Not so fast on AT&T merger with T-mobile

The US Department of Justice has filed a lawsuit to block the proposed merger between the nations 2nd and 4th largest wireless carriers.  The Feds say the merger will result in reduced competition, meaning higher prices and less innovation.  AT&T and T-Mobile obviously disagree and the burden of proof will be on the DoJ. 

It will be interesting to see the proof.  Deputy Attorney General James Cole makes two unconventional arguments for an antitrust case: (1) that the merger would adversely affect those with low incomes and those living in rural areas and (2) T-Mobile would expand and create jobs whereas the merged firm would eliminate jobs.  Antitrust laws in the US have traditionally focused on maintaining competitive conditions.  One will search in vain to find language regarding citizens in rural areas, low income citizens, or job creation in the Sherman Act, Clayton Act or FTC Act.  In fact NYT notes that T-Mobile's parent company Deutsche Telekom is looking to exit the US market.

As MBA 505 students learn, there is a crucial difference between protecting competition in the marketplace and protecting individual competitors in that marketplace.  As long as Verizon sticks around, AT&T is likely to have all the competition it can handle. 

Alan Krueger to head CEA

Princeton economist Alan Krueger was tabbed yesterday to become the next chairman of the President's Council of Economic Advisers.  Krueger is a labor economist who has written extensively on subjects such as the minimum wage, unemployment, rate of return to higher education, and efficiency wages.  He also has done well-cited studies on who is most likely to become a terrorist (they tend to be middle class) and why ticket prices at rock concerts have risen so much (blame the record companies).  Krueger, who has lectured at NC State twice, has his work cut out for him -- the President has promised to release a new jobs package after Labor Day.  I am confident that the President will get great advice.  My two cents: do something big on foreclosures and incentives to start and grow small businesses. 

Lawyers need to understand business

According to yesterday's WSJ, more and more of the nation's leading legal firms are sending their newly hired attorneys to learn about business, especially finance.  For instance Fullbridge (founded by two Harvard MBAs) offers an eight week program that covers the following topics: finance, project management, innovation, presentation skills, spreadsheets, selling (not marketing!), and ethics.  One reason for these programs appears to be cost: clients do not feel they are getting their $300 plus per hour from junior attorneys straight out of law school with no business experience or knowledge.

Fullbridge gets paid by the law firms to provide this training.  One might guess that in today's market for entry level legal positions that law students would make a point of obtaining these skills on their own, so that they can better compete for the limited number of positions available.  Shameless plug: applications will soon be accepted for the entering fall 2012 class of Campbell JDs and NC State MBAs. 

"Harsh truths" about today's unemployment

Fortune columnist Nina Easton takes a hard look at the data on unemployment; it is not a pretty picture:

1. Almost half of the unemployed have been out of work for a year or more.  They have lost skills and good work habits.  Hiring managers will reject them out of hand.  Many of them will never work again. 
2. The federal government has 47 different training programs costing $18 billion a year.  Yet many employers have difficulty finding qualified workers.  
3. Extended unemployment benefits (up to nearly two years) are making the unemployment rate higher because the unemployed often do not get work until their benefits run out.  Coincidence? No. 

My take on this: much of our unemployment problem is microeconomic in nature; workers in certain industries (finance, construction, real estate) and areas (Nevada, Arizona, Florida) have to adjust to a completely new landscape.  Macro policy measures, such as more quantitative easing by the Fed or another short-term tax cut, are unlikely to make much of a dent in the problem.  Also, as Easton notes, does our society really want to give up on a generation of workers?  That is the path we are on.  With paralysis gripping our political system, businesses need to start thinking of their own solutions. 

Where are all the "green jobs" we were supposed to see?

Lots of luck finding them, says NYT in a recent news article.  California received $186m in stimulus funds to insulate homes two years ago; so far, only half the money has been spent and 538 jobs have been created.  That comes out to almost $350k per job.  Spending has been slow because, even with the federal subsidy, consumers are unwilling to pay the cost. 

To be fair, there aren't all that many new jobs to talk about in any sector of the economy.  But politicians have clearly oversold the role that green jobs will play in the economy.  Money quote from NYT:

President Obama once pledged to create five million green jobs over 10 years. Gov. Jerry Brown promised 500,000 clean-technology jobs statewide by the end of the decade. But the results so far suggest such numbers are a pipe dream.

What? Some people hate economics?

So says economist Stephen Moore in an WSJ op-ed yesterday.  Moore claims that economics is the least favorite subject of most students, although I am not sure there are any data that confirm his assertion.  He then goes on to argue that the reason economics is so unpopular is that "too often economic theories defy common sense." Most of the article focuses on macroeconomics, with Moore ridiculing numerous tenets of Keynesian theory.  As my students in MBA 505 will soon learn, this ridicule is well-earned in many cases.  In a case cited by Moore, White House press secretary Jay Carney recently was quoted as saying that unemployment insurance creates jobs.  Unemployment insurance is financed by taxing workers to fund benefits for those out of work, thereby simultaneously reducing the payoff to working while increasing the reward for being jobless.  There may be lots of good reasons to have unemployment benefits, but job creation is certainly not one of them. 

Most economists focus on microeconomics, the study of individual consumers and firms and how they interact in the marketplace.  Students should find that microeconomics, once properly understood, passes the common sense test.  Does that mean they will come to love micro?  Not sure I want to go that far. 

Another mega-merger

Google ponies up $12.5 billion to buy Motorola Mobility Holdings (WSJ account here).  Wonderful case for economic analysis of a merger.  Motorola manufactures electronic devices that use Google's software.  The motivation behind the merger supposedly is that it would allow Google to more tightly integrate software, product design and manufacturing.  Lots of other companies also manufacture such devices, and they are probably not real happy today.  Two equally large companies (in terms of employment).  Two very different cultures. 

Sheer genius?  Or the second coming of AOL Time Warner?  Think about it; it might be on the final exam in a Jenkins MBA course. 

S&P's track record on sovereign risk

Not pretty, reports WSJ which did some research covering the last 35 years.  If a government is rated single-A or better, the news is good -- none defaulted over this time period.  But the ratings do a poor job discriminating in the B range.  The best example: Brazil and Argentina were both rated double B minus in January 2001.  One year later, Argentina defaulted on its debt whereas Brazil has grown steadily over the last 10 years. 

In practice, the bond market forces default-probable countries to pay an interest rate premium.  So what are the ratings agencies really doing to create value when they assess sovereign risk?

Jenkins MBAs animation on "No Asshole Rule"

In light of my recent post on the "No Asshole Rule," Professor Roger Mayer sent me a link to an animation a team of his students did last fall.  The animation is posted on Stanford Professor Bob Sutton's website.  He calls it "A" work.  Really great stuff, well worth seven minutes on your lunch break. 

Raleigh makes two more top 10 lists

WSJ's Marketwatch reports a survey by RelocateAmerica that places Raleigh as the #4 city in which to live in the US.  Austin came in at #1; the rest of the list in order: Grand Rapids (!), Boulder, Dallas, Greenville SC, Augusta, Boise, Omaha, and Oklahoma City. 

Raleigh was cited for high tech jobs, outstanding universities, a solid public schools system, wonderful weather, and a lively arts scene.  Cary is listed separately as one of the top 100 cities, along with Wilmington and Charlotte.

Forbes rates Raleigh #2 in the country (after Austin) for being best positioned to grow and prosper over the next 10 years.  The ratings are based on recent job growth as well as demographics, including in-migration and education. 

Is the sky falling?

The US stock market has been hammered last week and yesterday, raising both micro and macro issues.  On the micro side, the most immediate question that comes up in day-to-day conversation is whether the decline will continue.  If you have not cashed out your stocks yet, should you do so now?  Or has the recent plunge in values created a great buying opportunity?

Princeton's Burt Malkiel, author of the classic A Random Walk Down Wall Street advises investors not to panic in an op-ed in yesterday's WSJ.  Malkiel thinks that stocks are now significantly undervalued, based on price/earnings ratios and dividend yields.  Sure, the recent economic news is not great, but Malkiel shares one of my all-time favorite economics quotes from Nobel laureate Paul Samuelson: "The stock market has predicted nine of the last five recessions."  Malkiel's advice:

We all need to be aware of the limits of our ability to forecast future stock prices. No one can tell you when the stock market will end its decline, but there are some things that we do know. Investors who have sold out their stocks at times when there have been very large declines in the market have invariably been wrong. We have abundant evidence that the average investor tends to put money into the market at or near the top and tends to sell out during periods of extreme decline and volatility.

Today's WSJ has a worthwhile piece on why 2011 is not likely to be a repeat of 2008.   The key factors in a nutshell: (1) 2008 -- credit bubble in real estate, 2011 -- sovereign debt crisis (brought on partially by government attempts to correct recession created by credit bubble); (2) 2008 -- key players short on liquidity, 2011 -- key players flush with cash; (3) 2008 -- governments thought they were capable of using fiscal, monetary policy options to stimulate growth, 2011 -- governments out of bullets.  Hopefully there will be a fourth difference, with 2011 being a short term stock market correction that will have no effect on consumption or investment. 

On debt ratings and recession

Congress and the President come up with a deal to extend the debt ceiling.  They agree to cut $2.5 trillion from deficits for the next 10 years.  And yet Standard & Poors decided last Friday to downgrade US debt from AAA to AA+.  My reaction (which ironically is about the same as Paul Krugman's):

1. Remember that S&P was rating bonds based on subprime mortgages AAA in 2008.  
2. The US Treasury found a $2 trillion error in S&P's initial calculations Friday afternoon before the downgrading was announced.  This raises serious questions about whether the downgrade was based on technical analysis of default probabilities or was made for other reasons. 
3. As the stock market slides for another day, it seems investors cannot get enough US Treasury bonds (yield for two year bonds is now down to 0.2%).  The downgrade sure has not scared them. 
4. No other country is listed at AA+.  AAA countries now include Australia, Austria, Canada, Denmark, Finland, France, Germany, Guernsey (I did not know these islands in the British channel were a country), Hong Kong, Liechtenstein, Luxembourg, Netherlands, New Zealand, Norway, Singapore, Sweden, Switzerland and the United Kingdom.  Spain, which is a genuine risk for sovereign debt default, is AA. 

Meanwhile, Dr. Doom (aka Nouriel Roubini of NYU's Stern School) thinks a double-dip recession is becoming more likely in an article in yesterday's FT.  He points out that there is not much that fiscal or monetary policy can do now, and that more attention should be paid to dealing directly with household debt, especially underwater mortgages.  

Kauffman foundation CEO proposes "Startup Act" to promote growth

Kauffman foundation CEO Carl Schramm and his V-P of research Robert Litan have crafted a proposal to stimulate economic growth by making it easier to start companies.  The proposal comes in reaction to a recent Kauffman study that found a sharp drop in the rate of new business formation.  Specific steps include (these are all quotes from a Kauffman press release):

• Welcoming immigrants capable of building high-growth companies to the United States by providing "Entrepreneurs’ visas" and green cards for those with degrees in science, technology, engineering and math.

• Providing new firms with better access to early-stage financing, creating capital gains tax exemptions for long-held startup investments, providing tax incentives for startup operating capital, facilitating access to public markets, and allowing shareholders of companies with market cap below $1 billion to opt-in under the Sarbanes-Oxley Act.

• Accelerating the formation and commercialization of new ideas by creating differential patent fees to reduce the patent backlog and providing licensing freedom for academic innovators.

• Removing barriers to the formation and growth of businesses through the introduction of automatic 10-year sunsets for all major rules, establishing common-sense and cost-effective standards for regulations, and making assessments of state and local startup and business policies.

The full proposal can be found here.  This is certainly much fresher thinking than what we are hearing from either major political party.

"No asshole rule" for MBAs

Stanford b-school prof Robert Sutton has written an NYT bestseller called "The No Asshole Rule" which is now widely read by b-school faculty and students.  Rodney Alsup's MyeEMBA blog takes some of the principles from Sutton's work and applies them to MBA faculty and students.

Alsup links to an online assessment (based on Sutton's work) to determine if a person meets the criteria for being an asshole.  The true-false questions include "You were a nice person until you started working with the current bunch of creeps," "You have a small list of close friends and a long list of enemies, and you are equally proud of both lists.," and "You enjoy lobbing "innocent" comments into meetings that serve no purpose other than to humiliate or cause discomfort to the person on the receiving end."

Should the Jenkins MBA program at NC State have a "No Asshole Rule"?  If so, what should the consequences be? 

Dr. Lynn Ennis passed away

Dr. Lynn Ennis, adjunct lecturer in the Poole College of Management and associate director and curator of the collection at the Gregg Museum of Art and Design, passed away Tuesday July 26.  Lynn has taught MBA 536 Creativity in Management in the college every semester since fall 2007. 

Lynn’s creativity course was very well received by both MAC and MBA students.  The course met in a wide range of venues reflecting various sorts of creative activity. Students were exposed to the visual arts at the NC Museum of Art, (Larry Wheeler was a regular guest lecturer), the Gregg Museum and ArtSpace.  They also gained an appreciation for the creative process in scientific research and product development, plus the role of creativity in marketing.  Course projects over the last year have focused on creative approaches to sustainability issues.

Lynn taught one other MBA course where she took a group of students to New Orleans to do service projects over spring break in 2009.  Student teams assisted five small businesses in the ninth ward district, providing assistance in business planning, finance, accounting, and operations. 

I still remember the first time I was able to spend quality time with Lynn.  I showed up in her office ready to provide advice on how to design a syllabus, select appropriate assignments, and engage MBA students.  Lynn did not need that help at all; instead we ended up having a delightful tour of the various artifacts collected by the Gregg Museum that were in storage. 

Lynn’s expertise allowed the MBA program to offer a course that was highly valued by students.  It was also a course that few MBA programs offer.  She will be sorely missed by College of Management students, faculty, and staff.  Her class for this fall will be cancelled; the program will attempt to find a new instructor for spring 2012. 

The family has requested gifts in her memory to the Gregg Museum of Art and Design Campaign, sent in care of Nicole Peterson, Director of Arts Development at Arts NC State, Campus Box 7306, Raleigh, NC 27695-7306.

Condolences can be sent to her husband and daughter, Larry and Emily, at the home address, 1500 Village Glen Drive, Raleigh, NC 27612-4344.