Sunday, October 31, 2010

Would increased immigration help?

So argues NYT columnist and George Mason economist/blogger Tyler Cowen.  Cowen cites a new study by Gianmarco Ottaviano of Bocconi and Giovanni Peri of UC-Davis that argues an increased supply of immigrants here in the US (both high and low skill) reduces off-shoring and thereby helps the economy overall.  The key to their argument is whether low skill immigrants are complements for their domestic counterparts or substitutes.  As Cowen puts it, does the immigrant brick layer take the native brick layers job at a lower wage or fill in a gap as the native gets promoted to supervisor (and no natives are interested in being brick layers)?

I do not question the gain from high-skilled immigrants; economic research shows they help in many dimensions (including increasing competitive standards in our secondary schools; check out any list of valedictorians in any part of the country).  I am not so sure on the low-skill side of the equation.  Studies by my Harvard colleague George Borjas indicate that the availability of a wide range of income maintenance programs and public goods also can be drivers of immigration that end up being a drag on the economy.  Still, it is refreshing to see some positive-sum thinking on this thorny question.  If only we could get the real estate lobby to see the upside!

Saturday, October 30, 2010

Third quarter GDP growth lags again

Another disappointing (but not surprising) GDP report for the US in the 3rd quarter: up 2%, slightly better than 1.7% in the 2nd quarter but nowhere near the 3% plus rates needed to bring down unemployment.  WSJ reports that much of the growth came from businesses expanding inventories, investing in equipment and structures.  Household consumption grew 1.8 percent, the highest rate since 2006.  For more details, see the press release from the Bureau of Economic Analysis. 

The case against the stimulus

From Harvard's Jeff Miron in the Harvard Journal of Law and Public Policy.  Accessible and well argued. MBA 505 students will be able to understand this within a couple of weeks.  In a nutshell: even if you are a hardcore Keynesian, this stimulus was botched in many ways.  And Jeff is no hardcore Keynesian. 


Thursday, October 28, 2010

Not a good time to enter law school

Although things are not 100% rosy on the business school front, they appear to be much, much worse on the law school front, according to Slate.  There are 100,000 fewer jobs BUT the bar association keeps approving new law schools.  The number of grads has grown by 10 percent this decade.  One thing I did not know: the salary distribution for newly minted lawyers who are lucky enough to get jobs is bimodal -- some get $150k or more at big New York firms, but most end up making $45-60k. 

What MBA applicants should not do

I often get asked by potential MBA students: "What can I do to increase my odds of admission?"  My answer is fairly standard: study hard for the GMAT, take the essays very seriously, select references who can speak to your leadership and interpersonal skills, and be yourself in the interview.   Today I ran across a story on Bloomberg Business Week online that reports what applicants at some schools have done to totally sink their candidacy.  As a service to this blog's readers (some of whom may be thinking about an MBA program), here are some behaviors that have not worked elsewhere: offering a $100,000 bribe during the interview, constantly calling and visiting the admissions office, telling the admissions staff they are unattractive and out of shape, and describing your previous cocaine addiction in your essay. 

Tuesday, October 26, 2010

Bond buyers think inflation will rise

Yesterday the U.S. Treasury sold a five-year $100 bond for $105.50.  Are people knowingly paying the feds to borrow money from them?  No, markets have not gone completely insane.  Today's NYT reports that these are TIPS (Treasury Inflation-Protected Securities) bonds, which guarantee that the principal will not be eroded by inflation.  This is done by indexing the $100 to the Consumer Price Index.  Compared to the yield on regular bonds, the market is in effect signaling that it expects inflation to rise over the next five years and is willing to pay a premium to hedge against that risk. 

NYT also reports fears that the Russian drought and extreme weather in the U.S. corn belt will shift food prices upward over the next few months.  With the Fed expected to buy more long-term bonds in the coming months, are we looking at a replay of the 1970s with high inflation AND high unemployment?

Sunday, October 24, 2010

Stiglitz on easier money

Nobel Laureate Joe Stiglitz writes in this weekend's WSJ about the Federal Reserve's plan to pump more money into the economy.  Stiglitz is quite skeptical that this will do any good.  The most interesting part of this op-ed is his description of the lending market for small and medium size firms who are starved for cash and have seen their main form of collateral (real estate) drop in value.  Hard to see how lower interest rates will help out firms that cannot get a loan in the first place.  Stiglitz also appears concerned that interest rates might actually rise as greater money growth spurs fears of inflation. 

What is your professor worth?

No I don't mean how much he or she has stashed away in 401k accounts.  Saturday's WSJ ran a long article about the attempts some states are making to hold universities more accountable.  Texas A&M has started keeping a P&L statement on each faculty member, measuring tuition and research grants generated against salary.  One does not need a PhD in economics or management to guess what one can learn from such a measure: faculty teaching large numbers of undergraduates or those that bring in beaucoup grant dollars "contribute" much more than their colleagues who teach a handful of graduate students and had a dry year on the grant front. 

At a time when all budget dollars from the state are scarce, I do not object to any serious-minded attempt to improve the performance of the university system.  And there is room for improvement, especially in terms of graduation rates.  I have a simple proposal: require the university to publish outcomes measures about its graduates and the odds of graduation.  MBA and some other professional programs do this as a matter of course, but lots of luck finding what happens to English or engineering majors at most universities.  Texas now requires each college to post the vita of all faculty as well as their syllabus and student evaluations within three clicks of the college's home page.  Interesting info, no doubt, but if you have a son or daughter heading to a university, is this what you really want to know?

One final point from the WSJ piece (which is well worth reading): American universities continue to be universally acknowledged as the best in the world.  If we are not careful, we run the risk of losing one of the last pillars that sets the USA apart from other countries in terms of innovation and living standards. 

The latest on Fannie and Freddie

Last week the Federal Housing Finance Agency issued its latest estimates of how much the bailout of Fannie Mae and Freddie Mac will cost taxpayers.  NYT reports that the U.S. Treasury already has pumped $148 billion into these two operations.  This is what we call in economics a sunk cost.  There is a wide range of uncertainty concerning how much more of a tab the two housing finance agencies are going to run up.  WSJ reports that under a best case scenario, it will be a mere $6 billion.  Worst case scenario?  If home prices drop another 20-25 percent, we could be in for another $124 billion. 

Saturday, October 23, 2010

Do we need federal regulations on interstate wine shipments?

I visit the NYT foodie blog "Diner's Journal" a couple of times each week to keep up with the NYC restaurant scene and catch Mark Bittman's latest recipes in his Minimalist videos.  This week, there is an entry about a bill in the U.S. House of Representatives that would impose federal regulations limiting the shipment of wine across state borders

At first glance one would think that this is an unnecessary intrusion into a matter best left to the states.  Who says we need this federal regulation?  Why no other than a confederation of beer and wine wholesalers.  As various states have allowed their citizens to import wine from other states (either direct from the winery or through an internet-based retailer), wholesalers have been cut out of an increasing share of the trade.  Of course this is not what they argue, instead the bill's supporters say they are trying to better protect minors from alcoholic beverages. 

And who says bipartisanship is dead in D.C.?  There are 150 co-sponsors of the House bill, with both parties well represented.  Accepting campaign contributions from the wholesalers is an issue many House members can agree on.  

Is anyone a Keynesian now?

That's a paraphrase of one of Richard Nixon's most famous quotes: "We're all Keynesians now."  Actually the quote is from Milton Friedman, who less famously said in the same sentence that "nobody is any longer a Keynesian."  So much for irony and the mass media. 

The answer in Europe seems to be "no," as indicated by an NYT article this week.   The United Kingdom has announced plans to cut spending by $130 billion and drop 500,000 public sector workers.  Austerity programs also are in place in Greece and Ireland.  France has raised the retirement age from 60 to 62. 

There appear to still be strong believers in stimulus in the Democratic Party in the US, but not so much among Republicans.  Looking for more irony?  If predicted Republican gains in the Nov. 2 election materialize, will they (like the Obama administration in 2009) look to Europe for policy inspiration? 

Tuesday, October 12, 2010

An insider look at for-profit universities

Interesting NYT op-ed today from an instructor who shuttles between three universities in Denver to make a living, one of them a for-profit operation.  As noted in an earlier post, the for-profits are under increasing scrutiny because of the high default rates on their students' loans.  The for-profits also are more expensive and, with their open enrollment policies, admit many students who are likely to face academic difficulty.  Some choice quotes:

Problems with the for-profit business model don’t end with recruitment; they extend to the classroom. While my nonprofit orientation covered how to create a syllabus and relate to students, the for-profit session addressed the importance of creating paper trails on attendance, should a student need to be flunked, and a video on how to avoid getting sued.

Here’s the part that’s really going to make me unpopular at my next faculty meeting. Many of my colleagues are excellent teachers, but their qualifications aren’t much of a priority for the college. While teachers at a state or private university are typically expected to hold M.F.A.’s or Ph.D.’s, for-profit teachers need only to have taken a few hours of graduate course work.

We need to quit subsidizing for-profit colleges, and instead devote our resources to expanding and improving the system of state and community colleges that work more effectively for a small fraction of the cost.

Nobel prize in economics

This year the Swedish Royal Academy of Sciences awarded the Nobel Memorial Prize in Economics to three economists who have done path-breaking research on how markets adjust when buyers and sellers have to search: Peter Diamond of MIT, Dale Mortensen of Northwestern, and Chris Pissarides of the London School of Economics.  Click for WSJ and NYT news accounts. 

The labor market has been the main area of application of their work.  In simple markets, when there is excess supply or excess demand, the price adjusts and supply once again equals demand -- end of story.  The labor market is different because employers and applicants have to (1) find each other and (2) jointly determine whether they are a good match for each other at a given salary.  Because employers and applicants need time to search and screen, there always will simultaneously be unemployed workers and open positions.  The same type of analysis also applies to housing markets and mating markets. 

Their framework has been used to show how unemployment benefits reduce search intensity and limit the range of acceptable job offers, thereby raising unemployment.  Another insight: European countries limit the ability of firms to fire or layoff workers, so knowing this the companies become less likely to offer positions and unemployment rises. 

Monday, October 4, 2010

The new spin on TARP

We are a little more than a month away from a Congressional election and, surprise, what do we see but a series of stories and editorials about how the Troubled Asset Relief Program (TARP) will end up costing taxpayers much less than expected.  Remember in 2008 how alarmed we all were at the prospect of TARP costing as much as $700 billion?  The good news is that AIG and big banks such as Citigroup and Bank of America will return all TARP funds.  Right now estimates of the ultimate cost range between $66 and $105 billion. 

What the recent stories do not discuss: (1) no mention of the losses of Fannie Mae and Freddie Mac, estimated to be as much as $300 billion, and (2) no mention of the fine distinction between the TARP loans to GM and Chrysler (which have been repaid) and the direct Treasury loans (which await an IPO before we learn if there is anything to be repaid). 

The Bush and Obama administrations, plus Fed chief Ben Bernanke, deserve tremendous credit for preventing a complete financial meltdown in 2008-09.  The fact that most of the TARP funds are being repaid is without a question welcome news.  But TARP was not the only bailout game in town and the jury is still out on how the home mortgage and auto bailouts will play out.