In my new favorite blog from Stanford Economist John B. Taylor we get a great dose of reality about the value of ideas. In a great blog post responding to the charge that Chicago School economists wrecked the economy, Professor Taylor shows graphically how that charge simply cannot be true. The graph below shows the number of University of Chicago, Harvard, and MIT economists on the President’s Council of Economic Advisers:
The only question I had after viewing the graph was, “well, yeah, but what about other policy makers?” He answers that too:
The data are robust when you look beyond the CEA to other top posts normally held by PhD economists. All assistant secretaries of Treasury for Economic Policy appointed during the Bush 43 and Obama Administrations had PhDs from Harvard. During the same period, all chief economists appointed to the IMF had PhDs from MIT, and, except for Don Kohn, who was promoted from within and Susan Bies who was appointed as a banker, all PhD economists appointed to the Federal Reserve Board were from Cambridge MA.
So the crash? Blame it on Harvard.
Veritas.
(H/T to Tim Merrick for sending me the data that I used in this post. You can read the whole publication of the Science and Engineering Indicators, published by the National Science Board, at the National Science Foundation’s website: http://www.nsf.gov/statistics/seind10/start.htm The data in this post comes from Chapter 8, the state indicators.)
This is a follow on to the previous post where I tried to illustrate the financial strength of Idaho’s universities relative to regional and national competitors. This was in direct response to the formation of the new lobbying group, the Idaho Technology Council. The Council and its supporters, as you recall, are huge proponents of increasing Idaho’s human capital, especially in relation to the development of Idaho’s technology-based economy. My next post will deal with the technology side of this discussion, today we’ll start with the higher ed component.
I hate always seeming like the bad guy here. I am not. I sincerely hope that the Technology Council is a success, and I would love to live to see the day that Boise State University, my alma mater, actually morphed into a “metropolitan research university of distinction.” However, I have consistently maintained that almost every premise from which we operate in this state, is false. We have lots of grand plans for spinning off university technology, and growing this booming tech sector, but folks, that just isn’t to be Idaho’s lot in life. This state simply cannot be competitive in those areas. It is time to rip out our pre-conceived notions by the roots, and get a new plan. Every economic development plan in this state needs to be scrapped and thought anew.
Mark Rivers has some good insights, here. SPORTS. We can do that. Recreational technology businesses and tourism. We can do that. We’re not doing them very well, but we could. But we cannot and should not expect our universities and state to do is become a sophisticated research hub that will one day cure cancer or even launch an important disruptive technology. Won’t happen. Here’s the evidence:
Academic R&D Output, United States, 2006
Academic Article Output in Science and Engineering, U.S., 2006
The research and development spending at Idaho’s universities is woefully inadequate - that is what the top graph shows. Idaho is at the bottom of the heap when it comes to basic R & D spending at the university level. The bottom graph shows the research output of science and engineering articles among the scientific community. Again, same story. There just isn’t any output here, folks, and there isn’t going to be, because Idaho and Idahoans are not going to make, in fact do not have the capacity to make, the necessary investment of billions of dollars into the state’s universities. Development of widely dispersed and marketable technologies will probably never happen here. Having a more educated local workforce can happen here; we can certainly graduate more bachelor’s degree holders that we currently do.
I would argue that Idaho’s economic development has become “path dependent.” The social and historic conventions established long ago, and chronic underinvestment in education and infrastructure (to name just a couple things) has placed us upon a path from which we cannot escape.
That isn’t to say that there aren’t pockets of hope, areas for growth and opportunity. As noted I think sports, sports marketing, professional services related to sports, etc., is a great place to start and to FOCUS. What will not work is a blanket strategy of “increasing human capital” and targeting the “information technology” sector. That is destined to fail. If the universities in this state are to be called upon to be a part of the economic engine here, they are going to need small, clearly defined, narrow targets that are directly applicable to very specific capacities in the private sector. “Nanotechnology” is not specific. “Green energy” is not specific. Those are HUGE fields dominated by the biggest players.
The longer we maintain the facade that we have at our fingertips all the tools we need to be the next SLC or the next Denver, the more economically and psychologically painful reality becomes. The sooner we replace grand visions, i.e., fantasies, with small victories, the better.
The buzz this week in Idaho Economic Development land is the newly formed Idaho Technology Council. You can read all about it at the Idaho Business Review.
This is a great and welcome effort, and desperately needed in our state. The only thing that immediately concerns me is that the players in this effort do not seem to understand the price of the things they hope to achieve. What is it that they are asking for? Here’s some snippets from the IBR’s reporting:
“Idaho’s growth as a technology center has cooled, and the Idaho economy cannot afford that,” stated ITC Chairman Rich Raimondi, a recently retired vice president at Hewlett-Packard. “We know the priorities to re-energize growth in this critical sector are human capital, public policy, financial capital and research and development, and we have formed committees with leaders from across the state to work those issues.”
and
“Growing an innovation economy starts with the government, whether it’s federal or state; then it’s research institutions; then it goes to the commercialization of intellectual property. From there you get industry, access to capital and the last part is quality work force.”
Human capital. Research and development. Research institutions. That’s what they want.
And that IS what will work to drive the economy here.
But does anyone realize what this will cost? I do. Here’s the current (at least as of 2007) financial capacity of the WAC and Mountain West Universities as measured by endowments:
1. Hawaii - $ 3 billion
2. Texas Christian University - $1.1 billion
3. BYU $1 billion
4. San Diego State - ($115/ but shares Cal State pool of $875 mm)
5. University of Utah - $700 million
6. La. Tech - ($656 shared)
7. UNLV - $500 million
8. University of New Mexico - $385 million
9. University of Wyoming - $304 million
10. Reno - $240 million
11. Colorado State - $193 million
12. U of Idaho - $188 million
13. New Mexico State - $175 million
14. Utah State - $130 million
15. Fresno State - $113million
16. Boise State - $74 million
17. San Jose State - $50 million
18. Air Force - $15 million (only has a 2 yr old endowment)
So - the picture here is pretty clear. BSU is at the bottom of the pack when it comes to having a big pot of money to fund world-class faculty, graduate students, and lab space. U of I isn’t much better. In this group, the University of Utah is clearly the research powerhouse - but look what they have to operate with: a $700 million endowment.
Don’t get me wrong - in a perfect world we’d do what was necessary to achieve the vision of the Technology Council. However, as I have noted before, there certainly isn’t the private capacity in Idaho to do what this group hopes. If there was sufficient private ability to fund Idaho’s universities at the level of say, the University of Utah, then the “Destination Distinction” capital campaign at Boise State would have a far bigger goal than $175 million. But that goal is the realistic capacity of the private sector in this state.
So that leaves government (and research grants which is another topic entirely) to make up the difference. But with current state support of Boise State running about 22% of BSU’s budget, it’s pretty clear that the requisite financial support of Idaho’s universities is not going to come from the public sector.
Mind you, the Mountain West and the WAC are two of the poorer conference in academe. What if we wanted Idaho’s Universities to be competitive with say, the PAC TEN (which is every Bronco fan’s dream conference) or the Big-10. Well here’s what the financial picture looks like for those schools:
PAC 10
1. Stanford University - $17.2 billion
2. University of Southern California - $3.7 billion
3. University of Washington - $3.2 billion
4. University of California - $2.8 billion
5. University of California, Los Angeles - $2.6 billion
6. Washington State University - $678 million
7. The University of Arizona - $519 million
8. University of Oregon - $498 million
9. Oregon State University - $476 million
10. Arizona State University - $407 million
Wanna be a player in Stanford’s league? Never gonna happen. Even if Boise State is successful in its capital campaign, it still won’t even have half the endowment of ASU. In fact, BSU and U of I combined don’t have the money that ASU has.
What about the Big-10?
Michigan - $7.1 billion
Northwestern - $6.5 billion
Minnesota - $2.8 billion
Ohio State - $2.3 billion
Purdue - $1.8 billion
Penn State - $1.6 billion
Wisconsin - $1.6 billion
Indiana - $1.6 billion
Illinois - $1.5 billion
Michigan State - $1.2 billion
Iowa - $1.0 billion
There is a reason that Michigan, Northwestern, Minnesota, and Wisconsin have world renowned schools of business and/or economics. There is a reason that Illinois has a legendary super computer center. There is a reason that Indiana graduates armies of engineers. MONEY. These schools are rich, rich, rich and can attract the best faculty in the world to their ranks. That is another reason that even the “poorest” school on this list, Iowa, attracts TEN TIMES the research grants of Boise State (Iowa hauls in about $400 million ANNUALLY in research grants and contracts; Boise State is nearing $40 million). They have a lot of money to hire killer faculty that do cutting edge research.
So. You say you want a research institution, eh? Now at least, you know what it’s gonna cost.
A newly released Brookings report spells good news for Boise and its suburbs. While cities in the west, and particularly the suburbs (meant here as cities in an MSA outside the primary city, e.g., Meridian, Eagle, Nampa) saw increasing poverty rates, from 2000-2008, Boise maintained a low poverty rate compared to the other largest metro areas in the country:
The issue of jail overcrowding in the Boise Valley has been in the news again. Canyon County voters have twice now told the law enforcement industry that they don’t want to pay for another jail. That has led to calls to create a new “regional” jail that we could all pay for. Dave Frazier loves this idea; I hate it. Ada County Sheriff Gary Raney also likes this idea since his jail will be full by 2014, he says.
BSU Criminal Justice Professor Mike Blankenship has written that sentencing reform is the way to go. BSU Criminal Justice Prof Bob Marsh is doing the consulting study for the law enforcement industry to determine the feasibility, etc. of the regional jail. We’ve got a regular ding-dong fight going here.
In my mind there’s one real issue - who we are locking up. The answer is damn near everyone. This is foolish. The government is responsible for protecting the safety of our person and our property. That is why we lock up murderers and thieves.
But the law enforcement industry is locking up everybody. In fact, only 12% of those housed in the Canyon County jail have committed either a property crime or a violent crime. The rest are dopers, drunks, and probation violators. The sad reason for this is that there simply isn’t anyone else for the law enforcement industry to lock up.
The fact is that property crimes and violent crimes have been falling for 20 years - and it has little to do with improved police activity. From the FBI’s website, I compiled the following charts to show that the wurl we live in is really quite a safe place, and that there is simply no reason to think that we need to spend MORE incarcerating misdemeanants. That is simply ridiculous. So here’s the crime picture in America:
Folks, we don’t need to spend more on jails. We need to spend less. Economics has long held that governments need to take into account the value of services that the public provides for themselves at their own expense. The number one reason for the decrease in property crimes is deadbolt technology, and the fact that people use them. There is also the “abundance” factor. Things like iPods, VCRs, TV’s, and digital cameras have no street value anymore because they are ubiquitous, and pawn shops don’t take stolen goods. We’ve spent 20 years “hardening the target” by adding security lighting, security systems, pit bulls, guns, and forming neighborhood watch committees. Thus, we need less police protection since we have taken security into our own hands.
If the demand for any other public good had dropped in the way that the demand for police protection had, that public good would be offered less. But for some reason people still believe that they are in mortal danger of being beaten and robbed, even though those fears are almost completely unfounded. Truth is violent crime is very, very rare.
I say NO to a regional jail, or any other new jail because the crime rate does not justify it. In fact - it’s just the opposite. Sentencing reform that would send dopers and drunks through treatment using dollars currently used for incarceration would empty the jails, and we’d be left with HUGE overcapacity. We don’t need another jail now or in 2014. It just makes no sense.
The Guv's tool for getting the financial sector to invest
So Mark Solon is pissed off at me because of things I said on Twitter in response to the Governor’s maddening finance summit held a couple days ago. Here’s the story.
The inimitable Norris Krueger live-tweeted the whole event, which was awesome. There came a point in the summit where the VC’s were summoned to the table. I imagine it was much like the previous Governor’s summit where the Governor and his bureaucrats sat on the dais high above the panel presenters, scowling down in barely concealed boredom. So Mark Solon took center stage.
A week or so ago, someone joked to me that Mark would get up there and say simply that, “there’s nothing for us to fund here.” I readily, yet sadly agreed that that would probably be the case. Imagine my *surprise* then when Norris tweeted that his #1 takeaway from Mark Solon was that “there was nothing for them to fund here.” I have several problems with that statement, none of which have anything to do with how and where Mark spends his investors’ money.
Mark may have elaborated; I don’t know. But the accurate statement would be, “there’s nothing to invest in here the way our fund is currently organized.” The distinction is important.
Highway 12 invests in early stage deals. They like to fund companies that have revenues, operating history, and a management team that is getting the job done. That’s what early stage VC’s do. In Idaho, granted, there are few of those deals around. And with the current fund, Solon and his partners probably don’t have any option but to do what they are doing: looking for deals out of state, so they can return a profit to their investors. But my issue with the simple statement “there’s nothing for us to invest in” troubles me because Mark has a ton of information about the system here in Idaho but in my years of experience as an observer and company founder who has been through this mill, it seems that the people that understand the weaknesses in the system aren’t willing to cast blame or enlighten the powers that be.
The Governor and his staff know boo about finance. They don’t even know what questions to ask. The helpful discussion in my mind is one where H12 elaborates to say:
There’s nothing for us to invest in here. Were we organized as a seed level fund, or a mezzanine fund, there would be. Idaho’s problem is getting the solopreneurs up and running so they can grow up and come to us.
But no one is going to point at the Boise Angel Fund, which wants to be a mini-VC, and say very simply “you guys aren’t getting it done.”
So in my mind, the only way that the phrase “there aint nothin’ for us to invest in” is helpful is if it is put into context, and then delivered with a remedy to the bureaucrats that don’t understand this stuff one bit.
Mark also pointed out to me that they just invested in a couple of pre-revenue companies to the tune of $200,000 and $400,000 or something very similar. That’s interesting because it represents a change in investment strategy for those guys. But it doesn’t get at the root of Idaho’s problem which is the complete unavailability of seed level funding of less than $100,000. That isn’t Mark’s problem, but I think it is his duty to tell the governor that where funding is concerned, that is Idaho’s problem.
As long as no one is going to point the finger at BAA/BAF, Idaho is not ever going to have a steady pipeline of gazelles for Solon to fund.
Final note: I like Mark Solon personally, and am glad for the work that H12 does for Idaho’s companies and in the community. I hope everyone understands that. But I also think it is important to speak truth to power. Maybe Mark did that, maybe he didn’t. But if Norris’ takeaway was simply that “there aren’t any early stage deals in Idaho” my fear is that the bureaucrats probably heard the same thing, but understood it less, and we have missed a great opportunity to tell the Governor what is wrong with funding in Idaho.
People who read this blog regularly know that I like to use Dave Frazier from the Guardian as a foil, and he’s an awfully good sport about it - and that’s just plain and simply because he’s a good dude.
Dave and I strongly disagree on the level of fiscal authority that should be accorded to Idaho’s municipalities. He likes the current set up where cities have to ask the state and the voters permission to do what is routine in the rest of the United States. I’d like to see cities in Idaho have broader authority. I think his arguments over the airport bond issues, and fire station financing were malarky (the Judges however agreed with him, not me). And, I think his no-growth vision for Boise and the Valley is wrong headed.
But I like Dave Frazier. He’s a nice guy. He’s a fun guy to have coffee with and can talk about a lot of subjects. If you spend any time at the Vista Moxie you know this. Dave is also a damn fine citizen. He cares about this place, devotes a lot of time to watchdogging local government, and has a hell of a following on his Guardian Blog, which I read regularly.
Dave sent me a note asking why I called him a “gadfly” in a previous post - he took it as an offense, and for that I apologize. But I meant it to mean a person who upsets the status quo by posing upsetting or novel questions. Dave is every bit of that. He’s a thorn in the side of city government, and that is ok. In fact it’s important. Boise would be a better place if we had a hundred more people that were engaged as Dave (I just hope they’d all agree with me, though!).
You keep being a gadfly, Frazier, and next time I see you coffee is on me.
Boise State has been a virtual ghost town since the students left. In fact, there isn’t a single source on campus from which to obtain food or drink, and there won’t be until January 4.
At the coffee shop in our modern new, Interactive Learning Center, I was able to grab a gas station style sandwich they had sourced from the cafeteria, which as noted is now closed.
I was intrigued, and encouraged by the label on my sandwich: “Fresh and Local.” Wow! That’s kinda cool! Someone around here is making sandwiches, shrink wrapping them, and selling them to Boise State. Great! If only it were true:
My “fresh” and “local” sandwich as it turns out was trucked in from Spokane, making it neither fresh nor local. This buying of the most basic of foods, the sandwich, from some unfamiliar soul in Spokane seems odd to me. Is there some reason our own culinary school can’t make a business opportunity out of this? Don’t we have a business school here that could help them with a business plan? What about Life’s Kitchen? Certainly they could use the money. But really - all you caterers and restaurants out there looking for business - you might pick up the phone and see if you can make an opportunity for yourself. I know I for one would much rather be eating fresh and local.
Economic developers are really a hoot. They cook up all these complicated plans for tax cuts, hold “innovation summits,” create “enterprise zones” and all other manner of schemes to attract business to their city/state/region. But you know what business can’t live without? Power. Yeah, reliable power. As our good friends over at KBCI reported:
Squirrels take down 30 city blocks of power
By Alana Brophy
BOISE - A blackout in downtown Boise knocked out power for almost three hours Friday night.
The first power outage happened around 5 p.m., and then again just after midnight, Saturday morning.
The city went black from 4th to 24th, covering Main to State street cutting power to businesses and residents.
Power crews and firefighters say two squirrels shorted a power line which then caught fire.
The general manager of Mazzah Mediterranean Grill says this is the third time this has happened this year.
“That’s very ridiculous, if two squirrels can cause all this trouble they should find another way to deal with this problem,” said Sam Bataineh.
His employees ended up transporting food to different locations in their personal vehicles.
Natalie Rhodes, a manager at Mazzah’s says the outage cost them big bucks.
“It’s unfortunate that it happened on a Friday night, when it’s our busiest night,” Rhodes said. “But there’s really nothing you can do about squirrels.”
Numerous fender benders occurred at intersections as well. Initially 1900 Idaho Power customers lost service for nearly three hours. As of Friday night, 640 were still waiting on service.
Blackouts in the central business district are a bad thing. A very bad thing. If you are in economic development hear these words I say: Infrastructure. Human capital. Lather. Rinse. Repeat. That’s really all there is to developing an economy. Instead, look for some new wildlife management policy to keep those rascally squirrels away from downtown.
Well, my first semester of Ph.D. school is done. Turned in the last bit of course work on December 8. Grades posted sometime over the last couple of days, and it turns out I am not a total idiot after all:
Yay me!
Now, time to celebrate with a beer. Feel free to do the same.
