Sridhar Vembu’s Blog

New York Times carried an article about how it is getting hard to attract academic economists to serve in the US Federal government. http://www.nytimes.com/2005/11/27/business/yourmoney/27view.html?pagewanted=print

Couple of quotes caught my attention.

That is interesting. Being a Mises/Hayek liberatarian, I am basically indifferent to politics (”pox on both houses” captures it well). I have always thought macroeconomics is the root of all evil. The road to hell may be paved with good intentions, but it is usually paved by macroeconomists.

Only a macroeconomist could claim to “model” a complex economy with a few equations and claim to deduce fundamental insights manipulating those equations. I come from a strong mathematical background, with a solid grounding in stochastic processes and other tools routinely put to use by macroeconomists; but after reading a few papers (from Nobel-laureates-in-waiting, no less), I was so disgusted at this abuse of mathematics, I eventually found http://mises.org - that was relief.

Let’s remember that statistical control of the economy was a Soviet passion - they liked playing around with those variables. Soviets were very good mathematicians, incidentally, but that only helped them drive their economy and their country into the ground. India borrowed those statistical control techniques from the Soviets too, with fairly disastrous results, the only saving grace being that the Indian macroeconomists pulling the levers were not in the same league as the Soviets.

Only a macroeconomist could make stupid statements involving printing presses and helicopter money, like Ben Bernanke made. Real world involves real people with real savings (like retired people, for example), and money is not some macroeconomic variable to be manipulated at will. And this man has been put in charge of the America’s and effectively, the world’s money.

Speaking of the real world, only a macroeconomist could make a statement like

Hello? Since when is working at a high position in the federal government supposed to be the “real world”? Don’t even retiring politicians say, at least for form’s sake, “I am going back to the real world?”

Individuals, families, organizations, even entire societies get into this we-know-we-are-on-the-wrong-road-but-we-can’t-change-now syndrome. This phenomenon seems scale invariant - it can happen at the level of an individual, and at the level of entire nations.

At the level of an individual, I have seen people say things like “I know I am failing in my job, I know I am not going anywhere, but I just can’t seem to muster the gumption to do something about it”. Sometimes they know there is a problem, but they don’t know if there is a solution. Sometimes it is a security and the fear of the unknown - if the job in question is a cushy all-benefits-paid-but-little-work sinecure, someone can go through an entire life being unhappy but still stuck there.

Looking at organizations, how can anyone explain a slow-motion-pile-up like what is going on at GM? I am sure there are many, many people at GM who know what is wrong, even how to fix it, but it just seems that collectively, they have given up.

At the level of countries, how do you explain a country like India wasting two generations of people stuck on a failing socialist path? The sad thing was that many people, even at the highest levels, knew the system wasn’t working. But at some point the system seemed to trap everyone, with no movement possible. Until a crisis forced change.

We humans seem to have an inherent tendency to avoid confronting a problem, if acknowledging it would cause us pain. We tend to postpone it, avoid it, procrastinate, until things reach the breaking point.

I have personally found myself in such situations before. I remember when I was an unhappy PhD student at Princeton, not really believing in the work I was doing, going around with the gnawing feeling “something is wrong, but I don’t know what to do about it”. In hindsight, the best decision I ever made was to leave the academic world, and come to private industry. I did it with only one thought: “let me migrate to a new planet, and see what happens”. It was scientific experiment in the true sense - the outcome was unknown and unknowable.

I think I was able to do that because I had already “migrated to another planet” when I moved from India to the US. In perfect hindsight, that move itself, to pursue graduate study, was a failed experiment - I didn’t really enjoy it. I went through it, got out with a PhD, but knowing what I know now, wouldn’t have done it. The one valuable thing I got out of it was “Have the guts to change course” and “Challenge even the most cherished assumptions”.

AdventNet has gone through such transformations too. We have refused to be pinned down to a fixed course. In an ever-changing industry, I believe that would be suicidal. We pursue the course that our judgement and conscience dictates us, unfettered by dogma. My favorite philosopher is J. Krishnamurthy, who, echoing Buddha, said,

That has stayed with me.

There are some universals, like “A business without profit will die” and “If you don’t take care of your customers, you won’t have too many customers”. But subject to these universals (which are of the same nature as “Thou Shall Not Kill”), we will keep changing and evolving.

NY Times carried an article today on why it is hard for America to close its trade deficit with China.

Made in US, Shunned in China

So it is not really any trade or political barrier that is preventing American goods from penetrating the Chinese market - Germany does not run a trade deficit with China - but a lack of brand power. How did this come to pass?

Here is another news item, announcing layoffs at Ford, quoating the North American President of Ford, Mark Fields (from Wall Street Journal)

I appreciate his honesty. Detroit has a lot of work to do, and I am afraid, they are not in the greatest shape financially to do it.

This financial deterioration is itself ultimately traceable to monetary distortion, courtesy Alan Greenspan. Companies like GM and Ford have essentially been financial companies with industrial divisions. As the NY Times article puts it

I posted earlier about College Education and the Placebo Effect dealing with college education in India.

Recently Peter Drucker’s passing generated commentary on his life and work. I found his views on American college education, as quoted in the Wall Street Journal quite interesting. Steve Forbes writes in his “Tribute to Drucker” (emphasis mine)

Interesting. I agree with Mr. Drucker. It is not my case that college education is worthless; what I contend is that the cost/benefit has gone way out of whack, and serious rethinking is needed. Much the same benefits of college education can be achieved at much lower cost. The crisis will be here soon enough, because college is simply becoming more and more unaffordable. The fact that “cost consciousness” sounds so out of place in the exalted world of academia by itself indicates the nature of the problem.

It is not merely cost control either. The system itself has to be rethought. That is where Mr. Drucker’s observation “High school graduates should work for at least five years before going on to college.” makes so much sense. The WSJ article also says

This is a fundamental insight: the most important education system is the employee’s own organization. The two insights can be combined: kids entering the workforce right after high school, and the most important education system being the employee’s own organization, together point towards the future.

As in so many things, Peter Drucker is so far sighted. The world will miss him.

As of Thursday, Nov 17, 9 AM Eastern Time in the US, our toll-free line is down. You may get a busy tone. We are working with our service provider to fix it ASAP.

We apologize for the inconvenience. Please use forums or email to contact us, and we will call you back.

He has autism, and is still verbally behind. He draws effortlessly, though he cannot yet comprehend abstract concepts like “This is an Indian lady I have drawn” kind of thing.

This was drawn on a magna doodle, and photographed. Sometimes we have to pull the magna doodle from him because he would perseverate on getting that one picture (usually car keys) perfectly, for hours on end. More recently, his range of interests has grown.

The placebo effect is scientifically established, well-known effect in medicine. Basically, when doctors prescribe a sugar pill (a placebo), a good percentage of patients do get better. Note that while a placebo is just a sugar pill, the effect on the patient is very much real - patients do get better, not just imagine that they get better, so there is no quackery involved. The human mind and the human body have powerful self-healing mechanisms, and these seem to be triggered by the placebo. That is why they conduct double-blind trials of new medicines, to prove that the medicine does better than a placebo. The placebo effect is also why most doctors would correctly advice patients to keep a cheerful, positive spirit and attitude, pray or meditate, and avoid negative, depressing thoughts. Faith does heal.

Incidentally, scientific trials have so far found no-better-than-placebo effectiveness for treatments like homeopathy - again it does not mean patients don’t get better with homeopathy (they do), but it means that they haven’t found statistically significant difference between placebo and homeopathy treatments. The burden is on any medical system to prove that it is better than placebo, mainly because a placebo costs little or nothing, while most alternatives cost money. Of course the one problem with a placebo is that if a patient knows the doctor is prescribing a placebo, the effect may vanish, while no-better-than-placebo medications may still instill the true belief in the patient, helping trigger their own body healing mechanisms.

OK, what does this have to do with college education? Note that by “college education”, I really mean Tamil Nadu Engineering College Education (note: Tamil Nadu is a state in India), the pool of graduates from which a good number of IT professionals in India and our own company are drawn from. I suspect the theory I propose below is more broadly true, but I won’t stress that further. For what it is worth, I have a PhD from Princeton, and so have direct first-hand knowledge to theorize on American college education, but then this post would get too muddled.

My theory, something I hope to prove by experimentation, is that a college education, for the most part is really tapping into what I would call the “Placebo Effect in Education”. This does not mean that a college education is useless. In fact, many students benefit from it. But I contend similar or better results can be achieved by much less costly means. I contend that we can substitute the expensive medication called engineering college education with a far cheaper substitute, and get similar or better results. This is not an academic (!) issue - vast amounts of money are spent by parents in India on equipping their children with an engineering degree. And it is not just the money either - 4 years of life is spent acquiring that degree, and my contention is that most of that time is simply wasted. And it gets worse - a lot of these colleges, particularly the ones that are valued by parents, are appropriately termed “prisons” by students, so heavy is the “discipline” and “moral policing” they impose. If equivalent results can be achieved with far lower cost, and far better use of time, and in an atomsphere that values freedom, it can also serve to lower the barrier so kids from modest economic backgrounds can benefit.

So why does the placebo effect in education occur? Let me outline what a typical good engineering college, where “good” is measured by popularity with students, placement records etc. provide students. As a basic first requirement they provide good buildings and some decent infrastructure, such as computers and lab facilities. This is not a trivial issue in India, because most colleges have abysmal infrastructure. But there is nothing earth shattering here - in fact even the good colleges still lack good internet connectivity or if they have good connectivity, they have social restrictions (in the name of “discipline̶ that prevent students from effectively using the internet. The colleges have libraries, but they usually only stock the standard text books in the disciplines they teach, and little beyond that. So it is unlikely that Ayn Rand’s “The Fountainhead” would be found in a typical college library - a book that I read when I was 18, and one that had a profound influence on me.

The quality of the faculty in these colleges, with a few honorable exceptions, is really pedestrian. They are woefully underpaid, have little or no real world engineering experience, and are often only a couple of years out of college (with a Bachelor’s degree, often from the same college) themselves. Their motivations for becoming faculty vary, but the most common reason they end up there is because they could not find an alternative job. This can be verified by looking at the age and backgrounds of faculty in the popular engineering colleges in Tamil Nadu. No doubt many of them are dedicated to their students, but that would still not make them expert in the complex subject matters they are asked to teach their students.

Beyond the physical infrastructure (mostly decent, at least in the popular colleges) and faculty (mostly pitiful, even in the popular colleges), the most valuable function a college provides is to bring bright, energetic young people together. The more popular a college, the more ambitious a crowd it attracts, resulting in the well-understood power law phenomenon. It is this social function that is the most valuable service provided by a college. The peer pressure can be intense: if the popular students in a cluster are aiming to go abroad to get an MS or take the entrace exams towards a coveted IIM MBA, most students emulate them. Colleges also do effective marketing using their placement records and the percentage of students who go on to MS or MBA programs, so the already present peer pressure gets further amplified. Often the MS aspirants aim to publish research papers in conferences and journals, which would help land them at a good university abroad for graduate study. Such students team up, and the result is often surprisingly good work. But the key thing to note is that most such work is self-initiatied and self-directed on the part of the students, and not the result of guidance provided by the faculty. As usual, exceptions may exist, but the vast majority of interesting student projects are self-directed, with the college at best providing encouragement and moral support, and at worst, actively putting up roadblocks in front of bright students - yes, that is known to happen often too.

In fact, many colleges have such an excess of “discipline”, treating young adults as if they were unruly school children, it has a detrimental effect on creative effort. Restrictions on students of the opposite sex socializing, dress codes, overly time-consuming but ultimately pointless homework assignments, exams, exams and exams all the time - all of these actively subtract from real achievement.

So what is the placebo in this placebo effect? It is the social function of bringing bright young people together, and letting positive peer pressure do its magic. Bill Gates mentioned this when he donated the Gates Computer Science Building at Stanford University a few years ago. He said during the dedication ceremony something to the effect that a university like Stanford brings great young minds together, and if we he had not met great collaborators in his youth, Microsoft may never have been born. It is a different matter that one of the first young minds that met at the Gates Computer Science Building seem to have been the founders of Google, perhaps not quite what Gates intended - which just goes to illustrate the maxim that no good deed ever goes unpunished!

Returning to the main subject, is the placebo worth the heavy price, both in terms of money as well as in terms of time, being demanded by these colleges? Can we do better? If bright young people can be brought together in a positive, energizing, spirited and challenging atmosphere (i.e not a typical engineering college in Tamil Nadu!), can we obtain even better results? What if education can be combined with work, so young adults are actually paid for their time (as is normal business practice) vs being condemned to a time-money-and-freedom-sucking institution?

PS: Joel on Software writes about MBA education in America in his recent post http://www.joelonsoftware.com/articles/FogCreekMBA.html

His observations confirm my belief that the placebo effect in education is much broader.