So it is still 30% more than it was in 2003. Has spending grown by more than that since? Or is Harvard, like many corporations, is using these scary-sounding numbers to tighten it's belts?
Anon #2 -- as Anon #1 has said, unfortunately Harvard has been on a "spending spree" of sorts the last decade. Spending has gone way up from 30% since 2003.
But even if we hadn't been on a spending spree, this would be troublesome. Think of it this way -- salary costs have probably gone up about 30% since 2003, health insurance costs and other benefits probably more. So even if there was no growth in people numbers since 2003 Harvard would be in a scary place with the 2003 number. By my uninformed estimates, though, the number of profs at Harvard has gone up at least 10% in that time, and the growth in administration is probably much more than that. Think further about soaring energy costs since 2003, etc. It's a real problem.
Harvard made a killing in the housing bubble and now the bubbles have popped. Since they are currently at 2005 levels, did they really loose any money? Were they struggling in 2005?
They were not struggling in 2005, and were spending just tiny amounts of the endowment. Despite its prodigious fundraising ability, Harvard sees its endowment as something to accumulate and not spend, with the ultimate goal of being able to fund all university operations from a fraction of the interest. No other university operates this way.
The 27% drop is not so large. At a 14.3% annual endowment growth rate (not a typo!!), they lost two years. Harvard was hurt by its lack of liquidity, and I am sure the managers have learned their lessons.
Hi, I am regular reader of your blog. This is somewhat unrelated but I wonder whether you have any thoughts about the Harvard undergrad admissions process? There is an interesting Q&A on NYT with the Harvard Dean of Admissions here
Somehow I got the feeling that the role that academic prowess plays is somewhat minimal. If this is the case, it is a bit sad and the process seems flawed.
Disclaimer: I am not a high school kid looking to get into Harvard, I am a faculty member at a state university.
Despite its prodigious fundraising ability, Harvard sees its endowment as something to accumulate and not spend, with the ultimate goal of being able to fund all university operations from a fraction of the interest. No other university operates this way.
I would be quite skeptical of that. Are you suggesting that at some point, the university will stop soliciting alumni donations (and other sources of fund raising)? When in history has a corporation ever gotten satisfied with what it has and given up a desire to get more?
"salary costs have probably gone up about 30% since 2003, health insurance costs and other benefits probably more"
Even if this is true, this affects people unaffiliated with a rich institution such as Harvard much more. Like all the people who simply don't have health insurance at all.
Summers is coming out of this looking like a genius (for a man). There is no better time to spend money than during an asset bubble. If Summer's hadn't spent that money, 27% of it would just be gone. As an alumnus, I'm glad that the university finally realized that the point of having an endowment isn't to get a bigger endowment.
Last anon, you realize that a great deal of Summers' spending was done on long-term structural obligations, like financial aid, that are only supportable at a high rate of growth? What's really biting Harvard in the ass right now are all of these payout commitments (which demand liquidity) against a very illiquid portfolio of private equity-ish holdings. That's why Harvard had to do ridiculous things, like issue costly bonds for quick cash, that a financially healthy corporation shouldn't have to do.
Anon #5: Harvard's stated long-term goal, as I understand it, is to spend 5% of its endowment annually to support its programs. That's pretty much in line with other large-scale non-profit organizations I know, and is apparently the standard model for fiscal prudency. Do you have information otherwise? I'll acknowledge that for several years in early 2000's (and perhaps going further back) they were only spending in the 4.5-5% range, perhaps because they were doing so well. My understanding is that for the next several years, because of the crash, spending will be in 5.5-6% range until the endowment can catch up. So, long-term, they're actually within their stated, reasonable plan. And there's no model I'm aware of that suggests they'll be making 14.3% a year over the next two years, though I suppose it's possible, just really unlikely. In short, what I'm trying to say politely, is that you seem deluded, so feel free to back up your statements further.
Anon #6: Apparently you don't understand the word "about", as in "gone up about 30% since 2003". At 4% a year, compounded (pretty standard raises on average, for faculty) you get 26.5+% increase in salaries. That doesn't take into account the no raise for faculty last year, but it also doesn't take into account salary increases due to promotions (e.g. tenure), nor the increase in the size of the faculty. Someone more knowledgeable than I may have numbers, but 30% seems an underestimate of the increase on Harvard's spending on salaries (even just for faculty) since 2003.
Anon #7: A good topic, for another day...
Anon #10: I think you're generally mistaken -- see the comments of #11. I'd agree with you that arguably using the endowment to by long-term assets -- such as arguably the money that was spent buying land in Allston, which seems like a long-term important move, giving Harvard room to expand -- could be a good idea, especially in a bubble. But the bulk of that, I think, was done before Summers and he was tasked with what to do with the land. (Someone will, I'm sure, correct me if I'm wrong.) Since what we have now is a big hole in the ground where the Science Complex was supposed to go -- apparently the funding for which was supposed to come out of the ever-increasing endowment as opposed to having sponsors for the building all lined up -- and we'll be stuck with that hole for what appears to be quite a while, I'm not sure how you can judge Summers' execution a success.
Anon #11: Thanks for saying what I would have said. I interpreted the genius-for-a-man comment of #10 as a bit of humor given Summers' comments on high-achieving women in academia.
Anon #6: Apparently you don't understand the word "about", as in "gone up about 30% since 2003". At 4% a year, compounded (pretty standard raises on average, for faculty) you get 26.5+% increase in salaries. That doesn't take into account the no raise for faculty last year, but it also doesn't take into account salary increases due to promotions (e.g. tenure), nor the increase in the size of the faculty. Someone more knowledgeable than I may have numbers, but 30% seems an underestimate of the increase on Harvard's spending on salaries (even just for faculty) since 2003.
This kind of salary increase happens in all institutions, and I wouldn't really call it a salary increase. If people get more because they are now more senior, they also retire or pass away and stop drawing a salary. As long as the overall composition of the faculty doesn't change significantly, these two affects cancel each other out.
Anon #13 : OK, this is my last comment for anonymous people who seem clueless about basic economics.
Your statement "As long as the overall composition of the faculty doesn't change significantly, these two affects cancel each other out." would imply that salaries would have remained in place for the last 20 years. I know of few industries where that's true, and I can assure you that it's not true in academia.
You are right that these raises are standard. But inflation overall means starting salaries coming in are not the same as they were when the people who are retiring now started, and so yes, salary costs do go up over time. Just check any historical figures on "average salaries" and you'll be able to work it out.
So when Harvard's endowment goes down whatever percent in real dollars, and salary costs go up -- again, it's not hard to get this part of the picture.
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15 comments:
Wouldn't be an issue if we hadn't spent cash like drunken sailors the last couple years...
So it is still 30% more than it was in 2003. Has spending grown by more than that since? Or is Harvard, like many corporations, is using these scary-sounding numbers to tighten it's belts?
Anon #2 -- as Anon #1 has said, unfortunately Harvard has been on a "spending spree" of sorts the last decade. Spending has gone way up from 30% since 2003.
But even if we hadn't been on a spending spree, this would be troublesome. Think of it this way -- salary costs have probably gone up about 30% since 2003, health insurance costs and other benefits probably more. So even if there was no growth in people numbers since 2003 Harvard would be in a scary place with the 2003 number. By my uninformed estimates, though, the number of profs at Harvard has gone up at least 10% in that time, and the growth in administration is probably much more than that. Think further about soaring energy costs since 2003, etc. It's a real problem.
Harvard made a killing in the housing bubble and now the bubbles have popped. Since they are currently at 2005 levels, did they really loose any money? Were they struggling in 2005?
They were not struggling in 2005, and were spending just tiny amounts of the endowment. Despite its prodigious fundraising ability, Harvard sees its endowment as something to accumulate and not spend, with the ultimate goal of being able to fund all university operations from a fraction of the interest. No other university operates this way.
The 27% drop is not so large. At a 14.3% annual endowment growth rate (not a typo!!), they lost two years. Harvard was hurt by its lack of liquidity, and I am sure the managers have learned their lessons.
"salary costs have probably gone up about 30% since 2003, health insurance costs and other benefits probably more"
I am quite skeptical of these round numbers.
Hi,
I am regular reader of your blog. This is somewhat unrelated but I wonder whether you have any thoughts about the Harvard undergrad admissions process? There is an interesting Q&A on NYT with the Harvard Dean of Admissions here
http://thechoice.blogs.nytimes.com/2009/09/08/harvarddean/?hp
Somehow I got the feeling that the role that academic prowess plays is somewhat minimal. If this is the case, it is a bit sad and the process seems flawed.
Disclaimer: I am not a high school kid looking to get into Harvard, I am a faculty member at a state university.
Despite its prodigious fundraising ability, Harvard sees its endowment as something to accumulate and not spend, with the ultimate goal of being able to fund all university operations from a fraction of the interest. No other university operates this way.
I would be quite skeptical of that. Are you suggesting that at some point, the university will stop soliciting alumni donations (and other sources of fund raising)? When in history has a corporation ever gotten satisfied with what it has and given up a desire to get more?
"salary costs have probably gone up about 30% since 2003, health insurance costs and other benefits probably more"
Even if this is true, this affects people unaffiliated with a rich institution such as Harvard much more. Like all the people who simply don't have health insurance at all.
Summers is coming out of this looking like a genius (for a man). There is no better time to spend money than during an asset bubble. If Summer's hadn't spent that money, 27% of it would just be gone. As an alumnus, I'm glad that the university finally realized that the point of having an endowment isn't to get a bigger endowment.
Last anon, you realize that a great deal of Summers' spending was done on long-term structural obligations, like financial aid, that are only supportable at a high rate of growth? What's really biting Harvard in the ass right now are all of these payout commitments (which demand liquidity) against a very illiquid portfolio of private equity-ish holdings. That's why Harvard had to do ridiculous things, like issue costly bonds for quick cash, that a financially healthy corporation shouldn't have to do.
And what's with the misandry?
Responses:
Anon #5: Harvard's stated long-term goal, as I understand it, is to spend 5% of its endowment annually to support its programs. That's pretty much in line with other large-scale non-profit organizations I know, and is apparently the standard model for fiscal prudency. Do you have information otherwise? I'll acknowledge that for several years in early 2000's (and perhaps going further back) they were only spending in the 4.5-5% range, perhaps because they were doing so well. My understanding is that for the next several years, because of the crash, spending will be in 5.5-6% range until the endowment can catch up. So, long-term, they're actually within their stated, reasonable plan. And there's no model I'm aware of that suggests they'll be making 14.3% a year over the next two years, though I suppose it's possible, just really unlikely. In short, what I'm trying to say politely, is that you seem deluded, so feel free to back up your statements further.
Anon #6: Apparently you don't understand the word "about", as in "gone up about 30% since 2003". At 4% a year, compounded (pretty standard raises on average, for faculty) you get 26.5+% increase in salaries. That doesn't take into account the no raise for faculty last year, but it also doesn't take into account salary increases due to promotions (e.g. tenure), nor the increase in the size of the faculty. Someone more knowledgeable than I may have numbers, but 30% seems an underestimate of the increase on Harvard's spending on salaries (even just for faculty) since 2003.
Anon #7: A good topic, for another day...
Anon #10: I think you're generally mistaken -- see the comments of #11. I'd agree with you that arguably using the endowment to by long-term assets -- such as arguably the money that was spent buying land in Allston, which seems like a long-term important move, giving Harvard room to expand -- could be a good idea, especially in a bubble. But the bulk of that, I think, was done before Summers and he was tasked with what to do with the land. (Someone will, I'm sure, correct me if I'm wrong.) Since what we have now is a big hole in the ground where the Science Complex was supposed to go -- apparently the funding for which was supposed to come out of the ever-increasing endowment as opposed to having sponsors for the building all lined up -- and we'll be stuck with that hole for what appears to be quite a while, I'm not sure how you can judge Summers' execution a success.
Anon #11: Thanks for saying what I would have said. I interpreted the genius-for-a-man comment of #10 as a bit of humor given Summers' comments on high-achieving women in academia.
Anon #6: Apparently you don't understand the word "about", as in "gone up about 30% since 2003". At 4% a year, compounded (pretty standard raises on average, for faculty) you get 26.5+% increase in salaries. That doesn't take into account the no raise for faculty last year, but it also doesn't take into account salary increases due to promotions (e.g. tenure), nor the increase in the size of the faculty. Someone more knowledgeable than I may have numbers, but 30% seems an underestimate of the increase on Harvard's spending on salaries (even just for faculty) since 2003.
This kind of salary increase happens in all institutions, and I wouldn't really call it a salary increase. If people get more because they are now more senior, they also retire or pass away and stop drawing a salary. As long as the overall composition of the faculty doesn't change significantly, these two affects cancel each other out.
Anon #13 : OK, this is my last comment for anonymous people who seem clueless about basic economics.
Your statement "As long as the overall composition of the faculty doesn't change significantly, these two affects cancel each other out." would imply that salaries would have remained in place for the last 20 years. I know of few industries where that's true, and I can assure you that it's not true in academia.
You are right that these raises are standard. But inflation overall means starting salaries coming in are not the same as they were when the people who are retiring now started, and so yes, salary costs do go up over time. Just check any historical figures on "average salaries" and you'll be able to work it out.
So when Harvard's endowment goes down whatever percent in real dollars, and salary costs go up -- again, it's not hard to get this part of the picture.
The last anonymous is correct. Inflation since 2003 is about 17%. 30% salary increases for the same level of experience would be surprising.
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