Austerity in the EU

Insightful graphic on the well-known econ blog Marginal Revolution about government spending in five European Union members which have been following the austerity path.  As you can easily see, spending in France and the UK has continued to increase every year, whereas spending moved from rapid growth to flatline in Italy.  Government spending has actually fallen in Greece and Spain over the last two years but remains well above where it was 10 years ago.  And these are countries with little to any population growth. 

How French employers react to labor regs

Great article in Bloomberg Businessweek titled "Why France Has So Many 49-Employee Companies."  The answer is that once a company has 50 employees, it "must create three worker councils, introduce profit sharing, and submit restructuring plans to the councils if the company decides to fire workers for economic reasons."  In effect this means that it becomes very difficult, if not impossible, to have a reduction in force once the worker councils are in place.

As small companies expand, they either start outsourcing activities or set up new companies to avoid these regulations.  As a result, France has 2.4 times as many companies with 49 employees as it does with 50.  Another classic case of how regulations that were intended to protect jobs end up having the opposite effect. 

Kudos to TEC students

Student teams from NC State's TEC program swept top honors at two recent competitions.  Vindhya Kunduru, Ryan Libert, Scott Moore and Guarav Shah won first place at the Poole College of Management Leadership and Innovation Showcase.  They assessed NC State patented technology that allows for the creation of vaccines against Salmonella, E.coli, and over 2,000 other species in the Enterobacter family. The team is launching a company, EnteroVax, following completion of this course; its first product will be the Hassan Salmonella Vaccine for poultry.  

Scott Bolin, Ryan Chan, Mohammad Hassan, Ying Lui and Moataz Mussa won second place for the business plan for their new company, Tethys Water Treatment System.  The company is applying NC State patented technology to solve an environmental hazard resulting from the fracking process used to extract natural gas from shale.

NC State teams took first and second place in the 2012 Lulu eGames’ New Venture Challenge.  First place went to 7ED, a company using NC State technology to manufacture an essential component used by most LED manufacturers. 7ED’s team members are Dragana Mendel, Michael Teal, Garret Foster, and Sunny Wang.  Second place was awarded to Zeek, a company that displaces the paper coupon book with an online and mobile coupon system that takes fundraising into the 21st century. Zeek’s team members are Matthew Davis, Josh Robertson and Jonathan Stephens.

It has been exciting to see the great work the HiTEC teams have been doing over the years.  It is especially exciting to see their business plans validated and placed on the path toward funding and the launch of new business ventures.  And the cash prizes are a nice bonus. 

Whose side are you on?

Today's WSJ reports that 500 workers at Caterpillar's Joliet, Ill. plant are on strike.  They are resisting a pay freeze, benefit reductions, and changes in work schedules.  This is a noteworthy story for two reasons:

1. Strikes in today's economy are rare.  The willingness of the Machinists union to go out at a time of high unemployment and to test the management of a company with a strong and successful history of resisting union demands is a bit surprising.
2. The media coverage basically portrays the union leaders as morons, as indicated by the fllowing quotes:

The most obvious question for workers striking at a Caterpillar Inc. CAT -1.27% plant here is: Are you crazy?

"Maybe [the Joliet strikers] are miscalculating," says Harry Katz, dean of the industrial and labor-relations program at Cornell University.

Mr. Bailey [a striker], on the advice of a fellow worker, recently bought stock in Caterpillar. Does that mean he thinks the company will do well in the long term? "They might," he said. "We won't."

Where does NYT get business writers?

On today's front page, NYT leads with a story about declining service to smaller airports, blaming deregulation, consolidation and capitalism in general.  As many news stories do, the lead paragraph includes an airline horror story: the 12 hour ordeal of one Josh Hunter as he took Continental/United  from Mobile to Cincinnati on Easter.  Actually he flew from Mobile to Houston to Cleveland to Columbus and then drove to Cincinnati, with 3.5 of the 12 hours spent in the car.  

Could there be a quicker way to go?  Of course!  Go to Kayak.com and you quickly see that you can take Delta to from Mobile to Atlanta to Cincinnati in 3.5 hours of flying and layover time.  So why did Josh take the longer route?  Maybe it had something to do with price?  And maybe he bought on Priceline or one of its ilk? 

To be balanced, let me just say that the NYT article does raise some more valid concerns.  The price charged for flying in and out of smaller airports has been going up (the cheapest Mobile to Cincinnati round trip fare in Kayak for the days I sampled was $524).  And some airports have lost service altogether, although I am not sure the citizens of Sioux City, Iowa have a constitutional right to air service.

One economic head-scratcher for me: why can I go from RDU to San Francisco for $282 on May 17-21 whereas the cheapest fare from any New York City area airport to San Francisco is $458?

First blogging, now TV

WRAL-TV interviewed me Tuesday about the new IBM retirement buyout package and it ran on the local 6 p.m. news.  Video clip is here.  IBM is offering older workers a deal where they can get 70% of their pay while working 60% of a full-time schedule provided that they agree to retire by the end of 2013.  IBM's incentives are clear:

• Shed some employees and avoid severance pay
• Replace high-paid American workers with lower paid Americans (or outsourcing)
• Gain some predictability in workforce planning

The offer is voluntary, although some workers who fear being laid off may take this deal on the grounds that it could be the proverbial offer they cannot refuse.  For a cynical reaction from a "Dead American IBMer Walking," click here.

What Chinese trade surplus?

Although the US is still running a trade deficit with China, today's NYT reports that overall China's trade with the entire world is very close to being balanced.  In other words, even though China exports more to the US than it imports from the US, China imports more from the rest of the world than it exports to the rest of the world.  This is a big change from 2007, when China's trade surplus represented 10% of Chinese GDP. 

What has happened to shrink China's trade surplus? The NYT article cites rising wages in China and increased transportation costs, both of which make Chinese exports less competitive.  Also, the Chinese renminbi seems to be rising in value.  The global recession did not exactly help China on the export front as well. 

U.S. falling behind in education

Sad, but true.  Among 55-64 year olds, only Russia, Canada and Israel match the US in terms of the percentage of the population with a college degree.  But a recent WSJ piece notes that the US is just average in college completion compared to most other developed countries today and way behind S. Korea and Japan. 

Here is a different way to slice the data that gives a different perspective on the same problem.  As long as we have been recording data on educational attainment in the US, each generation has completed more schooling than its parents.  Until now. 

This is a concern in a world where human capital plays a much bigger role in prosperity than physical capital or natural resources. 

On student loans

It's an election year.  Both Presidential candidates agree that the interest rate on Stafford loans should not be allowed to double on July 1.  In the meanwhile, one house of Congress passes a bill that cannot pass the other house -- but I bet they find a solution before midnight June 30.

Student loan debt is getting a lot of press attention these days.  One set of concerns is that too many young people are burdened with too much debt and this will hold them back from buying houses or starting families.  On the other end of the spectrum, we see columns complaining about too many future deadbeats who will stick the taxpayer for untold billions. 

With almost 20 years of experience in graduate program administration under my belt, plus twice as much experience as a labor economist and data analyst, a few observations:

1. When you see a newspaper quote that the average student has a debt level of $29k, don't believe it.  Take the student load debt of all graduates and divide it by the number of graduates with debt and you do get the $29k figure.  But one-third of the graduates have zero debt.  If you take the total debt and divide it by the number of graduates (with and without debt) you get $19k. 
2. Students take out loans for a wide range of reasons, not just educational expenses.  Suppose you want to build a new deck and a home improvement loan is 6 percent.  If you can get a student loan at a lower rate, what are you going to do?  Each year we see evening MBA students with great jobs and employers who cover their tuition expenses graduating with significant amounts of student loan indebtedness.  So the $19k figure overstates indebtedness due to educational expenses. 
3. Student loans are available on the same terms to all majors at all qualifying schools (and just about all colleges and universities qualify).  Do we consider providing more generous terms to students in STEM disciplines where talent is in short supply?  Do we consider making the terms less attractive to students in disciplines with low wages and high unemployment rates?  Of course not. 
4. Student loans subsidize the cost of college.  As with any subsidy, it results in more students going to college and a higher cost of education.  I have a hard time seeing student loans as a major driver of rising tuition costs, but they certainly play at least a secondary role.

MIT's Finkelstein wins Clark Award

Other than the Nobel Prize, the most prestigious honor in economics is the John Bates Clark Medal, which annually recognizes an under-40 American economist.  Over a third of all Clark winners go on to receive Nobels.  This year's Clark winner is MIT's Amy Finkelstein.  WSJ's writeup emphasizes her applied work in health economics.  One field study conducted in Oregon was a randomized experiment where some low-income households received an invitation to apply for Medicaid.  A year later those invited "used more health care, had lower out-of-pocket medical expenditures and reported better physical and mental health."

Quoting MIT's press release, the American Economic Association "prominently cited Finkelstein’s research on the complexities of health insurance markets as a key reason for her honor. She has published multiple significant papers about the effects of asymmetric information in health insurance markets — elucidating, among other things, how frequently individuals with information on their high health risks purchase health insurance, and alternately, how frequently lower-risk people purchase insurance because they are risk-averse."  

For more in-depth details, see the AEA's citation here.  

Big data, little talent

That's the abridged headline this online WSJ piece.  Big data seems to be on its way to becoming the next big thing in management.  Companies are swimming in data and do not have the expertise to either manage the data sets themselves or to draw logical inferences from it.

What the industry needs is a new type of person: the data scientist.  According to Pat Gelsinger, president and chief operating officer of EMC Corp., the giant U.S. data company, this isn't an unprecedented problem. "IBM started a generation of Cobol programmers," he said, referring to one of the first dominant programming languages. "Thirty years ago we didn't have computer-science departments; now every quality school on the planet has a CS department. Now nobody has a data-science department; in 30 years every school on the planet will have one."

Hilary Mason, chief scientist for the URL shortening service bit.ly, says a data scientist must have three key skills. "They can take a data set and model it mathematically and understand the math required to build those models; they can actually do that, which means they have the engineering skills…and finally they are someone who can find insights and tell stories from their data. That means asking the right questions, and that is usually the hardest piece."

NC State is already staking out a leadership position in big data.  The MS in Analytics has been a huge success.  The Center for Innovation Management Studies in the Poole College of Management is doing big data research in conjunction with NC State's computer science department.  Stay tuned.

"But my heart cried out for you California"

The lyric in the title is from Joni Mitchell's "California" off the "Blue" album 1971.  However one might argue that the economics profession is singing the same tune.  WSJ featured a great interview with demographer Joel Kotkin over the weekend which really got to the heart of the economic challenges facing the Not-So-Golden State.  The issues are many: high and rising taxes, restrictions on property use that make housing unaffordable to the middle class, a cap-and-trade law that will chase away the few manufacturing jobs that remain, and rising energy costs in a state committed to go green whatever the cost.

Kotkin thinks things will only get worse as out-migration changes the mix of the electorate:

As progressive policies drive out moderate and conservative members of the middle class, California's politics become even more left-wing. It's a classic case of natural selection, and increasingly the only ones fit to survive in California are the very rich and those who rely on government spending. In a nutshell, "the state is run for the very rich, the very poor, and the public employees."

To borrow from another well-known 1970s lyric: Greece is the word.

Argentina strikes again

This time the Peronist government has decided to nationalize YPF, the country's leading oil producer.  Repsol, a Spanish company, had majority control; Spain has retaliated by cutting off imports of Argentine biodiesel.  Spain is also asking other European Union countries to remove preferential trade treatment for Argentina.

Why is Argentina doing this?  It depends on who you ask.  The move is very popular in Argentina, which claims Repsol had cut back investment and was recycling record profits to largely Spanish shareholders and executives.  In the short term the deal may make economic sense for the Argentines as well, especially if they can get away buying YPF at a price well below market value.  The other side of the coin: Repsol was probably wise to avoid new investments, given the state of property rights in Argentina.
 
Longer term we could very well see more nationalizations and will certainly see sharply diminished foreign investment in Argentina.  The Argentine government will use its ownership position to provide patronage jobs to its supporters. 

WSJ's best and worst jobs

The top and bottom 5:

1. Software engineer
2. Actuary
3. Human resources manager
4. Dental hygienist
5. Financial planner

196. Newspaper reporter
197. Oil rig worker
198. Enlisted military soldier
199. Dairy farmer
200. Lumberjack

Where do they get this stuff?  I can see the bottom four: long hours and, in most cases, dangerous working conditions.  But I do not see queues of undergrads and MBAs lining up for positions in HR or financial planning.  And dental hygienists???? 

The labor force is shrinking

Last week's report showed that although the unemployment rate had dropped by 0.1 percent, it was not because more people found jobs.  Instead, fewer people who were without jobs were bothering to look.  WP's Brad Plumer tries to fins out why this was happening.  The data cited in his blog entry indicate that most of those dropping out of the labor force are baby boomers who have decided they no longer want a job. 

This is another classic good/bad news situation.  On the plus side, if this trend continues, the unemployment rate may fall faster than most forecasts indicate.  Most economic forecasts are simple attempts to extrapolate trends from the past to the future and the unique aspects of boomers may very
well be inconsistent with the retirement patterns of older cohorts. 

On the minus side, what are these people going to do?  Longevity is increasing, health care costs are ballooning and the government continues to ignore the fiscal issues we face down the road with Social Security and Medicare.  The old line used to be "Son, get a job."  Now it may need to become "Dad, get a job." 

What? Another minimum wage increase in the works?

So says today's NYT.  Massachusetts legislators are pushing for $10/hour; pols in Conn., Ill., NJ, and NY are also promoting the idea.  Democrats in Congress have their fingers in the wind to see which way it is blowing. 

You do not need rocket-science economics to understand why this is happening: there is an election this fall and after years of wage stagnation, some voters will respond approvingly.  The question I always ask minimum wage proponents is this: why stop at $10/hour?  Why not make the minimum wage $25/hour or higher so that all workers could have a middle class standard of living?  Or at least those workers who still have jobs. 

Feldstein on inflation risk

Great article by Harvard's Marty Feldstein on the pressures facing the Fed to stimulate the economy while keeping inflation in check.  The Fed has flooded the banking system with liquidity.  So far banks have sat on their excess reserves and received 0.25% interest from the Fed.  But at some point, Feldstein argues, banks will start loaning these funds out to households and businesses.  Even though unemployment remains over 8 percent, Feldstein is concerned about capacity constraints. 

Half of the unemployed have been out of work for a year or more; there is a significant risk that the long-term unemployed will not be reabsorbed into the labor market very quickly.  Feldstein's fear: the unemployment rate gets stuck at 7.5 percent, causing Congress to press the Fed to keep the stimulus going at a time when all the excess money in circulation starts leading to higher prices. The Fed has never injected this much liquidity into financial markets before; will the Fed know when and how to remove the excess liquidity?

Can retailers still outfox savvy shoppers?

Ever since people began bartering, there has been a constant struggle between buyer and seller to get the largest possible share of the value-cost margin.  Shoppers now have access to a cornucopia of pricing information on the web.  If stores do not offer reasonable deals, they lose business to Amazon and the like. 

Today's NYT reports how some major retail chains, including JCP (the store previously known as Penney's), have revised their pricing strategies.  The story contains some juicy tidbits on pricing:

An item that cost Penney’s $10 in 2002 was typically marked up to $28. By 2011, a $10 item had been marked up to $40. But the price the customer actually paid for the $10 item increased only 5 cents during that period — to $15.95, from $15.90.

... the average markup for apparel at a department store began around 65 percent. Over 10 weeks, the stores will go to 25 or 30 percent off, then 50 percent off, 60 percent, and finally 70 percent or more, a discount so deep that the stores sometimes sell below cost.

The game for consumers is to tradeoff availability with savings.  The latest, most popular styles may sell out but patience is rewarded with bigger discounts, a form of what we economists call third degree price discrimination.  JCP claims it has cut its retail prices by 40 percent in a move toward what it calls "fair and square" pricing.  Consumer reaction?  Lukewarm at best so far, the article indicates.  One shopper posted “I really, really miss my coupons" on JCP's Facebook page. 

Energy independence, here we come!

Good news in today's NYT lead story: the US is actually becoming more energy independent.  In 2011 we imported 45% of our liquid fuels, down from 60% six years later.  The reasons are economics 101: more supply and less demand.  Production is up because of technological advances and incentives created by higher prices (drill, baby, drill).  Demand is off because of the recession and, yes, incentives created by higher prices (drive less, buy a more energy efficient vehicle, move closer to work).  

More evidence that markets work: law schools

The market for lawyers is being adversely impacted by three forces: financial regulations have dried up the volume of financial deals, more legal work is being outsourced overseas, and corporations insist on more bang per buck of legal fees.  We are now starting to see reaction on the supply side of the market -- the number of people taking the LSAT has fallen by 24% over the last two years.  My guess is that the LSAT numbers were artificially high in 2009 and 2010 as students sought out law degrees as a safe harbor from the Great Recession.  But a 24% drop is huge, no matter what spin you try.  This could be tough news for the smaller, less visible law schools. 

Tariffs on solar panels

Just as Americans are paying near $4/gallon of gasoline, today the U.S. Commerce Department announced that it was imposing tariffs on Chinese manufacturers of solar panels.  The tariffs are being imposed because -- horror of horrors! -- the Chinese government was subsidizing their own solar panel manufacturers.  Even worse (in the Fed's eyes at least), the Chinese were selling panels to American customers at prices below cost.  No word yet on how big the tariffs will be, but certainly we can count on the cost of solar panels rising.  Politically this is a bit of a head-scratcher; it should alienate the environmental crowd and there is no union of solar panel makers to placate. 

Why are parking spaces so hard to find?

Obvious answer: the price is too low.  Today's NYT reports an interesting experiment from (of all places) San Francisco (not usually a bastion of free market thinking).  SanFran has applied technology that allows meter prices to vary depending on demand.  The idea is to have one spot open on each block all the time so that drivers do not clog the streets and generate additional CO2 emissions cruising in search of an empty spot.  Prices fall in areas with lots of spots and rise in those with no spots. 

Apple fixing book prices?

So says the US Department of Justice, according to WSJ.  What we cannot dispute: as Apple was introducing the iPad in 2010, it signed a contract with five leading book publishers under which (1) publishers could set whatever price they wanted, (2) Apple would take a 30% cut, and (3) publishers would not allow rival retailers to sell at a lower price. 

One might view the last item as an attempt to fix prices, although it would be subject to voluntary contracts between publishers and retailers.  In an op-ed yesterday, WSJ's Gordon Crovitz provides some context.  At the time of the iPad launch, Amazon had 90% of the e-book market and was selling e-books at a loss to encourage sales of Kindle.  It is difficult to see how Apple had much monopoly leverage in this setting.  Given the massive changes in marketing practices and business models that are still taking place in publishing, it may difficult to come up with evidence on harm to consumers, especially if you compare prices of e-books to printed books.

Raleigh Chamber chimes in on immigration reform

Harvey Schmitt, CEO and president of the Raleigh Chamber, points out how not-so-smart immigration policies are hurting local tech firms.  In an N&O op-ed last Friday, Schmitt argues that limiting the number of foreign workers earning graduate degrees in science and technology is hurting the average American worker.  (I am not sure where he gets his 2.6 extra jobs for each new foreign grad student who decides to stay here.)  Local companies are having a hard time attracting an keeping tech workers.  For those interested in learning more about the issue, the Chamber is sponsoring a forum on immigration Monday at 8 a.m.

Another encouraging jobs report

For the third month in a row, the US added 200k+ jobs in February.  With upward revisions to data from earlier months, WSJ reports that we have added 1.2m jobs over the last six months.  This is the most impressive job growth we have seen since the end of the recession.

However, the labor market still has a lot of ground to make up.  Employment is still 5m+ lower than it was when the recession started.  The employment-population ratio also is 2 full percentage points lower than it was in 2008.  Unemployment held steady at 8.3% in February, but could very well inch up in coming months as people re-enter the labor force. 

Unlimited data plans, R.I.P.

AT&T announced last week that it was no longer providing unlimited data to its $30/month customer base.  Once users reach 3GB per billing period, their speeds will be slowed significantly.  Right now 5% of users will be impacted, but that percentage is sure to rise.  AT&T customers have three options: (1) be more careful with their device settings and use WiFi as much as possible (as opposed to the 3G or 4G AT&T network), (2) switch to a different billing plan and pay higher monthly rates to get the same speeds as they did under the original plan and (3) switch to other carriers.  Sprint is the only other carrier with an unlimited data plan and, unless they see a surge in customers, one would guess that they will be next in line to generate more revenue from network users. 

In the short term, I imagine there will be some very upset, unhappy people.  But as broadband gets more and more available and runs at faster and faster speeds, one must question how much value AT&T's proprietary network will generate. 

Starting to 2nd guess the Fed

NYT's Gretchen Morgenstern issued the first salvo I have seen in the mainstream media in her column today.  She openly questions the wisdom of keeping rates at near zero levels, given that (a) this is significantly penalizing savers and (b) very few people qualify for the low interest rates, especially for mortgages.  Isn't the whole idea of low rates to stimulate borrowing?  Don't get me wrong; I'm not drinking the Ron Paul Kool-Aid about abolishing the Fed, but some serious questions about its interest rate policy need to be raised in this year's campaign.  I give Ben Bernanke very high marks for his moves in 2008 and 2009, but I have real concerns about the Fed's stated commitment to keep rates low for as much as another two years.   

Labor shortages in manufacturing

Op-ed in today's WSJ about the problems manufacturing companies are having with keeping up with demand.  A Deloitte survey finds that 5% of all jobs are unstaffed because companies cannot find qualified, trained workers.  Even though unemployment continues to be over 8 percent, skill shortages persist.  Great quote from a community college president in my home state of Kentucky: "In the 1980s, U.S. manufacturing was "80% brawn and 20% brains, " but now it's "10% brawn and 90% brains."

Funny how neither political party is talking about this.  Low hanging fruit in an election year. 

NC State wins statewide case competition

Kudos to MBAs Ben Mathew, Mansi Shah, and Michael Donahoe and MAC student Alyssa Jaklitsch for winning the Association for Corporate Growth Private Equity/M&A case competition.  The team beat three teams -- Duke, UNC, and Wake Forest -- with investment banking experience to take the top spot.  Last year's team took 2nd place; aced out by exec MBAs from Wake.  The team will be recognized at an ACG meeting in April in front of over 50 private equity and investment banks.   

Kudos as well to Professor Ken Marks, who helped prepare the team.  This is the type of recognition that helps put NC State's MBA on the map.  

Minimum wage hike as a stimulus

That's what some pols in NY and NJ are pushing for.  The minimum wage is currently $7.25 but Democrats and some Republicans in the NJ legislature are looking for an election year bump to $8.50.  Why?  They can claim they are helping the working person, plus it does not have any effect on the state budget. 

To provide some perspective, the federal minimum wage was increased in three steps from $5.15 at the beginning of 2007 to $7.25 by the end of 2009, right at the time the labor market was in its worst shape since the 1930s.  I have not seen any careful studies yet, but you can bet that the minimum wage increase made the unemployment rate higher than it would have been otherwise.  If the NJ increase goes through, it would amount to a 65% increase in just five years. 

Studies have shown that most recipients of the minimum wage are teens and young adults, few of whom are heading households and many of whom are working part-time.  One predictable consequence: their employment will fall.  Doubt the pols want to take any credit for that.

Regulating higher education

For years colleges and universities have participated in federal financial aid programs.  Now some strings are starting to be attached.  As I noted in an earlier post, the higher education community is viewing this development with some concern. 

Today's NYT editorial on the subject illustrates some examples of what might be in store.  The new Consumer Financial Protection Bureau has drafted a one page shopping sheet (NYT's terminology, not mine) that every school would have to make available showing annual cost (tuition, housing, books, etc. net of scholarships) and how it compares to national averages.  This would be a big step forward; I can tell you from personal experience that one of the hardest items to find on any university's website is the tuition. 

The Department of Education is working on a College Scorecard reporting data on cost, graduation rates, indebtedness, and employment.  This also would help parents and students make more informed decisions. 

Now I am sure there are other ideas out there that I will not be so crazy about, but it strikes me that the cost of providing this information will be modest compared to the benefits. 

Two cheers for the payroll tax cut extension

Not so much for the extension itself.  The economic evidence on this front is overwhelming: temporary tax cuts provide little to no stimulus.  Also by extending the ability of workers to collect unemployment benefits for more than one year, Congress is locking in additional unemployment.

But we all knew the tax cut and benefit extensions were going to happen anyway in an election year.  To partially "fund" these goodies, Congress took two positive steps:

1) Changes to the Unemployment Insurance: WSJ reports that workers on involuntary part-time schedules now will be allowed to collect some benefits, which may encourage employers to keep workers on the payroll part-time (as opposed to layoffs).  Also programs such as Georgia Works, where the unemployed can collect benefits while going through training programs, also will expand.  Finally, the self-employed will now be covered by UI; not sure how this is going to work.

2) Spectrum auction: To fund the extra UI benefits, Congress agreed to auction off spectrum currently held by television stations to expand wireless networks.  NYT reports the auction is expected to raise $25 billion and will help us all play more games and watch more streaming videos on all our iDevices.  Some of the spectrum also will go to first responders.

Rethinking classroom utilization

Across literally thousands of colleges and universities, faculty members present the same information in essentially the same way to students in lectures.  Why do we need thousands of new lectures on elasticity of demand or sunk cost every semester, plus no doubt a few hundred more every summer?  With today's technology, aren't we leaving some pretty huge economies of scale on the table.

According to an article in last week's WP, some big-name universities are starting to rethink how they use classroom time, including live lecturing.  One advantage of a lecture is that it allows a professor to combine perspectives from a wide range of sources beyond a textbook in a seem-less fashion.  But why not record the lectures in advance so that students watch them before class, and then make the classes much more interactive?  Some schools are starting to experiment with active dialog between the class and the professor; others are using small group interaction.  Clickers can be used to see if students are mastering the basics.

On disability

Most of the headlines on deficit/debt issues focus on Social Security retirement benefits and Medicare.  In the last ten years, Social Security's disability program has been getting increased attention.  In yesterday's WP, columnist Robert Samuelson laid out the basic facts:

In 2010, Social Security's disability program cost $124 billion plus another $59 billion for Medicare (after two years, disability recipients automatically qualify for Medicare). This exceeded $1,500 for every U.S. household. For the past two decades, disability spending has increased at a 5.6 percent annual rate, compared with 2.2 percent for the rest of Social Security. As a result, disability represents nearly one in five dollars of Social Security spending, up from one in 10 in 1988.

The irony is that fewer and fewer jobs are in sectors with high rates of injury or occupational disease such as agriculture, mining, construction and manufacturing.  So why are disability rates soaring?  MIT economist David Autor isolates two causes: the overall labor market has been crummy and the eligibility criteria for disability have been widened to include mental problems.   Disability eligibility is all or nothing; once certified as disabled, a person cannot work.  Hence rising joblessness and additional strain on federal budgets.  Don't expect any changes in this program this year. 

TrueCar vs. "I'll check with the manager"

Automobiles are mass produced by a limited number of sellers, but historically pricing has been far from transparent.  The sticker price is taken as an upper limit (although there are sometimes two stickers: one from the manufacturer and one from the dealer) and it is up to the individual customer to negotiate something lower.  Some people hate to negotiate and thus pay top dollar.  Others relish the process and sometimes can buy at well below dealer cost (once the car is on the lot, the cost to the dealer is sunk so the salesperson will take the best price they think is attainable in the market -- as MBA 505 students all know). I always use it as my first example of first degree price discrimination. 

Recently TrueCar.com has emerged as a useful intermediary.  Potential buyers register at the site and get data on the dealer's true cost along with a guaranteed price from dealers in their area.  Dealers pay $299 to TrueCar for each lead that becomes a sale; customers get multiple bids they can use as leverage before they even enter a showroom.  (I used it recently; the only downside is a continued stream of junk emails from the dealers.)  Of course some dealers are less than delighted with this arrangement, as noted in a story in today's NYT. 

Ultimately one must wonder when a car company will decide to buy out its dealers and revolutionize the retail process.  You would have showrooms with a limited number of demos; after a test drive, customers would order exactly what they want on the web. 

Kellogg announces major changes

I attended the annual GMAC Leadership Conference in Miami last week and the closing session discussed the major trends that are affecting the strategies of business schools.  So far higher education has avoided the competitive pressures from globalization and technological change that have transformed other industries.  I think the clock is ticking, especially for schools that rely on "sage on a stage" for information delivery.  (Aside: Why should literally tens of thousands of b-school professors be giving the same lectures semester in and semester out?  Schools could tape the very top profs and sell their lectures to other schools and both sides would end up ahead.) 

Back in the office yesterday, I got a note from Adrienne Jablonski (formerly an NC State colleague, now at Oklahoma) with a link to this BWeek article on Kellogg's new strategic plan (here is another take from the Economist).  Here are the major changes afoot:

• The size of Kellogg's highly regarded two-year, full-time MBA program will shrink by as much as 25 percent over the next three to four years--from 1,115 students to about 850--and enrollment in the executive MBA program would also come down. At the same time, the size of the one-year MBA program will double or triple, from 80 students to as many as 240.

• New, one-year master's degrees will be added to the Kellogg portfolio. These would be alternatives to the MBA. One such degree that the b-school is considering is a fifth-year master of science degree for undergraduates.

• The entire Kellogg MBA curriculum and research program will come in for a major overhaul, its first since 2002-03 and its deepest in nearly 30 years. It will be structured around four areas: markets, customers, and growth; "architectures of collaboration," or managing relationships with suppliers and customers through the use of technology; innovation and entrepreneurship; and the role of public policy in private enterprise.

• New, short-term certification programs will be established in international locations, including Sao Paulo and Shanghai. The non-degree programs, which lack the academic heft of an actual degree, will allow students to earn a Kellogg certificate for taking a group of courses on a specific topic. Faculty will be reviewing this idea in coming months.

We have started one new one-year degree at NC State -- the Master of Global Innovation Management -- and have a couple of others on the drawing board.  I clearly see pressure to shorten the time needed to complete the MBA.  I also see increased pressure to make sure that we are delivering as much value added as possible in each credit hour.  We continue to live in interesting times.  For more details on Kellogg's plan, click here.

Good news on the jobs front

Two bits of good news in the last 4 days.  First the January jobs report was the best since April, with the economy notching a net of 243k new positions.  Unemployment fell to 8.3 percent, the lowest since February 2009.  Sectors showing the largest gains: health services, professional and business services, and manufacturing.  Construction is still flat.  The other bit of good news: job postings from employers are up.