Notes on "The Class"

I recently saw "The Class," an autobiographical quasi-documentary about a year in the life of a French grammar class in a Parisian middle school. It is based on a book written by a teacher and the author actually plays the lead in the movie. The movie follows a group of about 30-35 students, all of whom were real students at the school. There was no formal script, instead the movie is based on improvs of certain situations described in the book. Just available via Netflix.

What I found fascinating was the depiction of the French school system and its students. In one scene the faculty is reviewing the academic performance of the students, subject by subject, at the end of the semester. Two students were seated in the room as observers. Although sworn to keep the discussion confidential, they share the discussion with all of their classmates. Certain students have "issues," as one would expect, but the system seems to do little more than shift the worst cases from one school to another.

Most striking was the composition of the class; a clear majority were either immigrants or children of immigrants, a large share of whom were from Africa or Islamic countries. (And this was a school in Paris itself; not one of the suburbs which have predominantly immigrant populations.) This movie shows us the face of France 20-30 years from now. My guess is that a film set in Denmark, Spain or almost any other European country would have the same message. These countries are going to be facing some big changes as their native populations decline and immigration continues apace. Economics can provide a useful framework for explaining employment, GDP, immigration patterns and the like, but I am not sure our profession will have a whole lot to say about the cultural consequences.

Bernanke nominated for a second term

A wise move, applauded almost universally by economists. Robert Samuelson's column in today's Wash Post summarizes Bernanke's considerable accomplishments, while pointing out that there are no doubt some things he would have done differently if given the option (burst the housing bubble two years ago, come up with a way to keep Lehman Brothers afloat).

Choices in health insurance

Excellent article in today's NYT by David Leonhardt on employer-provided health insurance. Leonhardt makes an important point about how individual choice is always going to be curtailed when most people get their insurance from either their employer or the government. Some people are risk averse and want insurance with low deductibles and copays; others are more willing to take risks (or have more personal wealth to cover downside risk) and prefer very large deductibles. Regardless of risk aversion, all parties want to take advantage of the tax subsidy provided to employer-provided insurance. However, employers generally negotiate for one plan to cover everyone, and in our low-savings society the low deductible plan will win out in almost every case. Customer service also suffers since customers cannot threaten to take their business elsewhere.

The immediate advantage would be that people could choose a plan that fit their own preferences, rather than having to accept a plan chosen by human resources. You would be able to carry your plan from one job to the next — or hold onto it if you found yourself unemployed. You would never have to switch doctors because your employer switched insurance plans. The longer-term advantage would be that health insurance would become fully subject to the brutal and wonderful forces of the market. Insurers that offered better plans — plans that drew on places like the Mayo Clinic to offer good, lower-cost care — would win more customers. “That’s the way the rest of the economy works,” says William Lewis, former director of the McKinsey Global Institute.

MGIM program launches 2nd year

The second ever entering class of the Master of Global Innovation Management program is under way. MGIM students spend a semester in Aix-en-Provence and a semester in Raleigh. Over the summer they have the option of doing an internship or working on a project in China and taking a course there. The degree is designed for students in STEM disciplines who want to learn more about management.

All the students recruited by NC State are now in France. They met for an informal get together last night over pizza, and their French Language Intensives kick off on Monday morning. They'll have 2 weeks of French Intensives, and then their classes will start on September 7. This year they will have a busier schedule as the MGIMs will be integrated more into the MBA curriculum at our French partner IAE.

The new students recruited by NC State come from the US, Canada and Brazil. They are graduates from NCSU, UNC-CH, Meredith, Laval University (Canada), and Armstrong Atlantic State University with majors that include Engineering, Microbiology, Interior Design, Business, Textile Science, Economics and Mathematics. We have an even split with nine men and nine women. Most are coming straight from undergrad with no post-grad experience.

Some updates on the health care debate

A few interesting pieces have come out in the last week on health care. The one that has received the most attention is a WSJ op-ed by Whole Foods CEO John Mackey. Mackey makes two main points: (1) market-oriented reforms targeted at the tax-treatment of health insurance, insurance industry regulation and malpractice litigation would increase competition and lower health care costs and (2) we need to address the root causes of poor health:

Unfortunately many of our health-care problems are self-inflicted: two-thirds of Americans are now overweight and one-third are obese. Most of the diseases that kill us and account for about 70% of all health-care spending—heart disease, cancer, stroke, diabetes and obesity—are mostly preventable through proper diet, exercise, not smoking, minimal alcohol consumption and other healthy lifestyle choices. Recent scientific and medical evidence shows that a diet consisting of foods that are plant-based, nutrient dense and low-fat will help prevent and often reverse most degenerative diseases that kill us and are expensive to treat. We should be able to live largely disease-free lives until we are well into our 90s and even past 100 years of age.

Some of Mackey's customers have taken offense at his remarks, announcing a boycott of Whole Foods.

I also found David Ignatius's column in today's Washington Post interesting. He thinks that the President is losing the battle on health care reform and needs a new general: Denis Cortese, CEO of the Mayo Clinic. Cortese thinks we have gotten too hung up on health insurance issues and are not getting to root causes of the problem (FYI, I agree 100%):

First, he thinks Obama has made a mistake in moving toward the narrower goal of "health insurance reform" when what the country truly needs is health system reform. Imposing a mandate for universal insurance will only make things worse if we don't change the process so that it becomes more efficient and less costly. The system we have now is gradually bankrupting the country; expanding that system without changing the internal dynamics is folly.
Second, Cortese argues that reformers should stop obsessing over whether there's a public option" in the plan. Yes, we need a yardstick for measuring costs and effectiveness. But we should start by fixing the public options we already have. Cortese counts six existing public options that should be laboratories for reform: Medicare, with its 45 million patients and a fee-for-service structure that all but guarantees bad medicine; Medicaid, with an additional 34 million beneficiaries; military medicine, through which government doctors deliver state-of-the-art care; the Department of Veterans Affairs, which has improved performance at its hospitals by embracing new technology; the "Tricare" insurance plan for military retirees; and the Federal Employees Health Benefits Program.

Finally Martin Feldstein at Harvard (former chief economist for Reagan and president of NBER, not to mention my macro theory professor) has weighed in on Obamacare in a WSJ op-ed. Marty is concerned about the long term effects of on research and innovation. Money quote:

In the British national health service, a government agency approves only those expensive treatments that add at least one Quality Adjusted Life Year (QALY) per £30,000 (about $49,685) of additional health-care spending. If a treatment costs more per QALY, the health service will not pay for it. The existence of such a program in the United States would not only deny lifesaving care but would also cast a pall over medical researchers who would fear that government experts might reject their discoveries as "too expensive."

No green shoots in retail

Most economists, including myself, are fairly confident that the economy has at least bottomed out. The report on retail sales that came out yesterday (WSJ gated, NYT ungated) indicates that the recovery is not going to start with a consumer rebound. No retail sector seems immune; Target down 6%, Saks down 15%. Retail execs do not expect matters to improve for another year; some chains are cutting back further on inventories and cutting back holiday orders.

The other candidates for driving the recovery are investment, exports and government. Investment has three major components: plant and equipment, housing, and inventories. Housing has been doing slightly better the last three months, but I would not place any bets on a housing resurgence any time soon. Will firms be willing to invest in big ticket items and inventories if consumer spending stays flat? Don't count on it. As for exports, they are driven by GDP growth in other countries (which actually is looking up) and the exchange rate. This has some potential.

The stimulus package will start kicking in later this year and next, so we can count on government spending to give a short term boost to the economy. But looking at the last 80 years of macroeconomic data, I cannot find any instances of a sustained economic recovery driven by government other than possibly World War II. Let's hope for better news from consumers soon!

More on administrative bloat at UNC

Another front page story in the N&O about administrative expenses growing more rapidly than educational expenses in the UNC system. One graphic shows a tremendous increase in the number of vice-chancellors and vice-provosts throughout the system in the last five years; at some campuses, these numbers have doubled.

In an earlier post, I noted that these factors would explain at least some of the increased expenditures on administration: growth in outside contracts and grants for research, an expanded mission for the university (e.g., economic development) and increased regulation of universities by various levels of government. Subsequently I have learned of one other factor: as a result of changes in job definitions, some positions that were previously classified as academic were reclassified as administrative. The dividing line between these two areas is often vague -- I am a dean but I still teach and do research. I certainly do much more than supervise my direct reports.

After reading today's N&O piece, I realized there is another factor driving the increase in upper level administration -- the need to retain key personnel in jobs where state regulations restrict the wage to be below the market clearing level. This has been a particular issue for IT occupations, where the statewide average wage is well below the compensation needed to compete in the labor markets in the state's largest urban areas. If you cannot raise the salary, you upgrade the job so that you can pay what is needed to get the work done.

I hope that all of the UNC system chancellors are looking for cost saving opportunities just like the deans and department heads have been doing in the College of Management. But be forewarned: today's headlines vastly overstate the savings that will be obtained from administrative cutbacks.

Full-time MBA orientation

NC State's Jenkins Graduate School of Management welcomed its largest-ever incoming class of full-time MBA students this week. This spring our admissions team recruited way more applications than ever before, so working with the department heads I developed a plan to expand our faculty capacity that would allow us to accommodate all qualified applicants. There were 67 new students at orientation, where they participated in exercises in team-building and cross-cultural communication and learned about personality types and academic requirements. Most of the new students are from North Carolin. New international students arrived from China, India, New Zealand, Spain, Taiwan, and the United Kingdom.

This class will help our program achieve two important goals. First, we will be able to attract a larger range of employers for on-campus recruiting because we will have more critical mass in more areas. Second, the NC State MBA program will now be eligible to participate in a wider range of MBA rankings, including Business Week, Financial Times, and Wall Street Journal.

Golden parachutes at state universities?

The Raleigh News and Observer had a long page one story two days ago headlined "Ex-University Brass Get Leaves, Payouts." The impetus for the story was no doubt the arrangements provided to NC State's former chancellor and provost after they resigned their positions earlier this year. In each case the former administrator was provided with six months to a year without teaching responsibilities, plus they were allowed to draw their administrative salary during that period. Sunday's story finds (I'm shocked, shocked) that this practice is very widespread in the UNC system.

If the newshounds at the N&O had done further investigation, they also would have found this to be a common practice at private universities and at public universities in other states. The reason for the teaching release is quite simple -- someone who has not taught for a number of years is likely to be well behind the state of knowledge in their field. This policy is in place to protect students! Also, because the overwhelming majority of universities have such a policy, the UNC system needs to have it to be competitive when filling high level administrative positions. If you pay below market, you cannot expect to attract the best and the brightest.

The current system could benefit from some tweaking. For instance someone who only serves as an administrator for a year or two should not need a year to retool. Also there are lots of issues about the salary level post-administration. Faculty salaries in research university are largely dictated by research productivity. It becomes difficult to attract faculty into administrative posts if they see do not see such posts as being at least revenue-neutral.

Today's jobs report

I am back in the office after a couple of weeks off. There is some relatively good news in today's jobs report: the unemployment rate in July dropped from 9.5 to 9.4 percent. Although employment declined by 247,000 in July, this is well below expectations and far below the 443,000 number for June. (Aside: the press always labels the employment decline as "jobs lost." This is incorrect. Every month new jobs are created and existing positions vanish. The number reported is the net change in employment.)

Today's report provides further evidence that the economy is beginning to recover. Historically, employment growth lags behind output growth. So even if GDP grows by 2 or 3 percent for the rest of the year, we probably should not expect anything dramatic for employment until 2010. Uncertainty about possible healthcare mandates is likely to provide an additional drag on labor market recovery. Companies that do not currently provide health insurance are well aware that the price of labor may increase by 10 percent in the next few months. Demand curves slope down.