VRAM-elous

I marvel 

“Marvelous” Marv Throneberry was the Mets’ redoubtable, maladroit first baseman in the 1962 and 1963 seasons. His fan club wore t-shirts on which his name was spelled backwards—VRAM. Princeton approaches accounting in a manner similar to Marv’s approach to baserunning—he once was called out at third base for failing to touch both first and second bases. Princeton’s Throneberry t-shirts would read: “NOT-ECNIRP,” standing for “not-ever-correct-numbers-in-reporting-performance”—the Derrida school of accounting, or, more simply, Greek accounting.

In April, 2009, facing a meltdown of its unmarketable endowment holdings, Princeton announced that it would make “cuts,” and thereby “save,” $170 million over the following two fiscal years, and a year-and-a-half later it announced that it “reduced [past tense] spending by $170 million over two years.” So what do those “cuts” and “savings,” that “reduction,” look like on the university’s financial statements, using Not-Ecnirp accounting? Here it is: in the base year (the year before the “reduction” began) the university’s total operating expenses were $1,161,660,000; the following year (the first year of “reduction”) total operating expenses were $1,235,024,000, and last year (the second and final year of the two-year “reduction” regimen, the time of gut-wrenching austerity) total operating expenses were $1,268,513,000. Add the two years together and operating expenses increased (during the years of “reduction”) by $106,853,000, nine percent. During those same two years the consumer price index increased by five percent, which means that during the “reduction” years the university actually increased its spending by an amount four percent greater than inflation.    

To appreciate fully the magnitude and transparency of the lie, it is necessary to understand the Newspeak that the administration employs in attempting to characterize super-inflationary spending increases as “reductions.” They do it by claiming that when the president said that the university would “save” (by making two rounds of “cuts”) $170 million “by FY2011” she meant that it would cut $170 million for the PROJECTED spending, not from the actual spending. Think about that! If you can get past your initial reaction to the nonsense, you may see its potential. If the university had only had the foresight to increase its projected spending for the two-year period by another $830 million, they could have “saved” a full billion dollars by making “cuts,” or if they had increased their projections by $1,830,000,000 they could have “saved” $2 billion. And why stop there? The potential “savings” were truly limitless. The administration missed a “marvelous” opportunity to achieve historic “savings.”

And here’s the part I like best. The entire alumni body buys it.

We spend over $1,200,000,000 per year to educate undergraduates ($240,000 for each and every student, or very nearly one million dollars per student for a four-year education) and all we have to show for it is four generations of sheep. Wasn’t there supposed to be a tiger in there somewhere?

[Note: In the fiscal year ended June 30, 2011, the university paid out, spent, $124,321,000 on interest on its debt, the principal amount of which is in excess of $2,675,000,000. In the same year the amount of tuition that it collected (net of aid) was $68,910,000. This suggests a simple question: why not pay off half of the debt (unrestricted assets substantially exceed the amount of the debt), reduce interest expense by $62,000,000, eliminate net tuition (full aid for everyone), and have the same total operating expenses? Unfortunately, the answer is obvious. The university is running a highly leveraged investment game, with endowment money. Consider this: only 11 years ago (fiscal year ended June 30, 2000) the ratio of the university’s assets to debt was 24 to one (24 times as much in assets as in debt on its balance sheet); whereas in the latest fiscal year it was 7.8 to one. And of course there is an immense dose of hypocrisy in this. The university is intoxicated with leveraged, illiquid, incomprehensible investments at the very time when all of the economists on its payroll (Nobelists included) are vilifying the banks for precisely the same behavior.]