(Stanford) School of sustainability

The Grumpy Economist ^ | May 23, 2020 | John Cochrane

[karpov]

In a few recent posts, I was critical of university endowment practices. Why build up a stock of investment, rather than invest in faculty, research, or other core activities? Why wall that pile of assets from being spent, especially when budgets are cratering in a pandemic? When we see businesses with piles of cash, we infer they don't have any good investment projects, and the piles are ripe for diversion to bad ideas.

But universities are non-profits, and one major piece of being a non-profit is that the business is protected from the market for corporate control. If you see a business wasting money on bad investments, buy up the stock, fire management, and run it right. Repurchases were part of an earlier reform effort, to stop management from wasting money on aggrandizing projects.

Perhaps restrictions on endowment spending serve a somewhat parallel function for universities. Perhaps I was wrong to criticize so harshly.

These thoughts are brought to mind by Stanford's announcement of a new school "focused on climate and sustainability." A "school" is bigger than a center, an institute, a department, a division. Stanford has seven "schools," Business, Education, Engineering, Humanities & Sciences, Law, Medicine, and, yes, Earth, Energy & Environmental Sciences.