When inflation is considered, those who possess a more sanguine outlook relating to pricing pressures have pointed to the Consumer Price Index (CPI) to bolster their view that inflation is not a problem.
The problem with the CPI is that consumer prices themselves transmit all sorts of information unrelated to currency strength. So while rising prices can be a symptom of inflation, they can also result from all manner of things that have nothing to do with the value of the currency.
If hotel rooms in New York City become very expensive, some would consider this an inflationary event despite simple logic showing otherwise. Put simply, if New York hotel rooms suddenly cost $200 per night more than they once did, the broad impact on the price level would be zero owing to the fact that consumers would have $200 less to spend on previously attainable goods.
Furthermore, to the extent that there is a monetary devaluation, it shouldn’t be assumed that a weaker unit of account will immediately be reflected in all consumer prices. This is because there’s a way to increase the cost of a good without increasing the nominal price of that same good. As a recent USA Today story showed, ice cream makers, suffering under rising dairy costs, have in many cases reduced the size of standard ice-cream containers to 1.5 quarts from 1.75 quarts. Frito Lay and Dial have done much the same with bags of potato chips and bars of soap.
Ultimately it has to be recognized that the only true measure of inflation does not involve prices, but instead is transmitted through the value of the dollar itself.
And when we consider the dollar, the most reliable benchmark is not the greenback’s value versus the euro, yen or pound, but the dollar’s value in terms of gold. When the price of gold moves, this is not a signal that gold’s price has changed, but instead tells us that the dollar’s value is rising or falling.
Gold has risen 255 percent against the dollar since June 2001. Whereas a dollar used to buy 1/253 of an ounce of gold, as of this writing it buys 1/900 of an ounce. For those wondering why all manner of commodities, from gasoline to corn to meat have become so expensive of late, look no further than the dollar’s debasement.
And to the extent that some have great faith in CPI-like measures, they need only look at countries outside the United States to see that our version of CPI is greatly understating true inflation. Despite the fact that the euro and pound have crushed the dollar in recent years, government inflation statistics in both show it at 16- and 18-year highs respectively.
So while inflation problems around the world confirm that our government measures of inflation are faulty, the bigger story is what a rising dollar price of gold means for the average American. When gold rises, paychecks are emasculated; investment in innovative, job-creating enterprises subsides; and money flows to the relative safety of the “real.”
Rather than clinging to the CPI as false evidence of light inflation, and worse, targeting consumer prices, monetary authorities should instead target a stable gold price with an eye on bringing it down substantially.
John Tamny is Editor of RealClearMarkets, a Senior Economist with H.C. Wainwright Economics, and a Senior Economic Advisor to Toreador Research and Trading. He can be reached at jtamny@realclearmarkets.com.
The role of corporate lobbying in politics is a hotly debated topic these days. Perhaps nothing frames the difference in opinions better than the recent presidential campaigns of Hillary Clinton and Barack Obama. During the Democratic primaries, the two presented sharply contrasting views on lobbyists.
At the 2007 Yearly Kos convention in Chicago, Clinton said, “A lot of those lobbyists, whether you like it or not, represent real Americans. They actually do. They represent nurses. They represent social workers. They represent—yes, they represent corporations that employ a lot of people.”
Firms lobby not only to defend themselves from harmful policies but also to profit from tax advantages, regulation loopholes and government budget appropriations.
Obama, however, offered a different argument. “I disagree with the notion that lobbyists don’t have disproportionate influence,” he said. “Look, the insurance and the drug companies spent $1 billion in lobbying over the last 10 years. … They are not spending that just because they are contributing to the public interest. They have an agenda.”
Interestingly their views seem to correspond to the two academic theories of lobbying. On the one hand Gene Grossman, an Economist at Princeton University, and Elhanan Helpman, an Economist at Harvard University, emphasize the “information” role of lobbying. In their well-cited book Special Interest Politics, they consider lobbying as primarily a mechanism to transfer information and knowledge from certain interest groups to policymakers. Grossman and Helpman argue that this improves the efficiency of society, in a sense.
Nobel Laureate and University of Chicago Economist George Stigler, however, suggests industries are often able to acquire regulations that protect them rather than harm them. Their need for such regulations and the regulators’ willingness to provide them create the demand and supply of a “market for politics.” Firms contact politicians and government agencies through various channels and try to convince them of the necessity to pass “friendly” policies or deter “hostile” ones. In return for the favor granted by the regulators, firms compensate them with votes and resources such as political contributions.
The popular press seems to give more support to the latter view. The Washington Post recently quoted one top lobbyist as saying: “People in industry better have good lobbyists or they’re going to get rolled over.” Even companies that try to resist political involvement for various reasons usually end up joining the game. For example, Google was reluctant to lobby until it was under severe pressure for issues related to user privacy and operations in China. It then decided to hire high-profile Washington lobbyists and invest heavily in lobbying, as reported in The New York Times. Google’s story was hardly new; Microsoft went through the same process in 1996 when it was entangled in antitrust problems.
Firms lobby not only reactively to defend themselves from potentially harmful policies but also actively to profit from tax advantages, regulation loopholes and government budget appropriations. The benefits of lobbying are seemingly huge: The Washington Post reported a $100 return on $1 of investment in lobbying for corporations. Similarly BusinessWeek conservatively estimated that firms received an average of $28 in awarded federal earmark spending per dollar spent on lobbying. The benefits of these efforts can come through various channels. The defense industry lobbies for more government contracts; the hi-tech industry lobbies for issues related to patent; and of course, everybody lobbies for lower taxes.
To check whether these claims withstand statistical scrutiny, we compiled a database of corporate lobbying activities made possible by the Lobbying Disclosure Act of 1995. Prior to the Act there was no public data available on how much firms spent on federal lobbying, as lobbying organizations and professional lobbyists were not required to register or disclose their lobbying activities.
In brief, we found that spending on lobbying pays off handsomely. We looked at financial performance as reported in firms’ financial statements, as well as stock market returns. To gauge stock market performance, we constructed portfolios of companies based on their lobbying intensities (that is, by how much they lobby relative to their size). Based on these rankings, we discovered that firms in the top portfolio generated annual returns 8 percent higher than similar firms that do not lobby. Moreover, it was only these firms with the highest lobbying intensities that systematically outperformed their benchmarks. Thus, contrary to the impression gleaned from the financial press, not all lobbying yields huge rewards.
That said, the chance to tilt the odds in their favor probably explains why American corporations spend so much on lobbying. For example, in the 1997-1998 election cycle, corporations, their trade associations, and other business-related interest groups accounted for roughly 90 percent of the total lobbying spending, dominating that of any ideological or single-issue organizations. (See Figure 1 for the list of top lobbying spenders from 1998 to 2008, as reported by the Center for Responsive Politics.)
At the end of the day, the need for petitioning government and influencing public policy will never go away, and eliminating official channels of lobbying will only result in a secretive and corrupt system.
So was Hillary Clinton wrong in saying that lobbying represents the interests of everyday Americans? Not necessarily. Corporations lobby to inform policymakers of the impact of regulation and legislation; individuals are impacted in their roles as consumers, as employees and as shareholders. The presence of corporations in the list of top spenders on lobbying is just an example of a collective action problem. Only those groups or firms with the most to gain or lose have an incentive to participate.
One solution to this problem is to ensure a clean and transparent process. The Lobbying Disclosure Act of 1995 intends to at least partially serve that purpose. All lobbyists and organizations that lobby must register and file with the government, and report semi-annually how much they spend on lobbying, for what purpose, etc. At the end of the day, the need for petitioning government and influencing public policy will never go away, and eliminating official channels of lobbying will only result in a secretive and corrupt system. The principle of transparency is arguably one of the key advantages of the American political system and must be viewed as an important contributor to its current and future economic health. What is needed is more disclosure, not less lobbying.
Hui Chen is an Assistant Professor at the University of Colorado’s Leeds School of Business. David Parsley is a Professor of Management at the Owen School. Their paper “Corporate Lobbying and Financial Performance” was co-written with Ya-Wen Yang of the University of Miami.
Joseph D. Blackburn, James A. Speyer Professor of Production Management, was honored as a Fellow of the Production and Operations Management Society in recognition of his research contributions to the field.
Mark A. Cohen, Justin Potter Professor of American Competitive Enterprise (Strategy and Economics), was appointed Vice President for Research at Resources for the Future (RFF), a nonprofit and nonpartisan organization that conducts independent research on environmental, energy and natural resource issues.
Bruce Cooil, Dean Samuel B. and Evelyn R. Richmond Professor of Management (Statistics), received the 2007 Marketing Science Institute/H. Paul Root Award and Outstanding Paper Award for his research into the fallacy of the Net Promoter customer loyalty metric.
Salvatore T. March, David K. Wilson Professor of Management (Information Technology), was honored with the Design Science Lifetime Achievement Award, presented at the 2008 International Conference on Design Science Research in Information Systems and Technology (DESRIST).
Ronald W. Masulis, Frank K. Houston Professor of Management (Finance), received the 2007 Hana Bank Outstanding Paper Award at the Second Annual International Conference on Asia-Pacific Financial Markets in South Korea for his work titled “Agency Problems at Dual-Class Companies.”
Richard L. Oliver, Professor of Management (Marketing), was the recipient of the 2007 Sheth Foundation/Journal of Marketing Award, which honored his 1999 paper “Whence Customer Loyalty” as having made the most significant long-term contributions to marketing theory and practice.
Hans Stoll, The Anne Marie and Thomas B. Walker Professor of Finance and Director of the Financial Markets Research Center, was awarded an honorary degree by Goethe University Frankfurt, the leading German university in the area of financial markets.
Research and Teaching Awards
Dean’s Award for Research Impact
Dawn Iacobucci, E. Bronson Ingram Professor in Marketing
An expert on social networks, customer satisfaction and service marketing, Iacobucci has authored 47 papers in refereed journals including Marketing Science, Harvard Business Review, Journal of Marketing and Journal of Marketing Research. She also co-authored Marketing Research: Methodological Foundations, the leading marketing research text in the industry and has authored and edited several additional books on services and integrated marketing.
Dean’s Award for Research Productivity
Steve Hoeffler, Associate Professor of Management (Marketing)
Hoeffler’s research on such topics as positioning multiple category products, marketing radically new products and the advantages of strong brands have appeared in such journals as Journal of Marketing Research, Journal of Consumer Psychology and Journal of Product Innovation Management. Hoeffler also has served as Chair for the Consumer Behavior Track of the American Marketing Association Summer Marketing Educators’ Conference.
James A. Webb Excellence in Teaching Award
Mikhael Shor, Assistant Professor of Management (Strategy and Economics)
Shor teaches Game Theory and Business Strategy, as well as Pricing Strategies—two highly regarded courses in the MBA program. His expertise is in the fields of game theory, experimental economics and industrial organization, and his theoretical work on the effects of mergers in auction markets is accompanied by experimental research into human decision making.
Executive MBA Excellence in Teaching Award
Nancy Lea Hyer, Associate Professor of Management (Operations)
Hyer teaches Operations Management to the Executive MBA students and was cited for the energy, intellect, respect and enthusiasm she shows in the classroom. Before joining the Owen faculty, Hyer served as Operations Research Manager for the Hewlett-Packard Network Measurements Division in Santa Rosa, Calif. Her work in the academic and business communities has focused on cellular manufacturing, process redesign and project management.
This past February we were approached by Jim Bradford, Dean of the Owen School, and asked to serve as the Co-Chairs of the Class of 2008 Class Gift. We were both initially surprised by the e-mail but quickly realized what an honor it was to be asked to serve our class in this capacity. Without even speaking to each other, we knew that we would have to work as a team to organize and motivate the class to ensure that we left a positive and lasting mark on Owen, just as we’d done during our two years as MBA candidates.
The first item on our to-do list was to meet with Dean Bradford, Associate Dean of Development and Alumni Relations Tricia Carswell, Alumni Program Coordinator Melinda Phillips, and Director of Alumni Relations Marshall Turnbull. Jim began the meeting by heaping praise upon the Class of 2008, telling us that he believed we were truly a special Owen class. He said that our accomplishments and student-led initiatives arguably surpassed those of any class that preceded us. Now you may think that this is the speech that he gives to class representatives every year, but we sensed that he genuinely meant it.
Class Co-Chairs Erin Hofmann and Matthew Garrett helped establish the Student Initiative Fund at Owen.
Tricia followed Jim’s praise for our class with more of the same but added a little fundraising theory to the mix. The underlying idea of the class gift is to form in our alumni the habit of giving back to Owen. When a person donates time or money to a cause or institution, that person has a stake in that cause. In the case of Owen, the greater the stake there is in the school’s success, the more involvement our alumni base will seek. High levels of alumni involvement, both financial and otherwise, are hallmarks of top B-schools across the country. Involved alumni enrich the experiences of faculty, staff, MBA candidates, prospective students, and the Owen community as a whole.
After Tricia’s remarks we began to discuss the gift itself. Rumblings about much-needed updates to Owen’s physical environment had not fallen on deaf ears, but Jim wanted to steer us in a different direction. We knew we would have to come up with a concept that truly represented our class’s accomplishments.
Our thoughts immediately turned to the impending building expansion. As most classes express, Owen creates a family environment that lasts. How could we contribute? Gathering space? Work areas? A lounge?
Millions of dollars must be raised over the next few years for a new building and updates to the old building through a capital campaign. Anything added or improved in our current building would be temporary at best. We also wanted our gift to take hold immediately.
While we began to brainstorm about our big gift, we formulated our strategy and built our team. We chose a diverse group of our classmates who represented leadership in all areas and were well-respected within the Owen community. We now had our committee, but we still lacked our Great Idea.
We couldn’t help but remember the praise offered by Jim, Tricia, Marshall, and Melinda. Our class, through both the seeds planted by classes before us and our own innovations, had accomplished quite a bit. Owen Bloggers, the Leadership Development Program, Project Pyramid, Leadership in Action, and the Human Capital Case Competition all came into their own during our time at Owen, and several projects, such as 100% Owen, blossomed under Class of 2008 leadership. Not too shabby.
Our class gift started to develop: Our opportunities came from those before us through mentoring, ideas and finally, alumni and capital campaign donors. We wanted that tradition to continue. Physical gifts represent stagnancy and the past; we needed a dynamic gift that points to the future.
Recent class gifts included a student travel fund and the online community OwenConnect—both concepts that allow for future opportunities. We wanted to ensure future classes would have the same opportunities we were fortunate enough to have, and so, with some deliberation, we established the Student Initiative Fund. With Associate Dean of Students Jon Lehman as guardian, the fund would provide seed money to any group wishing to start a project that would benefit the student body or the school as a whole. These initiatives could take the form of guest lectures, student-run projects or anything future classes deem worthwhile. The gift would also give us the chance to come back to Owen to help out in other capacities by offering our advice, our guidance and our time to these projects.
Our Class Gift Committee stepped up more than we ever could have imagined, putting forth both their confidence in Owen and their financial backing, despite the fact that some were still job searching. Through diligent pestering, nostalgic storytelling and more than a few Starbucks cards, we discovered that most of our classmates felt the way we did: They wanted to pay it forward to the classes to come.
All in all, the Class of 2008 raised $200,001 (don’t think we didn’t count every dollar!), and the inaugural MAcc class showed up with 100 percent participation. As new graduates we feel our experience at Owen was greater than we could have imagined, and we hope, as you think back on your own time at Owen, that you will remember the future classes who will answer the door when opportunity knocks. Thank you for your support!
Matthew Garrett and Erin Hofmann graduated from the Owen School in May.
The Owen School has announced that six prominent business leaders from an array of industries have been named to its prestigious Board of Visitors, an advisory group established in 2006 to strengthen the school’s connection with and relevance to the national and international business communities.
The new members—representing the health care, financial services, consulting, executive recruiting, technology and beverage industries—are George S. Barrett, Vice Chairman of Cardinal Health and CEO of its Healthcare Supply Chain Services sector; Carin M. Barth, MBA ’86, President of LB Capital, Inc. and Commissioner of the Texas Department of Public Safety; Bruce L. Crockett, Chairman of Funds Board, AIM Mutual Funds and Chairman of Crockett Technology Associates (CTA); Robert H. McNabb, Executive Vice President, Korn/Ferry International and CEO of Futurestep; Mark A. Tillinger, BA ’81, MBA ’82, Partner at Accenture; and J. Smoke Wallin, MBA ’93, CEO of Taliera Holdings and Founder, Chairman and CEO of eSkye Solutions. Three of these new members—Carin Marcy Barth, Mark Tillinger and Smoke Wallin—are also graduates of the Owen School.
“These accomplished individuals, who join our existing 27 members of the Board of Visitors, bring extraordinary wisdom and experience to our school and its students, faculty and programs,” says Jim Bradford, Dean of the Owen School. “They will play an important role as we continue to shape the next generation of business leaders.”
Representing diverse industries, geographic locations and management expertise, the Owen Board of Visitors was established by Dean Bradford to function as a strategic partner to the school, providing insights on curricular issues in relation to the needs of business, participating as guest speakers, and opening new doors and career opportunities for students. The board is guided by David Ingram, Chairman and CEO of Ingram Entertainment, with each member serving a three-year term.
The Owen School has several other advisory bodies to support its world-class educational programs, including the Owen Alumni Board and Alumni Council; a Health Care Advisory Board comprised of leading health care industry executives; and the Master of Accountancy (MAcc) Advisory Board.
There’s more to great health care than medicine. While physicians, nurses and hospital administrators are experts at patient care, they often lack the business skills needed to be effective managers. The new Vanderbilt Master of Management in Health Care is a one-year degree program designed to arm physicians and other clinical professionals with the business fundamentals and decision-making skills needed to manage people, programs and processes successfully.
Unlike other management programs, the Vanderbilt MM Health Care provides a business education specifically tailored to the medical field. The Owen School collaborated with top health care experts and an extensive health care management faculty to ensure an educational experience that offers immediate, tangible benefits to both students and their employers. The program marries business and management fundamentals with the complexities of the health care industry. Students attend classes one night a week and one weekend a month over the course of a year.
“The cost, quality and access problems facing the U.S. health care system are monumental. The clinician who understands the science of medicine and the science of business is in a position to create more value for our health care system,” says Larry Van Horn, Director of the Health Care MBA program.
Medical organizations will gain value from this one-of-a-kind program by sponsoring clinicians, physicians and nurse managers who have management responsibility but need additional business skills to be more effective. Health care organizations can also get help with existing issues through a team capstone project in which students apply business concepts to a real problem, initiative or opportunity identified by their sponsoring employer.
“This program is designed to empower clinicians to make business decisions and effectively lead health care delivery organizations,” says Van Horn.
Along with the MM Health Care, Owen offers a Health Care MBA and several open-enrollment health care programs in the Executive Development Institute. Additionally Owen has developed several custom executive programs for health care companies.
In the midst of a world financial crisis, the fundamentals of success are in place. We have solid programs, superb faculty and staff, and an incoming student body that is one of the strongest—if not the strongest—in the history of the school. Lest I repeat myself, I feel confident that we are poised to grow to our full potential. And, achieving that full potential is all about continuing our push for quality—quality faculty and programs, quality students and quality facilities. From health care reform to the increased financial markets regulatory scheme that is certain to follow, there will be a need for talented, well-educated Owen graduates who can change and mold the future. We are in for a difficult economic period, but in the long run, the investment in a great education will continue to pay outstanding returns.
Quality Faculty and Programs
We are in the knowledge business; our faculty provides both the “product” and the experience that is the foundation on which our reputation is built. To maintain and grow our stature as a Tier 1 research institution, a partner to business, and an innovator in the business of management education, we will continue to invest in individuals who bring fresh insights, knowledge, skills and experience to the academic and business communities.
We have significantly strengthened both our research and clinical faculty during the past four years. While we’ve only increased the overall size of our faculty by three individuals, a full third of our faculty members—17 of 48—have been purposefully recruited and added to faculty during this period. And, we are not yet done. This coming year, we will likely add two or three new marketing faculty, as well as one more faculty member each to our finance and operations departments.
Quality Students
As the number of MBA programs grow and capacity among established schools increases, competition for the caliber of students we seek continues to intensify. As a result, our cost of scholarships—the dues we must pay to attract desirable students who hold multiple offers—is increasing.
While we take in almost $21 million in tuition and fees, almost 25 percent of that amount goes back to students—predominantly MBA students—in the form of scholarships. Like other B-schools, current scholarships are almost exclusively merit-based. There is a great opportunity to channel some of these funds into needs-based scholarships that will attract individuals who have the academic and the personal qualities we seek, but who are unable to afford the higher costs of a private institution such as Vanderbilt.
Quality Facilities
Management Hall is an architecturally innovative facility, but the building itself hasn’t kept pace with our needs. A facility originally built to house 300 students plus a weekend Executive MBA program no longer accommodates the classroom, congregation or study space needs of the 500 students who grace our halls on a daily basis.
An all-stakeholder task force concluded that Owen needs 155,000 square feet of space—double our existing footprint of 76,000 square feet. With the needs assessment done, our next step is to determine the options and costs for a new or dramatically enhanced building and ascertain the feasibility of raising or borrowing the funds needed to move forward.
Thank You
Thank you for your support no matter what form—your time, your talents, your financial gifts. Most of all, thank you for all you’ve done and will continue to do for this school that we are all so proud of. I am humbled and grateful.
James W. Bradford Dean and Ralph Owen Professor for the Practice of Management
When inflation is considered, those who possess a more sanguine outlook relating to pricing pressures have pointed to the Consumer Price Index (CPI) to bolster their view that inflation is not a problem.
