Saturday, July 31, 2010

Obesity econ

Worthwhile WSJ op-ed today from U of Chicago's Tomas Philipson and Richard Posner on the basic economics of obesity.  They attribute the obesity epidemic to two forms of technological change: one in agriculture that has greatly lowered the price of food in well-off societies and one in the workplace that has reduced the number of calories needed to subsist.  In a nutshell, we are eating more when we need to be eating less. 

Philipson and Posner think education and food labeling are not going to make much difference.  They also are skeptical about taxes, which would be hard to administer and would have a greater impact on the poor.  They appear to be most optimistic about medical innovation, which would focus on dealing with the side effects of obesity (e.g., diabetes, knee replacements) and less with the problem itself.  They do not mention any role insurance companies might play via increasing deductibles and copays for those with body mass indices beyond a healthy level. 

Friday, July 30, 2010

Today's GDP report

The headline is not encouraging -- growth in 2010:2 was 2.4 percent, well below the 3.7 percent of 2010:1 and the 5 percent at the end of last year.  The NYT writeup is pretty pessimistic for the second half of the year, as concerns mount about Chinese bubbles, Greek defaults, and Washington's phaseout of federal stimulus spending. 

There was some encouraging news: nonresidential fixed investment (mostly buildings and equipment) increased by 17 percent in 2010:2.  This means that businesses think there are growth opportunities in the future.  It also could reflect recent legislative changes:

... you can understand that businesses don’t have to pay health care on equipment and software, and these get better tax treatment than you get for hiring people. If you can get away with upgrading capital spending and deferring hiring for a while, that makes economic sense, especially in this uncertain policy environment.

Wednesday, July 28, 2010

Everything important I learned in kindergarten

Today's NYT summarizes research by a team of five economists on the long term impact of early childhood programs.  The title gets your attention: "The Case for $320,000 Kindergarten Teachers."  To get a hold on the old question of whether class size affects learning, Tennessee assigned students randomly to kindergarten classes many years ago, with the classes varying significantly in size.  There were profound differences in learning; students in small classes learned more at the end of the year than those in large classes.  However as the students were tracked in later years the learning differences washed out, based on test score analysis.  Conclusion: good kindergarten teachers and small classes can help in the short term but they have no lasting effect.

The more recent research asks a broader and, I believe, more relevant question: are there any differences in adult outcomes that can be related to different kindergarten environments? The five researchers find that students who learned the most in kindergarten were more likely to have graduated from college, less likely to be single parents, more likely to be saving toward their retirement, and were earning more than those who learned the least.  Perhaps the most important lessons of kindergarten (the article notes "patience, discipline, manners, perseverance") are the most valuable for later in life. 

Tuesday, July 27, 2010

The cat and mouse game of plagiarism

In student surveys at colleges and universities, the percentage of respondents claiming to have committed an act of academic dishonesty is rising every year.  Among graduate students, MBAs are regularly the worst offenders.   A front-page recent NYT article discusses how colleges are fighting back.  Some schools are using electronic tools such as that matches student papers against each other and against a huge inventory of web pages and published works.  Central Florida has built a high-tech testing center with cameras that record wandering eyes or attempts to photograph exam questions.  No one should be surprised that the same sort of tech tools used by students to plagiarize are now being turned against them. 

Sunday, July 25, 2010

NC State tuition going up

The legislature successfully completed its budget work on time this year, for which they are to be applauded.  The NC House and Senate faced many difficult decisions, one of which was funding for the UNC system.  The 2010-11 budget ended up cutting the system's budget by $70 million, but allowed each campus to raise tuition by up to $750 to offset the effects of the cut.  NC State has chosen to increase tuition by the full $750.  This will be on top of the $200 increase already approved for graduate students.  For more details, see Chancellor Woodson's letter to the university community

The tuition premium for the Jenkins MBA will be the same next year as it has been since 2007.  It will be a struggle to keep the tuition premium stable for much longer.  NC State's MBA program continues to grow and the state's ability to fund that growth is uncertain.  Capping enrollment is a possible option, but one that would deny advancement opportunities to many and prevent the program from becoming more visible.  Increasing class sizes and restricting the availability of some of the less popular courses is the path we could follow if enrollment grows while tuition stays the same.  Dean Weiss and I will be conferring with Chancellor Woodson and Provost Arden about the best overall course of action.

What's a credit rating firm to do?

New financial regulation bill gets signed last week.  According to WSJ, "the new law regards bond-ratings firms as 'experts' and holds them liable for the quality of their ratings."

Moody's et al say this creates too much risk for them so they immediately refusing to allow their credit ratings to be used on new bond issues.  Slight problem: SEC regulations require these ratings by law. 

For now the SEC has granted a six month waiver allowing bond documents to be issued without ratings.  Which is stranger -- the contradictory dictates of the new financial regulations or the unwillingness of the raters to vouch for the quality of their ratings? 

How many more stories like this will we be seeing in the coming months?

Global labor markets

Capital markets have been global for quite some time, given the ease at which funds can be moved across borders.  Over the last 20 years, countries in Asia and Latin America with trainable labor available at relatively low wages have been able to attract investment from global corporations.  This has started to make the labor market global as well. 

Two recent WSJ op-eds suggest ways in which the US can become more competitive in that global labor market.  One theme I have been emphasizing on this blog is immigration policy.  Although I realize some people get very worked up about illegal immigration, there also are serious issues concerning the way in which the US prioritizes which legal immigrants can enter.  The Brookings Institution's Darrell West argues that we should allocate more visas to scientists, engineers, and entrepreneurs in what he calls an "Einstein immigration policy."  Only 15% of visas are allocated to employment purposes, some of which are agricultural workers, whereas 64% are allocated to family reunification.  A change along these lines would make immigrants an engine of economic growth instead of a drain on existing resources. 

Economists Martin Baily, Matt Slaughter, and Laura Tyson did a study for McKinsey to focus on ways that the US can make itself more attractive to multinational firms.  Their key finding: "Today the US is in an era of global competition to attract, retain and grow the operations of multinational companies that it's never faced before."  Dozens of other countries are making policy changes and seeing the kind of economic growth that makes them more and more attractive to multinationals.  Among the major concerns cited in the article: tax policy and limits on skilled immigration. 

Now that we have new financial regulations...

While traveling in the first part of the month, Congress finally passed a financial regulation bill.  Clocking in at 2319 pages, the bill creates a new consumer protection agency, regulates derivatives, and expands the regulatory powers of the Fed.  Many details remain to be worked out, as regulatory agencies work out the details.

What impact will the new regulations have?  At the most basic supply-and-demand level, we should expect higher costs for all of the institutions being regulated which will translate into higher prices for customers of financial services.  For instance, free checking and generous reward programs on credit cards may become increasingly rare (hint: cash out your reward balances now).  No one has any real idea about the impact on derivative markets, including those in commodities that are far removed from the crisis. Will the regulatory costs mean some will no longer be able to afford to hedge their positions, or will increased transparency lower markups and make derivatives cheaper?

Many of us would be willing to put up with these costs if there was some assurance that the regulations will prevent a replay of the fall 2008 crisis.  Color me dubious.  The Fed is committed to zero interest rates as far as the eye can see.  The bill does nothing about Fannie and Freddie.  Even though we had no small number of regulatory agencies before the crisis, they all missed the boat -- do we really expect the new team to work wonders?  For further skeptical views, see this WSJ column by Stanford professor John Taylor and this blog posting by Nobel laureate and Chicago professor Gary Becker.

Monday, July 19, 2010

It really is the worst job market since the 1930s

Two recent blog posts display graphics that eliminate any doubt that this has been the worst employment situation since the Great Depression.  Greg Mankiw shows the median duration of unemployment spells, which has typically maxed out at 10 weeks in previous recessions.  It now clocks in at 26 weeks, not just higher than previous peaks but 2.5 times higher.  This number is generated when a Census Bureau employee asks an unemployed person in the Current Population Survey how long he/she has been out of work.  Keep in mind that this underestimates the actual amount of time people will need to become employed (or drop out of the labor force).  Historically a rough rule of thumb is that is spells of unemployment that are still in progress last, say 10 weeks, then the average spell once completed will last 20 weeks (on average people will be interviewed at the midpoint of their interval of unemployment).  Implication: the average unemployed person will be out of work a year.  And not all unemployment spells end in new jobs, some simply give up and leave the labor force. 

Some complain that unemployment is too subjective a measure and, in many cases, is not all that different from being out of the labor force.  An alternative metric is the employment/population ratio.  Former NYU b-school dean Thomas Cooley posts the bad news on his Forbes blog.  The ratio has dropped further than in any previous post-World War II recession (seven percentage points versus two to four in earlier recessions).  In earlier recessions, the ratio started trending upward after 1 to 1.5 years.  We have yet to see this ratio head north, after 2.5 years!  

Thursday, July 15, 2010

Can behavioral economics really help solve big problems?

Great NYT op-ed today by Carnegie-Mellon's George Loewenstein and Duke's Peter Ubel titled "Economics Behaving Badly."  Behavioral economics is a fairly hot area right now, given the seeming irrationality of the housing bubble or the rise in obesity.  (For a good overview, I highly recommend Richard Thaler and Cass Sunstein's Nudge, which I read last week.)  Loewenstein and Ubel argue that the tools of behavioral economics are being applied to problems that are not well suited to such an approach.  For instance, behaviorists argue that if people had better nutritional information, they would make better eating choices.  Recent studies show labelling does have an impact, but it is pretty small.  Loewenstein and Ubel argue that to get big changes, we will need to do something to increase the price of calories.  Finding a way to get supermarkets with real produce to locate in tough neighborhoods would help too. 

Making immigrants pay

The NYT Freakonomics website has caused quite a stir by linking to this interview with Nobel Laureate Gary Becker.  The interview covers a wide range of topics, but the one that has gone viral is the discussion of immigration.  Becker argues that the US charge potential immigrants for the opportunity to become citizens, perhaps as much as $50,000.  A fuller discussion of his views can be found at the University of Chicago website.  The advantages of Becker's approach are as follows: (1) immigrants would generate net resources rather than absorb them and (2) the fee would encourage immigration among those who are skilled and better able to fit into the labor market.  A loan program could be set up for those who do not have $50k; they could repay via higher income taxes. 

Current immigration policy emphasizes family reunification, where the term family is broadly defined to include parents and siblings.  MBA 505 graduates can compare and contrast the advantages of each approach.