ECS on Operation Varsity Blues

I, like many of you, have already reached peak saturation in the “Operation Varsity Blues” college admissions scandal. With celebrities, and other members of the elite 1%, paying up to $1.2M to help their children gain admission to their school of choice, it has all the makings of a Hollywood movie. Personally, I am eagerly awaiting the Ben Mezrich book that will eventually come from this story. However, I came across an interesting article by Tyler Cowen that was worth a read. I have included my favorite excerpt below.

First, these bribes only mattered because college itself has become too easy, with a few exceptions. If the bribes allowed for the admission of unqualified students, then those students would find it difficult to finish their degrees…What does that say about standards at these august institutions of higher learning?…Alternatively, you might think it is rather arbitrary who is admitted to any given university, and that many of those denied admission could get through the program competently, even if classes and grading were made harder. 

Personally, I cannot fathom admission to a desired college is worth $1.2 million over State U. Also, the people who can afford to pay this ransom probably have strong personal networks that can be leveraged to help their children. I imagine that former PIMCO CEO Doug Hodge could help his child get a competitive summer internship with a simple phone call. I also imagine that Lori Loughlin, or her agent, could get her daughter an audition without a degree from the USC School of Cinematic Arts.

Please use the comments to share any other novel/interesting opinions on the story. I am hoping somebody will read the entire FBI investigation and come up with an article discussing the market based price of a degree from institutions involved in the story. So far, $1.2M for a degree from Yale seems to highest valued degree.

Rent Control comes to Oregon

A recent WSJ Op-Ed opines on the impact that state-wide rent control will have on the Beaver State and its residents. While I do not question the intentions of state government, I do challenge their methods and expect this decision to make housing affordability worse over the long term. The article highlights Oregon’s “inclusionary” zoning policy enacted in 2017 led to a 64% drop in permit applications to build new apartments. It is my estimation that rent control will also have a negative impact and further suppress the ability to build more housing in Oregon. I think their efforts would be better spent streamlining the permitting process to help increase the housing supply. It will be interesting to see how these policies affect migration to Washington and Idaho.

Tyler Cowen wrote a blog post highlighting the unintended, but not unexpected, consequences of rent control back in 2016.

Mihir Zavery penned a more objective article in the New York Times on February 26, 2019. I share this article because it also includes statements from Gov. Kate Brown.

Marginal Revolution's Top Non-Fiction books of 2018 List

As an aspiring inforvore, I am always on the lookout for non-fiction book recommendations. After coming across Marginal Revolution’s Top Non-Fiction Book of 2018 List, I have added a couple more to my list. I have read and enjoyed Nassim Taleb’s Skin in the Game. Victor Stebestyen’s Lenin, the Man, the Dictator and the Master of Terror is already on my reading list.

Please use the comment section to share your thoughts on any books on the list or to make recommendations for other non-fiction books.

Krugman, Krugman Everywhere

I had mixed feelings after enjoying Tyler Cowen’s podcast episode with Nobel Laureate Paul Krugman more than I expected. On one hand, I found Krugman’s insights to be very thoughtful and more nuanced than his opinions shared in his frequent New York Times Op-Ed column. From listening to him speak, it was clear he is very intelligent and still has the ability to think like an economist when he desires. I am also further disappointed that he uses his written platform for partisan pandering and increasing his popularity rather than stimulating intellectual discourse. Regardless of how you feel about Krugman, the episode is definitely thought provoking and worth a listen.

Bryan Caplan reacts to some of Paul Krugman’s comments in the above mentioned podcast in his recent article to discuss the idea that we, including Nobel Laureate Paul Krugman, hold markets to a much higher standard than we do our own government. He asserts that we criticize markets for imperfections but allow the government to operate as long as it avoids disaster.

I do not think comparing markets to government is entirely fair. Markets have the advantage of being able to make adjustments to real time information as changes are implemented, while government action requires voting, making decisions based on old information, and a significant time lag before implementation. Further changes require repeating the process all over again. Markets can behave more like an outfielder adjusting his course to chase down a fly ball while government action works more like an artilleryman where he has to wait and see where the projectile lands before being able to make adjustments for the next shot.

Please use the comments section to share links to any interesting podcasts/books you are currently consuming.

My Perspective on the Facebook and Cambridge Analytica Story

Since the New York Times/London Observer story regarding the Trump campaign's use of Cambridge Analytica tools to target potential voters broke on March 17th, we have been inundated with news reports, articles, and blog posts about how a Facebook "Data Breach" helped Trump with the 2016 U.S. Presidential election. This story seems to piggyback the recent stories about Russia using Facebook to help Trump win the 2016 election.  My first thoughts were if Facebook can be so easily manipulated to sway elections, why couldn't the Bernie Sanders or Hillary Clinton campaigns, with their more technologically engaged base,  take advantage of the platform. With the amount of media coverage, and no actual data breach, I figured there must be more to the story.

As I read further into the story, it appears that the Trump campaign engaged Cambridge Analytica to help target potential voters with ads on Facebook. Aggregating user data and selling it to advertisers is a regular business practice for Facebook.  In fact, using my google browser and typing the search terms "does Facebook sell your data" I can find many articles dating as far back as 2014 that acknowledge the practice. Also, Facebook is not the only company that sells user data.  Major news networks like CBSNewsweek and ProPublica have been publishing articles about harvesting user data since 2012.  My internal cynic thinks that most of the media coverage and outrage either has to do with the fact that political campaigns are using big data to get votes or that unpopular President Trump benefited from this round.  Contrary to the recent sentiment, consumers often benefit from sharing data with advertisers. We seem to appreciate our data being analyzed when Amazon recommends a book based on previous purchases and when Netflix suggests what TV shows we may enjoy.  

While Cambridge Analytica did not hack into Facebook to obtain user data, their actions were deceptive. Cambridge Analytica was able to obtain data from an individual who went through the appropriate Facebook channels to access the data. While Facebook did not directly give Cambridge Analytica access, it does not seem that Facebook made much of an effort to prevent Cambridge Analytica from using it. Furthermore, Facebook's request to have Cambridge Analytica cease using data and delete it in 2015 shows that Facebook had been aware of how the data was being used and did not take action until the NYT article was about to be released.

My Takeaways

  1. Cambridge Analytica used deceptive tactics to obtain Facebook user data and lied  about their intended use of the data. 
  2. Facebook probably failed to live up to its obligation to protect user data . (I confess that I have not read though Facebook user agreement)
  3. I need to be more consciousness about what apps I allow to view my data.

Interesting Articles on the topic

  1. Cass Sunstein's op-ed implores us not overreact to this news story.
  2. Tyler Cowen's article  discusses how this story fits the larger narrative that "tech fears" are driven by the fear of loss of control.
  3. Leonid Bershidsky's op-ed argues that Facebook's business practices, and not Cambridge Analytica, are the bigger issue.
  4. The Daily Podcast episode walks through psychographic messaging and the mechanics  Cambridge Analytica used to acquire Facebook user data. (for sensationalized, partisan fueled hot takes, take a look at the "Background Reading" below the podcast episode)
  5. Josh Constine's article highlights the impact of Facebook Ad spending during the 2016 Presidential election

As per Metcalfe's Law, the value of networks grow as the size of the networks increases.  The impact of social media will continue to grow as more people become connected. The combination of larger networks and more powerful analytical tools, will enable advertisers to better target their potential users.  When used for good, it will facilitate cooperation to solve problems that stumped previous generations. However, it also enables bad actors to target susceptible victims.  It will be interesting to see how users protect themselves without completely disengaging from social networks.

Please use comments to share other thoughtful analysis of the story or ideas of how we can protect ourselves from being manipulated from similar events in the future.

More than A Bubble?

The recent declines in the US publicly equity markets in response to good US economic data support the argument that quantitative easing and near zero interest rate policy has created a bubble in the US stock prices. There seems to be a consensus that prices will continue to  decline as interest rates normalize.   While I concede that cheap money has been a major driver in the rise in US asset prices, I think there must be other factors at play. Japanese markets have not had the same run up in asset prices, despite similarly low interest rates and quantitative easing.

Tyler Cowen offers a contrarian hypothesis for high US asset prices in his recent Bloomberg article.  He suggests that at least a portion of the rise in US asset prices is due to a lack of alternative financial institutions to store wealth.  According to the Credit Suisse Research Institute's Global Wealth Report 2017, global wealth is up 27% from 2007-2017.  This approximately $60 trillion in new wealth has to be stored somewhere and the US public equity markets have received a large share of invested capital.  I have included an excerpt from Tyler's Article below.

To sum this all up in a single nerdy finance sentence, in a world where wealth creation has outraced the evolution of good institutions, the risk premium may be more important than you think

Mismeasuring the impact of foreign trade

George Mason University economist and author of Marginal Revolution, Tyler Cowen discusses the limitations of using common macroeconomic tools like GDP and GNP to evaluate the impact of foreign investment in one of his more recent blog posts.  

If the main purpose of trade is to increase the number of goods and services available to an individual, consumption based measurements should be a part of the analysis.  I am not sure how trade that enables a consumer to purchase more goods for the same level of spending can be bad for an economy.

Lagniappe: Tyler that discusses how the GOP tax plan and Trump's objective to decrease US trade deficit are seemingly at odds in a recent Bloomberg article