Monday, October 06, 2008

Time for smugness?

In the movie Mary Poppins, there is a scene where the admiral asks Mr. Banks how things are in the banking industry, and his smug reply goes something like "credit has never been stronger, and the British pound is the envy of the world!"

After a quick perusal of other blogs that I occasionally read, I find little evidence that the academic community thinks anything to the contrary. This reference to the banking crisis is a rather tangential one, this link from Mitzenmacher's blog. (Conclusion: if you have tenure, sit back and enjoy as the rest of the world crumbles.) This post at Luca Aceto's blog briefly refers to financial turmoil, towards the end. (A blog based in Iceland seemed like a good place to search for comments on this topic.) (Added 15.10.08: this post at the Fortnow/Gasarch blog now addresses the topic.)

Articles here and here tell a pessimistic story, focussing on the increase in pay costs faced by UK universities, due to the increase in inflation. But the banking crisis itself is more likely to impact on the Universities Superannuation Scheme.

Like other private-sector pension schemes -- indeed, like its US counterpart TIAA-CREF -- the USS is underpinned by its stock market investments, and recent declines in share prices have opened up a hole in its finances. Plainly, the right thing to do is for USS to raise the contribution level from staff. Tenure or not, this amounts to an effective pay cut, but the only alternatives are a sudden major recovery of the stock market (unlikely), or a decline in academic life expectancy (hopefully also unlikely). (Note: the situation is different for TIAA-CREF, which is a defined-contribution scheme. For that, the value of your pension goes up and down with the stock market, and it's up to the individual to decide how much more they need to contribute to it.)

I recommend Robert Peston's blog for insightful commentary on the economy.

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