Category: academia

In the winter quarter I will be teaching a lecture-based course on the theory of finance. It has three main elements:

1. The principle of diversification, culminating in the Capital Asset Pricing Model
2. The principle of hedging, culminating in the Black-Scholes option pricing formula
3. Markets with asymmetric information, with implications for financing, payout, and governance

I last taught the course 5 years ago, teaching exclusively a senior seminar in the intervening years. I'm dreading going back into a lecture hall, as opposed to a seminar room. My sentiments are best summed up with this quote, from a piece by mathematics professor Jerry Uhl of the University of Illinois:

One of the first to note that the lecture system needed to be replaced was Ralph Boas in 1980 : "As a means of instruction, lectures ought to have become obsolete when the printing press was invented. We had a second chance when the Xerox machine was invented, but we muffed it."

The whole article, "How Technology Influenced Me to Stop Lecturing and Start Teaching," is worth a read. And "technology" here doesn't mean replacing yellowed lecture notes with pre-fabricated powerpoint slides. The classroom experience should be active, not passive, and economics as a discipline ought to be taught more as a lab and less as a lecture. I'd be receptive to any pointers to innovative classroom methods or materials.

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Via Powerline, I learn of Heather MacDonald's essay on Harvard's decision to allocate $50 million to new initiatives on women in science. A lot of MacDonald's ideas about how little is likely to be gained at the margin from these resources, given what Harvard and all elite universities are already doing to hire more women faculty, make sense to me. For example, she writes:

And what does $50 million buy you? This astounding sum, offered by Lawrence Summers as a down payment on his absolution for mentioning the science of sex differences, comes without any explanation as to how he arrived at it or what it will purchase. One would hope that the Senior VP for D, whatever her exalted position and her bevy of dedicated helpers in the provost’s office, doesn’t come near to costing that amount. Given that Harvard and its competitors across the country have already beaten the bushes for years for “diversity” candidates, even $500 million would seem unlikely to produce any major change in Harvard’s “diversity” profile.

If I were an administrator at Harvard, and I were asked that question, my answer would be, "10 more endowed professorships for world class scholars." The going rate for an endowed professorship is about $5 million. Then I would realize that these are scientists, who require labs and start-up money, so maybe only 7 or 8 of them. And that's how I would spend the money.

I haven't read the Task Force's report, but the newspaper account in The Crimson in May had the following to say about hiring in the wake of the report:

Part of the money will fund 40 new faculty appointments over the next five years “with priority given to the hiring of women and underrepresented minorities,” according to the report from the Task Force on Women Faculty.

Given how expensive science professors can be, I don't see how 40 new faculty appointments (provided they are permanent) leave anything left in the $50 million budget for anything else. In fact, they more than exhaust the budget, even if they are all at the non-tenured level. Perhaps that is why we also find the following in the article:

“This is an initial commitment, and we expect, given the importance of these issues, that there are likely to be more resources that are allotted down the road,” Summers said.

That's certainly true, unless Harvard has figured out some new way to dramatically underpay its scientists. So my guess is that the outcome will resemble MacDonald's thesis in the end--relabeling of ongoing efforts under the heading of this new initiative--but that the mechanism will simply be hiring additional faculty rather than other aspects of the report that may have garnered more media attention.

For some evidence, consider the annual letter from Dean of the Faculty William Kirby to the faculty in February, after the outrage over Summers' remarks but well before the Task Force report, as quoted in this article:

Kirby wrote in the letter that he was “extremely disappointed” that few women have been offered tenure recently and committed himself to hiring and tenuring more women and minorities.

Kirby’s controversial proposals are part of a plan to increase the size of the faculty to 750 professors by 2010 and to 800 at a later time.

Under Kirby’s leadership, the size of the faculty has grown from 636 professors in 2003 to 672 professors at the start of 2005.

Kirby wrote he would focus future growth of the faculty in the category of non-tenured professors. To encourage the recruitment of young scholars, departments can label associate professorships as tenure-track positions, he wrote.

I doubt the 40 faculty members noted in the Task Force report are in addition to the 78 (750 minus 672) that were already planned for the next 5 year period.

See my earlier comments on the Summers controversy here, here, here, and here.

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I should have my head examined for getting into this discussion, but I suppose New York Times columnists are supposed to be provocative. In his column yesterday, Paul Krugman discusses why "registered Republicans and self-proclaimed conservatives make up only a small minority of professors at elite universities."

I am a self-proclaimed conservative and I think Dartmouth qualifes under a description of "elite university," so I figure I should chime in here. I'll start by stating as clearly as I can why I chose this profession. First, I enjoy doing research. I have quite a lot of autonomy in what I work on. My work is evaluated by a profession of competent and thoughtful people. And I get to discover new things. Second, I love to teach. From the time I was tutoring my classmates in secondary school, I felt that I had a calling to be a teacher. (See this early post for more.) I presume that these two reasons, or similar ones, explain why most of my colleagues chose this profession, be they liberal or conservative. For the record, I made this decision when I was 18 years old.

I am friends with many liberal professors. At least in the economics department at Dartmouth, I have never in 11 years heard of a single instance where any professor made his or her political viewpoints central to the classroom experience. I've talked to many of my students, liberal and conservative, about the good and bad aspects of my time in Washington during office hours. That's not politics--that's just being a mentor. Before some classes, when there is a topical news story on campus or in the world, my students and I may exchange ideas about it. None of that matters for the class per se--once the group is assembled and ready to go, it's all about the economics. I would consider it a breach of my professional duties to put my own political views into the courses I am teaching. I presume the same is true of my colleagues in the economics department, be they liberal or conservative.

I have been involved in a decade's worth of hiring and promotion decisions. Never at any time has a person's politics come into play in any deliberations. My own experience suggests no evidence of a "left-wing bias" in the way my department is constituted.

I agree with the general terms that Krugman uses to frame his explanation:

The sort of person who prefers an academic career to the private sector is likely to be somewhat more liberal than average, even in engineering.

But I do not buy into the remainder of his argument, which can be loosely paraphrased as not enough conservatives believe in the virtue of scholarship to get enough of them to be interested in the academy. Rather, I think the explanation for why liberals outnumber conservatives is that they actively like the way the academy is organized.

An elite university is like a kibbutz hooked up to an ATM. It is the closest thing we may ever find to a socialist enterprise that endures. The key element of the kibbutz--that the workers collectively decide on the activities of the entity--is hardwired into the university via faculty governance. (The departure from the ideal--that some workers are "more equal" than others--is also evident, in that it is faculty, not employee, governance.) The notion that this is a sensible way to organize one's professional life is bound to resonate more with people who have a soft spot for socialist, utopian ideals. In my opinion, that you find more liberals than conservatives in the modern elite university is largely (though not exclusively) a reflection of liberals rather than conservatives feeling at home in such an environment.

Under normal circumstances, we would expect such an enterprise to implode, because some members of the collective are more productive than others, and they eventually get tired of subsidizing the lifestyles of the less productive members of the collective. So what keeps the elite university alive?

It's the ATM--alumni generosity. With outside money, even those who cross-subsidize the rest can feel like they are being adequately rewarded. A place like Dartmouth survives because in good times and in bad, alumni and other benefactors provide it with external resources to make the numbers add up. The federal government provides an assist by making those contributions tax-deductible. At public universities, it is the generosity of the state taxpayers via the state legislature. Take away that ATM, and I wager that a lot of the perks that make the quasi-socialist utopian enterprise so interesting to those who are left-of-center would disappear. Universities would have to conduct their daily operations more overtly like a business, and we would find a more balanced mix of people trying to get jobs there.

I think that there has been too much emphasis in this debate on pernicious explanations. Krugman makes thinly veiled accusations from the left that conservatives have no respect for scholarship, and the David Horowitz crowd makes equally absurd accusations from the right of a left-wing conspiracy. Have I proven that both are wrong? No. I have just offered a much more benign explanation. I don't claim that it is the only explanation. I do believe it is an order of magnitude more relevant than these two extreme arguments.

So perhaps the last question to ask is: would universities be better off by operating more like a conventional business and less like the kibbutz hooked up to an ATM? I think the answer is "no" (or not really), precisely because the money flowing from the ATM is voluntary and not coerced. The benefactors of universities seem to believe in the mission, the personnel, and the institutions to continue to support them, despite their flaws. And there is a tremendous amount of goodwill on both sides of that relationship.

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Never having taken a course from Harvey Mansfield while a student at Harvard, I infer that I would have gotten a C-minus on my posts about the Harvard faculty's outrage over Larry Summers and his remarks, "Brutality in Harvard Yard" and "Summers Transcript." In his Weekly Standard column, "Fear and Intimidation at Harvard," Mansfield earns an A. He very succinctly gets to the point about why the Harvard faculty is having such a tough time adjusting to his leadership (and why we both think that Summers is the right person to be Harvard's president):

More than most people--to say nothing of university presidents--Summers lives by straightforward argument. He doesn't care whether he convinces you or you convince him. He isn't looking for victory in argument. But his forceful intelligence often produces it, in the view of those with whom he reasons. Sometimes the professors he speaks with come out feeling that they are victims of "bullying," as one of his feminist critics stated. As if to reason were to bully.

Very well said.

The rest of the article is Mansfield's critique of feminists in the academy. I defer to Betsy Newmark's analysis.

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Harvard has released a transcript of Summers' remarks from the January conference at the NBER. There is good coverage of the remarks in several places in the blogosphere:

Rick Richman provides a sympathetic analysis of the remarks. Rick also links to this column from last month by Andrew Sullivan, which very eloquently identifies how troubling it is that there are some who are so eager to take offense at Summers' inquiry. Over at the Corner, Jonah Goldberg is posting frequently about the show trial. He also links to Posse Incitatus, who thinks the witch hunt is displaced anger over electoral defeat from the political left.

Via Joe's Dartblog, I discover that some Yale students are peeved that their President isn't taking part in the witch hunt. I suppose they would be happier if he had co-signed this statement from his peers at MIT, Stanford, and Princeton:

The question we must ask as a society is not “can women excel in math, science and engineering?” -- Marie Curie exploded that myth a century ago -- but “how can we encourage more women with exceptional abilities to pursue careers in these fields?” Extensive research on the abilities and representation of males and females in science and mathematics has identified the need to address important cultural and societal factors. Speculation that “innate differences” may be a significant cause of underrepresentation by women in science and engineering may rejuvenate old myths and reinforce negative stereotypes and biases.

That might be interesting, if Summers had actually asked the question, "Can women excel ..." or if he had actually said that cultural and societal factors played no role in explaining the differences in male and female science careers at top universities. What he did was to craft an argument that suggests that biological differences--in the form of more men in both the top and bottom parts of the distribution of abilities--may play more of a role in explaining what we observe at top universities than is commonly believed. The last sentence of this quote above--that even Summers' speculation of this hypothesis may have these bad consequences--is particularly disappointing. A more intelligent statement is found in the Andrew Sullivan column noted above:

The Massachusetts Institute of Technology’s brilliant scientist Steven Pinker put it better than I can: “Look, the truth cannot be offensive. Perhaps the hypothesis is wrong, but how would we ever find out whether it is wrong if it is ‘offensive’ even to consider it? People who storm out of a meeting at the mention of a hypothesis, or declare it taboo or offensive without providing arguments or evidence, don’t get the concept of a university or free inquiry.”

Pinker is right--these folks don't get the concept. But fortunately, Summers does. Here's the key summary quote from his remarks:

So my best guess, to provoke you, of what's behind all of this is that the largest phenomenon, by far, is the general clash between people's legitimate family desires and employers' current desire for high power and high intensity, that in the special case of science and engineering, there are issues of intrinsic aptitude, and particularly of the variability of aptitude, and that those considerations are reinforced by what are in fact lesser factors involving socialization and continuing discrimination. I would like nothing better than to be proved wrong, because I would like nothing better than for these problems to be addressable simply by everybody understanding what they are, and working very hard to address them.

I have a simple suggestion for all of the Harvard faculty who feel compelled to attend the "emergency meeting" next week. If you think that what Summers said at the NBER is unbecoming of Harvard's president, then what you need to do is not to vote "no confidence" in him, but to submit your own resignation.

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This morning, before embarking on the most delightful 15 minute commute in America, I sampled some of the news emanating from Harvard Yard about Larry Summers. Apparently, the faculty are not happy. The able journalistic team of William C. Marra and Sara E. Polsky are on the case. From the second paragraph:

Before this week, professors questioned Summers only in isolated contexts. But at Tuesday’s Faculty meeting—the first since Summers’ controversial remarks on women in science a month ago—what had been cacophonous complaints merged into a single cry against what some speakers called Summers’ reckless leadership.

Apparently, Larry is now being chastised for having lit a similar fire under all of them. And apparently unlike Social Security, this really is a crisis:

“The crisis of governance and leadership here goes much deeper,” Thomas Professor of Government and Sociology Theda Skocpol said at the meeting. “We cannot easily have a new social contract, when there are many indications that we never had a genuine social contract in the first place.”

I am going to suggest that what the faculty have at Harvard is an employment contract, not a social contract, and it is probably one of the most generous such contracts on the entire planet. I have a similar one at Dartmouth.

To my understanding of his time at the helm, Larry hasn't done anything to prevent the Harvard faculty from doing their research and teaching their classes. He has in various contexts challenged them to do a better job of it. He has spent considerable time thinking about the expansion of the faculty (nearly a 6% increase in two years, with plans for many more, according to this article by the same authors), the relocation of parts of the University across the Charles River to Allston, and a review of the curriculum.

That Larry is focused on making Harvard the premier research institution of the 21st century seems to be lost on some of his faculty. Consider this quote from one professor who attended the meeting:

“I think that what’s happening is that lots of people in the University think they’ve been singled out for brutal treatment and are discovering that other people have experienced the same thing. People are putting the pieces together,” the professor said.

Brutal? You are just kidding me. Brutal? Our friends at Dictionary.com define "brutal" as follows:

1. Extremely ruthless or cruel.
2. Crude or unfeeling in manner or speech.
3. Harsh; unrelenting: a brutal winter in the Arctic.
4. Disagreeably precise or penetrating: spoke with brutal honesty.

I have met Larry Summers, spoken to him on occasion, and watched his career for over 15 years. His behavior, as it would occur in an interaction with an individual Harvard faculty member, is consistent with #4, maybe #3, probably not #2, and certainly not #1. Brutal? Give me a break. Brutal is what the Marines face in combat. Brutal is having a child with a crippling ailment. Brutal is life in crime-ridden inner cities. Brutal has nothing to do with Harvard Yard.

The article discusses three episodes--the 2001 falling out with Cornel West, the decision to move part of the campus to Allston without a vote of the faculty, and the recent remark about the role of genetic differences in explaining the differences between male and female careers in the natural sciences. None of these episodes bother me, at least based on what I have read about them to date. Here's why:

1) As one of a very few "University Professors," Cornel West should be held to the highest standard in both research and teaching. It is entirely appropriate for a University President to articulate those expectations. It is unfortunate that Professor West decided that he no longer wanted to be at Harvard after the meeting, but that's his choice.

2) If Harvard can expand into Allston, the faculty should jump at the opportunity. The expansion will change many things about the campus environment, and it will disrupt some members of the campus community more than others. But it provides much needed space for expansion, particularly in the natural sciences, where new facilities are essential. Faculty should be consulted and involved in the planning, but at no point should they be given the "veto" power that they seem to expect. Big decisions require accountability, and the faculty as a whole are not accountable to anyone. The University President is. That makes it his decision, not theirs.

3) I don't know exactly what was said at the NBER meeting, but it sounded like the usual inquiry that scientists do. He was asking, "What factors explain the observed differences in the careers of men and women in the natural sciences? What evidence do we have that rules out genetic differences as an explanatory factor?" They seem like reasonable questions about an important topic. I'm curious to see the evidence myself.

I think that the political fallout from this is unfortunate--Larry does seem to have to apologize quite a bit. But, more importantly, I think the Harvard faculty are embarrassing themselves by elevating this to the level of a "crisis." And the climate on campus is likely to get worse, with another faculty meeting next week and the publishing of this book next month.

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Many interesting discussions to rejoin in the blogosphere in coming posts, but first I pause to give a hat tip to EagleSpeak, one of my absolute favorites, for pointing to me this piece by Victor Davis Hanson, "The Global Throng: Why the World's Elites Gnash Their Teeth." (For those of you on campus, be sure to see Hanson on Tuesday, in a debate with Professor Edsforth. Get the details here.)

As you can tell, my wiring is mostly conservative, and so I am bound to be sympathetic to the slant in this particular history-writing-in-process article. But the part of the piece that caught my eye was more about my own backyard:

What explains this automatic censure of the United States, Israel, and to a lesser extent the Anglo-democracies of the United Kingdom and Australia? Westernization, coupled with globalization, has created an affluent and leisured elite that now gravitates to universities, the media, bureaucracies, and world organizations, all places where wealth is not created, but analyzed, critiqued, and lavishly spent. [emphasis in the original]

It's hard to argue with the characterization of, say, Ivy League faculties as "affluent and leisured," at least compared to the work most people have to (or choose to) do for a living. (Though I'm not feeling particularly leisured these days.) And he's got another solid point with the tendency to analyze and critique--that's part of a good university's mission statement. And certainly we do spend money that arrives as a result of philanthropy or subsidy (in addition to tuition). I don't know how lavish that spending is, but I'll certainly concede the point that we "do without" to an impressively small degree.

But is it really true that universities do not create wealth? My time on campus these days is made up of three activities:

Research: I won't make this characterization for all of it, but certainly there are some papers there that have helped change the way people think through issues related to Social Security, pensions, saving, taxation, executive compensation, and other topics. It is freely available to be used by others as an input to their work, whether through policy, industry, or other academics. To the extent that it is used, it is a productive asset and thus wealth.

Teaching: I am enjoying the heck out of teaching this term. Part of it is the hiatus, and part of it is that the average quality of my students is really high this term. We spend a few mornings a week discussing some challenging finance papers and answering two basic questions: Is there anything in the way this paper is implemented that leads me to call into question whether it has established the empirical fact it claims? Assuming I believe the empirical fact, are there any other competing explanations for that fact that do not require me to accept the authors' explanation? I also push the students pretty hard on their own original research. So, let's see, if any of you out there think that these are valuable skills, by all means, hire my students after they graduate and pay them a lot of money. To the extent that these skills have value in the marketplace (at the very least), they are wealth.

Administration: The Rockefeller Center provides (mainly) extracurricular enhancements to Dartmouth students' and the community's understanding and participation in public policy. Among our many activities, we bring in speakers, we host discussion groups for students and faculty, and we provide hard-skill training for those who seek careers in public policy. There are lots of Centers like this at universities around the country. To the extent that their programs make for better informed decisions, they create wealth.

If we are doing our jobs, then we do create wealth. I would love to figure out a way to measure how much.

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"Leopold Stotch" at Outside the Beltway discusses Princeton's recent efforts to crack down on grade inflation. In a nutshell, Princeton has limited the number of grades of A- or better to 35 percent of the class in most cases. Leopold doesn't like the idea of an administrator who has never taught telling him how to evaluate his students. As a fellow professor, I cannot help but agree with that (though I acknowledge that my situation is different--my department chair, associate dean, and dean are all first-rate academics). Steven Taylor at Poliblogger agrees and Robert Prather at Signifying Nothing evaluates the policy a bit more sympathetically as it pertains to the way administrators deal with professors.

But in reference to the Princeton case, Leopold states:

The fact of the matter is that students at Ivy League schools should be getting a disproportionate number of As -- otherwise, why were they admitted?

This should be true if they were put in classes alongside students that did not otherwise gain acceptance into Princeton, but not among other students who did. They were admitted because they showed the promise to be able to make the most of Princeton's academic environment. In the context of that environment, expectations should be sufficiently high that only a small minority of the students will merit an A or A-.

The main problem with grade inflation is that, since the maximum grade stays fixed, it it tends to compress the distribution of grades. Some people get A's because they would earn them even if expectations were higher, and some people get A's rather than B's because grades have been inflated. This benefits less capable students at the expense of more capable students, and I see absolutely no reason for this to occur.

Note that this problem of grade compression refers to grades at a point in time. What generally captures people's attention is when the distribution of grades shifts higher over time. This is what got Harvard into trouble during the 2001-2 academic year, when it acknowledged that a disproportionate share of its students were graduating with honors. (The lowest honors threshold was a fixed GPA, and over time, more and more students crossed it. I believe that the problem has been fixed by limiting the number of students who can qualify for honors based solely on a GPA. At Dartmouth, where Latin honors are determined by GPA, the fractions graduating summa, magna, and cum laude have historically been limited to a fixed percent of the class.) If students are arriving better prepared over time (I'm not convinced), or if resources available to them are improving over time (certainly true), then our expectations of them should be increasing over time in a commensurate way.

At Dartmouth, the faculty voted in the 1993-4 academic year (the year before I got here) to display the median grade for each course on the student's transcript alongside the grade awarded. Classes with fewer than 10 students are excepted. The transcript contains a summary of how many classes the student earned a grade above, at, or below the median. This is a useful addition, because it makes the transcript a more honest representation of the student's performance. (Read here to see how that point was lost on the editors of a student paper from a university with the motto, "Veritas.")

However, including the median grade on the transcript is incomplete as a measure to address the problems of grade inflation.

First, it doesn't stop grade inflation over time. We know this because the honors thresholds typically increase each year and because we can analyze the data and see for ourselves that median grades are rising. The reason that the policy doesn't stop grade inflation is that it is not used to change grading policies in any formal way--there is no consequence on campus of having a course with a high median grade.

Second, because the information is collected and presented but not used to change grading behavior, it allows for very large differences to persist across easily identifiable groups. For example, controlling for course size, course number (a proxy for the level of the course), and enrollment, courses in the humanities over the past two years have had median grades that are 0.136 and 0.111 (out of 4.0) higher than those in the sciences and social sciences, respectively. This comparison excludes the language courses, where median grades are even higher.

Third, it is possible that some classes have high median grades because there are a disproportionate number of very talented students in that class, and this policy doesn't do anything to reflect that information. It could be made even better if it did.

With those issues in mind, what changes would I make to Dartmouth's current system? When computing class rank and awarding Latin honors, I would adjust for known and persistent differences across departments in grading practices. I am open to suggestions about precisely how the adjustment would take place. Using the difference between the student's grade and the median grade in the course seems like a useful place to start.

Even better, I suppose, would be to also incorporate a measure of the ability of the students in the course in addition to the grade earned and the median grade. One such metric would be the average combined SAT scores of the students in the course. We would almost have the usual Ratings Percentage Index that is used in many sports like the NCAA basketball and hockey, which are combinations of the team's Winning Percentage, its opponents' winning percentage, and its opponents' opponents' winning percentage.

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