Malcolm Gladwell: Princeton University Is the World’s First Perpetual Motion Machine

Malcolm Gladwell in Oh, MG:

After a stellar year in 2021, Princeton University has an endowment of $37.7 billion. Over the past 20 years, the average annual return for the endowment has been 11.2 percent. Let us give Princeton the benefit of the doubt and assume that at least some of that was luck and maybe unsustainable, and that a more reasonable prediction going forward would be that Princeton can average a return on its investments of an even 10 percent a year. That puts Princeton’s endowment return next year at roughly $3.77 billion.

Now—what is Princeton’s annual operating budget? $1.86 billion. The arithmetic here is not hard. $3.77 billion in investment income minus $1.86 billion in operating expenses leaves you with $1.91 billion.

Princeton could let in every student for free. The university administrators could tell the U.S. government and all of its funding agencies, “It’s cool. We got this.”

They could take out the cash registers in the cafeteria, hand out free parking to all visitors, give away Princeton sweatshirts on Nassau Street, and fire their entire accounts receivable staff and their entire fundraising staff tomorrow.

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