The Future of Education Post COVID-19

Tyler Cowen pointed to this “debate”, which I was a bit disappointed in for being too much an untethered discussion. Tyler’s portion I found more meaningful, but still it didn’t do much to advance my thinking.

Since they didn’t really have an objective topic, I guess I shouldn’t be too critical. But I find that a lot of the recent thinking on how things will change in the age of COVID-19 to be like this—not very deep, a combination of wish list and fear. My own view is an attempt at nuance between "most things will change very little" (we will snap back to prior norms) and "this epoch event has accelerated by multiple years that which was already underway" (e.g., teleworking just leapt forward at least 5 years along the prior trendline). To be clear I think holding both views is the best prediction--that is the nuance. Not a lot will change, but that which was already changing has been accelerated. 

Here are some of my thoughts regarding changes in education (both what was already happening and how they have accelerated) as well as the obstacles faced (incumbents and traditionalists don’t go down without a fight).

Elementary and High School

• The major role of babysitting that school plays for many families has been shown to be replaceable. Schools aren’t as essential as previously imagined.
• While the pandemic-induced schooling-from-home experience was miserable for most of us forced into it, schooling from home was already widely assumed to be awful. Now many are probably seeing arrangements other than traditional school as decent substitutes.
• Much of what kids do in elementary school has little to no benefit for them. This is likely much more widely realized or at least considered as parents got a more up-close look at their kids “learning”.
• For the kids trapped in poor schools, online and other arrangements now look like realistic improvements.
• Teachers and schools that cannot provide good online options and flexibility have been considerably exposed.
• For students old enough to not need babysitting and for those capable of learning outside of the regimented classroom (perhaps a large majority of students are in this latter category), questioning the necessity of a 7 to 8-hour daily routine is rising.
• Unions and bureaucracies will be as formidable obstacles to change. However, they have a conundrum: teachers, administrators, and parents are afraid of the risk of infection. All of this pushes for alternative options to be explored, which drive experimentation toward alternatives that threaten the existing power structure.
• Status quo bias/inertia are also obstacles. People tend to be very traditional when it comes to choices for their children. It is hard for them to wrap their heads around questioning the conventional wisdom narrative of school as we know it--especially government school.

Higher Education

For higher education I think we should solve for the equilibrium and use a typical university, the University of Oklahoma, as an example.

• Although non-profits are insulated from market forces, they are still subject to the strength of the underlying economy on which they draw resources as well as the philosophical support of those in power. For universities those in power includes donors, alumni, legislators, employers of graduates, purchasers of research, and the public zeitgeist. So where are these headed? Saying that expectations will be to do more with less is a considerable understatement. Donor money and state funding will be much lower for a long time. However, desires/demands of universities will continue with smaller changes in overall goals. We will continue to virtue-signal about college-education being great hope for the future. So….
• How does OU do more with less? By outsourcing what is not in their core competency. Why would we have students show up in a gigantic auditorium to watch a professor repeat a lecture he has given every semester for a decade plus? What is the value in having everyone in that room squinting at the board from the back rows and trying to avoid the inherent, multiple distractions? Can’t that be done online without the risk of infection? And once you realize that it can, it is just one more step to realize not each and every university need duplicate the tasks. Rather have grad students available to perform office hours and optional workshops. What is the point in offering the ~100th best programs in this, that, and the other? Partner with other universities for those services especially the undergrad basics. Specialize in only that where there is comparative advantage. For OU that might be areas like petroleum engineering, social networking, and football.
• Social networking? Yes, with one of the biggest/best Greek life systems in all of higher ed, OU is among those that offer this feature. Even if the benefit is only perceived rather than real, perception matters to consumers. Drinking Gatorade doesn’t make you a better athlete.
• And football? Yes, the football team is a source of revenue and marketing for the university. OU is great at it. And OU is in a much better position than most now that paying football players for their value contribution is rightfully (finally) trending to be the reality.
• Thinking more of the general case, these trends lead to barbell effects: niche schools (elite quality where average is very much over) and enormous diploma-producing machines (economies of scale). While this is probably a trend within the realms of both undergraduate and advanced degree programs, it is more so a trend between these levels because . . .
• The line between high school and undergraduate college will blur greatly while the line between undergraduate and graduate work will likely sharpen. This latter division will resemble the distinction that once existed between high school and major university such that grad school becomes the new, true higher education. 
• Universities need to maintain their status (true in either the human capital model or the signaling model). To do so will require some exclusivity, which I think comes mostly at the entrance process to grad school--getting accepted to graduate programs becomes much more difficult. 
• What happens to research? More rent-a-lab, rent-a-brain with corporate interests outsourcing to universities more than ever and universities renting away these resources. 
• Obstacles? The same forces as above are at work against change here, and they are probably more powerful. But the stakes are higher and the willingness to experiment is probably higher too.
• The major universities aren't going away, but they may be transforming so much that what emerges over the next ten years is vastly different from what we've known for so long. Imagine "going to" a major university, but not directly taking but a few classes there until upper-division-level work.

P.S., John Cochrane had two great posts recently on this topic (here and here).

Bargains Not Available

Just a little exercise in futile thinking (aren’t we all doing a bit of that nowadays?). I would swap these if I could. 

My rough rules on these were that they have to be relatively equal in stature and be games that I experienced—either agony of defeat or thrill of victory. 

I would lose this . . .                                                        To win this . . .

OU vs KU 1995                                                                  OU vs KU 1988

OU vs Nebraska 1986 & OU vs Wash State 2003                  OU vs Miami 1988*

OU vs OSU 1988                                                                OU vs Boise State 2007

OU vs Texas 2018                                                              OU vs Georgia 2017

OU vs Texas 1996                                                              OU vs Texas 1984

OU vs Nebraska 2010 & OU vs Alabama 2014                      OU vs Florida 2009*

OU vs Auburn 2017 & OU vs Texas 1993                              OU vs LSU 2003*

*As they all could be argued, I would admit these are the most arguable as unfair trades.

The Competitive-Efficiency Paradox

A more competition-friendly society will be more efficient (extract more wealth from a given level of resource consumption) which will make it wealthier which will allow it to have more inefficient production. For example, my ability to more cheaply purchase furniture from the finest woodworking craftsmen in the world allows me to myself dabble in woodworking at an uncompetitive, amateur level.

There are two sources of this effect:

1. My own wealth growing--call this the personal-income effect.
2. Society's wealth growing--call this the production effect.

I am generally concerned here with the second of these; although, the first is a derivative of the second thus it is in play as well. There are countless examples throughout culture and industry.

Think about this in capital markets. In the past few decades retail-investor trading costs in stocks have plummeted to now be explicitly zero. (Note: if your broker is still charging you a commission for trades, you might need to explore your options.) This massive reduction in cost has allowed a lot more trading to happen--both more traders especially amateurs and more frequent trading. Did this result in increased price-discovery efficiency? Probably some up until a point. But the next new person trading AAPL (Apple Corporation's stock) probably is not bringing new insight into the market. More likely that person is lowering average accuracy ever so slightly. Otherwise, why weren't they trading before this point There is probably enough liquidity in Apple stock so that is not a benefit of an additional trader's trades either.

Here we are suggesting another aspect of this paradox: without easy market entry/exit, we cannot maintain competitive markets. Yet, the next entrant into a highly competitive market is probably likely to be uncompetitive. Ban additional trading or traders for Apple stock and you will unravel quickly the efficiency we have come to enjoy in this highly-competitive market.

Back to the original paradox, is there more efficiency or less? To resolve the problem we should consider it as a continual process as opposed to being linear and finite. We should also expand our understanding of what ends we are achieving. The socialist's fallacy would be to look at two firms both producing cereal and declare this inefficient. "Obviously we could eliminate the duplication as well as the advertising costs by combining the firms," they would proclaim. But this would break the very process that allows for the desired efficiency (higher and higher production at lower and lower cost).

Imagine how disastrous a true socialists should view a marketplace like Etsy. Here the line between hobbyist and profitable craftsman is magnificently blurred. Magnificent because it is the essence of a culturally and materially rich society where experimentation is both allowed and enabled. A society that embraces competition necessarily invites dynamism. This is a foundational principle and an essential characteristic of growth. It is Schumpeter's creative destruction. It is a gift not a curse.

Despite or Because

I would like to introduce a new tagline "Despite or Because"--a method of deeper-level thinking.

Specifically, analysis attains sophistication when it is distinguishing between causation and correlation and answering the question: "Is [this result] in spite of or because of [that]?".

The example du jour is COVID-19.

As we stand today a lot remains to be seen including if our efforts will prove successful. Assuming success, we would like to know if the successful flattening of the curve and much below forecast CFR was in fact because of the federal, state, and local governments' lockdown and shelter-in-place orders or despite them?

I'm not just asking if they had no effect. Did they actually impair the battle against the virus? There are three ways I could see the extreme efforts leading to a net harm setting aside the very important social loss of wealth and way of life not to mention that an economy on a strong footing is better able to withstand and respond to a major threat.

• By putting at risk people into high-dose exposures
• By preventing helpfully-quicker herd immunity
• By disallowing the virus to mutate into a milder strand (this ope is very speculative on my part and I might be very off base here)

Or did those efforts have no meaningful effect period? All of it is interesting and very hard to ask in mixed company much less get open-minded thinking on. 

Sweden, South Korea, Taiwan, and perhaps certain states and cities in the U.S. might provide the counter examples as natural experiments we would need to answer this question to some degree of satisfaction eventually. 

Optimal Way to Experience Major Sports

I miss sports. All we have for the time being are reruns, what if fantasies, and arguing. Here is fodder perhaps for that third category:

• Football and to a lesser degree soccer and hockey are best viewed in person since so much of what is happening is beyond the televised field of view. For those moments where you would like to have a different view, most all modern experiences have enormous screens and multiple cameras to accommodate.
• Golf and Olympic sports reverse this by nearly requiring TV to be the medium as only television can capture the simultaneous action as well as the location changing (hole to hole for golf, event to event for Olympics).
• Basketball, tennis, and combat sports are made for viewing on TV since the screen can capture all the very fast-paced action without moving the camera and at a reasonable, constant zoom level. Additional angles can supplement easily when needed. 
• Baseball is made for radio and secondarily for TV since all the action can be described in sync with the game itself. I know this could be construed as a slight on baseball, but it really just speaks to the uniqueness and nuance of that game. How many fans in person or watching on TV would really know that a pitch was an outside slider for example?

Partial List of the Best Cityscape Observation Points

The best aren’t usually in the tallest buildings or the most popular spots. 

• Paris - Terrace of Galaries Lafayette Paris Haussmann (rather than the Eiffel Tower)
• Chicago - John Hancock Building (rather than Willis (it will always be Sears to me) Tower)
• New York City - Top of the Rock at Rockefeller Center (rather than Freedom Tower or the Empire State Building—the best skyscraper in the world which can be seen very well from Top of the Rock)
• Hong Kong - The Peak (rather than Sky100 at ICC)
• Oklahoma City - The Petroleum Club of OKC top floors of BancFirst Tower (rather than VAST in Devon Tower) ... just a little nod to my local spot.
• Dallas - The Cotton Bowl in Fair Park or Dallas Petroleum Club (rather than Reunion Tower)
• Las Vegas - Skyfall Lounge, 64th floor of Mandalay Bay (rather than Eiffel Tower or Stratosphere Tower)
• Seattle - Harbor Avenue in North Admiral across Elliott Bay (rather than Space Needle)
• San Francisco - Coit Tower (rather than Salesforce Tower)
• Boston - Top of the Hub—it is too late (rather than John Hancock Tower--arguable the same view but a different experience)

A Price Paradox

This is a continuation of my previous post "Markets Don't Hate Uncertainty".

Don’t think about the stock market like you do for a specific good like, say, bananas. If a large group of the banana-consuming public suddenly decides they don’t like bananas very much anymore, the demand curve for banana shifts massively to the left meaning market prices will fall greatly and future quantities produced/consumed will too--remember the immediate supply curve is nearly vertical and the long run supply curve is much closer to horizontal.

However, that is not the case for stocks. The value of stocks is determined by the net present value of future cash flows. In simple terms: Buying a stock means being a part owner of a company. As an owner you are entitled to a share of future profits (eventually paid out as dividends--a reasonable, simplifying assumption). Those profits come in the future, so we have to value them today at a discount since a dollar today is worth more than a dollar tomorrow--the so called time value of money (TVM). Adding up all future cash flows individually discounted for how far out into the future they are gives us a figure for net present value (NPV). This is the "value" of the stock, which should equal its price. Let's assume for now there is no uncertainty about expected future profits.

An essential premise in the banana hypothetical is that the value of bananas has plummeted. Remember value is always a subjective concept. Suppose a large demographic group like the Baby Boomers in aggregate start reducing their desire to hold equity investments (stocks), it is not because they don’t believe in the value of stocks in general. Rather it is likely due to the fact they don’t want to have an asset exposure so much tied to the volatility associated with stocks. So they want to reduce their investment holdings in stocks. So in one sense there is no reason to believe that their selling activity should materially change the price of stocks because the investment value of stocks (NPV of future cash flows) is unchanged in the market overall.

But they are trying to sell, and their selling has to be met by buyers. In order to find a willing buyer they should have to offer a more attractive (lower) price than the current price. Hence, we have a paradox--prices shouldn't change but they have to change. The solution lies in a reframing of what investors are trying to achieve. They don't want stocks for the sake of stocks--this would be the banana model. They don't want the future cash flows per se--those are only attractive relative to the price paid for them given the risk associated with realizing them. They want the expected return--the future cash flows purchased at an appropriate price today adjusted for the risk.

So in order for Baby Boomers to sell their stocks they have to increase the expected return of stocks from the perspective of the buyer. Since they can't affect the future cash flows, they have to do one of two things: Either lower their prices to attract buyers or find buyers with different discount rates (buyers who don't value a dollar today as much as a dollar tomorrow). Realize, we are still assuming no disagreement about the expected future cash flows. That wrinkle is not needed to explain this hypothetical or the paradox. Everyone can agree on the expected future cash flows and still people want to exchange their positions (i.e., Baby Boomers want to sell and reduce market risk and buyers want to take on that risk).

Here is the graphical way to think about those two options available to the stock-selling Baby Boomers:

The colored lines B and C represent the change in price over time. The slope of these lines is the expected return. In the first case (top chart) prices today decline along path A and the lower price after Baby Boomers try to sell stocks implies a higher expected return for all stock investors. The market's expected return has increased from the slope of line B to the slope of line C.

In the second case (bottom chart) the difference in how each investor discounts the future price implies a different rate of return. Baby Boomers selling stocks have an expected return of B and buyers of their stock have an expected return of C. (Note: This is related to but not dependent upon Baby Boomers having a shorter life expectancy than buyers. The buyer can be the exact same demographically as long as they have a different discount rate. When compared to the stock-selling Baby Boomers, the buyers value a dollar tomorrow as being closer to the value of a dollar today. Boomers can be selling to other Boomers with lower discount rates.)

You should be feeling uneasy about this for two reasons:

1. Why don't prices today equal that far-off future price? Didn't we assume there is no disagreement about the amount of future cash flows?
2. In the second chart why wouldn't this have already come to fruition? Did stock-selling Baby Boomers suddenly just now increase their discount rates?

The answer to the first objection is this. Even if we assume there is no disagreement about expected future cash flows, there is a degree of uncertainty for them; hence the word "expected". The compensation a buyer/holder of stock receives for risk of investing is the expected return--technically speaking, the equity risk premium. 

Assume a stock will pay a dividend next year equal to all of its assets and profits and then cease to exist. All market participants agree that the dividend next year will be either $0 or $2 per share and that the probability of each outcome is 50%. In that case the expected future cash flow is $1 next year. This means the stock today is worth $1 before any TVM discounting. Once the year has passed and the dividend realized, investors will either have $0 or $2 to show for the $1 they put at risk by buying the stock. Therefore, the future price has to be something greater than the current price or no one would be interested in risking the investment.

The answer to the second objection is a little less elegant. Well, basically we have to be assuming Baby Boomers wanting to sell stock have increased their discount rate (i.e., become more risk averse). Otherwise, we can't have the hypothetical. But this leaves another problem: Why isn't there just one expected return in the market? Well, there is, but in the second chart we are breaking up the market into two segments. The blend of the two lines B and C would be the market expected return. That would be some new line D with a new destination in between the two lines B and C. 

So, what is the solution to the paradox? Will prices change? And if so, did the value of stocks change?

The answer is another paradox: Stock prices changed by going down because stock value went up so stock prices could come down because stock value had to go up.

Baby Boomers in this hypothetical all of a sudden wanted less stock because they wanted less risk. In order to reduce risk they have to sell that risk to someone else. That someone else either must want that same risk relatively more all of a sudden (the source of the second objection to the bottom chart mentioned above) or the Baby Boomers need to reduce the risk by offering a lower price. Some of both will happen meaning stocks get less risky simply because Baby Boomers want less risk--a rather surprising result. Here are the implications:

• The lower the price of stocks, the less risky they are holding expected cash flows and discount rates constant.
• The change of ownership from higher-discount rate investors (Baby Boomers all of a sudden in our hypothetical) to lower-discount rate investors (the buyers of the Baby Boomer's stock) means stocks are less risky to those who now hold stock without any needed change in price or expected future cash flows. 
• Stocks become more valuable when prices go down without any other change or expected future cash flows go up without any other change or discount rates go down without any other change. 
• If expected future cash flows go down and discount rates go up (as has been the case circa March 2020), then prices must go down. 

The moral to this story could be: DON'T REASON FROM A PRICE CHANGE! Prices reflect value. Value for consumption goods and services like bananas and hotel rooms are subjective. Value for financial investment assets like stocks, bonds, and real estate are subjective too. But they are subject to expectations about the future and the value we place on money today versus money tomorrow.

Prices don't simply change, and a change in price doesn't really tell us anything. The price of bananas declining could be because people stopped liking bananas as much or it could be because it just got a lot easier/cheaper to harvest bananas. The price decline tells us that the value of the next (marginal) banana is lower, but that fact by itself doesn't tell us why that is the case.

Stock prices declining could be because investors in aggregate think earnings from holding stocks will now be lower than estimated before or it could be because investors in aggregate value money today more than money tomorrow. The price decline in stocks tells us that on net one or both of these has happened, but the fact by itself doesn't tell us which.

To Every Season, Turn, Turn, Turn...

Partial list of ages that have ended or are ending soon: 

• Increasingly large, mass-attendance sports venues 
• Government pension generosity
• Inexpensive (dare I say casual, inclusive, and fun) youth sports
• Down time for kids (free time to explore, hang out, and otherwise be bored and then self-solve that boredom)
• Tolerance for average in so many ways
• Risk of missing broadcast pop culture events 
• Cultural relevancy for references like this post’s title
• The great American road trip (perhaps autonomous vehicles will bring this back)

Choose Your Own Adventure - Voter Edition

Choose one of the following ideological menu items by candidate:

Welcome to big-government democracy. Democracy is better than the rest, but the strong-state version has big shortcomings that are widely underappreciated. This is not an argument against voting. Let's assume that your vote counts; in fact, let's assume it is the only vote that does. If we assume a strong, powerful government that will be called upon to play a role in most affairs, we are doomed to a world filled with disappointment. This is true even for you, the sole voter. Surely this, a small sampling of each candidate's views, has conflicts with your own preferences. If not, let me present you with a longer list to certainly reveal disagreement.

Beyond you there is the rest of us. If we can find someone for each of the four candidates whose interests align at least in the strongly opposes and strongly supports positions, we will therefore have the ingredients for at least three disappointed people. But the problem is deeper than that. Each issue above is but a category unto itself filled with a myriad of nuanced issues. I would imagine the three candidates who strongly support government involvement in education have important differences in how they would effectuate that desire.

It should be clear from this alone that the will of the people is a silly myth. Voting doesn't count in two fundamental ways: (1) in any typical election you can be reasonably certain your vote will not determine the outcome, and (2) even if your vote did determine the outcome, you could be reasonably certain that outcome would be disappointing.

If all you do is vote, the best you can hope for is a political climate that is conducive to the changes you want and resistant to the changes you oppose. In that sense it is like standing in an open field as a storm approaches hoping that lightning does not strike you.

Rather than just vote, I recommend thoughtful advocacy, approachable engagement (pick your battles but be prepared and respectful enough to kindly offer your disagreements), a willingness and ability to change your mind, but also a fundamental resistance to the power and growth of the state. The more we ask the government to do, the more we demand to be disappointed. 

Dialing It Down a Bit

Partial list of things we need less of: 

• generational labeling and other generalizations masquerading as arguments
• homework--kids get enough busywork at school; time at home should be devoted to learning
• tribalism
• protectionism--in occupations at home and in trade abroad
• nostalgia for the way things are or were [especially the way things are imagined to have been]
• access to other people's money
• superhero movies
• outrage at past sins
• factory farming

Take This Job And Make Me Love It

A few short thoughts on work.

Time On The Clock:

While it is commonly discussed that employees today in many occupations get lots of time to take care of personal business as well as engage in leisure activities while “on the clock”, it is much less discussed how much time “off the clock” they spend engaged in work. The Animal Spirits Podcast (Everybody's Busy (EP.119)) brought this up recently. For many of us after hours and even being on vacation isn’t anywhere close to as disconnected as it used to be—the mobile phone and email has changed all of that. Of course being at work isn’t as dedicated as it used to be either, and the mobile phone has helped change that too. But perhaps the more things change the more they don’t. I assume this was not the norm. What about work golf--in bygone eras was leisure time more consumed by work functions? Or is that an example of leisure time on the job?

What Would You Do For A 10% Pay Cut?

Would you do it for a Klondike Bar? Seriously, while we commonly dream of wonderful jobs with super pay, perhaps we should think about a more realistic trade off. What new job would you trade in your current job for even though it paid in total compensation 10% less? It has to be a real type of job, not Reading-Comic-Books-in-Your-Pajamas Engineer, but it doesn’t have to be actually on offer. The idea is still to fantasize about pay out of proportion to the work. Think about it both with and without a cost-of-loving adjustment. Something in NYC or SAN Francisco might be on my list with the COLA, but there is almost no way something would be without it. Remember that a COLA is not entirely a housing cost adjustment—so maybe those places are still out. Teaching comes to mind for me. Writing does too. Running if not owning a small business might fit the bill. I would just have to forfeit the ownership upside so maybe no. 

Should We All Have Agents?

Thinking about pay, almost nobody likes asking for a pay raise. Jeffrey Tucker has some great advice along these lines. Let’s think about another solution: agents to do it for us. An astute thinker will immediately consider how unions were suppressed to play this role and how inconsistent it is for me to advocate such. Rest assured I am not. This is not about collective action. I am thinking that for business professionals what if all pay negotiations on the employee side were done by agents? 

One big obstacle would be the convoluted employment law structure we have created. Set that aside for the moment. Also, just consider this for certain high-skilled professionals. 

The advantages include less stress for both employees and supervisors, better relations (potentially) between employee and employer as now the agent bears some responsibility for the pay/work arrangement, and more efficient pay arrangements as an agent might be able to better negotiate for pay to match actual value added and an agent might be able to more openly explore options without the risk of burning bridges. 

My Plan for a Much Better College Football

Now that a season is behind us, let's dream of a better world. In this case I am limiting the thought experiment to the competitive structure of the college football game leaving aside the ever-important and (thankfully) increasingly popular discussions of allowing players to more fairly benefit financially from their contributions.

The three key features I would envision for the highest level of college football are:

1. Create a true Power 5 - an elite 60-team top division of football comprised of FIVE 12-team conferences
2. Continue the 12-game regular season - standardize 8 conference games and a maximum of 2 non-conference opponents outside of Power 5
3. Crown a champion using an 8-team playoff  - conference title game winners get automatic playoff berth; 3 at large playoff teams determined by CFP committee (see below)

The CFP committee would be comprised of 25 members chosen by the conferences (each conference gets 5 members). The committee members' individual votes would be secret but the discussions in committee would be eventually fully released to the public after the season and playoff concluded. There would be no abstentions or exiting of the room when a member's affiliated school was discussed or any other charades to pretend there isn't bias. Rather, biases would be out in the open for all to examine and take into account. 

In regards to the establishment of a Power 5, we have to consider who is in and who is out. There are currently 130 FBS football teams (the highest level in college football). It is clear this is too many if we mean to group teams competitively. Just about any early-September match up reveals this outside of the handful of games designed to be competitive. Much of conference play itself reflects Have vs. Have Not. 

I would suggest a system where by teams bid to own a seat in the Power 5. The process might be something like the highest 60 bidders would pay the 60th highest bid amount plus 10% of their own bid amount into the pool. The bottom 70 teams would receive out of the pool 50% of their bid amount. Essentially, we would want to elicit from teams good information about how much they value football and how valuable football is to them. The remainder of the pool would be returned to the winning bidders in proportion to their bid size.

For example, say Texas is the top bidder at $200 million, Washington is the 60th bidder at $60 million, Kansas is the 61st bidder at one dollar less than $60 million, and Akron is the 130th bidder at $15 million. In that case Texas pays in $80 million ($60mil plus 10% of $200mil), Washington pays in $66 million, Kansas receives out $30 million (50% of ~$60mil bid), and Akron receives out $7.5 million.

Teams would be able to sell their seat with 50% of the sale price going to the selling team and the remaining 50% equally distributed to the other 59 seat-owning teams. Again, we want to know who should be in the Power 5 on an on-going basis and have a good incentive system to do so. Perhaps this is too capitalistic for American sports, which have always had a strong socialistic tendency as opposed to European sports where relegation rules soccer and revenue sharing and spending limits are less prevalent. But were dreamin' here . . .

A comment on the playoff to determine a champion every season: There exists a tension between a judgment-based approach (AP poll, BCS, CFP committee) and a merit-based approach (computer polls, conference champions feeding playoff). We can have a certain process of crowning a champion or a certain outcome of who is crowned. These two goals cannot both be realized in all cases. Usually there is a tradeoff between them. If we don't clearly define it ex ante, the ultimate criteria people want to use is fluid and subject to biases and inconsistencies. If we do clearly define the criteria out front, we tie our hands. Either approach has a degree of feature and bug. Remember before you condemn any outcome (actual or hypothetical) that we are dealing with sample sizes of 13 just to get into the playoff if we keep a 12-game season plus conference title game. For only the two teams in the championship game of an 8-team playoff do we even get to a 16-iteration test. We NEVER know as much about how good teams actually are as we think we do. In fact one could argue that in today's college football we know less than that implies given that so many games are nonsense gimmes against gravely inferior opponents. Because of this the only system I think we can justify is a structured conference feeder to a multi-team playoff. We can't possibly know who the best team is or even who the best teams are. The best we can do is define the process of earning a title and hope (with confidence) it matches up for who the best teams are most of the time.

Arrogance in Nostalgia

If you were teleported back in time 40 years, how easy and quaint does doing the same job you have now seem at first blush? 

Assume you don’t know anything specific about the then future to come—you just are used to what the world is like today. Very specifically you are used to that job as it is today. 

I’m sure if you thought about it, you’d realize the stress, monotony, slowness, paperwork, and general frictions would be unbearable. If your job didn’t exist 40-years ago, think of the closest analogue. Remember job doesn’t mean industry. 

Consider it along these dimensions: 

• tools you work with
• general work environment
• your job's status and prestige in the world
• competition for your job
• workload and hours on the clock
• and prospects for the future.

Why You Should Sometimes Value Uncertainty

Do you always prefer certainty over uncertainty?

Are you sure?

Uncertainty brings value. There is value to me in charities being uncertain how much money I make and value to me in friends being uncertain how little I make. But there is also value in the uncertainty for each of those groups as well. Charities can play off my desire to look good to my friends while my friends can imagine my generosity is not a big sacrifice.

Perhaps a hypothetical example will convince you. Imagine we are sitting at breakfast and I get up to get us both more coffee. I pick up your cup with my right hand and my cup with my left hand before leaving the table for the kitchen. When I get to the coffee, I put down both cups, pick up the carafe, and fill each cup. I soon return with each cup, but I have not paid attention to see whose cup is in which hand. We are in a state of uncertainty. I can take away this uncertainty very easy--I can spit into each cup and remove all doubt that you will receive "my" cup rather than your own. 

To Infinity and Beyond

This is a bit of a followup to the Dracula post from earlier this year. 

Foundations and endowments DO NOT have infinite time horizons. Technically speaking, nothing does. But I would argue they don't even have extremely long time horizons. 

These types of entities have no reason to believe they will exist into the long, far future. At the very least they will transform so dramatically the future them is not the current them--donors, beneficiaries, and employees will all be different as will its mandates, goals, and mission. Over very long periods of time slight changes to average inflation or average rates of return very significantly affect the purchasing power of assets. These are highly uncertain variables where the difference between phenomenal growth and permanently impaired capital is almost imperceptibly small to a current observer. The tax structure governing these entities over the long-term future is also highly uncertain. A related but independent threat is if the powers that be and the powers that will be even allow the entity to exist . . . forever.

Perhaps despite all of this they should act as if they have infinite time horizons? Let's assume a few conditions: 

1. Foundations and endowments in at least some cases are the best available option to serve a desired purpose. (If you simply take this for granted, you probably are not thinking hard enough. These entities may not be the best way to accomplish the goals they ostensibly are designed for.)
2. It is desirable for foundations and endowments in some cases to exist into perpetuity. 
3. It is possible to design and implement an external and internal governing structure and to craft a mission statement conducive for the first two conditions. (This might be where this entire process deviates too far from reality.)

For those entities where a perpetual time horizon is appropriate, we obviously do not want them to engage in behavior that unreasonably jeopardizes that goal. One quick and tempting way to jeopardize it is to spend too much money.* Another is to invest poorly. Notice that this bad behavior is a bit murkier. Investing could qualify as being done "poorly" in a number of contradictory ways. Defining it as taking the wrong risk(s) in the wrong way(s) doesn't provide any clarity other than to suggest how complex and complicated the error can be. 

Tying this back to the question at hand, should they act as if they have infinite time horizons, begs the question: what exactly does that mean? How would they be different as compared to acting as if they had long, but limited time horizons? Let me describe the difference in terms of a couple of problems I can foresee:

• Doing too little good now (spending too little!) so as to safeguard sustainability. Yes, this cuts a bit against the grain of what I've said and implied above. But it is a real risk especially for a perpetuity mindset. Doing more now might solve a problem that wouldn't otherwise exist in the future--keep in mind that our descendants are very likely to be extraordinarily wealthier than us with entirely different problems (even if they aren't that much richer). 
• Investing in a manner that jeopardizes near-term access to sufficient capital. If you have an infinite horizon, what do you care that your 5-year or 10-year or even 20-year returns are very bad as long as the long-term expectation is high enough? In fact, let's tie that money up in illiquid assets if that is the trade-off for above-market performance. Unfortunately, simple beats complex in almost all categories but not in the competition of hope. Which is why a perpetual outlook fosters an esoteric investment strategy. I think these entities should push back against this natural inclination to invest in opaque, illiquid, and non-benchmarkable assets. Any investment that is not accessible (lock-up periods), marketable (secondary market discount), or verifiable (Internal Rate of Return (IRR) is a useful fiction) for a period of time longer than the expected tenure of the investment staff recommending it is highly suspect. I would suggest the same evaluation against the average board member's remaining term. And this is all before we begin a discussion of manager selection and dispersion risk--alternative investing is not about asset allocation; it is about finding the best and avoiding the worst. Good luck with that. 

What about governments? Should they act like they will be around forever? Again, let's consider what this means by jumping to potential problems:

• A government that behaves as if it cannot fail to be or should not cease to be risks being way, way to aggressive--both to its own people as well as others. 
• This encourages disruptive experimentation since the government can simply outlast any temporary ill effects. Normally, disruptive experimentation is my jam, but not for government. Government lacks the proper incentives and the rightful decision makers. 
• Paradoxically this perpetuity outlook also encourages extreme neglect as any problem today will either be solved tomorrow or be some future government administrator's problem.

I think the assumption that foundations, endowments, governments, et al. should behave as if they have unlimited time horizons is sloppy at best and dangerous at worst. Long time horizons are appropriate and very useful for these entities, but there is a big gap between a long time and forever. 

My thoughts for this were spurred in part by listening to this episode of Macro Musings. 

*I will leave for another day further discussion on the well-debunked conventional wisdom that a 5% or even 4% spending rule is likely sustainable in real terms. 

Keep Looking Until You See It

Once you have a guess, scroll below for the answer . . .

In The News . . .

A vivid childhood memory for me that I think about every time I hear the phrase "in the news" are the shorts CBS used to run during Saturday morning cartoons during commercial breaks. Here is a long compilation.

Generally these bugged me--I didn't want to hear what they had to say and wanted my cartoon back on.

Something I've been thinking about is what does it take for something to be news.

Perhaps a measure of the relevancy and importance of something that is "news" (newsworthiness) is the answer to this puzzle: Imagine rescuing someone from a desert island. How long could they have been there such that a particular piece of news is still topical and worthy to tell them?

Given enough time anything of great importance in the moment will eventually fade into the background of oblivion. Its relevance will disappear.

I would suggest that 90% of news is entertainment and 90% of that entertainment is to one degree or another proverbial porn. On balance the most popular sources are simply NDDs (nonsense delivery devices), GDDs (gossip delivery devices), or PDDs (propaganda delivery devices).

Consider this a corollary to this post.

On The Cusp

In my experience some of the greatest happiness is found on the cusp of new plateaus. 

These are pictures of my kids in the Lufthansa lounge of Houston International Airport from our vacation in the summer of 2018. We were on our way to New York City and Washington, D.C. This was their first time in an airport luxury lounge. 

I’m glad my kids don’t feel entitled to that treatment. And I am glad they aren’t so used to that luxury that they can’t find the enjoyment in it. They felt like they were, at least for that moment, “big time”. 

One way to help others feel loved and important is simply to find ways to give them the feeling of being "big time". I am thinking in particular people who are in a position to really appreciate it meaning it, whatever "it" may be, is out of the ordinary for them. 

It's hard to appreciate what we see every day. I want to do more to feel and appreciate the amazement of the world around me. I want to be amazed and I want to help other people be amazed. The downside of progress is that a world more beautiful than the one we just left eventually becomes banal. There is an ever-present tension between reaching new heights and the last ratchet up not being enough. Once luxury becomes ordinary, there is much less if any room for more excitement--the thrill is gone. One way to recapture the thrill is to increase the luxury. But I’m not sure that’s the best choice. 

The best choice from the moral or ethical consideration might rather be to bring that same luxury to someone else. Rather than try to capture the joy all to myself, I should find joy in seeing someone else experience the same first thrill that I had experienced. And of course this is more of a gift when it is not one's own kids who are receiving the new-found joys--this is just my example. This is the virtue and the selfish pleasure in sharing, and I’m sure I don't do enough of it. I am not entirely to blame because the world is not quite effectively set up to enable that sharing. There are too many institutions and norms and attitudes that serve as obstacles to the sharing I describe. 

A new goal for myself is to try to do more to increase my sharing. This is not limited to sharing stuff, although that is usually easiest, but it also includes experiences. Some of this will be charity, but a larger portion will just be finding ways to expand opportunities and extend courtesies. And make no mistake; this is all apart from the very important question of how to add meaning to peoples' lives. Generally I think the answer here is simply to get out of their way. Help them by not helping. Let them do as they want as long as it is peaceful. If there is something for you to do, discover it with them not for them. Trust and respect their decisions.

It Ain't What You Know . . .

Partial list of conventional wisdom that is completely false yet very hard to change closed minds on:

• Plastic bags are bad for the environment and reusable bags are a good alternative (the trend of using paper straws is another stupid step in this direction). But maybe I shouldn't be so pessimistic?
• Public companies are too short term focused and private companies have the ability to take a greater long-term view. 
• The younger generations are significantly worse with respect to (fill in the blank) than prior generations.
• (Perpetually) the upcoming election is the most important one in our lifetime. 
• You shouldn't end a sentence with a preposition (like I did at the start of this post).
• The critical problem in education is a lack of funding, and more money would have a meaningful impact on improvement. 

How Good Will Trump Turn Out To Be?

Is the Trump presidency?

• A bad aberration
• A good aberration
• An extreme version of the norm
• Just the norm

Be careful how you answer. The is no individually complete and correct answer, and all of the answers have their own negative implications for the U.S. presidency.

Consider the list below an incomplete treatment of the effective progress report. By this I mean what is the practical result rather than how should Trump (and presidency) be rated.

• His best accomplishments are greatly overshadowed by his bad policies leaving them largely unblemished by the Trump stain. Namely: deregulation (he might be the best deregulator since Carter), tax reform, criminal-justice reform, and court appointments (SCOTUS et al.; these various appointees will soon enough stand on their own records, and I believe they are largely good to very good). 
• He is moving the Overton Window on questioning those in power while demystifying and deglorifying public office and the presidency in particular. 
• He is tarnishing if not absolutely destroying the political positions of protectionism, strict immigration restriction, and general intolerance for others. Perhaps once he is done, the mere appearance of being against free trade, immigration, etc. will be political poison for fear of being branded another Trump. Obviously, this is an optimistic take.
• He has been only as bad if not better than Obama and certainly better than Bush Jr. on war and conflict. 
• On the other hand . . .
• He is morally ugly, hateful, and gross.
• His behavior is embarrassing and insulting.
• He seems to inspire our lesser selves.
• He is dangerous in different ways than the recent and possible alternatives--understand this to be far-left tail risk very much including war along many dimensions.
• He risks giving free-market capitalism and traditional American (aspirational) values a lasting, negative connotation. 

Thinking about The Big Five, here is how I would rate the Trump presidency:

1. Drug Prohibition - 1.75 out of 4 stars (this improves to 2.75 stars if he legalizes marijuana)
2. Education - 2.5 out of 4 stars
3. Immigration - 0 out of 4 stars
4. Taxation - 3 out of 4 stars
5. War - 2.25 out of 4 stars 

For a very good related post, check out Fake Nous.