Economic Science, The Fossil Fuel Divestment Movement and the Role of Universities in Political Debate

Students and Faculty at some universities are calling upon such institutions to sell investments in companies that extract or refine so-called "fossil fuels."  These advocates invoke scientific evidence purporting to establish that reliance on such fuels is causing "Global Climate Change," previously known as "Global Warming."  They also claim that, by investing in such companies, endowments are "funding climate change," and that divestment by various universities will visit economic harm on such firms, discouraging the production of such fuels.

Science is often a useful guide to Public Policy.  However, as previously explained on this blog (see here, here and here), so-called Progressives often reject the dictates of basic economic science when formulating policy recommendations or interpreting economic events. Unfortunately, proponents of such divestment have invoked science selectively.  The purchase of common stock traded on a national exchange does not "fund" that firm, which presumably issued the shares in question long ago in an initial public offering. Moreover, as Professor Todd Henderson at the University of Chicago Law School explains, divestment will not alter firms' stock prices and thus will not put financial pressure on publicly-traded firms.  Stock prices reflect "an estimate of the cash flow that ownership of the stock will produce in the future."  Moreover, sales by university endowments or other investors do not impact the demand or supply of coal or oil and thus have no impact on any firm's future cash flow.  Thus, as Henderson points out, after any divestment, the economic value of individual stocks will remain unchanged, and "others will stand ready to buy the shares at the current market price."

Henderson also explains how divestment will force schools "to accept lower returns than would otherwise be available" and thus deprive schools of much-needed endowment income.  As Henderson points out, Swathmore, with an endowment of $1.5 billion, estimates that such divestment would cost the school $20 million annually, or over $12,000 per student.  (See here for the size of Swathmore's student body.)  Thus, divestment would require schools to raise tuition significantly and/or substantially reduce the quality of their teaching and/or research.  So far as this author is aware, proponents of divestment have not identified alternate sources of revenue to replace that which would disappear following divestment.

It should go without saying that debates within the academy about institutional policies should consist of reasoned argument supported by evidence and logic. As the divestment movement spreads, Henderson has done Higher Education a useful service by reminding us that the economic logic behind much pro-divestment rhetoric does not withstand scrutiny.  Hopefully academic proponents of divestment will adhere to academic norms, heed the teachings of economic science, and develop alternative rationales to support their demands and/or channel their efforts to reduce carbon emissions in other directions.  Indeed, Henderson himself suggests that, in lieu of divestment, schools could "source their energy from more renewable sources[.]"  Presumably such re-sourcing would increase schools' energy costs --- otherwise schools would have already engaged in such re-sourcing simply to reduce costs.  In fact, many schools have already followed Henderson's advice, overtly investing resources in efforts to reduce carbon emissions for the sake of doing so, independent of whether such efforts reduce energy costs.

Should schools embrace Henderson suggestion and invest resources in reducing their carbon emissions?  This blogger respectfully disagrees with any suggestion that schools invest scarce resources in reducing their carbon emissions unless, of course, such investments produce net reductions in the school's energy costs.  Such investments necessarily divert resources from teaching and research, in service of ideological objectives entirely unrelated to the academic mission of a university.  As Henderson's colleague Geoffrey Stone recently explained "universities should not take ideological or political positions."  Moreover, as previously explained on this blog, a university that purports to provide a liberal education should not consider itself authorized to inculcate its students with the school's own version of moral or political virtue.  In the same way, such universities should not consider themselves authorized to expend scarce resources furthering ideological objectives unrelated to teaching and research.  Universities are not politically-oriented think tanks or service organizations. Instead, they exist to create and transmit knowledge, including knowledge about the existence, causes and possible cures for social problems like climate change.  Diversion of resources away from academic programs to unrelated projects hampers the achievement of this core mission and blurs the lines between research and education, on the one hand, and political activism, on the other.

Should Colleges Encourage Students to "Give Back?"

Said Americans Should Give Back

Disagreed

The September/October edition of Washington Monthly Magazine includes the publication's annual rankings of the nation's colleges and universities.  As the magazine's editors explain, these rankings self-consciously eschew some of the metrics ordinarily employed to assess the quality of institutions of higher education.  For instance, the rankings include no data on the academic quality of incoming students, instructional quality, breadth of course offerings, or whether graduates succeed at obtaining remunerative employment or admission to professional schools.   Under this system, then, a school with mediocre students, horrible teachers, a small number of over-subscribed course offerings, and armies of unemployed graduates could outrank schools that excel on all of these metrics.  

Instead, the Washington Monthly rankings purport to measure each institution's "contributions to the public good," as measured by performance in three broad categories: "(1) Social mobility (recruiting and graduating low income students); (2) Research (cutting edge scholarship and PhDs granted and (3) Service (encouraging students to give something back to their country)."  Washington Monthly asserts that these "three measures would make the whole system [of higher education] better, if only schools would compete on them."  The issue employs these measures to rank universities in four different categories: (1) national universities; (2) liberal arts colleges; (3) master's universities and (4) baccalaureate colleges.

Hopefully colleges and universities will reject Washington Monthly's invitation to compete on these three metrics to the exclusion of others.  In particular, liberal arts colleges should categorically reject calls to "encourage students to give something back to their country." Ditto for national universities that purport to offer a liberal arts education, as many do.  Free societies allow individuals to select and pursue their own vision of the good life, or, as Jefferson put it, to "pursue happiness," so long as that pursuit does not injure others.  A sound liberal arts education in a free society should provide individuals with the intellectual tools and inclination to examine their own lives and determine for themselves what obligations they have to others and society at large and how to discharge such obligations. Schools that purport to provide such an education should not, therefore, consider themselves authorized to select their own version of the good and "encourage" students to embrace and pursue that particular normative vision.  Such an approach hijacks institutions that provide a liberal education and employs them to inculcate students with a particular and controversial vision of moral virtue that reflects the political preferences of each school's leadership.

Proponents of Washington Monthly's vision would no doubt claim that it is "obvious" that individuals who attend the nation's colleges and universities have an obligation to "give back" to the larger society. Think, for instance, of John F. Kennedy's inaugural address, which challenged each American to "ask what you can do for your country[.]"  Many treat this admonition as a fundamental part of the American Creed --- as fundamental as Jefferson's right to "pursue happiness."  Some might even contend that college students have a heightened duty to "give back," in so far as they are fortunate to have received educations not always available to their fellow citizens.

If the existence and content of the duty "to give back" is so obvious, then one might ask why universities must expend scarce resources to propagate this view to their students and tout the fact that they are doing so.  Of course, the existence of such a duty is not obvious. While certainly eloquent, President's Kennedy dictum and the philosophy it expressed are not without equally powerful detractors. Indeed, just one year after President Kennedy's address, Milton Friedman, who would later receive the Nobel Prize for Economic Science, rejected Kennedy's dictum because it "implies that government is the master or the deity, the citizen the servant or the votary."  "To the free man," Friedman continued, "the country is the collection of individuals who compose it, not something over and above them."  See Milton Friedman, Capitalism and Freedom (1962).  Consistent with Friedman's views regarding the appropriate relationship between the citizen and the state, this blogger has previously argued that even billionaires have no generalized duty to "give back" over and above the hundreds of millions of dollars in taxes the State extracts from such individuals and redistributes to others. Government exists to serve the people --- to facilitate individual efforts to pursue happiness. Governments that do so are simply discharging their pre-existing obligation under the social contract; performance of such obligations does not imply that citizens must serve the State.

One need not believe that Friedman was correct and President Kennedy was wrong to reject Washington Monthly's advice to the nation's universities.  One must instead merely understand that there are competing philosophies regarding the appropriate relationship between the citizen and the rest of society, some quite inconsistent with that espoused by Washington Monthly.  Some reject altogether any duty "to give back."  Others derive such a duty from particular religious commitments, while still others invoke a purely secular basis for such a duty.  Some emphasize one's duty to other individuals, while others emphasize a duty to the State or some other manifestation of the community as a whole.  A sound liberal education equips individuals to evaluate these competing accounts and to choose properly between them.  A University whose leadership selects a particular vision and seeks to inculcate its students with it short circuits the educational process and reveals a lack of confidence in the quality of the education it provides.