New York Politics

     While I admit I have lost faith in the political party system in the U.S, I couldn't help but chuckle after reading an article in the Wall Street Journal about one of the gubernatorial candidates in New York. Jimmy McMillan has created a new political party surrounded by an issue that he is very passionate about-- the "Rent is Too Damn High" party (I wish I was clever enough to make this one up). McMillan promises, if elected, to lower rent for all U.S. citizens who are currently paying way too much in rent. McMillan even interviewed people on the streets of New York, and when one man replied he didn't pay a lot in rent, McMillan rebuttled "You know why? He still lives with his mama.”
     The ironic part about McMillan's platform is that he thinks paying $800/month in rent for an apartment in Brooklyn is expensive. I would love to pay $800/month for my own apartment in New York (and I know of others who would too).
      Nonetheless, no matter how ridiculous this man's platform is, I can't help but like the guy. He isn't trying to fit the "politician mold"-he feels passionately about an issue and hopes that others do too. While I don't plan on switching my affiliation to the "Rent is Too Damn High" party, I will call myself a Jimmy McMillan fan.

Student Loans: What You Should Know (that they don't tell you)

       With the cost of tuition increasing exponentially, many students have to assume debt in the form of student loans to pay for schooling. Since the majority of students who apply for loans have little to no background in finance (myself included), it is important to fully understand what is expected of them as debt holders.
       I found a great article on my favorite education blog that included an interview with an attorney on the truth behind student loans. While many school administrators say that education debt is "good" debt (as if there is such a thing), the article highlights scary truths that I myself didn't know at the time I applied for a student loan.
       As I said before, I am a firm believer in educating oneself to make good life decisions. So read this article and I'm sure you will learn something about debt that you didn't know before!

If You’re Looking for a Glass Ceiling, Work for Citi

            Back in September, working women across the country were up in arms about a pamphlet distributed by Citi (although HR representatives deny the company distributed the material) that called corporate females to act more like men in the workplace. It comes as no surprise that Citi is now engulfed in a discrimination lawsuit. Six women have come forward stating that Citigroup is an “outdated boys club”, and that firm executives discriminate against females in decisions regarding compensation, promotions, and termination.

            This is a trend that appears to be common in the financial services industry, with women making 58.8 cents of every dollar men earn according to Government Accountability Office statistics. Rival bank Goldman Sachs is also facing a gender discrimination lawsuit.

            I am anxious to see how these lawsuits will impact women in the corporate world, depending on whether the courts view these claims as truly discriminatory in nature. 

Prosperous Economies Do Not Ensure Happy Citizens

           While money may serve as the leading incentive for people to succeed, individuals also strive to work towards the betterment of society. With the U.S. economy in shambles, politicians and citizens alike believe that money is the solution to our nation’s problems.

            In a previous post, I discussed the idea that after a certain given salary ($75,000), the happiness of an individual does not increase. Adair Turner, chairman of the Financial Services Authority, takes this concept a step further and claims that economic prosperity does not lead to an increase in citizens’ happiness either. According to an economic theory concocted by Roger Bootle, there are two types of activities that careers fall under that individuals engage in: creative and distributive activities. A creative activity is one where your job benefits another individual, i.e. a doctor. A distributive activity is one in which your purpose is to create gains for your company/client at the expense of another. Turner goes on to say that the more prosperous a nation grows, the more people engage in distributive activities which are “activities that cannot increase human happiness.”

            While it is important for a nation to flourish, it is important to keep in mind that economic growth is not linked to an improvement amongst citizens when the activities are purely distributive. On a microeconomic level, Turner mentions that distributive careers in the legal profession as well as financial services industry are highly distributive, and while they may be high-paying jobs, they are “socially useless” in terms of their contributions to society.

            While I do not fully agree with these points made in Turner’s lecture at the London School of Economics, I do agree with the idea that economic growth does not always make the individuals that comprise an economy happier. I also find it interesting that Turner believes the financial services industry to be “socially useless”, considering he serves as Chairman of Britian’s leading financial regulatory body.

The Halo Effect: Alive and Well in Corporate America

         During my freshmen year, I enrolled in a business course called “Leading Organizations”, which focused on studying the structure of corporate hierarchies and the psychology behind business. While I do not remember everything I learned in that class, I do recall learning about a psychological phenomenon called “the halo effect”. According to the scientist who coined the term, the halo effect refers to the underlying assumptions that individuals make about others based solely on appearance. In the class, we watched a video about two females who were being interviewed for a specific job position. One woman was very well put-together, while the other was made to look disheveled and unattractive. While the uglier candidate had more suitable work experience and leadership qualities, the attractive female got the job. Why?

            When an individual meets someone that is attractive, they assume that other personal qualities of the individual are also attractive. For example, if I met an attractive individual, I would assume they lead a very active lifestyle and have desirable personal qualities (great sense of humor, strong morals, etc…) The reverse halo affect is the assumption that an unattractive person has many other undesirable traits. If I were to interview an individual who looked like he or she had just rolled out of bed, I would make negative assumptions about their personality. Whether or not you believe it to be fair, this is a theory that has been proven by empirical research for many years.

            Thus, it comes as no surprise that I came across a blog post that confirmed this theory. According to “The Juggle”, thin women who work in the business world earn more than fat women who perform the same work. While the research showed the opposite result for males, it appears that corporate America treats women much like the fashion industry does. The research claims thin women make an average of $15,572 more per year than average-sized women, and that there is a direct relationship between gaining weight and pay penalties.

            While obesity continues to be a growing epidemic in the U.S., I find it interesting that the business world rewards females who appear to be healthy. Love it or hate it, the halo effect is here to stay.

Loss of Faith in Capitalism

          I am a self-proclaimed capitalist. While that sentence may not make me popular in the state of California, I freely admit that I am a follower of the ideals of Adam Smith. Smith is famous for coining the economics term “the invisible hand” that is featured in every high school economics textbook in America. He believed in the self-regulatory nature of markets, and shunned governmental interference in the economy. Up until 2008, many individuals agreed with the notion that markets should be free of government rule and left to operate on their own. With the series of unfortunate events that ensued in 2008 (downfall of Lehman Bros, bailout of AIG, etc…), the theory that has shaped Western civilization for hundreds of years is being called into question. Can the players in free market economies act in their own self-interest while still benefiting stakeholders? Does capitalism pave the way for fraud and unethical behavior? If so, how much government regulation is appropriate? While I do not think my twenty one years of life experience can fully answer these questions, I want to discuss possible solutions to the growing lack of confidence that people have regarding capitalism and big business.

            One solution to this problem is to rid of capitalism altogether and implement an economic system that is completely regulated and monitored by the government. However, that is not a viable option because those types of economies have been historically proven to be unsuccessful (Russia, for example).  Therefore, if the problem is not caused by the principles of the economic theory, it must be created by the users of it--capitalists.

According to a survey administered by McKinsey, there is a trust gap that exists between consumers and corporations that continues to grow over time. The survey, given in 2007, discovered that “68% of executives say that large corporations make a generally or somewhat positive contribution to the public good. Yet only 48% of consumers agree”. It is safe to assume that the societal contributions made by Bernie Madoff and the executives of most investment banks have only widened the gap over the past three years. However, it is wrong to blame the system itself and not the users of the system. Consumers are associating unethical behavior with corporations, rather than the individuals that run them. A blog post entitled “To Understand the Lack of Business Ethics Look to Education” captures this notion when the author states, “When people point the finger at companies such as Enron and Arthur Anderson, the unethical behavior was not caused by the organization, but rather these individuals were already unethical”. I am certain that the credit crisis was not a weakness of capitalism, but a signal about the types of individuals who run big business in America.

            Although executives of corporations have a fiduciary duty to serve in the best interest of their shareholders, the Jeff Skilling-type executives consider themselves exempt from such duties. Since I am a huge advocate for education as a means of bringing about change, I believe the problem lies in the lack of education about ethics in schools. Out of all the high school curriculum and undergraduate work I completed as an accounting major, I was never required to take a course in ethics. The cheating that I witnessed or heard about was commonplace, but was rarely reprimanded. So how can we expect business executives to follow the rules when ethics is not something that is emphasized or valued in education?

            I am in no way making excuses for people like Bernie Madoff—I think all humans agree that he deserves to rot in jail for all of eternity. I am merely highlighting the need for ethics in education to try to extinguish the root of the problem. Statistics prove that it is not only the “slacker-type” students that are cheaters growing up; it is the students who have immense pressure to succeed. A professor at Stanford University conducted research in this area and found that “Nationally, 75 percent of all high school students cheat. But the ones who cheat more are the ones who have the most to lose, which is the honors and AP (advanced placement) students. Eighty percent of honors and AP students cheat on a regular basis… It's the kids with a 4.6 grade-point average who are under so much pressure to keep their grades up and get into the best colleges. They're the ones who are smart enough to figure out how to cheat without getting caught." Once students learn they can get away with unethical behavior in school, we all know it is a slippery slope when one enters the corporate world.

            The only way to mitigate this problem is to teach ethics in schools. Most students are aware of what is considered right and wrong, but there is a large gray area that remains untouched long after schooling is over. This gray area is filled with actions that are not illegal but still not considered morally sound, like when companies use legal practices of earnings management in their financials to mislead investors. It is this particular gray area that the crooks on Wall Street manipulate and abuse, causing citizens to mistakenly blame capitalism as the villain. Schools need to incorporate courses that simulate ethical dilemmas and teach strategies to find ethical solutions when the answer is not clearly evident. While undergraduate and graduate business schools emphasize leadership in their curriculum, they fail to integrate ethics as a component of leadership. This fatal flaw causes students entering the working world to disassociate being a good leader and acting ethically, when in reality the two go hand in hand.

            Therefore, the only way to restore faith in the markets is to change the character of those who control the markets. Rather than personifying greed and exploitation, big business in America should represent what capitalism encourages; an economic system free of governmental control that welcomes entrepreneurial spirit and rewards hard work. And this can only be created by educating the next generation of movers and shakers on the importance of ethical behavior in the workplace. This will not be a change that will occur immediately, but schools need to assume the responsibility of nurturing leaders and start to incorporate values and principles of ethical behavior into academia. 

Accountability in Schools

It used to be a widely accepted fact that public school teachers had to “burn the school down” to be fired from their teaching positions. However, over the last few years there has been a push various public school systems to hold teachers' accountable for the performance of their students. One article highlighted this push in New York City public schools with regards to granting tenure.

The New York City Department of Education has implemented a grading system that ranks a teacher based on their effectiveness as an educator. The four possible scores are: highly effective, effective, developing, and ineffective. If a teacher receives a score of “ineffective”, he or she will not receive tenure and will be recommended to be dismissed. Teachers can only be granted tenure if they show progress with students for two years in a row. This measure aims to send a message to all educators that they are being held accountable for the success of their students, a notion which needs to be emphasized in public school systems across the country.

Since I attended public middle school and private high school, I have a unique perspective on the major differences between publicly-run and privately operated schools. While I do not want to discredit the amazing teachers I learned from in middle school, it is quite apparent that private school teachers are held much more accountable than public school teachers. For example, the teachers at my high school were hired on a year-to-year basis, so the concept of job security was nonexistent. If a teacher received complaints from students or parents regarding his or her teaching practices (or lack thereof), the administrators would sit-in on classes and determine whether they should extend the teacher a contract to come back the following year. Out of the two horrible teachers I had in high school, both did not come back to teach the following year.

So why can’t public schools mimic this practice?

MONEY (the root of all our problems).

According to another article published by The LA Times, firing tenured teachers is so costly and time-consuming that principals rarely make the effort. Joseph Walker, a former principal of a public school in Van Nuys, solidifies this harsh reality when he says “You're not going to fire someone who's not doing their job. And if you have someone who's done something really egregious, there's only a 50-50 chance that you can fire them”.

While President Obama claims he will create a nation that “nourishes good teachers and casts out the bad ones”, it may be a change that will take time and money to fix. I commend the New York City Board of Education for taking a step in the right direction, but other schools cannot follow suit until the benefits of removing a teacher from their position will outweigh the immense costs in finding a proper replacement.