No Mercy No Malice

When Optimism Becomes a Form of Self-Delusion

Have we entered into a consensual hallucination with the markets?

Our nation’s superpower is optimism. We invest in crazy ideas and believe anybody can be anything. We fund more startups, buy more lottery tickets, and reinvent ourselves more often than any nation. The belief that our best days are ahead of us results in an appetite for risk. We inherited this from people willing to leave everything behind, get on a ship, and build a new life in a strange land. Things would be better — they were optimists.

A sense of resolve, confidence, and optimism has led us out of every crisis in the 20th century. Wars end, and countries rally around a sense of rebuilding and a unified vision. Economic crises can be beaten back by consumer confidence: “Honey, let’s book a cruise and finance a Hyundai.”

America is an upward cycle, pulling the future forward. Optimism is our DNA, our superpower, our national identity.

With Covid-19, optimism is also our Achilles heel, and it may have disastrous results. People feel it’s time to get back to our regular lives. However, and I can prove this, Covid-19 doesn’t care about our emotions. We’ve entered into a consensual hallucination with the markets and our leaders that getting back to regular life is something we can make happen on our terms.

Nowhere is this more prevalent than in the bold, declarative statements from university presidents and chancellors that their campuses will be reopening in the fall. Brown University president Christina Paxson says reopening campuses in the fall should be “a national priority.” “Colleges and universities must be able to safely handle the possibility of infection on campus while maintaining the continuity of their core academic functions.”

At my home campus, NYU, Provost Katherine Fleming wrote last week: “We’re planning to reconvene in person, with great care, in the fall (subject to government health directives).”

Bold, optimistic statements, American even. They are also performative and reflect a consensual hallucination between university leadership and their finance departments. The hallucination is a function of a disturbing reality: A $50,000 “experience” tuition is a comorbidity during Covid-19. Universities with cost structures dependent on foreign students and luxury brand margins face sudden fiscal crises if a chunk of their students don’t show up in the fall.

The math here is simple, and similar to any product where the consumer is constantly weighing her options and deciding where to spend her money. The value proposition of college is:

C = Certification (the lane you are put in post graduation based on the brand/school you attended, i.e., a caste system)
E = Education (learning and stuff)
Ex = Experience (fall leaves, football games, getting your heart broken, throwing up)

Schools charging $50,000/year or more (Brown, NYU) have value propositions that have been rendered untenable overnight. The elimination of the university experience is similar to SeaWorld without killer whales. Yeah, we get it … free Willy, but I’m not paying $450 to see otters and penguins. Also, we’re not paying $54,000 for Zoom classes.

It’s no accident the universities that have declared they are “open for business” in the fall have much higher average tuition than those that haven’t said anything or announced they will be online only. The numbers and threat are staggering. NYU has 26,000 students. That means we are expecting approximately $400 million in tuition payments to roll in over the next several weeks. So, what would you say? “We’re not sure what fall looks like … it’s a good year to think about doing something else”? Leadership at high-tuition universities are sounding eerily familiar to a CEO during a disastrous earnings call who, in the face of a stark reality, attempts to paint an optimistic vision of the firm’s future to keep the stock from crashing.

The killer whales (cash cows) of high-tuition prestige universities are international students. We claim we let them in for diversity. This is bullshit. International students are the least diverse cohort on earth. They are all rich kids who pay full tuition, get jobs at multinational corporations, and often return to the family business. At NYU, they constitute 27% of our student body and likely half our cash flow, as they are ineligible for financial aid. We have a pandemic coupled with an administration committed to the demonization of foreigners, including severely limiting the prospects of highly skilled grad students. This means the whales may just not show up this fall, leaving us with otters and penguins — an enormous fiscal hole.

As in any sector, Covid-19 has yielded some unlikely winners. For example, the Cal State system, who many would argue is the real jewel of California, has announced they will be online only. This allows them to focus on the tech and training to deliver a better online experience. Cal State, which will graduate 40,000 more students than the entire Ivy League this year, is not rendered flaccid by Covid-19, as the experience was never a big part of the equation. Most students commute to school, and the denominator is much lower ($6,000 in-state tuition). So, their value ratio, in a time of corona, suddenly leapfrogs expensive liberal arts, campus-based universities.

On September 1, I’m scheduled to teach 170 students in a windowless room. After 12 sessions of three hours in the sealed room with 170 people, 50 of them will then disperse back to their 20+ native countries for the holidays. If the producers of Contagion decide on a sequel, I have an idea for their opening scene.

So, thoughtful, talented people — university administrators — are hard at work figuring out campus configurations and protocols to make campus safe. Okay, and what about off-campus? Unless the NYU provost can convince Mayor de Blasio to reinstate prohibition, there will be a lack of distancing in SoHo this fall.

An X-factor to all of this is a vaccine. Yet the probability we discover and distribute a vaccine in the next 13 weeks is low to none. In sum, the notion of universities opening pre-vaccine is a reflection of our optimism. The problem? Covid-19 is indifferent to our emotions.

Regardless of enrollments in the fall, with endowments of $4 billion or more, Brown and NYU will be fine. Likely better than fine, as a culling of the university herd would increase their number of applicants and return them to the salad days, only better. However, there are hundreds, if not thousands, of universities with a sodium pentathol cocktail of big tuition and small endowments that will begin their death march this fall.

Universities should be doing what every other organization whose business model has been threatened by Covid-19 is doing: cutting costs. This week, I spoke to the chair of the advisory board of an all-girls high school. Next week I’m scheduled to speak with the chancellor of the university that receives more applications than likely any school in the world. In both conversations we’ll discuss innovation, tech, and how we are all “in this together.” Usually, when I broach the subject of cost cutting, it’s as if I belched. The conversation continues as if they didn’t hear anything.

This is where the opportunity lies. Through severely overdue cost reductions and deploying small and big tech, we can dramatically lower the cost per student of a college education. The corporatization of campuses, bloated administrations, tenure, a lack of accountability, and a god complex that we, academics, are noble when in fact we’ve been preying on the hopes and dreams of middle class families and indebting them … all need to be attacked, aggressively.

The prize is enormous — a dramatic increase in the number of seats at good schools. Fifty percent online courses is tantamount to a doubling of the physical campus and returning admission rates back to what they were in the ‘80s, a time when the unremarkable sons of single immigrant mothers from lower middle class households were given remarkable opportunities.

In sum, elite universities will be fine. Yale has an endowment of $2 million per student. Tier 2 and 3 schools with high tuitions are the next department stores — not long for this world. And tier 1 public universities have a generational opportunity to achieve greatness in the agency of the unremarkable, again.

Regarding Ms. Paxson and Fleming’s bold statements on a return to campus in the fall? I hope you’re right — I miss campus a great deal. However, I miss college as a public good more.

Life is so rich,

Scott

P.S. The July Strategy Sprint is filling up and will sell out. Also, catch episode 4 of my Vice TV show on vicetv.com or via clips on Twitter and LinkedIn if you’re outside the US (#nomercynomaliceonVICE). And on the pod this week, I spoke to Bloomberg tech journalist Sarah Frier about Instagram and how it’s ruining our lives.