alt Hacker NewsThinking about it as a system:
If every university were subject to similar constraints, the average "quality" of research proposals would go down (everybody would have less time to spend on it) but since the pool of research dollars is assumed constant everyone would still get roughly their same slice - just with less overhead.
How it would actually work is only the best schools would keep their funding while lower tier schools would be shut out entirely and be forced to severely reduce their research agendas. There's a school near me that just went from College to University status because they grew their graduate program enough, they would probably not weather the storm the same as MIT.