Sunday, June 20, 2004

Harvard and the concentration of wealth

Title: Big Nonprofit Salaries Face Government Scrutiny
Source: The Chronicle of Philanthropy
Date: June 24, 2004

The article demonstrates the problems that the concentration of wealth is causing, including this one:
    At Harvard University, for instance, Terry M. Bennett, a doctor who donated $4-million to the school in 1991, has started a campaign to urge his fellow alumni to stop giving as a way to protest the salaries of investment managers of Harvard's endowment.

    Harvard officials have defended the salaries, which have gone as high as $34-million a year in one case, saying that it would cost the university more overall to have a private investment firm manage its assets. But Dr. Bennett thinks nonprofit groups should not compare themselves with for-profit companies when it comes to pay. 'I thought I was giving to a charity that was being run by the charity-minded,' he says.
It is not just "charity-mindedness." Such a salary in any charitable or non-charitable company is absurd, period.

Think about it this way. According to the 2004 World Almanac, tuition and fees at Harvard run $27,448 per year. With $34 million, 1,238 students could be given full tuition scholarships.

If there is one person at the University making $34 million, it is safe to assume that there are many others at similar salary levels. For example, this article in Investor's Business Daily points out: "The hallowed university last year paid the managers who oversees its endowment, the largest in the country, more than $100 million." $100 million is enough money to pay the full tuition of more that 3,600 students. The article also mentions:
    At The University of Texas, which has the second largest endowment in the country, pay for its lead money manager was about $750,000. Yale, with the third largest endowment, paid its chief investment officer just over $1 million.
Proving conclusively that Harvard's $100 million expenditure is truly insane.

Salaries like these, in both profit and non-profit organizations, are a huge drain on America's economy. Because of these salaries, we all pay higher prices for everything we buy. For example, there are 20,000 students at Harvard. If Harvard took the $100 million it is paying its fund managers, and did nothing else, it could lower every student's tuition by $5,000. $5,000 per student is an immense reduction in price.

Gigantic executive salaries in every major American corporation have that exact same effect on the prices of everything we buy. If we eliminated these salaries, prices would drop significantly throughout the economy. The $5,000 reduction in Harvard tuition is an 18% reduction. Imagine if the prices of everything in the American economy fell by 18% -- it would be like getting an 18% pay increase -- in fact, it would feel more like a 25% pay increase, because you purchase everything with after-tax dollars. What would change in your life if you got a 25% pay increase? That is the effect that the concentration of wealth is having on you, personally.

We, The People need to begin actively fighting against the concentration of wealth everywhere we see it. As mentioned in this post and this post, every single American and every American business will benefit significantly from spreading the wealth out instead of letting it concentrate.


At 12:48 PM, Blogger jose ortega said...

The school has an endowment nearly twice that of Yale largely due to the investment prowess of these individuals. They have no left and Harvard will be paying them large salaries in the coming years to try to gain the same returns that allow it to have a large endowment and be the best school in the country.

If it's endowment rate of return was the average over the last 10 years they would have nearly 5 billion less and would either have to cut programs; raise tuition; or cut the scholarships.

At 7:33 PM, Blogger Mike said...

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is easy. ways to make money

At 5:04 AM, Blogger Scott said...

As you can see, the endowment fund is doing very well.

"Harvard is able to see strong returns because its already-large endowment allows it to hire a full-time professional staff of investors and also to take risks most universities cannot afford to take, especially on hedge fund and private equity ventures."

"These salaries are, nonetheless, below-market payouts for fund managers. El-Erian countered the criticism, saying that if Harvard were to manage the money externally, it would cost twice as much, and if it wants to do it more cheaply internally, it must be willing to pay a reasonable amount.

"It costs a lot less to manage a dollar internally than it does to manage a dollar externally," said El-Erian. "It's not a question as to whether we would pay, it's a question as to whether we would pay twice as much.""

In conclusion, this article is woefully incomplete as it does not consider the value these employees add to the endowment versus the alternative.


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