Academic R&D and the #FiscalCliff

The Chronicle of Higher Education recently published the comments of Michael McRobbie, President of the (R&D strong) Indiana University, on the vulnerability of academic research to the fiscal whim of Washington. The article and discussion may be followed here:

The Multibillion-Dollar Threat to Research Universities

Indeed, it's not a pretty picture for academic R&D, and we were already in a rut, well before this confluence of "fiscal cliff" events formed.

Nevertheless, there are several strategic initiatives that research universities can pursue, to ensure that they recover from what events may unfold over the coming months and years:

First, universities must diversify their sources of research funding. As long as I have been involved in academic research, faculty around me have relied almost exclusively on NSF, NIH, DOE, DoD, and the like. All of those sources are tied together by the short-sighted whim of Washington, and it is high time that academics who do R&D start thinking about how to supplement those funds and assist faculty with development of other resources. (And to make matters worse, I find that many junior faculty don't even know how to pursue funds from the traditional sources)

Second, academia needs to become a lot more engaged in the process of electing government leadership and finding strong advocates for research support. Academics generally regard lobbying as a negative thing, but... the time has come to get better plugged into the process.

Third, I worry very much about the junior faculty who've been through the rough patch in funding and may see more of the same, or worse. When I was a junior faculty member, there was *zero* adjustment made to tenure review standards despite the fact that funding probability was single-digit during those years (and hasn't really recovered since then). If the funding picture becomes particularly bleak then, you know what, maybe it's time to weight the teaching of our junior faculty just a wee bit more than how much funding they bring in. Mark my words, schools that don't adapt to the funding climate will lose a lot of talented people. That is short-sighted.

Fourth, on the topic of finding funds for research, I believe that our universities need to focus a lot more on center-level research funds, rather than the usual single-PI grants. There are many reasons for this but one of the most important, from my perspective, is that it's just become far too difficult for junior faculty to land the really prestigious career awards etc. And even if they do, they are generally receiving a lot less funding than they would have a few decades ago.

I have many more ideas about this but I confess I am frustrated by how little our academic administrations listen to the ideas. the usual assumption is that we should simply continue with business as usual, even as Rome burns.

Nonlinear Cost Scaling in Higher Ed

Here is my quick response to a Delta Cost Project report described on the Chronicle of Higher Ed at this link:

Recessionary Pressures Bring About a ‘New Era’ in College Finances, Report Says

We need to distinguish between short- and long-term trends. If we don't do this, we run the risk of prescribing overreactive fixes that act to the detriment of what is best about American higher ed. And despite all the gloom and doom, there are many very good aspects about the "traditional" American college experience.

Tuition inflation, administrative bloat, and blur of the academic mission etc. all started *long* before the mortgage crisis of '08. Yes, the crisis certainly shone harsher light on the cost problems, but higher ed was already well embarked on several unsustainable trends more than a decade ago. 

The "college for all" theme rose to the level of national politics in the 1990s, but surprise: we've come to discover that the politicians don't know anything about the real expense of scaling the college experience that they tout. They assume more enrollment equals more tuition revenue and that's that. If only it were so! That would imply simple, linear cost scaling. Meanwhile, our schools have had to pour huge investments into the facilities (dorms, dining halls, classrooms etc), and personnel, and a *nonlinear* surge of expense was inevitable.

For better or for worse, we have to remember that much of our higher ed apparatus was designed to serve a select few, rather than to scale up in the way that our state and national politicians have urge. We *can* scale up to increase enrollment, but it will cost...

After #Newtown, Where are the Pragmatists?

After the violent tragedy in Newtown, Connecticut, many Americans are asking the same questions asked so many times before. We've asked them after similar events at Paducah, Denver, Blacksburg, and Aurora... and so many other sites of violence across the country. We've asked them for years and decades and generations.

Many Americans ask why no one saw this coming; why certain weapons are commonly available; what failures of law permitted these events; whether a particular door should have been better fortified; whether failures of counseling and mental health services played a role; whether a parent or teacher or friend didn't take the right actions when confronted by a disturbed young person.  And these are all reasonable questions deserving real answers.

The most important question is this: what ails our leadership, that we should find ourselves yet again unable to take even the most tentative steps toward solutions. Traumatized on the national scale yet again, why will we again deny ourselves that most potent therapy of taking some steps... any steps... toward solutions.

Fundamentally, ours is a failure of national leadership, and that weakness afflicts almost every current issue of our politics. Our anti-leaders fervently stake out wildly disparate positions that truly evoke our worst history- the dark times when we even contemplated separating ourselves permanently from discussion. Many of our media seem to delight and profit from this display. One party steadfastly asserts the social rights, almost to the complete exclusion of individual responsibility; the other asserts the individual rights, almost to the complete exclusion of social responsibility. Most of us, somewhere in between, wonder if it's really so difficult for a modern American politician to walk and chew gum at the same time.

In fact, most Americans are quite moderate in our thinking. Most of us are pragmatic. Most try to be good citizens. Reflecting on our finest accomplishments as a country, we speak with pride about a specially American "can do" attitude and ability to "get it done." And we have an enduring faith that, somehow between the vacillating extremes of our politics, our politicians will act as advocates for their causes, and eventually reach some moderate settlement in the court of public opinion. Yet, somehow, we continue to elevate anti-leaders of such poor character and short-term ambition that they cannot contemplate pragmatic compromise on any topic. Our politics is better described as precarious oscillation rather than balance. Under these circumstances, if we are to have any solutions at all, they are derived from short-lived swings to the right or left, during which one side has a temporary numerical advantage permitting some small piece of incomplete legislation to emerge. 

And so... we have half-fixes to our healthcare problems; half-fixes to issues of immigration; half-fixes throughout our educational apparatus; half-fixes to our fiscal challenges... and half-approaches toward the violence just unleashed yet again on our children.

Rapid Learning Therapy and the Brave New Classroom (a Satire)

The Fredersen Institution, a private biomedical research facility endowed to advance the science of learning, has released the results of an expansive study to develop new educational methodologies.  The results, says Institute Director Dr. Ross M. Zeug, will substantially alleviate the financial burdens associated with education, by helping schools introduce more efficient learning strategies. “This is a bold, pioneering work,” says Dr. Zeug, “and we are pleased to share this success with our colleagues across the academic profession.”

Dr. Zeug admits that the initial studies at the Institution were unsuccessful and frustrating. In the first phase of research, students of diverse background and interest were provided curriculum via intensive audiovisual media, using information assembled from the Network.  Students’ learning outcomes were subsequently determined via standard assessments such as the American Proficiency Exam. Unfortunately, many of the participating subjects developed symptoms of anxiety and dysphoria, and a significant number requested to leave the study. “Our entire approach,” says Dr. Zeug, “was at risk because the students were experiencing learning fatigue.” However, once these symptoms were diagnosed, researchers were able to seek therapies to mitigate it. They drew upon pharmaceutical approaches developed to mitigate fatigue in a very different context- on the battlefield.

Rudimentary pharmacological approaches to reduce fatigue were first developed around the second World War, as personnel working with new, complex machinery found themselves in circumstances demanding acute attention and focus over extended periods. Until that point, short-term stimulative supplements such as caffeine and nicotine had sufficed, but the new technical challenges required increased focus and lucidity. An important breakthrough was the isolation of amphetamine in the early 1930s. Following its introduction to the military, combat pilots could undertake extended missions with extraordinary focus and precision, with sufficient detachment to avert natural stress responses that can compromise performance.

“A light bulb went off,” recounts Dr. Zeug, “when we realized that we needed to focus our attention on mitigating learning fatigue… while also helping students feel rewarded for accomplishment.” This insight led the Fredersen team to explore a novel combinatorial psychotherapeutic approach.  Prior to treatment, students are provided an environment that encourages relaxation and eliminates stray audiovisual stimuli. Next, students are administered a combination of amphetamine salts, which greatly enhance mental acuity, as well as reuptake inhibitors for serotonin and dopamine, which positively modulate the mesolimbic pathway and almost instantly help students begin to find reward for positive learning outcomes.

The learning process begins as audiovisual media compiled from the Network are introduced at an accelerating rate into the rapid learning environment, and the supplements are automatically adjusted in order to optimize students’ responses to assessment queries.  The results indicate that almost all students enrolled in one of the Institution’s rapid learning modules outscore their traditionally schooled peers on standard examinations. In addition, virtually none of the participating students reported fatigue or discomfort, even as materials are introduced as much as twenty times faster than ordinary speech. “The students learn more information, at much higher speed,” says Dr. Zeug, “and they also report pleasing sensations as they gain knowledge.”

The most significant costs associated with the Fredersen methodology arise from the design of the encapsulated learning environments required to eliminate cognitive interference and prevent adverse interactions between students due to asocial behavior- a temporary side effect of rapid learning therapy. However, the expenses associated with these facilities are quite modest compared with the archaic infrastructure -libraries and classrooms- required to preserve traditional educational methodologies. “Cost was our foremost consideration,” says Dr. Zeug. “We wanted to ensure that the technology could be available and affordable to everyone.” Dr. Zeug notes that rapid learning therapy relies on commonly available medicines that can be produced in larger quantities to help reduce cost further.

Current research at the Fredersen Institute aims to develop more advanced learning assessments. One particularly promising method is to implement noninvasive brain scanning techniques such as functional magnetic resonance imaging (fMRI). “We find that we can quantify engagement of specific portions of the brain with fMRI,” says Dr. Zeug, “and that clears the path toward real-time assessment of engagement and learning.” These comprehensive assessments could be used to compile aptitude profiles for each student, to guide them efficiently toward their most appropriate career path.

The Fredersen approach is not entirely without its detractors. At a recent symposium on teaching, Prof. Carl Chapeck, Lecturer Emeritus at the Walden School, raised concerns regarding de-emphasis of the broader kinds of experience associated with more traditional learning environments. “I worry about the process of maturation and forming wisdom,” says Dr. Chapek, “and I worry that our pupils might not know what happens when one sips from the Pierian spring.” In response, Dr. Zeug notes that his team has already developed a rapid learning module that delivers a comprehensive treatment of Greek mythology within one twelve-hour session.

N.b. this piece is satirical in purpose and any resemblance to actual persons, facilities, or events is entirely coincidental. 

Recommended reading/viewing: 
"R.U.R." by Karel Čapek; 
"Metropolis" by Fritz Lang; 
MSNBC: Adderall Abuse on the Rise Among College Students

Toward a New American University (some brainstorming)

Recently, as part of a brainstorming exercise, I compiled some of my more practical ideas aiming to transform the American university experience. The goal is to encourage application of knowledge and a smoother transition into the workplace. Here are the core ideas:

Foremost, I believe that the American university should refocus on individual student learning, application, and creative achievement. I would prioritize programs to help students develop the skills and credentials that they need for advancement, while reducing the overall cost to students and their families. In the following summary, I describe changes along the timeline of learning at "my" university...

Many students enter our colleges unprepared for advanced learning, and spend ~1 year on remedial material, delivered at high expense. My approach would incentivize thorough preparation and phase out “College 101.” Students would be required to demonstrate proficiency within their subject matter area, e.g. by entrance exam, if no suitable standardized exam exists. Guided by their results, some students would be prescribed hybrid online/offline, self-paced courses. Thus, my university would phase out large “101” classes, and make it possible for most students to complete formal study at the university in ~3-3.5 years. This would reduce cost substantially.

To help guide them through the academic experience and beyond, students need short-term and long term advising and mentorship. Upon entrance to my university, students would be assigned three kinds of mentors: a faculty major advisor; a senior student colleague in the 3rd year of the same major program; and a recent alumnus. I would also seek to place students within residential colleges with resident advisors and faculty fellows, providing broadly themed academic programs to foster social and teambuilding skills. No student would be able to "hide" in their specialty.

My university would emphasize experiences that allow students to distinguish themselves. General studies courses would be phased out, in favor of infusing major curriculum with material designed to improve students’ intellectual breadth. For example, students aiming to complete a major in science would encounter history of science, philosophy of science, and scientific writing coursework, rather than curriculum tangential to their interests. This is, I believe, key to reinvigorating the liberal arts approach. Breadth, yes; distraction, no.

Conventional A/B/C/+/- course grades would be abandoned in favor of a far simpler system with three kinds of grades: Pass with Distinction, Pass, and Fail. This system would be designed to eliminate grade inflation and simplify the grading process, while still rewarding distinction.

Completion of a summer practicum would be required of all students, and the university would develop the appropriate matchmaking facilities. Depending on the student’s major, this practicum could consist of assistance to a faculty member, an internship at a company or agency, or work in a research lab, etc. Students would receive credit for the internship via participation in a seminar during the subsequent semester.

An undergraduate thesis would be required of all students, as a means to ensure that they develop and improve written and oral communication skills. The thesis project would consist of ~1 year of research and should demonstrate a synthetic, creative achievement- not merely a book report. The final document would be placed on permanent record as a publication of the university and would bear the student’s final, cumulative grade.

Jacobs Physics: Article link: Keith Williams on the use -- and abuse -- of technology for technology's sake

I had a great time the other day visiting Woodberry prep school, a gorgeous facility for boys in grades 9-12 near beautiful Orange, VA. Friendly faculty member and physicist Greg Jacobs gave me a great tour. Quite a facility! And best of all, I got to interact a bit with some of the students who are tackling some rather complex problems in preparation for a competition.

My visit to Woodberry reminded me of where I was, in my own thinking, around grade 9- thoroughly absorbed in understanding new ideas, and quite relieved to find other young people who shared my interests.

Jacobs and his colleagues are doing a great job encouraging students to think out loud and work together as they play with new ideas and concepts.

Jacobs Physics: Article link: Keith Williams on the use -- and abuse -- of technology for technology's sake

Higher Ed Wars: Disruptors vs. Status Quo(t)ers

The debate about online education rages on, and rather extreme positions have been staked out on both sides. On one side are the 'disruptors,' who see the short-term financial problems as a call for massive, urgent change in the form of MOOCs and so forth. On the other side, we have the 'status quo(t)ers' who point to long-term data e.g. employment benefits enjoyed by college grads over the past 30 years or so. Both of these extreme positions miss important points about why higher education has become so expensive, and what is required to restore its value to our young people. Most faculty feel powerless to bring about the changes that are required, while defending the most valuable aspects of American higher ed.

Of course, the cost problem is central to these debates. Tuition has inflated many times faster than CPI for several decades. The enormous financial risks that high tuition poses to our young students and their families is not acceptable. But in order to address the problem, we need to ask where this extra cost came from. It is important to remember that rapidly increasing enrollment necessitates large upfront expenditure, as schools invest in facilities (dorms, dining halls, buildings and classrooms etc.), administrative services, and faculty to accommodate burgeoning enrollment. State and federal funding levels have been roughly constant for many years, while tuition inflates due to facilities and administrative costs due to expansion. We have to bear in mind that most of our colleges weren't built for expansion: most of them were built decades ago to provide a higher education to a relatively small number of students. They are thus inherently slow to adapt to the enrollment surge, and so expansion has a high upfront cost. 

Moreover, as I have noted many times before, the 'prep problem' is pushing a large amount of cost through our higher ed systems. When students take ~1 year of remedial high school coursework in college, that increases the cost of college to everyone, and leads to a wide divergence of outcomes among our college grads:

http://keithwms.blogspot.com/2012/07/americas-two-lane-higher-education.html

Lately, I have been thinking more about 'mission creep' in American higher ed: the tendency for our colleges to de-specialize and take on more and more roles unrelated to their core mission. We see evidence for this in our curriculum, which is increasingly designed to cover all the bases and provide a generalized educational experience for all. Many schools seem to believe that they must, for purposes of reputation and accreditation, provide courses in everything, and push students through hyper-generalized mush that does very little for students' individual needs. The result is, of course, more expense for all. This also gives rise to grade inflation and the problem of indistinguishable transcripts. On the whole, it has become much harder for students to distinguish themselves on an individual basis: much of what they do in college is ~identical to what everybody else does... and most students receive roughly the same grade. Consider the opposite: higher education a la carte, which would provide to a student only what (s)he needs or wants or can afford to pay for. That concept would be rather rather revolutionary in today's American colleges!

How @JustinBieber will Stimulate the Economy

I used to have some real problems with Justin Bieber.

Time after time, I cursed him as I tried to download documents to my phones. Even with two blackberries on two different networks, I could be within the national beltway and still struggle with one bar... waiting and waiting for signal. And it was all his fault. After witnessing my niece and countless other young ladies streaming Bieber videos to their phones, I held the Beebs personally responsible for my delays. His fans are hogging our bandwidth.

Recent events have me feeling a lot more positive about the Beebs. Thanks in large part to him, there is an impending mobile bandwidth crisis in America... and that is a good thing. It will create jobs.

Currently, the smartphone market is white hot in the US; hundreds of thousands of adoring iPhone fans are lined up on sidewalks awaiting the latest gadget. This telemania (sorry, that's the best I could think of) isn't really stimulating the economy- most of those devices are manufactured abroad. Sure, there are a few sales jobs, some of us can profit by the stock, and somewhere within the halls of Apple and Google, some very clever and high-paid engineers are designing next-generation products that will speak even more directly to our pleasure centers. But these jobs are few and far between- we don't see iPhone assembly lines popping up in Detroit, for example. That's a problem.

Another factor to consider is that Apple and Google have huge amounts of cash collecting dust; yes, they must finance some R&D and marketing, but there are significant fractions of a trillion dollars awaiting a strategy. I believe that strategy will reveal itself very soon.

In terms of jobs growth, the impending bandwidth crisis could be very good for America. We have to remember that the US has a very widely distributed population, and coverage is already spotty in many areas, even at 3G levels. The mobile market needs more bandwidth- much, much more.

Here is some data indicating the problem that the US faces:

US and Canada Drop in Broadband Penetration Worldwide - January 2012 Bandwidth Report

What does it mean? Well, first of all, notice that most of the nations ahead of us have much higher population density, so the comparison isn't quite fair. Higher population density implies better coverage and more bandwidth per dollar invested in telecom infrastructure. A fairer comparison might be, for example, the state of New York. Nevertheless, it is clear that we need a lot more infrastructure to support bandwidth and coverage.

This population density chart reveals quite clearly where the mobile market can be expected to grow most rapidly:

Global Population Density Map

.. the US. The slow access across the US points to an urgent need for new infrastructure to support coverage and bandwidth. Hence, I expect that the strategy behind the hoarding of cash by the likes of Apple and Google will very soon end: to compete, they must take a real stake in improving internet access across the country. And their interest in making the big investments should be juiced by the appearance of inflation, spiked by QE and lack of leadership on the debt problem in Congress (apparently, the brilliant strategy is simply to inflate ourselves out of our debt problem, but I digress). Reflation should, theoretically, encourage a transformation of cash into physical assets. You don't let billions of dollars inflate into vapor- you invest it in stock and hard assets.

So... I have come to terms with Bieber. Thanks to him, we need more coverage and more bandwidth- a lot more. The business case is clear, and the cash to make it happen is there. And so, finally, we should begin to see domestic jobs growth associated with a need for real, physical infrastructure in the US- akin to our need for highways and railways in prior times. While the iPhones and other devices themselves don't create any sustained jobs, our hunger for bandwidth certainly will.

Edu-Zynga, the Current #MOOC Business Model?

While there is much discussion in higher ed circles about the potential for profit from MOOCs, the companies hosting them have yet to provide a clear business model. Based on some fairly simple observations, I expect that #MOOCs will ultimately earn ~zero net profit for most schools that partner with these companies. Here is one of the reasons why.

Most of the current MOOCs cover intro "101" material. If we peruse the offerings at, e.g.,  Coursera, it is easy to see that this is the case:

Coursera Course Offerings

That MOOCs target intro material makes perfect sense; after all, those offering MOOCs want to demonstrate just how massive the courses can be, so they are typically picking intro-level material with broad appeal. So, offhand, one might think it clever to use MOOCs as a substitute for some of the 101 courses. Students don't like to sit in stadium courses anyway, right? And from the school's perspective, if they can MOOC out the 101 courses, it should decrease their instructional costs.

[Never mind that instructional cost has less to do with tuition inflation than administration and facilities overhead... but I digress]

After taking a MOOC, if students need exams, a school could charge, say, $100... and that would be a bargain compared to the typical $200-$400 per credit hour that most students pay. Or, a school could generously permit students to take a free exam and proceed to more advanced coursework if they pass. A similar policy already exists at some schools, where if students pass a final exam in a course, they earn credit or at least bypass the course. Sort of like a CLEP. That's nothing new and it could work perfectly well with MOOCs. So far so good.

However, there is a worrisome catch-22 that continues to escape the notice of the giddy throng, who continue to believe that MOOCs will address the financial problems of higher ed. The problem is that intro courses are by *far* the most profitable for a school to host: they have the largest ratio of students to instructors. If we do the math, we see that intro courses are enormously profitable. And note that because the cost per credit is approximately the same for all courses at a school, the student pays approximately the same for an intro course as an advanced course; however, the school pays far, far more to host an advanced course.

So... if you really want to profit from MOOCs, it seems that you actually want them to cover advanced topics for which student-teacher ratio is too small to pay for the instructor. Schools should certainly not want MOOCs to cannibalize their introductory course enrollment. And note, advanced courses are typically taught by the more expensive tenure-track faculty. The paradox is that lower enrollment also implies that those courses are less likely to be offered as a MOOC. It's hard to herd 100,000 people into a rigorous grad-level course on general relativity or whatever.

In summary, the numbers don't (yet) add up, and yes, at this point, adoption of MOOCs appears to be more about egalitarianism, greater access for all, getting your school's good name out there, and testing the waters etc.

I do think there are a number of wonderful attributes of MOOCs, by the way. Developing countries lacking higher ed infrastructure should find them particularly valuable. And MOOCs do offer the possibility of connecting a more diverse pool of students with fresher material and perhaps multiple, diverse instructors. Those are wonderful things, for sure. But those of us who actually invest ourselves in higher ed do need to think carefully about fiscal sustainability and how to preserve the core value in our schools.

Will MOOCs ever make substantial money for anybody? Well... that hasn't actually been demonstrated yet. Right now, the MOOC business model that people are proposing is basically edu-Zynga: charge a lot of people a buck or two and they'll hardly notice. The problem with this business model is that it has no growth: sure, you get an initial swarm of interest, but then *pop*... what was that stock price at IPO?? It's a far, far cry from the slow and steady growth that investors have come to expect from the premier higher ed investments.

I expect VC people to lose interest in MOOCs very quickly, unless a more elaborate business model presents itself. Edu-Zynga won't cut it... not for long.

Free Information & the Future of Higher Ed

The Chronicle of Education recently described some attempt by publishers to gain profit from MOOCs (massively open online courses) by producing textbooks for them:

Chronicle: Publishers See Online Mega-Courses as Opportunity to Sell Textbooks

I find this rather amusing.

First of all, there is so little to be made from authoring textbooks now... what's the point. 

Second, I have already taught four different courses without a textbook, simply because no suitable texts existed; e.g. intro nanophysics, physics of energy, physics of the human body, and history of physics. This created no problems for the students; on the contrary, most of them seemed grateful.

Yes, when teaching without a textbook, one has to spend more time assembling reading lists and articles, but students can participate in that, and it's a good exercise for them to learn how to identify reliable sources.

The bottom line, which continues to evade some of my colleagues in higher ed, is that information is basically free now. Those who try to attach cost to it are simply in the wrong decade, fighting the wrong battle. Wake up and smell the terabytes. Higher ed is not about attaching cost to information any more: students can download information. But take heed: students cannot download the experiences that motivate them most. Institutions that realize this and emphasize experiential education will prosper; those that don't will fail.

Sequestration Effects

I am having a first look at the White House / OMB document which proposes the distribution of sequestration cuts.

Here is a link to the document (warning, it's a ~400 page pdf):

OMB Report Pursuant to the Sequestration Transparency Act of 2012 (P. L. 112–155)

Overall, it is clear that Federal contractors will be slammed very hard, across the board. We might see some reaction in the next few days, as businesses begin to project the toll. One has to remember that a cut in Federal labor often corresponds to a much larger contractor cut; we saw this recently during the recent FAA budget debacle.

The OMB document provides precious little specific detail; one merely sees, for example, that the National Institutes of Health (NIH) stands to lose $2.5B (see page 82 of the OMB document linked above).  The agencies and contractors need much more detail, and there will be much more preparatory work required within individual agencies over the coming weeks.

I expect all contractors to take a very large hit, and it appears that Federal and State (VA, MD) credit downgrades appear almost unavoidable at this point.

From an investment perspective, I would steer well clear of contractors to federal agencies. Here is a link to the top 100 federal contractors, in terms of net contract value:

Washington Technology 2012 Top 100 Contractor Rankings

Here is the top ten, from this link, arranged in terms of  2012 rank / name / net contract value / prior rank:

1	Lockheed Martin Corp.	$17,438,128,000	1
2	Northrop Grumman Corp.	$9,143,329,000	2
3	Boeing Co.	$7,455,878,000	3
4	SAIC	$5,938,089,000	6
5	Raytheon Co.	$5,665,503,000	4
6	General Dynamics Corp.	$5,461,177,000	5
7	Hewlett-Packard Co.	$4,113,135,000	7
8	Booz Allen Hamilton	$3,848,819,000	9
9	Computer Sciences Corp.	$3,569,443,000	11
10	DynCorp International	$3,346,227,000	12

Lament of a Conservative Academic

The Chronicle of Higher Education recently published an article on hyperbole in the sciences, which touched a frayed nerve with me:

Scientists Are Often Responsible for ‘Spin’ of Their Results, Research Finds

As a frequent reviewer for journal articles and proposals for the National Science Foundation (NSF) and other funding agencies and sponsors, I frequently see the art of exaggeration used to great effect. This isn't surprising when you consider how much harder it is to publish an article or secure funding, in recent times. With so many more competitors in the market and stagnant funding levels...

I keep thinking that I should compile some of the most egregious spin / hype, and publish it for amusement, but of course it is not appropriate to retain any materials from a proposal or article under review, and much of that material never makes it past the editor or program officer and a few referees.

In my (former?) field of nanoscience, the hype level is/was particularly extreme, which I believe contributed significantly to the atmosphere that gave us Jan Hendrik Schön and many others who engage(d) in hyperbole. The sad thing is that those of us who value long-term credibility more than short-term funding are at a severe disadvantage to the hypers and spinners... and outright liars.

Journals and sponsors definitely do not favor cautious and conservative wording; they don't want statements like "we think we have a good chance to construct a new type of transistor with exciting new properties..." Instead, they want "we are very confident that this new transistor will revolutionize the industry..." and cure cancer etc. ! So either you give them what they want or you don't get funded or published. Take your pick.

More Doom and Gloom for Higher Ed

The Chronicle of Higher Education recently noted an alarming report in the New York Times:


"Many borrowers are struggling to pay off their student loans, and the debt collection industry is cashing in. As the number of people taking out government-backed student loans has exploded, so has the number who have fallen at least 12 months behind in making payments — about 5.9 million people nationwide, up about a third in the last five years."

The full NYT article may be accessed here.

For American college students, the situation could get a lot worse before it gets better. The relevant lending rates have been at artificial lows for several years... and not just the Stafford rate, a well-controlled subsidy that only carries a fraction of overall debt among our young people.  Of far greater concern are those lending rates related to long-term bonds: the 10- and 30-year yields are subject to market whim. A big bounce off those artificially low yields is inevitable, and the timing could be very cruel for our unemployed and underemployed young people. 

There are several reasons to anticipate a bond reversal:

* First, the Fed's "Twist" program is winding down, and any extensions will have diminished effect; the next round of QE will have some diminished effect on bonds and seems more likely to force investment into stocks and commodities as investors seek a hedge against inevitable inflation here and in China and the Eurozone; 

* Second, the Eurozone will solve its issues (by hook or by crook) and that will be the end of the flight to safety in US bonds... if this is starting to happen, we'll see it in continued reduced in Spanish and Italian yields as soon as next week;

* Third, core fiscal issues and Washington's procrastination will make US debt far less attractive overall, and could easily lead to Federal and State downgrades. Translation: the cost of borrowing is about to go up for everyone. When we see encouraging headlines about the recovery of the US housing market, we have to remember the other side of the coin: the financial industry needs lending rates and - rest assured- will eventually get them;

* Fourth, many equities related to manufacturing (auto, aluminum, housing) have been stagnant for some time, with several *trillion* dollars of investment on the sidelines due to prevailing uncertainty. Corporations and investment firms do not yet see the signal to take risk. When that money comes back on the table, the bond market will lose its allure, sending yields back up to realistic levels. Likewise the commodities markets, which are now coming back... by act of God (drought) and by act of Fed (more QE).

The timing of all of this is the cruel part for our young people. Bond yields will rise well before the job market recovers: the market works on speculation and knows very well where things are headed. So we could see a lot of these things unfold long before the jobs are created, leading to an increase in loan defaults. These effects will of course be most extreme among those students who don't have mom and dad's mortgage to bail them out... i.e. it will disproportionately affect underprivileged students.

So there is continued crisis ahead for our young people. And yet we see ~zero strategy posited by our colleges and universities... no responsibility taken to help students reduce cost and to find employment and clear out that debt before the market comes calling. It's as if higher ed actually *wants* full-scale bubble implosion and federal intervention.

...on top of which, some politicians actually think it's a great idea to herd more students into this dysfunctional debt cycle. Ah don't get me started ;)

Inflation in American Higher Ed

Statistics like this are what have many of us involved with higher ed feeling queasy. Writing for the Wall Street Journal, John Pelletier reports:

"The College Board reports that from 1981 to 2011, after adjusting for inflation, the average published cost of going to college is up 180% for private, nonprofit four-year colleges and 268% for in-state, public four-year colleges."

Note that this is after adjusting for inflation. Pelletier's article provides a succinct review of many other alarming stats as well:

J. Pelletier / Wall Street Journal: Why go to college if I can't get a job?

Despite the higher ed cost bubble, it is still important to recognize the historical value of a college degree, as Pelletier notes:

"The Economic Policy Institute study shows that the recent unemployment rate for high school graduates between age 17 and 20 who aren't enrolled in additional schooling is 31.1%.  And their underemployment rate is 50.4%."

The Cost of MOOCs

Many of us await clear answers on the cost of MOOCs- the massively open online courses that have been in higher ed news of late. 

Startup companies like Coursera have not been forthcoming with their business models. Perhaps they don't need to, yet: there has been a huge splurge of venture capital because investors see higher ed as an enormous cash cow. Indeed, higher ed is a very remunerative business- even for non-profit schools. Just the loan finance business associated with higher ed is a multi-billion dollar market, annually.

The question is, how much do MOOCs cost?  The obvious expenses associated with producing quality MOOCs are for instructors, software and media production, quality control, cost of assignments and proctoring exams, and accreditation- whatever form that might take if actual credit is to be awarded. many of these costs are unknown at this point, because they courses are being offered in experimental, ad hoc manner. There isn't enough data to compute real net costs.

Apart from that, even if a MOOC itself is cost-free, it could still have *huge* financial impact in higher ed, because much of the material that MOOCs deliver is also being taught in our colleges. The most obvious overlap is in the intro coursework. For those classes, the case for a well-executed MOOC is quite good: the class sizes are already large and much of the material could benefit by a periodic reboot. But note: the large intro classes are also some of the very most profitable for a  college: they have a large enrollment, a very large ratio of students to instructors, and typically require very little overhead expenditure relative to the other courses.

One cost that has not been addressed at all, in my view, is the cost of using University resources to attract students to a MOOC. We must recognize that anything developed by an instructor on university property is a form of intellectual property to which a university has some fair claim. Even if the business relationship goes no further than publicizing that the MOOC will be taught by famous Prof. X at famous school XYZ, some real brand value is invoked: would you rather take a course from MIT or some less vaunted institution? The effect of this brand association is easy to overlook now because instructors are cheerfully and voluntarily jumping onto bandwagons headed into unspecified directions, just to hang out with the cool kids, while their institutions are in wait-and-see mode, just curious what will come of it all. (In my opinion, the most forward-thinking institutions already realize that MOOCs and other online ventures are billboards for their other courses. Institutions that can't make that up-sell may be disappointed to discover that they can actually lose enrollment.)

One thing is clear: at some point, MOOCs will start to affect higher ed's revenue streams... even if the courses are offered for free and if colleges accept credit derived from completing them with no charge for certification. Based on my tentative ideas about what proportion of current college coursework is appropriate for MOOCs, I estimate that as much as a quarter of all 4-yr college cost could be swept away from our colleges and universities in short order. That would have an enormous impact on higher ed revenue. We in higher ed need to ask ourselves whether the venture capitalists plan to deliver that to society as a savings... or to claim it as a profit. And it is entirely reasonable for startups like Coursera to profit- they're running large risks and exploring uncharted waters.

Whither our Community Colleges?

It is nonsensical for students, their families and the American taxpayer to foot the bill for high school material taught at inflated college prices. (A recent blog post on this topic may be found here) As I have commented previously, the "prep" problem plays a large role in the escalating cost of higher ed in the U.S. Clearly, intro material should be completed before students enter college, in our high schools.

Community colleges offer a way to alleviate the cost burden of underpreparedness. With lower overhead (administrative and facilities), lower cost faculty contracts, less reputation cost, and no pricey dorms and dining services, most community colleges can easily underprice traditional 4-yr colleges.

It is important to consider the role of community colleges in the context of the recent surge of interest in online / distance-learning. In my opinion, community colleges should take some risk and embrace the new modes of online learning with open arms. I say this because the online providers desperately need credible sponsors; community colleges can oblige and greatly supplement their offerings. Issues such as uncontrolled testing environments, plagiarism, etc. really keep the online services from gaining broad academic credibility... and this ultimately affects the market value of the online courses and accreditation. Now might be the time for community colleges to step up and partner with the online content providers, acting as a physical location for their services, in parallel to more traditional coursework. Community colleges could partner to provide online content as well as supplementary offline instruction.  They could also provide credible and reproducible assignment grading and test proctoring services, and facilitate student gatherings and faculty-student interaction.  All of this is consistent with maintaining and even improving the community colleges' cost advantage and student throughput.

A Lame Duck Falls off the Fiscal Cliff as the Four Witches Meet in the Autumn...

Several ominous clouds continue to gather on the horizon.

Of greatest concern, the US election seems certain to lead to status quo and continued gridlock. As the heat turns up in Washington in the final stretch to the election, I expect neither side to yield one inch in their negotiations for the federal budget and sequestration. Ideally, there would be a clear and decisive election, with a substantial majority sweeping to power in both houses and the presidency.

But a decisive victory is unlikely to happen. Based on current data, it appears that Mr. Obama will keep his job; Republicans will keep the House after ceding just a few seats to the Democrats; and Republicans will either take the Senate or leave it in ~50/50 split.

If this happens, then Mr. Obama may promptly be served with sequestration. If Mr. Romney wins, there could be some brief respite from the partisanship, but with inauguration several weeks after the sequestration deadline, there could be a period of great uncertainty, regardless.

Hence, in either case, it appears that uncertainty will reign for at least a month or so, unless pre-emptive action is taken in the next month. There are a few catalysts for action that may save us from calamity:

• The next quadruple witching event is in September, at which point futures contracts will be sharply in focus. This event quite often passes without notice, but this time, there will be the fiscal cliff, the election outcome, the drought, uncertainty in the Eurozone (some believe September could be the month of exit for Greece), and the slowdown in China. It's been a long while since witching mattered this much- perhaps as long ago as September 2001. 

• Second, the sequestration hits to the defense sector could start to appear as early as mid September, as the large contractors begin to plot a course through very choppy waters.  With companies like Lockheed Martin ($LMT) signaling huge negative pressures ahead, it seems that hundreds of thousands of layoff notices could hit, eventually resulting in more than a million job losses. N.b. there is already some criticism that Lockheed and others will play up the layoff scenario because the election will take place just a few days after the layoff notices are due; however, many of the layoff notices are indeed compelled by law, and the remainder are consistent with the view that sequestration could indeed be catastrophic. 

• In response to the defense contractor hit, it appears that State credit downgrades may occur, particularly in Virginia and Maryland- two States where defense is a substantial chunk of total business output. From the electoral standpoint, swing-state Virginia is very important to watch.

All of these event could place substantial market and political pressure on Washington.

All told, there will be very few clear signals to entice investors whose ~$3T is still on the sidelines; there are very few solid opportunities and an almost incalculable risk. One short-term bright spot is Apple ($AAPL), which will introduce the iPhone V in a few weeks. I suspect that Apple's new phone may spike interest in Sprint ($S), due to bandwidth issues and the possibility of a partnership. After two months of solid growth in the $CORN ETF, I have lost interest: it appears that the drought is now priced in, and one now has to look to foods and fuels to see inflation. Overall, energy prices appear unlikely to budge unless and until sequestration is dealt with conclusively, one way or the other.  If it does occur, fuel prices could revisit catastrophic lows from Sept '08. If it does not, prices should continue their slow meanderings.

Long story short: the only stocks and ETFs that interest me right now are $AAPL, $S, and $GLD. As sequestration looms, I will again become more interested in energy and financial bear funds and bonds.

Ed Reform in Election Season

There is a clear generational difference in how the Republicans and Democrats are approaching the topic of education in this campaign.

The Republicans are serving up a few comments about the student loan problem, in the context of their broad narrative on national debt. However, their clear focus is on K-12, particularly school choice a la Milton Friedman. Obviously, both messages target parents and adults. This approach probably won't interest college students in the least.

The Democrats are taking a very different approach. During a recent stump speech here in Charlottesville, Mr. Obama used every play in the book with regard to college students, implying that his party is for affordable access to higher ed. Clearly, his camp targets the youth vote. The message comes across as a rather clear pander to me, but it may succeed nevertheless.

Neither side will delve into higher ed's more complex issues- they aren't exactly compelling campaign material, and many of the core problems are at the State level.

#Election2012: Why I'd Vote #NOTA

In some electoral systems, there is the option to vote NOTA - none of the above. Like many other voters, I wish I could exercise that option in November. I suspect that voter turnout would be a lot higher than usual if we did have NOTA on the ballot.

This year, as we teeter on the edge of a fiscal cliff created by entrenched partisans who believe that they can score votes from it, Americans are cursed with two almost equally clueless tickets. Neither side offers realistic solutions: this election is all about rallying a small number of base voters in a few swing states. There is high probability that the electoral college will pick one winner and the popular vote will pick another.

This is the least national, least engaging election I've ever witnessed. Part of the problem is an old issue: our winner-takes-all electoral system makes several populous States completely irrelevant, e.g. California, New York, and Texas, all of which have very important fiscal and immigration issues that matter to voters.  Because of winner-takes-all, campaign and super-PAC spending is focused on the swing States.  Want to make a difference in this election? Sorry, you'll have to move to one of the swing States. But before you pack your bags, let me warn you that in a swing States like Virginia (where I live), you will be subjected to an unrelenting barrage of annoyingly thin propaganda. And much of that propaganda comes from sources we can't even trace.

Another reason why this election isn't engaging is because of the longstanding deadlock in D.C., which shows no signs of abating. Almost everyone expects that neither side will win with sufficient margin to pursue their strategies. The impasse is due in large measure to our two historically inept leaders in the House and Senate, both of whom will almost certainly still be on the job after November.  Thanks to the anti-leadership of Boehner and Reid, Congress now has the lowest approval in all recorded history- around 10% in a recent Gallup poll. That will continue, regardless of who wins in November... unless, perchance, the margin of victory is very large, which appears very unlikely at this stage.

The two tickets offer me very few compelling reason to vote for them:

Romney and Ryan pledge to reduce federal spending to 20% of GDP in their term. This is complete nonsense. The number is currently ~30%, and reducing it as quickly as they say will guarantee depression. Apparently, Mr. Ryan actually wants sequestration to happen. I know firsthand how disastrous that would be, but nevertheless I admit that almost wish that it would happen, simply to discredit these people and flush them out of the system. Unfortunately, the issues that the Republicans should be pursuing are apparently on the back burner: simplified regulations, a simplified tax code with fewer loopholes, a realistic debt and spending plan, and immigration reform. Regarding this latter item, about which we've heard so little: the U.S. has always relied on immigrant influx to spur growth, and the current situation is no exception. That we have so many legal immigrants unfairly bogged down in bureaucracy is an outrage.  And why the Republicans haven't embraced this cause, particularly when they flounder in their attempt to court hispanic voters in must-win Florida... it boggles the mind. It's as if the Republicans actually want to lose.

Meanwhile, the Democrats continue to engage in pandering of the worst kind. If you want to predict what President Obama will say at a campaign event, just ask yourself what you most want to hear and, yes, that's precisely what he'll say- regardless of reality.  You want lower unemployment? Want to close Guantanamo? Don't like wars? Want universal and affordable health care?  Want to tackle the national debt? Sure, he'll promise all of those things. Ask for specifics and... crickets. Apparently, his proudest accomplishment (apart from sinking Bin Laden) is a healthcare Bill that is a beautifully wrapped gift to the insurance and pharmaceutical industries. Our healthcare premiums continue to rocket upwards, even as medicare is imperiled. Yes indeed, many citizens previously not covered by insurance are now covered, and that is a great thing. However, the cost of the Bill actually exceeds the cost of providing that insurance; the coverage is far from universal or affordable; and the cost of providing coverage to employees has become a major source of concern for small businesses. In the memorable words of Biden: "this is a big [bleeping] deal." Indeed, and the American taxpayer who will ultimately be [bleeped] by this Bill - the Administration's proudest accomplishment of the past four years.

So the Democrats seem to want to give everything, and the Republicans seem to want to take everything away, and pragmatists are ignored by both. In this season, there are few things to encourage the American voter.  One item worth mention is the Simpson-Bowles plan, which the President abandoned and which Paul Ryan voted against. I do take a lot of comfort from the fact that pragmatists like Alan Simpson and Erskine Bowles are quietly toiling away, behind the scenes, on realistic plans to restore American fiscal credibility and international competitiveness. Unfortunately, neither of these fine statesmen are partnered with either ticket in 2012, and so it appears that we have four more years of poor fiscal stewardship, stagnant domestic growth and several fiscal shocks ahead. But mark my words, voters will come back with a vengeance in 2016. If the economy unravels as I fear it might, all of our current leaders will be swept aside in short order. It's just a matter of time.

So, maybe get-it-done pragmatists like me just need to wait four more years. I still wish that I could vote NOTA 2012, though. At least then I'd have a reason to vote.