American University Problems

Why are American Universities so expensive? Why do the costs of learning something after high school grow twice as much as just about everything else?

The Economist has an interesting article on problems with higher education: http://www.economist.com/node/21541398 

They get the problem half right. Universities are focused too much on research and not enough on teaching, but the cause is less about Ivy League envy and more about money. I attended two schools that sit firmly on the shelf just under the Ivies (Vanderbilt and the University of Rochester). I assure you, no one aside from the truly delusional school-lovers, has Harvard or Stanford in their sites. 

What both these schools do see is a higher education system that ranks administrators at the department and school level based on the size and scope of their operation. A University President is rewarded (paid) for essentially three things: increasing the endowment, increasing the size of the university (in dollars, scholars, etc.) and treading water on the US News list. 

Incentives: What's good for you isn't always good for me

The financial crisis; no playoffs in college football; teachers cheating on standardized tests; the accelerating income gap between the rich and everyone else; America's poor healthcare results and expensive costs. What do all these things have in common? They were caused by the same thing: poorly aligned incentives.

Incentives are the primary reason people, and just about all other living things, behave in a particular way: offer a child a cookie to clean his room; he cleans the room because he wants the cookie! easy-peasy. Unfortunately, most things are not so easy.

Take, for example, health care: your doctor can maximize his income, keep his multiple country club memberships and get his wife that new Mercedes S-class, not by providing the best possible care, but by ordering the maximum number of procedures, in the optimal sequence, at profit maximizing time intervals.

For instance: a parent calls a pediatrician about a child with an ear infection. Both parent and doctor are very familiar with the child and confident in the diagnosis. The doctor has two choices: (1) immediately call in a prescription for an antibiotic because she has seen the parent and the child many times, is familiar with the case & symptoms and both of you are certain that this will be the first course of treatment; or (2) have a nurse answering service take the call, insist the parent bring the child to the doctor's office, examine the child, conduct two (rapid and standard) strep-throat tests, and order a follow-up visit in greater than or equal to 14 days.

Take a wild guess why the answer is always 2.

When you look around the world it begins to make sense. When a decision maker has different incentives than those impacted by the decision, bad things can happen: CEOs pad their own pockets; money managers have portfolios that look more like gambling than investing; Atlanta school teachers change answers on third graders' tests; the list goes on and on.

If we can figure out ways to do this better; to ensure that what's god for that doctor is also what's good for the patient and society in general, we'll be a lot better off.

Are there two types of Unions?

I wonder if there are two types of unions.



I think of good unions as almost outsourcing companies. They recruit, train and police their membership, ensure they provide minimum levels of service and attempt to "win" business by providing higher quality work than non-union workers. The good unions don't have adversarial relationships with the companies they partner with because they understand that the success of those businesses is what keeps their members working. When I think of good unions I mostly think of construction trades like painting, carpentry, pipe fitters...



The bad unions are almost the antithesis of the good unions. They are virtuallly always adversarial with the management of the companies their members work in. Rather than looking like an outsourcing businesses, they try to take over the business from within. Change is their enemy. They view negotiations as zero-sum games, where their only objective is to take as much of the pie for their members as possible. Think UAW, teacher's union, CWA...



Sometimes good unions evolve into bad ones. I haven't rounded out my thinking on this quite yet... but it makes one wonder: what circumstances are the catalysts for turning "good" unions into "bad" ones? Or, am I all wrong about this...

There is No IQ Test For Congress

Well, my great state of Georgia has again distinguished itself. Rep Paul Broun, from Athens, has, in the same statement, called Barrack Obama a Marxist and compared him to Hitler. What an idiot...