February 20, 2014

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Harvard, a $33 billion hedge fund with a university attached, has received the largest donation in its history. Citadel founder Ken Griffin has pledged to give the university $150 million.

The donation will support 800 eponymous scholarships, and a new business professor. The office of financial aid, along with its director, will also be renamed in his honor. Harvard already employs need-blind admissions, and has made no indications that it is under any financial pressure to end that policy. 60% of its students receive financial aid.

Matt Yglesias thinks the fact the money will be spent on financial aid means that “in the scheme of misguided donations to Harvard this one seems not-so-awful… But really it’s child’s play to think of a better use of $150 million than to give it to the richest university on the planet”.

Griffin seems to have had his mind set on giving to Harvard. Griffin says he’s been talking to Harvard President Drew Faust, and her predecessor, Larry Summers, for 15 years about a gift, and that talking to Lloyd Blankfein pushed him towards financial aid. Giving to African universities apparently wasn’t considered.

Richard Vedder thinks adding to Harvard’s riches will do the opposite of what Griffin intends: massive endowments promote inefficiency and are anti-meritocratic. Data shows that schools with bigger endowments have bigger administrative staff, admit a shockingly small number of low-income students, and favor the progeny of their elite graduates in admissions.

All this while enjoying numerous federal subsidies: Harvard’s income from capital gains, interest, and dividends is all tax free, and the donations it receives are tax deductible. (Griffin’s gift gets him about $60 million in tax deductions.) We actually don’t even know how much the tax deductibility of donations is costing us because the figure isn’t fully tracked by the Joint Committee on Taxation.

In 2010, Richard Thaler, a professor at the University of Chicago Graduate School of Business, proposed scrapping the current charitable deduction entirely, saying that while giving is laudable, “I don’t think it says anywhere in the Bible that tithing should be calculated on a before-tax basis”. Poignantly, the institution that employs Thaler is now the Booth School of Business, thanks to a $300 million tax deductible donation.

Five years ago, when Harvard’s endowment was 20% smaller, the NYT’s Randy Cohen made the case that is was unethical to contribute to the university’s already overflowing coffers. Since then, Harvard has announced a $6.5 billion fundraising campaign, which it says will use to “bolster key priorities” that are presumably insufficiently supported by its current endowment. That campaign was launched with a donation from Bill Gates.

The rich can give away a lot more than the rest of us, but as Felix pointed out when John Paulson gave $100 million to his neighborhood jogging path, that doesn’t make them good at it. — Ben Walsh

On to today’s links:

New Normal
Wal-Mart’s earnings: a lagging indicator of the state of US anti-poverty policies – Reuters
The problems with economic models of climate change – Robin Harding

NFL Commissioner Roger Goodell gets paid $44 million to run a nonprofit – Ryan Chittum

The Fed won’t let “paltry job creation” get in the way of the taper – Binyamin Appelbaum

Fraternities are pretty awful, and also surprisingly sophisticated liability insurance organizations – Caitlin Flanagan

“Facebook just bought the only app that could truly call itself a Facebook killer” – John Herrman
“The right way to think about value, I think – not ‘OMG $16bn!”, but ‘is this worth 10% of Facebook?'” – Benedict Evans
Facebook acquires WhatsApp for $19 billion – SEC

Even More TBTF
Tech companies are a systemic risk – Quartz

Matt “Giant Vampire Squid” Taibbi leaves Rolling Stone to join Pierre – NYT

Legal Arcana
Court says BofA can garnish a Congressman’s wages to pay back a loan he took out for his car wash business – Kansas City Star

Data Points
Looking at the returns of peer-to-peer loans – Jonathan Ping

Good Questions
Unions are declining in the US. Can we replace what they do? – Evan Soltas

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