We Suggest…
The Education Bubble…minus the Education
A lot of people in the US go to college. The rapid growth in demand for higher education has made tuition expenses sky-rocket to almost absurd levels (at private institutions). The strange part about all this growth is that many (most?) college graduates take jobs that do not truly require tertiary education. Many of the jobs graduates get are very intellectually watered down and quasi-clerical. They do not (and, historically did not) require four years of higher education. Economists now are talking about an “Education Bubble,” where the industry has gotten too large to sustain itself and collapses sharply.
But is it really an education bubble? Is the problem that we have too many nuclear physicists out there, becoming mailmen? Many college graduates exit college as experts in nothing; that is, they were not educated. But what are the students doing there then? Mostly nothing. Much of the modern college experience has been boiled down to occasional busy work and partying copious amounts of celebrating. This is not an “education” bubble because it has very little to do with formal education. It has more to do with an unsupportable amount of institutions that have become “diploma mills” and sleep-away camps. Remember, bubble= thing with inflated value…I don’t think the “inflated value” of an education is what concerns me here……….
....POP!
What Businesses Can Learn From The Taco Truck
We have an interesting thing here in Colorado – the taco truck. Literally a box truck outfitted to be a mobile taco kitchen. These restaurants on wheels drive to local business and offer their employees hot, fresh and delicious Mexican offerings right there in the parking lot. Average price per taco? $1.00 Move over taco bell.
But what can big business learn from these enchilada entrepreneurs? Specialization. The taco truck does one thing – make Mexican food. The owners of these trucks offer the same basic foods and turnover product at a very high rate. By moving product quickly, not only does the food gain quality due to its freshness, but also allows the price to be driven way down due to the quick turnover and economies of scale.
In this age of global conglomerates, where the corn producer also makes aluminum wheels, perhaps we can stimulate the economy by using specialization. Focus on one thing, do it VERY well and flip your inventory like tamales. Not only would this improve quality, but drastically increase employment as many niche businesses would pop up to fill the needs of the economy. Image the economies of scale of a business that doesn’t need to retool- they just make one product line to the best of their ability. Like the taco truck, this angle could produce some tasty results.
Specialization- Tasty Success
Recessions and Shark Attacks
According to MSNBC, many economists are saying the recession is “over.” Even Bernanke cautiously stated that it was “very likely” over. But what does “over” mean?
I assume this means economic expansion, rather than continued retraction….which doesn’t mean much. Economists like Paul Krugman have said that recessions caused by financial crises lead to long-lasting damage…the recovery from which may not let the economy “break even” after cyclical swings. Analogically, it is like surviving a shark attack where one of your limbs was bitten off. The doctors may declare that you are starting to “recover,” but that doesn’t mean your getting your leg back…sorry dude.
Dangerous Waters
Elinor Ostrom – First Woman to Win Nobel Prize
More news from the Royal Swedish Academy of Sciences today as the Nobel Prize for Economics was announced. Dr Elinor Ostrom, professor at Indiana University was awarded the prize earlier this morning. Dr. Ostrom is the first woman to receive the prize since its inception in 1968. Dr. Ostrom, along with her co-prize winner Oliver E. Williamson, has done extensive research in the field of economics pertaining to the idea of the commons.
The commons in economic terms refers generally to a shared resource that no one entity can claim as their own property. An easy example is clean air. No entity owns the air, nor can charge for using the resource. The commons often gets cited in referenced in terms of the tragedy of the commons, where the resource is exploited due to its lack of ownership.
Dr Ostrom has applied these theories to work in economic governance in relation to natural resources. Dr. Ostrom has published multiple works on how humans interact with the natural world and have created institutions to protect these common resources. Her work has changed the way private institutions and governments look at their use of these common resources.
Razornomics would like to congratulate Dr. Ostrom and Dr. Williamson on their extraordinary achievement.
More information on Dr. Ostrom
Oliver Williamson and Elinor Ostrom
IEDs or IDEAs?: The U.S. Military Can’t Win this War
President Obama is considering sending more troops to Afghanistan to save it from becoming a “failed state.” But, can the U.S. Military really nation build? It seems like occupying countries only help to radicalize new populations of people…growing the number of potential terrorists. The United States’ military is an enormous, powerful organization that is failing to defeat small, poorly funded terrorist cells. This somewhat clumsy giant accidentally kills civilians and occupies territory that only help make locals very angry. Wars bring destruction of economies and social networks that make people feel like they have nothing left to lose: low hanging fruit for terrorist cell recruiting.
The U.S. military is not, and cannot, be equipped with the tools necessary to defeat International Terrorism. The US is trying to get rid of an ideology, not another army. We are fighting a nebulous enemy that is not even internally cohesive (think cells in Somalia). I think social workers would be more effective in Iraq and Afghanistan than soldiers. The billions spent on these wars could have been allocated to expand (or create) intelligence units with an international scope.
In many (ten? twenty?) years, when US forces are finally gone, cells will continue to operate in Iraq, Afghanistan, and Pakistan. We are fighting an ideology, not a people. Defeating an ideology is a sophisticated task. Essentially, the US has to win the hearts and minds of future recruits so these groups’ memberships dry up.
Are Banks Racist?
I recently saw an interesting, yet entertaining video. Though not on top of the academic hierarchy, YouTube producers “Internets Celebrities” offer a fresh and street level view of problems in a humorous way. Their film Checkmate delves into a problem facing many urban centers: the lack of financial institutions.
The film focuses are the poorest areas of east New York, in Brooklyn. The hosts of the video investigate an interesting concept in the lower income neighborhoods of the city: the lack of commercial banks. These financial institutions do not appear in these areas of Brooklyn. Without the availability of these traditional financial centers, the residents of these neighborhoods are forced into using the outlets available- check cashing centers.
These centers although convenient open a trap for the members of the community. With exurbanite fees that strain paychecks and the lack of an opportunity to build savings, the check cashing services offered in these neighborhoods work to keep the status quo.
The video states that in the more wealthy areas like Brooklyn Heights, traditional banks appear 1 for every 1,000 residents. In the poorer neighborhoods like Bushwick – 1 bank for every 50,000 people. The lack of these centers deprives the poor of creating savings, and gaining access to the numerous benefits of having a bank account. From direct deposit to growing net wealth, deprived of these services the poor will stay poor.
The video discuses however that banks are business, responsible to their shareholders and are not required to open in less profitable areas, which is the basis of sound business practice. My thoughts however are in this age of government bailout, hope and change, why not alter the system? What has happened to the local and regional banks that serviced their residents? Let’s stop bailing out big business and start new business, let’s let people help themselves. With successful programs in micro loaning and community development, why not invest in the neighborhoods themselves? With small, community banks placed in areas in need of a financial center, the residents of those neighborhoods can finally get easy access to the benefits of checking and savings. Let’s stop the debt wormhole and give it a try…what’s to lose?
Check....please?
Liquidity Traps, Moral Hazards, Broken Fractional Reserve Rates….OH MY!
The macro-economy will continue to be terrible until the following things are fixed/addressed:
1) Around this time last year (October 2008), Paul Krugman started to warn about the dangers of the US falling into a Liquidity Trap. In short, a Liquidity Trap occurs in an economic recession when a monetary policy maker is trying to patch things up by cutting rates…and cutting rates…and cutting rates…until finally the rate is close to 0 and there is no where else to go! When this happens, the government has tied its hands monetarily (for the most part). What then? Move to fiscal policy (aka government spending). If that doesn’t work? Pray. This is basically the situation in the US right now. The official position of the Fed as of today is rate will be “exceptionally low” for an “extended period of time” (NYT).
2) I recently went to a presentation by the “Federalist Society” at law school. The speaker, a visiting professor from Kansas, described the moral hazard of bad lending/ finance as “Heads I win, Tails someone else gets stuck with the bill.” (meaning the US government). Under these chances, who wouldn’t take unbelievable risks? THEY COULDN’T LOSE. When understood that way, its not that hard to grasp. I like to call it the “Win-Whatever” problem.
3) Also attributable to that speaker is the broken fractional reserve rate. Basically, this rate dictates how much a bank needs to have on hand in relation to the loans it makes. I believe currently the rate is somewhere around 10%. Maybe this rate needs to be raised to 25% or 50% to make banking less inherently risky…and tighter regulations on securitization of loans (aka chopping up my loans into itsy bitsy pieces and selling them) wouldn’t hurt either.
So…does this mean more regulation is the answer? No, not necessarily. I am sure there are many ways to fix these problems that require cutting rather than adding. Either way, the problems have yet to be seriously addressed.
Obama Wins….Nobel Peace Prize?
This morning the Norwegian Nobel Committee announced that President Barack Obama was to be awarded the Nobel Peace Prize…hum…that’s …shocking actually. While I try to keep my nose out of the dirty business of politics, I’m having a hard time understanding this decision. The peace prize is different from other Nobel prizes in that it recognizes more recent actions. With Obama only being in office for ~9 months, recent has taken on a whole new meaning.
Yes, I understand that Obama certianly has a different approach to diplomacy than President Bush. I do give President Obama credit for sitting down with nations, and listening rather than speaking for a change — but lets not forget: a war in Iraq, a war in Afghanistan, civil unrest over violence in Obama’s home state of Illinois - a faltering economy, 10% unemployment and the list goes on. At this point in time, I’m not feeling very at peace under our elected leader. Now I know you’re saying I’m pessimistic and anti-democrat, take that as you may, but take a look at previous winners ( Al Gore aside) – Martti Ahtisaari, who has worked for decades to resolve international conflict through his position at the UN, and the Grameen Bank ( a personal favorite) for their pioneering work in micro-loans.
I, and am sure many others feel the same way; Thank you President Obama for being diplomatic…but lets save the big prize for those more deserving.
Peace...Love..Obama?
Why the Subway Should Cost MORE
The other day I left class in a hurry to get home, only to find my subway route had been cut off…for hours. Who knows what happened, and I certainly was not going to stand on a stationary train until it was up again. Plus, I had already paid my $2.25 fare….so, like many of my other subterranean peers, I joined the huddle around the subway map to figure out a new route home.
I had to take 4 (5?) trains to get to where I wanted to be that day. I even made a mistake at one point, and had to jump back a stop on the same line. How much did all of this cost? $2.25. The same price as if I would have taken my normal 1 train. In New York, subway transfers cost nothing. And that’s probably a mistake for the MTA.
Why? Well, it parallels the same type of argument that fat people should pay more for flying on planes. The ride on a common carrier should reflect the true cost of the ride. Riding 4 subways to get home costs more than $2.25. If that was my daily, admittedly complicated, way to get home everyday….shouldn’t I pay more than 1-stop-Sally? Of course I should, because my free-riding (literally) costs the system, and therefore everyone, more money.
This would be terribly unpopular, but to incite your outrage, imagine this extreme example: A savvy New Yorker figures that his Bagel-delivery service can use the subway for ALL of its transportation needs. In fact, the delivery guy figures out a way to have other people meet him at terminals to hand-off bagels at one station, and receive them at others (assume this guy has lots of employees all over the City). He only pays $2.25 to transport his bagels all over the city (think Bronx to Canarsie…) ALL DAY. He does this at everyone else’s expense.
I don’t think that number of stops should be factored into the charge, as administrative costs would probably get out of control and eat up savings, but charging for transferring trains would be easier to do, limit abuse by bagel-couriers, and move toward the economic holy grail of “full cost accounting.”
Bagel Anyone?
The NEW Razornomics
Hello Everyone, We’ve re-launched Razornomics – a new look and new posts will be coming your way. Interested in joining the team? Shoot me an email – Info@Razornomics.com
