The Oddly Selfless Use of University Endowments

Like many organizations, colleges and universities are feeling the effects of the battered economy–revenues are down or growing less quickly, forcing higher education leaders to confront the possibility of layoffs and other painful austerity measures. A relatively small number of institutions, however, have the good fortune to be sitting on gigantic piles of money in the form of endowments that swelled to record size when times were good. There’s reason to think that, for some, the aggressive investment strategies that added so much lucre to the treasury are now shrinking the hoards of cash at an equally rapid rate. But they still have a lot of money left, much more than they had even 10 years ago. Yet, as Harvard freshman and ace blogger Dylan Matthews writes (via Matt Yglesias, an alum):

Harvard has tens of billions of dollars. How many tens of billions they won’t say, but it’s in that ballpark. However, because they’re slightly less obscenely wealthy than they were before the economy went to hell, the Harvard administration has started laying people off without cause. Some students, like the Student Labor Action Movement (SLAM) and its supporters (like me and Perspective), think that this is uncalled for. We think that Harvard should be more forthcoming about its financial situation, so that students and other members of the community can evaluate whether we really need to lay off workers to weather the recession. And until Harvard releases the information that would allow such a debate to take place, it should stop cutting jobs and find other ways to make up the shortfall. After all, if they’re going to cut the jobs of valued members of our community, we have a right to know why that’s happening, and how necessary or unnecessary that is. I, for one, kind of doubt that a university that can pay for massive concerts/carnivals can’t cough up the cash necessary to pay its workers.

This raises a larger, intriguing question of how university administrators and trustees balance their personal interests against the long-term welfare of the institution. From a selfish perspective, it’s in the best interests of college leaders to aggressively spend the endowment in the short term–to avoid layoffs and angry students when times are bad, and to pay for new buildings and famous professors and various other things that cover the institution–and thus the leaders–in glory when times are good.