• everyday economics of college ranking

    The Problems With College Ranking

    Oct 5 • Behavioral Economics, Economic History, Education, Labor • 154 Views

    In their newest college scoreboard, U.S. News & World Report placed Princeton at the top, Harvard next, and Yale #3 for the best national universities. Next, I could not resist checking out the “Best Undergraduate Teaching” and found Princeton (#1), William and Mary (#2), and Miami U at Oxford (#3). As for business schools, the top three grad programs are at Harvard, Stanford and University of Pennsylvania’s Wharton.

    You can see below the national universities ranking for the past four years:

    Ranking human capital formation

    From: The Washington Post

    False Precision

    I wonder if we are dealing with false precision. After all, whether looking at colleges or best dressed movie stars or GDP, ranking has to be totally subjective. It all depends on the variables you select, their weight, how you quantify them, your time frame and much more. For the best undergraduate teaching schools, U.S. News & World Report just asked college presidents, deans and provosts. They called it a “peer assessment” survey.

    In an especially excellent 2005 Atlantic article, former Reed College president Colin Diver, detailed the impact of the U.S. News results. Summarizing the downside of ranking while explaining why Reed refused to participate in the process, he took me to a slew of unintended consequences that included an “irresistible pressure toward homogeneity” and the temptation to elevate scores by changing institutional procedures. Meanwhile, he marveled at the quantity of brochures he received from schools hoping to influence the reputational survey he completed annually when he did participate as the Dean of Penn Law.

    By contrast, other critics looked at the surveys themselves. In a 2011 New Yorker article, journalist Malcolm Gladwell showed how survey questions reflect the perspective of the designer and skew the results. Focusing on graduate business school ranking by five magazines, one Forbes writer perfectly illustrated how different questions generate varied results. In one example he explains that Forbes uses the financial gain of graduates after five years as a ranking variable for graduate business schools while U.S. News uses starting salaries. And yet both say they are determining which business school is best.

    Our Bottom Line: Human Capital

    Just like we add to physical capital with new machinery, human capital increases with more education. But where we can best increase our stock of human capital is not as easy to figure out.

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  • The econlife.com Weekly Roundup

    Weekly Roundup: From Marijuana to Multinationals

    Oct 4 • Behavioral Economics, Businesses, Developing Economies, Economic History, Government, Health Care, Households, International Trade and Finance, Macroeconomic Measurement, Money and Monetary Policy, Regulation, Thinking Economically • 107 Views

    Our Posts Roundup

    Everyday Economics on the gender gap Sunday 09.28.14

    Knowing When You are Most Creative…more

    Everyday economics and the benefits of city living Monday 09.29.14

    How to Decide if a City is A Good Place to Live…more

    Everyday economics and Increased demand, less physician supply and a price ceiling for Medicaid explain why we have network inadequacy. Tuesday 09.30.14

    The Reason it Could Take Longer to See a Doctor…more

    Everyday economics and Legalizing recreational pot in Colorado has provided another example of how tough it can be to do economic forecasting for taxes and GDP. Wednesday 10.01.14

    The Problems With Predicting Marijuana Tax Revenue…more

    The banks and insurance companies are financial intermediaries that avoid legal marijuana business. Thursday 10.02.14

    What Happens When a Bank Refuses to Take Your Money…more

    How global firms engage in monopolistic competition Friday 10.03.14

    When Big Multinationals Need to Act Small…more


    Economic Ideas Roundup

    • productivity
    • externalities
    • price ceilings
    • tax revenue
    • economic forecasting
    • financial intermediaries
    • monopolistic competition
    • international trade

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  • How global firms engage in monopolistic competition

    The Reason One Starbucks Can’t Ask Your Name

    Oct 3 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, International Trade and Finance, Labor, Lifestyle • 152 Views

    There is one Starbucks where they don’t ask your name when you order your drink. Rewards cards and phones are prohibited because they might store or convey information. Meanwhile baristas undergo security checks, can only say to friends that they work at a federal building, and have to report anyone who asks them too many questions. Not knowing names, one barista said she associates people’s faces with their drinks, like the “iced-white mocha woman.”

    According to the receipt, this Starbucks is Store #1 (my store is #20167) but some just call it the Stealthy Starbucks. And yes, its location is Langley, Virginia at the CIA headquarters.

    The Langley Starbucks is one example of how a global chain has to have a local link.

    Just opened in July, Starbucks’s first store in Colombia will sell only locally sourced beans. In Great Britain, recognizing people were happy to take their coffee and run, Starbucks needed more drive-throughs. The opposite was true in France where customers liked to “sit and sip” an espresso that tasted less “charred.” Responding, Starbucks added a blonde roast espresso to the menu and more seats.

    In China, Starbucks is catering to a tea-drinking culture where one customer said, “…the coffee is so bitter it tastes like Chinese medicine.” As a result, through drinks like Black Sesame Green Tea Frappucino, they obscure the coffee taste with milk, sugar and foam. Similarly, in India, Starbucks’s food offerings include the Reshmi Kebab Roll and spice infused Chai Tea Latte but also locally sourced coffee and a Classic Breakfast Chicken Sandwich.

    We should add though, that Starbucks India initially had problems going local as has Starbucks Australia.

    Our Bottom Line: Competition

    Even on a global scale, successful firms recognize what monopolistic competition requires.

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  • The banks and insurance companies are financial intermediaries that avoid legal marijuana business.

    Marijuana Money Problems

    Oct 2 • Economic History, Economic Thinkers, Financial Markets, Government, Lifestyle, Regulation • 119 Views

    Medicine Man, a legal Colorado marijuana business, paid one month’s state taxes in a bag filled with cash. Totaling $122,000, the money could not be paid through a checking account because Wells Fargo had closed Medicine Man’s account. Instead, armed guards from the Blue Line Protection Group made the delivery to a state office.

    Banking Problems

    Marijuana dealers’ relationship with banks is fragile. Nervous because marijuana is illegal under federal law, the Bank of America, Wells Fargo and others like them have closed marijuana-related accounts. Even after the U.S. Treasury said in February that marijuana business accounts would be okay if guidelines are observed, still the banking industry is saying no. Correspondingly, a statewide initiative to create a local banking network has also had little effect.

    Where are we going? To the importance of financial intermediaries.

    Think about what it means when a bank won’t let you open an account. No checks, savings, loans and debit cards. One business owner said she was buying money orders at 7-Eleven to pay her bills. Her revenue is in cash. She spends a lot of time on cash management.

    Insurance Problems

    Similarly, getting insurance has been tough. Like the banks, most insurance companies are avoiding anything that the federal government says is illegal and also explain that pricing risk is difficult for new industries like marijuana. As a result, according to Bloomberg, business is booming for the “handful” of companies selling insurance to the marijuana industry…especially I suspect in Washington where liability insurance for legal marijuana dealers is a state mandate.

    Some Financial History

    During the nineteenth century, the U.S. banking industry evolved. Starting with Alexander Hamilton’s First National Bank in 1791, gradually, a network of financial intermediaries evolved. The goal was to connect savers and borrowers, to get money circulating, to let businesses borrow and expand. By the end of the century, we had investment banks able to gather the huge money they needed to finance railroad building and massive business combinations like U.S. Steel. Meanwhile, insurance companies were accumulating the assets that meant they too were becoming financial intermediaries.

    The Bottom Line: A Financial Infrastructure

    Like blood circulates life-supporting nutrients around the human body, so too does a financial infrastructure bring sustenance to businesses—sustenance that is unavailable to Colorado’s marijuana dealers.

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  • Everyday economics and Legalizing recreational pot in Colorado has provided another example of how tough it can be to do economic forecasting for taxes and GDP.

    Dude, Where’s My Tax Revenue?

    Oct 1 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Growth, Government, Health Care, Lifestyle, Macroeconomic Measurement, Regulation • 292 Views

    When you legalize marijuana, there’s a lot you cannot predict.

    Inaccurate Tax Projections

    One reason that Colorado voted to legalize recreational marijuana was the tax revenue. The pro-marijuana lobby even had a jingle: “Jobs for our people. Money for schools. Who could ask for more?” Projecting $100 million in taxes with the first $40 million going to school construction, legislators expected a revenue bonanza. Even with a 30% tax rate, they seemed to think demand would be inelastic.

    But legislators were surprised. The black market was still active and medical marijuana, with its lower tax rate, had booming sales. Consequently, between January and June 2014, Colorado’s coffers received 46% of the marijuana tax revenue projected by the group that advises the legislature.

    Now though, with recreational sales climbing and medicinal marijuana seeing less demand, tax revenue might increase. But no one is saying $100 million.

    Economic forecasting marijuana tax dollars is difficult.

    Incomplete GDP Numbers

    Curious about whether legal pot production in Colorado is included in national GDP totals, I called the phone number listed on the press release. So, I was pleasantly surprised when Lisa Mataloni answered the phone—no voice mail, and no hierarchy to climb through to get a person. Her answer was that marijuana will be counted if and when marijuana businesses are among those surveyed by the BLS for GDP data. She implied that right now, they probably have not yet trickled in.

    So, although GDP is our record of the goods and services we produce, marijuana is not included.

    Our Bottom Line: Economic Forecasting

    Unpredictable human behavior makes economic forecasting more of an art than a science. (That takes us to behavioral economics but you can read about that here at econlife.com.)

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