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I tend to roll my eyes when people make comments about corporations being greedy.
In microeconomics, we learn that marketplaces tend to be pretty efficient. When entire industries are extremely profitable, they attract competition, and that competition erodes profit until the industry becomes no more attractive than the next-best alternative. Success is ephemeral. It has a half-life, always regressing back toward the mean. Therefore, when businesses prioritize profits, it typically isn’t an act of greed. It’s an act of survival.
In a perfectly competitive environment, this logic is correct. But, as with all things, there are exceptions to the rule. Sometimes companies sell products that are so loved, and in such high demand, they can increase the product’s price with nearly zero impact on consumer demand. People will just keep buying the thing, regardless of what it costs. We see this with Disneyland. We see this with Taylor Swift. We see this with iPhones.
In economics, we call this inelastic demand. As price increases, demand holds constant. This category of product tends to be extremely profitable.
Taylor Swift tickets are ridiculously expensive. So is Disneyland, and so are iPhones. But in the United States, in 2023, one product stands above each of these in the category of inelastic demand: college tuition. Specifically, tuition to attend elite universities.
Demand for Top Degrees
Let’s take a few minutes and look at Harvard.
In 2000, Harvard cost $22,054 per year ($32,164 after room and board)1. In 2022, Harvard cost $54,269 per year ($79,450 after room and board)2. Cost to attend Harvard has increased by roughly 150% over 22 years (a 4.2% compound annual growth rate). We should expect to see some cost increase at Harvard - the US dollar inflates by ~2% per year. But cost to attend Harvard outpaces inflation, and that makes it significant. Every year, Harvard gets more and more expensive.
If demand for a Harvard degree were elastic, we would expect demand to decrease as price increases. What we’re actually seeing is the opposite. In 2000, Harvard received 18,691 undergraduate applicants3. In 2022, they received ~61,200 undergraduate applicants4. Demand for undergraduate degrees at Harvard has increased by roughly 225% over 22 years5. We should expect to see some increase in demand - the US population tends to grow by ~2% per year. But demand for Harvard outpaces population growth, and that makes it significant. More and more people want to go to Harvard.
Like Taylor Swift tickets and iPhones, Harvard can charge as much as a person is willing to pay for one of their degrees. And people will keep buying. This is important to note, because it has strong implications for Harvard and their recent stance on diversity in education.
Keeping Supply Low
For large US companies, increased demand and increased revenue normally means the company can grow. They can expand, sell more products, and return more value to shareholders. Companies have a Milton Friedman-esque moral imperative to get their product to more people for that reason. But Harvard’s not a for-profit enterprise, and that’s not what they’ve done.
In 2000, Harvard admitted 2,034 students6. In 2022, they admitted around 1,984 students7. Volume of admitted students has not changed over a twenty-two year window. Given their surge in applications, this decimates their acceptance rate from ~10.9% to ~3.2%.
Despite more demand and more revenue per student, Harvard’s class size has not changed in several decades.
What they Say about Diversity
We should start this section with a disclaimer: Harvard has issued two undergraduate degrees and four law degrees to the nine sitting Supreme Court Justices8. Last week, that same Supreme Court carrying six Harvard degrees ruled that race-based University admissions criteria are illegal under the 14th Amendment.
In response, Harvard tweeted a video from their new President-Elect, stating their intentions to comply with the Supreme Court’s decision, but double down on their goal to open doors for students of all backgrounds.
That last sentence is something I take issue with. Because, frankly, it’s bullshit.
What it Really Means to Open Doors
Top schools - not just Harvard - don’t prioritize diversity because they want to help underrepresented groups succeed. They make diversity a core value because classrooms with more diverse voices and perspectives enhance the overall academic environment. Said differently: going to Harvard is a better experience if you meet people from different backgrounds, who enjoy different things, who plan to go to different places throughout their careers. And I don’t doubt for a second that that’s true.
But it’s also a thinly-veiled grift.
Harvard is effectively saying we would really benefit from diverse candidates. A diverse classroom is how they offer the best academic product they can muster, it’s how they continue to compete for top high school graduates against Princeton and Yale.
Let’s assume for a minute that one-half of Harvard’s 60,000 undergraduate applicants are academically qualified to succeed at an Ivy League school9. 30,000 students with a 35 on their ACT, 30,000 students who finished damn near top of their high school class. These students are extraordinarily talented. The thing about talented students, though: they succeed. They succeed regardless of where they go to college, be it Harvard or Michigan State. Google finds them. Goldman Sachs finds them.
Said more concisely: the students who benefit from Harvard’s race-based admissions will succeed with or without Harvard. Harvard uses race-based admissions to improve their classrooms, and hence their product. They do it largely for Harvard’s own benefit.
And there’s nothing wrong with that. Harvard’s a private institution, they can do as they please. But they shouldn’t say - to the whole world on camera - that they’re using race-based admissions as a tool to open doors for more and more students. If they were, there are some obvious things they could do differently:
They could increase the size of their undergraduate classes. A 3.2% acceptance rate is pretty impregnable. It’s quite literally exclusive. Top-line revenue rises year-over-year as tuition hikes outpace inflation while they keep class sizes laughably small. The money to support more students is there - demand for Harvard is highly inelastic. This scarcity is artificial and makes it harder and harder for underrepresented students with limited resources to earn an acceptance letter. The proverbial door is more shut than ever, and increasing class size would help with that.
They could offer educational opportunities beyond undergrad and graduate school. The United States saw roughly 3.6 million high school graduates in 2020, and far fewer than 3.6 million were college-ready. Solving the problem of college preparedness for underrepresented groups would pay extraordinary dividends to those communities: it would increase household income, increase socioeconomic mobility, and likely have secondary and tertiary effects like improving public health. So expand academic programs downward, offer college prep programs to middle school and high school students. Even if they don’t get into Harvard as undergrads, they’ll do better than they otherwise would. And Goldman Sachs or Google will eventually find them.
It’s worth noting: this is the opposite of what they do. Harvard has expanded academic programs upward, offering a new suite of graduate programs today that didn’t exist a decade ago: programs like their Masters in Data Science, Masters in Real Estate, and virtual Masters of Liberal Arts in Management. These programs are monetizing a prestigious brand for already-successful young professionals. They’re not opening doors for anyone.
I tend not to call institutions greedy. But Harvard’s making a pretty pressing case to be labeled otherwise.
Closing Thoughts
After college, I spent several years helping build a black-owned demolition company in Detroit, Michigan. We hired black Detroiters, upskilled black Detroiters, and worked to improve the infrastructure of black Detroit neighborhoods. I have friends in those neighborhoods, and I have friends on those demolition crews. The problems black Detroiters experience are ones I’ve seen first-hand.
Detroit is a city filled with underrepresented students. A struggling city with little tax revenues, they need better amenities for the public. They need better schools. With better schools, more students will go to college. More students will earn white collar jobs with benefits, like health insurance. Those educated students with good jobs and strong benefits then need to lay roots in Detroit, buy decent homes, pay their taxes, and send their kids to Detroit city schools. Their tax revenues will further improve schools and public resources, spinning the economic flywheel with more and more momentum.
These problems get smaller the more momentum that flywheel carries.
The public debate about affirmative action is a complex one. But for the most part, it’s also a red herring. The top schools at the apex of the debate aren’t accepting enough students to solve any widespread issues at scale. We can rant and rail about who gets a golden ticket to attend Harvard. We can stomp our feet in disgust over legacy admissions making up a sizable portion of annual admits. But we’re focused on the wrong problem, and we should all be more cognizant of that. Solving hard problems requires nothing if not focus.
Here’s to focusing a little more, and pushing that flywheel to spin a little faster.
https://news.harvard.edu/gazette/story/2000/03/2000-01-undergraduate-tuition-and-fees-are-set/
https://registrar.fas.harvard.edu/tuition-and-fees
https://news.harvard.edu/gazette/story/2000/04/class-of-2004-chosen-from-a-record-pool-of-18691/#:~:text=Letters%20of%20acceptance%20to%20the,admission%20to%20Harvard%20have%20risen.
https://www.thecrimson.com/article/2022/7/7/class-of-2026-yield-data/#:~:text=More%20than%2061%2C200%20students%20applied,rate%20of%20just%203.13%20percent.
This is a 5.5% compound annual growth rate (or “CAGR”), which is very significant.
https://news.harvard.edu/gazette/story/2000/04/class-of-2004-chosen-from-a-record-pool-of-18691/
https://college.harvard.edu/admissions/admissions-statistics
https://www.supremecourt.gov/about/biographies.aspx
It’s worth noting: I was definitely too stupid for Harvard to consider me when I was 18.
I think this is your best piece yet. Well thought out and all based on facts and data.