Kurt Johnson

I’m taking the Wharton GIP to India over winter break this year. It’s meetings on business issues 8-5 (e.g., touring companies with alums or meeting politicians) and sightseeing on evenings and weekends. I’m excited about it; I’ll miss being in the states but it’s a very temporal opportunity to get a very nicely structured tour with local connections.

Quoted at Infectious Greed:

… the more experience I have, the more I realize that the whole idea of business school is completely self-perpetuating. Heads of organizations had to go, so they require (either explicitly or otherwise) those below them to go, who in turn do the same. It’s a badge of completion that comes with funny acronyms, a well-connected network and an amazing ability to make the simple sound complicated. All in all not too different from a college fraternity……I’m surprised [MBA] diplomas don’t come with a paddle. Yikes.

As I’ve noted before the most powerful predictor of graduate performance is usually the quality of students supplied to the school rather than anything the school applies to them after matriculation. There’s certainly some truth in the stereotype of a top tier MBA as a credentialing process; companies may be taking the $25,000 they’d pay a headhunter to find a reasonably bright, ambitious, personable team player and instead paying the student (who in turn passes the $25,000 back to the school via tuition). In this model an elite MBA’s admissions office is earning their wage as a corporate headhunter, one degree and 30 months removed from placement.

Controlling for this effect, does the 2 year MBA program add value or should we just stop the process as soon as admissions notifications go out and pick up our new job offers? There’s certainly some graduates who apply almost nothing from the MBA curriculum and other graduates who generate huge gains to both themselves and society using the frameworks from school. But what about most people in the middle? What determines whether the degree is a net gain or net loss? By the way, I think picking on MBAs here is aiming a little high - why not take on all of the degree programs in social work, art history, wildlife management, or “[XYZ demographic] studies” that probably never get used? Relative to a professional degree in applied mathematics/sociology/management thesue are much easier targets to abuse.

I’ve heard concern from Brad DeLong and Warren Buffet about the amount of talent and energy seeking out a limited number of jobs in finance and banking. I.e., this is a field that should require relatively small amounts of labor but we have tens of thousands of people tripping over themselves in the job lottery. Maybe a fair analogy would be all of the 98th percentile athletes in high school or college who neglect their studies to invest time in ballhandling skills - they’re hoping for the pro ball career that will make them $20mm by age 35 while denying or ignoring that they’re only 98th percentile, not the 99.99th + holding the “lottery ticket” that will actually make their dream work.

In the analogy society is losing out because a lot of people who could contribute intellectually and materially (as skilled workers) instead roll the dice on becoming a star, many of them squandering very tangible opportunity and becoming relatively unskilled labor when their dream doesn’t work out. By the time the rationing process happens, sorting winners from losers, the losers have made huge investments that they’ll never recoup. You could probably make a case that MBAs do the same thing with corporate finance; would business and society work better if most MBAs spent more time on organizational behavior, leadership, or process design and less on the nuances of efficient portfolios and LBO mechanics that 99% of students will never get a chance to apply?

Steve Jobs, Commencement @ Stanford. It’s one of the best commencement speeches I’ve heard/read - well tailored for the audience, I think - and it touches on things I’m thinking about as I consider what to do after business school.

Via future classmate Britchick comes this recap from a GMAC meeting where MBA admissions officers discuss their hits and misses in evaluating applicants. Nothing earth shattering, but kind of a nice checklist all in one place….since the things that make good MBA students also make good employees it’s a good list to think about when interviewing regardless of which side of the table you’re on.

One excerpt:

One red flag that is often ignored but should be taken seriously, said some symposium participants, is excessive contact with the admissions office. Termed “Hassler Syndrome” by one participant, extreme dependency on the admissions office may signal a lack of self-confidence that manifests itself as neediness. This trait may show up later in the learning environment, when the student is unable to contribute meaningfully to classes and work groups and becomes known as a “net taker.” The same person may be a drain on career services, unable to take initiative in a job search.

I’ll take the “Hassler” notion one step farther - I question some of the folks that spend hours a day on message boards. At the very positive end of the continuum are board users who are net contributors, sharing valuable experiences. Then there is a sizable body of needy affirmation seekers - on b-school message boards these are the “what are my chances at X school” posts but similar characters exist on Brand X car boards or wherever. These posts add signifcant mass but minimal value to the community. Finally there are the pure trolls and bullies who tear people down without adding intelligent commentary; these folks drive off the good people with short fuses for BS.

In my experience practice tests for various standardized exams have a significant downward bias (the exception being people who ‘don’t test well’ due to stress or other conditions at the actual exam). This is good strategy for test prep companies since it A) scares people who take a practice exam into purchasing more test prep and B) leave consumers feeling good about outperforming their benchmark instead of being upset about perceived underperformance.

One of the factors for the downward bias is that actual test questions are generally very carefully worded to eliminate ambiguity; practice questions are sometimes sloppily phrased and can be argued multiple ways.

This all comes to mind because I’m on Level 2 of 3 in the CFA exam. Schweser’s study notes and practice exams for Level 1 were quite good. So far Level 2 notes are fairly sloppy and I’ve heard Level 3 are even worse. Is Schweser depending on people to stick with the same note provider once they’ve started the program? There’s not anything to stop people from buying their next level’s notes from a different company (you buy each year independently) but there’s certainly some inertia that makes me want to stick with the style/brand of notes I’ve already gotten comfortable with. Thus it probably is good strategy for Schweser to throw their best talent at Level 1 and compromise quality on levels 2 and 3.

Where else does this strategy apply? Private schools whose students find it harder and harder to transfer after each incremental year in the system?

I haven’t heard anything back from either Wharton or Columbia since turning my applications in about a month ago. Wharton has committed to telling me this week whether they’ll be interviewing me or rejecting me outright. Columbia only commits to a decision within 12 weeks of submission (=mid April my case). If I manage an acceptance Susanne and I will start the process of getting her licensed and interviewing for PA jobs in either NYC or Philadelphia (probably at another Emergency Room) and finding housing.

I’m now having regular panic attacks whenever I consider having to compress and move our Texas-sized apartment and furnishings to a more austere living space fifteen hundred miles away. Regardless of what happens with school we’re planning on taking a trip somewhere exotic in July (seizing the childless years of marriage). We’d love to do Vietnam but July is an unworkable month due to heat and rainstorms that cause road closures and other disruptions. In lieu of Vietnam we’re thinking about somewhere farther north in East Asia (dryer/cooler weather) or Tanzania.

I’ll post status updates on the web as I get them.

Becker/Posner had a post today about student loans - a special pleasure I’ll be treating myself to if my applications are successful. Their original posting is here. I added my comments to Becker’s thread but also reproduce them below.

I also saw an AP article in the Houston Chronicle today on the same topic. It touches on two different people struggling with debt from anthropology degrees and how they have not been able to find high paying jobs in their field after graduation. A recent Dilbert cartoon sums up my reaction nicely (sorry for the linkfest). Any recent/indebted graduate who claims to be shocked that high-paying anthropology jobs are in short supply should have their PhD suspended for not doing two hours of common-sense career research before they started their program. I’m all for doing what you love, but realize that a PhD in anthropology will basically leave you impoverished for life (at least by the standards of your friends who stopped going to school after a BS in engineering). Do it, love it, just don’t complain after the fact about being broke.

By the same logic, my friends who have taken jobs they don’t love in exchange for wealth have no ground to complain about how they don’t love their job - in this land of free career choices and cheap student loans they should be able to do anything they love as long as they do it well and are willing to accept pecuniary sacrifices.

My comments on Becker:
As DanT and Tom have already noted, privatizing student financing would likely result in lower borrowing costs for high income/technical professions. This seems like a fair application of the market’s cost of risk - loans to lower income non-professional degrees carry a higher default risk that the lender should be compensated for. If government determines that there is a non-economic benefit to having liberal arts majors the government should rebate some of these higher borrowing costs in the form of grants rather than indiscriminately subsidizing all study areas.

I also take the view that most of the additional aid that is granted to students ultimately becomes a wealth transfer to college administrations as they raise their prices to absorb most of the additional aid (given a lag of a few years). Thus the “real” or ex-aid cost of education to end users will remain roughly the same regardless of the aid level. This is the fundamental reason that colleges will oppose removing loan subsidies.

Finally, American colleges and governments have already made education cheap and accessible enough that affordability is no longer a rational excuse for the serious student. To oversimplify this, assume that census data indicates the value of a college education at $1,000,000 of incremental lifetime income and requires debt financing of $25,000. How many students would have taken this opportunity at a 3% finance cost but will turn it down at 6%? To any rational consumer it’s a slam dunk at either price.