The NCAA and unintended consequences

Earlier today, my attention was drawn to a tweet from John Infante, a former NCAA compliance officer who writes the Bylaw Blog for Athnet. I've written a fair amount about the NCAA and its relationship with "student-athletes" before, so I thought this latest tidbit was worth sharing. In an article teased in his own tweet, Infante writes:

In the wake of last summer’s highly publicized transfer battles (Ed. Note: like these), the news that the NCAA was looking at changing the transfer rules was refreshing. What appeared to be an inconsistent standard for waivers along with student-athletes needed permission to contact other schools lead to a popular backlash against the NCAA’s transfer regulations, a sentiment that was echoed by NCAA President Mark Emmert... 

There is no formal proposal yet, but the Leadership Council published a set of principles for updated transfer rules that make it easy to see what those specific rules might be.

One of those principles is the topic of this post (and of Infante's tweet), the principle regarding a GPA contingency:

AM RT: NCAA considering transfer model that would allow all athletes with a 2.6 GPA to play immediately: athleticscholarships.net/2013/01/03/new…
— John Infante (@John_Infante) January 4, 2013

In general, I think this principle is a clear step in the right direction, as it restores some rights to student-athletes who, through no fault of their own, are left in a situation that is dramatically different from the one they entered (like a coach leaving for the NFL, or dying, or a program being put on probation for violations that occurred before the player arrived, etc.). It also hypothetically provides these student-athletes with an incentive to actually go to class, which is definitely a positive for everyone involved.

However, as usual, it wouldn't be a policy if there weren't some unintended consequences to consider. In this case, I see a great problem with setting a GPA threshold that doesn't (and can't) vary based on the quality of the institution. Are we to pretend that a 2.6 GPA is as easily attainable at Stanford or Notre Dame as it is at San Jose State or Arizona? Since we know that it isn't, doesn't this proposal effectively penalize those students who choose to go to schools with rigorous academics? And by extension, isn't it also penalizing those schools for not watering down their academic programs to benefit the student-athletes? If so, is that really what we want our NCAA policies to be doing?

As I wrote in a Twitter response to this news, encouraging schools to downgrade the rigor of their academic programs is a poor long-term strategy. Unfortunately, that's arguably what this policy would do, simply because of the incentives that it creates for student-athletes when they are considering schools. If an athlete with a 2.6 GPA has more rights than an athlete without one, then every kid should do everything in his power to make sure that he can attain a 2.6 GPA.

In an ideal world, that would mean that the athletes in question would all buckle down and work harder in school, and we'd end up with a world full of student-athletes with sparkling collegiate transcripts. But over here in the real world, all it does is encourage the kids to go to schools where they can get a 2.6 just by showing up, thereby immediately receiving more rights as an athlete.

Is that really what we want? Do we actually want to steer athletes away from the top academic schools, simply because they're likely to have more rights at the lower-tier ones? I don't think so, and I hardly think that's the idea at the core of this proposal. But unintended consequences are consequences nonetheless, and they require careful consideration by policy-makers at all levels of governance.

This winter, we have seen several top-rated schools play in meaningful football games—from Northwestern gaining its first bowl win since 1949 to Stanford winning the Rose Bowl for the first time in 40 years to Notre Dame playing for the national title for the first time in what seems like forever. Hell, even Vanderbilt won itself a bowl game, in a bowl season where most SEC teams can't seem to get out of their own way.

Against all odds, teams are finding a way to excel both in athletics and in academics, and yet the NCAA wants to pass a rule that would take us in the opposite direction, even if unintentionally. That would be a terrible shame, and I encourage the NCAA to reconsider this proposal, which has good intentions but potentially dire consequences.

[Athnet]

Catastrophe bonds, QE, and you

Following up on my favorite topic (the Fed), and making a connection with this week's biggest news (Hurricane Sandy), we have this piece from last week from Businessweek.

Bonds designed to protect insurers from payouts on natural disasters are headed for the best returns since 2009 as a superstorm expected to develop from Hurricane Sandy threatens to strike the U.S. Northeast. 

Catastrophe bonds, which lose money if they’re triggered, have returned 10.3 percent this year through last week, more than triple the 2.79 percent gains in the corresponding period of 2011, according to the Swiss Re Cat Bond Total Return Index. The measure, which tracks dollar-denominated debt sold by insurers and reinsurers, includes bonds linked to potential storm damage in the U.S. 

Investor demand for the securities has grown with yields on speculative-grade corporate bonds hovering at record lows as the Federal Reserve holds down interest rates to boost the economy. About $1 billion of catastrophe bonds may be exposed to the storm, according to a “loose” estimate by Patti Guatteri of Swiss Re Capital Markets. 

“Some investors are looking for bids on specific bonds that are the most exposed to the Northeast,” Guatteri, director of insurance-linked security trading in New York, said today in a telephone interview.

Yeah, toss this one in the old "unintended consequences of QE" pile. People can't get investment yield from traditional securities, but they feel the need to do something to keep up with inflation, so they start scrambling around looking for yield wherever they can find it.

So it is that we end up with individual investors starting to play around in the catastrophe insurance business, taking on risk that even the large insurance companies don't want. As a result, the price of these things skyrockets (and the yield goes down), even as the exact opposite should be happening with Sandy bearing down on the East Coast.

This is (was) nothing but outright gambling by a bunch of desperate investors who can't see any other way of keeping up with Fed-sponsored inflation. All of this is absolutely fantastic, what could possibly go wrong? Seriously, taking all of your money to Vegas and betting on black would be a better bet than this. The investors who thought this was a good idea deserve whatever they get as a result (i.e., no bailouts), no matter how much they may have thought the Fed "forced them" to do it. Dumb investing is dumb investing.

[Businessweek]

How I'm contributing to Bolivian obesity

Yes, you read that headline properly. It's sometimes odd to consider how individual actions can have impacts on people in cities, states, and countries that we know little about and have never visited, but such is life in the increasingly flat world in which we all live. In the same way that weather conditions in Australia can have a significant impact on global food prices, seemingly innocuous decisions and behavioral shifts by American consumers can have wide-ranging effects around the world.

That was the essence of this article from the New York Times, which discussed the very strange dynamic that has taken hold in Bolivia as a result of the American consumer's growing taste for quinoa, a food that I eat quite a bit of.

With an exceptional balance of amino acids, quinoa... is virtually unrivaled in the plant or animal kingdom for its life-sustaining nutrients.

But while Bolivians have lived off it for centuries, quinoa remained little more than a curiosity outside the Andes for years, found in health food shops and studied by researchers — until recently.

Now demand for quinoa is soaring in rich countries, as American and European consumers discover the “lost crop” of the Incas. The surge has helped raise farmers’ incomes here in one of the hemisphere’s poorest countries. But there has been a notable trade-off: Fewer Bolivians can now afford it, hastening their embrace of cheaper, processed foods and raising fears of malnutrition in a country that has long struggled with it.

The shift offers a glimpse into the consequences of rising global food prices and changing eating habits in both prosperous and developing nations. While quinoa prices have almost tripled over the past five years, Bolivia’s consumption of the staple fell 34 percent over the same period, according to the country’s agricultural ministry.

The resulting quandary — local farmers earn more, but fewer Bolivians reap quinoa’s nutritional rewards — has nutritionists and public officials grasping for solutions.

Ironically enough, many Bolivian farmers are using their financial windfall from quinoa exports to buy cheap processed American foods like white bread and Coca-Cola, causing a spike in malnutrition rates.

So perversely, by looking out for my own health and nutrition, I'm in fact indirectly causing a deterioration in the health of the very people who enable my decision. Kinda sucks when you think about it, but what is the alternative? Yes, I could figure out a way to grow my own quinoa, but doing so would deprive the Bolivians of their income--it seems like the conscientious American consumer's options are to either contribute to Bolivian poverty or else contribute to Bolivian obesity. Which is better? Does it matter?

These are always difficult questions to answer, and I struggle with them a lot. Here in America, we often try to save the world, but sometimes our actions end up doing more harm than good. Does that failure mean that we're better off doing nothing, or is there value to our good intentions? I'm ambivalent... what do you think?

[New York Times]

A great one from the Journal of Consumer Research

As you can probably tell from my lack of posts yesterday, I'm not yet fully recovered from my trip back from Italy. I fell asleep at my desk about five times yesterday, and I'm still pretty out of it. But I came across this study from the Journal of Consumer Research, and the abstract alone was intriguing enough for me to write a post about it. Essentially, the researchers conclude that credit cards make you fat (though they use bigger and more confusing words...how I miss academia). Emphasis is mine.

Some food items that are commonly considered unhealthy also tend to elicit impulsive responses. The pain of paying in cash can curb impulsive urges to purchase such unhealthy food products. Credit card payments, in contrast, are relatively painless and weaken impulse control. Consequently, consumers are more likely to buy unhealthy food products when they pay by credit card than when they pay in cash. Results from four studies support these hypotheses. Analysis of actual shopping behavior of 1,000 households over a period of 6 months revealed that shopping baskets have a larger proportion of food items rated as impulsive and unhealthy when shoppers use credit or debit cards to pay for the purchases (study 1). Follow-up experiments (studies 2–4) show that the vice-regulation effect of cash payments is mediated by pain of payment and moderated by chronic sensitivity to pain of payment.

I wonder further if our shift from a cash-based economy to a credit (or debit)-based economy has further increased the amount of impulse buying across all categories. It's a lot easier to throw down a credit card and sign on a dotted line than it is to go to the bank, withdraw cash, and then physically hand over the bills. This dynamic is especially acute on larger purchases, where we'd certainly think a little longer before handing over $500 for a handbag (for example) if we had to do in hard currency.

Even if we are living within our means (and many who use credit cards are not, which is a whole separate issue), it seems that the increased use of plastic has meant worse consumer choices. We are more likely to spend conspicuously, to make large purchases, and apparently to buy junk food with cards than with cash. Obviously the increased use of credit (and fractional reserve banking) has enabled the growth of our economy that we now hold dear, but I wonder if some of the unintended consequences of credit are worse than we might appreciate. Strange unintended consequences like this one are particularly troubling.


[Journal of Consumer Research]
(h/t Naked Capitalism)

Every policy has unintended consequences

I've already written about the unintended consequences of government and business policy here once before, on the topic of globalization. It ended up turning into a several post rant, which I think shows just how widespread unintended consequences can be, and how difficult they can become to undo.

Almost any policy has the potential to create these types of issues; it's a bit like introducing a predator into an environment for the purposes of pest control, only to see that predator create more problems than the original pest (yes, this example is something that's had some relevance here in Charlottesville recently). It also reminds me of this Simpsons clip below, but I digress...



The reason I raise the issue is that this weekend, I came across an NPR news item that I think shows a particularly intriguing instance of a government policy with unintended consequences. Citing a report from the U.S. Census Bureau, NPR reported that:

In the U.S., fewer and fewer young people are getting married... Among 25-to-34 year olds, 45 percent are married. (By comparison, in 2000, 55 percent of Americans in that age group were married; in the 1960s, more than 80 percent were.)

In an interview with NPR's Melissa Block, Andrew J. Cherlin... said that, "for college-educated young adults, this is a story of postponing marriage."

They want to finish graduate school, maybe have a couple of years as a law firm associate, and then get married. So, they're waiting longer and longer until they have the rest of their lives in order before they get married.

For people without a college degree, some of them are postponing too, but some of them will never make it to the altar. We really will see probably a decline in the lifetime percentages of ever marrying for them.

According to Cherlin, increasingly, many Americans get married when it makes sense financially.

Essentially, debt-ridden college graduates rarely feel like they are financially prepared to enter into a marriage and start a family, buy a house, etc. This explosion of debt comes largely as a result of government initiatives aimed at encouraging higher education, which in many ways worked. More and more Americans have college degrees, which seems like a policy success. But in the process, it increased a debt load on those graduates (which I've written about before), and also increased the necessity of a graduate degree...and more debt.

The end result is more college graduates, but fewer married couples, and most troubling of all, more children born out of wedlock--41% of all U.S. births in 2008 were to unwed mothers. I'm fairly certain that "slash marriage rates among 25-34 year-olds in half" and "increase percentage of children born out of wedlock" weren't among the stated purposes of Lyndon Johnson's Higher Education Act back in 1965, but they're clearly among the results, at least indirectly.

I just hope that our inevitable policy response to those problems doesn't create more problems than it solves. Either way, we need to recognize that when making policy decisions, the unintended consequences are just as important and formative as the intended consequences. More of our debate needs to focus not on the initial impact of policy, but on trying to determine what the actual long-term responses of the society might be to those policies. It's tough stuff to predict, but it's what our government can and must be doing.

[NPR]