Is an MBA really worth the money?

The Economist challenges the conventional wisdom on the usefulness of an MBA education:

When you look at today’s most evolved business organisms, it is obvious that an MBA is not required for business success. Apple, which recently usurped Microsoft as the world’s largest technology firm (by market capitalisation), has hardly any MBAs among its top ranks. Most of the world’s top hedge funds prefer seasoned traders, engineers and mathematicians, people with insight and programming skills, to MBAs brandishing spreadsheets, the latest two-by-twos and the guilt induced by some watery ethics course.

In the BRIC economies, one sees fortunes being made in the robust manner of the 19th-century American robber barons, with scarcely a nod to the niceties of MBA programmes. The cute stratagems and frameworks taught at business schools become quickly redundant in the hurly-burly of economic change. I’ve often wondered what Li Ka-Shing of Hong Kong or Stanely Ho of Macao, or Rupert Murdoch, for that matter, would make of an MBA programme. They would probably see it for what it is: a business opportunity. And as such, they would focus on the value of investing in it.

They would look at the high cost, and note the tables which show that financial rewards are not evenly distributed among MBAs but tilt heavily to those from the very top programmes who tend to go into finance and consulting. Successful entrepreneurs are as rare among MBAs as they are in the general population.

They would think to themselves that business is fundamentally about two things, innovating and selling, and that most MBA programmes teach neither.

I must disagree with The Economist here. An MBA may not be required for business success, but it does pay more. According to Payscale.com, the average MBA salary is about 45% higher than the average Bachelor of Arts salary. Where you get your MBA does matter a lot, though. For example, the average Duke University MBA pays 80% more than the average University of Phoenix MBA. Also, while it doesn't take an MBA to be a successful entrepreneur, few people are actually entrepreneurs (and few entrepreneurs are actually successful).

Robert Shiller interview

Americans ridding themselves of debt

After a splurge of consumption and debt that accompanied the housing bubble over the past decade, Americans are finally weening themselves off household debt.

This graph shows household debt service payments as a percentage of disposable income:


This graph shows household financial obligations as a percentage of disposable income:


And here is a likely cause of the decline of household debt. The personal savings rate has doubled since the financial crisis began, although it's still half of what it was in 1980.


Luckily, the decline in household debt isn't simply being offset by a rise in the national debt. Oh. Wait. Here's the U.S. budget deficit as a percentage of GDP:

The racist origins of the Davis-Bacon Act

From an interview and biography of George Mason University economics professor Walter Williams:

Mr. Williams distinguished himself in the mid-1970s through his research on the effects of the Davis-Bacon Act of 1931—which got the government involved in setting wage levels—and on the impact of minimum-wage law on youth and minority unemployment. He concluded that minimum wages caused high rates of teenage unemployment, particularly among minority teenagers. His research also showed that Davis-Bacon, which requires high prevailing (read: union) wages on federally financed or assisted construction projects, was the product of lawmakers with explicitly racist motivations.

One of Congress's goals at the time was to stop black laborers from displacing whites by working for less money. Missouri Rep. John Cochran said that he had "received numerous complaints in recent months about Southern contractors employing low-paid colored mechanics." And Alabama Rep. Clayton Allgood fretted about contractors with "cheap colored labor . . . of the sort that is in competition with white labor throughout the country."

Today just 17% of construction workers are unionized, but Democratic politicians, in deference to the AFL-CIO, have kept Davis-Bacon in place to protect them. Because most black construction workers aren't union members, however, the law has the effect of freezing them out of jobs. It also serves to significantly increase the costs of government projects, since there are fewer contractors to bid on them than there would be without Davis-Bacon.

Wikipedia has more on the Davis-Bacon Act here.

Weird FedEx shipping routes, part 2

I'm expecting a package today. It's flying from Bethlehem, PA to Washington, DC, which are not too far apart. Instinctively I thought, "That will be a quick trip." I was shocked, then, to find out that the package is now in Memphis, TN, which is farther from the point of origin than I am. I got worried, thinking the package might be lost, but then guessed it's just part of FedEx's hub-and-spoke system. Boy is it ever! Watch the video:

Everything goes through Memphis! It's the FedEx SuperHub! Apparently, one single super-hub is more efficient for sorting packages than multiple smaller hubs. Memphis is an ideal shipping hub because it's an inexpensive city not too far away from the United States mean center of population.

I have an earlier post on weird FedEx Ground shipping routes here.

Mark Zuckerberg: Billionaire and renter

So, you built Facebook into one of the most popular sites on the web. You're a billionaire. What do you do with your piles of money? Rent, of course.

Mr. Zuckerberg isn’t ready to build a massive estate similar to many other tech titans’ homes. He doesn’t even want to be a first-time homebuyer – or leave the neighborhood. According to Gawker, Zuckerberg’s new home is another rental in the College Terrace area just seven blocks away from his old house. ... Now, Zuckerberg resides only a few steps away from Facebook Headquarters.

In this housing market, all the smart people are renters!

2011 will be peak year for foreclosures

RealtyTrac predicts 2011 will have the most foreclosures since the housing crisis began in 2006:

The bleakest year in the foreclosure crisis has only just begun.

Lenders are poised to take back more homes this year than any other since the U.S. housing meltdown began in 2006. About 5 million borrowers are at least two months behind on their mortgages and industry experts say more people will miss payments because of job losses and also loans that exceed the value of the homes they are living in.

"2011 is going to be the peak," said Rick Sharga, a senior vice president at foreclosure tracker RealtyTrac Inc. The firm predicts 1.2 million homes will be repossessed this year.

The blistering pace of home foreclosures this year will top 2010, when a record 1 million homes were lost, RealtyTrac said Thursday.

Even if the number of foreclosures starts declining in 2012, it will remain above the historic norm for several years to come.

CNBC: Housing is in a depression

The fall in housing prices over the past five years is greater than during the Great Depression:

In the past few years, we’ve all been careful to choose our words carefully, not calling it a recession until it fit the technical definition and avoiding any inappropriate use of the “D” word — Depression.

Things were bad but the broader economy never reached Depression territory. The housing market, on the other hand, just crossed that threshold.

Home values have fallen 26 percent since their peak in June 2006, worse than the 25.9-percent decline seen during the Depression years between 1928 and 1933, Zillow reported. ...

What’s worse, it’s not over yet: Home values are expected to continue to slide as inventories pile up, and likely won't recover until the job market improves.

How Asian-American parents raise successful children

On average, Asian-Americans outperform other races in both educational achievement and income. For example, according to the U.S. Census Bureau, Asian-American adults are much more likely to have bachelor's degrees than whites or blacks. In 2003, 49.8% of Asian-Americans over age 25 had bachelor's degrees, compared to 27.6% of whites and 17.3% of blacks. Also according to the U.S. Census Bureau, in 2008 Asian-Americans had per-capita incomes of $30,292, whites had per-capita incomes of $28,502, and blacks had per-capita incomes of $18,406.

The habits parents instill in their children influence educational achievement, and thus future income. So the question is: How do Asian-American parents tend to raise their children differently? Although stereotypical and controversial, an article by an Asian-American mother explains how some Asian parents raise their children differently than Western parents:

A lot of people wonder how Chinese parents raise such stereotypically successful kids. They wonder what these parents do to produce so many math whizzes and music prodigies, what it's like inside the family, and whether they could do it too. Well, I can tell them, because I've done it. ...

My Western friends who consider themselves strict make their children practice their instruments 30 minutes every day. An hour at most. For a Chinese mother, the first hour is the easy part. It's hours two and three that get tough. ...

What Chinese parents understand is that nothing is fun until you're good at it. To get good at anything you have to work, and children on their own never want to work, which is why it is crucial to override their preferences. This often requires fortitude on the part of the parents because the child will resist; things are always hardest at the beginning, which is where Western parents tend to give up. But if done properly, the Chinese strategy produces a virtuous circle. Tenacious practice, practice, practice is crucial for excellence; rote repetition is underrated in America. Once a child starts to excel at something—whether it's math, piano, pitching or ballet—he or she gets praise, admiration and satisfaction. This builds confidence and makes the once not-fun activity fun. This in turn makes it easier for the parent to get the child to work even more. ...

Chinese parents can order their kids to get straight As. Western parents can only ask their kids to try their best. ... Chinese parents demand perfect grades because they believe that their child can get them. If their child doesn't get them, the Chinese parent assumes it's because the child didn't work hard enough. ...

As a parent, one of the worst things you can do for your child's self-esteem is to let them give up. On the flip side, there's nothing better for building confidence than learning you can do something you thought you couldn't.

People tend to enjoy things they're good at, and people get good at what they practice a lot. If you want your children to excel, make them study and practice consistently for extended periods of time.

The three hours per day of musical instrument practice that the author mentions fits with research that says it takes a total of 10,000 hours of practice to become a world-class expert at any given skill. Three hours per day would be roughly 1,100 hours per year, or 10,000 hours in nine years. By comparison, at only 30 minutes of practice per day it would take 55 years to become a world-class expert.

"C'mon, trust us. We're a bank!"

Apparently, in Massachusetts banks now have to prove they hold the mortgages before they can foreclose:

The Massachusetts high court ruled on Friday that two foreclosures are invalid because the banks could not prove they had the proper paperwork to foreclose.

The banks "failed to make the required showing that they were the holders of the mortgages at the time of foreclosure," Justice Ralph Gants wrote for the Massachusetts Supreme Court.

This could be a harbinger of things to come because it is the first ruling by a state high court on the issue of whether banks can foreclose on homeowners if [they] can't prove they hold the mortgages.

There goes my get rich quick scheme—Start a bank and then just start foreclosing on any house I darn well please. Luckily, this only applies to Massachusetts. If I start a bank in DC, I bet the Clinton's home could fetch a pretty penny!

A reminder of why Wikileaks is important

Without Wikileaks releasing this video, nobody would know about this incident:



Here Julian Assange and a Cato Institute security analyst discuss their differing perspectives of the incident:

How to be a successful leader

This episode of Fareed Zakaria GPS is excellent. He interviews several successful leaders from politics, business, and the military about their thoughts on what qualities make a successful leader. The video is 42 minutes long. It is well worth watching.

I really like Tony Blair's comments. He lists three common traits of leadership:

1. A clear sense of what you want to achieve
2. The ability to step up and step out, not step back, when responsibility comes knocking
3. A willingness to do things that are difficult, even unpopular, but you believe in them so you're going to do them

He says, "If you take any organization, the people that make the change and get the thing done are usually creative and innovative and very determined—and are prepared, when that mantle of responsibility is floating by, to take it and put it on their shoulders no matter how heavy it is."

Harvard Professor Ed Glaeser on the population shift

Why are Republican states growing faster than Democratic states? It's the housing regulations, stupid!