Good question

Tigerhawk asks:  "If the CEOs of banks that take federal money, including those who took federal money only after Hank Paulsen essentially ordered them, have their salary capped at $500,000, under what principle do we allow universities that request federal funding to pay their own presidents much more money?"

I spent ten minutes trying to come up with a rationale.  Is it that the universities aren't being bailed out?  No--at least to hear them tell it, the system would fold up and die without federal grants.  Is it that they're performing a service we want?  Well, presumably we also want banks to be providing capital to the private sector.  Perhaps it's that they haven't just cost us a lot of money?  Beg pardon, but aren't educational costs some of the fastest rising major expenses Americans face?  Indeed, the industry's power is so entrenched that many universities are actually raising tuition in the teeth of the recession.

Maybe the reason I find it so hard to figure is that universities are in a mental basket along with investment banking:  services that seem to cost too much for no good reason.  I never could figure out how, in an allegedly competitive industry, bankers were able to charge 7% on their transactions.  And I don't understand why tuition costs rise out of all reason.  They seem to have no link to personal income, the payoff from a college education, or any other metric I can think of.

Maybe you can do better.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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