On the Money

Can you believe this? This is my blog #24.


The basic principle of a market economic system is that there is some feedback loop: those who produce things that other people need, get rewarded; those who produce nothing or something no one needs, get penalized. So, things that people need are produced more, their price falls, and the system reaches equilibrium. Any time demand changes, there is a mechanism that tells producers to cut or increase production.

The problems of capitalism have been known for a long time: because the economy needs freedoms of transactions and private property rights, it tends to produce tremendous inequality. Its strength, however, are also well-known: the system does not rely on centralized planning; it is self-regulating, disciplined, and is much more efficient than any other economic system.

American universities are slowly discovering the advantages and disadvantages of capitalism, only about four hundred years after its invention. Some are more successful at it than others, but most at least dibble into a more entrepreneurial, more market-oriented ventures. Every campus has an extended studies, or continuing education branch that offers off-campus, non-academic, or online courses, wherever there is a demand for them. Those branches tend to be much more flexible, practical, and efficient than the main campus, and end up supporting the inefficiencies of the traditional colleges.

Of course, all universities have to become more like their extended studies programs. Everyone needs to learn to count money and see where the money comes from and how it is being spent. This is the only way of moving toward greater efficiency and better quality. Yet the academic culture is very resistant to measuring educational work in terms of money. Underneath the snobbish refusal to talk money, there is a simple fear of competition, fear of being exposed as less than productive. Some very smart people go to all length with justifying their own highly privileged lifestyles with high-spirited arguments about the intrinsic value of education, sacrifice, academic freedom, and other such nonsense.

Most importantly, our feedback system is extremely weak, convoluted, and unreliable. In most cases, there is no clear link whatsoever between what we do in classes and what the public, the students, or anyone else actually needs. I know my colleagues will be offended by this statement, and assure that they’ve been around, they have the degrees, so they know what needs to happen in the classroom. But any scholar is supposed to ask: How do you know what you know? Is that knowledge verifiable or replicable? Confidence notwithstanding, we have no clue, actually. Just imagine a situation when a car salesman would assure you that he knows exactly what you need, and that one car is the only one you can buy. That you go to the next door lot, and his twin-brother wants to sell you the same exactly model for the same or almost the same price.

The accountability movement tries to solve this problem by making universities to produce some evidence of their effectiveness. I am not arguing that this is difficult to do; I am arguing that it is impossible to do. The market is driven not by research, but by averaging millions of irrational single transactions. This is entirely different feedback loop; it bypasses any single brain, and the information is distributed throughout millions of independent agents. The market mechanisms are more efficient because they are not smart, and do not depend on having smart people making right decisions.

As a first step, we desperately need some link between revenue generation and funds available to colleges, schools, and individual faculty. If there is no direct relation between how many hours a college produces and how much funding it receives, it creates an objective incentive to reduce enrollments. No matter what administrative efforts, how many meetings and speeches we produce, the economic situation does not change. With a fixed income, one must reduce the effort. The same goes all the way does to school an individual faculty. We have every incentive to fight tooth and nail for keeping class enrollments as low as possible, whether it makes any pedagogical sense or not. This is not because we’re bad people, but because cap increase savings do not return to us in any form and shape. We have no incentive to build off-campus cohort until there is an assurance that some of this money returns to those who work on the cohorts.

Money talk is honest; it does not mean having money as the only value. Rather, it leads to seeing clearly that our values are upheld, and not talked to death.