 We were gathered here to hear the inaugural lecture by Paul Courant for the Harold T. Shapiro Collegiate Professorship of Public Policy. Before we get started, though, there are a few people here who I'd like to welcome in particular. We're very pleased to be joined by the former president of the University of Michigan, Harold Shapiro, who is here today with his wife, Vivian. Really an honor to have you back on campus. Paul Courant is here with some members of his family. We're particularly happy to be joined by his wife, Marta Menilde, and his son, Noah Courant. It's a personal pleasure for me to welcome the former dean of the board school, Becky Blink, who, as many of you know, played a very formative role in creating this Collegiate Professorship. Welcome back. I'd also like to extend a special welcome to Regent Julia Darlow, who is with us this afternoon. In a moment, I'm going to invite Ford School Professor and colleague, John Chamberlain, to come to the podium to give a full introduction to Paul Courant, as only a longtime friend and colleague can really do. But first, I do want to say a couple of words about the very special honor that it is from the Ford School's perspective to be able to host this lecture. As professor of economics, provost of the university, executive vice president for academic affairs, and now university librarian and dean of the library, Paul has contributed to successes across the university in myriad ways, as all of you who are in this room know. But despite all of those responsibilities elsewhere on campus, he's really remained very actively involved with the Ford School. He's a member of our executive committee. He mentors PhD students. For the past two years, he has really launched and taught a very special undergraduate course, which is formative as a gateway to attracting students to our brand new undergraduate program. And I'm sure that you won't, especially at the end of this lecture, be surprised to hear that it gets simply rave reviews. So that's a very special contribution. I've only been on campus here for a few weeks, but it's already very evident to me what my colleagues who've been here for much longer know and have known for a long time. Paul's contributions really combine very sharp analytic skills with a very deep commitment to the Ford School community, and that includes the faculty, the students, the alumni, and the staff. And this very special community has been built and nurtured through a lot of his efforts and energies, his wisdom, his generosity to all of us here. So we're very proud of that continued integral role that he plays, and it really is an honor to host this lecture today. So with that, I'd like to invite John Chamberlain to introduce Paul more formally. The first thing I'd like to do since we're taping this is to make a welcome to Paul's parents who, while they're not in the audience today, will presumably be watching this on DVD. So as part of the extended audience to acknowledge them, Sarah and Ernest Courant. Ernest is a prominent physics professor. He knows what it means to get a chair, and I'm sure the family appreciates that. Sarah is a librarian, so the fact that today we honor the university librarian with the collegiate professorship is kind of a daily double for the family, and I hope they enjoy seeing this when the time comes. I think the collegiate professorship is a wonderful institution at the University of Michigan. It allows, in this case, the Ford School to recognize a distinguished colleague. It also provides the person who's getting the collegiate professorship with the opportunity to name it after a former U of M teacher that they hold in particularly high regard. And I think Paul's decision to name his chair after Harold Shapiro is a terrific choice. First, because Harold can be here to share the honor, which I think is wonderful. Second, because Harold was actually a member of the faculty of the Institute of Public Policy Studies a long time ago, joined just about the time he moved to the Fleming Building so that we didn't see him as often as we had hoped. And then when he went to Princeton, he was a member of the faculty of the Woodrow Wilson Schools, that today we get to honor two members of the public policy faculty community. And finally, because Harold had a distinguished career as a leader in higher education, as Paul has, that Harold was the chair of the Department of Economics, vice president for academic affairs, president here at particularly trying times and providing key leadership to get the university through some economic challenges, went on and provided similar leadership at Princeton, and has also been a leading figure in higher education generally, providing important guidance at the national level, as well as an important leader in the formulation of bioethics policy. So Harold is a particularly nice person to name a chair after. As noted, Paul has trod some of these same paths themselves in his career. He came here in 1973 with a joint appointment in economics and public policy, and has maintained that ever since. His scholarly career has covered a dissertation that started on racial prejudice and housing, moved into broad areas of public finance, state and local policy, labor economics, became somewhat of an expert on the Michigan economy. And I was looking through his CV and noticed that in 1982, Paul and Ned Gramlich published a book entitled, Tax Reform, There Must Be a Better Way. And I thought, you know, the Lansing State Journal could have run that headline every day for about the past three months and could keep doing it as far as we could tell. Paul has also had an important administrative career at the university. He was the director of the Institute of Public Policy on two different occasions. He was the chair of the economics department. And about a decade ago, he moved to the larger stage of the Fleming Building as associate provost and then provost, where one of the things he worried a lot about was the university budget. And both in practice and as a scholar, that's what are budgets supposed to do and how do we structure a budget in a university this size and with this diversity so that it continued to be a leading university. Throughout all of this, Paul retained his intellectual curiosity about things, which is I think one of his great features, that something that would drive him nuts for several days at work is an administrative challenge. When he got time to take a deep breath, he would see as an intellectual puzzle. So why does this happen or why doesn't it work or how are we going to fix it? And in general, these intellectual puzzles helped him to pursue a vision of what it means for excellence in higher ed. One of his papers, the title of which I particularly like and actually the substance of which I particularly like is why liberal education endures in the world of the bottom line. So obviously that oughta happen. It's really important that it happens and it's important that we understand why it happened so that we can sustain it. One of the other things that distinguished Paul's time in the Fleming Building was a concern for the public goods in a university. That is the things that are university-wide resources that provide the glue and the foundations that hold together the many units that are always going in their own directions. And at the heart of this are libraries and Paul got a chance as provost to worry about libraries and to worry about how information technology was changing the challenges of that. So when the chance to become a university librarian came along, Paul jumped at it. It's a new set of policy challenges, a new set of intellectual puzzles, a new set of scholarly opportunities. We're about to hear something about that. And so let me just say what a personal pleasure it is for me to get the chance to introduce Paul. He and I have been fishing companions for about 30 years and racked up all partners when we could put a game together for quite a while. So I've been the particular beneficiary in these spare moments when Paul could pry himself loose from administrative duties, to hear about these intellectual puzzles, to get a chance to talk about why does that work, why doesn't that work. So I have gotten to observe the social scientist side of Paul and I will say as an economist he's the least straight jacketed by his discipline of any economist I know. He was as willing to think that an anthropologist might help us understand how a university works as an economist would. And so that I got to be around for lots of these moments when he could stop and ponder these. So it is my pleasure to introduce my longtime friend and colleague, the Harold T. Shapiro, Professor of Public Policy, Paul Curran. Well gee, that's awfully nice. I don't really see why I should risk giving a talk after those lovely introductions. The room is filled with friends and colleagues of many years. I could just list all your names and then we'd be done, but I probably shouldn't do that. But I will say that any contributions that I have made to this school and to this university have been far more than repaid going the other way. This school and this university have, over the course of 35 years, made me. And I couldn't be more grateful or more happy about that. I gotta make a remark about anthropologists since John set it up. You know, economists believe in getting lots of data doing fairly clean statistics on those data and drawing inferences according to the sort of rules of statistical significance and such. It's a wonderful line of work and for many purposes it's just what you ought to do. When you become an administrator, you discover that you make decisions based on information that you've gotten from two or three people who you sort of trust. And I've often called the field, the methodology that supports administrative work is some kind of applied ethnography, right? It's kind of anthropologists, you only go hang out in bars and they listen to people whom they call touchingly informants. And based on that, they reach a point of view about what's going on in the world around there. Well, administrators do exactly the same thing, only the atmosphere isn't as nice as a bar nor probably as reliable. The number of people they talk to is generally even fewer and yet off they go. So yes, I believe anthropologists can be very useful because if you had to wait for a clean statistical model, you would never do anything. So it's a wonderful honor for me to be able to associate my name with Harold Shapiro. And John outlined the rules of collegiate professorships here which I think are also wonderful for the same reason. Harold and I have known each other since I came to Michigan in 1973. We have connections that really go back further than that. We are both the offspring of immigrant Jews to Montreal and that's a very important world and one that we shared without knowing it. Although my mother, that Shapiro, was her reaction when I first mentioned Harold. And we both got our PhDs at Princeton. We had many of the same jobs as John said. We even both got to administer really big nasty budget cuts during our times as vice president for academic affairs. Harold then became a president first here and then at Princeton and made enormous contributions to both institutions and to higher education. Having observed what he went through, I decided to become a librarian. But it's one of the pleasures of my daily life is that I'm now in charge of the Harold and Vivian Shapiro Library which is right across the street there. You're welcome to drop by. We're open till five in the morning. Another one of these moments that happens in universities, as John said, Harold was a member of the Faculty of Public Policy at the time that he became President of Princeton and at six o'clock in the morning, Don Stokes called me up. He was the Dean of the Woodrow Wilson School and said, you know, we're about to appoint Harold President. I actually didn't know so that was an interesting piece of news and we're thinking about giving him an appointment at the Woodrow Wilson School. Do you think he meets the academic and other criteria for that? And I said, sure, yeah, I think that's probably all right. It'll be okay, Don, don't worry about it. And I got that right. I'm not nearly as sure that I personally meet the standards to be the Harold Shapiro Collegiate Professor but when I asked Harold if I could take his name in this context, he said I could and so I take that as a positive sign and I'm really doubly honored that both he and Vivian are here today so Harold and Vivian one more time. So inaugural lectures of this sort usually take one of two forms. Most often what happens, academics being academics, is that the honoree pulls out a current paper, tries to make it accessible to a relatively broad academic audience, sometimes howlingly unsuccessfully. Less often, but not infrequently, an effort is made to sort of summarize a strand of a person's work. And I'm gonna actually do both of those things a little bit and I'm gonna add a third form that as far as I know I made up but I thought about it as I was thinking about this talk and decided it would be fun. I'm gonna talk about, very briefly, about a few papers that I read in graduate school that sort of shaped my thinking about economics and public policy and that I keep coming back to in almost everything I do. It turns out that all those papers were written by people who eventually won the Nobel Prize but I didn't know that when I read the papers because it hadn't happened yet. So, just working right there we go. So the first two papers which I'm gonna talk about a lot are papers by Paul Samuelson about the pure theory of public expenditure, those are the public goods of my title. If you, by the way, those of you who are trying to figure out what's the sort of dim background with curves, it's from the second of those papers. And after class we can discuss what those curves are. The second, the third paper is a paper that was actually given at Michigan by Gary Becker in 1967. The, and then the other bunch are a paper by Akerlof. I'm gonna describe each of these briefly. Kenneth Arrow because if you put Kenneth Arrow in the bibliography of whatever you're talking about, it's a better talk. But actually he belongs here too. And Amartya Sen, actually on that one I'm cheating, I really didn't read those in graduate school especially since one of them was published 20 years later but no doubt I should have. So what do these papers have in common? Well, the, by the way, Levenmann's and Akerlof's paper are used cars, so and we'll talk about them in a moment. But what they have in common is each shows for different classes of problems that markets are both powerful and incomplete mechanisms for achieving human welfare. And I'd be happy to speculate later as to why this is so, it's this message that markets are both powerful and incomplete as mechanisms for achieving human welfare is often garbled in political discourse to say that markets are all that is needed to produce human welfare. And among the many economists who never said any such thing are Adam Smith, John Stuart Mill, Milton Friedman, and Alan Greenspan who would like to have said such a thing but it's just a little bit too honest to have pulled it off. Greenspan's, you know, Greenspan most of his work has been, most of his practical work has been very much based on the proposition that markets alone can't get the job done right and indeed we have in many ways benefited from the fact that he made other choices. So good free market economists are well aware of the vital roles of non-market institutions just as good public economists are appreciated and are happy to exploit the remarkable strengths of markets. Ackerloft's paper showed us that something that later got termed information asymmetries can prevent markets from allocating resources efficiently or even at all in some cases. And basically the inside is this, if this used car that you're trying to sell me is so great, why do you want to sell it to me? You know more about this car than I do and you want to get rid of it. So why would I want to buy it? And you can, markets can fall apart when there are conditions like that. One application to higher education actually is that the push for certification I think and standardization and accountability has something to do with the notion that we professors assert well, you want to understand what a good education really is, let me tell you what this good education that you should buy from me really is and that gets us into difficulties that are hard to get out of sometimes. Arrow's papers on discrimination provided a taxonomy and analysis of how labor market discrimination might work in a market economy. The papers are often interpreted as saying that because discrimination is unsustainable under perfect competition, it cannot be a problem in the real world. That interpretation is both unsupported by the paper, in fact in a conversation that I once had with Arrow about the paper he said, the implication people were supposed to draw was that we don't have perfect competition, not that we don't have discrimination because it was obvious that we had discrimination. He was actually surprised that people got to the other conclusion. And actually there are a number of technical circumstances under which he shows that markets will sustain discrimination of various kind and indeed they do. I can't figure out how to get the insights of the Arrow paper into the rest of this talk so just another time. And finally, Sam's work puts the distribution of individual welfare in the fore of economic thinking. He was one of the early codifiers of the practice of benefit cost analysis but in the decade since has pushed economists hard on the proposition that what economic policy ought to be about is to provide people, everyone, with the capability to function effectively in the world and that our measures of output and distribution should focus on those goals. He also pointed out and this gets very important for universities and libraries that markets are appallingly bad at taking care of the future, especially taking care of the distant future. We would hope and indeed I'm gonna argue that we should arrange it so that universities and libraries are quite good at that. So, one comment I have to make about this talk as I get into it is, of course when I agreed to give it I had no idea what it was gonna be about which is fine. Usually that happens all the time in our business but this talk, unlike the normal one where you're invited to give a seminar at the University of East, whatnot, they actually wanted a title months before I was gonna give the talk. So I had to make one up and that turns out to be liberating in some ways, well at least I'm not gonna talk about taxes and economic development and constraining in some ways. Oh damn, I can't pull out that paper on taxes and economic development and just give that. So as I was thinking about the title actually, I'd been reading a number of lists serves and such in the library world and they'd been exhibiting a fair amount of confusion about public goods, often equating public goods with the public good which is actually not quite the same thing and asserting that because something was a public good it should be produced regardless of cost which is actually just wrong. So here's a version of a statement, this is a statement, it's a honest quote, it's a version of a statement of that form. So cataloging is a public good, yes it is, which should be supported regardless of economic concerns, that's a non sequitur, right? In fact it's not even quite as good as a non sequitur, it's wrong. And just because something is a public good does not mean that it should be supported regardless of economic concerns. It does mean as we shall see that you probably shouldn't sell it but that's a very very different kind of statement. So I wanna go and start to get technical about public goods and so let me do that and I'm gonna talk a little bit about welfare economics, the economists in the room can now either go to sleep on the grounds that they all know this already or they can perk up on the grounds that they can catch me in a mistake because this is territory where it's easy to make one. So we're gonna go to Samuelson's two papers which get the same result, once mathematically and once diagrammatically. And he starts by defining two polar types of goods, opposite kinds of goods. One is the conventional kind where one person's consumption precludes any other person's consumption. So if I take a sip of this water, you don't. And that's about as private as a good is likely to get. Most of the economic theory of market economies is about goods like that. Somebody consumes it and the implication of that is that somebody else doesn't. So people do care about goods of this kind and Samuelson suggests that as a broader matter for welfare economics, whatever we think ought to be true about the world, one of the things that we think ought to be true is that we should arrange it so that we can't make anyone better off without making somebody else worse off, right? So arrange the world, give all the goodies away, glasses of water, access to libraries, everything you want and you'll have certain, people will have title rights to various things. If there's a way of rearranging the same things so that everybody, all those people are just as well off as they used to be but John is better off than he used to be, we ought to do that. That's the condition that's called Pareto optimality and it's important and we're gonna require that those conditions hold. So if you do that for private goods, you get this equation which all of you recognize except for those of you who don't. So basically what's going on here is that we have a person, Ms. I, and Ms. I is supposed to be psychologically willing to trade off good J and good zero. Think of good zero as money, that makes it a lot easier. At the same rate as it costs society to turn good J into money. So if the resources you need to produce a gallon of milk are $2 then it ought to be the case that people organize their consumption of milk such that they're just willing to give up or get $2 in exchange for the marginal gallon of milk. This condition has implicit within it that since it's Ms. I who happens to meet these conditions, all the Ms. I's do, right Ms. K, Ms. M, so everybody is trading goods off at the same rate and that's a condition it turns out and I'm not gonna prove it. Assuming that people consume the goods for this kind of optimality that I talked about. So that's the standard market rule, right? Get marginal rates of substitution in line with marginal rates of transformation. The psychological benefit of something ought to be, to each person who uses it, ought to be just equal to what it costs. Okay, that's a nice thing. Now let's invent another kind of good, public goods. This is Samuelson's definition. Each individual's consumption of that good leads to no subtraction from any other individual's consumption of that good. So this is the polar opposite case. Unlike the glass of water or the sip of water, this is a good where one person's consumption makes no difference to anybody else's. So the one I used to use teaching the undergraduate course was the flag pole on the, the flag on the dyke. All right? You know, I'm gonna go out there and look at the flag, my heart's gonna go pet or pat. You can go do the same thing. We're really not gonna get in each other's way unless there's a whole bunch of us. So that is a pure public good, at least with respect to people who are in that locality. The level of national defense is a pure public good for the society as a whole. You can always make up a story where these things aren't quite pure, but they're very, very, very close. And so the notion here then is that if everybody, oh, let me give another example because it'll please the librarians in the room of which there are a fair number, a catalog record that's available on WorldCat is a pure public good, right? We can all just get to it by going to the computer and there it'll be. So the key attribute then is that consumption is non-rival, right? We don't get in each other's way consuming these things. There's a lot of literature actually that suggests that part of the definition of public goods is that it's also impossible to exclude people from consuming. And I think that that definition is very unhelpful. It may well be possible to exclude people. We could put a wall up around the dyag as there was at the turn of a century or so ago. We can certainly make it impossible. We can say you are not allowed to go look at WorldCat unless you've paid a fee. You can start treating WorldCat like iTunes. You could do that. There are lots of ways you can exclude people from consuming public goods. You can, but it's really mean spirited to do so, right? Here's this good there. It costs nothing to let other people use it too. Why wouldn't you, right? And indeed, I wanna turn this notion of public good, which is a technical principle here into an ethical principle. If you've got one of these puppies, right? If that happens to be the form in which they come, then we owe it to each other unless there's some very good reason not to to make them available. Now there may be good reasons not to because it may not be economically sustainable to produce them and we'll get to that notion in a moment. But this technical property of the public good carries with it, I would argue, an ethical proposition as well. And simply, I'm doing what I always do, which is I'm not following my notes so I have no idea where I am, that's fine. So with the public good, we have a nicer looking equation because it's got a big summation sign in front of it. And so this says for all of the mis-eyes in the population, we're gonna add up each of their willingness to pay for the given level of the public good and then we're gonna set it equal to what it costs to produce it. So if we're talking about the flagpole and it's worth a penny to me and two cents to Noah and a nickel to John and half a cent to Deborah, we're gonna add all of those up and figure out how much we're all willing to pay for that look at the flagpole. And indeed, we're gonna build just the size flagpole that gets us to this condition being met. So if the total willingness to trade off other things against this public good is just equal to the cost of society of producing it. Now, going back to the catalog record, the analog to the height of the flagpole is the quality of the catalog record. So it may well be that a pretty good catalog record that allows you to have cataloged lots of things with the amount of, at some cost, will be much better than a superb one that gets you to catalog fewer things and you've gotta figure that out. That's just the trade off that you have to take. And then we have Thomas Jefferson, who has a very nice example of ideas as public goods and he expresses it extremely well. And since it's against my religion to read slides, you will have to. And Jefferson said all of these things very well and he followed by arguing actually that we shouldn't treat inventions as property. And since, so not only would we not have copyright under Jefferson's regime, but also not patent. That'd be an interesting word. Okay, so now we're getting to the notion of the public good, right? As distinct from the particulars of public goods. And one attribute I think of the notion of the public good as a larger entity is that it has a strong implication within it that what's being sought is in some intrinsic way, good, right? For economists, a good commodity thing, widget, all synonyms, nothing much loaded onto them. But when you talk about the public good, then you're probably talking about something that you're asserting that people are supposed to care about and like. And so public goods tend to be in the popular discussion that the goods that feed into the public good, public goods, cultural and artistic production, libraries, museums, and things like that, as well sometimes as values. And so part of what's being articulated is a matter of taste, right? Music stills the savage breast, art is good for the soul, man does not live by bread alone. It is by the way, breast and not beast, one of my favorite facts about the world. But it's certainly worth noting that the goods in question also have some of this technical economic public good characteristic that I've been talking about. It's precisely because a great work of art can be seen by many in a museum that that form of ownership and distribution gets used. And most of the institutions in question, as it happens, receive at least a good deal of their revenue from non-market sources in recognition in part of the fact that if you charge for them, you are excluding people when there would be benefit to be had, I think, from not excluding them. So there's some recognition of the public goods aspect. I don't have a deep theory of the public good. Mercifully, he's not gonna keep talking about deep theory. So I'm gonna settle for organizing the world to get us good at figuring out how to produce public goods of the narrow type and then make the connections to the broader type as we go along. I would note that an effective community of scholars with shared values would qualify as both a public good and I think an instance of the public good. And I can't resist saying, having taught benefit cost analysis for decades, that everything I've been talking about here is really is the foundation of benefit cost analysis. We wanna make sure that the value of what is produced is at least as great for those who use it as the alternative value of the same resources. And especially in this realm of public goods, especially, not surprisingly, cost matters a great deal because the standard model of fee for service as a way of recovering costs is inefficient. If you have fee for service, you're shutting people out who could get benefit of the thing at no social cost. So fee for service is inefficient and I'm arguing unethical. So that says you care a lot about how good the catalog record is at what cost and about how you pay for it, preferably without selling it. Okay, so that gets us to universities. And to ask the question, what is this logic about public goods have to say about universities? And I'm gonna start with a sort of list of the things that universities produce that might have value. And it's actually a long list. This is just the first of two slides on the subject and one could go on actually forever. Harold has gone over on not forever but with a decent sized book on exactly this question. And what I wanna do is ask what are the private goods parts and what are the public goods parts of these things that universities produce? And the first one, which I've called appropriable market at human capital, which is to say you go to university and you get good at stuff and you get a better job and you get higher wages as a result. That's really valuable. It's good, right? And there's nothing public about it in the first instance. It's a market transaction. And there's no strong argument that comes from this except a distributional one that I'll make a little later for financing this as anything else but fee for service. And indeed, one of the things that has happened as we all know in the last, in fact however many years you wanna count. This trend starts a long time ago and it just gets more and more, is that a larger and larger fraction of the cost is indeed being done as tuition, as fee for service. Then there's the non-market version of the same thing which I think is actually very important which is in addition to learning how to make money in college which is of course an excellent goal, we also learn how to have better lives to take more pleasure from reading, to take more pleasure from art, to appreciate the cultural truths of the Daily Show at night. There's a whole range of things that life is better if you're educated. Now we in the business certainly believe that but we really do believe it. It's not just a matter of the money and the fact that we happen to be selling this product. We think education is good for you partly because it's fun and improves the quality of life and this leads if not to the notion of public goods in the sense of things that can be added given to more people at zero marginal cost. At a quick digression it does lead you to wanting to organize education at least partly as a non-profit and the reason is non-profits can have articulated missions other than getting money out of the corporation, out of the organization and for such things that are as vague as I'd like my child to grow up with an appreciation of art and music and getting along with other people who enjoy the life of the mind because it's a good life. It's really hard to figure out how to write a contract to get say, DeVry to produce education that looks like that and DeVry is unlikely to get charitable contributions in support of education that looks like that but if we notice over the years that lots of kids have gone to the University of Michigan or Carlton or wherever and they seem to come away with a set of attributes and accomplishments and values that we would like for our own children then it makes a lot of sense for us to pay money including give contributions for people to go to those places, secure the knowledge that the regions will put the money back into the business rather than take it out for the stockholders because there aren't any stockholders and non-profits are much more likely to perform well in that kind of setting than are for profit institutions and the same argument can be made about basic research. Basic research is you don't know what it's gonna realize you know that many, many good things that are of great value come from having done basic research. How do you get it paid for? It's really hard to figure out how to organize for profit basic research labs. The non-profit form in some way is arguably the only way to do it and indeed in universities maybe, of course we don't know what the right amount is those of us who do basic research think well there should be more. Figuring out what the right amount of basic research is is very hard. I note that universities are likely to be efficient producers of it because there are lots of people around who know a good deal about many different things and so to the extent that problems and that they have to know that historically they had to know that to teach it once they got more into research even applied research they knew how to do it for research to the extent that it's valuable in doing basic research to be able to move across different expertises. Is there such a pluralized expertise in a way? Different areas of expertise. The university is gonna have many such people and is likely to be an efficient place to do that kind of work. A honorary degree recipient at this university and very inventive man named John Seely Brown who lives in California and he used to run Xerox Park made vigorously the argument that what he thinks the university ought to do is not commercialize the outputs of its research but simply willingly turn over to anybody who can use it, whatever it is that we're learning and make the bet that the consequences for local and regional economic development of that policy would actually be better than commercializing the research. How to recapture it for the university is a minor technical problem that we've talked about but it may well be that that's right and that that would be a very interesting policy. National labs have existed for similar purposes that government documents aren't copyrighted at least has some relation to this and I'm so far away from my notes I'd better find out where I am. Okay, the other thing about basic research that I should make in this point is that it has an insurance element. You know, who knew that we would really care about being able to read Arabic literature? Turns out we really did care about reading Arabic literature and that kind of thing comes up all the time and the university's ability to sort of be a repository of that which has been known or is known so that it can draw on it when necessary has very much a public goods aspect because it's available to all of society. And as I said, the for-profits don't do this stuff because it's really hard to figure out a model that works. For-profits try to make the output precise and to be very accountable that which can be measured and we, if anything, we go the other way. Which actually causes us some trouble. The problem with non-profits, finishing this digression on non-profits, is that they refuse to go out of business. Right, so when a for-profit is going broke, it sells itself or tries to figure out how to sell itself or reorganize itself and the market very much wants the assets to be deployed. When a non-profit is heading its way out of business very often it doesn't close the doors until the hinges are just about rusted off and there's nothing left. And it would be nice if you could get all these benefits of non-profits without the difficulty that comes with that. Okay. Now some more flavors of value. And this is the first set comes out of the literature on higher education and why it should be publicly supported. And I'm just gonna skip through these things very quickly. I do wanna make one point that isn't obvious to people, which is this, we often say that the reason we wanna have a highly educated population or the reason that we wanna invest in education and get innovation and all of these other good things is because GDP will be higher. And it's true, GDP will be higher. But actually none of us, I assert, cares about GDP, right? Excuse me, Marta, none of us care about GDP. Cares. Excuse me, Marta, none of us cares about GDP. GDP is not an interesting number for the typical citizen. And average GDP is not an interesting number. We care about our own well-being. We may care about our own well-being relative to others. Actually, in that case, low GDP is probably better. Huh, well, I'm pretty rich, even though I don't have much because you have nothing or, you know, but it would tend to be, you know, we wouldn't care very much about GDP as a whole for its own sake unless we thought that the process through which education increased GDP was one in which it increased the wages of others as well as the wages of the people who received the education. So higher education can be a spectacularly successful investment, increase incomes, increase GDP a lot, right? But if it didn't increase somebody else's GDP or somebody else's income, I mean too, then why would we care about subsidizing any individual's education? And I think that's a point that often gets missed. And then the other great thing about value that universities produce is this complimentary set of economic activities, which I really think are quite important. So it's true that there are places other than university towns that have decent football teams, intermittently, other athletics, art museums, libraries, lots of fun people to be around, but you actually don't see them in smallish towns that aren't university towns. And so there is this set of amenities that get produced by universities that seem to be downed to the area generally. And those are plausibly, at least partly, benefits that extend beyond those that are reaped by the individuals who are directly transacting with the university. I'd like to believe that's true, and I think it is. Here's another version of all this. This one I will read. Religion, morality, and knowledge being necessarily a good government in the happiness of mankind. Schools and the means of education shall forever be encouraged. That's the Northwest Territory's ordinance. What time's it on? Time's running on. And it is chiseled above Angel Hall. And it is actually chiseled above a lot of angel-like halls around the Midwest, which used to be called the Northwest Territory's. And it makes this point that there are arguably elements of better citizenry that can do more and do more better as a result of education, powerful justification. And then Harold's version is universities serve society both as a responsive servant and a thoughtful critic. So we have this other special role, which isn't quite in the first quote, which is to criticize society and presumably and help it to improve. Okay. Painful facts about the world. These are simple painful facts, and the simple painful facts are that pick a level of income, pick a level of achievement, and your chances of going to college are depend not just on the level of achievement, but also on the level of income. And that's true for two-year colleges, for four-year colleges. And it says that there's something wrong with our system in the sense that even controlling for whatever might have happened in high school and that before someone gets to college age, even controlling for that, income winds up mattering. These are old data. There are 23 million studies that look like this that all have slightly different numbers. No such study has the other sign, at least none that they've ever seen. And the story, as Becker points out in the paper I refer to is actually somewhat worse than that because the chances that a kid of low income is going to actually get a given math score are also lower than a kid of higher income. Again, for all kinds of reasons that are very complicated, not fully understood certainly, that my friend Dean Ball is working on as well as many others. But basically, if that's true, then we are leaving on the table both the mechanism for improving the income distribution and we are leaving the incomes of people who could get incomes relatively cheaply because higher education is an investment that has a high rate of return. That isn't happening because of some failure in both public production and private markets. And that's again, you can turn this into an argument for universal public education at all levels. I did that once in a talk here and Jeff Smith made fun of me so I'm not gonna do it again, but we might talk about it after when we get to questions. Okay, let's get to libraries because libraries are so much fun. So this slide is too depressing because I'm actually much more bullish on the value of higher education than the slide implies. So all of the elements in it actually are meant to have positive, make a positive point. The last one I think is the most important and the one that we attend to least. The effect on the income distribution of our system of higher education is in many ways regressive because we're really good at taking well-prepared relatively high-income kids and turning them into spectacularly educated, very high-income kids. It's not that we're mean, we all give very good scholarships to qualified students who don't have the income. It's an extremely important principle, especially of elite institutions, but we don't pick up enough kids either because we don't know how to find them, which is I think more and more what Bill Bowen has been saying, or because they're not there, which I think also is widely being said and that's because of other problems in the process of producing education. Okay, libraries. If you're gonna have a university, you're gonna have to have a library. If you're gonna have anything where putting information in and out reliably matters to producing whatever is you're trying to produce, you're gonna have some equivalent of a library. So those of you who've written software or even just been beaten up trying to write software will notice that there's almost always in the program a thing called the library. What's the library? It's a bunch of routines that the program goes to and says, okay, now we're gonna multiply by 11, right? And then not only do you multiply by 11, but you put the routine back where it was so the next time that you can call it, it's the same place and you know what it does? It multiplies by 11, every time you hit it. That's things in the library. If you go to a machine shop, there will be a library in the form of very carefully drilled holes that tells you exactly what the diameter of any drill bit is, right? Or exactly what the diameter or screw pitch of any screw is. That's a library too. So libraries are very rich notion and the feature they have is that there's information in them that is very well organized. And very well organized, both in the sense that you can find it, and I wish we did a little better at that as some of you know, but also in the sense that you know what it is and where it came from and reliably if you found it once, you'll actually find it in the same place or with a route that tells you how to get to it in some other place a year later or 10 years later or 100 years later. There are things in our library, many things in our library that are more than 100 years old that were first cited in a serious scholarly paper in 1902 and are still being cited as to serious scholarly papers in 2007 and we actually know what they are and we can find them. That's an extraordinary ability and without that, I assert, you can't do serious scholarship, right? You can't know what you know because somebody said it. It's sort of a dim vague notion rather than information that you can put in and take out of the library. So that has to happen in scholarship, it has to happen in other domains. The collection in the library and the library's ability to access it and authenticate it are public goods in the way that we've talked about. Now they're not pure public goods because the library's physically right over there and it costs you something to get to it, right? Universities, then there used to be this wonderful attribute of universities in their libraries. You'd build a great library and a great university at the same time and they would feed on each other and support each other. So the value to faculty of being in a university where the great library with the works they wanted it is just across the street rather than 70 miles away on a badly rutted path, which was kind of what the options were not that long ago, that value is enormous. And so you have a very nice situation where the university, this is the local public good point, the university wants to build a good library because then they can attract good faculty and good students with the good library. The good faculty and the good students in turn will be willing to support the good library, the library gets better and that is really very much that's one simplified version of the story of how we got to be the way we are. The great European collections started much earlier and were put together by great collectors. The American collections actually had more of this bootstrapping attribute that I'm discussing and indeed there's a very nice chapter in Harold Shapiro's book that is surprised me. Basically says the great American research libraries fairly recent invention, but we've got them now. The University of Michigan's first library's first major purchase in 1838 was an elephant folio of Audubon's Birds of America. Elephant means it's like the size of an elephant. The work was specifically authorized, the purchase was specifically authorized by the regents. It cost over $900 which was a huge sum of money in 1838 and it was meant to signal that the university was serious about science and to help attract the sorts of faculty and students who would generate value through science here in the wilderness. And it worked, it was a great investment. Imagine that regents specifically authorizing the purchase of a specific material in the library. Please don't get into that, that would be. And the story that's told me actually is that the panic of 1839 caused the regents to get out of this business of buying really special things for the librarian. We somehow never got back. Anyhow, we still have the thing, it turned out to be a good investment. Oh, copyright, too. I'm gonna have to stop. So let me figure out how to jump through this quickly. I'm not gonna talk about copyright, sad as that is. I am gonna talk about the economics of publishing in libraries and scholarship for just a moment and then I'll quit. So here's the basic truth about our world, which is what makes being in the library right now, if you have a concern with public goods and universities, so interesting. Making and distributing copies used to be expensive. And publishers and librarians and tenure review committees were happy. And the reason they were happy that this was expensive is that it meant you didn't go and print something unless you thought you were gonna get a pretty big print run, which got the average cost down, which meant that you would vet it with a bunch of scholars if it was in the scholarly literature in advance, right? And they would say, yep, this is gonna be an important monograph and it's worthwhile for the University of Michigan Press or Princeton University Press or Oxford University Press to publish it. And so once it was published in that way, the tenure review committee could say, hey, this thing was published by Princeton University Press. Those folks are no slouch. They know good work when they see it. It's got these excellent reviews that we can read that are actually by people that we trust. Why does it have those reviews by people that we trust? Because the publisher wouldn't dare publish something without those kinds of reviews. And so the fact that it was expensive worked really well. The same thing was true at a lower level with journal articles, right? Similar thing, they were expensive. And so you didn't publish them until you had good referee reports on them and this economy worked beautifully well. Now it's essentially costless to make and distribute copies and everyone is miserable. Something is wrong here, right? We should be able to reorganize, to organize our world to take advantage of a thing that really was expensive and difficult getting cheap, right? That should be a plus. What's wrong with this picture? And what's wrong with this picture, of course, is that the business model of publishing and the relationship of publishers and libraries and candidly, the business model of tenure cases requiring a print copy of things, all of those models no longer fit the essential parts of the business. And that, I think, is the thing that we would like to figure out how to fix. I will go through this later if people want me to. The most important thing on this slide, to all two things. One is, I think we can array the things in the library on a continuum from sort of pure information to spectacular artifact. The elephant folio of Audupon is an artifact. A Galileo manuscript we have is an artifact. Most scholarly monographs are just information. There's really nothing especially beautiful about them. But you do want the information and you do want to be able to get at it. So what we should do is exploit digital technology as much as we can where things are, I think this is gonna work, collections of zeros and ones. We should be very good at collecting things. And zeros and ones form where zeros and ones are what there is. We should collect and have collections of the great treasures of human accomplishment and discoveries, some of which are, many of which are physical artifacts that we hold. We should be in the business of knowing how to use new knowledge and to find and create new knowledge. And it's the choices that we make in the academy now that lay out the available futures for our societies. Cause if the stuff isn't here, both instantiated in the library or available to you from the library and in the work that we all do in the academy, then it's not actually gonna, not likely to be anywhere. And even if it is somewhere, you won't know what it is, you won't be able to find it, you won't have all of these other conditions. This is a really good line of work to be in, right? Here we are in the information age, preserving information and using it well and understanding it for the future. That ought to work. But how do we assure support of these things and how do we figure out what the right scale is and how do we deal with the fact that the individual university is no longer the obvious place to do this work because with digital technologies there's a sort of worldwide ability to distribute things. That's part of it being cheap. There's the opportunity there, but then there's a challenge to develop a new model that would make that work. I don't know what that model is, but it goes back to the notion of public goods and the public good. Thank you. Thank you very much, Paul, for a set of issues which are all to the public good for us to think about. Paul has graciously agreed to take a question and answer period and so we have until about 5.30 and we'd welcome thoughts and questions. Somebody, anybody? Can't have that persuasive, yeah, Harold. President Shapiro, sir. In the 1970s, my research had a similar idea was around without having the capacity that we now have in the zeroes and ones. And the idea was that they could develop shared collections. That was extraordinarily difficult for people to get used to and do. In fact, it has a modest success but extremely modest. Do we have any lessons to learn from that regarding our abilities to go ahead now and do it in the zero one world? Libraries in about the 1970s try to organize themselves to basically agree, I'll be good at this, you'll be good at that, they'll be good at the other thing and share those collections. And that lasted until the beginning of the next recession basically and then just sticking to the rules turned out not to be something that people were willing to do. Do we have lessons from that? The lesson that I take from that is a cautionary one. Without an organization, some organizational structure, I think it's very difficult to have widespread cooperation amongst institutions that think of themselves as peers as the great research libraries quite legitimately do. You can have very good dyadic relations. You can make good one-on-one deals. You can agree to all buy some piece of the substructure from one supplier sometimes. People can get together on that. But sort of giving up the trusting some other agent to collect well where you're not collecting I think is turned out to be very, very difficult. The only hope I have is that the zeros and ones make it much, much easier to monitor sort of instantly whether there's some place that has this thing you want. And this now gets us very much into the intellectual property concerns because just because there's some place that has this thing you might want doesn't actually mean you can get it under the current rules that we have. But we, you know, there's this thing called Worldcat which isn't really a very good catalog of all the library holdings because there's nothing to make people state that they pulled things out when they pull things out. So it's not, it's way far from being super accurate. But the interest of the system in producing a very accurate Worldcat I think is strong enough so that will happen over the next several years. Once that happens, the ability to sort of do multilateral monitoring of this problem will get better and better. And candidly, I probably shouldn't say this, but I think that the public and the board and the tuition payers and the Congress ought to be telling us, look guys, this is where you really can save significant amounts of money. We, the Congress, will fix the copyright law for you if you will in exchange deliver this great resource to society at better prices, which we could do. That's a hope. My next question is, would you be going exactly the opposite direction as far as I can tell? Have you even gotten a hold in this area and look at the politics of this going ahead? Well, as a politician I'm a good. But copyright law has been going. Copyright reform has been going basically in the wrong way for just the standard political economy reasons that the players are well organized and strikingly, this does make you shake your head. The players are well organized, they're in distress precisely because this technology means that they're out of date. Their distress adds to their legitimacy in asking for special favors from the Congress. Whereas you'd think, I mean, our distress with respect to the Spelling's Commission is, well, you guys should get your act together, you know, your distress, but somehow the publishers, their distress, which happens in large part because of digital technologies, that's, that analysis is certainly right because it's now very cheap to copy and to publish. Their distress adds to their legitimacy politically. Here are the two optimistic pieces, I think. One optimistic piece is a number of us in the trade are going to start publishing studies that show that the cost of holding rich electronic collections is so much less than the way in which we currently hold rich print collections. Now, Shannon, I'm not saying that we're going to get rid of the rich print collections. Shannon Zachary is the head of preservation and curation in the library and does spectacular work. And also keeps me honest. But so one thing is I think that we can show that the stakes are large. Another is that I think in many contexts we can make a deal moving towards print on demand where actually publishers and rights holders will be able to profit to some extent in the benefit of things being ubiquitously available. And the third one, which is the least clear to me, but I think very important, is that the current generation of young people and not so young people who like being able to do anything they please on the web and will be appalled to discover when they leave the university that they don't have access to all the stuff that they have in the university and they are not actually the dispossessed. They are in fact the children of members of Congress. And they will, I think, over time constitute a very powerful political force for opening things up at the same time that there are other powerful political forces for keeping things closed down. And if I had to bet on juniors at Princeton and the University of Michigan 10 years from now versus the American Association of Publishers, I think I'd probably put my money on the kids. I hope I'm right. Deborah, yeah. I wanna pick up on kids, you're not surprised probably, but I would like to hear you comment since we're also an educational institution on how this tremendous change in the availability of information and what we even count as information, what that does to the educational mission, what role does the university have in preparing people to manage what's an incredibly different relationship to information. We might call it knowledge, we might not. I mean that looked very different, I think, 50 or 100 years ago, so what's your reflection on that? Well, again, it's this case of we ought to be able to take advantage of rather than lose from the fact that a thing was scarce, that we value is now cheap. It's not especially easy, and we're not making it especially easy for ourselves, because actually the one piece of the record of human knowledge that is not searchable digitally is the great scholarly collections, right? You can find current music and literature is pretty easy to get. And of course anything that's on the web is very easy to find, but even when we've digitized things that are in copyright, they're not easy to find and they're not easy to use, and we have this generation that wants to be able to find everything through, among other things, electronic indexes of that kind. Seems to me that we have to build a rich, an archive of those materials that is indeed indexable and searchable. I think that the Google project in Michigan will get us there as quickly as anybody gets there, arguably somewhat quicker. And then we have to do something much more interesting. We have to require in our teaching of undergraduates a sort of level of scholarly literacy that used to be kind of automatic with good bibliographic technique and now isn't so automatic because bad bibliographic technique looks a lot like good bibliographic technique. That's gonna have to be a joint enterprise, it seems to me, of the faculty and the library, and it's one that I think we should be ready to begin to work on. Nobody, I mean, some good liberal arts colleges are doing this in a good way. I don't think anybody's doing it at the kind of scale we've got. We have the best resources to do it and it's something that we ought to be working on for the next several years. So I think the possibility here is hopeful. But it won't, this is one that absolutely doesn't happen automatically. Yeah. To maximize the benefit of the university level is there's public books such as Traffic Lives for the American. Do you think there is a fundamental meaning between the government and the university and universities and the private sector such as, especially small business? If Bill Gates, the small business started, was crime spider government, crime spider university. How do we have IE? Those are public goods or some part which is, you don't have to pay. But so was the Google and Wikipedia. That's brought up a question, I haven't heard the term you mentioned about non-monitorial monitoring economy, which is a lot of things, we got it free. Not have to pay and we consume. We don't have to worry somebody else. We can have the cake, we can eat it, we can eat it, everybody can eat it. So I've already, if there's some kind of university laid behind, a government laid behind. I'm waiting for this, Google's on YouTube, waiting for this, what is the music battle between this 19 years old, you mentioned of what is named that. And wait, wait, wait until things come up. So there are some siege changes. I think the government university still haven't sensed that, there's a book about the wealth. And I think probably you had a regret, which is the wealth of the wealth redistribution by the author of the third wave and talk about consumer. Instead of consumer, talk about this portion of economy. And the question started from David, Ricardo, Karl Marx, all of those economic forebathers, none of them have faced any of the problem that we have now. So this is a very different world, I think that's right. Although there's a very nice book by Carl Shapiro and Hal Varian called Information Rules. And it's actually meant to have two meanings. So it's rules of information and it's information rules. And what they argue in that book, and I think persuasively, is that if you work through the economics of a world in which again we have widespread networking, sort of ubiquitous access to the internet, and all of the things that are extremely disruptive of the particular institutions that we have, and they are extremely disruptive to almost all the institutions we have, the sort of fundamental rules of delivering value of the importance of scarcity, of working out who benefits and who loses and having to attend to where things get paid for. Those things haven't changed and it's a matter really of reapplying those fundamentals to the world we live in. So I would commend that book to you as well. As the University Library, could you speak to what you would consider your favorite holding in the library? What you would also design? Okay. And what you would consider the most important holding in the library? So my favorite holding in the library is something called the Polyglot Bible. It was printed in 19, in 1513. I think I had this right. And it's an utterly remarkable text. It has each passage from the Bible column by column. First the, as of 1513, Latin version. Next to it, and I may have the order wrong here. Next to it, the scholars who did this works revision of the Latin, because Latin is after all the language of record. And then the original, insofar as original is known, Hebrew, Aramaic, Greek, Arabic, showing the importance of Arabic scholarship to the Christian and Jewish Bibles, which is just right. And Italian, which is the vernacular. And then a long discussion in Italian of how it is that they determined that column two, their interpretation of the Latin, right, is actually better than column one, which is what the church had been saying for some time. And so here we have this book, which is almost 500 years old, in which you see the Renaissance creating the Reformation, where you see the disruptive and creative power of knowledge to change the world. And I get goosebumps just talking about it. It's just a remarkable document. And it's scholars doing what scholars do all the way back then. And our world is palpably shaped by that book. Is that enough? Come here. Come here.