Wednesday, September 24, 2008

The "story behind the numbers"

I just received an envelope from Notre Dame, an institution whose alumnus I am. It begins with "[t]here is always a 'story behind the numbers.'" The problem is that the story means different things to different people. Numbers are often a rather sophist thing: you can make them say whatever you want them to say if you just look at them in the 'right' perspective and, occasionally, eliminate or disregard some of the more uncomfortable ones.

Case in point, and please bear with the numbers, because quite a few of them will follow in rather quick succession. The letter I received states: "Over the past 9 years spending on undergraduate financial aid at Notre Dame has risen from $28 million to $76 million this year - a 172% increase." Impressive, wouldn't you say?

Unless you consider that in 1999, when I went there, tuition was somewhere a bit over $20000 a year, say $21000. Increasing tuition by 5% each year (on average) would bring us today to $32577 a year. According to Business Week, tuition is actually $34680 a year. Assuming I was a bit off with my memory for tuition in 1999, a 5% annual increase seems to be in the ballpark.

Now, with an undergraduate body of 8352 students, the difference in tuition between 1999 and 2008 for the entire undergraduate body results in an income increase to Notre Dame of over $100 million. Of this 100+ million, the increases in undergraduate scholarships cover a bit less than half (48 million), which means that the actual increase in cost to the students is somewhere over $50 million. This would correspond to about a 3.5% annual increase in tuition costs. Considering that the median US income in 1999 was about the same as that in 2005, and that 2006 to 2007 showed a 1.3% increase by one measure and 3.8% by another in the same median income (see source here), all these numbers are telling me is this: it was unreasonable to raise tuition so much faster than income, so we had to bring it closer to what it should have been with scholarships. Wasn't it nice of us? I mean... 172% increase in financial aid?

Which brings me to my final thought. A lot is being written about the $700 billion rescue package proposed these days. The trouble is that unless you know all the numbers - and I do mean all the numbers, you can't know what it means, how it's going to work, and whether you can trust it. And there are two problems here: first, that people are very good at choosing the numbers that make them look good and presenting just those. Second, that in the case of the economy there are significantly more numbers than in the puny Notre Dame example above.

So what does this all mean? For me, just that I need to keep praying - not specifically, just as a matter of discipline. Prayer doesn't lie. Numbers... what numbers?


Blogger Philippa said...

Not to demean your point re: the financial crisis, the math you did for your alma mater may be technically correct but keep in mind...

...what percentage of students receive financial aide? In many institutions, over 80% do. That means that 10% or less are paying full freight. There are a lot of institutions that award 99% of their student body financial aide. Rarely does any student pay the full tuition.

Just a few meager thoughts.

9:20 PM  
Blogger Virgil Petrisor said...

My only point was that the money paid by the student without financial aid (on average) would have increased at a significantly faster pace than income. With financial aid, the tuition cost (again, on average) increased at a smaller rate, though one very similar, if not still higher than the increase in incomes.

I realize that a lot of students receive financial aid (I was one of them). That does not change my argument at all (unless the students have a full scholarship, which most do not). On average, without scholarships students would be paying a significantly larger portion of their parents' income on tuition in 2008 than they did in 1999. With scholarships, that percentage is closer to the 1999 figure but by no means smaller.

9:29 PM  
Blogger Laura said...

Thanks for the advice about prayer...this economic situation has me a bit worried..

6:56 AM  
Blogger -tba said...

The problem with today's banking situation is that no one knows precisely what the numbers in question are. If you paid $200K for a house, and three of your 10 neighbors with similar houses went to foreclosure and the bank resold the homes for $100k, $150k, and $130k, what is your home worth? How much will it be worth in 5yrs?

This is the ultimate question behind behind the big financial "rescue." The federal government, and most economists, believe that in five years the average home price in the hypothetical neighborhood will be less that $200k, but more than $100k. However, because some neighborhoods will never come back, the houses built there will be worth almost nothing. Thus, no single investor is willing to bet on a single risky pool of mortgages, but the government, having the ability to take a longer view and deeper pool of cash, can buy most of them. Sweden did something very similar in 1991 and held off a banking collapse. There's more on my blog.

1:27 PM  
Blogger Lissa said...

Does TBA's blog defend why my tax dollars should fund elaborate corporate retreats and give Christmas bonuses to big shots on Wall Street, of which the smallest bonus to an individual person is more than twice my annual salary? Or is no one else concerned by the fact that after a big insurance corp took a bunch of tax dollars, they gave out well over 100 employees end-of-the-year bonuses that were $92k or significantly higher? And is the point of a capitalist economy not supposed to reward the company who is able to manage their money by cutting out non-client-oriented travel and expensive retreats when the funds don't cover those expenses? And if you're arguing for the peons who need to keep jobs (instead of the CEOs who are getting these perks) -- still, I'd rather be working at Cisco than AIG.

12:47 AM  

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