Archive for March, 2008

Huge profits in college education

Every so often the local newspaper here publishes a story about the huge profits made at one of the local universities. I have no problem with a school making a profit. Schools and places of worship also receive tax exempt status. I have no problem with that either. However, I do see a problem with huge endowments and the associated for-profit investing activities at schools.

Schools are in the business of educating. It is on that basis that they receive tax exempt status. When significant activities and resources are dedicated to building an investment portfolio, they are also in a business of making money – and that extends beyond the business of education.

Additionally, consider whether schools really should be involved in investing activities. Investing is risky. Are schools willing to accept losses? Are the supporters and alumni, whose donations are being invested, willing to accept the risks? So far things have been rosy. But what happens when the first school experiences significant losses? I assume the government will be expected to bail them out. Schools are not in a position to handle losses, which is a strong indication that they should stick to what they know best – education.

The practice of avoiding the payment of taxes is unethical. There have been many situations where businesses devise schemes to avoid paying taxes and those schemes are frowned upon. Consider this one where the top contrator in Iraq “skirts US taxes”. How is this different from what schools are doing? Why are schools allowed to “front” as an educational entity, while running significant non-educational operations?

If schools are participating in significant non-education activities they should be treated accordingly. Perhaps it is time to consider taxing private educational instituations? Perhaps separate business entities must be established for non educational activities – and those are taxed? Something must be done.

Schools must remain in the business of educating. It is unethical for an educational institution to significantly participate in other activities – whether they are profitable or not. Congress needs to take action and close this loophole. While the practice of building an endowment is not illegal according to the letter of the law, it is unethnical and not in conformance with the spirit of the law.

March 28, 2008 at 10:57 am Leave a comment

The high price of gas

There is quite a bit of talk of the high price of gasoline and that it will likely cost $4 per gallon soon. Some people refer to this with “outrage” or a “crisis”. Why isn’t someone, such as the government,doing something about it.

Perhaps the cost of gas isn’t that high, considering inflation. I’ve read gas prices have not matched inflation. This chart indicates that inflation has not match increasing gas prices. This article indicates that the current peak prices have recently exceeded inflation. By and large, gas has been relatively cheap.

And why isn’t someone, such as the federal government, doing something about the cost of gas? Because they don’t see the situation as being that bad. A sort of natural equilibrium exists in the industry.

The sources of oil don’t want the price to increase to drastically. That produces behavior which cuts demand drastically: consumer start conserving. businesses reliant on oil cut back, alternative energy sources gain momentum, etc. If any of these efforts have a high degree of success, it could drastically affect the demand for oil in the long term.

If the feds saw a true crisis, there are plenty of options available to the U.S. government. There are U.S. reserves that could be drawn upon. There is plenty of oil here in the U.S. and North America, and those could be relied upon more heavily. The situation isn’t at a point yet where those measure are believed to be needed.

So things just aren’t that bad. An adjustment to the price of oil is in process. A year or two from now, $4 for a gallon of gasoline will be accepted and the economy will have adjusted. People will back back to driving their 12 mile a gallon SUVs.

While I think I understand the situation, my personal views are much different. The U.S. (and the world) needs to end its reliance on oil. While I believe in free markets, I think the government should step in and put a large tax on gasoline (start at 25 cents/gallon and over the course of several years raise it to $3/gallon). That would accelerate activity in industry to seek alternatives. That may seem extreme to many Americans, but it is already the norm in Europe.

A political side-effect, and one that is quite beneficial, is that without the reliance of oil, the Middle East can grow at its own pace. Industrial nations will have no need to interfere with those oil producing nations, and those nations can evolve at their own natural pace – without the U.S. (and other industrial nations) pushing them along because of their thirst for oil.

March 26, 2008 at 7:36 am Leave a comment

Recycling

I just came across this news story on recyling. That is when I realized I didn’t really understand the difference between recycling and redeeming. I think redeeming bottles means one can take a bottle to a store a receive the deposit for it (typically five cents here in Mass.). Recycling (as implied by the article) is when a truck comes by and picks up recycled items, typically stored in a separate container.

Of course, everyone has their take on it. The homeless want more opportunities to make a nickle. The state sees this as a revenue opportunity, because they make money on unreturned bottles. The environmentalists love the idea, because every effort should be made to recycle anything that can be recycled – even when recycling consumes more energy. And finally, there are those that believe deposits on bottles (paying people to return bottles) takes away from other recycling efforts.

Is it possible to determine if recylcing simply makes sense? I recall the effort to recycle started as a way to preserve natural resources and limit waste. Those items were not really discusssed much in the story.

March 24, 2008 at 8:54 am Leave a comment


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