Although the article raises a lot of points, there is an enormous amount of bluster in here. The budget dilemmas work very differently at the very different types of higher ed institutions in this country. I work at a research school, and the obvious problem we face is the one that Shirky alludes to with his remark about "creating new knowledge" (I guess he means research...?) - in any case, the undergraduates are subsidizing faculty research; the teaching load has shifted from 3-3 down to 2-2 just in the time that I have been here, students pay a steep "academic excellence" fee whose purpose is to subsidize faculty research ($52.50 per credit hour = $1575 per year per student), etc. So, the question to ask would be: are faculty paid to teach (and if so, teach how much?) or are they being paid to do research? If students are paying for faculty to do research, then that is the issue we need to discuss, based on numbers like the ones Charles Schwartz has been documenting for the UC system and the costs of running a research university (here http://universityprobe.org/
and elsewhere). The research v. teaching issues is not the issue at other institutions of higher education, which have their own budget dynamics. Because Shirky, however, wants to sensationalize and shove all higher ed under the same rhetorical umbrella, I don't think he is really advancing the discussion in any useful way.