Monday, January 30, 2012

Should the federal government hold universities more accountable?

Last week President Obama proposed sweeping changes in how the federal government handles financial aid programs at colleges and universities.  According to NYT, the President wants to put more money into Perkins loans, work-study programs and Supplemental Education Opportunity Grants.  The catch, and it is a big one, is that institutions "would instead be rewarded for lower net tuition prices; restrained tuition growth; enrolling and graduating low-income students; and providing education and training that help graduates get jobs and repay their loan." 

Since virtually every degree-granting institution participates in these programs, this would end up being a sweeping mandate.  A few reactions:
1) Most public universities have seen huge budget cuts over the last four years.  Some have reacted by raising tuition aggressively; others (including NC State) have done their best to hold the line on tuition. 
2) More transparency in higher education would be a good thing.  Why not require all schools to publish graduation rates and placement data by major?  We do this routinely in MBA programs.  Why not do it for liberal arts, agriculture and engineering?
3) The professoriate tends to be much more liberal than the general population.  So presumably they will see the wisdom of more micromanagement from Washington and there will be nary a complaint on any college campus. 

Thursday, January 26, 2012

Résumés, RIP?

That day may not be too far off, according to WSJ.  Union Square Ventures does not want to see them, instead preferring indicators of an applicant's web presence.  Twitter, tumblr and YouTube are in; text is out.

From an economic perspective this is a bit surprising.  In today's labor market the ratio of applicants to open positions remains quite high, so a résumé should still be useful for narrowing the field to a smaller set of qualified applicants before a manager starts looking at tweets.  The article points out that most companies still use résumés as part of the screening process, but others are starting to use surveys that are tailored to the opening and others are asking for work samples. 

Ultimately companies use screening criteria (e.g., education and experience requirements) that make economic sense (is value of information greater than cost of collecting and interpreting?) and are legally defensible.  I imagine the résumé still has some mileage, but in many ways it is refreshing to see companies relying more on actual competencies and less on credentials. 

Wednesday, January 25, 2012


I have refrained from posting about the Stop Online Piracy Act (SOPA) because, frankly, I do not have either the time or expertise to make sense of all the legal details.  Proponents argue that we need it to deter theft of intellectual property; others say it goes too far and holds companies liable for actions over which they have no control.

Yesterday's WSJ ran an op-ed by UT-Dallas economics professor Stan Liebowitz who, sometime co-authoring with my NC State colleague Steve Margolis, is one of the country's leading experts in the economic issues associated with digital property rights.  Liebowitz' research shows that music sales (both CDs and online) are down 50% since 1999 and that the main reason is theft (aside: you may call it downloading, but it really is theft.) 
Contrary to an often-repeated myth, providing consumers with convenient downloads at reasonable prices, as iTunes did, does not appear to have ameliorated piracy at all. The sales decline after iTunes exploded on the scene was about the same as the decline before iTunes existed. Apparently it really is difficult to compete with free. Is that really such a surprise?
Closing thought: it is one thing for the U.S. to pass a law banning and punishing online piracy, another thing to enforce it.  Chasing and punishing digital thieves overseas may be like whack-a-mole.

Tuesday, January 24, 2012

If you were wondering about the gold standard

Political campaigns make for great entertainment, as they always feature supposedly "new" ideas about how to help the economy.  Newt Gingrich and Ron Paul have been urging the public to consider going back to the gold standard.  That would mean there would be a fixed exchange rate between the dollar and the price of gold.  There is a long history on how fixed exchange rates in general and the gold standard in particular operate.  Like any other form of price control, there's lots of deadweight loss involved. 

But why take my opinion?  Chicago-Booth polled 50 leading economists concerning the desirability of moving back to the gold standard.  These are economists coming from the full range of the political spectrum and all of them have published regularly in the very top journals.  The results showed a strikingly rare degree of unanimity: every single one of them disagreed and most disagreed strongly with the proposition that the gold standard would improve price stability and living standards for the average American. 

A couple of priceless comments: "Gold is intrinsically close to useless, so its price is determined as a "bubble" from Daron Acemoglu (MIT) and "Why tie to gold? why not 1982 Bordeaux?" from Richard Thaler (Chicago). 

Saturday, January 21, 2012

Should we worry about "complexity risk" from banking regs?

Maybe we should, says NYT columnist Joe Nocera, reporting on recent research by Karen Petrou at Federal Financial Analytics.  Petrou is concerned that there is so much complexity in the various mandates from Dodd-Frank that the regulations themselves could become a source of risk. 
If we don’t understand the cross-cutting effects and inherent contradictions in all of the stringent standards now being written into final form, we risk doing real damage to the sound, stable and — yes — profitable financial industry regulators say they support and the economies sorely need.
Why does this matter?  For one, it will raise costs.  Also, it is likely to make banks more cautious, not because the underlying deal is financially unsound but because of the fear of regulatory interference.  In the current slow-growth environment, does this really make sense? 

Petrou argues that Dodd-Frank be simplified and changed so that the regulators themselves can be held liable.  We'll see how fast that happens. 

Tuesday, January 17, 2012

Surging productivity and stagnant hiring

Productivity continues to grow at a rapid clip.  Today's WSJ takes a closer look at why.  Without even reading the article, students with a firm grasp of economics should suspect that either the cost of capital has fallen, the cost of labor has risen, or both. 

The answer is all of the above.  Capital costs have fallen because interest rates are nearly zero and companies could write off 100% of investments made in 2011.  Uncertainty about future labor costs (health care and taxes) makes employers averse to new hires.  As a result we see modestly rising output and it is coming from increasing output per worker rather than increased employment. 

Michael Mandel takes a deeper dive into the productivity issue in this article.  He points out that outsourcing is another important factor behind the increase in output per unit of input.  The reason is that we use value added, the difference between total revenue and labor and materials costs, as our measure of output.  When supply chain managers find cheaper sources of materials (or services), that increases margins and output with no change in labor or capital. 

Historically increases in productivity lead to higher standards of living; at least that was the case in the 20th century when society first shifted out of agriculture to manufacturing.  Now we are shifting out of manufacturing to services; hopefully the increase in living standards is just around the corner.

Monday, January 16, 2012

Not-so-cheery news from Dr. Doom

The December jobs report was encouraging.  The stock market has been doing well over the last 30 days.  Maybe the economy is finally turning the corner?

Not really, according to NYU Stern economist Nouriel Roubini, aka Dr. Doom.  He still sees consumers as being "income-challenged, wealth-challenged, and debt-constrained." On top of that, the federal fiscal stimulus is being dialed back and Europe is a ticking time bomb. 

Tuesday, January 10, 2012

Economists adopt ethics code

Economists regularly consult for companies or organizations.  They also may receive research support from parties that have an interest in how the research comes out.  Last week the American Economics Association formally adopted rules that require disclosure in academic work whenever conflict-of-interest issues may be present.  According to WSJ,
Authors submitting papers to academic journals must disclose to the journal's editors all sources of financing for the research and all "significant" financial relationships with groups or individuals with a "financial, ideological or political stake" in the research. The policy defines "significant" as financial support to an author and immediate family members totaling at least $10,000 in the past three years.
Technically, the policy only applies to only the seven journals edited by the AEA but most observers expect all of the leading journals to adopt similar policies soon.  Economists also are encouraged to disclose potential conflicts in other contexts, e.g., op-ed pieces, press interviews, and testimony. 

These rules should apply to bloggers as well.  I received support from a wide range of sources over the years, with most dollars coming from the US Department of Labor, Interamerican Development Bank, National Science Foundation, Financial Industry Regulatory Authority, and AFL-CIO Building Trades. 

Saturday, January 7, 2012

Do private equity buyouts destroy more jobs than they create?

Fascinating new NBER working paper by a team of economists that includes Chicago Booth's Steve Davis and Harvard's Josh Lerner.  They put together a data set of 3200 firms and 150,000 operating establishments that were targets and match them to comparable establishments (to serve as a control group).  In the establishments that were taken over, employment fell by 6 percent more over five years after the buyout compared to the control group.  Job losses were concentrated in retail and service sectors.

Sounds like the answer is yes.  But wait.  The authors then ask about the creation of new establishments and find that buyout targets were more likely to open new ventures than the controls.  Once this is taken into account, the net job loss becomes less than 1 percent.

The study also looks at the process of job creation and destruction in the target and control firms and finds that the overall churn level is 13% higher in the target firms.  This is consistent with the "creative destruction" theory of Austrian economist Joseph Schumpeter, who in essence argued that you have to break some eggs to make an omelet.

Wednesday, January 4, 2012

Best majors for employment

Have a son or daughter in college, or soon to enter?  Then you might want to look at a Georgetown University study (see WP for a summary and here for the study) that shows how unemployment rates vary by college majors.  Recent graduates in health and education had the lowest unemployment rates (5.4%); majors in agriculture and natural resources, business, engineering, psychology and social work, and science also did relatively well (all between 7 and 8%).  Majors to avoid if you are worried about joblessness: architecture (13.9%) and the arts (11.1%); humanities and social sciences also have higher than average unemployment rates (9%).