Chicago Booth economist wins top economics honor

Every year the American Economics Association presents the John Bates Clark medal to the most promising economist under age 40 (WSJ writeup here.).  This year's winner is Chicago Booth's Matthew Gentskow.  Gentskow is one of the first economists to use big data in research.  Some of his most notable work involves media bias.  Do some newspapers lean left or right because of the perspective of the owner or does it reflect the characteristics of their readership?  Gentskow finds the latter, which makes sense if you think of who reads the NYT (liberal upper east siders) versus WSJ (finance and business types).

Privatizing student loans

Vanderbilt Owen finance professor Miguel Palacios pinned a WSJ oped earlier this week where he advocated a new approach to finance student loans.  Money quote:

If you thought mortgage-underwriting standards were lax right before the housing crisis, wait until you take a closer look at student loans. Borrowing for a house at least requires an appraisal of the property and an assessment of the borrower's future capacity to pay. Student loans require neither. Instead, students and families are encouraged to invest in any program at any price.

Palacios argues for Income share agreements (ISAs), contracts between individuals and investors.  The investor pays for school in return for an agreed-upon percentage of future earnings over a given time period.

This is a marked contrast to the usual student loan, in which the student borrows a given amount and faces a predetermined income stream.  Under ISAs if students earn more than expected, the investor collects more than expected and vice versa.

Apparently this approach has been tried with some success in Latin America.  It would face some obstacles here.  Capital markets require accurate and timely data to operate efficiently.  There are plenty of data on stocks, bonds, housing and cars -- not so much for earnings by school and major.  Property rights and regulations also would need to be drafted and approved.

Then there is the question of how such loans would co-exist with the existing federal student loan programs, open to all comers.  I doubt private investors would support students in degree programs with limited labor market opportunities, so the feds would end up with a worse risk pool than now.  

I do support Palacios' basic point that some underwriting standards need to be developed and applied to student loans but, as always, the devil is in the details.

Two NC State MBA alums recognized by TBJ

Congratulations to Ted Mosler class of 2002 and Moss Withers class of 2010 for being named by Triangle Business Journal as the 40 top business leaders under age 40 in the Triangle.  The recognition is based on professional accomplishments and service to the community.  Ted is president, CTO and founder of GILERO, a medical device company.  Moss is a commercial real estate broker for NAI Carolantic Realty.  

NC State wins another competition

Kudos to the NC State team Cardinal Marketing Group for winning the Brand North Carolina Strategy Case competition.  MBA students Annie Bishop, Meagan Sams and Lauren Wright teamed with Master of Global Innovation Management study Christie Montague to take first place and the $5000 prize.  The competition was keen, with 106 total entries.  Of the 10 finalists, three were from NC State and all were affiliated with the Consumer Innovation Consortium.

Perils in big data

Worthwhile FT piece by economist Tim Harford about the big data phenomenon.  Make no mistake -- the availability of terrabytes of data on all things imaginable will eventually lead to exciting breakthroughs.  Harford's concern goes back to the old question of correlation versus causation.  Just because two variables appear together at a relatively high frequency, it does not mean that one causes the other.  And even if there was causation, it is hard to tell which way causality runs.

Another challenge is whether the correlation is spurious because it is based on biased data.  Harford notes this is a particular challenge for data sources such as Twitter, whose users do not represent the overall population.  Money quote:

“Big data” has arrived, but big insights have not. The challenge now is to solve new problems and gain new answers – without making the same old statistical mistakes on a grander scale than ever.

MBA students at NC State are getting training on a wide range of tools for analyzing big data, but they also are getting the theoretical insight they will need to make sense of the results they obtain.  

Rich and poor both getting richer

Are the rich getting richer and the poor getting poorer?  That's what a regular consumer of mainstream media would guess.  Trouble is, it's only half correct as a recent Congressional Budget Office analysis of Census data shows.  Between 1979 and 2010, income for households in the bottom 80% of the income distribution increased by 36 to 49 percent.  Growth for the top 20% was higher -- over 60 percent, with the top 1% seeing 200 percent gains.  

The CBO narrative for the lower and middle income brackets is more positive than what you have heard elsewhere for two reasons: (1) it takes into account taxes; (2) it adds in income from the entire range of government benefits.  The latter include "Social Security, unemployment insurance, Supplemental Security Income, Temporary Assistance for Needy Families (and its predecessor, Aid to Families with Dependent Children), veterans’ programs, workers’ compensation, state and local government assistance programs ... [plus] ... the value of in-kind benefits: Supplemental Nutrition Assistance Program vouchers (popularly known as food stamps); school lunches and breakfasts; housing assistance; and energy assistance and benefits provided by Medicare, Medicaid, and the Children’s Health Insurance Program."

How satisfied are execs with MBAs?

Poets and Quants reports that Hult Labs (affiliated with Hult International Business School) recently did a study "What Employers Want" focusing on how well business schools were meeting employer needs.  They interviewed 90 C-suite execs, managers and academics to gather their impressions about MBA programs.  There were three major concerns raised:
1.  Metrics: schools use grades to measure academic performance but they do not measure whether students are gaining skills in such critical areas as communication, leadership or team skills.
2.  Emphasis: MBA programs do a good job teaching traditional subjects such as finance and marketing but fall down in 10 areas: self-awareness, integrity, cross-cultural competency, team skills, critical thinking, communication, comfort with ambiguity and uncertainty, creativity, execution, and sales.
3. Theory vs. Practice: those surveyed think there is too much theory and not much application in most MBA programs.

My take: NC State's Jenkins MBA has a distinctive approach to management education that emphasizes applied learning.  All students must now complete a semester-long project sponsored by a real organization that forces them to apply theory from the classroom.  The program also provides strong training in most of the 10 areas cited above and is looking how to improve in all areas.  So in 2 of the 3 areas cited we are in much better shape than most business schools.  Alas we do give grades and probably should consider how to get real time feedback to students throughout the program on their communication and interpersonal skills.

The downside of cleaner vehicles: less gas tax revenue

The local N&O ran a front page story today about a dilemma facing federal and state governments.  They all use a gasoline tax to fund highway construction and maintenance.  Because of a combination of people driving less and cars getting more gas mileage, gas taxes are not generating enough revenue to cover highway costs.  Also the gas tax hits different road users in very different ways; if you own an electric vehicle you pay no tax, even if you use the roads as much as someone driving a truck or SUV.

The options are not attractive for policy makers.  One approach is to continue to raise gas taxes.  Another is to change the system and charge users by the mile driven.  This can be done via high tech (GPS) or low (annual odometer checks).  NC State experts are advising the state on another option: congestion pricing on urban freeways.