The Oil Drum

34 comments on On practical solutions

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pariah on October 13, 2005 - 12:16am

ianqui!
I view the economist as a chimera. half social scientist and half mathematician . At best, a strange occupation .
my current picture of the future is that the vertical nature of American society will be replaced by a pancake style . This is been suggested as a lean and mean corporate structure .
If I were an academic I would be thinking about a new career . First of all, powerdown will require that each individual pay for their existence at a simpler level where the rubber hits the road . Many disciplines have been supported by cheap oil . Trained as a sociologist , I'm expendable as we transition to the new paradigm . Fortunately or unfortunately as a retiree , I may enjoy "helicopter money " for as long as the nation survives. An economist is required , as a professional, to recognize that the United States is bankrupt . The Petro dollar is enforced by the military .
when things get ugly, membership in the cultural elite will be offered to fewer and fewer people .
The new paradigm will eat the lunch of academics .No temperature control,no students , no subsidized lunches in the faculty lounge , no traveling to speaking engagements and only one hope for the future . Cold fusion ! Don't hold your breath on that one.
Outside of the hard sciences I would recommend that academics study organic gardening . In the inevitable simplification of the future I expect that Einstein and Alfred E. Neuman will harvest tomatoes side by side . a compression of IQ that will satisfy the the egalitarians so politically ubiquitous as we speak .

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pbrewer on October 13, 2005 - 8:24am

Two things:

First, I think universities will actually do very well in an expensive-energy world. Granted, most will suffer financial setbacks (less state funding, declines in value of endowments, etc.). However, most will continue to have lots of things of value: even shrunken endowments will be a source of capital, most have land and buildings, they can always get more money from their students (if no other way, by expanding admissions of rich students). Some departments may shrink relative to others (expect agricultural departments to grow), but I think universities are likely to be one of the most stable institutions in the future, reprising their medieval history.

Second, although there are many problems with the US economy, I'm not nearly so doom-and-gloomy as most people. The US still has vast natural resources compared to the population (even if not so much oil any more). It still has lots of educated people (even if there are too many who do not have a good education). It still has a stable government (even if it's been badly run lately). If things get really bad in the world, the US is going to be one of the least-bad places to be. Unlike most of the world, there is probably enough land in the US to grow food for the entire population, for example, even with much lower oil inputs.

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marko on October 13, 2005 - 8:48am

As a resident of Boston (America's biggest college town) and a potential academic myself, I've thought a lot about this.

The fact is that the US is living way beyond its means and produces little that the rest of the world wants and not even many of the things that its own citizens want. When the Asian central banks refuse to keep adding to our tab, there will be a truly wrenching adjustment, in the form of something like the 1930s depression.

The difference between the 1930s and today is that today the US lacks a strong manufacturing sector or adequate energy resources. Without a multibillion-dollar-a-day foreign subsidy stream, I don't think that the bloated service sector can avoid a sharp downsizing.

Part of that downsizing will certainly affect universities.

Think about the main sources of funding for universities: student tuition and fees, government grants, and endowment income.

Tuition and fee income will drop sharply in a deep recession because in real terms, median incomes will drop sharply due to layoffs and pay cuts. Rich kids will continue to attend college, but their numbers will not increase.

Government grants will drop sharply because revenues will drop sharply and foreign central banks will no longer be footing the bill. Meanwhile governments will probably have to spend more on poverty relief.

Finally, every serious economist agrees that nearly all asset classes are now overvalued. That means a drop in the size of endowments. A sharp recession means a drop in the yield on those endowments as well.

This all adds up to sharply reduced income for the higher education sector. However, the impact will differ widely from one school to the next.

Universities like Harvard and Stanford, will see their endowments shrink, but they will still be huge. They are also able to attract the richest students. They will have to tighten their belts from the loss of government grants, but they will survive nearly intact.

However, most higher-ed enrollment and employment is in the run-of-the-mill, second- or third-tier public and private colleges and universities: places like Northeastern University, University of Massachusetts, or the Cal State system. These places will suffer enormously. They rely heavily on government money and cannot attract wealthy students, particularly when the more prestigious schools relax their standards for students with money. These lesser schools will have massive staff layoffs, and many of them will close their doors completely.