Is net neutrality getting neutered by new technologies?

American Enterprise Institute blogger Mark Jamison has some insights I have not seen elsewhere regarding how new technologies are likely to make existing regulations on net neutrality meaningless.  Examples of how technology is making a difference:
1) 5G networks will be based on network slicing, which means the network will be customized to different types of traffic.
2) Netflix is investing in proprietary networks and is becoming less dependent on public ones.  Other large gobblers of bandwidth are doing the same.
3) Mobile apps are being used more.  Apps are not open but they are targeted to user needs.

A larger lesson -- in markets where technology is changing quickly, regulations have difficulty keeping up.  If they are enforced too strictly, they can actually interfere with progress.

Storm economics

Harvey has finally made his exit from Houston and the Gulf Coast.  In his wake, a number of economic questions come up.  There always is the issue of price gouging after a natural disaster.  Although the practice raises ethical challenges, it also is a natural consequence of a price system that beats the heck out of what Venezuela uses to allocate resources.

Tyler Cowan has a Bloomberg column on economic issues related to storms that is worth a quick read.  A few key takeaways:

• Storms hurt economic growth because they force us to allocate resources away from other goods and toward rebuilding.  They also fracture lives and incomes.  
• Economic research shows that we are resilient; most who lose their jobs and homes do recover.  
• The standard economic approach to federal flood insurance is problematic.  Under the current system, we subsidize risky housing investments near oceans and in flood plains.  Bailouts to those without insurance reduce the odds that people will insure in the future.  

Even if you really believe that consumers are always rational and well informed, no one could have possibly seen 50 inches of rain in a few days as a possibility.  So what do you do with those who lack flood insurance?  Getting the federal government out of the flood insurance business is a question worthy of serious debate.  But for now Ted Cruz is going to be very supportive of a federal bailout.

Supply-side ideas for health care access

This is the 1st week of classes at NC State.  My online MBA class Essential Economics for Managers is studying supply and demand.  A good place to practice this subject is health care.  Most people pay for health services indirectly through employer- or government-provided health insurance.  Health care spending is much greater in the US relative to other countries with a comparable living standard and many blame these payment mechanisms.

Many efforts to bring health spending down focus on the demand side, either through changing the availability of insurance or through managing insurance-backed spending through eligibility rules, co-pays and deductibles.  As Mitch McConnell learned recently, kicking people off of health insurance plans is not a good way to win votes.

Todd Buchholz who worked under President Bush #41 argues in a recent WP op-ed that supply solutions to health care costs are not getting sufficient attention.  He makes four suggestions:
1) Build more medical schools to increase the supply of doctors (increasing enrollment at existing schools would yield the same result)
2) Allow nurse practitioners and physician assistants to open and manage walk-in clinics (some states allow this but most do not)
3) Recognize drug approvals from other advanced countries so that new drugs can enter the market more quickly and cheaply
4) Legal reforms to reduce unnecessary tests and procedures

Some of these issues are more complex than Buchholz allows.  Also he misses other supply-side reforms such as encouraging more immigrant doctors to practice here.  The overarching idea, however, is that by increasing competition and lowering unit costs, health care spending could start going down.

Marijuana access lets Dutch students grades go to pot

Economic research often extends beyond prices and output.  One recent study looks at what happens in a Dutch university town when a law is passed proscribing marijuana access to students who are not residents of the Netherlands.  As reported in WP, the academic performance of the non-Dutch students improved; their odds of passing a course increased by at least 5 percent.  The performance increase was greatest among students who were performing at a lower level.

Marijuana legalization is based on a wide range of value judgments, of which academic performance is but one dimension.  A key implication of this study is that there is likely to be some adverse impact on learning if marijuana becomes more accessible.  Of course, pot advocates might naturally ask if this experiment were repeated except this time telling the Belgian and French students that they cannot buy Heineken!

Are we facing "Robocalypse Now?"

For ages there have been concerns about workers being displaced by machines.  remember Ned Ludd?  John Henry?  With the growth of machine learning and artificial intelligence, those concerns have become heightened recently.

Basic economics says that the introduction of a new advanced technology will have two effects on the labor market: (1) there will be some displacement of workers whose skills are no longer in demand (e.g., blacksmiths and the automobile, bookkeepers and the computer) and (2) the extra wealth created by more efficient production methods will lead to increased demand for a wide range of products.

MIT economist David Autor has taken a look at the historical evidence on productivity enhancements and displacement.  Exploring 19 countries over 35+ years, he finds that the displacement definitely happens and is sizable within the affected industries.  However, employment actually ends up growing overall.

The downside is that some skilled workers are displaced and lack attractive options.  This means we face a challenge creating new opportunities for the unskilled and medium-skilled workers who are most likely to be affected.  The full report can be found here.

Go play your video game

Young men are becoming less and less likely to be in the labor force or in school.  How are they spending their time, compared to comparable young men a generation ago?  Apparently no small number of them are spending their extra time playing video games.

Chicago Booth economist Eric Hurst has just released his study of time allocation of jobless young men.  Men aged 21 to 30 are working 203 fewer hours than 15 years ago; men aged 31 to 55 are working 163 fewer hours.  Older men used their extra free time on TV, sleeping, eating and personal care; younger men used theirs on recreational computer time, mainly video games.  On average young men game 3.4 hours weekly.  Hidden underneath that average is a wide dispersion, with many clocking zero hours but some spending 20 or more.

There is a bit of a chicken-egg problem in interpreting the results.  One possibility is that the games are so enthralling that they become an alternative world with amenities superior to everyday existence.  In this case a job may never be seen as an attractive option.  Alternatively joblessness leads to free time and in today's age video games have transplanted other forms of idleness such as watching television or hanging out at the mall.  Perhaps it is no coincidence that some companies are using video games as part of their hiring process?

Seattle hits some bumps on the path to a $15 minimum wage

Two years ago I blogged about the $15 minimum wage.  At that time the mainstream view among economists was that federal and state minimum wage laws had a modest, negative impact on employment.  The wave of $15 minimums passed recently by numerous cities is uncharted territory because (1) the increases are so large and at such variance from federal and state minimums and (2) many businesses -- especially those in service industries -- can easily relocate to avoid paying the higher wage.

We now are getting the first wave of economic research looking at the impact of the $15 minimum.  At the beginning of this year, companies with more than 500 employees in Seattle had to pay a minimum wage of $15 an hour.  The minimum is now $11 for most other employers and will increase to $15 for all by 2021.  So what has been the impact on firms and workers?

A new study of the Seattle labor market has found that incomes of low wage workers have fallen since the minimum was hiked.  This has happened because employers cut back on work schedules.   Wages increased by 3% but hours fell by 9%, resulting in an overall drop in income of over $100m per year for low-wage workers.  Overall employment did not change, but employers substituted more highly skilled workers for low-wage workers which made the latter group worse off.

The Seattle study will continue and researchers will be looking at other cities such as Los Angeles and San Francisco that have hit the $15 mark.  The sure winner from these minimum wage changes -- data-hungry labor economists.

Do students learn anything in college?

Recent WSJ headline: "Exclusive Test Data: Many Colleges Fail to Improve Critical-Thinking Skills."  Higher education is already being criticized for being overly expensive, stifling free speech with political correctness, and having all too many graduates without jobs.  Now we have a new claim: that many students do not really learn much as they accumulate credit hours.

The study cited by WSJ compares scores on a critical thinking test taken by freshmen and seniors at a wide range of schools.  At some prestigious schools (e.g., UT-Austin), the scores of seniors are about the same as those of freshmen.  The schools with the largest "improvement" in scores include Plymouth State and Western Carolina.  

On the surface this would imply that higher education is not delivering on its promise to develop higher level critical thinking skills.  Here is another interpretation: schools like UT-Austin admit students with very strong skills in this dimension to begin with, so the change in scores is negligible three years later.  Also, the composition of the test-taking class changes considerably in some schools.  Almost half of the freshmen at Plymouth State and Western Carolina never graduate, so most of the score increase at those schools could be explained by weeding out the weakest students.

Finally, critical thinking skills are important but they are not the sole measure of academic accomplishment.  Compare the scores of freshmen and seniors on subjects such as biochemistry, electrical engineering, and finance to get a better overall picture.

A sweet NAFTA deal for sugar producers

The US and Mexico just concluded a deal on sugar trade.  A bit of background is in order.  The US is globally competitive for many agricultural products; sugar is not one of them.  Under NAFTA the US started importing significant amounts of Mexican sugar.  US sugar refiners protested and, to make a long story short, the result is a new set of NAFTA terms on sugar.  Net result: import restrictions and higher prices.  A win for US producers but a loss for US sugar consumers, US producers of products that use sugar and Mexican sugar producers.  A classic win-lose-lose-lose deal.  Perhaps a preview of what will happen when the gang that brought us "The Art of the Deal" gets their hands on the rest of NAFTA?

Ticket pricing on Broadway

Want to see a big hit such as "Hamilton" or "Hello Dolly" with Bette Midler on Broadway? Be prepared to pay $750 at the box office and well over $1000 in the secondary market.  These prices generate headlines and claims that Broadway is unaffordable for the average NYC visitor.

This NYT piece sheds a light on the economics behind live theatre pricing.  As it turns out, there are many theaters on the Great White Way and bargains can be had.  The average ticket price is just over $100 and, on most nights, you can stand in line at TKTS and score a (not great) seat for under $40.

What has changed in recent years is the adoption of dynamic pricing.  The same tools that airlines pioneered have come to the arts and entertainment world.   Ticket prices ratchet up for the most popular shows to ration demand.   By doing so there also is a clear match between the public's willingness to pay and the reward structure for those producing the shows:

From an economics perspective, “this is simply a rationing problem” ... If you keep prices low, people will buy tickets and resell them on the secondary market. Someone is going to pay a market-clearing price, no matter how high. The only question is who should get the money: the investors and performers and creators, or a speculator who managed to snap up the tickets the moment the box office opened?”

The Times article provides some helpful hints for those seeking the best deals: look for weekday shows and visit at an off-peak time such as January or September.  

Like health care, international trade is complex

President Trump has lauded Harley-Davidson as a (according to NYT) "a pillar of U.S. manufacturing."

But wait, H-D has opened up a new plant.  And it is not in Wisconsin.  It is in Thailand.  H-D claims that production at the Thai plant is aimed at the Asian market and that none of the motorcycles built in Thailand will be shipped to the US.

So why isn't H-D expanding US capacity to serve the Asian market?  Two challenges: (1) savings in labor costs and (2) Thailand imposes a 60% tariff on imported motorcycles.

But what might have happened to that 60% tariff if the US had completed negotiations on the Trans Pacific Partnership Agreement?  The labor cost difference would not have gone away, but the tariff barrier likely would have become negligible.

Of course union leaders called the Thai plant "a slap in the face to U.S. workers."   And they opposed TPPA.  And they were delighted when the President cancelled TPPA.  But how can they now complain that new production facilities have been opened in Asia?  Sounds like advisors to the unions and the President did not remember much from their economics classes.

Economists link sound management to firm success

Economists have done very little research linking how different management practices correlate with indicators of firm performance such as productivity and growth.  The reason is quite simple: economic research relies all too often on data collected by the government and the government does not collect data on management.

Two professors at MIT Sloan and a colleague at Stanford decided to collect data on management practices and, with the help of the Census Bureau, linked it to data on individual manufacturing plants.  The focus was on 16 measures of monitoring, targets and incentives which were combined into a management index.

The results, summarized in this HBR piece, were quite striking: every 10% increase in the management index was associated with a 14% increase in productivity.  Well-managed firms also were most likely to grow and less likely to close.  Management practices have a bigger effect on  productivity than IT investments, R&D intensity, and worker skills.

Interesting question raised by the study: we know that investments in IT, R&D and worker skills are quite expensive compared to the cost of changing management practices.  So why don't the poorly managed firms make adjustments?  Maybe it has something to do with who the managers of those firms are!

All you need to know about trade ... in 70 words

Courtesy of former Secretary of State George Schultz and Harvard professor Marty Feldstein in today's WP:

If a country consumes more than it produces, it must import more than it exports. That’s not a rip-off; that’s arithmetic. 

If we manage to negotiate a reduction in the Chinese trade surplus with the United States, we will have an increased trade deficit with some other country. 

Federal deficit spending, a massive and continuing act of dissaving, is the culprit. Control that spending and you will control trade deficits.

NC State MBAs shine in Lulu eGames

Kudos to NC State MBAs London White and Ben Bradley for their success in NC State's premiere entrepreneurship competition.  White was part of the VieMetrics team that won first place in the New Ventures division, taking home $10k.  VieMetrics has developed a device that can help asthma and COPA patients predict when an attack might be coming.  The idea for the device was developed in the product innovation class MBA 555.

Bradley received 2nd place in the Arts Ventures division and was awarded $3k for his Thrive Collective concept, which can enhance efficiency in the nonprofit sector through enhanced collaboration.  Learn more about his concept in this YouTube video.

You can learn more about the eGames and the other winners here and for more details about Poole College of Management winners go here.

How useful are job interviews?

Not very, according to this NYT piece by Yale School of Management professor Jason Dana.  Dana's research used student experiments to test whether face-to-face interviews aided in decision making.  In one exercise, students were asked to predict GPA of other students based on what courses they were taking, past GPA and an interview.  In a control group another set of students were asked to make GPA predictions based on course schedule and past GPA alone.  Guess which set of predictions was more accurate?  The group that did not conduct interviews and relied solely on numbers and lists.

All too often job interviews are unstructured, free flowing discussions that might be good predictors of interpersonal compatibility between interviewer and interviewee but are poor predictors of job performance.  What should companies do?  Dana suggests the following:

What can be done? One option is to structure interviews so that all candidates receive the same questions, a procedure that has been shown to make interviews more reliable and modestly more predictive of job success. Alternatively, you can use interviews to test job-related skills, rather than idly chatting or asking personal questions.

United Airlines incident: price controls strike again

Airlines make a choice regarding how many tickets they sell on a flight.   Because airline seats are perishable commodities and the cost of servicing an extra passenger is zero, airlines want each plane to fly with a full passenger load.  Theaters face the same challenge.  Yet when you buy theatre tickets, how often do you find someone else in your seat?  

One reason airlines rely on overbooking is that US Department of Transportation regulations encourage it, as pointed out in this HBR online piece.  The regs allow bumped passengers to be paid 200-400% of the price of their ticket (one-way, I might add) with an overall cap of $1350.  So a passenger who bought a heavily discounted ticket might only receive $400-500 in compensation for being bumped, well below what a true volunteer might demand.  

Airlines could manage passenger loads in different ways, such as penalizing no-shows who do not contact the airline in advance and are not on a connecting flight.  If airlines insist on overbooking, then the most efficient (in the economics sense of the word) compensation mechanism would be an auction where passengers bid for the right to be bumped.  In the case of the infamous Chicago to Louisville flight two weeks ago, the bid price for being bumped would rise until there were four true volunteers.  That would no doubt be quite a bit more than United actually spent, but I bet they sure wished in retrospect that they had paid those four passengers enough to get them to exit the plane without assistance.  

Do you really need a college degree to be a hotel manager?

Over the last five years, more and more companies have been insisting on college degrees for entry level jobs.  At the aggregate level this might make sense if jobs are demanding more scientific knowledge or more analytical or critical thinking skills.  However, a recent study by the Rockefeller Foundation and Edelman Intelligence (WSJ story here) finds educational demands by employers are rising across the spectrum.  For instance in 2011, 29% of the job listings for hotel managers called for a college degree; this figure rose to 47% five years later.

Apparently the weak job market has created a surplus of college grads for positions that actually require advanced education, forcing many grads to lower their ambitions.  Employers react to the new applicant pool by raising their educational standards.  The Rockefeller-Edelman study raises questions as to whether this decision is really meeting employer needs.  A college degree could serve as a signal for otherwise hard-to-measure communications skills.  Yet companies are now complaining that they are unable to retain these overqualified workers.

Today's college graduates face a much stronger market than their counterparts five to ten years ago.  If this continues, I would expect companies to start using games or psychometric evaluations to evaluate communications skills directly and stop using degree possession as a screen.

Mortality rates are not supposed to increase

The middle class has been getting squeezed for years, according to economic data on employment and income.  Now we have a study from Princeton economists Angus Deaton (a Nobel laureate) and Anne Case that finds that mortality rates have increased for white Americans with no more than a high school education.

Mortality has increased in part because of more deaths from alcohol and drug abuse and suicide.  These "diseases of despair" reflect diminished hope.  There also has been an increase in mortality from other causes, including heart disease.

Mortality for whites aged 45-54 with a high school education or less started increasing in 2000.  This trend is limited to the US; mortality in European countries has continued to shrink over the same time span.  Also mortality for nonwhites in the US has continued to shrink, as has the mortality rate for those with college education.

Centuries of economic history have shown economic progress has gone along with longer life spans.  Now, despite an increase in health insurance coverage in the US, the pattern has been reversed for a significant segment of our society.

NC State ranked #18 online MBA in the world by Financial Times

NC State's online MBA program is now ranked among the top 20 in the world according to the Financial Times.  This year is the first in which our program was eligible for the FT ranking.

The ranking is mostly based (60%) on a survey of alumni who graduated there years go.  They have done well professionally and were pleased with their online learning experience.   Faculty credentials and research productivity accounted for another 20 percent of the ranking, with student and faculty diversity and international exposure accounting for the remainder.

Where we did well compared to other schools in the top 20:
— value for money (#12)
— career progress (#9)
— aims achieved (#11)
— career services (#8)
— program delivery (#13)
— online interaction (#10)
— percentage female (#7)
— doctoral program graduates (#9, thank you econ!)
— research in top 50 journals (#11)

NC State has been featuring a story about the ranking on its home page.
https://mba.ncsu.edu/news/financial-times-ranks-nc-state-top-20-online-mba/

With the new curriculum rolling out and the enhanced flexibility students have to mix and match online and face-to-face classes, I truly believe we are positioned for even greater impact and recognition in the years ahead.  Kudos to the faculty and staff who, along with the alumni, made this happen.

How to pay for lower tax rates

The new President campaigned on a platform of lower tax rates and a simpler tax code.  Simple arithmetic dictates that the tax base must be broadened in order to lower tax rates and maintain the same tax revenue.  The political trick is to find something new to tax.

Even though the same party controls the Presidency and both houses of Congress, there is no agreement on how to broaden the sources of tax revenue.  The focus right now is on the corporate income tax.  The US has one of the highest statutory rates in the world, but it also has a bewildering array of deductions and exclusions.  Paul Ryan has proposed lowering the top rate from 35% to 20% by taxing imports.  This is great news for companies that do not use many raw materials or have supply chains internal to the US.  Not so great news for any company with a global supply chain and terrible news for retailers.

According to Grep Ip in WSJ, another approach would be to raise tax rates on shareholders by taxing dividends and capital gains at the same rate as labor income.  One would think this would play well with the President's supporters.  But would Republicans ever raise taxes on those in the top brackets to pay for a corporate tax cut that would make the US a more attractive business location and create more jobs?