Taking "Clubs" a Little Far?

Across America's top universities, career-minded undergraduates, feeling pinched by increasing competition for a limited number of jobs and internships, are forming new clubs to give themselves a head-start in their chosen professions.

Sounds innocent, right? Just take a look at this article.

These students are obviously smart, and obviously committed. The question is...how committed?

Some interesting tidbits from Businessweek on the matter:

-40% of the members are freshmen

-At least one member describes themselves as "followers of Warren Buffett"

-It can be difficult to juggle classwork and a club that amounts to a full-time job

Understanding a company takes a lot more than just understanding financial metrics. Unfortunately, I can't comment on how this group operates and whether its students are getting a full, diverse education. What I can say is that concentrating on nothing but financing is a sure-fire way to kill a company.

Now, if these students never aspire to become Chief Executive Officers, they are obviously doing alright. If they do have higher dreams, though...they may just be following the wrong path.

Diversity in Education

From the Chicago Tribune this morning:

College recruiters trying to reach the most promising applicants can purchase customized mailing lists based on where students live, their grades and test scores, even their ethnicity and religion.

One category, however, has been off-limits since the early 1980s: family income...But now, as some of the nation's most elite colleges are trying to bring more economic diversity to their overwhelmingly affluent student bodies, admissions officers who want to lure low-income students to campus are pushing to get that data

My gut reaction to this was something along the lines of:

"Goddam incompetent government. They are deliberately targeting people who can't pay?! I wonder how much money this is going to cost..."

I was a libertarian for the last few years. So the institutions are mostly private. Sue me, I like to blame government for everything.

Despite my and possibly your knee-jerk opposition to hand-outs (even if they aren't always government hand-outs), there's sound reason to make sure your student body has a good number of low-income students...or, rather, diverse in general.

Any college education worth its salt teaches students how to problem-solve and think for themselves. One of the major issues humans have, though, is the proliferation of heuristics and blind-spots we have. The mind operates a bit like an old accountant that runs the same equations over and over again. There might be new, better ways to do things out there, but he is loathe to adopt new techniques: He likes to do things the traditional way.

Heuristics are the rules of thumb that we use to problem-solve. For instance, when someone asks me if something enhances social welfare, the first thing I do is consider supply and demand, and it makes it proxy a perfectly competitive market better, then it improves social welfare. Some guys think that any woman with a tattoo on the lower back is a bit "easier" than the average woman. Same basic principle.

What diversity at an institution does is present different viewpoints and new sets of information. The danger of just having a bunch of white, rich, suburban children in the same institution is that they all tend to face similar problems. Oh, sure, they might have differing political views. I doubt, though, that they will understand the jealousy a young african-american woman may experience when she looks at the extravagant hair of a Caucasian woman. I highly doubt many of those students will understand the obsession that small Japanese retail shops have with new products. 

Without a different viewpoint and a different set of cultural experiences to draw upon, a student's understanding of different market-places is impaired. More to the point, a student may miss out on different methods of problem-solving that other cultures may posses. 

Hence, diversity is a benefit to any institution.

By the way, the University of Illinois at Chicago is considered the 5th most ethnically diverse campus in the country.

Grey's Anatomy

In case you needed MORE reasons to watch: It has lesbians now.

The times, they are a changin'

Why Competition can sometimes be BAD for Social Welfare

Linky

We find that: (a) the main sources of knowledge are competitors; suppliers; and plants that belong to the same business group ; (b) these three flows together account for about 50% of TFP growth; (c) the main "free" information flow spillover is from competitors; and (d) multinational presence contributes to this spillover.

Sometimes, innovation can be very expensive and costly. New processes sometimes take a lot of trial and error to get right: for instance, the "just-in-time shipping" Boeing uses right now is quite troublesome, and their new airliner has had its release date set back significantly. Several times.

So, if I am a business, I'm not going to innovate unless I am damn sure I can lower costs significantly. Enough so that I can get a competitive advantage. But, my competitors are going to gain from my hard work! Because of this effect, it is quite possible that we are missing out on some major innovations.

What innovations are we likely missing out on? The most expensive kinds that are most likely to reap the big rewards: if Starbucks suddenly spends $1 billion on developing some new production process, it may IMMEDIATELY get stolen by local coffee shops as employees shift around. So, the risk of such innovations is too high: Starbucks is going to stick to cheaper innovations instead.


There are other ways competition can be bad, too. For instance, reducing my price makes consumers richer, since the overall price level will be lower. However, this means that it will increase the demand of my competitors. After all, if two goods are substitutes, it means I am going to consume BOTH of them to some extent...if Nestle lowers the price of their chocolate, I am going to use some of the savings to finance my addiction to dark chocolate M&Ms. That's a losing proposition for Nestle.


Of course, this doesn't mean competition is BAD. It just means that, sometimes, it doesn't work perfectly.

Medicine in India

From the Economist:

" 'In the absence of competition, differential pricing is a hoax; scoffs Yusuf Hamied, chairman of Cipla, an Indian generics firm. In his view, only generic-makers like his firm provide genuine competition to Big Pharma..."


More correctly, differential pricing (IE, price discrimination) is not even possible with competition. If I am competing with someone, he's going to be charging a lower price than I am.

Progressive Taxes and Price Discrimination

If you look at the facts, the two are a LOT alike.

First, some background:

Progressive taxation essentially means taxing people a higher percentage of their income as their income increases. If you make $50,000 in the United States, you are probably paying something closer to 10% of your income in federal income taxes, as opposed to 20% if you are making $200,000 annually. Theoretically, this allows the government to raise funds more easily and reduces inequality.

Price Discrimination means charging different people different prices for a product. A lot of people thinks this means that businesses are being mean to minorities or women: not so. Amazon bundling books on their website is price discrimination, as is a movie selling a cheaper ticket to a student or a senior citizen. Businesses do this whenever possible, because it is profit-maximizing.

How are these two similar in any way?

Well, businesses price discriminate primarily because, for any given product, there are heavy users and casual users. Consider Cubs games. There are those, like some of the Brothers in my fraternity, that REALLY love the Cubs and try to watch every home game. On other hand, I watch a Cubs only every once in a while. So, we have different demand curves. If possible, you want to charge the people that have higher demand curves a higher price, since they are willing to pay it.

Governments are capable of doing the same thing. Government is a bit like a service or a product offered by businesses. What it offers is safety and enhancement of welfare. That doesn't mean that government should be maximizing profit (that'd be a bit immoral, no?), but it does mean people have different demands for government services. For government, though, the demand curve is based less on the "need" for the service and more on the ability to pay: Rich people have more money, and thus can afford more government...their demand curve is therefore higher.

So, if a government wants to effectively raise income, it should be charging rich people more. And that...is progressive taxation.

Now, that's not to say that progressive taxation is always the way to go. Income taxes typically are expensive to operate. They require good census data and a big agency to enforce the laws (the IRS is by no means "small" or "uncostly"). So, income taxes should only be used if you need to raise a LOT of money.
But if you are going to use an income tax, you might as well do it right: go progressive

The Dangers of Marketing Yourself Low

Most people ignore the true power of marketing and how you sell dreams and lifestyles. To a lot of people, it's just "lowest price wins."


During the Great Depression, Pepsi lowered its price to 5 cents a bottle and called itself the discount drink.

When the economy recovered, people were embarrassed to sell Pepsi and switched to Coke, because only poor people would drink Pepsi.

This would basically continue until Pepsi poached Coke's marketing man and marketed itself as the drink for the "Pepsi Generation"



Just a reminder: price ain't everything

So, went to California

Some interesting stuff I learned:

The bugs in Yosemite are insane. They're like super-bugs. On the first night, my brother and I were swatting at mosquitoes. Now, usually, we're pretty damn good at getting bugs. We can pick flies out of mid-air, and do the same for bees without injuring ourselves.
These buggers were insane, though. They hovered, and then executed hair pin turns and jawbreaking acceleration whenever we snapped our fingers at them. It was like watching an excellent ballet: two college males twisting and turning, darting at random spots in the air, always unable to get our objective.
Damn mosquitoes.


In addition, virtually everything in Disneyworld is better than whatever is in Disneyland. The food, the rides, the lines, the atmosphere...goes right down to the trash on the street (which is NOT there in Disneyworld). Disneyland just doesn't that have magical feeling: it seems like just another theme park.



Also, buses in Santa Monica are 50 cents. The CTA buses here are $2...that's not cool. The walk in Santa Monica is shorter and along a beach :(

The end of school

Final grades:

Environmental Economics: A

Industrial Organization: A

Econometrics: A

Investments: B (missed the A by two points!)

Compensation: C



That compensation class is going to haunt me.

Back in Town

The blog-postings will begin soon

Mass Transit Ridership Soaring

From the New York Times

Some cities with long-established public transit systems, like New York and Boston, have seen increases in ridership of 5 percent or more so far this year. But the biggest surges — of 10 to 15 percent or more over last year — are occurring in many metropolitan areas in the South and West where the driving culture is strongest and bus and rail lines are more limited...the increase in transit use coincides with other signs that American motorists are beginning to change their driving habits, including buying smaller vehicles. The Energy Department recently predicted that Americans would consume slightly less gasoline this year than last — for the first yearly decline since 1991.

Should make a good bit sense. Eventually, the gasoline just gets so damn expensive that it is cheaper to use mass transportation instead. I can't say I have seen a big impact in Chicago: Don't keep a running list of the number of people.

Personally, I love mass transit: it relieves me of stressful driving. Standing still on a highway for an hour is not my idea of a good time. And I can easily chat with my friends on the Metra trains, or read, or do homework. That's freedom that you can't get in an automobile.




Not everything is sunshine and flowers, though:

But meeting the greater demand for mass transit is proving difficult. The cost of fuel and power for public transportation is about three times that of four years ago, and the slowing economy means local sales tax receipts are down, so there is less money available for transit services. Higher steel prices are making planned expansions more expensive.

Typically, mass transit systems rely on fares to cover about a third of their costs, so they depend on sales taxes and other government funding. Few states use gas tax revenue for mass transit.

See: Chicago's public transit crisis, resulting in large service cuts. Eeeeep. Ain't no such thing as a free ride.

The Final Day of Finals Week

Woke up at 7:20. Felt like total garbage.

Hopped on my train and rode over to Union Station. I tried to study along the way...didn't work out too well. I was a bit distracted by some odd dreams I had.

Anyways, I walked over to campus from Union Station. I figured it is going to be an easy walk...sun made it a bit warmer than I expected. At least the feces on the sidewalk were mostly gone (about time, they were there all damn week).


Picked up a copy of the Red Eye as I passed the CTA station. Headed over to the Atrium to sit with Peter and Harris as they were studying for their final.


Me? I did sudoku. They thought I was crazy. But it was economics...and I'm a damn econ major! Come on guys, lets do the math.


The final started a bit after 10:30. 9 short-response questions, of which we are to pick 7. Then two mathematical problems.





I think I rocked it pretty well.



And then...I was done with finals. And I went and got my Mother a gift for Mother's Day!



And all was well...

Frans De Waal on Freakonomics

See the column here

Some interesting tidbits:

"Outside bonobos, there are many other animals that engage in sex even if reproduction is impossible, such as when the female is pregnant, or between members of the same sex. Also here, the sex serves a bonding function, or to signal dominance."
The important thing to note here is that sex, especially in bonobos, serves a primarily social role (IE, building relationships, defusing tension, etc). In fact, it is the primary method by which they DO interact socially. Chimpanzees hit each other with sticks, humans talk, and bonobos copulate like a bunch of horny teens on spring break.

So, we shouldn't be too surprised when we see the phrase "to signal dominance" at the end. However, this begs an interesting question: How exactly DOES sex signal dominance? Is it signaling dominance to the other bonobo, or bonobos who are watching? Does it imply the "r-word?"

And, most disturbing...how does this behavior manifest itself in homo sapiens?

Another thing to note is that the bonobos hardly have an ideal, communist lifestyle: they have social hierarchy, too, even if they don't have open violence.


"When I came to this country, over twenty-five years ago, I was amazed that creationism was still taken seriously, and assumed that it would blow over. It never did, of course. "
Hehehehehe. I just find this funny.



"I actually don’t think the response is irrational at all, but related to the fact that in a cooperative system, one needs to watch what kind of investment one makes and what one gets in return. If your partners always ends up getting a greater share, this means that you’re being taken advantage of. So, the rational thing to do is withhold cooperation until the reward division improves.

This holds an important message for American society which is becoming less fair by the day...I expect the same inequity aversion in dogs and wolves, but not cats (which are solitary hunters, and shouldn’t care much about what others get)."
A lot of anti-market people seem to think that, since people will take a "screw you" approach, it means all the assumptions of capitalism are wrong and that markets are a miserable failure (a violation of the rational maximizer means, for instance, that markets don't work properly because the demand curve won't work).

What's important to note:

1. People ARE maximizing. They are simply maximizing their welfare in a way that is unexpected to an untrained observer. To a person that knows the importance of relationships and the social dynamics of the marketplace and the workplace, no one is surprised when a person who isn't getting paid as much as his peers doesn't work very hard. We also don't call for an immediate government intervention to some supposed market failure.

2. Yep, sometimes we are irrational. It's impossible to admit otherwise. A human is not a perfect rationalizer, otherwise we would all be able to zip through Sudokus in a couple minutes. Every single one of us has developed our own heuristics and algorithms to solve problems. These are the combination of our own genetic code (which is why chimpanzees stop working when they are getting screwed) and the hard years of mental work and experience through our lives (which is why some of us are racists and some of us are hippies). Ultimately, some of these heuristics and algorithms are incorrect and make us do stupid things, like, say, throw rocks at cute girls to get their attention.


"The general rule in primates is that one sex or the other leaves the group at puberty. In many monkeys, the males leave and seek another group. With apes (and overwhelmingly in human societies, too), it are the females who leave. "
Yet, men are pretty mobile these days, too...no?





All in all, a good post on Freakonomics indeed

Day 3 of Finals

Note to Econ Majors: Econometrics is a doozie. Study hard. Especially if you aren't quantitatively inclined, like myself

Day 2 of Finals

Still Breathing!


-Got on campus around 12:30

-Met up with Ahmed and some other friends

-Read my Compensation Management

-Took a Nap

-Took the test

-Read Businessweek

-Went to Jimmy Johns, where students could get free sandwiches if they sign up for credit cards (yeah, screw that, I paid for the sandwich)

-Hung out with some Fraternity members for a while



And they say Finals Week is stressful. I haven't even started talking to myself yet.


I did walk into a wall, though

What I learned from Compensation Management

1. Adam's Equity Theory!

2. Compensation strategy is extremely diverse, as "pay grades" are extremely flexible.

3. Job Analysis sucks. Badly (6 hour homework assignments make me cry).

This man captures my thinking well:

Joe Mathlete doesn't like Facebook:

Reason for deactivating his account:
"Facebook is like a creepy and pointless videogame where people collect every person they've ever met, then waste their time spying on all the dumb bullshit they do all day. I don't care if some moron I went to high school with bought a new iPod, I don't want to play the vampire biting game, and I don't want people I don't care about to know what I'm up to if they're not going to bother asking me with words."



Yep, pretty much. I only keep it for the pictures. And about 90% of my "friends" are also members of Alpha Kappa Psi that I see relatively often anyways.

Sports and musical chairs: Competition vs. Cooperation

One of the big issues I see with wide-eyed college students who have *GASP* actually paid attention in Econ 130 (basic micro and basic macro) is the same issue a lot of people see: they tend to become overly confident in market forces. It's the trend of new students becoming heartless libertarians after they learn about supply and demand!

Heck, anyone who spent time in my Management 350 class knows exactly what I am talking. Almost every single day, an arrogant, confident libertarian would argue with our socialist professor about topics that had nothing to do with the class (it was a class about law and business...they talked about everything under the sun).


The biggest problem is a problem with tools. These students get their basic tools (supply and demand graphs) and they try to apply it to everything. A kid that runs away hammering away on stuff with his new rubber mallet, basically. It's pretty funny, but it doesn't make for good solutions.

That's why most Macroeconomists are Democrats (not me, though)



The biggest problem is the obsession with competition. What's the solution to any market? More competition. What's the problem with any malfunctioning market? Too little competition (probably because of the government. They forget things like fixed costs)

But, the entire economy doesn't revolve around competition and market forces. Who here among us really thinks that markets are the best way to distribute babies? And if you show up to your place of employment, do you think that marketing is going to bid with procurement to use you for that particular day?
Heck no. Both examples are examples of command economies. Every business is an example of a command economy: it's why a lot of socialists think regulation can work, since almost half of the largest 100 economic entities on this planet are corporations.

An example about cooperation vs. competition: Sports. Any sports team where the players are not working together is bound to fail. The best teams are teams where players sacrifice and compliment each other's talents.



And what do people enjoy more? Consider a scenario: we have two groups of people playing two separate games. The first game is musical chairs. There is one less chair than there are people, and the people circle the chairs until music stops playing. The players then try to sit on a chair. The one who doesn't sit on a chair is eliminated.

The other game is a "stack game." All the players try to build a pyramid so that everyone is standing on the chair. Which game do you think people will have more fun with?

This scenario occurred in my high school communications class, and we enjoyed the stacking game a lot more than musical chairs.




On the other hand, it's false to make the assumption that, since cooperation makes people happier and improves productivity, we should all just say "screw the market" and roll out the welcome mat for the commies. Markets support cooperation, too. They support "intelligent" cooperation, namely that we will cooperate as long as you pay me enough.


It's a brilliant combination the market is able to perform. And it's just like a sports team: they have no motivation to work hard unless they have a team to play against.

It just doesn't necessarily work all of the time.

Day 1 of Finals

1. Rocked Econ 329 (wasn't the first to finish because I forgot to multiply both sides of an equation by the same number. It seemed that two firms in one market would be LOSING money when demand was higher than MC)


2. Got my ice cream


3. Ate my Potbelly sandwich. Apparently Potbellys takes orders online now. Kick ass or what?

Grand Theft Auto IV

Now, you too, can get a drunk in a video game!