Tuesday, January 15, 2019

A radically different model for higher education

In today's world expertise in data science and web development is highly rewarded.  You can learn those skills by going to private licensing programs, community colleges and universities.  In each case the learner dedicates tuition and time up front in the hope of a rewarding career.

Lambda School offers a different approach, offering 30-week courses tuition free in exchange for 17 percent of your income for two years after program completion.  Graduates have to make more than $50k before having to pay back anything and total payments are capped at $30k.

Lambda is expanding into nursing and cybersecurity in the not too distant future.  One can envision Lambda and its inevitable imitators becoming widespread in disciplines where job market prospects are strong.  I do not see Lambda getting into elementary education or philosophy, but it could be a genuine threat to universities with programs that cost more and last much longer.

This NYT quote shows how Lambda's incentives vary from the typical education provider:
The school is incentivized to only enroll motivated students who won't drop out; it is incentivized to successfully teach them the skills they will need on the job; it is incentivized to find them a job; and it is incentivized to make sure that are a success once they're on the job because the school relies on employers to keep hiring its graduates.  

Monday, January 14, 2019

Should income tax rates climb to 70 percent?

Newly elected politicians sometimes bring fresh ideas to the table.  In the case of US Rep. Alexandria Ocasio-Cortez (D-NY), we have a stale idea recycled -- raising income tax rates to 70 percent.  The top federal marginal tax rate in the US used to be 90 percent in the 1950s and early 1960s and remained at 70 percent through the early 1980s.  Ocasio-Cortez is pushing for the 70 percent rate to kick in at personal income above $10 million and would use the funds to pay for a Green New Deal.

As always, you will find some economists in support (see this summary by Matthew Yglesias) and others who are highly critical (see this Bloomberg column by Tyler Cowen and John Cochrane's blog).  The supporters back their arguments up with theoretical frameworks containing curious assumptions.  One has to do with diminishing marginal utility: an extra thousand dollars for Warren Buffett does nothing for Warren but can be life-changing for a homeless person.  (But do you trust the federal government to make these calculations?  Maybe another Congress  in 2030 decides the 70% rate should kick in at $100,000?)  Other key assumptions: 100% tax compliance and near-zero labor supply elasticities.

Eventually all income tax rates are going to have to go up because (1) the US budget deficit is not in a sustainable position and (2) the required compromise will have to include revenue enhancement along with expenditure reduction.  Although a 70 percent rate might look initially attractive from a  revenue generation standpoint, people make choices about how they get paid (cash versus benefits), how many hours they work and what professions they enter.  I doubt NC State would have as many MBA students as it does now if the top tax rate were above 50 percent.

Friday, January 11, 2019

Tough times for chain restaurants

Bloomberg predicts 2019 will be a tough year for chain restaurants with rising labor costs and falling consumer demand.  I live in a section of Cary where Carrabba's, Five Guys, Romano's Macaroni Grill, and TGI Friday's have all closed their doors within the last year.  What gives?

Overall demand for food continues to grow with population, income and other factors.  Chain restaurants are getting a smaller share of a growing market.  Also there is no evidence of a surge in visits to the fresh produce and meat aisles of groceries.

The prepared food market has become more competitive thanks to grocery store delivery, meal kits by mail and food trucks.  Food trucks have a particular competitive advantage in their lower fixed costs and ability to relocate to meet customer demand.  We also could be seeing a shift in consumer preferences away from mass-market menus.  The generation that disdains Bud Light in favor of microbrews could very well be giving the same treatment to chain restaurants.

Tuesday, December 18, 2018

How are those steel tariffs working out?

Now that 25% steel tariffs have been in place for nine months, what have been the consequences?  WSJ reports that so far the only major change has been that domestic steel companies are making higher profits.  There has been hardly any decrease in steel imports.

This has happened for two reasons.  First, it takes a lot of time to ramp up U.S. steel production; you cannot open new plants or reactivate closed plants overnight.  Second, no one knows how long the tariffs will last.  Without being political, any neutral observer would see that U.S. economic policy can change quickly and unpredictably.  If you were CEO of a company such as Nucor, would you bet your company's future on expanding domestic production behind a tariff wall that could vanish before or right after the next election?

The tariff raised prices of imported steel by 25%.  Domestic steel producers have raised their prices the same amount and, voila, higher prices generate larger profits.  If the tariffs are perceived to be long lasting, companies will invest and create more jobs.  But the tariffs could vanish as part of some bigger deal with China or Mexico.  Imports have not increased because domestic production has not changed.

Bottom line: the tariffs have resulted in higher prices for US steel consumers, higher profits for US steel producers and no change in wages and employment for steel workers.

Monday, December 10, 2018

Cartels in the news

Two recent cases:
1) Canned tuna: Starkist pleaded guilty in October to price fixing and paid a $100m fine.  Bumblebee pleaded guilty in 2017 and paid a $25m fine.  Presumably the third major producer Chicken-of-the-Sea will meet the same fate soon.  The price fixing took place between 2011 and 2013.
2) Generic drugs: today's WP reports that the Justice Department is investigating 16 generic-drug companies for price-fixing 300 different drugs.  One of the investigators says this is "most likely the largest cartel in the history of the United States."

Many economists complain about antitrust laws and their enforcement, but none of us have any kind words to say about cartels.  Perhaps the fines and the shame will deter future violators of section one of the Sherman Act.

Friday, November 16, 2018

Princeton Review: NC State Online MBA #9 in the world

The great rankings news keeps coming!  This time it is Princeton Review which ranked NC State's MBA #9 in the world on their list of the Top 25 Online MBA Programs.  The ranking is based on a student survey, along with school-reported data on graduation rates, student quality, faculty qualifications, student and career services, and technology support.  Kudos to all who have contributed to the program's success.

Thursday, November 8, 2018

NC State MBA zooms to #47 in Businessweek rankings

The full-time NC State MBA program made a huge jump in the Bloomberg Businessweek rankings from #70 to #47 in the US and #20 among public universities.  There was a major change in methodology, which probably have helped some.  Also starting salaries last May were up $10k.  .  

This year the ranking was based on four dimensions.  NC State placed #16 on learning (first time this was ever measured, have to think it reflects the real-world projects), #25 in entrepreneurship (long overdue recognition), #48 in networking (kudos to all who engage with alums and companies), and #61 in compensation (unadjusted for cost of living and taxes of course).  

Other ACC schools that were ranked:
Virginia #9
Duke #15
UNC #23
Georgia Tech #27
Notre Dame #31 
Boston College #59 
Miami #62 
Pittsburgh #68 
Syracuse #77

Bottom line: #47 overall, #20 public universities, #6 ACC.  Great and well-deserved recognition.  

Thursday, November 1, 2018

Is a recession on the way in 2020?

So says NYU Stern's Nouriel Roubini, who was one of the very few academic economists who correctly predicted the 2008 market meltdown and subsequent recession.  Roubini thinks that the global economy will continue to grow in 2019, thanks to strong stimulus in the US and China.  But in 2020 he says "conditions will be ripe for a financial crisis followed by a global recession."

His reasons for concern include the end of fiscal stimulus in the US, higher interest rates, tariffs and the resulting uncertainty in global investment, and overpriced stocks.   Roubini also fears that debt levels will be so high that tax cuts and government spending increases will not be viable policy options.  That could mean the 2020 meltdown, if it happens, could be more severe and longer than the Great Recession.

Wednesday, October 31, 2018

NC State MBA team takes 1st place in Teradata challenge

More honors for NC State's Jenkins MBA program!  Jaideep Basak, Ryan Randall, Dena Simkus and Anjanie Kashidas took 1st place in the Teradata University Network Analytics Challenge.   There were 45 teams involved, five of which presented at the Teradata annual conference in Las Vegas earlier this month.

The NC State team's entry was based on their spring 2018 project in the Decision Analytics Practicum.  Kudos to the team and to David Baumer, their faculty advisor.

Tuesday, October 30, 2018

NC State MBA in Economist magazine global top 100

Great news about the NC State Jenkins MBA program!  The program has been ranked as one of the top 100 full-time MBA programs in the world by the Economist magazine.  NC State’s Jenkins MBA came in at #97.  That put NC State among the top 50 MBAs in the US and the top 25 among public US universities 

The program was ranked especially highly along four dimensions: percentage of graduates with jobs within three months of commencement (#28 in the world), alumni ranking of career services (#49), salary increase pre and post-graduation (#52) and faculty quality (#52).  

Kudos to the faculty, staff and students who have created a world class program.  This is a well-deserved recognition.