of stock options as compensation (there's no reason only specific owners should pay executive wages) and count total compensation towards the excise tax and the spread will decrease.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: doc75 on September 02, 2018, 06:20:33 PM
And where do the dollars come from that pay the salaries of faculty to do research? Undergraduate tuition.  (Today it is not uncommon for star faculty to be making well over $300,000 per year with many not ever teaching undergraduates.) Much of the increased cost of undergrads going to college is the cost of the ever-greater research programs, and star faculty salaries, needed to maintain, or increase, rankings.

I suspect as part of this arms race is faculty teach fewer classes per year. This means a larger faculty and each faculty member has more time to devote to research.

If someone is a big enough star to be earning $300k+, then I sure as hell hope they're not teaching many undergraduate courses.  That would be pretty nuts.  FWIW here's some US faculty compensation info from 2011:

https://www.chronicle.com/article/Distribution-of-Average/127041

Canadian schools must publish lists of all employees making $100k or more.    $300k in Canada remains very highly unusual for faculty ranks, and faculty making this much are generally in finance / business.  Excluding a couple people in medicine and pseudo-administrative positions like Deans, the top science/engineering professor at University of Toronto makes $291k.   

https://www.sunshineliststats.com/?page=1&orderby=salary&provinceid=9&year=2018&n=University%20of%20Toronto

Faculty teach fewer courses than they did in the past, but there are now far more students in an average class and far greater demands put on the faculty with respect to their teaching. Universities have responded by shifting a lot of undergraduate teaching to their growing ranks of grad students, post-docs, full-time lecturers, and part-time instructors.  None of these people cost as much as faculty, so I'm not so sure to what degree the rise in tuition has been precipitated by fewer courses being taught by faculty. 

Aside from advancement in rank, the per-annum increase in faculty salary at my school has been around 1.75% since 2006.  Over that time there has been a huge change in the amount of focus on research, no decrease in teaching, and tuition has gone up by well over 3% per year.   Much of the tuition fee increase in Canada is a result of a long decline in per-capita government grants, which has transferred a bigger slice of university operating costs onto students.  There also seems to have been an explosion in administrative costs but I don't have good data on that.

There have been a number of studies into academic costs, so there's likely no need to guess about the various reasons behind cost escalations.  I haven't spent much time digging into it.


Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: DTEJD1997 on September 02, 2018, 07:31:24 PM
About the top 10% or so of attorneys make OK money....but the vast majority do not.  It is a very bi-nomial distribution....The top makes good money...very little in the middle AND HORDES of attorneys making very little $.

Just an FYI, and not intended to distract from your point:  You mean bimodal.  A binomial distribution is what you get when you flip a (possibly biased) coin and count the number of heads.

Yes, thank you for pointing that out.  You are correct.

Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: Deepdive on September 02, 2018, 09:02:12 PM
I heard a story that a bathroom replacement that consist of urinals, toilets, showers, sinks, tile work, for a frat house of 30-40 kids requires a budget of $400-500k.  It took the alumni association years of fund raising.  They mentioned that a similar job would not have cost more than $50k if done by the alumni.  Union labor is required and needs to be approved by the college.  There are also 3-5 administrative sign offs.  The funds needs to be ready by Jan in order to do the work during the summer when the students are away.  I think this story is very telling of the "fat" that is in the college system.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: meiroy on September 02, 2018, 09:24:31 PM

Eric, I think your recent encounters with attorneys is affecting your feelings towards them. I don't blame you for that though!


My Sacramento divorce attorney charges a crippling $450 per hour.  It is the going rate.

Eric:

That very well may be.  I am also sorry to hear that you even the need the services of a divorce attorney...

HOWEVER, I am going to guess that you are going to a top 10% divorce attorney...perhaps even a top 1% divorce attorney.  Sure, those guys MIGHT make plenty of money, but they are far removed from the average.


So to get favorable justice, or any justice at all, one has to have the resources. This is indeed a significant social problem.

I just read the other day about someone innocent who spent 15 years in jail, mainly due to his lousy public defense lawyer. if he could have afforded a top lawyer he would not have spent one day inside.

Many of these top lawyers got to where they are thanks to nepotism, family networks, connection to judges etc. If you are the son of a well-known judge, you're going to be making 40k a year? Unlikely. Another social problem.








Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: DTEJD1997 on September 02, 2018, 10:36:34 PM
Hey all:

Here is a very interesting fact about law skools.  Tuition for the worst is almost the same as it is for the best.

For example, Harvard is arguably the best OR is in the top 3 schools.  Their tuition is about $63k per year.

Compare that with Cooley Law Skool's tuition rate is about $53k per year.  In the year 2018, in many people's opinion, Cooley is perhaps not the worst law skool, but it is very close to it. 

Please see: https://abovethelaw.com/2017/12/the-10-worst-law-schools-in-the-country-2017/

So Cooley is charging close (85%) to what Harvard is charging.  Is an education from Cooley worth what one from Harvard is? 

Cooley is not alone in charging this rate of tuition.  University of Detroit/Mercy is charging about $43k per year in tuition.

Why is there so little difference in the cost of tuition?  Compare the opportunities/wages  of Harvard graduates compared to those of Cooley, UofD, or any other bottom half skool.

There is a MASSIVE difference of outcomes for graduates, but amazingly, tuition rates are shockingly similar.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: boilermaker75 on September 03, 2018, 05:07:52 AM
And where do the dollars come from that pay the salaries of faculty to do research? Undergraduate tuition.  (Today it is not uncommon for star faculty to be making well over $300,000 per year with many not ever teaching undergraduates.) Much of the increased cost of undergrads going to college is the cost of the ever-greater research programs, and star faculty salaries, needed to maintain, or increase, rankings.

I suspect as part of this arms race is faculty teach fewer classes per year. This means a larger faculty and each faculty member has more time to devote to research.

If someone is a big enough star to be earning $300k+, then I sure as hell hope they're not teaching many undergraduate courses.  That would be pretty nuts. 


If the $300k was coming from other sources besides undergraduate tuition.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: doc75 on September 03, 2018, 06:47:16 AM
A couple links I quickly found that may be of interest:

https://www.forbes.com/sites/nathanlewis/2017/02/17/u-s-colleges-where-does-the-money-go/#28d8082073ca

https://www.businessinsider.com/why-is-college-so-expensive-2018-4
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: doc75 on September 03, 2018, 06:57:24 AM
And where do the dollars come from that pay the salaries of faculty to do research? Undergraduate tuition.  (Today it is not uncommon for star faculty to be making well over $300,000 per year with many not ever teaching undergraduates.) Much of the increased cost of undergrads going to college is the cost of the ever-greater research programs, and star faculty salaries, needed to maintain, or increase, rankings.

Could you please provide a source for this claim?  Thanks in advance. 

Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: Cigarbutt on September 03, 2018, 08:54:53 AM
A couple links I quickly found that may be of interest:

https://www.forbes.com/sites/nathanlewis/2017/02/17/u-s-colleges-where-does-the-money-go/#28d8082073ca

https://www.businessinsider.com/why-is-college-so-expensive-2018-4

-Complementary link as the "skill premium" is not what it used to be:
http://www.ncsl.org/Portals/1/Documents/educ/StudentLoanDebtBrief.pdf

-For the beginning of an answer concerning expense categories evolution over time, the Delta-Cost Project has produced reports over the long term. Here's what seems to be the latest version:
https://www.air.org/system/files/downloads/report/Delta-Cost-Trends-in-College%20Spending-January-2016.pdf
The student services category continues to be the largest driver in rising costs.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: boilermaker75 on September 03, 2018, 09:17:53 AM
And where do the dollars come from that pay the salaries of faculty to do research? Undergraduate tuition.  (Today it is not uncommon for star faculty to be making well over $300,000 per year with many not ever teaching undergraduates.) Much of the increased cost of undergrads going to college is the cost of the ever-greater research programs, and star faculty salaries, needed to maintain, or increase, rankings.

Could you please provide a source for this claim?  Thanks in advance.

I don't have a source. My comments are personal observations of being a faculty member, and administrator, for 35 years at a research university.

In my department we have 100 faculty. The average teaching load is 0.9 courses per semester counting undergraduate and graduate courses. This Fall semester we are teaching about 45 undergraduate classes using 42 of these faculty, we have three non-faculty Ph.Ds. who do some teaching. (We do not teach any lecture courses with graduate students.) Some faculty aren’t teaching and some are teaching graduate courses. Many of those graduate courses have enrollments of around 10-15 and center on the facultys’ research. This is a guess, but our undergraduate class sizes are probably approaching 100 on average.

These days, ever present is thinking about rankings and how what we do impact rankings. Undergraduate education is never part of that discussion.

I was speaking with a colleague last week. He told me how he received a teaching award 12 years ago when he was an assistant professor. His mentor took him out to lunch and he thought he was going to be congratulated. He was told to “knock it off.”

The faculty in my department provide about 10% of their AY salary from external research contracts, but most spend at least 75% of their time on their research programs. There are incentives for providing AY support, less teaching. 90% of the salaries of the faculty in my department come from undergraduate tuition.

I would like to see data on average teaching load pre-1980 compared to today. I would guess the teaching load is less today resulting in more faculty to provide the same teaching. In this way more research, which impacts rankings, can be performed.


Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: SharperDingaan on September 03, 2018, 01:00:32 PM
A few points.

It used to be that higher education was only for the wealthy. Student volumes were low, tuition/living costs were paid out of family resources, classes were small, and professors primarily taught. It was essentially a 'who you know' closed shop, perhaps best exemplified by the Oxfords & Harvards of the time, that produced a very small supply to meet a growing demand. It essentially institutionalized privilege and arrogance.

Over time the solution has been more resources to increase supply. What used to be the 'best & brightest' 5% of outsiders sponsored by elites (Rhodes, Beits, etc.) to run empires in the commonwealth, became the average jane/joe sponsored by governments. Raise the average education level of the nations workforce, make higher value goods as a result, and rake in a small % of the much larger pie as the tax to pay for it.  What we have today, is essentially education as an industrial commodity.

Ultimately every student/family has to decide what is right for them, and student debt is the mechanism of accountabilty; as in all of lifes other daily decisions, there is no free pass for 'young and dumb'. All that has changed, is that higher education is now more accessable than it used to be. Highly desirable.

We can bemoan the number of schools, the pay of professors/admin, the level of debt after graduation, erosion of standards, etc; but no one forces a student to go to school, or continue with school right after graduating high school. Gap years are common around the world, & are taken with the intent of the student using it to both mature - and experience life away from home; before deciding on what they would like to do. 

Similarly, resolving our mistakes is a life skill we all have to learn.
There is no 'undo' button, and millions of people do this - every day. Of course if you're the person with the debt problem it sucks, but you HAVE made your own bed. Hence debt as the mechanism for accountability; YES it sucks, but it works - and extremely well.

SD

   
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: DTEJD1997 on September 03, 2018, 01:23:00 PM
A few points.

It used to be that higher education was only for the wealthy. Student volumes were low, tuition/living costs were paid out of family resources, classes were small, and professors primarily taught. It was essentially a 'who you know' closed shop, perhaps best exemplified by the Oxfords & Harvards of the time, that produced a very small supply to meet a growing demand. It essentially institutionalized privilege and arrogance.

Over time the solution has been more resources to increase supply. What used to be the 'best & brightest' 5% of outsiders sponsored by elites (Rhodes, Beits, etc.) to run empires in the commonwealth, became the average jane/joe sponsored by governments. Raise the average education level of the nations workforce, make higher value goods as a result, and rake in a small % of the much larger pie as the tax to pay for it.  What we have today, is essentially education as an industrial commodity.

Ultimately every student/family has to decide what is right for them, and student debt is the mechanism of accountabilty; as in all of lifes other daily decisions, there is no free pass for 'young and dumb'. All that has changed, is that higher education is now more accessible than it used to be. Highly desirable.

We can bemoan the number of schools, the pay of professors/admin, the level of debt after graduation, erosion of standards, etc; but no one forces a student to go to school, or continue with school right after graduating high school. Gap years are common around the world, & are taken with the intent of the student using it to both mature - and experience life away from home; before deciding on what they would like to do. 

Similarly, resolving our mistakes is a life skill we all have to learn.
There is no 'undo' button, and millions of people do this - every day. Of course if you're the person with the debt problem it sucks, but you HAVE made your own bed. Hence debt as the mechanism for accountability; YES it sucks, but it works - and extremely well.

SD

 

SD:

If I recall correctly, you are based out of Europe?

There are a few things going on with college education in America that you might not be aware of, and would negate the points you made in the prior post.

A). Student loan debt is NOT discharged in bankruptcy.  For all intents and purposes, you either pay it, OR you go on IBR for 20+ years.  Why is student debt one of the very few debts that can't be discharged?  What if you receive a DEFECTIVE education?  Once you've paid the tuition, there is no recourse...the educators have NO skin in the game.

The government should not be in the business of underwriting these massive loans.  If the education that a school provides is so valuable, let them underwrite it.  Unrestricted government lending has been a large contributing factor in the rise of the cost of an education.


B). A large number of universities are lying and being highly deceptive about the outcomes for their graduates.  This is done to get people to enroll and pay the tuition.

In order for a market to work properly, you have to have transparency. 

"Educators" should be held to the same standards in advertising that carpet salesman, used car lots, financial advisors and others are.  They should NOT have a free pass.

When the universities are not being forthright about the outcomes, you don't have a functioning market.  This has got to stop.  The word is getting out, but it is getting out slowly.

Fix these two problems and then you will go a long way towards getting education functioning as a proper market. 

Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: SharperDingaan on September 03, 2018, 04:00:01 PM
I'm Canadian based, but the family is UK orientated.
This will sound harsh, but I don't really have a problem with either A) or B)

A) Education is a life-long investment in yourself, collateralized against your life-long working income. Hence going backrupt today does not mean that one could not repay the debt over ones remaining working life, and it should not be a 'convenience' by which one can absolve ones debt obligation. Education loans are unique; the education cannot be seperated from you, and sold to offset the debt. 

B) Agreed there is predatory educational lending, but ultimately it's the borrower who signs the loan agreement. It's also a reach to blame the lender when the borrower is borrowing repeatedly, over multiple years, while becoming progressively more educated over the period. The lender may be 80% responsible in Year 1 (estimate), but by Year 4 it's maybe 20% at best (as the borrower is both actively participating and benefiting for it).

In most places, outstanding education loans are forgiven upon retirement (65) as the working life is over. There are usually industry solutions as well, in return for servicing under-represented or under-served geographic areas. When there aren't, it's to the profession to deliver; as too much supply (lawyers, accountants, docs, etc) just devalues the market for everyone.

Not great for the indebted, but ultimately the dicipline of the accountability mechanism stays in place.
Sorry!

SD


Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: LC on September 03, 2018, 04:33:44 PM

A) Education is a life-long investment in yourself, collateralized against your life-long working income. Hence going backrupt today does not mean that one could not repay the debt over ones remaining working life, and it should not be a 'convenience' by which one can absolve ones debt obligation. Education loans are unique; the education cannot be seperated from you, and sold to offset the debt. 
This is a fair point however other asset types do have bankruptcy protections. Obviously this is more difficult with "education" (what is the appropriate amount/how to value it), however it can be done or at least be triangulated. You could find an average payback period per degree type and average earnings or net worth per degree and use that to  determine a period of time after which one can discharge the loan in bankruptcy.

For example if a legal degree has outstanding principal of 200k, has an average payback period of 12 years, and after graduation the average lawyer has net worth of +200K after 9 years, you could allow the loan to be discharged after 9 or 12 years whichever is lower.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: boilermaker75 on September 03, 2018, 06:09:41 PM
Here is an alternative to student loans,

https://purdue.edu/backaboiler/overview/index.html
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: SharperDingaan on September 04, 2018, 03:37:58 AM
Just to add to this:
http://www.ncsl.org/Portals/1/Documents/educ/StudentLoanDebtBrief.pdf

For most people their biggest assets by size are their 1) house, 2) education, and 3) car.
Given that most people finance assets, it would be very odd if the average education loan was NOT at least as big as the average car loan - and over a term between the average life of a car and the average life of a house.

For most people the more educated you are the higher your wage; therefore to maximize wage stay at school longer.
Problem is that NET OF DEBT CARRY, this isn't true; as the marginal return on additional education diminishes; and the marginal cost on additional debt increases. Hence there is a sweet-spot, beyond which additional education is destructive.

The very basic issue that becomes harder to see - the more 'invested' in the system that one becomes.
Hence the high number of post-grads with specialties of little commercial value, driving taxi cabs.

SD
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: boilermaker75 on September 04, 2018, 07:47:31 AM
And where do the dollars come from that pay the salaries of faculty to do research? Undergraduate tuition.  (Today it is not uncommon for star faculty to be making well over $300,000 per year with many not ever teaching undergraduates.) Much of the increased cost of undergrads going to college is the cost of the ever-greater research programs, and star faculty salaries, needed to maintain, or increase, rankings.

Could you please provide a source for this claim?  Thanks in advance.


https://www.elsevier.com/__data/assets/pdf_file/0004/53185/Research-Universities-Futures-Consortium.pdf

“Expenditures in research increased in the past few years only because universities spent more of their own funds in hopes of staying competitive in what amounts to an “arms race”. “

“the cost of doing research is not fully recoverable from sponsors. “

“Academic research would be more successful if F&A returns truly mirrored the cost of conducting research. When such cost cannot be fully recovered, the research must be subsidized through other means which eventually increases the cost of other areas in the institution.”

"..total research expenditures are more subjective rankings and reward size rather than productivity, quality, or impact."

The report doesn’t make the leap that the way you get size is more faculty teaching fewer courses, hence you need more tuition dollars either by raising enrollments with larger class sizes or increasing tuition because very little, if any, of faculty salaries come from these research contracts. The research contracts pay for research scientists, post-docs, research assistants, equipment and supplies for laboratories, travel to conferences, administrative assistants for large research programs, etc.

When I started out as an assistant professor in 1984, I needed to provide 25% of my AY salary from external contracts to teach one course. Today for no external AY I only have to teach one course. This was necessary for us to stay competitive in retaining faculty. Tuition is now completely subsidizing research by providing the salaries of faculty.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: LC on September 04, 2018, 08:24:35 AM
Just to add to this:
http://www.ncsl.org/Portals/1/Documents/educ/StudentLoanDebtBrief.pdf

For most people their biggest assets by size are their 1) house, 2) education, and 3) car.
Given that most people finance assets, it would be very odd if the average education loan was NOT at least as big as the average car loan - and over a term between the average life of a car and the average life of a house.

For most people the more educated you are the higher your wage; therefore to maximize wage stay at school longer.
Problem is that NET OF DEBT CARRY, this isn't true; as the marginal return on additional education diminishes; and the marginal cost on additional debt increases. Hence there is a sweet-spot, beyond which additional education is destructive.
I don't disagree that education is a huge part of one's life and therefore the corresponding debt should reflect that. And I don't disagree with your second point on the marginal cost/benefits.

But I don't think these are the problems to address. A big issue here is pricing. The example DTEJ gave is one item (Harvard/Cooley price vs. value), another example is undergraduate tuitions within the same school. Engineering and lib arts programs are priced relatively equally, but the payoffs are not.

In what other industry do you have one asset with a higher probability of higher long-term cash flows, being priced the same as another asset with a lower probability of lower cash flows?
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: StevieV on September 04, 2018, 08:51:50 AM
I don't disagree that education is a huge part of one's life and therefore the corresponding debt should reflect that. And I don't disagree with your second point on the marginal cost/benefits.

(1) The cost of learning has gone way, way down.  There is much more access to information, and tools for learning.

(2) Colleges and Universities don't teach students very much.  As noted elsewhere in the thread, even though students pay $60K+ to attend, colleges aren't even particularly interested in providing much in the way of educating the students.  It is much more a matter of signaling.

(3) I am pretty sure that an education that is equal to or better than those of at least most schools in the country (probably even the top schools), could be provided or obtained at a fraction of the cost.

(4) I don't think there is any reason that young folks should be burdened with a large debt load when they are starting off.  I think that this is part of the myths perpetuated by the higher-education industrial complex.  Kids and families should make sacrifices.  Don't worry about debt.  College is so important, that you should take on a large debt if necessary.

Certainly, it costs something to educate young adults.  However, I think it should cost much, much less than colleges are charging.  Also, I think that from a pure learning/education perspective, colleges deliver very little compared to their cost.

Besides that, I think they are doing a great job.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: SharperDingaan on September 04, 2018, 09:19:37 AM
Market price is just the point where buyer and seller agree on the 'value' of the exchange.

Harvard Law vs Cooley illustrates the value attached to prestige.
Big numbers for both because its law (high prestige) - but only a little more for quality & pedigree (Harvard vs Cooley). Hence a school need only offer law and appear on the league table, there's little value-add to actually being good at it. Resembles the Toronto Maple Leafs, who haven't won a title since '67!

Engineering vs Liberal Arts illustrates the value attached to 'going to university'
Big numbers for simply 'going to university' - but only a little more for programs with better prospects. Hence a school need only maximize inclusiveness, there is little little value to being commercially relevant.

Value being attached to social status, versus commercial pospects.
Those other schools are polytechnics, for the trades, and we turn our noses up at them.
Hence the rich plumber is socially worth less than an underemployed lawyer.
 
SD
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: tooskinneejs on September 04, 2018, 09:20:44 AM
How about this partial solution?  Require colleges to disclose to prospective students this ratio (and its components) by major for all majors:

average first year starting pay for the school's graduates/tuition and fees for all 4 years

I see way too many kids taking garbage majors that won't provide a decent return on their investment.  Maybe disclosure would help guide prospective students not to waste money on majors/colleges where the return won't be good.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: LC on September 04, 2018, 09:41:25 AM
It is an inefficient market. The price of the asset (i.e. the loan amount) does not equal the discounted value of the expected future cash flows.

The reality is that colleges and lenders are selling hopes and dreams and buyers are not pricing it properly because the buyers are (1) kids or (2) parents looking out for their kids. In most cases these are not rational buyers.

We can talk about how plumbers and welders are a better price-to-value but who here is a plumber or a welder full-time? Easy for us to say.
Title: Re: A couple easy fixes to CEO Pay and college costs
Post by: Cigarbutt on September 04, 2018, 07:16:03 PM
Interesting discussion about higher education costs.

-Higher education is a "product" available in a far from perfect market. There is a compromise that has to be drawn between the practical utility (including economic utility) component of education and the "softer" component. The balance should weigh towards concrete and practical applications and I would say that modern rich societies have done a reasonable job and the value of education has to include, at least in part, the education of values. But I wonder if the mission should not become more connected to real-life needs especially since higher education has become quite expensive. IMO the bang for the buck has come down for incoming students. For those who argue for different tuition levels vs different fields, those who graduate in high earning fields will tend to "pay back" through taxes especially if you live in a country that puts an emphasis on redistribution.

-What boilermaker describes in terms of the excess emphasis on research is interesting. In fact, I graduated from a "high-ranking" university but realized along the way that the strength in research and standing had a low correlation (likely inverse even) with the quality of the curriculum and direct teaching. However, higher education was already expensive before this shift and analysis of numbers suggests that the increased funds allocated to research in universities came from higher listed tuition fees but, over the last 20 years, the most significant source of these funds coming from higher tuition resulted mostly from a "public" transfer: decreased public direct funds to universities mostly compensated by increased public grants and tax benefits to students and their families (gradually increasing difference between listed tuition and net tuition).

-For the student debt part, various solutions are considered and SD makes good points. The numbers show that students most at risk for default are those getting accepted in private for-profit universities where, I suspect, critical and analytical skills are valued. There are some interesting parallels with the subprime episode in real estate. People were incentivized to become house owners (noble cause) through easy money, faced a period of loose conditions and then increasing interest rates and to acquire an asset that in the end was over-valued with an end-result that required public bail-outs and a "wasted" crisis. With higher education, students are incentivized to enrol (noble cause) through easy and quasi-automatic funding (in many universities apparently, the student aid office does not provide factual assistance and guidance but mostly acts as a financing agent) with increasing tightening of funding conditions after graduation when many discover that the promised value is not there. In this case also, moral hazard is alive and only likely to become more prominent over time.

Isn't reform easier than reconstruction?