Series 65 for Economists

James Bailey7 Comments

Financial discussions often give the disclaimer “this is not investment advice” for legal reasons. I would always see this and wonder, is anyone ever willing to say “this *is* investment advice”?

The answer is, yes, licensed investment advisers do when speaking to their clients. How do people become licensed investment advisers? They start by taking the Series 65 exam.

I decided to take the Series 65 because I thought it would be a good learning opportunity, that it could be fun to tell people “this is investment advice”, and because it also provides the fast track to becoming an accredited investor. I’d like to have the option to invest in startups or hedge funds, but the SEC doesn’t let people do that unless they are rich (consistently over $300k/yr HH income, or $1mil in assets) or a licensed financial professional. I didn’t want to wait years to pass the income or asset tests, and so decided to pass the literal test instead.

I hoped that as a PhD economist who sometimes reads about finance for fun, I could pass the Series 65 without studying. This turned out not to be true, but it also wasn’t wildly wrong. You need to get at least 72% of questions correct to pass; taking a practice test cold I got 62%. I decided to first take the slightly easier Security Industry Essentials exam as a warmup. For both exams, I passed after spending ~ 2 weeks reading through the ~500 page study guides from the Securities Institute of America in my spare time.

For someone with an economics background, the exams will feature a few true econ questions you’ll know cold, a lot of “common sense” finance questions you probably know, some more specific finance questions you probably don’t know, and some specific questions about laws and regulations for investment advisers you almost certainly don’t know. This means you can speed through some parts of the study guide, but will need to slow way down in others. I found myself learning a roughly equal mix of things I’m happy to know for their own sake, things that would only be helpful to the extent I actually work as an investment adviser, and things that seem completely pointless.

Overall this seems like a decent way to spend a bit of time and money. Economists love to complain about people asking us for financial advice, and we tend to either reply “I don’t know, that’s not what economics is about” or give uninformed answers. But it doesn’t take that much time to educate yourself enough to be able to give people good, informed answers, so I think we should do so, especially when the alternatives people turn to tend to either be uninformed (friends or internet randos) or biased (advisers who get paid for steering them to high-fee investments).

That said, if your goal is actually to make money as an adviser or as an accredited investor, the Series 65 exam is only the first hoop to jump through. You still need to get licensed, which means either starting an investment advisory firm or joining one. I haven’t tried to do this yet despite passing the Series 65 in June, as I’ve been busy with my main job. I’d be interested to hear from anyone who has done this, especially anyone who got a part-time or consulting role just to get licensed to make accredited investments. How hard was it, how long did it take, what did you think of the actual work?

“Superabundance” Review

Jeremy Horpedahl7 Comments

Are resources becoming scarcer as world population increases and per capita consumption increases? Are basic goods becoming more expensive relative to wages in the face of potential resource shortages? These are some of the main questions that are addressed in the just released book Superabundance by Marian Tupy and Gale Pooley. The authors were kind enough to provide me with an advance copy, which is why I’m already able to review this book on its release date (I’m not really that fast of a reader).

The author take a very optimistic view of the issues surrounding those opening questions. Properly measured (one of the key tasks of their work), resources are becoming more abundant, not more scarce. And properly measured, almost all consumer goods are becoming cheaper relative to wages.

The authors use the approach of “time prices” throughout the book. They are not the first to use this approach. Julian Simon (their inspiration for this project) used it in various places in his work. William Nordhaus famously used it is in paper on the history of the price of lighting. And Michael Cox and Richard Alm have used the time-price approach in many of their writings, from the 1997 Dallas Fed annual report, to a full-length book a few years later, as well as updates to the original 1997 report. And if you follow me on Twitter, I like to use this approach too.

In short, “time prices” tell us how many hours of work it takes to purchase a given good or service at different points in time. How many hours would you have to work to buy a pound of ground beef? A square foot of housing? An hour of college tuition? It’s the superior method when you are looking at the price of a particular good or service over time, compared with a naïve inflation adjustment, which only tells you if the price of that good/service rose faster or slower than goods or services in general, not if it’s become more affordable. Inflation adjustments are really only useful when you are trying to compare income or wages to all prices, to see if and how much incomes have increased over time. Of course, which wage series you choose is important (and you need to have a consistent series over time, or at least the end points), but as the authors point out (which they learned from me!), if you looking at wages after 1973, the wage series you use doesn’t matter much. Median wages, average wages, wages of the “unskilled” — these all give you the same trend since 1973. We don’t have all of these back earlier (especially median wages), but there’s not much reason to believe they’ve diverged that much. And the authors also present their data using multiple wage series in many of the charts and tables.

What do the authors find?

Continue reading →

High Yield Investing, 2: Types of Funds; Loan Funds; Preferred Stocks

Scott Buchanan3 Comments

Types of Funds: Exchange-Traded, Open End, and Closed End

Some investors like to pick individual stocks, while others would rather own funds that own many stocks.  For bonds, investors usually own funds of bonds rather than taking possession of individual bonds.

A straightforward type of fund is the exchange-traded fund (ETF). This holds a basket of securities such as stocks or bonds, and its price is constantly updated to reflect the price of the underlying securities. You can trade an ETF throughout trading hours, just like a stock. If you simply hold it, there will be no taxable capital gains events. Many ETFs passively track some index (e.g. the S&P 500 index of large company stocks) and have low management fees.

An open end mutual fund also trades close to the value of the baskets of securities it holds, but not as tightly as with an ETF. You can place an order to buy or sell an open end fund throughout the day, but it will only actually trade at the end of the day, when the share price of the fund is updated to the most recent value of the net asset value. A quirk of open end funds is that buying and selling by other customers can generate capital gains for the fund, which get distributed to all shareholders. Thus, even if you are simply holding fund shares without selling any, you may still get credited with, and taxed on, capital gains. Also, if a lot of shareholders sell their shares at the bottom of a big dip in prices, the fund must sell the underlying securities at a low price to redeem those shares. This hurts the overall value of the fund, even for customers who held on to their shares through the panic.

Some open end mutual funds offer skilled active management which may meet your needs better than an index fund. For instance, the actively-managed Vanguard VWEHX fund seems to give a better risk/reward balance than the indexed junk bond funds.

Closed-end funds (CEFs) are more complicated. A closed-end fund has typically has a fixed number of shares outstanding. When you sell your shares, the fund does not sell securities to redeem the shares. Rather, you sell to someone else in the market who is willing to buy them from you. Thus, the fund is protected from having to sell stocks or bonds at low prices. The fund’s share price is determined by what other people are currently willing to pay for it, not by the value of its holdings. Shares typically trade at some discount or premium to the net asset value (NAV). The astute investor can take advantage of temporary fluctuations in share prices, in order to buy the underlying assets at a discount and then sell them at a premium. CEFs are typically actively managed, and employ a wider range of investment strategies than open-end funds or ETFs do. CEFs can raise extra money for buying interest-yielding securities by borrowing money. This leverage enhances returns when market conditions are favorable, but can also enhance losses.

Bank Loan Funds

One type of debt security is a loan. Banks can make loans to businesses, with various conditions (“covenants”) associated with the loans. Banks can then sell these loans out into the general investment market.

Most commercial loans are floating-rate, so the interest received by the loan holder will increase if the general short-term commercial interest rate increases. Thus, the loan holder is largely protected against inflation. Loans typically rank higher than bonds in order of payment in case the company goes bankrupt, and some loans are secured by liens on particular company-owned assets like vehicles or oil wells. For these reasons, in the event of bankruptcy, the recovery on loans is higher (around 70%) than for bonds (average around 40%).

Various funds are available which hold baskets of these bank loans, also called senior loans or leveraged loans. One of the largest loan funds is the PowerShares Senior Loan ETF (BKLN), which currently yields about 4.5%. Most of its loans are rated BB and B, i.e. just below investment grade.   There are also closed end funds which hold bank loans, which yield nearly twice as much as the plain vanilla BKLN ETF, by virtue of employing leverage, selling at a discount to the actual asset value of the fund, and expertly selecting higher yielding loans.  For instance,  the Invesco Senior Income Trust (VVR), which I hold,  currently yields 8% , which is enough to keep up with inflation.      

High-Dividend Common Stocks

Most “stocks” you read about are so-called  common stocks. Most company common stocks are valued for their potential to grow in share price or to steadily keep increasing the size of their dividend. The average dividend yield for the S&P 500 stocks is about 1.6%, which is lower than the current yield of the (risk-free) 2-year Treasury bond.

There are some regular (C-corporation) stocks which are not expected to grow much, but which pay relatively high, stable dividends. These include some telecommunication companies like AT&T (T; 6.5%) and Verizon (VZ; 5.9%), electric utilities like Southern (SO; 3.5%) and Duke (DUK; 3.7%), and petroleum companies like ExxonMobil (XOM; 3.6%). Investors might want to buy and hold some of these individual stocks, since these are among the highest yielding, high quality stocks. Broader funds which focus on large high-quality, high-yielding stocks tend to have lower average yields than the stocks mentioned above. For instance the Vanguard High Dividend Yield Index Fund (VHYAX) currently yields only about 3.2 % .  

Preferred Stocks

Companies, including many banks, issue preferred stocks, which behave more like bonds. They  often yield more than either bonds or common stock. Like bonds, most preferreds have a fixed yield; some convert from fixed to floating rate after a certain number of years. Unlike bonds, most preferreds have no fixed redemption date. Fixed-rate preferreds are vulnerable to a large loss in value if interest rates rise, since the shareholder is stuck essentially forever with the original, low rate. On the other hand, if interest rates drop, a company typically can, after a few years, redeem (“call”) the preferred for its face value (typically $25) and then issue a new, lower-yielding preferred stock.

Preferred shares sit above common stock but below bonds in the capital structure. Companies have the option of suspending payment of the dividends on preferred stock if financial trouble strikes. However, a company is typically not permitted to pay dividends on the common stock if it does not pay all the dividends on the preferred stock.

The largest preferred ETF is iShares US Preferred Stock (PFF). It yields about 5.8%, but holds mainly fixed-rate shares. The PowerShares Variable Rate Preferred ETF (VRP; 5.9%  yield) holds variable or floating rate shares, which helps insulate investors from the effects of interest rate raises. The First Trust Intermediate Duration Preferred & Income Fund (FPF) is a closed end fund with more than half its holdings as floating rate. Due to use of leverage and selling at a discount, the fund yield is a juicy 7.9%.

My favorite class of high yield investments is business development companies, discussed here.

Happy investing…

Papers I’ve been reading

mdmakowskyLeave a comment

In no particular order:

Moonshot: Public R&D and Growth by Shawn Kantor and Alexander Whalley. Whether its going to the moon or vaccinating a country, government spending sure seems to have a much better impact when there is a big, bright, and highly-specific outcome target.

The Economic Consequences of Being Denied an Abortion by Sarah Miller, Laura Wherry, and Diana Greene Foster. Being denied an abortion leads to significant financial distress.

Preferences for Firearms and Their Implications for Regulation by Sarah Moshary, Bradley Shapiro, and Sara Drango. Different types of guns serve as strong substitutes for each other, which will likely temper any regulatory effects from limiting one or more specific strata of firearms. As with any regulation, narrowly identifying what it is you want and expect from the policy remains the key to making an evidence-based argument for it.

A panel-based proxy for gun prevalence in US and Mexico by Daniel Cerquiera, Danilo Coelho, John Donohue, Marcelo Fernandes, and Jony Pinto Junior. Using “percent of suicides committed with a firearm” remains a the best proxy for firearms. Regional variation across the US remains exactly what you’d expect in the US. Is the same true of Mexico?

BONUS PAPER. From twitter this morning:

How Much Should We Trust the Dictator’s GDP Growth Estimates? by Luis Martinez

I’d seen this before, but I think about all the time. We don’t give nearly enough time consideration ro the endogeneity of results to the incentives behind data creation/recording anywhere, let alone autocratic countries. I get why – it invites the dismissal of any data inconvenient to your status quo thinking, but ignoring it completely is foolish.

Economics in Wedding Season

Joy Buchanan4 Comments

You watch a romantic comedy to feel good. I was tired at the end of last week, so “Wedding Season” Netflix looked like it might be funny. I was not expecting that the protagonist would be an economist.

First, how was the movie? The first half was somewhat entertaining. The second half is too sappy and long for me.

This movie is one of the few movies I know that is just unironically set in New Jersey. There were no jokes about Jersey or Shore folk. New Jersey is where immigrant families from India are making dreams come true. The dialogue about immigrant Indian culture, including arranged marriages, was interesting.

You know the trope about a character becoming rich because they inherited money from an estranged uncle? In Wedding Season, the guy becomes unexpectedly rich from Facebook stock.

Second, how was economics portrayed?

Here is the plot summarized by Wikipedia

Asha is an economist working in microfinance who has recently broken off her engagement and left a Wall Street banking career behind to work for a microfinance startup in New Jersey. Asha’s mother Suneeta, concerned for her future and against the advice of her husband Vijay, sets up a dating profile through which Asha meets Ravi.

In the beginning of the movie, Asha pitches microfinance to investors from Singapore. Asha tries to convince them using graphs and statistics. The investors turn her project down.

Microfinance was hyped in the 2000’s. I believed, so I became a Campus Kiva Representative as an undergraduate. I convinced teens in my dorm to pool our dollars to sponsor a loan for a woman in a poor country. Since then, economists have done empirical work to show that microfinance is not as effective as we hoped (see work by 2019 Nobel Prize Winners Esther Duflo and Abhijit Banerjee). The filmmakers either do not know the latest research or they don’t care. The pitch is still as emotionally appealing as it was when I heard it for the first time 15 years ago, so it makes for good movie scenes.

The irony in Wedding Season is not only that Asha succeeds in getting bankers from Singapore to invest in microfinance but also how she goes about it.

Continue reading →

The Future of Student Debt

James Bailey2 Comments

Yesterday the Biden administration announced that is forgiving up to $20k per person in student debt. So far we’ve seen lots of debate over whether this was a good/fair idea; as an economist who paid back his own debt early, you can probably guess what I have to say about that, so I’ll move on to the more interesting question of what happens now.

…after sharing one tweet
OK one more, but I promise its relevant

The above is a quote from Thomas Sowell as a political commentator, but he was also a great economist. His book Applied Economics says that the essence of the economic approach to policy analysis is to not just consider the immediate effect, but instead to keep asking “and then what?” So let’s try that here.

We’ll start with the immediate effects. Those whose debt just fell will be happy, and will have more money to spend or save in other ways. The federal government is on the other side of this, they’ll receive less in debt payments and so will have to fund themselves in other ways like borrowing money or raising taxes. People are still trying to estimate how big this transfer from the government to student debtors is, but let’s take the Penn Wharton Budget Model estimate of $330 billion (the actual cost is likely higher, since that estimate is for $10k of loan forgiveness, but the actual program forgives up to $20k for those who had Pell grants). Dividing by US population tells you the cost is roughly $1000 per American; dividing by $10,000 tells you that roughly 33 million debtors benefit.

OK, what happens next? The big question is: is this a one-time thing, or does it make future loan forgiveness more or less likely? Later I’ll make the argument for why the answer could be “less”. But right now most people seem to think the answer is “more”, and that belief is what will be driving decisions.

If current and future students think loan forgiveness is likely, they have an incentive to take out more loans than they otherwise would, and to pay them off more slowly (particularly since income-based repayment was just cut from 10% to 5% of income). This higher willingness to pay from students gives colleges an incentive to raise tuition; historically about 60% of subsidized loans to students end up captured by colleges in the form of higher prices:

We find a pass-through effect on tuition of changes in subsidized loan maximums of about 60 cents on the dollar, and smaller but positive effects for unsubsidized federal loans. The subsidized loan effect is most pronounced for more expensive degrees, those offered by private institutions, and for two-year or vocational programs.

Source: https://www.newyorkfed.org/research/staff_reports/sr733.html

To the extent that you think student debt is a national problem, this action didn’t solve the problem so much as push it back 6 years; wiping out roughly 20% of all student debt brings us back to 2016 levels. So we could end up right back here in 2028, possibly faster to the extent that students borrow more as a result.

Source: https://fred.stlouisfed.org/series/SLOAS#

That, together with the “normalization” of student loan forgiveness, is why people think a similar action in the future is likely. But I’ll give two reasons it might not happen.

First, this action may have only reduced student debt by about 20%, but it reduced the number of student debtors much more (at least 36%), because most debtors owed relatively small amounts. It will take more than 6 years for the number of voters who’d benefit from loan forgiveness to get back to what it was in 2022, reducing support for forgiveness in the mean time.

Source: https://www.valuepenguin.com/average-student-loan-debt

That also gives Congress plenty of time to do something, even by their lethargic standards. Part of what bothers many people about this loan forgiveness is that it not only doesn’t solve the underlying issue of the Department of Education signing kids up for decades of debt, it will likely worsen the underlying issue through the moral hazard effect I describe above. Forgiveness would be much more popular if it were paired with reforms to solve the underlying issue. While we aren’t getting real reform now, I do think forgiveness makes it more likely that we’ll see reform in the next few years. What could that look like?

Let’s start with the libertarian solution, which of course won’t happen:

More realistic will be limits on where Federal loan money can be spent, and shared responsibility for colleges. Colleges and the government have spent decades pushing 18 year olds to sign up for huge amounts of debt. While I’d certainly like to see 18-year-olds act more responsibly and “just say no” to the pushers, the institutions bear most of the blame here. The Department of Education should raise its standards and stop offering loans to programs with high default rates or bad student outcomes. This should include not just fly-by-night colleges, but sketchy masters degree programs at prestigious schools.

Colleges should also share responsibility when they consistently saddle students with debt but don’t actually improve students’ prospects enough to be able to pay it back. Economists have put a lot of thought into how to do this in a manner that doesn’t penalize colleges simply for trying to teach less-prepared students.

I’d bet that some reform along these lines happens in the 2020’s, just like the bank bailouts of 2008 led to the Dodd-Frank reform of 2010 to try to prevent future bailouts. The big question is, will this be a pragmatic bipartisan reform to curb the worst offenders, or a Republican effort to substantially reduce the amount of money flowing to a higher ed sector they increasingly dislike?

Are Teacher Salaries Held Back by “Bloat” in K-12 Schools?

Jeremy Horpedahl1 Comment

In the past 20 years in the US, per pupil spending in K-12 schools has increased by about 20%. That’s in CPI-U inflation-adjusted dollars. What’s the cause of this increase? Higher teacher salaries? Administrative bloat? Something else?

Here’s a chart you may have seen floating around the internet. It shows the growth in the number of employees at K-12 public schools.

This looks like a lot of administrative bloat! The source of the data is the National Center for Education Statistic’s Digest of Education Statistics, Table 213.10.

But hold on, here’s another chart, showing the percent of employees in each of these same categories.

The numbers don’t add up to 100% because I’ve left off a few categories (the biggest one is “support staff,” which was 30-31% of the total throughout the time period). But overall, this chart appears to show much less bloat. Instructional staff (including aides) were by far the biggest category of employees in both categories in both time periods. Administrative staff at the district level did grow, but only by 1 percentage point of the total.

What’s the source of this data? Well, it’s a little trick I played. The source is the National Center for Education Statistic’s Digest of Education Statistics, Table 213.10. It’s the exact same data.

How is this possible?

Continue reading →

High Yield Investments, 1: Some Benefits of High Yield Stocks and Funds

Scott Buchanan2 Comments

A Case for High-Yield Investments

The data I have seen indicates that if you don’t need to draw down your investment for twenty years or more, you may do well to put it all in stock funds and just leave it alone. For reasons discussed here  the average investor will likely do better to buy an index fund like the S&P 500 rather than trying to pick individual stocks. The long term average return (including reinvested dividends) in the U.S. stock market has been about 10 %  before adjusting for the effects of inflation. (All my remarks here pertain to U.S. investments; hopefully some aspects may be applicable to other countries).

However, particularly as you age, financial advisors typically counsel investors to allocate some portion of their portfolio to more-stable fixed-income securities that generate cash to spend and keep you from having to sell stocks during a market downturn. Historically, long-term investment grade bonds have been used to provide steady cash, and to serve as an asset which often went up if stock went down. Thus, a 60/40 stock/bond portfolio was considered prudent. That model has been less useful in recent years, since bond yields have been so low, and since long-term bonds sometimes fall along with stocks, e.g. if long-term interest rates rise.

Another driver now for allocating some savings into non-stock investments is that after the large run-up in stocks last few years, which has far exceeded gains in actual earnings, the market may well muddle along flatter in the coming decade. In regular stock investing, you are banking primarily on stock price appreciation – you are counting on someone else paying you (much) more for your shares some years hence than you paid for them. But what if the “greater fools” don’t materialize to buy your shares?

Also, the inflation genie has been let out of the bottle, and it may be tough to get inflation back under say 4%; investment grade bonds are yielding appreciably less than inflation these days, so you are losing money to buy regular bonds.

Finally, if your stock is cranking out say 8% cash dividends, and you are holding it for those dividends rather than for price appreciation, when the market crashes (and this particular stock goes down in price, along with everything), you can be blithe and unruffled. In fact, you can be mildly pleased if the price goes down since, if you are reinvesting the dividends, you can now buy more shares at the lower price. Trust me, this psychological benefit is important.

Some High Yielding Alternative Investments

In this blog over the coming weeks/months we will identify several classes of securities which generate stock-like returns (around 7-10 % returns, if the dividends are continually reinvested) via dividend distributions rather than through share price appreciation. These securities often have short-term volatility similar to stocks, so they should be treated in the portfolio as partly as stock-substitutes rather than as substitutes for stable high-quality bonds. However, the better classes of high yield investments maintain their share prices over a long (e.g. 5-year) period, similar to bonds, but with much higher yields.

We will discuss High-yield (“junk”) bonds , senior bank loans, preferred stocks, Real Estate Investment Trusts (REITs), Business Development Companies, Master Limited Partnerships,   and selling options (put/calls) on stocks.  

I’ll close today with three examples of these high yield securities, which I have happily held for many years. They yield 8-9%, and their share prices have held relatively steady over the past five years:

Cohen&Steers Total Return Realty Fund (RFI). Current yield: 8.0 %

Ares Capital   (ARCC)   Current yield:  8.1%

Eaton Vance Tax-Managed Buy-Write Opportunities Fund (ETV). Current yield: 8.8%                    

(Charts from Seeking Alpha)

Don’t just be an input, be an investment

mdmakowskyLeave a comment

As we sit here with both historically low unemployment, but also a labor force participation rate that hasn’t yet recovered from covid, I expect that we will start to see workers lured back not just with the prospect of high wages, but the prospect of re-tracking their careers. I expect to see a bump in field and industry switching, as well an interest in educatonal programs that might enable such a switch. Since we’ve already wrung our hands over the fields (teaching, nursing, etc) that are mired in labor shortages, we should start thinking more about the opportunity to re-track their careers that workers are grabbing with both hands. And with that, I’d like to give my one piece of universal career and education advice: be an investment, not just an input, and never customer.

This works in a lot of ways. First, and this isn’t trivial, it will keep you out of scams and traps. They want to hire you, but you have buy $300 worth of training videos? Scam. You can start immediately, but you have to buy your sales stock from the partner who recruited you? Ponzi scam and trap. You’re admitted to the professional degree program, but you can’t find any evidence that recent placements are earning at least double the tuition immediately after graduating? Trap. Your incoming cohort seems wildly underprepared given your expectations for the program? Sorry to be the bearer of bad news, but you’re not there to bring presige to the school with your subsequent exploits. You’re there to write checks and wait for your degree in the mail. You’re not an employee or a protege, you’re not even a product. You’re a customer and, I promise, you’re not getting your money’s worth.

Avoiding drains on your wealth isn’t sufficient, of course. You’re trying to pay your bills and hopefully build a career. Well, if you wank into an office filled with uniform, impersonal and undecorated cubicles filled with nothing but recent graduates and temps, you should be on immediate alert. Decent chance you haven’t stepped on the first rung of a corporate ladder – you’re entered a mill that does the grunt work for the people actually on the ladder. Your job, on the other hand, will be to execute monotonous tasks until boredom or a loose labor market pushes you out the door, while a rotation of temps ensures that your exit proves esssentially unnoticeable for your employer. You’re not an team member, you’re barely an employee. You’re a commodified cog, one that they expect to wear out before any improvement in your capacities or value could possibly pay off.

What you want to be is an investment. Whether it’s school or an entry-level job, the most important thing to find is firm/school that has a stake in your long-term success, incentive to invest in your human capital, and a structure within which this investment can in you can reliably flourish. Easily advised, harder to pull off, especially as a job applicant on the outside. There are, however, signs and signals to look for.

A mixture of employee ages is a good sign that people are sticking around because they see a payoff to long-term employment. While a program of temp-to-hire can actually be a great sign, a constant rotation of temps to backfill in a perpetual exodus is a huge red flag. Training and education reimbursement programs? Great sign, doubly so if they come with built-in time off. It might seem counter-intuitive, but I consider it a better sign if the company requires continued post-training employment i.e. you have stick around for at least x years or pay the company back for the training. It might seem like a limitation on your career, but it’s also a really good sign that your employer anticipates significant value in the labor market for your training. They’re not just looking for good PR, they’re looking to protect their investment in you.

Training and education are great, but the absolute best signal that your employer views you as an investment remains dedicated mentorship. If your senior leadership is investing time and energy to prepare you for the next round, great. What you really want, however, is leadership investing in you to eventually replace them. Why is that such a positive signal? Because it means that they don’t see training you as a threat because they’re going to keep moving up too! It means that the firm invests in their employees up and down the ladder, and everyone is anticipating the continuedf acquistion of skills and progression in their careers. If, on the other hand, every bit of process knowledge is a secret fiefdom, every scrap of credit jealously fought over? That’s a sign of employees that feel stuck, desperate only to find an exit while clinging to job security like under-paying driftwood in a storm.

If you’re going to grad school for a doctorate, it’s easy to assess whether you’re an investment or a customer.

  1. Are they paying you or are you paying them?
  2. Is there a defined pattern of how people are trained, granted a degree, and eventually placed within the job market?
  3. Is the program transparent about their students first job placements?

If you’re picking a PhD program, you should obviously go work with professors whose research excites you, but always on the understanding that they view you as an investment. Sure, they’ll get cheap labor our of you with regard to research and teaching assistance, but even those should be investments in your skill sets and experience. At the end of the day, good departments are eager, bordering on desperate, to brag about their former students. They are willing to pay you to go to school there because you will become a valued and hard-to-duplicate input in their research in the short run and a labor market star that further contributes to their own prestige in the long run.

Whatever step you are taking next in your career, especially if you are making a big sweeping change, make sure to find people who’s interests are aligned with investing in you, not just plugging you into their machine or selling you something. Remember, labor is an input, but that doesn’t mean you have to be an easily replaced and interchangeable commodity. Everybody wins if you become more valuable. Make sure you work and study somewhere smart enough to know that.

Ambitious Parenting

Joy Buchanan3 Comments

Things go by online about moms and kids that bother me. Here I will Be Like Pete and try to articulate a positive vision. We could talk more about parenting small children.

Ambitious people, both men and women, might want to be parents. Time spent on parenting takes away from other projects, so the earlier you start planning the better. Hearing about the experiences of other parents is both instructive and inspiring.

Parenting, like modern creative careers, is an unpredictable enterprise. Maybe one reason people are not encouraged more to plan is because the disappointments can be so devastating in this arena. There is a risk that I will sound insensitive if I am too positive. That said, I feel like discussions I see in public miss the point too often and fail to use the “billboard space” we have effectively. There is an ocean of thoughtful honest free content for How to Achieve Your Writing Goals, but there is very little on how to achieve your parenting goals that resonates with ambitious young people. The writing advice can be ignored by those who don’t want to write; parenting advice can be ignored by those who don’t want kids.

Economists talk a lot about parents and children, especially now that the US is near population decline. One particular point I have heard is: “Data shows that piano lessons do not have a causal impact on lifetime earnings, so your problems are solved. Everyone sit back and enjoy your kids.”

This message may be helpful to some people, but it seems like primarily a lie to me. “Enjoy your kids” assumes a lot. I’d prefer an honest approach about the sacrifice involved, or the “opportunity cost”. I think that the benefits of parenting outweigh the cost, but it’s not inspirational to say “selfish lazy people will enjoy parenting.” Raising kids who you enjoy being around is not easy, but there are tricks and proven methods to help.

The economist who gets it is Emily Oster. Her books go more like this: “You probably aspire to having family meals that you can enjoy. Sit down with your co-parent 6 months ahead of time and plan out how you are going to achieve such a wonderful ambitious goal while also being able to schedule other events and pursuits.”

Emily Oster books/newsletter is a great place to start. She’s not for everyone, but if you are reading an econ blog then she might be for you. The good news for ambitious parents is that many books have been written that explain how to achieve certain results. Ambitious smart people can figure out good techniques, although as I said earlier be prepared for things not to go as planned. It helps to start on the learning process before you have kid to care for. Once you become a primary caregiver, you will have less time to read, so read widely and often whenever you can.  We have a /Parenting category in this blog, to curate some of the good stuff.

This boy’s ambition was to dig a trench from a tidal pool all the way to the ocean.

Kids could come up in conversation about ambition more, as a possible complement not just as a substitute.

This Elon tweet has layers: “Being a Mom is just as important as any career” What do you think the subtext is? How would a college student understand this?

Why use this hackneyed phrase when he could say something to actually inspire both his male and female Gen Z fans to become parents? If Elon is a good parent, then teach us how he combines it with an ambitious life. And if he’s a bad parent, he should say less about it. If he’s trying to elevate mothers, then retweet a mother.

Similarly, a male economist who writes books about how easy parenting is should explain how he got through the first 5 years. Either someone else raised his children or he worked hard to maintain a routine and boundaries. Did he create his own routine from scratch or did he borrow from someone else’s model? Were his children in daycare 40 hours a week?

It can be hard to write about these topics honestly, because of privacy issues. So, we are back to Emily Oster, because she has been willing to tell the world what really goes on in her own family. Elon should just tweet out her newsletter every week if he’s such an advocate for mothers.

Dr. Oster is not the only one. There are millions of mothers creating content who would value the exposure. What if Elon (or some other ambitious person with a large platform) retweeted a trick for getting children to try carrots. “Wow, genius technique. Follow this Mom for more…” Or, Elon could highlight a man who being a great parent.

Ambitious people just talking about their kids and their own honest personal experiences is a good way to achieve Elon’s stated goal of getting more people to have kids. If Elon wants to tell us that he loves his kids, then that’s inspirational, and I don’t think it’s a lie.

I will engage in some introspection here, not because I think I’m so interesting, but because I see pro-natalist men talking past everyone else on how to raise the birth rate. I had a parenting win this past week. I solved a behavioral problem in a creative way and I’d love to talk about it. I’d like to feel like I’m part of a community conversation. I’d like to be recognized for my expertise. That’s what most people want, right? More resources in the attention economy devoted to parents is a form of compensation that I have not heard discussed before.

I have heard advice to female professors to not put up pictures of their children at the office. If colleagues know you care about your children, then you might be ostracized from the intellectual community that you have spent your whole life trying to join. In my own small way, I have pushed back against this norm by occasionally talking about kids and babies, so that other people who want families can feel part of a bigger community online and in academia. My broader point in this post is that there is a kind of rhetoric about family life and parenting strategies that would make young ambitious people think that having kids will not prevent them from pursuing other goals.

It’s not bad to talk about a 14-hour workday or an organizational strategies for achieving professional goals. I wouldn’t want to censor anyone or stop them from sharing how they accomplished something valuable. On the margin, more conversations could also include a discussion of how life changes if you become a parent, so that ambitious young people can build mental categories for this.

The Freakonomics podcast provides examples:

The Economist’s Guide to Parenting
The Economist’s Guide to Parenting: 10 Years Later (Replay)

Stephen Dubner brought the teen children of famous economists on his show to talk about what it was like to grow up with those weirdos. It’s funny. Listeners will not feel like they are being told what to do or judged. Dubner is simply lending his platform to parents and children. He’s using the billboard space. There is parenting content on the internet already, but if it’s all siloed over at parents.com then it may not make it to the young person who is trying to figure out what “the Good” is.