Comment by notdrunkatall | Hacker News Reader

Comment by notdrunkatall | Hacker News Reader

Supply and demand, supply and demand, supply and demand.

I wish more people understood this most basic law of economics.

If the supply of people who are both willing and able to handle the position of university President is low, wages (which are the price of labor) will rise, thus enticing those who are able but not willing to meet the demand. The prevailing average wage rate for university Presidents is simply a reflection of the price point at which the supply and demand curves of capable labor for this position meet. Conversely, if there was an abundance of people who could fulfill this position, wages would decrease commensurately. There is nothing wrong with someone making $1 million, or $10 million, or $100 million for performing a function, provided that wage is being offered to everyone who can perform that function indiscriminately. Of course, a system made up of imperfect agents will not function in a theoretically perfect fashion, but this is more or less how things work. I'm sure that being the President of a university is not without its myriad challenges, and it is unlikely that the average Joe off of the street could perform this function well. Thus, wages for university Presidents are going to be higher than the average Joe's wages. The solution for the average Joe is not to attempt to bring down the wages of the university President, but to aspire to become capable of performing the function of the university President himself.

Simplistic? Perhaps, but sometimes it's advantageous to think of things in simplistic terms. No one escapes the pot when everyone is being pulled back down.

I wish more people understood that the models they were taught in Microecon 101 are not a particularly accurate representation of the actual inner workings of human society.

That makes sense when the product in question faces a market test, but here that condition doesn't apply. Almost all universities are organized such that they are run by perpetual boards of directors, with only nominal oversight by a state AG.

The selection process for such board seats is not designed, nor does it, produce members whose incentives are identical to a hypothetical person privately purchasing college president labor from among all available choices.

Among other things Presidents themselves, after a reasonable tenure, have large influence on the composition of their boards.

How is this different than politics or nepotism within a private corporation or charity?

What about postsecondary education will keep larger market forces (i.e., attendance rates and donation levels) from solving this problem?

Educational markets move very slowly because almost all the value in a degree comes from reputation effects, and those are mostly solidified for each person when he is young. So they change as people die off rather than as the underlying res changes.

The supply is artificially restricted by the way that people think the job can only be done by a small incestuous class of people. The qualifications seem to be a mastery of jargon and social norms in this sub-culture. Are these presidents really adding $1 million of value a year? Or are they just another part of America's self-entitled leadership class that doesn't seem to have any checks on it?

Their job is to raise money. If they bring in $200 million in donations, is a $1 million salary really so out of line?

If the government wasn't paying for tuitions like they are now, these prices formed by "supply and demand" would be much lower.

I generally agree with your implied point: that government subsidization of education leads to price inflation in that sector, but these are private schools, where government subsidies do not (to my knowledge) apply.

The state governments do not directly fund the private institutions, but they still get a lot of government subsidies indirectly. The students can only afford to pay tuition thanks to federal loans and grants, and the professors can only afford their research thanks to government research grants.

I down voted you by accident. You are correct. Imagine a world with no 3rd party student loans. Schools would become cheaper pretty fast.

If there are a lot of people looking for an assassin, and there are only a few reliable assassins, the cost of an assassin will be high, and good assassins will make a lot of money.

Does this mean that assassins making lots of money is morally justified? Does it mean that assassins are good for society, or that they deserve their pay?

Of course not. It means none of these things. Markets are amoral. Supply and demand have no moral content. Articles like this appeal to a moral logic, not an economic logic, and they are not wrong to do so.

There are other reasons why college presidents are scarce; colleges are scarce. And it's not like a thousand new colleges can spring up tomorrow to address this scarcity, because colleges have value based on social and network effects like reputation and association with elite social classes. Colleges can extract rents due their relative social position; these rents may even be immoral. I believe colleges are aware of this, and try to whitewash it with grants and aid, but is it enough?

I think you're treating the issue way too flippantly, and yes, simplistically.

I was actually surprised that the figure is so low. It feels like anyone able to do the job of a college president should be able to make more than $1m in other industries (Wall St.? Tech companies? Government?) Of course the market doesn't lie, so perhaps talent at that caliber is less expensive than I expected (or perhaps the caliber is lower than it appears).

Or the other option is that the market does lie.

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