Those “Willie Sutton” Moments – Look For More and More of Them

by McQ | October 23, 2008 11:00 pm

George Will characterizes government at both the state and federal level as recently having a number of “Willie Sutton” moments. Sutton was a famous and quite prolific bank robbers of years gone by.

What caught Will’s attention[1] is something the brain trust in Congress is dreaming up (much like the 401(k) scam I talked about below[2]). In this case, it’s a bi-partisan bit of lunacy:

Sen. Charles Grassley, R-Iowa, and Rep. Peter Welch, D-Vt., recently convened a discussion of how colleges and universities should be spending their endowments. Grassley, who says more than 135 institutions each have endowments of more than $500 million, says perhaps they should be required to spend 5 percent of their endowments each year. Welch has introduced legislation to require that percentage be spent to reduce tuition and other student expenses.

This government reach for control of private resources comes even though last year colleges and universities spent, on average, 4.6 percent of their endowments. Furthermore, most endowments are too small to be a significant source of captured money.

Obviously with that much money laying around not being taxed by government, it becomes a priority to try to figure out how to force a private entity to spend its own money so that situation can be remedied and a government revenue stream established.

The excuse? Well, if we force them to spend that amount it will be a good thing, because we’ll force them to reduce tuition and other student expenses with it (while we tax the hell out of it).

However, the institutions which fit this standard ($500 million+ endowments) are already doing that more than any of the others in both those areas. And there’s also something else which would be effected if these institutions are forced to spend 5% of their endowment yearly.

But only 45 private institutions have endowments of more than $1 billion. Among the other 98 percent (1,565) of institutions, the median endowment is just $14 million. So government in a Willie Sutton mood would target the wealthiest institutions — those that are the foundation of basic research that undergirds American prosperity, and that have the most generous financial aid programs for students.

Most likely institutions will have to cut spending elsewhere in order to preserve their “seed corn”. One obvious area which may see cuts is research.

And the Feds aren’t the only ones looking for new and innovative ways to get money it doesn’t have any moral right too:

Some Massachusetts state legislators, committing two of the seven deadly sins, are angry because tax revenues do not match their ambitions, and envious of Harvard. They suggest raising more than $1 billion annually with a 2.5 percent assessment on the nine colleges and universities in the state that have endowments of more than $1 billion.

So it’s just not the “rich” 5% of citizens they’re after, it is also the rich educational institutions. In Harvard’s case, we’re now up to 7.5% gone each year (Fed and MA). And I don’t think I have to argue very forcefully that if MA makes that sort of “assessment” work (not a tax, an assessment – that’s much different, isn’t it?) other states with similar institutions will do the same.

And then they’ll begin to lower the target amount for the qualifying endowment and do it again.

Anyone? What will go up accordingly?

Tuition and fees, of course. As we’ve discussed, ad nauseum, the law of unintended consequences will again strike and instead of stimulating the desired (or promised) result, exactly the opposite will occur.

But the real nut of this article by Will is found in his concluding four paragraphs:

So it goes. The almost erotic pleasure of spending money that others have earned and saved is one reason people put up with the tiresome aspects of political life. And now the government’s response to the financial crisis, including the semi-nationalization of nine major banks, has blurred — indeed, almost erased — the distinction between public and private sectors.

Hundreds of billions of dollars that the political class would have liked to direct for its own social and political purposes have been otherwise allocated. That allocation, by government fiat rather than by market forces, must reduce the efficiency of the nation’s stock of capital. Which in turn will reduce economic growth, and government revenues, just as the welfare state — primarily pensions and medical care for the elderly — becomes burdened by the retirement of 78 million baby boomers.

As government searches with increasing desperation for money with which it can work its will, Willie Sutton Moments will multiply. Government has an incentive to weaken the belief that the nation needs a vigorous and clearly demarcated sector of private educational and philanthropic institutions exercising discretion over their own resources.

So the frequently cited $700 billion sum is but a small fraction of the cost, over coming decades, of today’s financial crisis. The desire of governments to extend their control over endowments and foundations is a manifestation of the metastasizing statism driven by the crisis. For now, its costs, monetary and moral, are, strictly speaking, incalculable.

You can’t say you aren’t being warned 12 days before the election. It’s all starting to line up. The mask is slipping fairly regularly. And if what everyone expects to happen on November 4th, does indeed happen, there won’t be a brake in the entire system to prevent those who want to tax your 401(k) or make private entities spend mandated percentages of their savings or just about any other revenue scheme they can dream up from getting what they want.

Not one.

[Crossposted at QandO[3]]

  1. What caught Will’s attention:
  2. I talked about below:
  3. QandO:

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