The Economics of Academics...

[The idea and the thoughts behind this post have been on my mind for a while now...just thought that I'd pen it down now before I start losing my ideas completely...
Warning : theses facts might seem "obvious" to some or all folks and could even be fine tuned by economic experts (always welcome in the comments), but they're just my observations on the topic]

Four years as a graduate student in the United States has offered me a view that seems pretty interesting to say the least...I came in during the economic downturn following the dotcom bust and 9/11. It seemed like everything was going haywire, as admissions in American universities were hard to come by; funding/grants were also on the lower side and students were generally finding it difficult to find jobs on graduation. The following years have seen a major war, the improvements and flourishing of the economy, the trade imbalance between the US and China growing, the major growth in outsourcing and the hue and cry that followed, and various other social, economic and political changes.

From my experience, there definitely seems to be a tie-in between the ups and downs in the economic world and the decisions made in the academic world. Although the interesting point to note, is that the effects are felt in academia with a certain lag...perhaps two to three years after the economy has taken a major turn...this leads to some interesting effects - some positive, others not.

Academic institutions and researchers, in the United States, mainly research-focussed universities, run on grants - from the state and federal governments and related institutions (NSF, NIH, DARPA, etc.), from industry and for the small part, from individual contributors. Typically grants are for fixed time periods that may also be extended at the discretion of the funding agency...let us take an example of a research grant, from say one of the major federal funding agencies (let this agency be a placeholder for the entire economy), that has been give to the Computer Science department at a prominent university - and let us assume that the funding is for a period of three years. What this means is the money for that particular grant has been allocated by the agency, and barring unforseen circumstances, will be made available to that department over a period of three years. They may assume that the money is theirs and can plan on using it properly - doing what they wish with it (unless the grant proposal is for a particular project), such as providing funding to graduate students, hiring new faculty members, purchasing equipment, or even throw a bunch of lavish parties !

Now, suppose the economy takes a major hit and scientific funding from the governments die out and the industry and individual contributors feel the pinch and are unable to provide any more money to the university. Let us assume that the original funding agency (our economy) runs dry of money this year (2006 as an example) and decides not to provide any more funding to anyone in the future. Our deparment though, may not really care, as they have gotten their money guaranteed for the next three years, and while the economy is taking hits after hits, they are relatively safe in the "storm bunker" oblivious of the storm brewing outside and don't care. What they are failing to notice though, is that the storm has blown out the house above then, and when they do emerge from the relative safety of our bunkers, they are the mercy of the world, as they are now akin to being homeless. When the original time period for the grant and hence the money runs out in three years, the department doesn't have money to tide it over for the future...and as they see this situation approaching (say at the end of the second year and the economy hasn't improved enough yet), they will start taking drastic steps to ensure that the department doesn't fold over...from reducing admissions for graduate students they cannot afford to admit for lack of funding to stave off the decision to hire that new faculty member and maybe even put of the purchase of cricital equipment/office space/etc.

The students probably take the biggest hits on multiple fronts...

• Fewer admission possibilities
• Lower chances of obtaining funding for graduate school/research
• Fewer faculty members
• Lesser equipment/office space to go around
• Probably a lower chance of getting a job after graduation.

The other people who are affected seriously are prospective faculty. Any one who finishes their PhD/postdoctoral programme and wants to apply for an academic job tired of that industry job, will have their options cut down in front of them...a sore economy that has affected the academic institutions will provide them will fewer job options, and in the worst case, none at all !

Suppose that the funding agency was revived by some means a couple of years later due to some economic boom, and they decide to start taking in funding applications and allocating fresh money...the problem is that although the economy is growing rapidly, the academic insitutions have their own version of a slump now...all those years of not receiving any new grants/funds has them in the doldrums. The grant process is a bit tedious and takes a little while to ramp up and start allocatng fresh funds...all this time the deparment is starved of fresh funds to carry out core activities which could include critical research. Anyone graduating and applying for jobs in the industry - this is a good time, as many companies and research labs are trying to shake off the after-effects of the economic bust and take advantage of the fresh money that flows through a new vibrant economy. If the students are trying for an academic job, then they are in the wrong place at the wrong time...the academia are still in the "lows" and they will be unable to hire any new faculty members.

This effect where the academic world lags behind the economy, which it sorely depends on, could be shown by the following diagram...
[although this diagram is just for a visual representation, and is not based on any actual numerical data....]
The horizontal axis represents time. The black line represents the vagaries of the economy and the red line indicates the delayed but sever and lasting effects felt in the academic world.

The whole point, is that universities must plan ahead and try to gauge economic trends...a task that is difficult enough for experts in the field. They must also try to conserve their resources and take notice when the financial world takes a downturn. Most universities and departments are smart enough to be able to take themselves through a downturn, but at times like these students, worldwide, are affected, because the United States is a permier destination for higher education. The tuition and fees could be increased, number of admissions sill be decreased and the financial aid available will also be lower...of particular concern is the number of academic jobs available...since the after-effects are felt long after the economy took a turn for the worse, some of us turn a blind eye to the fact that the departments and universities haven't had a chance yet to recover and start hiring faculty members...

The advantage in such situations, of course, is that academic institutions obtain a certain buffer to brace themselves for the problems ahead...if we know that the economy of the nation has taken a downturn and funds will be hard to come by in a couple of years, then they could go for stricter financial planning to tide them over the difficult periods. Not many institutions and people, around the world, at any point of time in history have had such a luxury...

Another advantage, this time foe the students, is the chance that the few of them who obtained admissions during this period, will have better job prospects in the industry when they are done (assuming that the economy would have dug itself out of its hole) since the competition will be lower as there are lesser condidates in the job market.

The only way to ensure that the future of students is not spoilt, is for students to be aware of economic matters, and to study past and present conditions of the economy as well as to follow trends and apply for admissions, jobs etc. after conducting (as always) extensive research. Universities and individual departments, in my opinion, should try to take more care to ensure that their current and future students receive all the information they need to make educated choices...while many amongst us ignore such "boring" matters such as the economy and financial matters (especially if they don't fall under our fields of study), we must make that extra effort to take an interest in a field that could have immense impact on our futures !