Ronald Coase has an interesting new piece titled Saving economics from the economics profession. You may like to see What is wrong with Economics on this blog.
Last week, in the US, I heard that the number of Ph.D. graduates coming out vastly exceeds the number of academic job openings. Most economics Ph.Ds. are going to end up in non-academic jobs. In fields like Physics, the basic arithmetic became clear early on. Each academic in a research university produces 12 Ph.D. students, on average, over his or her life. In steady state, 11 of them have to go into non-academic lives. For some time, in Economics, this phenomenon was masked by the rise of business schools and schools of government, which recruited a lot of economists. With that transition largely behind us, the simple logic of 1-in-12 comes back to hit us.
I feel the profession is not doing enough to prepare the 11-of-12 economics Ph.D. students for a life in the real world. I am a sunny optimist on the importance of economics in the real world. Whether it is Google or a hedge fund or a consulting firm: I think a good economist has a lot to say. But what we do to Ph.D. students is pretty bad. The skills required to succeed in academic economics seem to be precisely unlike the skills required to engage with the world. I feel that fairness to the students requires turning this upside down. We should be primarily training Ph.D. students to gear up to be useful in the real world, for only a tiny fraction of them will go back into academics.
Academic economics in India suffers from one additional layer of trouble: the legacy of development economics. India has moved on. Only 15% of Indian GDP is agriculture; the labour force is moving away from agriculture; only 20% of India is below the poverty line. This implies that development economics is of little use in thinking about India. Whether it is P. Chidambaram or Mukesh Ambani, the decision makers of India are not too interested in development economics.
The early days of physics shows us a nice three-step story. First, the datasets fell into place, with Tycho Brahe. Then came the empirical regularities, with Kepler. Once Kepler’s laws were firmly established as hard facts of the data, you could curiously ask: Why might this be the case? And this gave us theory, in the hands of Newton. In economics, and particularly with economics in India, we are struggling with the first phase. We barely observe the economy.
When the physicists did not observe the world, the frontier lay in observation (Tycho Brahe), and not in the guys doing angels on pinheads. But in economics, in the early years, in the absence of data, the field got dominated by mathematicians analysing artificial worlds, the bulk of which was angels on pinheads exercises. Instead of looking at the world, we looked at blackboards and made up assumptions. Research papers got written by looking at other research papers, rather than looking at the world.
I am optimistic about where we will go from here, for the computer revolution is finally giving us datasets where there is high quality observation of the economy. E.g. retail stores are capturing scanner code data, financial exchanges see every order, massive databases of census or tax authorities are being prised open, google trends data is available, satellites measure illumination at night and give us estimates for the GDP of each square kilometre of the country every night, etc. The future of economics lies in data science. Just as astronomers are drowning in the data coming out of telescopes, we in economics will shake our heads in wonder, as we find our way around immense treasures of large datasets of high quality.
Yet, at present, most economists and economics Ph.D. students are focused on theory, or the old perspective where economics is seen as a part of axiomatic mathematics and not as an observational science. For most people in economics, there is a certain willingness to accept bad data and bad econometrics since all this is (in any case) just an excuse to get on with the thing that really matters, the model. Matters are made worse, in India, by the typical Western referee who does not ask questions about data quality. This gives the economist in India zero incentive to be careful about measurement, and gives us an equilibrium replete with garbage-in-garbage-out.
I don’t want to overstate the problem. Things have changed enormously when compared with the 1970s and 1980s, when economics was almost entirely dominated by theory. Today, the most important work in the profession is applied. Applied papers get more citations. The ship is turning. But as Ronald Coase is saying, it’s still far from where it needs to be.
Academic economics is a self-sustaining system, on the strength of the tuition fees paid by a large number of undergraduates who register for these course. There is relatively little pressure to change. The impetus for change will come from four directions:
- While wages for a small number of the superstars of the profession are sky high, most academic economists are not paid that well and are not experiencing real wage growth. This gives an incentive for some to engage with the world through consulting. Their work will matter.
- As Larry Summers has emphasised, a strength of the business school and the school of government (and the think tank) is that they engage with reality. They have incentives to look at the field with new eyes. The work done in these places will matter.
- The 11 of 12 freshly minted Ph.D.s who show up in the real world and puzzle over it matter a great deal. For the vast majority of them, the Economics Ph.D. will recede in their minds like a bad dream. A small fraction of them will do stuff that matters.
- The people with skills in data science will do unexpectedly cool things with the new datasets where we observe the economy. This stuff will matter.
Richard Posner [Hat tip]:
Finally, I am not clear what we should think the problem of American education (below the college level) is. Most children of middle-class (say upper quartile of households, income starting at $80,000) Americans are white or Asian and attend good public or private schools, usually predominantly white. The average white IQ is of course 100 and the Asian (like the Jewish) almost one standard deviation higher, that is, 115. The average black IQ is 85, a full standard deviation below the white average, and the average Hispanic IQ has been estimated recently at 89. Black children in particular often come from disordered households, which has a negative effect on ability to learn and perhaps indeed on IQ (which is only partly hereditary) as well. Increasingly, black and Hispanic students find themselves in schools with few white or Asian students. The challenge to American education is to provide a useful education to the large number of Americans who are unlikely to benefit from a college education or from high school courses aimed at preparing students for college. The need is for a different curriculum and for a greater investment in these children’s preschool environment. We should recognize that we have different populations with different schooling needs and that curricula and teaching methods should be revised accordingly. This recognition and response should precede tinkering with compensations systems. [Emphasis added.]
As someone who has been in both home school and public school, my experience tells me that the quality of education in home school is considerably higher than in public school. The main difference between the two is that in home school, my teacher was not only extremely invested in my educational future, but was also able to invest a significant amount of time teaching me one-on-one. This is not to suggest that my public school teachers were uncaring robots; on the contrary, most of my teachers took a personal interest in me and my educational development. Some of them even gave some of their personal time to better explain various concepts to me when I had trouble getting them the first time around. The difference, though, is this: as much as my public school teachers cared, and as much time as they gave me, they never did care as much as my mom nor could they give me as much of their time.
I think the chief failing of the public education system is that of scalability. To put it simply, centralization quickly runs into diminishing marginal returns. The reason for this is what Posner noted: there is simply too much human variability in existence to allow for a one-size-fits-all approach to education. What works for one student may not work for another. What works for one teacher may not work for another. Human beings are complexly unique, and treating them all alike, as if they are interchangeable, is an incredible mistake because it is not a reality-based approach. Once you accept that humans are unique, and that there is a high degree of variability in children’s learning process, it should become clear that a single, universal approach to education is bound to fail.
One reason, then, why home-schooled students are often intellectually and academically superior to their public-school peers is because the parents of home-schooled children implicitly recognize scalability in education is not a feature but a bug. Those who homeschool their children are able to provide them with a highly personalized education, which is quite an advantage academically. Those in public school have no such luck, and thus suffer academically because the economies of scale afforded by mass education do not actually extend to academics, but rather to costs.
Quite simply, education is not all that scalable, which is why it becomes progressively worse when centralized, particularly in areas of cultural and ethnic diversity. The best option for education would be homeschooling, and the second best is whatever has the smallest scale.
The text below was forwarded to me a few years ago and I rediscovered it today. I’ve edited it to take out Australian specific references. The Squirrel and the Grasshopper story really resonated with me when I first heard it as a kid. I thought the squirrel was prudent. I’m sure other kids felt sad for the Grasshopper. I propose everyone can be divided into two groups – those who side with the squirrel and those who side with the grasshopper.
The squirrel works hard in the withering heat all summer long, building and improving his house and laying up supplies for the winter.
The grasshopper thinks he’s a fool, and laughs and dances and plays the summer away.
Come winter, the squirrel is warm and well fed. The shivering grasshopper has no food or shelter, so he dies out in the cold.
The squirrel works hard in the withering heat all summer long, building his house and laying up supplies for the winter.
The grasshopper thinks he’s a fool, and laughs and dances and plays the summer away.
Come winter, the squirrel is warm and well fed.
A social worker finds the shivering grasshopper, calls a press conference and demands to know why the squirrel should be allowed to be warm and well fed while others less fortunate, like the grasshopper, are cold and starving.
The media shows up to provide live coverage of the shivering grasshopper; with cuts to a video of the squirrel in his comfortable warm home with a table laden with food and informs people that they should be ashamed that in a country of such wealth, this poor grasshopper is allowed to suffer so while others have plenty.
Do gooders demonstrate in front of the squirrel’s house. A Lefty Politician rants in an interview that the squirrel got rich off the backs of grasshoppers, and calls for an immediate tax hike on the squirrel to make him pay his ‘fair share’.
In response to pressure from the media, the Government drafts the Economic Equity and Grasshopper Anti Discrimination Act, retroactive to the beginning of the summer, and creates The Grasshopper Housing Department. The squirrel’s taxes are reassessed. He is taken to court and fined for failing to hire grasshoppers as builders, for the work he was doing on his home, and an additional fine for contempt when he told the court the grasshopper did not want to work.
The grasshopper is provided with a Grasshopper Housing Department house, financial aid to furnish it and an account with a local taxi firm to ensure he can be socially mobile. The squirrel’s food is seized and re-distributed to the more needy members of society – in this case the grasshopper.
Without enough money to buy more food, to pay the fine and his newly imposed retroactive taxes, the squirrel has to downsize his home.
A 60 Minutes special shows the grasshopper finishing up the last of the squirrel’s food, though spring is still months away, while the Grasshopper Housing Department house he is in, crumbles around him because he hasn’t bothered to maintain it. He is shown to be taking drugs.
Inadequate government funding is blamed for the grasshopper’s drug ‘Illness’.
The grasshopper gets arrested for stabbing an old dog during a burglary to get money for his drugs habit. He is imprisoned but released immediately because he has been in custody for a few weeks. He is placed in the care of the probation service to monitor and supervise him.
Within a few weeks he has killed a guinea pig in a botched robbery.
A commission of enquiry, that will eventually cost $10 million and state the obvious, is set up.
Additional money is put into funding a drug rehabilitation scheme for grasshoppers.
The grasshopper dies of a drug overdose.
The usual sections of the press blame it on the obvious failure of government to address the root causes of despair arising from social inequity and his traumatic experience of prison.
The squirrel’s taxes are increased to pay for law and order, and they are told that they will have to work beyond 65 because of a shortfall in government funds.
Chuck has good idea for reforming education:
Sometimes you hear lamentation over the fact that teachers aren’t regarded with proper levels of esteem. That we have star athletes but no star teachers even when most students would benefit more from the latter. A possible solution to that problem with a keener eye for improving the cost/benefit equation of education at all levels would be to pay the best teachers a lot of money. And pay the really good really well through syndicated teaching.
To reform the cost structure of the education system –college, high school, junior high – cut out the redundancy. Let the best instructors instruct the whole nation of students. Each school would pay a subscription fee to each of these syndicated teachers, or each student would pay tuition directly to a superior teacher. Or, hell, each student would just go on Youtube at the tiny cost of whatever time use would be contributed to the computer or the internet subscription. I would have literally saved thousands of dollars and would have a better baseline knowledge of philosophy and a few other subjects.
I suppose that if this hasn’t been already, it’s unlikely to occur. The problem, at this point, is not technology or money. This would have been feasible shortly after the invention of subscription television; all you would need on-site would be technology facilitators to ensure that equipment functions properly and someone to collect and grade homework, enter grades, and ensure classroom discipline. Alternatively, at this point, one needn’t even go to school; one could receive instruction at home. I would imagine that this proposed system would be cheaper to operate than the system currently in use.
The reason why Chuck’s proposal will never be implemented, then, is not due to logistics, cost, or the limitations of technology. The failure is ultimately due to a lack of political will.
As a child of two public school teachers, I can say with are asonable degree of certainty that the vast majority of school teachers would be opposed to merit pay. Because most of them suck at teaching. I’ve observed plenty of my parents’ coworkers (it’s easy to volunteer at public schools when you’re homeschooled), and I also spent a couple years in public high school under the tutelage of a large number of stupid and incompetent teachers. Very few teachers have a reasonable degree of mastery of their subject. Of those who do, few are able to teach effectively.
Now, most teachers belong to a union, and simple probability suggests that most of the teachers belonging to the union are either stupid or incompetent. The union’s job is to protect teachers’ jobs,not reward good work. So, the main opposition to merit pay and “star teachers” is…the teachers themselves. Why? Because a meritocracy would cause many teachers to be worse off financially.
Ironically, it is the teachers themselves that complain how they’re underpaid relative to, say, sports stars. I suspect that this lamentation is borne of nothing more than envy. In essence,teachers are complaining how they can’t earn millions of dollars for doing what they already do. They want to be rich,but they don’t want to work hard for it or make serious sacrifices for it. (Seriously, how many teachers would spend hours a day practicing teaching during their years in Jr. High? How many would hire personal teaching trainers? Etc.) Ultimately, teachers who complain about being underpaid are often nothing more than socialists, trying to prove that they are noble people, well-deserving of society’s riches.
Beyond that, then, it should be clear that the very thing preventing teachers from being stars is…teachers themselves. The government, at the behest of the teachers unions, heavily distorts the education market. Attendance is mandatory until the age of eighteen (at least in my state). Students have a limited selection of schools. The whole teacher-classroom setup is maintained only at the behest of the government. Alternative forms of schooling often arise from private schools and homeschoolers. Innovation within government schools is low and costly.
What teachers need in order to become stars is the ability to compete in multiple markets simultaneously. This can easily be accomplished in this time of (relatively) low-cost technology. A teacher could record a lesson every day and have broadcast to various schools, customized for class period length, local class meeting times, etc. But the government, at the behest of the teachers’ union, refuses to allow this because many teachers would be out of a job.
Ultimately, the current education is organized around one central purpose: to make sure that the current number of teaching jobs remains the same. One good teacher, by the “magic’ of modern technology, would be eliminate the need for dozens of bad teachers. One great teacher would eliminate the need for hundreds of bad teachers. Betteryet, economies of scale would reduce systemic costs, making education simultaneouslyboth cheaper and higher-quality. The main thing preventing this from happeningis the government (quelle surprise, non?).
Needless to say, a course can be valuable even if unpleasant. Unfortunately, however, most students seem to emerge from introductory economics courses without having learned even the most important basic principles. According to one recent study, their ability to answer simple economic questions several months after leaving the course is not measurably different from that of people who never took a principles course.
What explains such abysmal performance? One problem is the encyclopedic range typical of introductory courses. As the Nobel laureate George J. Stigler wrote more than 40 years ago, “The brief exposure to each of a vast array of techniques and problems
leaves the student no basic economic logic with which to analyze the economic questions he will face as a citizen.” [Emphasis added.
HT: Vox Day
When I took my introductory Econ course in college (nearly a year ago), I quickly saw that I was going to be the only student in that class getting an A. The reason for this was due to a) having a good professor who was a terrible teacher and b) having a textbook that devoted more space to graphs than to words.
The problem with the professor wasn’t simply that she was a neo-Keynesian. Rather, the problem was that she simply couldn’t explain fundamental economic concepts in a way that her students could understand. The money multiplier effect was explained as an equation. Supply and demand was explained as an equation. Price elasticity was explained as an equation.
Of course, virtually all economic rules and relationships can be expressed mathematically, but the professor made the mistake of thinking that real-world examples exist to explain the models when, in fact, it is the other way around. As such, all classes started with theory and occasionally were related to the real world, leaving all my classmates confused and exasperated. The professor would have done well to read Adam Smith’s classic treatise, for the whole discipline of economics (and, really, all other scientific disciplines) exists to explain the real world by using simplified models. There’s a reason the old joke about economists goes “I know it works in the real world, but does it work in theory”.
Since I had been reading economic works since I was fourteen, I was incredibly overprepared for this class. So, I ended up tutoring half my classmates, which turned out to be quite lucrative. In fact, I got Student Services to bend the rules for me so I could tutor my classmates. I also functioned, essentially, as a co-professor because I was called upon quite often to explain various economic principles in ways that my classmates could understand. This had the bonus effect of ensuring that I got the numbers of every girl in that class, which led to a couple of dates. It was great time in my life.
The problem with the textbook was that it was too convoluted. I had difficulty following along, but only because my eyes would glaze over from boredom. The book was needlessly technical, which was off-putting to most students, and most “real-world” examples were too hypothetical for most students to relate to. Most of my classmates would come into class complaining about how they read the book multiple times and still didn’t grasp it.
I ended up drafting a proposal to use Thomas Sowell’s Basic Economics
as the class textbook in order to make it easier for future students to make sense of this relatively simple science.
I have no idea where this proposal stands as of now.
The saddest part of modern economics courses is that they take such a vital and easily understood subject and dress it up in highly technical jargon so as to render it incomprehensible to students. I suppose this enables professors to feel smarter for grasping something so difficult, but the purpose of school is to teach students how to be relatively proficient in a variety of disciplines; the purpose is not supposed to be providing teachers and professors a way to stroke their own egos. And if schools are not going to make an effort to ensure that economics is taught an in easily understood manner, they may as well not offer it at all.
“He thinks it’s fundamentally wrong for a society to pin people’s best hope for a better life on something that is by definition exclusionary. “If Harvard were really the best education, if it makes that much of a difference, why not franchise it so more people can attend? Why not create 100 Harvard affiliates?” he says. “It’s something about the scarcity and the status. In education your value depends on other people failing. Whenever Darwinism is invoked it’s usually a justification for doing something mean. It’s a way to ignore that people are falling through the cracks, because you pretend that if they could just go to Harvard, they’d be fine. Maybe that’s not true.”
The question is, why doesn’t Thiel make it possible for anyone who wants to go to Harvard to be able to do it? After all, Thiel has made his fortune disrupting other hidebound institutions. Making it possible for motivated individuals to get the same quality of education that exists at the nation’s best universities without having to attend them would be the kind of disruption that would fit into Thiel’s social views and his economic ones.
We know from past history that highly motivated persons exposed to a quality education system will self-select for success. New York’s fabled City College is only one example.
The mistake that Barry makes here is that he mistakes schooling for education. Signaling theory holds that schooling exists primarily to show employers that one who has been schooled (as evidenced by possessing a diploma) is a superior candidate for employment. The more people that possess a diploma, the more the signal is distorted, and the less valuable schooling becomes. This is basic economics, for if supply increases more rapidly demand, the price will necessarily drop all else being equal. Schooled labor is no exception. If every worker has a Harvard diploma, a Harvard diploma necessarily becomes worth less. And the workers that possess said diploma are also worth less.
On the other hand, receiving a Harvard-level education is desirable. This doesn’t necessarily make it valuable, at least in the sense of getting a better-paying job, but it is desirable nonetheless. The mistake that Ritholtz makes, then, is that he views education as an investment when it should properly be viewed as a consumer good. Thus, the difference between schooling and education, though subtle, is important: schooling is an investment; education is a consumer good.
Within this framework, it becomes easier to analyze whether one should go to school and get a diploma. If one wants schooling, then one simply has to weigh the costs of college (including opportunity costs) against the benefits of college. If one wants education, one merely weighs the costs of college against alternative educational systems. I would imagine that college is the less desirable option in both cases, since college-educated workers are seeing their real wages decline while tuition costs are rising. Additionally, public libraries contain a wealth of information and are considerably cheaper than college.
Education is good, as is schooling. It doesn’t stand to reason, though, that one must go to school in order to be educated. It is likewise foolish to think that the laws of supply and demand don’t also apply to schooling. As it stands, it is generally best to recommend that young people spend more time in the library and less time worrying about getting into college.
I came across this other day when stumbling around In Mala Fide:
God may be dead, but the cubicle jockeys and castrated middle-class drones of this land still think of themselves as part of a warped Calvinist elect. To them, their willingness to have their humanity stripped away day by day sucking at Mammon’s teat is proof that they are God’s chosen people. Anyone who questions the presuppositions of the American cult of “hard work” and “self-reliance” is ostracized from polite society…
The biggest flaw in Puritan doctrine, as I see it, is that there is a worship of work. Being a worker is a false idol unto itself. Yes, man was created to work. And yes, man is to put his best effort into his work. The problem, however, is that the Puritan work ethic has been twisted into a doctrine of worshiping workaholics, and, with that, a doctrine of materialism.
Perhaps this is another reason why America has started its decline: materialism is being used as a substitute for spiritualism. Everyone in America is told, from childhood onward, to be a good student, to get good grades in school, to get into a good college, to get a good job, to be a good worker, and then all the rewards in life will be given to you. And this message always takes a turn for the ruthless.
Good now becomes best, and everything becomes cutthroat. Lots of people begin to compete for limited elite pre-school slots, who in turn compete for elite primary school slots, elite middle school slots, elite colleges and universities, and finally elite jobs. And all these things start to get treated as entitlements (if I go to a good college, I deserve a top position in a Fortune 500 company, etc.) All these things are pursued with intense rigor, as if having an elite education or an elite job is the most meaningful thing in the world.
There’s a reason this is a cliché: “no one sits on their deathbed, wishing they spent more time in the office.” We have allowed our education and jobs, and little beyond that, to define who we are. In reality, though, we’re more than a sum of numbers attached to us by teachers and bosses. Each one of us, at the least, is someone’s child. We’re someone’s spouse, parent, sibling, or friend. We belong to families, to churches, to civic groups. And yet we define our worth by what we make and where went to school.
Now, it is true that our jobs/careers play some role in defining us. We can’t fully escape that. But we don’t have to let our job or our education be the sole (or even main) component of self-definition. Instead, we should let go of this materialistic mindset, and embrace our spiritual and social side. Maybe that’s what we need to do to get rid of the social cancer called materialism.
In the last post Ruth, a mental health nurse, discussed how she had been more willing to participate in risky activities such as bungee jumping while she was working in prisons. This led to a discussion of changes in perception of identity that may be associated with drug taking by young people who are seeking to escape from emotional pain. Ruth discussed how mental health patients with a history of drug use could be helped to perceive a wider set of possibilities for their future lives.
This post explores implications of evidence that some adolescents take drugs as a form of sensation seeking. A literature review by Jonathan Roberti notes that sensation seeking individuals tend to engage in behaviours that increase the amount of stimulation they experience. Sensation seeking is more common among young males than other groups. While risk-taking is involved it is not a primary motive – high sensation seekers tend to appraise risky and stressful situations as less threatening than do low sensation seekers.
Sensation-seeking is associated with stimulating occupational choices e.g. a desire for greater novelty and flexibility in work and with choice of risky vocations such as fire fighting. It is also associated with a preference for arousing music e.g. hard rock; travel to less familiar places; participation in relatively risky sports e.g. bungee jumping, white water rafting, surfing, snow boarding, scuba diving and parachute jumping; gambling; crime; impulsive behaviour; and health risk behaviours e.g. unsafe sex, unsafe driving, binge drinking and use of illicit drugs (‘A review of behavioral and biological correlates of sensation seeking’, Journal of Research in Personality, 38, 2004).
Roberti has high hopes that adverse consequences of sensation seeking traits could be reduced by substituting sensations with low health risks for sensations with high health risks:
‘Early identification of risky behaviors, attitudes, and preferences in young adults, such as engaging in promiscuous sexual activities, reckless drinking habits, use of illicit drugs, gambling, and high-risk sports and replacing those with non-risky options is essential in reducing negative health consequences. Recommending appealing, non-risky forms of sensation seeking to individuals that once engaged in risky behaviors is one way of reducing negative health consequences. The effectiveness of using alternative arousal sources that are non-risky but are equally stimulating has yet to be determined and would be a fruitful line of research’ (p 274).
When I consider this from an economics perspective, it is not entirely clear whether, or to what extent, sensation seekers would view such activities as substitutes. It would be nice to think that an afternoon engaging in an extreme sport would satisfy a sensation seeker’s desire for thrills until the following week – and that the culture associated with all extreme sports would tend to encourage healthy living. It might be possible, however, for a sensation seeker to spend an afternoon engaging in an extreme sport, followed by an evening of illicit drug use and gambling, and then to end the day participating in a sex orgy (although I can’t verify this from personal experience). More research may be required. (Perhaps I should clarify that I am suggesting surveys of the lifestyles of people who engage in various extreme sports.)
Jonathan Roberti draws attention to research suggesting that sensation seekers prefer certain types of friends and tend to surround themselves with others who have similar sensation seeking characteristics. I expect that the behaviour of sensation seekers in this respect would be strongly influenced by their own sense of identity.
How can parents ensure that children with sensation seeking tendencies develop a sense of identity consistent with adopting healthy lifestyles? My previous consideration of this question suggests that the main environmental shaper of personality is a child’s peer group. Parents may not be able to choose their children’s friends for them, but parents do make decisions about where they live and what schools their children attend.
What is absolutely required during an interaction with Customs? … Like muscles as you flex your rights they become stronger; so use them or lose them.
This article is mainly just some very helpful hints with some slight economic analysis. Being an entrepreneur who enjoys creating wealth and building from scratch I have a special empathy for those engaged in similar work. One entrepreneur that has added value to my life is Scott Jordan, CEO and Founder of Scottevest. As I traveled almost 100,000 miles in 2010 I found my Scottevest incredibly helpful and it has saved me plenty of money from the evil airline’s ridiculous fees. Of course, when there are lucrative profit pools the entrenched interests will almost always by hook or by crook attempt to stifle innovation and advancement but in this case there some helpful travel tips we can apply to save time and money.
It’s still true: Delta Airlines sucks.
SCOTTEVEST ADVERTISEMENT DENIED
Years ago I decided to never fly Delta again. Then somehow I ended up with a free Delta ticket so I used it. It’s still true: Delta Airlines sucks. So when I received an email from Scott Jordan on 2 October 2010 I figured I should lend the fellow entrepreneur a friendly voice.
The New York Times reported that “the fee frenzy, which generated nearly $8 billion for American carriers last year.” Scott’s awesome travel clothing help owners ‘Beat The System’ so when he attempted to advertise in the airlines magazines the advertisement was canceled at the last moment. Seriously, what did Scott Jordan expect would happen when he advertises a value-adding product that attacks an extremely lucrative profit pool? Even worse Scott’s media agent pleaded with him to not press the issue. I am not sure the media agent gets it.
But it seems Hap Klopp, founder of North Face and chief adviser to Scott, gets it because he hit the nail on the head with an excellent economic analysis. “Scott, this is classic David vs. Goliath. Their reaction shows how touchy of a subject baggage fees are for them. You’ve found a way for everyday people to get around their crazy policies, and you just put a fork in their cash cow.” Forutantely, Scott took Klopp’s advice and remarked, “Hap’s comments solidified it for me: this was a big story, and the cat was out of the bag.”
If you have a quality product that adds value to the customer then in the Information Age with social media, blogs, YouTube, etc. the story will get out. The economic concept of creative destruction was first introduced by the Austrian School economist Joseph Schumpeter in his 1942 book Capitalism, Socialism and Democracy. For those that have not noticed, the newspapers evaporated through creative destruction so the era of screwing your customers and getting away with it because the media gatekeepers will protect you is over. And when it is a David vs. Goliath story then almost everyone roots for David, especially when David is engaged in creative destruction in an attempt to save them money on baggage fees!
Time is the most valuable commodity.
THRIFTY RENT-A-CAR’S SLEAZINESS
Another thing the airlines are often doing is bundling products and making it difficult to discern what fees actually apply and which goods or services are actually mandatory. Airlines love to privatize the gains and socialize the losses to their customers which are often incurred by wasting your time through delays, cancellations, bumps, etc. The rental car companies seem to play a similar game.
For example, I was recently in Dallas, Texas meeting with a few friends who run various hedge funds. At the airport I went to rent a car and they wanted to charge $150 for what I had earlier researched on the Internet to cost about $50. Not being able to book at the counter at $50 I booked through my iPhone and then had to wait about 20 minutes, which was worth it to starve the vampire squid, for the reservation to get into their system. When I went to pick up the keys the desk agent asked me, “And which type of insurance do you want, minimal, medium or comprehensive?”
Because she did not mention none and because it is reasonable to assume that insurance may be required in Texas and because ‘minimal’ implies the least amount required therefore I replied, “Minimal.” She then said the total would be $120. This was surprising because the Internet reservation was for about $50 and said all I needed to provide was a driver’s license and the reservation.
So I responded, “Is the insurance required?” At first she dodged the issue by trying to explain probabilities, risk and reward. Seriously, as an investor who calculates probabilities of risk and reward for a living do I really need that advice from a desk agent who has probably never taken a statistics class and has a conflict of interest? So I responded with a little sterner tone of voice, “Is it required?” She said, “No.” and I responded, “Then no insurance, please.”
I get annoyed when people, institutions and organizations waste my time pitching me products I do not need and add no value to my life. After all, time is the most valuable commodity. Vacations are great when you take the airlines, car rental companies and hotels with their $8 bottled water and $15 potato chips out of the equation. Guess what the car company’s lucrative profit pool must be? Yep, insurance! So keep that in mind next time you rent a car and Thrifty’s was very clean and ran well.
SCOTTEVEST REVIEW AND HELPFUL TRAVEL TIPS
Many people have asked how I pack so light and efficiently. Nothing is worse than going on a trip and having your airline suck your luggage into the engine. On one trip to Guatemala one of my travel companion’s luggage was lost and seemed to always be a day behind us as we traveled around the country. Very annoying for them! I no longer check luggage and it has made an tremendous difference. Eliminate all but the essentials and you will have a lot less stress on your trips.
After doing a ton of research and getting plenty of products which were a waste I have winnowed down my travel infrastructure to: (1) Rick Steve’s Convertible Carry-On, (2) Scottevest Essential Travel Jacket, (3) Eagle Creek Pack-It Garment Sleeve and (4) a few Eagle Creek cubes of varying sizes. With this infrastructure I have ample space for either a weekend or a six weeks to either Europe or Argentina.
There are a few other reasons I really like my Scottevest. In the morning I like to take a walk in the brisk air. The Scottevest has pockets for both my iPhone and iPad which keeps them out of my hands as I search for a place to read. It is a great tool for my morning routine. So from one entrepreneur to another; I hope Scott Jordan appreciates this free review.
Like muscles as you flex your rights they become stronger; so use them or lose them.
HELPFUL TRAVEL TIPS FOR CUSTOMS
Casey Research is having another investment conference at La Estancia de Cafayate on 20-24 October 2010 and I hope to see you there. What that means is another international trip and another interaction with Customs which seems like just another case of government sending ‘hither swarms of officers to harass our people, and eat out their substance.’ Responsible law abiding citizens need to be wasting neither their nor customs official’s time by even talking to them or answering their questions because this results in increased spending and drives up the federal debt.
Thus, when I came across Paul Karl’s extremely popular article, even being discussed on The Economist, about being detained by Customs for refusing to answer their questions my interest was immediately sparked and I even began to formulate the question: What is absolutely required during an interaction with Customs?
So my co-author of How To Vanish, CA attorney Bill Rounds, and I began to research the issue. The result of our work is this handy tab which fits right in your passport with the applicable binding law outlining your rights and tips on how to politely apply them. I hope you find it helpful. To help save the customs officer’s time feel free to print this PDF and distribute it widely, perhaps to everyone on your plane. Remember, like muscles as you flex your rights they become stronger; so use them or lose them.
For data I find Dropbox and Truecrypt a very effective combination.
It is always about the money.
The Internet is changing the way news, products and information is distributed. Gatekeepers can no longer protect the lucrative profit pools by refusing to discuss the issues or actively trying to prevent the market from learning about value adding products. As a result, entrepreneurs with good products that add value to the customer have a greater chance of penetrating the marketplace and this leads to David having more leverage against Goliath.
As the greater depression continues and intensifies coupled with the evolution of the Information Age it will be even more critical for companies to truly add value to their customers. Those that do not will encounter swift and powerful damage to their brands as sleazy business and governmental practices are quickly brought under scrutiny. Individuals are getting extremely tired of this crap, the depression is making disposable income tighter and some are even intentionally fighting back with the misumer movement to silently and peacefully starve the vampire squid. After all, with the civil rights movement it was not the protests but the boycotts that caused massive social change. It is always about the money.
For example, Dollar Thrifty Automotive Group made $45M in 2009 compared to their $340M loss in 2010. Delta lost $8.9B in 2008 and $1.2B in 2009 for a reason. Perhaps these sleazy companies and governments should try adding more value to the customers? Better yet they can go bankrupt or cease to exist and be replaced by fresher companies that to add value to their customers and have a good culture. No one will miss them.
So please, tell me how you feel about the airlines, car rental companies, customs and please contribute any helpful travel tips!