The credit score divide

Today's WSJ has a report on how individuals with middle to low credit ratings are unable to refinance their mortgages.  On the one hand, this means that we are not getting as much economic bounce from 3-4% mortgage rates as we did in earlier recoveries -- and this is the main focus of the article which plays this an equity issue.  Expect to hear more of this in the election.

My take -- sure the stimulus from the Fed is being muted.  But didn't we got into this mess because too many people with low credit ratings got into houses they could not afford?  I don't think the real estate bubble worked out too well before, so why start another one?  Oh, there's an election. 

Our tax dollars at work

Good news today for Roger Clemens, found not guilty in his second trial on charges of lying to Congress regarding his personal use of performance-enhancing drugs.  Of course, Clemens has faced  astronomical legal bills to fight the charges. 

But these cases keep continuing; Lance Armstrong now is being hauled up by yet another agency on charges that he doped while competing in the Tour de France and other events.  Did you know we had a federal Anti-Doping Agency, funded partially through a federal grant? 

Don't get me wrong -- I do not condone the use of performance-enhancing drugs.  But both from a fairness perspective (how many times should one be prosecuted for the same offense?) and a scarce resources perspective (can't the feds go after folks who have committed more heinous crimes?), this still puzzles me. 

The truck driver shortage

Today's N&O runs a story about how hard a time trucking firms are having filling open positions for truck drivers.  Economic logic would make one skeptical of this claim: unemployment remains over 8% and trucking jobs pay relatively well ($38-40k plus benefits for entry level) for work with low educational requirements.  Given the massive loss of construction jobs (compared to five years ago), one would think trucking would easily absorb some of the surplus labor from that sector. 

The article says one cause of the surplus is that prospective truckers are unwilling or unable to pay the $4-6k cost of learning to drive a truck.  Another is federal regulations requiring clean safety records of all new truckers.  But the real mystery to me is why pay is not rising to attract even more people into the field. 

Contrarian Advice for Businesses Serving the Poor

C.K. Prahalad argued in his classic HBR article that companies trying to serve the bottom of the economic pyramid must be high volume, low price and low margin operations.  Cornell prof and HBR blogger Erik Simanis questions this widely accepted wisdom.  Noting that operating costs in low income overseas markets often run well above expectations and that getting to scale takes much longer, Simanis argues that higher profit margins are absolutely necessary to build up the capital needed to take on the challenge.

Companies and those that criticize their efforts are not doing D and E consumers any favors by clinging to the low-margin philosophy, which is unable to generate economic returns that are competitive with alternative uses of a company's capital — the true benchmark of business success. Precious few of the ventures that failed to generate such profit levels have survived, leaving low-income consumers without access to products and services that could have improved their lives and stimulated economic activity in poor areas.

Today's immigration news

President Obama announced today that the US would no longer deport illegal aliens age 30 who came to the country before they were 16, as long as they do not pose a security threat.  Republicans called it a political move, although you have to wonder where the votes are on this (unless I underestimate vote fraud).  Economically, the main impact will be to encourage young illegal aliens to make further investments in their own human capital, since they need not be as concerned about deportation.  But the odds of deportation now are not especially high, so the even lower odds are unlikely to be a game changer. 

California voters OK pension cuts

The botched gubernatorial recall campaign in Wisconsin got all of the headlines last week, but equally noteworthy were two elections in California.  Voters in San Diego and San Jose approved cuts in pensions for local government employees.  The NYT report indicates that new employees will be converted to defined contribution plans, whereas continuing employees would contribute more and see smaller payouts.  Retirees would not be affected.

If voters in California and Wisconsin support pension cutbacks, the writing appears to be on the wall for many other states.  Voters see government employees getting better benefits than they can get in the private sector.  They also see the loss of public services, including rotating closures of firehouses in San Diego and laid-off teachers and police.

The story is not over, as there will be court challenges.  I find it ironic that California and Wisconsin voters have way more courage to face long term budgetary imbalances than our elected officials of both parties in Washington DC.

MBA jobs in fashion and luxury

MBAs have long had a reputation for spending on BMWs, yachts and high end fashion.  BW reports that MBAs now see these sectors as good employment opportunities.  The luxury sector has historically ignored MBAs, but this has changed in recent years thanks to technology, social media, and big data.  Also there has been a surge of high end startups that want MBAs to develop and execute growth strategies.

NC State's Jenkins Graduate School of Management is teaming with the College of Textiles and SKEMA Business School to start a one year's masters program in Global Luxury Management.  Students will spend the fall in Raleigh taking courses in consumer behavior, entrepreneurship, brand management, textile and apparel technology, and creativity.  They will then spend the spring in SKEMA's campus in Sophia Antipolis France (outside Nice), followed by an internship.  The program, designed to leverage NC State's strengths in innovation and its partnership with SKEMA, launches this fall.

Big data's biggest user -- finance

At least that's what WP says today.  Traders track tweets for signs of optimism or lack thereof to anticipate where the stock market is moving.  Analysts now gauge sales performance from Amazon comments; why wait for the monthly or quarterly sales figures from the government or corporate reports?

The article makes another important point that anyone who has tried to do economic or financial forecasting has known for some time: your analysis is only as good as the data and big data does not necessarily mean better data.  The stock market always has been subject to herd behavior, but at least the herd had to buy or sell to move the market before.  Now hedge funds are making the same bets in an attempt to guess which way the herd might move.  Investor beware. 

NC State MBA and Master of Accounting students are starting to get training in how to harness big data, but we are focusing on marketing, technology commercialization and risk management.  These are areas where data-driven decision making has a history of allowing managers to make more informed judgments about how to create value. 

Bye bye to supersized beverages in NYC

There is an obesity epidemic in the US.  There are numerous causes, including sedentary lifestyles, more meals eaten away from home, creative innovations that make food fatter and tastier (why not a Doritos shell on my taco?), and lower prices for processed foods.  

How to turn things around?  One would do well to look at how we have dealt with tobacco products.  Through a combination of taxation and education, the percentage of people who smoke in the US has dropped from 44 to 21 percent over the last 60 years.   Textbook economics would indicate that a calorie tax combined with exercise subsidies would be the way to go.  Food retailers could make information about caloric content more accessible so that consumers could make more informed choices.  Examples: Panera Bread posts calories on menus; Cheesecake Factory introduced a Skinnylicious menu with all entrees below 590 calories.

How not to do it?  Consider NYC Mayor Michael Bloomberg’s proposed ban on large sugary drinks.  It fails every conceivable benchmark of economic rationality.  It will be hard to enforce; anyone who wants 32 ounces of soda will still have plenty of options, albeit with slightly increased transactions costs.  It singles out beverages while ignoring chips, ice cream, ribs and all the other goodies that help us gain weight faster.  A tax on large drinks would do just as much to discourage their consumption and, as a bonus, give the good mayor more money to serve his constituents.  No wonder a food industry group ran a full-page ad in NYT depicting Mayor Bloomberg as Nanny Bloomberg, with the text asking "What's next? Limits on the width of a pizza slice, size of a hamburger, or amount of cream cheese on your bagel?"

This does not look good

Today's jobs report for May is a total disaster.  WSJ reports that employment grew by a mere 69k and unemployment inched up to 8.2%.  Stock market dropped 2.5% in reaction to this and the even worse news coming out of Europe.  Ouch!