Archive for the ‘Finance’ Category

Why Research Universities Merit the “Freedom of the City”

Sunday, May 6th, 2012

What I shared with university colleagues on 5/6/12–


I’ve been thinking of implications of the various [Illinois] pension bills in the light of the larger question of the need for economic development in Chicago and in Illinois.

Yale economist Robert Shiller, the co-originator of the Case-Shiller housing index, recently made a dire prediction, that the housing market may not recover for a generation, meaning “in our lifetimes.”

The implications of this prediction, if correct, are profound. The political game of chasing around and announcing “jobs, jobs, jobs” may shortly be practically useless. Longer-term sources of economic growth besides tax incentive gimmicks to attract and retain businesses will have to be found.

Cities have historically grown and thrived because, as centers of commerce, they were in some sense free economic zones that became magnets of opportunity for both migrants and for entrepreneurs. But our generation of legislators, whether federal, state, and local, have somehow embraced bureaucracy and regulation as a solution, and are locking out opportunity.

By reducing constraints upon UIC’s [University of Illinois at Chicago] growth as an urban, state research university, Chicago and Illinois could become a greater research and educational magnet, drawing more scientists, more businesses, and more students, and rival Boston or LA within two or three generations, if we collectively make the right decisions to unshackle our research universities and institutes and let them grow and thrive. The “freedom of the city” must be extended to the University of Illinois (both UIC and UIUC [University of Illinois at Urbana-Champaign]) and to partner institutions as research leaders.

In order for such a strategy to succeed, civic leaders who are alumni of NU and U Chicago will have to drop their elite snobbery and allow UIC to thrive as well, since UIC in the long term can “bring the big numbers” of both graduates and researchers to help Chicago and Illinois thrive. But even these three Chicago research universities are not enough to build a “rival Boston” strategy for this region.

That is why legislative action that drives away research talent, and the dollars that senior professors and principal investigators bring with them, is exactly the wrong economic development strategy for Illinois.

As long as state research universities are lumped into legislation covering all matter of non-research institutions, and subject to numerous unintended consequences and unpredictability, the state research university will not thrive to the extent that it could in Illinois. We already see talented colleagues voting on the expected results of such election-year legislation with their feet before the final votes are cast.

Infrastructure alone will not bring Illinois or Chicago back. We have to have a “somewhere” to where the roads and bridges lead. Because real estate will not be an answer for perhaps a generation, state and other research universities do help answer the question of “somewhere.” So let’s not sandbag research universities with bureaucratic disincentives for success, OK?

There are so many encouraging changes taking place at UIC, especially UIC College Prep–there should be dozens more such Chicago and Illinois high schools!–that I’m sad to see some of our colleagues go at this critical moment for UIC.

But we do have a great opportunity, even in these awful times for Illinois, to actually make the right legislative decisions to shape a better future.

Regulatory freedom for the Research Universities of Illinois is part of the answer. The sooner the University of Illinois, including UIUC and UIC, can be set apart with its own legislation freeing the development of research and the attraction and retention of talent from regulatory constraints, the better.

But who will take the lead in spreading this message? Who’s got the guts to do this in an election year?

Much easier to add more bureaucracy and to call it “reform.” Yet where is the economic development–which is what we really need–in that?

So far, the legislature has taken the safe DMV approach–more rules and more roads. But rules and roads leading to what?


Albert Schorsch, III

© Copyright 2012, Albert J. Schorsch, III
All Rights Reserved


Connecting economic recovery with the advancement of immigrants

Sunday, September 12th, 2010

Chapman University professors Steven Gjerstad and (2002 Nobel Prize winner) Vernon L. Smith have written a comprehensive analysis of US recessions and recoveries since 1929.

This analysis, along with their less technically written 9/10/10 Wall Street Journal Article entitled, “Why We’re in for a Long, Hard Economic Slog: Evidence from 14 U.S. recessions shows that the economy doesn’t recover until housing recovers” (you must be a WSJ subscriber to read this online), are well worth the read if you wish to understand the forces working to actually bring about an economic recovery. As Gjerstad and Smith state in their WSJ article:

“Our study of all the postwar recessions and the Great Depression leads to the following empirical proposition: If there is no recovery in housing expenditures, confirmed by a recovery in consumer durable goods expenditures, then there is no economic recovery.”

Looming underneath the “Great Recession” following the Banking Panic of 2007 is a demographic shift related to the aging Baby Boomer generation’s changing spending patterns accompanying their life-cycle transition.

In this vein, USC Professor Dowell Myers, a distinguished urban planner and demographer, wrote also in 2007 a very insightful book entitled, Immigrants and Boomers: Forging a New Social Contract for the Future of America, in which he argued that public policies which encourage immigrants to step into the economic and social gaps left by the departing Boomers would benefit the US: The quicker the US integrates our immigrants into full partnership in society, the better off we are as a nation economically as well as socially.

If the US were to pair the insights of Profs. Gjerstad and Smith with those of Prof. Myers, we might come up with more effective public policies that moved us out of recession to a better economic place. Because there are fundamental financial and underlying demographic forces at work behind this “Great Recession,” I agree with Profs. Gjerstad and Smith that we are in for a “long slog.” But Prof. Myers shows us one long-term way out: the integration of and partnership with US immigrants.

The economic argument here is a commonsense one: If Boomers are spending less as they age and this prolongs an economic downturn, someone else has to step into the gap. The more successful immigrants can become and fill this gap, the better off we are.

Because of the underlying demographic and financial forces, we shouldn’t expect recent pre-election Washington-based financial legislative “stimulus” gimmicks to have much of an effect. (See my earlier post mentioning the limited impact of presidents.) True immigration reform built upon the integration of talented and hard-working immigrants into American society would work to speed economic recovery, but don’t expect politicians to take on this difficult challenge any time soon. Presently, even though it is against our best interest as a nation, it pays politically in some quarters to marginalize immigrants.

Hence, we’re indeed in for a long slog economically, unless we somehow collectively come to our senses as a nation and realize that immigration, if it is accompanied by economic and social integration, is really good for us.

To date, Washington has not connected economic recovery with the advancement of immigrants. But the two are closely related. The longer we wait to integrate our immigrants both economically and socially, the worse off we will be as a nation.

© Copyright 2010, Albert J. Schorsch, III
All Rights Reserved


Aphorism XIV

Wednesday, June 9th, 2010

The commingling of funds occurs when funds assigned to one purpose or ownership are inappropriately joined and used with funds from another.

The co-jingling of funds occurs when a few coins from petty cash share the same pocket with personal funds until the petty cash is properly separated.

© Copyright 2010, Albert J. Schorsch, III
All Rights Reserved


Aphorism XII

Monday, May 17th, 2010

Politicians and partisans who promise to avoid future panics or recessions, in effect to end the Business Cycle, are promising in economic terms to pass laws against bad weather.

Such politicians and partisans should be taken about as seriously as anyone else who promises to end bad weather. Such political and social snake oil has a long and destructive history.

An economy can’t simply be armored against panic and recession by law or fiat. It can only be better armored when more governments, businesses, institutions, and individual consumers have adequately learned to prepare for bad economic weather.

© Copyright 2010, Albert J. Schorsch, III
All Rights Reserved


Aphorism IX

Wednesday, April 28th, 2010

Goldman Sachs —

Is it just me, or aren’t others uncomfortable with putting a business with a Jewish-sounding name up as a scapegoat for a financial crisis with many and complex causes?

Hasn’t history been down this road a few times before?

See my earlier post on the topic of the banking panic of 2007 at–

See also my links in the right-hand column of this blog under “Recommended General Reading” for a number of histories of financial crises and panics, which give previous examples of such scapegoating–

Manias, Panics, and Crashes: a History of Financial Crises

The Forgotten Man

The Panic of 1907

This Time is Different: Eight Centuries of Financial Folly

Such scapegoating unfortunately keeps coming back–

© Copyright 2010, Albert J. Schorsch, III
All Rights Reserved


Science refutes common sense: The banking panic of 2007

Tuesday, March 2nd, 2010

If something in the back of your mind told you there was more to the economic crisis of 2007 than the subprime mortgage melt-down, you were right. According to Prof. Gary B. Gorton of Yale University and NBER in a report to the U.S. Financial Crisis Inquiry Commission, the crisis was a banking panic–

Science refutes common sense once again, as in this case when Prof. Gorton questioned the commonsense narrative repeated ad infinitum in the media that the subprime mortgage crisis in itself caused a world-wide economic downturn. We need such science to let us know when we are wrong, and when to correct our approach.

Robust inquiry is also necessary whenever common narrative patterns form around a dramatic event. We should continue questioning each such persuasive narrative. For example, one colleague has written to me questioning the assumptions underlying Prof. Gorton’s statement, “No one has produced evidence of any problems with securitization generally.” Prof. Gorton’s preceding universal statement on securitization requires empirical as well as theoretical study before it can be validated.

Prof. Gorton’s 2008 NBER paper on the Panic of 2007 is at–

And his book on the same topic, newly released–

© Copyright 2010, Albert J. Schorsch, III
All Rights Reserved