Tag Archives: University of Michigan

Lessons from Economics at U of M

Last week, a 2007 Berkley graduation speech by Nobel prize winner Thomas Sargent made the rounds on the blogosphere. Ezra Klein at Vox was one of the first to share. Dr. Sargent’s concise speech – it was less than 300 words – summarized what he felt are some of the most important lessons economics teaches. While there has been some criticism from commentators like Paul Krugman and Noah Smith, I wanted to look at Dr. Sargent’s lessons and see how they aligned with the lessons I am taking away after receiving Economics and Business degrees from the University of Michigan.

Dr. Sargets first two points, from my perspective, are some of some of the most important basic lessons in economics:

1. Many things that are desirable are not feasible.

2. Individuals and communities face trade-offs.

These are lessons learned in Economics 101 and 102. I remember the first week of Economics 101 with Professor Malone, we learned the concept of opportunity cost. In a world of limited resources, like the one we live in, there are trade offs and desirable outcomes that are just not feasible. These lessons were hammered home in 102, and taken as a basic assumption in upper level courses, but learning them was an important point in my economics education.

The next point that I feel my Michigan Economics education hammered home was:

5. There are tradeoffs between equality and efficiency.

My favorite economics class taken at the University was Econ 482 – Government Revenues with Professor Jim Hines. The class was almost entirely about the economics of taxation, and Professor Hines was a passionate and incredibly knowledgeable instructor in the subject. This class, more than any other, gave me an understanding of the difficult trade off policy makers face when designing a tax system. On the one hand, taxes are distortionary and cause deadweight loss, so in order to minimize the cost to society of taxation, policy makers should look for the most efficient forms of tax. The trade off here is that the most efficient forms of tax – like a propery tax, or a tax on a life saving drug – also typically are the most regressive and have the worst equality properties. Other classes, such as Government Regulation have dealt with this issue as well.

The last of Dr. Sargent’s points that I want to discuss is:

12. Because market prices aggregate traders’ information, it is difficult to forecast stock prices and interest rates and exchange rates.

As a business student with an interest in finance and a future investment banker, this point is especially important. In Finance 300 and this class – Econ 411 – we learned about the Efficient Markets Hypothesis. Beating the market is incredibly difficult to do, as discussed in a Random Walk Down Wall Street, because in financial markets information is disseminated immediately and reflected in the price of an asset. In order for a trader or an investor to have abnormal returns, they must rely on analysis that no one else is doing or have information others do not have. Insider trading is illegal and independent analysis can be right or wrong, so beating the market is incredibly difficult to do, even though countless friends and colleagues will attempt to do so for the rest of their careers.

Overall, it is not a perfect list, but some of Dr. Sargent’s points really hit home for me as I near the end of my economics and business education. I hope to keep these points in mind as I begin my professional career and realize the true value of an economics degree.


(Revised) Is a Storm Coming for the NCAA?

Players on the football team at Northwestern University, led by graduating quarterback Kain Colter, are on the right track in their quest to force the National Collegiate Athletic Association (NCAA) to change its policy on how college athletes are treated. The athletes – particularly those in division 1 men’s basketball and football – believe they behave more as employees than students. In turn, they want to be compensated as such. The NCAA – and the universities they attend – think the full tuition scholarship and living stipends they receive, along with the opportunity to earn a degree, are plenty. In March, the National Labor Relations Board ruled in favor of the players and granted them the right to unionize at Northwestern University. Could this spark a huge change in how the NCAA operates?

The recent win must be taken with a grain of salt, as Northwestern University has already pledged to appeal to the NLRB national headquarters in Washington, D.C. However, the strong decision by Chicago’s regional NLRB director, Peter Ohr, may make it hard to reverse. Ohr’s argument centered around the massive practice regimes that players must adhere to, which exceed their time used academically. At the hearing, Ohr argued, “Not only is this more hours than many undisputed full-time employees work at their jobs, it is also many more hours than the players spend on their studies.”

“This ruling would potentially be the beginning of the end of the NCAA as we know it,” (WSJ)

Even if the unionization push ends in vain, putting the NCAA under the microscope has led to a number beneficial changes for the athletes. In April, star point guard Shabazz Napier of the NCAA champion Connecticut Huskies spoke out, saying he sometimes went to bed “starving” due to the inability to afford food. Shortly after, the NCAA eliminated rules on food restrictions and granted an unlimited food allowance for athletes. NCAA president Mark Emmert later said that “the NCAA has historically had … dumb rules about food.”

NCAA players have long sought to be compensated more generously for their contributions on a college campus. For instance, former Michigan QB Denard Robinson’s jersey graced most closets across the Ann Arbor campus but he was unable to request a penny until after his graduation (when he was legally able to host paid autograph sessions)1. The complicating issue, however, is that the vast majority of college athletic programs fail to bring in revenue and annually end up in the red. The minor sports that fail to draw crowds and sell merchandise are funded by bigger programs – such as the Michigan football and men’s basketball teams – or are subsidized by the university. In 2012, just 23 of 228 division I athletic departments were profitable.

That complication likely will end all talks of each NCAA athlete getting some sort of compensation package and spark a new conversation for allowing licensing and sponsorship deals for star athletes. This, in my mind, is a natural progression for the NCAA in a time where 19 year-old student-athletes are forced to make a decision: take the guaranteed money by going professional or stick around to finish a degree. With the risk of injury every day, more often than not they are heading off early for the National Basketball Association (NBA) or National Football League (NFL).

While talks of creating monthly stipends of $1,000 to athletes may continue and even be passed through eventually, there is little other traction for a solution with equality for all. Simply put, the model for college athletic programs can’t sustain itself if paying athletes in minor sports more than the already-generous full tuition and living expenses. If Washington D.C. passes a verdict similar to Ohr’s, we can expect the NCAA to tailor things for their star players moving forward through merchandise revenue-sharing and allowing them to accept sponsorship deals through University sponsors (for instance, allowing basketball star Nik Stauskas to take a sponsorship deal from existing school-sponsor Adidas). If that type of deal was enough to prevent Stauskas2 from leaving after his sophomore season for the NBA, there would be a significant benefit for the school financially. It is, after all, all about the money.

  1. he was never given a percentage of his jersey sales 

  2. Stauskas and teammate Glenn Robinson III announced on April 15 that they are declaring for the NBA draft and forgoing their final two years of collegiate eligibility