£9,000 for a Zoom call???

An issue I believe needs to be addressed, if we are to move forward with a more productive and egalitarian society, is that of higher education. The model we have currently has been subverted to only truly serve, or arguably exploit, the middle class. Getting into a top university is about as good of a guarantee of future prosperity, that any individual could get. Outside the top institutions, there is a whole second tier of institutions, whose primary source of profit derives from the illusion that the degree they offer carries the same prospects as that of the elite institutions. This is not a reflection on the quality of teach at any particular institution, though it would be naive to not acknowledge the caste system which is higher education in the western world. Such a business model is fundamentally flawed before you even factor in the costs and exclusivity elements.

The total cost of higher education has seen unprecedented cost inflation in the past 25 years. Alongside this there has been little innovation, in fact, there could be an argument that if the disruption caused by the internet, drastically expanding peoples access to information, was removed, the product today is of lower quality. Universities have grown their endowments, charged increasingly higher fees and found new ways to monetise their products without significantly increasing the number of individuals they educate, not a positive for society as a whole. The sad irony of the college admission scandal of 2019, is that it did not involve every parent who pays to insure their child gets into a top university, just those who’s cheques were too small to disclose publicly. Hundreds of thousands won’t cut it, you have to be in the seven-digit plus range to get your kids in through the front door of a top university. Though the US offers the most blatant example of cost inflation, the top UK institutions are not far behind – practices such as priorities applications from foreign students, insisting students do not have part-time jobs whilst studying, charging exorbitant rents all contribute to ensuring that the money keeps rolling in. Though these policies do not deliberately discriminate against potential students from poorer backgrounds we cannot deny the effects
they have. 

Exclusivity has become the addiction of top universities, with institutions boasting about their low acceptance rates. This obsession with exclusivity’s has led to universities positioning themselves more like luxury brands than centres of knowledge. Nobody has bothered to explain to admission offices that the exclusivity cultivated by luxury brands is more marketing than reality. Rolex will sell you a watch, they may put you on a waiting list for a short while, but you will always get a watch. The same could not be said for the world’s top educational institutions. With Harvard’s $40 billion endowment fund they could easily afford to build a second campus in California “Harvard West”. Spending just over 10% of the fund they could construct something with the scale and ambition of Apple Park, a modern campus which would help maintain the brand value of Harvard whilst allowing them to double the number of student places. If top universities prize their brand value over that of their ability to educate, which would be a sad state of affairs, they maybe could look to companies such as LVMH (2400 stores worldwide) or Hermes (307 stores worldwide) who still manage to maintain an aura of exclusivity, whilst simultaneously making an effort to meet demand. 

The breaking point may come after COVID-19. The prospect of university campuses welcoming back students in the autumn is looking increasingly remote. As does being able to market a web-portal of video lectures and online chat support as a luxury product, costing in some instances more than the median national wage. Students may be more inclined to take a year out, this may mean those who do not have a place at a top school reconsidering the costs and benefits of studying at a second-tier institution. This scenario playing out in tandem with a drop in the number of foreign students, particularly from an increasingly nationalist China, may be the point some institutions choose to break with the rest and look to adopt a new business model. Any new business model may ironically be helped by a global recession, forcing more people back into education. This would open up opportunities for enterprising institutions to take what they have learned during this current crisis and craft quality distance learning packages at competitive prices. These may not be initially be focused on new undergraduates but could instead be courses aimed at those looking to re-skill due to losing their job. 

A sector which has shown complacency, disinterest in meeting demand whilst simultaneously raising prices out of line with inflation is wide open for disruption. Perhaps the true threat to the system would be that of the institution(s) that break from the current model teaming up with one of the big-tech firms. The thought of what Google, Apple or Microsoft could do in partnership with a reputable university is tantalising. Big-tech firms already dedicate considerable resources to talent recruitment, mainly from the top tier schools, the ability to vertically integrate these costs may be enough temptation on its own. However, the market size, returns to scale and positive externalities such a partnership would offer a big tech firm can not go overlooked. The top names in the field are going nowhere but education is a business and with any business, disruption is inevitable. 

Friday Reading

Below is a selection of articles I have found interesting and or relevant this week. COVID-19 is a very strong theme apologies, please try and enjoy.

• Will the coronavirus make the digital divide worse?

This short piece by Tyler Cowen highlighting the issues of digital inequality in light of COVID-19

• This is the end of the office as we know it

By Rani Molla for Vox, This article explores offices in the age of social distancing. This article highlights the two obvious changes: more people working from home and greater separation inside of office buildings. One thing that came to mind whilst reading this was what if any impact this may have on smaller regional cities. With office space in New York, Tokyo, San Fransisco and London already in short supply (and commanding high rents) if office work is going to remain the norm will companies start to look at alternative cities where space is more available / affordable?

• Is Private Equity having its Minsky Moment?

Excellent essay by Matt Stoller, charts the murky history from which the modern day private equity firms have grown. It highlights possibly the biggest financial bomb COVID-19 could set off. If things were to come crumbling down the pieces presents relevant and balanced scenarios to considers.

“The Fed can’t ultimately can’t print a functional economy. And at the end of the day, no matter how many games you play with debt loads and capital structures, firms have to have customers, and people can only be customers if they have income.”

Extra spice is added by this being a US election year. Prominent Democrats have been criticising and calling for legislation, to curb some of the worst practises of PE firms, it was hard to see the big PE firms avoiding the spotlight. COVID-19 has just made things a lot more interesting.

• China’s Economy Shrinks, Ending a Nearly Half Century of Growth

Keith Bradsher writing in the New York Times. It used to be said “when the US sneezes the world catches a …”, perhaps not the best analogy here. Societally though it should not be underestimated how Xi Jinping (and previously Hu Jintao) success as a leader has been based on the loyalty and cooperation gained by delivering year on year rises in living standards, driven by superb economic growth.

• NHS staff told ‘wear aprons’ as protective gowns run out

Where are the good Burberry?

• Mediations in an Emergency

Beat Poetry by Frank O’Hara, the title seemed fitting for these times. A positive of social distancing and shelter in place is a new found love of poetry.

Pandemics in the long run

The law of supply and demand is one of the first thing you learn in economics. Mastering this basic concept is probably 80% of the economics you need to understand the modern world. The second concept that is required is that of capital and labour, the two groups that form the basis of a capitalistic model of an economy. A recent paper by Òscar Jordà,  Sanjay Singh and Alan Taylor [link] looks at the historical effect pandemics (and major wars) have had on economic activity, in the decades following. The paper is well worth reading and makes some interesting observations.

The headline finding is that the effect of pandemics, on investment returns can be felt for around 40 years after the event. The paper also finds evidence of wage rises in the aftermath, this assumes the logic of labour scarcity due to the greater loss of life caused by a pandemic (supply and demand). Also studied by the researchers were the effects of major wars, they found that these did not have the same effect on investment returns, presumed to be due to destruction of capital (think bombed factories) that require rebuilding when the conflict is over. The logic in the paper is sound, however, by their own admission Pandemics are rare events and the data is far from extensive. A few observations I made after reading the paper:

1. This is arguably the first true global pandemic the world has faced with modern global healthcare infrastructure. Researchers were working with digital sequences of the virus (released by the Chines government) before any confirmed cases in western countries [1]. This more coordinated response should hopefully lessen the death toll, hence lessen the labour shortage post-pandemic.

2. Though no physical destruction of capital will occur. Post pandemic there are going to be questions raised regarding the medical preparedness of countries, particularly western countries who’s hospital systems and medical supply chains were found lacking in certain areas. Healthcare spending in the USA is already 17% of GDP [2] it would not be a surprise if this were to increase post-pandemic due to public pressure. Also opening a factory producing N95 masks somewhere close to London is looking increasingly to be a viable business opportunity.

3. The only mention of potential behavioural impacts is that of the individuals’ propensity to save. The social impacts of this pandemic are yet to be seen, this is the first time in modern history there have been nations on lockdown. People are having to find new ways to live, work and socialise. There is also an argument to be that this is a time of great reckoning, especially when you consider it is coming alongside drastic changes in the political order in many western countries [3].

4. Finally is that there is an argument we have been living for too long with the balance between capital and labour drastically tilted [4]. The strength of capital and its abundance has allowed for the creation of unsustainable business models. The economics of an Uber ride consists of you the user effectively receiving a travel subsidy from Saudi Arabia, who are willing to do so, due to fact a small group of programmers, in California, have worked out a system that effectively lets them subvert minimum wage and local tax laws. Billionaires supporting millionaires. The economics underpinning much of the modern gig economy does not make sense. Yet this pandemic has exposed how much we rely on such services. Post-crisis if there is a rebalancing, meaning workers in these industries receive a more appropriate wage this may drain the excess of capital which is arguably surpassing normal returns and distorting markets.

 

1. David Heymann & Nahoko Shindo, COVID-19: what is next for public health?, The Lancet (2020)

2. Ryan Nunn, Jana Parsons & Jay Shambaugh, Economics of the US Healthcare System, The Hamilton Project (2020)

3. Dan Roberts, Trump, Brexit and demand for change: the year of the political outsider, The Guardian (2016)

4. Wolfgang Streeck, Buying Time: the delayed crisis of democratic capitalism (2017)

You are (probably) not an epidemiologists

 

Being wrong on the internet often does not come with many consequences, arguably some people have made a living off it. The ability to self publish and receive immediate feedback can be somewhat intoxicating. This intoxication can fuel what Daniel Kahneman referred to as “the most significant of cognitive biases” – Overconfidence Bias [1]. A classic example of this is the study by Ola Svenson in which 93% of American drivers claimed to better than average [2]; statistically impossible. In real life overconfidence has a track record of getting people into trouble, one only has to look back to the 2008 financial crisis to see examples of some of the supposed “smartest” people in the world getting things monumentally wrong [link]. Coming across the tweet below by Robert Grant made think about overconfidence bias in the response to the COVID-19 pandemic.

In the middle of a pandemic, knowledge is in short supply. The other thing seemingly lacking is the realisation of what we don’t know. This is perhaps no better exemplified then Jared Kushner reportedly takings a leading role in the USA response to COVID-19 [link]. Anyone who has been tasked with leading Middle East peace negotiations, who then adds solving the USA’s opioid crisis and coordinating the response to a pandemic to their job portfolio, at best is exhibiting overconfidence boarding on delusional. Especially if that persons previous job qualifications were that of a property developer who has a questionable reputation [link]. Psychology has a term for this, the Dunning-Kruger effect [3]. This cognitive bias in which people with low ability in a task struggle to recognise their lack of ability in said task. 

Dealing with an issue as highly emotive and serious as a pandemic I believe it is an area where caution is better than bravado. Sharing and commenting on the internet usually has little consequence but in this area, the spread of misinformation, myths and noise has the potential to be deadly. Let’s all follow the lead of Robert Grant and acknowledge that being a true expert is not only knowing stuff, but also recognising what you don’t know.

Being aware of your own overconfidence and the Dunning-Kruger effect may help you make more informed decisions not only in life but also when attempting to deal with the barrage of news and opinions we face daily, both online and in real life. Now more then ever this could be a life-changing skill. The evidence shows that knowledge alone can not protect us from overconfidence, in fact, there is evidence to show it can make us more prone, a more practical heuristic to use is to ask yourself “what if I’m wrong?” and when it comes to pandemics “am I an epidemiologists?”

 

 

1. Daniel Kahneman, Thinking Fast and Slow (2011)

2. Ola Svenson, Are We Less Risky and More Skilful than Our Fellow Drivers?, Acta Psychologica (1981)

3. Justin Kruger & David Dunning, Unskilled and Unaware of It: How Difficulties in Recognizing One’s Own Incompetence Lead to Inflated Self-Assessments, Journal of Personality and Social Psychology (1999) 

A brave new world

 In the Midst of Chaos, there is Opportunity ~ Sun Tzu

At the time of writing this entry, there is much unrest and uncertainty in the world due to the COVID-19 pandemic. The reports are putting global deaths at currently over 120,000, a figure which is grimly rising by the day. Though the immediate death tole is tragic, there is the potential for even longer term misery; with the IMF forecasting global economic activity contracting 3 to 11%, rivalling the Great Depression post-1929 (link). If this prediction were to come true and the economic policies post, are the same as those pre-pandemic, the suffering could be arguably greater than that brought directly by the virus. 

Taking an optimistic view, there is an argument that this pandemic may be the catalyst for a new economic revolution with the implementation of new ideas and polices fitter for the 21st century, than those which can trace their evolution back to the industrial revolution. Fresh economic ideas that look to solve some of the biggest issues facing society today: climate change, inequality, lack of opportunity and the growing mental health crisis.

The opportunity in chaos quote I believe is apt for the situation the world is currently in, that is why I have decided to start this blog*. A mission statement, I believe, is too grandiose a term to apply to a blog. However, I do believe in having a plan. The plan for bounded rationality is to focus on economics and business, in particular how things are changing (or not), post-COVID-19. Here is hoping the future contents of this blog are more positive than negative. 

 

* That and having spare time to fill due to the government imposed lockdown. 

The B word.

* Previously posted to medium.com/@joncallum/ *

2017 marks the year my male privilege became blatantly apparent. A little background, I am aware of gender equality issues: The wage gap, gender-based violence, lack of women in prominent leadership roles, etc. I have been a keen supporter of movements to bridge the gender gap and have seen progress in my lifetime. As a somewhat educated millennium male, I never felt my gender gave me any significant privilege, being brought up with ideas of respect and equality, I have never knowingly exercised any inherent privileges I may have. That was until the revelations around Harvey Weinstein and other prominent men in positions of power. Discovering that certain men like to expose their penis to women was shocking, not the specific act itself, I am aware of the creepy guy in a dirty beige trench coat stereotype, but how often it went on in “real life” with “normal” guys. How men abuse their power and influence to: coerce, disturb and manipulate women for their own ends.

Discussing this with my female friends and discovering that this is not an uncommon event has had a profound effect on how I see gender equality issues. Linking with another phrase that came to prominence in recent years: “Locker room talk”. Linking the two together I can now see that some of what I have heard in conversations was potentially not a joke or brag made in bad taste, but rather an admission of inappropriate behaviour. An example of just how much society is de-conditioned to this type of language can be seen in the election of Donald Trump, who was caught on tape a month prior to his election engaging in exactly this behaviour and then using the term locker room talk as his excuse. This can be contrasted to when people have been caught on tape making racist remarks, leading to them losing their jobs and in most cases ending their careers.

Looking at gender equality and racial equality, however does provide hope for the future. The history of human society shows the continual march of progress. Where violence, bloodshed and genocidal acts were once celebrated as the height of civilisation (looking at you Julius Caesar), today we look back at these events as historical curiosities. A public hanging used to be a day out for the whole family. Up until 1789, burning at the stake was considered a civilised form of punishment for a woman, due to her being able to keep her clothes on during the execution. Before 1863 slavery was widely considered normal in the United States. The suffragettes and later the civil rights movement radically reshaped both countries social landscape in the 20th century. Today we live in a much more equal and tolerant society, then we have ever had before, yet we still have a long way to go.

The #MeToo movement has opened my eyes to the scale of the bullshit women have to navigate in modern life, as well as making me question how I could be so unaware. There are many areas where we need to make progress for true gender equality to exist. However fundamentally I believe we have to prioritise respect. Without respect for each other as human beings equality will never be achieved. This is why I am committing to never using the “B-word*” again. I’m also committing to challenging anyone else I hear using it. I hope that in five years time (or preferably sooner) we will allude to the “B-word” in the same way the “N-word”. Language is an incredibly powerful tool and helps shape how we see the world. In the same way, dismissing crass and disgusting comments as “locker room talk” is a way of normalising and justifying inappropriate behaviour, throwing around gender-based slurs as insults entrenches inequality.

This may seem a small thing and I think my responsibilities as a man extend beyond this small act. I would encourage everyone to educate themselves on gender equality issues, canvas a variety of opinions, listen, respect and attempt to understand their viewpoints. Change can only be achieved through action. Starting with a simple commitment to change remove words from the day to day lexicon may seem small, but it is a start on shifting perspectives. I hope when we look back on ourselves in 20 years time history will judge us as harshly as they judge those who dropped the “N-word” casually into conversation.

Footnotes :

  • The “B-Word” is used here to represent a catch all for gendar slurs as it is the most common word acceptably in modern society.
  • This article is aimed at all men from across the world, however it is written with a western, english speaking bias. I am not ignorant of other injustices and challenges present around the world, however I have opted to focus on the societies for which I am a part.