Saturday, August 20, 2011

Disappearing money

This post relates to a minor gripe about academic life, and since it has not arisen for me very recently, now is a good time to air it. While money always tends to disappear, there’s a certain kind of money that disappears automatically, much like the leprechaun gold in Harry Potter. By way of example, some time ago I had some cash, or rather my employer owned the cash on my behalf, and it was available to be spent on business travel or equipment. Then one day my employer said: you must spend it all by such and such a date, after which you lose the money1. So, I bought a laptop that I didn’t really need, and underused it subsequently. The result of slapping a use-by date on the money was that it was used less effectively.

A colleague of a colleague (OK, this is like “friend of a friend” but never mind) had to urgently find a PhD student to fill a place he or she had; due to time pressure the CoaC would accept even a weak candidate. More time would presumably let the CoaC find a stronger candidate. Funding agencies impose onerous time constraints on grants — researchers rush to spend against grants that are about to expire, or make suboptimal hiring choices due to time limits.

This is not to argue that funds should be held by researchers on a completely open-ended basis. Presumably such funds were awarded at a time when there was evidence that the researcher would use them effectively, and the longer you wait, the less certainty there is that the usage will be effective. But there is scope for discussion about the length of deadlines, which would probably result in longer deadlines. Better yet would be an acknowledgement that these kind of deadlines result in an unnecessary all-or-nothing situation, where there is scope instead for a smooth transition between one extreme and the other. An institution could tax unspent money at some fixed rate, if inflation is not depreciating it fast enough. How about using Chiemgauer notes... see this recent article in the FT, or from this web page:
The "Chiemgauer" currency (named for the Bavarian region of Chiemgau) is the most successful to date. The project was started by Christian Gelleri, a Waldorf school teacher, and six of his students in Bavaria in 2002. The regional currency's annual turnover climbed to an impressive €1.5 million ($2 million) last year. About 90,000 Chiemgauers are currently in circulation. Unlike the Urstromtalers, they can be converted back into euro for a fee. "Our currency circulates three times more rapidly than the euro," says Gelleri. But in order to achieve this, the system puts pressures on currency holders to spend: The Chiemgauer loses two percent of its value every three months and has to be "topped up" by purchasing a coupon.

The idea for a so-called "depreciative currency" was pioneered by Silvio Gesell, a German merchant and social reformer. Gesell witnessed a serious economic crisis in Argentina at the end of the 19th century. He explained it in terms of excessive hoarding and insufficient monetary circulation. His solution was to make money perishable like other commodities -- bank notes, he believed, should "rust."

There’s an analogy with the way we impose deadlines on students to hand on coursework. There are two ways to penalise students who are late, both of which I have experienced. One of them is to give them zero credit if they miss the deadline. The other way to penalise at the rate of (say) 5% per day of lateness. Of course, the first of these leads to tedious disputes about whether a coursework submission should be deemed to be handed in on time. Under the second regime, if a student is slightly late and has a weak excuse, he takes the 5% penalty and hopefully notes that the way to be sure to make a deadline is to get the work done some time in advance, without getting pushed into making excuses in order to avoid wasting the work he wanted to turn in.

1Of course, it doesn’t really vanish; it reverts to the employer/funder, which hopefully puts it to some good use. But there’s a widespread —and rather regrettable— attitude that it vanishes entirely.

1 comment:

Noam said...

The Israeli academic system has a built-in "trick" against grant money disappearing at the end of the grant term: grant awardees can "save" unspent funds form the grant: the university takes a cut and the rest is put into a special "research savings" account which can be used indefinitely for research related expenses. Most faculty members (in fields that rely on grants) build up a significant "savings account" which gives them flexibility in funding research not directly tied to an active research grant. Most grant agencies for Israeli universities are aware of the system and accept it, but some (eg ERC) disallow it, and insist that their money be spent directly on the proposed research within the grant's term -- but much less effectively.