Capitalisn’t: Coronavirus—the Future of Universities

Luigi: First of all, we need to explain why we did not schedule a podcast last week. Our idea is that people tend to be overwhelmed with COVID news. We are planning to go back to our normal biweekly schedule and talk about our normal content, which is going to reflect a lot of COVID anyway, because COVID is changing our economy but will not be only COVID-focused.

Kate: Yeah. To be clear, I think what Luigi means by biweekly is twice a month, even though I guess technically that could be interpreted as twice a week. English is very confusing.

Luigi: It is indeed very confusing. Thanks for the clarification, Kate. But to the more important point, our listeners have been anxious for these two weeks to know whether you tested positive on the antibody test.

Kate: I, unfortunately, did not test positive, which I’m pretty bummed out about. Number one, I wanted to be a hero and be part of the solution and donate plasma and stuff, and so I can’t do that. But I’m also just scared now, because I don’t know what coronavirus is like. I don’t know what will happen if I get it.

Luigi: But look, Kate, you shouldn’t worry. I’m analyzing pretty carefully the Italian COVID deaths. I can tell you that in Lombardia—Lombardia is the region around Milan, it is the Wuhan of Italy, where the infection was most severe—when you look at people of your age, in fact, you look at people below 50, you’re comfortably below 50, the chance of dying of COVID is similar to the chance of dying if you ride a motorbike for 60 miles.

Kate: Sorry, I’m confused about two things. I don’t know if that’s high or low. It feels like that’s not that much, or maybe it’s a lot. Maybe I’m confused because I don’t know what a motorbike is. Is this like a bike or a motorcycle?

Luigi: It’s a motorcycle. Again, this is maybe my British English or maybe my bad English. Maybe it is my fantasy that people of your age are out with motorbikes and leather jackets having fun.

Kate: Yeah. I don’t know if it’s a US versus Europe thing, or a young versus old thing, but I’ve never had any desire to be on a motorcycle, and I’m not sure I’ve known anyone with that desire. Anyway, Luigi, so that was, I guess, my age group’s statistical chance of mortality. But what about you? What’s your cohort’s mortality rate?

Luigi: Actually, I am in the first decade where the probability starts to go up quite a bit. My chance of dying of COVID, if I were living in Lombardia, would be 27 times higher than riding a motorbike. Then, from there, it goes up exponentially. My mother, who is 92, has almost 2,000 times the risk of riding a motorbike. Now, she doesn’t ride a motorbike.

Kate: That would be a pretty cool picture. That’s actually how I picture your mom, Luigi, given the way that you’ve described her.

Luigi: Yes, I think that she would be cool. She’s very short, and so she would need a special motorbike because she probably cannot handle even the fancy motorbikes, the Harley-Davidsons, that are around here. But that would be a pretty cool image.

Kate: Anyway, you’re probably thoroughly confused about what we’re talking about. This is not an episode about motorcycles. Today, we’re trying to get into the heads of colleges and think about how they’re figuring out whether or not to reopen, and given what Luigi just told us about mortality rates for people in my age group, it seems like, if it’s relatively safe, maybe they should be thinking about reopening.

Luigi: In this episode, we’re going to talk about the debate on colleges reopening and what that may imply for, not only the financial structure of colleges, but also the future of university as we know it.

Kate: From Georgetown University, this is Kate Waldock.

Luigi: From the University of Chicago, this is Luigi Zingales.

Kate: You’re listening to Capitalisn’t, a podcast about what’s working in capitalism today.

Luigi: And, most importantly, what isn’t.

Kate: Based on your numbers, even if there’s a one in 100,000 chance of dying, with 20 million college students, that amounts to about 200 deaths. Can universities afford this moral and reputational cost of causing 200 deaths?

Luigi: Kate, do you have a sense of how many students every year commit suicide in college?

Kate: No, I don’t. I’m not sure I want to know.

Luigi: The unfortunate truth is, 1,100 per year.

Kate: Geez.

Luigi: The point is that universities have learned to deal with that. They don’t not operate because there is a risk of suicides. Of course, there are a lot of precautions that are introduced. I don’t think we should be cavalier. I don’t think that we should ignore this risk, but this risk should not be paralyzing us.

Kate: Wait, but now it sounds like you’re changing your tune, because a couple of episodes ago, it sounded like you were really scared by COVID and you were saying that we shouldn’t reopen anything.

Luigi: You’re right. I was very scared, and I still am. I thought, and, if I may say, correctly so, that all Western governments, but particularly the US one, were very late to the game, and that cost us tens of thousands of lives. In the United States, COVID has been almost as bad as two Vietnam Wars, so we failed miserably. But at this point we need to start to realize that we have to live with the disease. A vaccine is not coming anytime soon. Are we going to stay in this paralysis state for the next two years?

Kate: Be honest here, Luigi. A few weeks ago everyone was talking about, “Oh, what are the risks of the airlines going bankrupt?” But more recently, I know that across the board, colleges and universities have been making cuts to salaries, including professors’ salaries. Has that affected your calculus at all?

Luigi: Certainly this is something that brought the evidence of COVID to my life more directly, but it’s precisely to avoid colleges ending up like airlines that are lobbying for state aid. If colleges go that way, everybody will be in this situation. Maintaining this situation as it is forever is unthinkable. We need to start thinking about how to manage life with COVID, and the college sector is a pretty important sector. It has this feature that, except for a few old farts like me, most of the people on campus are very young, and people that are very young are not very deeply affected by the disease.

Now, I’m not a doctor, and I would like to understand more if there are some longer-term consequences of the disease, even for young people, and there was a recent article that seems to suggest that. We have to be careful with this qualification. However, we should start thinking in terms of order of magnitude, and even if you don’t ride motorcycles, you still . . . The risk that people are willing to take even by driving cars is pretty large, and that does not paralyze people from driving a car. We need to study how to make the campus safe, but I don’t think that the solution is to stop having education in the traditional way forever.

Kate: Things like mortality rates of the student population and satisfaction of the student population are at the forefront of what universities are considering in this important decision of whether to open up or go online or have classes next semester. But there’s another factor that’s quite important, which is, how much money are they going to be able to make? How much does this decision affect how many people will enroll, and also, will they be able to charge the same amounts if they have virtual classes and students can’t come to campus?

Luigi: In thinking about the financial implication of COVID for universities, I think it’s important to make two distinctions. First of all is the distinction between private and public universities. Public universities depend on the public sector for a substantial amount of money. I think that it is more likely that the public sector will come through, providing more money along the way.

For private universities, it’s a different business, because they don’t rely directly on tuition money from the state. They do derive, indirectly, money from government grants and so on. But the most important thing is, not only do universities depend heavily on tuition, some universities depend even more on money from the hospitals. Some universities are little educational centers attached to gigantic hospital operations.

Kate: I actually didn’t really know about this. I mean, even though half of Georgetown’s campus is a hospital, it never really occurred to me that they were driving revenues or profits from the hospital. I just thought that it was all a big nonprofit.

Luigi: Yeah, of course, the overall thing is nonprofit. But if you look at the source of revenues and source of costs, a lot of the surplus comes from the medical component, and this is particularly true in places like Columbia or Chicago.

Let me give you a 101 of college accounting for private universities. What I realized is that the size of the budget is roughly similar at Harvard, Columbia, and Chicago. They are all on the order of $5 billion. Harvard is a little bit more, Chicago is a little bit less, Columbia is exactly $5 billion, but we’re talking about $5 billion.

Kate: Sorry, wait, to clarify. This is how much they’re spending per year on everything?

Luigi: Actually, that’s their revenues per year. That is almost as much as their spending, but some of them have a little surplus, some of them don’t. Revenues are not equal to what they spend. Ideally, it should be more, but it’s not by a lot for Chicago. But anyway, I’m coming to that.

Just to give you a sense, tuition is $1.2 billion for Harvard, $1.2 billion for Columbia, and only half a billion for Chicago. The patient service for Chicago is $2.4 billion, so half of the budget comes from the medical center. It’s $1.3 billion for Columbia. Clearly, they represent a big chunk. Now, Harvard also has the big advantage that they have an enormous endowment. They have $41 billion of endowment, so $2.1 billion of their budget comes from their return on endowment. Chicago has a much lower endowment, so only $400 million a year is coming from the endowment.

Kate: Yeah, I was under the impression that, for these large, prestigious universities, most of their budget, what they would be able to spend, was coming from the return on the endowment.

Luigi: No, it’s not most, even Harvard is 35 percent, which is a huge amount. By the way, at the moment, it’s not going to be affected so dramatically, because the stock market dropped, but not by a huge amount, number one. Number two, they have a formula that, generally, they consume 5 percent over the increase in the endowment over the last X number of years, five years, six years. It’s this moving formula, and so, eventually, this amount will go down, but it’s not that next year this will drop dramatically. Ironically, what is going to drop dramatically, besides tuition, are the revenues from hospitals, because hospitals shifted to basically 100 percent COVID, so they have suspended a lot of so-called elective surgeries, which is the stuff that makes them so much money. The big financial hole is coming from hospitals.

If I were to bet, I think Harvard would be minimally affected, because imagine that they lose half of their tuition. It’s a lot of money, $600 million. But it represents roughly 11 percent of their budget, and they already have a $300 million operating surplus, so half of that could be absorbed just by reducing the operating surplus, and a relatively small amount of cuts will do it.

The other question that people are raising right now is, “Why don’t you tap into the endowment?” For those lucky enough to have an endowment, if you don’t use the endowment in a moment like this, when do you use it? It’s like you have a rainy-day fund, and if you don’t use it when it rains, when do you use it?

Kate: Yeah, I mean, I don’t know the answer to that question, and I’m not important enough in the Georgetown faculty to be privy to those types of discussions. My understanding was that the endowment is a way of competing among top schools. They attract students by being able to show off how big their endowments are, and so they want to be able to protect them. I don’t know. What’s your take, Luigi?

Luigi: I think it’s a combination of issues. Number one, you don’t want to use it on a regular basis. I remember people advocating in the past for using the university endowment for X, Y, or Z. Now, when you develop a code or an ethic that you never use it, it’s very hard to say when to use it. It’s a little bit like helicopter money for central bankers. It’s possible to do it. You should never use it unless it’s an extreme situation. But then, if you’re a central banker, you never find the right situation, because you are raised with this ethic that you shouldn’t print too much money, and the right moment never comes. However, if a one-in-a-hundred-years pandemic is not a good enough reason, I don’t know what is. OK, so that’s one story.

The other story, which is more compelling, is that people donate money because they want you to increase the prestige of the school and to maintain very high quality standards, so on and so forth. They don’t donate money to support expenses when maybe you are overstaffed or something like this. The first reaction that the school will have, for sure, will be to cut. Because you know there is fat, and so they’re going to pass a round of cuts. Then, after that, maybe they’re going to talk about touching the endowment.

Kate: OK. I don’t think that my theory was that far off. It’s that prestige does matter, but it’s not attracting new students that people managing the endowment care so much about, it’s attracting future possible donations.

Luigi: Yeah. But I’d simply say that you want to show your donors, who, by the way, tend to be trustees, so they are the one who appoint the president and run the university, they care deeply about their money being well spent. If you give the impression that you used that money just to cover your inability to cope with the situation, your donations will dry up, and then the problem will become more severe.

Kate: OK. I think that sounds like a corporate governance issue. Not having money right now is not an inability to deal with a situation. It’s that you’re faced with a terrible shock, and that’s absolutely when you should be spending that money. It’s just that the people in charge are the people who like to see their little nest eggs and their little contributions protected, but I don’t know. Maybe that’s just me. Maybe I don’t see all the fat that exists.

Luigi: No, I think there is a risk here, because if you think that COVID is just a shock and that the world will go back to where it was untouched, then your argument is very compelling. But I fear this is not the case. David Van Zandt, who is the [former] president of the New School in New York, said that the virus is an accelerator like gasoline thrown on the burning embers. This is going to bring about a lot of changes in higher education that probably needed to be made, I might add, but they were not being made fast enough.

I fear that the real risk here is that there is a structural change in university education and that you throw money to preserve the old model without realizing that there is a new model coming. What I want to discuss is whether this assumption is reasonable or is so farfetched that it’s not worth entertaining.

Kate: OK, so what do you see as the new model? Is this a new model of what type of students you’re attracting, or is it a new model of what type of education you’re providing?

Luigi: Let’s face it, we sell a bundle of education and networking. Part of the reason why our students don’t want to take courses online is not because the educational content online is so much lower. It is lower, there’s no doubt, but I’m not so sure that it’s so much lower. But they lose in a number of areas such as networking and support. We know that people are not particularly good in completing online classes, and part of it is they don’t have the support, encouragement, and social pressure that is generated by sitting in a class, by interacting with their classmates, and so on and so forth. We are providing a bundle of things that so far has been sold at a very high price.

The question is, number one, is that price worth it, and is it worth it for everybody? We know that Hermes ties sell for what, $150, $200? I don’t remember the last time I bought an Hermes tie, but that’s the price. You can get a good silk tie for probably $20. I think there is room for a high-quality product for special occasions. When you get married, we want an Hermes tie, but if you are an employee, in and out every day, you probably don’t wear an Hermes tie. Unless you’re a very wealthy guy, you buy a $20 tie. The question is, do we need everybody to have an Hermes tie? No. Can we have a system that provides 80 percent of what the current system provides at 5 percent of the price?

Kate: I think we need to distinguish though between different types of universities and different models of education, because I just find it very hard to believe that anyone who got into Stanford is going to then be like, “Oh, no, I can take an online class.” By the way, when you’re talking about this alternative disruption, this alternative form of education, I’m thinking online classes in, let’s say, computer programming, something like that, where taking a Coursera course can be almost as good as what you would get at Stanford, who knows. But if that’s the comparison, I just don’t see anyone sacrificing Stanford in order to sit for four years or two years taking the Coursera classes.

But I guess I could see this happening at the lower end. I could see this really affecting community colleges, and I could see it affecting lower-tier schools that used to be charging $30,000 a year for tuition. I could imagine a lot of students who were considering those lower-tier schools just saying, “Look, I don’t want to graduate with $130,000 of debt. I’m just going to take these online classes for $500 a year and get basically the same sort of education.” That’s where I think it’ll end up biting.

Luigi: Yeah. But in a sense, you agree with me, because Stanford is the Hermes of the colleges. It is the high-quality product for a niche, and people are willing to shell out $60,000 a year to go there. But let’s get not a lower end, a pretty good school like the University of Rochester. From an academic point of view, we know it’s a very good school. It costs almost as much as Stanford in terms of tuition. I’ve not checked their financials recently, but I think they’re struggling partly because of the economy in upstate New York, partly because they invested their endowment in Xerox and Kodak, which did not do very well, and a number of reasons.

I use that just as an example, but imagine that they realize that they cannot cover costs, and they start to offer a very good online program at $5,000 a year. Now you have a product that is, of course, less than the Stanford product, but now we’re not talking about marginally different costs, we’re talking about an order of magnitude lower cost. By the way, many of the students at Rochester come from China. Thanks to your president, they probably can’t come here anymore next year, so you need to reach them where they are.

Kate: Don’t put this blame on me. He’s your president, too.

Luigi: Every time I tell my wife, “your president,” she gets mad. I got so much flack for Berlusconi that now I get revenge. Because Berlusconi, by comparison, was really a statesman. This rant aside, the point is, if you want to reach the Chinese students who can’t come next year with online classes, you can do it very well. You get a Rochester education for $5,000. I think that a lot of Chinese will take it. They can make on quantity what they lose on the margin.

Now, is this going to take away a lot of students from Stanford? Probably not. But in the pecking order, if you are, let’s say, Chicago, in between Stanford and Rochester, some Chicago students might opt for Rochester at $5,000. You’re going to start to feel the pressure along the way. Exactly like when you have very high quality and cheaper ties from China, many of the producers got wiped out or got affected. Hermes maintained this niche, but a lot of other people got affected.

Kate: But here’s what I don’t understand. If there is this new model of an online degree, that carries the same pedigree as a BA, a college degree, then why would we assume this would help the schools in the middle or lower tiers? I would just assume that Stanford would have two different types of bachelor’s degrees, one that would be on campus, and that would cater to richer kids who really were looking for the college experience of going to frat parties and also learning in classes, but it would cater to a certain clientele. But that Stanford would also have an online bachelor’s that was available to people abroad, and there’s no reason that they wouldn’t be able to scale this up. The marginal costs of adding another student are virtually zero. Why would anyone go to Rochester for the BA if they could go to Stanford for the BA, and Stanford would then end up having, like, a million students?

Luigi: At the cost of over-pushing the Hermes example, it is as if Hermes were to produce a white label sold at Target. Actually, Missoni tried that, and it was a freaking disaster. My wife spent more than I care to admit on those shopping sprees at Target, where we bought everything that was Missoni—

Kate: Oh, yeah. Me, too.

Luigi: I think it was great for Target, it was bad for my finances, but I don’t think it was good for Missoni, because it somewhat tainted the brand. Now, if I have a Missoni tie, you don’t know whether I bought the Missoni tie at Target, or I bought it in an expensive store. It lost the signaling value of that. If I’m Stanford, I don’t want people to be confused about whether I got the real Stanford degree or the cheap online version. I think it’s efficient to have somebody else produce that, maybe Rochester.

Kate: But online education has been around for a while. Twenty years ago, one could find an online course and get a degree online. It’s not like this technology is new. One of the arguments for why universities actually won’t be disrupted is because these technologies have been around for a while, and they haven’t been successful at disrupting yet, so why would that change now?

Luigi: I think that’s an excellent question. I admit the possibility that I might be completely wrong, that there is not really a feasible alternative. This is a massive experiment, because a lot of people got forced to take online classes that never wanted to. It might be that they all hated it, and they really want the physical touch of a personal class, or maybe at least a fraction will realize that you can do a lot better in terms of cost with doing slightly less well in terms of performance.

I think that it is a massive experiment, and I think that part of it is there is a lot of hysteresis. People tend to do what they used to do, particularly in education, where the incentives to expand are limited. This is one of the constraints of having a not-for-profit business. If you are a successful producer of widgets, the first thing you do is you grow. Why? Because you can make more money, and that’s what motivates you. If there are two producers of widgets, and one is more successful than the other, the more profitable, the more efficient producer of widgets, will gain market share and eventually will dominate the market.

This is not true in education. Harvard is clearly superior to many other alternatives. How much has Harvard expanded in the last 20 years? I would say at the college level, probably zero. There’s not the same drive to gain market share that we have in the private sector.

However, when the issue is not gaining market share, it’s survival, then maybe this drive is going to come around. If I am Rochester . . . I’m sorry to pick on Rochester, it’s just a name. But if you are Rochester, why do you want to switch to online education? The system is working fairly well. But if, all of a sudden, you find yourself in an existential threat, before you die, you try a lot of things, and some of these might stick. That’s the moment of, if you want, creative destruction. I think that’s ultimately a capital-is.

Kate: I have a slightly different take on this than you. I somewhat agree that this pandemic will lead to a shift towards more online education. But I think we have slightly different ways of seeing the American educational system. You characterized it in terms of, what, education and networking? I would characterize it in terms of signal and fun, that students go to college to be able to put on their resume, “I got this degree from this place,” and that signal is worth $100,000. But also, college students want to have fun. It’s not necessarily the networking. It’s not that they want to build a LinkedIn network or a Rolodex or anything, it’s that they actually want to be there drinking, and hooking up, and relaxing, and going on spring break and stuff for a number of years.

When the American economy was doing well, this sort of leisure was available pretty widely, because people could borrow and then know that they would get a job afterwards and be able to pay that money off. I just don’t think that our economy will be able to sustain that anymore. I think for a wide swath of people, this calculus will no longer be worth it. A lot of college students who might have previously been confident that they could pay back $150,000 worth of country clubbing for four years, I just don’t think that there’s that same confidence about the future of the job market, and that a lot of college students will, very reluctantly, move to online education just because the debt costs, as well as the future of work, aren’t there.

Luigi: But you’re not really disagreeing with me, in a sense. I think Hermes ties are better than cheap ties, no question. If I can afford to wear only Hermes ties, why should I wear anything else? But the moment I start not to be able to, if I’m forced to wear a tie, I go to cheaper ties. What you’re saying is, as long as people are able to afford to have a luxury education and entertainment, they went for it. But the moment these opportunities are shrinking, they might consider alternatives. Your argument is particularly true for colleges. When it comes to business school, maybe I’m in the wrong business school, but I don’t think it’s just an entertainment thing.

Kate: Maybe you are in the wrong business school, but I strongly disagree with that statement. I mean, all of my friends who went to business school, which is like 90 percent of my friends, unfortunately, just characterized it as a two-year country club experience.

Luigi: I will not ask you where your friends were to maintain anonymity.

Kate: None of them went to University of Chicago, I’ll say that.

Luigi: Because I think that, if this is a country club, I think we should have better country clubs.

Kate: I do think that we should discuss a little bit further and deeper this issue of foreign students. Because this is one of the huge revenue holes when it comes to a lot of institutions. This is a trend that hasn’t just arisen in the past couple of months because of coronavirus. This is a trend that’s been going on for a while. I actually remember in 2017, when I was on the job market, when I was visiting one of the schools, several people couldn’t come to my presentation because there was an important school-wide meeting on the loss of Chinese students due to President Trump. I know that Chinese students are thrown out there as an example quite often, but it’s a meaningful point that China has been supplying many students that are interested in American educations. Not only that, most of these students pay full tuition, and that’s why they’re so important to these universities.

Luigi: You’re absolutely right. By the way, it’s not unique to the United States. The United Kingdom is suffering the exact same problem. They depend massively on foreign students, particularly Chinese, but foreign students, and Brexit, and some of the consequences of Brexit have not helped.

Of course, COVID is the straw that broke the camel’s back. This is exactly the type of thing I’m saying. There are some underlying trends that are significantly strong, but they are ignored because you can postpone the moment of realization. Then, all of a sudden, you have a shock like COVID, and then you pay with interest. You not only have the impact of COVID, but now you have the realization that the situation was unsustainable before, and now you finally realize that it cannot be sustained. It’s like this Wile E. Coyote moment in which you keep running off the cliff, and then you realize that you look down and you see that there is no ground, and then you fall.

Kate: So, somebody who saw this cliff coming that did something I thought was pretty clever was Jeff Brown, who I think is the dean of the business school at UIUC, the University of Illinois at Urbana-Champaign, not too far from you. This guy formerly studied risk. He realized that there was the risk, at the school level, of losing Chinese students. He took out an insurance contract worth up to $61 million to cover the school against the potential loss of Chinese students, and this was back in 2017, when he was really worried about the trade war. Now people are thinking that he’s a prophet of some sort. I mean, I don’t think that that really speaks to the deeper issue of how schools need to change, but I do think that it’s funny that you can get this sort of insurance contract. I mean, it probably doesn’t exist anymore because it’s such a real threat, but it was clever on his part.

Luigi: Super clever on his part. But even that amount is really pocket change on a capitalized basis. If you lose all the Chinese students forever, this $61 million can help the transition for a year, but it cannot resolve the loss in revenues forever.

Kate: I want to go back to something you said, though, which is that for public universities, a lot of their funding comes from the government. In the same way that private schools get federal grants, federal grants are also a large part of the budget for public universities. But public universities also rely on state and local sources to a huge extent. As we talked about relatively recently on Capitalisn’t, state budgets are hurting because they have this loose balanced-budget requirement, and one of the places they’re going to cut is going to be in university spending. I have friends that are professors at public universities that are already getting on the order of 10 percent salary cuts. I don’t think that this money will, anytime soon, be filled by the states.

Luigi: If you are saying that everybody will suffer, I completely agree. Unfortunately, COVID made the size of the economic pie smaller, so everybody is going to be affected in one way or another, and it would be strange that universities would not be affected. In my view, the next few years are not the years in which we’re going to see dramatic cuts in funding to universities, in part because some of the more important state universities are in Democratic states where I don’t expect them to cut dramatically. There is an intense pressure to put money in the economy. If you want to have a collapse of a lot of local economies, you take out the school. Urbana-Champaign would be nothing without the college. You close down the college in Urbana-Champaign and you have a total desert. That is true for a lot of state universities.

Many private universities—certainly not Harvard and hopefully not Chicago—but many private universities are facing the risk of bankruptcy. That’s a more serious existential threat for them. At some level, maybe it is the right thing to do. We have to be fair. If we see a lot of airlines going bankrupt and say, “Maybe that’s the right time to go bankrupt, because you need to consolidate and cut down,” maybe that’s the time for universities, too. It’s going to be very unpleasant for us, but we should apply the same standards.

Kate: Yeah, I mean, I agree in the sense that . . . I think there’s a spectrum and there are obviously different types of universities. Relative to the very worst private institutions, I think that the state universities are probably better off, because they do have some public funding as a cushion. But at the same time, if you’re comparing the difference between a school like UC Berkeley and Stanford, I would say that there are many margins on which they’re very competitive, and that I think this shock will put the UC system at a disadvantage. Now, maybe California’s not a great example. I know that LA, for example, LA is having a big coronavirus outbreak. There, I think that when it comes to the political will, most of that is going to be aimed at filling unemployment gaps.

I don’t think that this is like the last crisis. This isn’t like the financial crisis in the sense that we have orders of magnitude more unemployment claims, and that’s what’s at the forefront of the Democratic agenda. I agree that they should be caring about the universities, they should be caring about how the quality of their educational system feeds into the local community and the long-term growth of those areas. But right now, I just think that, politically, universities are somewhat on the back burner given how big the unemployment shock has been.

Luigi: But again, I think you’re right that Stanford will fare much better than Berkeley. But think about UC Davis or UC Riverside and Occidental College or La Sierra University, some private universities in California who don’t happen to have as much of an endowment as Stanford, don’t have the cachet of Stanford, they might be facing some existential threats.

What do you think about this disruption in the universities that may occur as a result of COVID? Do you think this is a capital-is or a capitalisn’t?

Kate: At the very top, the prestigious universities, I don’t think that there’s going to be a whole lot of change. Some of them will have to trim some fat this year and maybe dip into the budgets by a couple million dollars. But I think, for the most part, after the pandemic, in a couple of years they will go back to normal.

I think on the bottom end, there will be a lot of students who decide not to opt for $100,000 of debt after they graduate and decide to turn to online programs. I think that that’s actually a good thing, because, is it really worth it to pay that much money to party for a few years? No. I think that there might actually be the possibility that the online programs provide just as good, if not a better, education, because there isn’t the distraction of the constant drinking and the constant party culture, which I think has been a big problem for the US for the past, what, several decades.

Luigi: First of all, my college experience was not as much fun. I went to college in Italy, at Bocconi, in Milan, not much partying going on. But this aside—

Kate: That’s why you’re so successful, Luigi.

Luigi: I wonder. But I think that this is actually the creative destruction of capitalism. I think one of the great things about the American university system is its diversity. There are the state universities, there are the community colleges, there are the top private universities, there are the middle-of-the-rank private universities. They have different ways to deliver their product. I think that if anything, up to now, there has been too little experimentation. COVID forced us into a gigantic experiment with gigantic costs, so I wouldn’t wish that on my worst enemy. But there is a silver lining. The silver lining is, we are going to have a lot of creation. There is destruction, but there’s also the creation, and that’s capitalism.