Should Harvard continue to accumulate an endowment?

Matt writes:

A university that rich [Harvard] ought to either embark on some kind of ambitious
expansion program and start educating substantially more students, or
else decide that it would unduly alter the character of the place to
expand that much and just close up the development department and enjoy
the luxury of being able to focus single-mindedly on the university’s
core teaching and research functions.

Taking this as personal advice, I agree: don’t donate your money to Harvard.  But as a matter of public policy I would not disturb the current arrangement.  First, a donation to Harvard is an act of conspicuous consumption by the rich, a bit like buying the watch that doesn’t tell time.  In other words, the donors benefit, either through a warm glow or perhaps they receive networking opportunities.  Like Bob Frank, you might think we need a new consumption tax on the rich (not my view) but even if so we shouldn’t single out Harvard as a starting target.

Second, the Harvard endowment earns a high rate of return, relative to the cost of raising the funds.  Let’s say the fund nets 10 percent a year.  There is some trickle down and furthermore even if you wish to confiscate those resources it is always better to do so later rather than sooner.  The wise guy point here is to suggest that everyone give all their money to Harvard and arrange for some ex post compensating transfer.  (I’ve heard by the way that Yale faculty sometimes demand that Yale money managers take care of their personal portfolios.)  Obviously that’s not realistic but the point remains that ten percent is a very good return on investment.  Let’s say Harvard earned forty percent a year: should this make us more or less likely to leave the current arrangement in place?


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