All Terrain Thinking

A Compendium of things I think are Important

Economics: It's not just whats' in your wallet

This is a suprisingly difficult question given the little bit of data which we had, but let's give it a shot. On the surface, it would appear that he is vulnerable to the critics who point out that in the six years since he took office, revenues have increased a paltry 1% (101 from 100). The president points out, however, that he inherited the problems of the previous president and that he has been able to turn things around and that since 1992, his first full year, revenue has actually increased 12 percent (101 from 90).

As you can see, one's interpretation of the president's performance is dependent upon the time-frame one uses.

To incorporate into your analysis the effect of price inflation, you need to get information on the price level. In the third column I have included information on the price level, the Consumer Price Index (CPI) which you hear people talk about every month.

With these data, and using the appropriate formula, we can create a new concept called 'inflation adjusted', or real revenues. The 'real' data, in 1996 prices, are included in the following table and graph.

What we see here is that real revenue in 1996 was virtually unchanged from what it had been in 1992, and substantially lower than 1991. In 1996 the university finds itself in about the same position it was in in 1991 since revenues increased at about the same rate as prices for this period. The president doesn't look too good now, but let's look a little further into this.

Let's do it. The table below has the revenue figures for Slippery Slope and the entire sample of comparable universities.

With this new information, what can we say about the president's relative performance? There are two techniques which we might use to answer this question. One would be to look at the ratio of Slippery Slope to the revenue for the entire group of universities. If we adopt the president's view that we should begin in 1992, he has been successful in increasing Slippery Slope's share of total revenue from 6.9 to 7.5 percent because revenue has increased faster at Slippery Slope (12 percent) than for the entire group (3 percent -1300 to 1340).

For those who like visuals, here is what the graph of Slippery Slopes's relative performance. Given that we are graphing a ratio (SS/Total), when this falls is means that Slippery Slope is not doing as well as the total and when it has a positive slope, Slippery Slope's revenue is growing faster than the toal.

Another way to look at it would be with the use of an index number. Below you will see a table containing the original plus the new indexes for Slippery Slope and the Total. The indexes were constructed by dividing each of teh original columns by the corresponding 1992 figure.

These data tell us that from 1992 to 1996, Revenue at Slippery Slope increased 12 percent [we take away 1 from the index 1.12 and have .12 which equals 12 percent] while revenue for the entire group of universities increased 3 percent [we take away 1 from the index 1.03 and have .03 which equals 3 percent]. The graphical representation of these two are presented below.

What's the verdict? As I indicated at the outset, this was not going to be easy. The bad news for the prez is that revenues have gone up, but not after we account for inflation. The university is about where it was in 1992 in terms of the buying power of its revenue. The good news is that the Prez's university seems to have done better than the other universities. The review is mixed-and the decision will be a difficult one-but I hope that you can see how a little data analysis can go a long way toward helping us make a more informed decision.

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