Imagine you’re running a Canadian university or college in 2008 or 2009. All signs point to a nasty recession, but your provincial government is still in spending mode and keeps giving you more money. It can’t last; the provincial deficit is completely unsustainable and cuts are inevitable within a couple of years. How should you use that extra money the finance minister just slipped you?

Anyone with a modicum of financial sense would tell you to save it. Put it in a rainy-day fund. Use it to offset the cuts that are so clearly just around the corner.

So why did almost nobody do this? Why did institutions collectively continue to spend in such a way that was so forseeably unsustainable? And why are so many institutions now in desperate straits when it’s been so obvious for so long that restraint was coming?

There are a number of plausible short-term excuses, I suppose. The crisis in many schools’ pension funds took up a lot of budget-cutting energy. Generous multi-year salary agreements take a while to work their way through the system.

(Though there’s some question-begging here: what exactly were institutions thinking when they signed deals tying them to effective salary increases of 4-5%/year in 2009 and 2010, after the crisis was perfectly apparent? Can’t blame a union for asking, of course, but what’s management for if not to say “no” occasionally?)

The real answer, though, boils down to two things. First is force of habit: the good times have been rolling for so long that most institutions have forgotten how to “do” austerity. But second – and more importantly – is that politics forms a serious barrier to sensible behaviour. Say you made a rainy-day fund: how would you explain it to politicians? They’d want to know why you weren’t spending all that money the legislature had voted for the purpose of educating the province’s young people. The perfectly sensible answer: – because we’re making preparations for when the legislature returns from outer space and admits spending trends are totally unsustainable – probably wouldn’t go over too well.

Governments, at the end of the day, account for 90% of institutional revenues through control of both grants and tuition policy. So even though Canadian institutions have very high levels of financial autonomy, penalties for acting rationally still remain. In order to keep their benefactor happy, institutions are required to enter into a consensual hallucination in which they must treat as permanent funds that are clearly going to disappear in a couple of years. They must use these funds to hire new staff, set up new centres and programs… and then act shocked and disappointed when they disappear.

Quite a way to run a railroad.