The Companies They Keep

On Crony Capitalism, Partisan Hackery, and Higher Education

The economist Luigi Zingales published an interesting op-ed in the New York Times on June 13 titled “The College Graduate as Collateral,” in which he proposes a financial aid program in which venture capitalists would finance college attendance for students who can’t afford to pay for it themselves. “In exchange for their capital,” Zingales writes, “the investors would receive a fraction of a student’s future income,” which would be collected on behalf of the investor by the IRS. After my initial reaction (i.e. what could possibly go wrong? ), I decided to give what he’s suggesting a little more consideration because heaven knows we need some creative alternatives ASAP for helping non-affluent students pay for college without the risk of indebting themselves (and/or their loved ones) for the rest of their lives.

Zingales, the Robert C. McCormack Professor of Entrepreneurship and Finance and David G. Booth Faculty Fellow at the University of Chicago, is critical of the “crony capitalism” that he (rightly) sees as driving the U.S. economy into the ground and threatening democracy in this country in the process. In June, he published a new book on that topic, A Capitalism for the People: Recapturing the Lost Genius of American Prosperity (Basic Books, 2012). The equity-financing idea he discusses in the op-ed as a means for paying for college is explored in greater detail in the book. (Reviews here and here. Fairly generous preview here.)

Time out here to say that what I initially planned as no more than a minor digression at this stage of the post, which was going to be about the ways that we as a society fund and value higher education, ended up as a total derail. In my defense, there is no question in my mind that really all this stuff is ultimately about the same kind of thing.

Anyway, when I saw that A Capitalism for the People, a book whose central argument is (as Zingales puts it in an interview with the Independent) that “Entrenched big business interests are taking the country over, while lobbyists and political insiders make millions from their personal connections to an ever-expanding federal government,” has been endorsed by 2012 Republican vice presidential candidate Rep. Paul Ryan, well, it just turned out to be the kind of information that I could not possibly deal with in the brief aside I had initially planned for it.

Ryan’s endorsement of A Capitalism for the People is interesting on oh so many levels. For one thing, just in case anyone had any question about it, the endorsement answers unequivocally that Ryan is in fact a man for whom irony, if it is not completely dead, is in a deep, deep coma or at the very least an ongoing drunken stupor. It would be a cliché to say that Ryan invented crony capitalism — for one thing, he’s a young guy and it has been around for a long time — but his activities as a member of Congress suggest that he is certainly an enthusiastic and capable student of the genre. And the guy on whom he has recently staked his own fortune (Oh, not literally, of course, ha ha. You can rest assured that he’ll keep making tons of money no matter what happens in November) is no slouch, either. They are a wonderful team for representing a party whose astonishing hypocrisy has yet to find anything close to its bounds.

Here is Ryan’s blurb for the book:

In A Capitalism for the People, Luigi Zingales exposes the pernicious collusion of big business and big government — offering the sharp analytical perspective of a world-renowned economist and the unique personal perspective of an immigrant living the American Dream. This must-read for policymakers and citizens alike serves as a lucid call to action for rediscovering what makes America exceptional. Oh, wait, did Luigi say something else besides ‘an ever-expanding federal government’? Sorry, I was busy trying to destroy Medicare as we know it. LOL!

OK, I added that last part.

But seriously, don’t let the Paul Ryan Stamp of Approval stop you from checking out A Capitalism for the People. Might as well know what we’re dealing with here, although I can definitely empathize with any reluctance you might be feeling if your mother raised you as mine did, i.e. to understand the extent to which we are all judged by the company we keep.

Anyway, I have heard that Ryan actually does read (which as we all know is not a prerequisite for the job of vice presidential candidate), so he might actually have read A Capitalism for the People. If he did, my hat is off to whatever mad skillz he would have had to muster in order to negotiate like the champ he is the cognitive dissonance that any normal human being in his position would experience in response to an actual critique of crony capitalism. It’s probably a lot easier if you think of “crony capitalism” as something that people like Barack Obama engage in. (Republicans, by contrast, create synergies in smart public-private partnerships. See the difference? You’re welcome.)

But back to Zingales. After reading few of his articles in the mainstream press in addition to the Times piece, I decided to hear him out on his idea for equity financing of higher ed. While my survey of his work is far from exhaustive, on the basis of what I read, I figured I would let him slide and give him the benefit of the doubt and not immediately write him off as one of those “let ‘em eat indentured servitude” types who can’t wait to dismantle the public funding of higher education or public education in general or public everything else or all of the above. But his association with Paul Ryan is obviously troubling, as is his affiliation with the Manhattan Institute, the conservative think tank that published A Capitalism for the People and for which Zingales serves as a contributing editor for the Institute’s City Journal (alongside such luminaries as the former New York Times reporter and Iraq war propagandist Judith “the aspens are turning” Miller). The Manhattan Institute even has its very own Center for the American University (CAU), so they can concentrate on this kind of thing full time. And just today, the CAU proclaimed that “Ryan’s Plan Is Good for Higher Ed,” which might give you an idea of where they’re coming from.

Which brings us to the June 2011 article that Zingales published in the City Journal, “The GOP’s Strongest Candidate,” which concludes thusly:

Wisconsin congressman Paul Ryan says that he’s not running, and I assume he means it, but the GOP clearly needs a candidate more like Ryan than like Mitt Romney, currently the party’s leading candidate and a favorite of the establishment. A candidate in Ryan’s mold, from the Jack Kemp tradition of libertarian conservatives who helped make the GOP great, would be a strong believer in free markets who is not beholden to the bailout-addicted big-business establishment. This kind of candidate, if the GOP could only find him, could win in 2012 and help get the nation’s economy back on track.

Oh, if they could only find him! But you probably see the problem here: He doesn’t exist. That’s why they can’t find him.

I will concede that Paul Ryan meets the criteria for “a candidate in Ryan’s mold,” but that’s as far as I would be willing to go. However, I would be happy to dispute any claim or even a polite suggestion that a candidate in that “mold” (and perhaps especially including Ryan himself) is somehow something other than “beholden to the bailout-addicted big-business establishment,” because come on.

What, you want evidence? OK. How about this: In another June 2011 article (published just one day after Zingales’s “Ryan, Ryan, he’s our man!” City Journal column excerpted above), Newsweek White House reporter Daniel Stone explains “Ryan’s Shrewd Budget Payday” for us:

When House Budget Committee Chairman Paul Ryan unveiled the GOP blueprint for cutting government spending, he asked Americans to make sacrifices on everything from Medicare to education, while preserving lucrative tax subsidies for the booming oil, mining and energy industries.

This sure looks like it could be an example of beholden-ness. But no! It turns out that this part of Ryan’s proposed budget has absolutely nothing! to do with doing any favors for Big Oil. As Stone reveals, it is just about a man trying to provide for his family, like anyone would do!

It turns out a constituency within his own personal investments stood to benefit from those tax breaks, Newsweek and The Daily Beast have learned. The financial disclosure report Ryan filed with Congress last month and made public this week shows he and his wife, Janna, own stakes in four family companies that lease land in Texas and Oklahoma to the very energy companies that benefit from the tax subsidies in Ryan’s budget plan.

[....]

Aside from the land-lease income, Ryan could also personally benefit from the package of subsidies and incentives he has fought to protect. According to a report from the Joint Committee on Taxation, Ryan himself would be eligible to recover money from the government for investments the four family companies might make in such things as machines and maintenance if they didn’t pan out on the properties and failed to generate revenue.

See? He wasn’t trying to help the oil companies in any way ! So take that, haters.

(And I am sure I don’t have to point out that having his investments guaranteed by the federal government should in no way be taken as an endorsement of “big government!” By that I mean it shouldn’t be taken as an endorsement of the kind of “big government” that might help other people’s families.)

But wait. Stone has more:

Ryan’s office says the congressman wasn’t thinking about himself or the oil companies that lease his land when he drafted the budget blueprint that extended the energy tax breaks. “These are properties that Congressman Ryan married into*,” spokesman Kevin Seifert said. “It’s not something he has a lot of control over.”

(*Editor’s note : Back in the olden days, they used to call that kind of thing “sleeping your way to the top.” I mean, that’s what they would have called it if a woman did it. LOL!)

But now I’m confused. Not thinking about oil companies? Not trying to provide for his family? Who was he thinking about, then? I mean, we’re talking about a hugely expensive provision that ought to have been an easy target in a proposed budget that slashes pretty much everything else. So are we to believe that it just sort of happened, miraculously and serendipitously, without any kind of thought or planning or intent, that the oil subsidies somehow escaped becoming one of Rep. Ryan’s tough choices ?

Yes! That’s right! It is just a lucky, happy coincidence that sparing these enormous tax breaks for the oil, mining, and other energy industries (as long as they aren’t green) would just accidentally happen to result in the continuation of lucrative benefits to the budget’s author and several industries to which he is no way beholden! Alevei!

So I have to say, this all leaves me with some questions about Zingales’s judgment. And now that I have a better idea about the kinds of characters with whom he associates, it is much more clear to me why in the Times op-ed that this post was originally going to be about, he had to go and resort to a completely bogus and unoriginal party-line characterization of career academics (a group which, as he does point out, includes himself, although there is more to say about that and I will say a bunch of it below).

And who could be more credible than an actual professor when it comes to helping to disseminate the kinds of facepalm-inducing stereotypes of professors in which some on the right seem to delight in trafficking?

Specifically, Zingales does this by suggesting that student financial aid in the form of Pell grants (direct aid to students that does not have to be paid back) and subsidies that support federally guaranteed student loans (by keeping interest rates relatively low — although I’d like to introduce you to mine sometime — and paying the interest as it accrues on behalf of students while they are still in school) constitutes “an undue subsidy for the producers (universities)” that results in “the creation of a privileged class (professors like me) at the expense of everybody else (students and taxpayers).”

You know, because professors are exempt from federal taxes! (Wait, you didn’t know that?) And we are a completely distinct class of citizens from students because we were never students ourselves! (Pay no attention to all those diplomas we had to get in order to get hired by a university.) And we never needed financial aid! And even if we did, none of us are still paying back our student loans! And even if we are, it’s not like any of us have been paying them back for 10 years and have already paid back twice what we borrowed in the first place and still aren’t there yet!

Anyway, where was I? Oh yeah, Zingales and that “privileged class” of professors.

In the AAUP’s 2012 survey of faculty salaries at 1,251 U.S. colleges and universities, Zingales’s employer, the University of Chicago, ties with Columbia University for the #2 spot in the rankings of Average Faculty Salaries by institution for 2011-12. (Harvard edged ‘em out for the #1 spot by just $600 at the full-professor rank. That’s gotta hurt.) The AAUP reports the average salary for full professors (Zingales’s rank) at Chicago as $197,800, which if you have ever met any professors, you probably will not be surprised to learn (or maybe you will be, I don’t know anymore) is enough to earn Chicago the enviable designation of “far above median,” reserved for institutions whose faculty salaries are in the 99th percentile nationwide.

I hope it is obvious from this that not all professors are “professors like” Zingales when it comes to their earnings and that most professors (i.e. the 99% of all U.S. professors who are not at institutions with salaries that are “far above median”) are in fact not at all like him in terms of salary or membership in the “privileged class” in which he correctly acknowledges his own position.

And let’s make it clear that I am making the case for his unique privilege among faculty members in the U.S. solely on the basis of the published median at his rank at Chicago, meaning that I am not factoring in the additional earnings that Zingales enjoys as compensation for his professional activities outside the university, which also serve to differentiate him from most of the rest of us. Additionally, I am also not factoring in his status as the holder at Chicago of a named chair as well as a named fellowship (“named” indicating that these positions are funded by endowments) — as I mentioned above, he is the Robert C. McCormack Professor of Entrepreneurship and Finance and David G. Booth Faculty Fellow — which suggests that his salary is likely to be greater than the median for full professors at his institution, most of whom presumably do not hold an endowed chair or fellowship, let alone one of each.

In the AAUP analysis, faculty salaries at Western Michigan University, the very fine state university where I am a faculty member, are classified as “far below median” for all academic ranks, including mine: associate professor. Associate professor salaries at WMU are in the 18th percentile, which even an English major like I was can easily see is indeed “far below median” (We’re #339! We’re #339!) and which is of course to say that

The average associate professor at 82% of U.S. colleges and universities earns more than the average associate professor at Western Michigan University.

(I highlighted that because seriously.)

So you’ll have to forgive me for thinking that it is really something for Zingales to imply that professors in general are central to the budget problems associated with higher education (rising tuition costs, increasing student debt) because we are pulling down so much bank, which please. I mean, it is really something if that is in fact what he’s saying. His phrase — “a privileged class (professors like me)” — is ambiguous as to whether he means that most or all professors are “like” him by virtue of our simply being professors, or whether he means to designate specifically and exclusively the few who are “like” him by virtue of their high salaries (by academic standards, anyway), which are actually quite rare in a profession in which salaries are overall relatively ungenerous when you consider that an expert with a doctoral degree at the absolute top of their game and the height of their career is considered to earn “far above median” with an annual salary that doesn’t even crack $200K.

Still, within the academic world, as in most of the rest of the world, $200K is one hell of a lot of money, so if what he means is that we’re all in it with him by virtue of our simply being professors, then it’s a pretty disingenuous statement, since 99% of us will never get anywhere near the mythic “far above median” world that he enjoys. Even if he does not mean to imply that his extremely privileged situation is even remotely like the average experience of postsecondary faculty nationwide — and the AAUP numbers and I can both tell you it is not — that is a distinction that is going to be lost on a lot of his readers. (“After all,” he says, “how can we scholars criticize crony capitalism when we benefit from it?” We scholars. Even a lot of professors who aren’t far above median –professors like me are scholars.) It would be kind of adorable if so many people didn’t already believe that we’re all pulling down six figures and working maybe two hours a week and didn’t already resent the living hell out of us for it. As prolific and celebrated a writer as this guy seems to be, he could have easily avoided that kind of ambiguity if he’d wanted to.

Zingales calls higher education “the least competitive and most subsidized industry of all.” As an example of that, he notes that “Nearly eight million students received Pell grants in 2010, costing $28 billion.” He does not mention that the maximum award is $5,500 for an individual student in an academic year or that the average award in 2011-12 was $3,711. Given that tuition and fees at public universities are usually in the neighborhood of about $10,000 [1] per year for in-state students (a figure that does not include room and board, estimated at about another $10K annually by several of the schools whose cost data I consulted on this topic), the Pell grant program may be costly, but the grants don’t go very far when we’re talking about actual students. As Thomas B. Edsall recently pointed out, “In 1979-80, the maximum Pell Grant covered 99 percent of the cost of a community college, 77 percent at a public four-year college and 36 percent at a private four-year college. By 2010-11, these percentages had dropped to 62, 36 and 15 percent respectively.”

(Zingales also doesn’t mention that if his favorite not-beholden strong believer in free markets had his way, the Pell problem would be even worse, as Richard Kogan and Kelsey Merrick report in their April 2012 analysis, “President’s Budget Would Reduce Pell Grant Shortfall; Ryan Budget Would Nearly Triple It.”)

And Zingales asserts that “Just as subsidies for homeownership have increased the price of houses, so have education subsidies contributed to the soaring price of college. Between 1977 and 2009 the real average cost of university tuition more than doubled.” That sounds a lot like what I read yesterday in the Chronicle of Higher Education, which reports that “Mr. Ryan has been vocal in saying he thinks that increasing federal student aid enables institutions to continue to raise tuition.”

So, is Zingales Ryan’s point man on higher ed? You know what? I actually don’t care whether he is in any official way or not. It’s just the same old partisan hackery whether Zingales is an official campaign surrogate or not, only in this case it’s dressed up as intellectual discourse and as such it represents a less-than-transparent attempt to legitimize Ryan’s appalling budget proposal and his candidacy. No thanks.

For that reason, I decline to engage in an analysis of the relative merit of his proposal for equity financing of higher education, although my original intent was to take his proposal in good faith and engage with it accordingly. There is no question that my position on this topic is political, so I don’t have a problem with his position also being political. The difference is that I do not pretend mine isn’t. [2]

If you would like to read more on the equity-funding idea, please check out Matt Yglesias‘s far more concise take on what’s wrong with the proposition than mine would have been.

To close, I am going to turn things over to another economist, one whose judgment of character and command of the issues as they affect most Americans who are not wealthy has in my view a lot more to recommend it. Dr. Paul Krugman has this to say about Zingales’s golden boy:

Like Bush in 2000, Ryan has a completely undeserved reputation in the media as a bluff, honest guy, in Ryan’s case supplemented by a reputation as a serious policy wonk. None of this has any basis in reality; Ryan’s much-touted plan, far from being a real solution, relies crucially on stuff that is just pulled out of thin air — huge revenue increases from closing unspecified loopholes, huge spending cuts achieved in ways not mentioned.

Read Krugman’s whole article. It’s good.

To summarize: Some guys who have got theirs don’t want anyone else to have what they have. You’ll have to forgive me for getting tricked temporarily into thinking that there might actually be something new and worth talking about in Zingales’s op-ed. But no. Nothing to see here.


[1] The $10K figure is an approximation made on the basis of published tuition and fee schedules at nine state universities in various regions of the country surveyed for this post. The numbers in parentheses given for each school on the list below represent the total tuition and fees for one academic year (not including summer) and do not include costs for books and supplies, room and board, other living expenses, or any additional fees that may be required for particular majors or programs of study.

Arizona State University, Tempe ($9,724)

The University of Georgia, Athens ($9,842)

The University of Iowa, Iowa City ($8,057)

Kansas State University, Manhattan ($7,195)

The University of Maine, Orono ($10,594)

Rutgers University (NJ), New Brunswick ($13,073)

The University of South Carolina, Columbia ($10,488)

Washington State University, Pullman ($11,386)

Western Michigan University, Kalamazoo ($9,138)

[2] Here in its entirety is the information about Zingales that accompanies “The College Graduate as Collateral,” his June 13 New York Times op-ed:

Luigi Zingales, a professor of entrepreneurship and finance at the Booth School of Business at the University of Chicago, is the author of “A Capitalism for the People: Recapturing the Lost Genius of American Prosperity.”

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