The Real Harvard Inflation Crisis
The news that the median grade at Harvard these days is an A-minus has naturally reignited the conversation around "grade inflation" especially at elite colleges.
One thing to note about this is that the inflationary dynamic at elite schools is pretty literally a case of inflation. Between 1990 and 2013, the size of the American population has grown 27 percent. The size of the Harvard freshman class has grown about zero percent. As measured by NAEP, the quality of the average American high school student has risen slightly during that period and the size and quality of the international applicant pool has grown enormously. With demand for a fixed supply of slots skyrocketing, you see a lot of inflationary dynamics. University spending per student is much higher at fancy private colleges than it was a generation ago. And it is entirely plausible that the median Harvard student today is as smart as a A-minus Harvard student from a generation ago. After all, the C-minus student of a generation ago would have very little chance of being admitted today.
And that, rather than "grade inflation" is the problem. If you go back 40 years ago, nobody was saying "the big problem with Princeton is it's not exclusive enough." And yet over time top schools have failed to expand supply.
If rich highly selective universities wanted to serve their public missions properly, they would do something like approximately double in size to return to the selectivity of the 1970s. NIMBY issues would probably prevent many (or most) of these schools from literally doubling their current footprint. But mayors of cities that aren't lucky enough to host world-famous universities know that the presence of one is an enormous asset. If Cambridge won't let Harvard and MIT double in size, then build expansion campuses in Worcester. I bet Bridgeport and Fall River would love to host Yale II and Brown II. University officials say they're worried that expansion would dilute the value of their brands, but the message of grade inflation is that the brands have become excessively precious. Double the Ivy League and bring admissions standards down, and I might even reconsider my fatwa against donating to fancy colleges.
Uber's Weird Christmas Tree Program
The car-hiring service Uber is doing an Uber Tree offering today in several cities where while supplies last they will deliver a Christmas tree on-demand to your house in partnership with Home Depot.
Obviously a fair amount of this is just a marketing gimmick. For a service like this scale matters a lot, so anything that gets people talking (or writing blog posts) about the company helps. But Uber CEO Travis Kalanick has been talking lately about wanting Uber to be understood not just as a transportation service provider but as a kind of all-encompassing urban logistics firm. At the moment, though, they're actually just a transportation service provider.
But his underlying point is correct. The basic technology of calling for vehicles and routing them through cities has lots of applications beyond transporting people. You could imagine Uber growing to fulfill the lost promise of Kozmo.com and arbitrary same-day small parcel delivery. Or food delivery.
Yet for now they don't seem to have any concrete lines of business like that that they think they can launch profitably. So the next best thing is the occasional marketing stunt—this tree thing, the kitten delivery promotion from a few months back—that generates a little buzz and also plants in people's mind the idea, "wouldn't it be great if I could get Uber to bring me some X." The one thing I don't get about this is the price: $135 seems like an awful lot to pay for a Christmas tree. And even at that high price point, they say "availability will be very limited." If supply is going to be tightly constrained anyway, why not make it more affordable, so everyone who gets an Uber Tree has a great experience, and write the cost off as marketing?
Lew Calls for Proper Funding of Financial Regulation
Treasury Secretary Jack Lew delivered a speech this morning at Pew about financial regulation, largely dedicated to making the case that the Obama administration's moves have been tough and have meaningfully increased the safety of the financial system.
But the most interesting section of the piece was less about regulations than about Lew's core subject area of budgeting. Or, rather, about their intersection. It doesn't matter what laws we put on the books against Wall Street malfeasance unless there's money in the budget to pay the cops who enforce the law:
An essential part of meeting that test will be to make sure regulators have the resources necessary to police markets and financial institutions effectively. Even with the best rules, illegal behavior or excessive risk taking will go unchecked unless regulators have the resources to conduct regular examinations, monitor suspect behavior, and go after those who break the law. The point is, this is not an either/or proposition. The best rules will fall short without effective supervision and enforcement. And effective supervision and enforcement are only possible with sufficient resources.
After failing in efforts to block or rollback reforms, some in Congress would now simply starve the regulatory agencies of funding so they lack the resources to do their job. Failing to fund supervision and enforcement of the new rules amounts to virtual deregulation. And it puts Americans at risk that financial threats will go unchecked.
I would add that this is one of these cases where money isn't just money. The American military is effective in part because Congress dedicates a lot of money to it. But I think it would be better to say that Congress dedicates a lot of money to the American military in large part because Congress wants the military to be effective and that "the military should be effective" is a notion that has widespread support throughout the American political system.
The question for medium-term financial regulation is whether politicians in Washington want the institutions charged with policing Wall Street to do a good job. Republican refusal to pony up the money is just one small sign that basically they don't.
Today's Good GDP News Is Actually Bad News
I saw a lot of celebratory tweets just now when the Bureau of Economic Analysis revised its estimate of third quarter GDP upwards to 3.6 percent growth. And, indeed, that's a good number and an upside surprise. But the details are actually quite bad:
The acceleration in real GDP growth in the third quarter primarily reflected an acceleration in private inventory investment, a deceleration in imports, and an acceleration in state and local government spending that were partly offset by decelerations in exports, in PCE, and in nonresidential fixed investment.
The key phrase here is "private inventory investment" which is when businesses build up their stock of goods. Inventory investment tends to swing. If firms build up inventories of unsold goods in one quarter, they typically spend down that inventory in the next quarter. The workhorses of exports (selling stuff to foreigners), PCE (selling stuff to Americans), and nonresidential fixed investment (so companies can make the stuff they sell to foreigners and to Americans) all decelerated.
Relatedly, Gross Domestic Income—an alternative procedure for counting up the same concept that GDP measures—rose only 1.4 percent in this report. The GDI approach is generally more accurate, further underscoring there are a lot of dark clouds to this silver lining.
Driving Is Going Out of Style
A new study from U.S. PIRG gives us perhaps the most detailed yet look at the "peak car" phenomenon whereby America's passenger-miles driven keeps falling. As Ashley Halsey writes, perhaps the most important contention of the report is "data that show the cities with the biggest drop in driving suffered no greater unemployment peaks than those cities where driving declined the least."
Specifically, the second- and third-largest declines in car commuting were seen in the Washington, DC and Austin, TX metropolitan areas which had two of the most robust job markets during the recession.
PIRG's takeaway is that it's time to stop lavishly funding new highway construction and instead focus money on a mix of maintaining existing infrastructure and improving mass transit services. I agree with that, but the budget allocations are in some ways the smallest pieces of the puzzle. The real gains are to be made in rolling back the implicit subsidies to parking and barriers to multi-family apartments, leveling the regulatory playing field between private cars and private transit, and looking at operational issues that prevent cost-effective transit operations in the United States. All of which is to say that while money is nice, what's really needed is a much broader change of mind that doesn't regard all alternatives to living in a detached single-family house with one car per adult as deviant behavior that needs to be regulated into a special box.
Hold off on That Malaria Donation
In my post yesterday on why you shouldn't give money to an exclusive American college or university, I suggested instead that your money might be better used by the Against Malaria Foundation. That was an example I used because the last time I checked, the AMF was GiveWell's top-ranked charity. As a number of people pointed out to me, this is no longer the case and GiveWell recently decided to stop recommending AMF, essentially because it's not clear that AMF currently has the capacity to use more money effectively.
GiveWell's new No. 1 choice is GiveDirectly, which I've written about several times before and is just great. Not unrelated to this, one advantage of the GiveDirectly concept is that it's a lot easier to see a path forward for endless scaling.
Portland Trail Blazers Ask if They Can Join the Eastern Conference
Three cheers for whoever runs the Portland Trail Blazers' social media operation for this tweet:
Is it too late to join the Eastern Conference? Asking for a friend.— Trail Blazers (@trailblazers) December 4, 2013
The joke, for those of you who aren't NBA regular-season addicts, is that the Eastern Conference is full of garbage teams. My Washington Wizards are currently in third place in the East with a 9–9 record. There are 10 teams in the Western Conference with a better record than that, followed by two 9–9 teams. It's totally ridiculous.
I've seen a few people casting around for ideas to either reform the way the playoffs work or somehow otherwise deal with the situation. But as best I can tell, the only way to fix the persistent—and worsening—imbalance in the conferences is to totally ditch the basic structure of North American sports and move to a promotion-relegation system like they use in Europe. In the short term, obviously, the decisive factor in team success is the quality of the players. But in the longer team, the decisive quality in team success is the quality of the owners and managers. The East is just jam-packed with owners who are really good at squandering financial resources (Knicks, Nets) or top draft talent (Orlando, Cleveland), and there's no way to fix that.
Important Outer Banks Hotel Update From the Fed
When we last checked in on the Federal Reserve's monthly compilation of economic anecdata (the "beige book"), one big reveal from the Richmond Fed was that visitors to North Carolina's Outer Banks were opting for tapas and deck parties rather than formal dining. The latest beige book delves deeper into the regional economy to observe that there are Black Friday sales near the beach:
Tourism reports also varied, with some hoteliers reporting cancellation of large government bookings. An executive at a resort and conference hotel in central Virginia remarked that he can no longer count on group clients booking multi-year contracts for regular conferences because of the firms' budget uncertainty over healthcare costs. In contrast, a resort executive in western Virginia reported that colder weather expectations have raised ski bookings compared to recent years, and weather conditions have allowed snow-making at Thanksgiving. The strength in bookings has allowed the resort to raise some rates for the first time in several years. A contact on the outer banks of North Carolina also reported strong house rentals and hotel bookings for Thanksgiving; several hotels there offered Black Friday specials.
Fascinating. Now don't get me wrong, I like a good Outer Banks weekend getaway as much as the next Richmond Federal Reserve president. But absent any kind of context or quantitative data, what good does this do?
Elizabeth Warren Just Invented Legislative Subtweeting
Elizabeth Warren sent a letter today asking major banks to disclose what money they're giving to D.C. think tanks. Warren vs. the banks is nothing new, but this is actually a kind of amazing innovation in the field of legislative subtweeting.
The context is that Jon Cowan and Jim Kessler of Third Way published a banal and contentless op-ed in the Wall Street Journal this week arguing ... something about Elizabeth Warren and how she's bad because a tax-hiking ballot resolution in Colorado didn't pass. There was some more stuff I didn't understand, and then they offered a made-up criticism of "the populists' staunch refusal to address the coming Medicare crisis." That one's particularly odd since one of the two populists they're critiquing was Bill de Blasio, who, as mayor of New York City, has nothing whatsoever to do with Medicare.
As for Warren, it is simply false—as in, ignorant or dishonest—to say that Democrats have done nothing to reduce Medicare costs or that they have no further proposals to do so.
At any rate, Third Way's board is jam-packed with finance guys from the investment banking and private equity worlds. So the general suspicion in progressive circles is that in these contexts the "think tank" is just acting as a kind of hatchet operation for the financial sector. So Warren wants to smoke them out. And, frankly, the way that Cowan and Kessler managed to simply ignore the role Wall Street plays in the "populist" narrative they're critiquing was just weird. So good for Warren.
Obama's Speech Leaves out the Unemployed and the Banks
I went down to THEARC, way down near D.C.'s southern tip where the national political class rarely ventures, this morning to watch President Obama deliver a speech at a Center for American Progress event on inequality and the economy. And he offered what, had it been delivered in 2007, would have been the greatest speech of the then-nascent presidential campaign.
By which I mean it was a really and truly solid speech speaking to the generation-long rise in inequality since the oil shocks of the 1970s. America decided deliberately to allow for more income inequality on the theory (endorsed by John Rawls and not just Ronald Reagan) that more inequality is fine if more inequality is the way to produce more growth for everyone. Except we didn't get the more growth for everyone. We got more growth for 10–20 percent of the population and a lot more growth for a narrow elite. That's true in 2013, and it was true in 2007, and it demanded a solution.
What's also true is that in 2013 we have mass unemployment and shall we say some unresolved questions about the role of the financial sector in the American economy.
And the speech didn't really talk about either of those things. The Washington, D.C., metropolitan area has become an island of prosperity in an ailing country. But D.C. itself has an 8.9 percent unemployment rate even as it sits at the center of a metro-area unemployment rate of just 5.4 percent. For people who haven't gone to college—the kind of people who live in the neighborhood where Obama was speaking—the unemployment rate is 20 percent. That's a disaster. And while Obama talked about plenty of things that could help those unemployed families—subsidized health care, better schools for their kids—he didn't really talk about anything that would get them jobs. The biggest applause line of the speech was about raising the minimum wage, which is great, but also doesn't help you very much if your current wage is $0. Delivering a stemwinder about the need for Janet Yellen to raise the growth rate of nominal income in the United States might not have been very smart, but yadda-yaddaing past mass unemployment is odd.
The people suffering the most in this country aren't the people's whose wages are stagnating, it's the people who don't have any wages at all. And the biggest thing stopping the people whose wages are stagnating from demanding a raise is that there are all these unemployed people out there who'd love to have their crappy low-paying jobs.