economics

An open letter to college admissions departments opens with this:

As a physics teacher who recently resigned from Loudoun County Public Schools, one of the wealthiest and fastest-growing public school districts in America, I urge you to altogether stop considering high school grades in your admissions process and decisions.

It’s a grim catalogue of the ways a decentralized grading system can be gamed. The bottom line is that, to those that care about such things, the advantages high grades can offer, in terms of lifelong opportunity and short term scholarships, are worth a LOT.

The average teacher has no counter to the force of that desire; it’s just a job for them, at the end of the day. For parents of a certain mindset, it’s life and death. If all it took to upgrade your kid from mid-tier to top-tier college was teaming up with him/her to make every teacher from K-12’s life a living Hell, would you?

In case you’re thinking it’s the teacher’s professional duty to resist this, consider what our author quit teaching to do:

The focus on grades is killing American education. In my book, “Full Ride to College,” I specifically teach students how to engineer their grades and exploit the weak correlation between grades and mastery, thus giving students a competitive advantage without the inconvenience of working hard and learning. While I consider this strategy to be a mockery of American education, it is also effective.

Remember that Goldman exec who quit via the NYT?

Here was my conclusion:

It’s either a book, a political appointment or his own hedge fund. Any other business and I’d say reality TV show.

Well, here’s today’s news:

Greg Smith, the former Goldman Sachs executive who resigned in spectacular fashion last week byblasting the firm in an Op-Ed page article in The New York Times, is now shopping a book proposal to major publishers in New York, several people with knowledge of the conversations said.

Now, I might have been pretty impressed with myself, except…

In meetings, Mr. Smith came across as mild-mannered, polite, spare with details but sincere, publishers said…

…timing may be a problem if the book is released later this year or next year, many months after Mr. Smith first leapt into the news.

“The book will likely feel dated,” an executive said. “It’s a story that had its moment.”

I gasped when I read that. It means a few things:

1. He only just thought of the idea of a book. Or took a cold call from an agent.
2. Either way, this means the NYT article wasn’t a calculated move.
3. This means he was simply an embittered employee lashing out. All was as it seemed.
4. I’m sorry to be crass but this means Greg Smith is an idiot.

He actually burned his bridges without considering the long term consequences. Now he’s scrambling to capitalize on his 15 minutes of fame.

Except 15 minutes is REALLY short. He should have had a strong first draft of that book done to nail down the advance and publish in a couple months.

He should have had an agent with contacts in multiple media to maximize what he could extract from the ant-Goldman furore he’d create in the ex-ante best case scenario, which actually came to pass. You do this with non-scalable media interaction (talk shows, interviews, etc) until the scalable medium (book) is ready.

Even given that he effed all that up, he picked the wrong agent. He should have gone with an agent that told him all this and then scrambled to make up for lost time. This should have been his plan:

• Take a long hard look at Greg and figure out if he’s TV-worthy. He probably is. If not, he’s probably close and would be fine with a coach and some rehearsal sessions.
• Get him on TV within 3 days.
• Immediately hire a competent writer to interview Greg and ghostwrite a strong, abbreviated draft/outline of the eventual book. You need something to pitch. Needs to be done right after he moves out of the news cycle, in about a week or two. (Which is about now, by the way).
• Put an excerpt of that draft, essentially a long form of his resignation op-ed, into a magazine of some sort. Esquire or Vanity fair or something.
• It all might end here. The best case from this point is a book in 8 months and/or a series of speaking gigs for Greg.

Somebody will give him the book with little or no advance, I’m sure. And he’ll probably publish it and it will probably suck because he’ll be firmly entrenched among the B and C players of the media world by then.

He obviously didn’t know it, but that op-ed opened the door for him to assemble an A+ team of media types. They would have made him famous and rich in ways only the American hype machine can.

But he didn’t even see the opportunity.

I remember a marketing prof in University describe discounts, coupons and related tactics as marketing “crack”. Once you feel the rush of that top line boost, it’s hard to get off it.

Ultimately, though, you succumb to your addition. Crack saps your profits and destroys your business in all kinds of direct (lower/negative margin) and indirect (consumers begin anticipating discounts and so you cannibalize your own reg-price sales) ways. Some take it to silly extremes.

This is most common with scalable product businesses and I’ve seen it happening in real time with Rao’s tomato sauce.

This stuff is awesome. But it costs between $8 and $10 a jar. Lunatic prices for tomato sauce, if you ask me, but wow is it good.

Now you might ask how I know it’s so good if I recoil from spending so much on a jar of preserved tomatoes, olive oil and seasoning? Well I never spend $8 because it often and erratically goes on sale.

We normally buy Rao’s for about $4 a jar (and sometimes maybe for $6), which has happened three times in the last 8 months, if I remember correctly. Each time it happens we buy more: the last haul was 6 jars. Enough, perhaps to last us until the next sale.

Anyway, what about the effects on businesses that don’t scale as well?

Well, today I learned about another possible downside to top-line boosting strategies. This paper comments on the reputational effects of daily deal sites like Groupon:

Our analysis shows that while the number of reviews increases signicantly due to daily deals, average rating scores from reviewers who mention daily deals are 10% lower than scores of their peers on average.

Wow. The abstract doesn’t go into detail on what they think the causal mechanism is here (or of any possible measurement biases – pbbt, like they would do that), but can it be true that Groupon destroys business quality?

The typical Groupon business is small and local, which means they are probably disproportionately reliant on the skill of a single owner and/or one employee. They can’t expand easily and they probably have limited physical space in the store. These things probably spell disaster when a horde of new customers come all at once.

hat tip dr data

I always cringe a bit when I hear of some politician or other trying to “spur innovation” or “create a ‘Silicon Valley’ in ______”. They clearly don’t know (or care?) what they’re talking about.

So I enjoyed an article in last week’s Economist on the topic:

But in the 20th century, as Britain’s trade swung away from the Atlantic towards Europe, the city got into the habit of resisting innovation rather than embracing it. Liverpool became a hotbed of militant trade unions, which hastened the decline of the shipping industry (by striking against containerisation, for example) and almost wrecked the municipal government.

Politicians want to affiliate with the prestige of successful entrepreneurs and cutting edge technology. But the bottom line is that they are constitutionally incapable of embracing the ONE thing that makes entrepreneurial culture tick.

Failure. Lots of failure. TONS of failure. Not just failure of nascent startups themselves, failure of incumbents, annihilation of jobs, industries and established patters of commerce and trade.

Protect last year’s champions (the current employers of all your voters) and you crush innovation.

My view is that innovation is the base case; it’s honestly a very natural thing for humans to do. It is stifled quite deliberately for fear of its consequences.  The only pro-innovation policy, therefore, is to give up the power to stop it.