Published by UCLA Anderson School of Management
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Taking On A New Challenge
Participants in UCLA Anderson's Entrepreneuship Bootcamp for Veterans with Disabilities value the training they receive, which enables them to successfully confront the risks of small business ownership. Complete article >
Inaugural Kick Conference For Women
The first-ever Knapp Innovation, Creativity & Knowledge (KICK) Conference for Women brought together business leaders and prominent academics to share their personal experiences in harnessing creativity and innovation to achieve their goals. Complete article >
It’s Time for Brand Practice
The CMO Experience: Strategic Brand Management seamlessly merges academic research with real-world experience, offering students the opportunity to explore branding best practices while understanding the underlying theories. Complete article >
Moving Forecasting Into the Future
Innovation – creating something new that didn’t exist before. Most modern businesses would claim to focus on it, and any expert would include it on a list of what is most important to survive and thrive in our ever-changing global marketplace. Complete article >
Eugene S. Rosenfeld Receives UCLA Medal
Eugene “Gene” S. Rosenfeld (B.S. ’56), chairman of the UCLA Anderson Board of Visitors, was awarded the UCLA Medal, the highest honor bestowed by the university. Complete article >
By Paul Feinberg
Though they come from all walks of American life, they shared a common purpose: to serve and defend their country. Now, as participants in the UCLA Anderson Entrepreneurship Bootcamp for Veterans with Disabilities (EBV), they share the new-found experience of transitioning from the highly structured life of the military to the be-your-own-boss world of the entrepreneur.
In 2008, UCLA Anderson School of Management joined a select group of business schools offering the EBV. The program provides education in entrepreneurship and management to soldiers, sailors, airmen and marines disabled as a result of their service supporting the global war on terrorism. The goal of EBV is to open the doors of entrepreneurial opportunity and small business ownership to retired and discharged military personnel by developing essential core competencies and guiding participants through the various stages of new business venture creation and development.
“As we have in the past, it’s our true privilege to support disabled veterans who return home and seek economic and entrepreneurial opportunities for themselves and their communities,” said Judy D. Olian, dean of UCLA Anderson. “The school’s longstanding engagement in entrepreneurial studies positions us well to help veterans build the foundation they will need to realize their entrepreneurial aspirations.”
Building on Past Experience
As organizations, the armed forces may initially appear to have more in common with traditional corporations, known for their hierarchical organizational structures and strict dress codes, than to startup ventures. The similarity is not lost on 2009 EBV participant Neil Mahoney, a former Navy SEAL. He explained that, in its own way, the regimented nature of military life is very secure. However, he also sees another side of his experience that relates to his life as an entrepreneur.
“There’s a risk factor, but it is calculated,” Mahoney said. “On the SEAL teams, we knew that our duties were hazardous, so we did a lot of mitigation to improve the odds and make the payoffs that much better. That’s how I see entrepreneurship. I enjoy identifying an opportunity, then analyzing the risks and potential rewards – both personal and financial. That’s why I’ve decided to go into green business. I believe in it, so the gamble does not seem as significant. And the rewards of working in the green movement are just amazing. ”
Another 2009 attendee, Otis Howard, was formerly a naval air traffic controller and now is working in a civilian capacity at Marine Corps Air Station Yuma (Ariz.). He admires the value of teamwork rooted in the military’s structure, but he knew from a young age that he wanted to pursue his own entrepreneurial path.
“As a child, I started off by selling my mom’s cigarettes for a quarter, and as I got older, I dabbled in things like cutting grass, chopping wood and cutting hair,” Howard said. “I’ve always wanted to do something on my own. In the military, you have to get up at ‘this time’ and ‘do this’ or ‘clean that.’ But when you’re an entrepreneur, you make the rules, and
you depend on yourself to do what needs to get done.”
History and Design of the Program
Mahoney and Howard are examples of the entrepreneurial spirit embodied by participants in the EBV. Created for veterans who have the desire to start a business and the potential to succeed in running their own enterprise, the program was first introduced by the Whitman School of Management at Syracuse University in 2007. The following year, the EBV Consortium of Schools was launched as a national partnership with UCLA Anderson, Florida State University’s College of Business and Mays Business School at Texas A&M. Purdue University joined the consortium in 2009, and the University of Connecticut was added for 2010.
The EBV is designed around two guiding principles. The first focuses on practical training in the tools and skills that are needed for new business creation and growth, along with an emphasis on issues and potential obstacles specific to disabled veterans. During the EBV experience, students develop strategies that are most effective for their business model, and learn how to raise capital, attract customers and write business plans. Establishing a support structure for graduates of the program is the second, equally vital, element.
At UCLA Anderson, the EBV program is run by the Harold and Pauline Price Center for Entrepreneurial Studies (Price Center) and is comprised of three distinct phases. In Phase I, in advance of arriving on campus, students participate in a three-week self-study curriculum, facilitated by an online discussion and assessment module that is moderated by Anderson faculty. During this phase, attendees develop their initial business concepts. In Phase II, which unfolds over a nine-day residency at the school, students are immersed in the essentials of business ownership through experiential workshops and in-class learning with UCLA Anderson faculty, guest speakers and teaching associates comprised of Anderson MBA students and alumni. During Phase III, EBV participants receive 12 months of ongoing support and mentorship from faculty experts and volunteers, including alumni and members of the business community.
Participants in the EBV come from all walks of military life, officers and enlisted, and they have varying academic backgrounds as well. Some of the 2009 participants had advanced academic degrees, while others were still working towards bachelor’s degrees or attending community colleges. Since the program’s intention is to provide assistance for veterans disabled as a result of their service supporting Operation Enduring Freedom (Afghanistan) and Operation Iraqi Freedom, it is offered at no cost to the veterans. Funding provided by corporate sponsors, foundations and individual donors covers tuition, travel and accommodations for all participants.
“We are extremely grateful for the generous support that we have received for the EBV program,” said Elaine K. Hagan (MBA ’91), executive director of the Price Center. “The commitment of our sponsors, faculty and the UCLA Anderson community has been overwhelming and has resulted in a life changing experience for the participants.”
The first-ever Knapp Innovation, Creativity & Knowledge (KICK) Conference for Women brought together business leaders and prominent academics to share their personal experiences in harnessing creativity and innovation to achieve their goals. The conference was conceived by Betsy Wood Knapp and developed and presented by the Knapp Foundation in partnership with UCLA Anderson and its Harold and Pauline Price Center for Entrepreneurial Studies. The event was built on the belief that, in today’s world, it is the innovators, collaborators and re-inventors who inspire and lead their organizations to success.
The sold out one-day event was attended by over 300 business, government, academic and industry professionals, as well as a group of current MBA, college and high school students. The conference was designed to inspire and empower women across generations with insights about creative leadership and new tools for success.
“Leaders who are role models inspire others to follow their path and to experiment with new ideas,” said Judy D. Olian, dean of UCLA Anderson. “The leaders featured in our KICK Conference, all of whom are women, are widely recognized and imaginative trailblazers. They include some of our own alumni, who have seized opportunities to launch, build and grow global businesses. It’s especially gratifying that we’re enabling a forum for women across industries and generations to brainstorm about entrepreneurial ideas, reflect on overcoming obstacles and share stories of success.”
One of the highlights of the day’s agenda was the presentation of the Betsy Wood Knapp Innovator Award, which is given to an individual or organization that serves as a contemporary role model for women, exemplifying the qualities of innovation, entrepreneurship and character. This year’s recipient was Catalyst, a leading research and advisory organization, headquartered in New York. Catalyst works with businesses and the professions to build inclusive workplaces and expand opportunities for women and business. Ilene Lang, president and chief executive officer, accepted the award.
Offering women insights about leadership with impact, the KICK Conference’s schedule of activities included the exchange of ideas, including roundtable and panel discussions. Creativity and innovation, healthcare, entrepreneurship, breakthroughs in technology and how women lead were among the topics covered. Points of view were contributed by leaders from a wide range of industries, including banking, health care, fashion, food, music, technology, finance, medical research, entertainment, skincare, transformative healing, intellectual property and sports. They revealed strategies that led to their success, hoping to challenge and inspire other women to be innovators in their own fields.
By Paul Feinberg
Residing at the intersection of theory and practice, one of UCLA Anderson’s newest courses – The CMO Experience: Strategic Brand Management – seamlessly merges academic research with real-world experience, offering students the opportunity to explore branding best practices while understanding the underlying theories. Taught jointly by Sanjay Sood, associate professor of marketing at UCLA Anderson, and Jim Stengel, formerly the global marketing officer of Procter & Gamble and currently an adjunct professor of marketing at Anderson, the course bills itself as a “living lab,” one that takes students on “the entire journey of a brand.”
The course complements the traditional lecture/case approach and takes the show on the road through a series of field trips. Students visit Rodeo Drive (to examine how brand strategy gets activated in retail), Target offices (to examine how brand portfolios are managed within a brand) and advertising giant TBWA (to examine how brands are built, managed and maintained over the long haul). On campus, students engage with a series of guest speakers who join class discussions, including Alex Tosolini, vice-president of Procter & Gamble; Mike Allen, managing partner of 180LA; Monique Bonner, director of global branding for Dell; David Lubars, chief creative officer at BBDO; and David Cavander, chief science and innovation officer of Market Share Partners.
Making a Difference
“We told the students on day one that our objective in this course was to inspire them with the notion that marketing, the practice of bringing a brand to life, can make a huge difference in people’s lives, a positive difference,” Stengel said. “We wanted to inspire them through practical experiences, academic experiences and by teaching a new framework and a new approach to business and brands.”
The course, Stengel explained, is organized around this framework, beginning with revelations about the particulars of different brand’s beliefs and values, then an examination of how they reflect the beliefs and values of the brand’s consumers or customers. From there, students learn the tactics, including organizational strategies, points of difference and points of parity and other nuts and bolts issues. Branding, Stengel said, is the entity, the centering focus of the company. Marketing is the practice of bringing the brand to life.
“Companies call it different things,” Stengel said. “What I found in my study and in my experience is, if marketing isn’t central to the company, it’s not a leading company.”
Stengel’s study was carried out with UCLA Anderson researchers and Millward Brown Optimor, a leading global research agency specializing in advertising, marketing communications, media and brand equity research. It looked at how different brands have grown over a nine-year period, both financially and in terms of customer loyalty. Stengel started with 50,000 brands, narrowed it down to the top 50. The resulting analysis will be the basis of his upcoming book, “Grow,” which will compare and contrast best practices and differences between top brands. The lessons distilled in “Grow” not only formed the basis for much of the course, they also helped form a bond between Stengel, the practitioner, and Sood, the professor.
A Shared Vision
“Jim and I worked well together, because we see a lot of branding issues in the same way,” Sood said. “In fact, we discovered early on that his philosophy on branding is very similar to mine, and in fact, his book on brand ideals or purpose-driven marketing contains specifics that I am investigating in my own academic research.”
This shared vision of purposeful marketing permeates the course’s underlying message. As an example from his days at Procter & Gamble, Stengel noted that Pampers (the largest brand in the P&G universe) at one point saw its sales dropping. He said this was the result of the brand losing sight of why it was created. He explained that they were invented to help mothers and babies live their lives better, with more health and convenience and more happiness. When the brand returned to that original idea, the product program changed, the people that it attracted and recruited changed, the culture changed, the communication changed and the brand started to grow 10 percent plus, he said.
“When creating and building a brand, go back to the beginning and understand why the product or company was originally conceived,” Stengel said. “Then talk to a lot of people who are important to the brand, employees, retail customers (if you sell through retail), certainly end customers, other stakeholders and agencies. Then also be in touch with the values of your customers, because the brand should reflect those values. That’s a long way of saying, go back to the origin. Make explicit the values of the people you’re serving, and in that, you will reveal the meaning and the ideal of the brand.”
Greater Than the Sum of Its Parts
Sood said the course, taught for the first time in winter quarter 2010, had a number of highlights for him, including the visit with Procter& Gamble’s Tosolini and the trip to advertising giant TBWA, where the class discussed the innovative branding ideas and tactics behind Pepsi Refresh and Pedigree dog food. The professor also said he learned a lot from the practitioner.
“In academics, we don’t get the chance very often to speak with somebody of Stengel’s stature in one conversation, let alone having a whole class together,” Sood said. “What we do in research is one step removed from what happens in practice, and to hear Jim talk about his career and what programs he put in place starts to trigger different research ideas almost immediately. I think Jim and I will work on some projects together that came directly out of the class.”
From his own career experience, Stengel has distilled what he thinks are the two vital qualities that worked for him and for other people that he has observed along the way. He said that being a great brand manager and a great entrepreneur are very similar in this regard. First, they are curious, always asking why and not just taking the accepted truth without question. Second, they want to make an impact. He also said that these successful leaders help to keep everyone else focused on the three or four things that can really make a big difference for their company, so their values and ideals don’t get lost in day-to-day distractions. And, to keep the central focus for his students, Stengel said that there is just one main takeaway or lesson from the class, a simple one: “That great marketing and great brands can change the world.”
By Paul Feinberg
Innovation – creating something new that didn’t exist before. Most modern businesses would claim to focus on it, and any expert would include it on a list of what is most important to survive and thrive in our ever-changing global marketplace. However, it isn’t often during the course of a career that a chance presents itself to make a major move forward for a whole area of business expertise.
Edward Leamer, director of the UCLA Anderson Forecast, and his staff recently had just such an opportunity. In an example of a productive partnership between the worlds of academic research and business practice, they participated in the creation of a new economic indicator. It would be satisfying enough to add to the arsenal of tools to help decipher the world’s inextricably intertwined economies. However, this result is one that Leamer believes will impact conversations regarding the health of the economy “in a way nothing else has in a long time.”
In January, the Forecast and Ceridian Corporation jointly announced the release of the first-of-its-kind indicator able to track the status, and potentially the future direction, of the U.S. and regional economies (www.ceridianindex.com). Dubbed the Ceridian- UCLA Pulse of Commerce Index™ (PCI) by UCLA Anderson School of Management, it is a real-time data set that tracks diesel fuel transactions at service centers across the United States, enabling economists to observe goods being transported across the country.
Part of an Evolution
The new index is the most recent accomplishment in the UCLA Anderson Forecast’s tradition of innovation that dates to its origin in 1952. It all began when Robert M. “Bob” Williams, founder and economics professor at the time, gathered about a half dozen colleagues together for a round-table discussion. After each presented their views on different sectors of the national economy, they were joined by other faculty members, who filled out questionnaires based on what was just discussed. The results were tabulated, and the median of the responses for key indicators – such as gross domestic product (GDP) – shaped what would become the first forecast. Since then, the UCLA Anderson Forecast and economic forecasting in general have come a long way.
Forecasting has evolved through a landscape of both art and science, and the Forecast has passed its share of milestones along the journey. In 1960, Donald Ratajczak, working alongside Williams, created the group’s first econometric models, which transitioned the project away from consensus forecasting. Williams’ successor, Larry Kimball, professor of business economics (now emeritus), took the models off of mainframes and rewrote them for the personal computer. The group’s continuous improvements have led to success. Among numerous accolades, Forecast economists were the first to predict the national recession of the early 1990s (a call made by then-director David Hensley), and Leamer, as the current director, was the first to correctly call the recession of 2001.
Today, the Forecast’s quarterly reports on the U.S. and California economies are among the most widely-anticipated outlooks released in the country. Along with Leamer, who is also a professor and Chauncey J. Medberry Chair in Management at UCLA Anderson, the group has two senior economists, David Shulman (who also worked with Kimball in the 1970s) and Jerry Nickelsburg. All three are oft-sought sources for national and local media, called upon to comment on every ripple in the economic sea. In addition, the Forecast provides regional data for its Los Angeles Modeling Group and presents conferences in major economic regions of California. It also conducts its own California and regional commercial real estate survey in conjunction with Allen Matkins Leck Gamble Mallory & Natsis LLP and performs consulting projects for a variety of major corporations and governmental entities.
Tracking the Pulse of Commerce
The Forecast’s latest addition is its joint venture with Ceridian, the PCI, which is issued monthly. It is based on diesel fuel purchases by over the road truckers using a Ceridian payment card, provided by Ceridian’s Comdata subsidiary, at more than 7,000 truck stops and diesel fuel distribution stations across the country. The index captures in real-time the movement of raw materials, goods-in-process and finished goods to retailers, factories and consumers across the country. As soon as a payment card is swiped the transaction is authorized by and recorded in Ceridian’s system, ready for the numbers to be turned into knowledge.
The monthly PCI was developed by Ceridian in conjunction with economists at UCLA Anderson and Charles River Associates (CRA). According to Leamer, Ceridian approached CRA in 2008 to review its information databases, and they were invited to be part of the team. Since then, the economists looked at a sequence of several databases – with the PCI representing the application of just one of those.
The PCI is comparable to an existing after the fact survey from the American Trucking Association (ATA), which is used by the Bureau of Transportation in conjunction with data on other transport modes to produce the Transportation Service Index. Leamer said the ATA data is simply too “noisy,” subject to both revision and the lack of incentive for survey respondents to be accurate. By contrast, he noted, the PCI is based on actual transactions on a real-time basis from all over the country.
“It is called the Pulse of Commerce, because the arteries of the economy are the interstates that crisscross the country, and the products on the trucks are the lifeblood of the system,” Leamer said. “Without the movement of goods, the economy would die.”
Current Conditions and the Labor Market
The creation of a significant new economic index represents a positive breakthrough for those attempting to analyze the economy. Early in 2010, with both the output side of the economy and the PCI recovering since the summer of 2009, analysts are all waiting for the labor market to turn from horrible to great. Unfortunately, the data found in the PCI has not been wholly positive. The PCI jumped dramatically in December 2009 at an annualized rate of 33 percent, but in the three months since December, the PCI has grown at the much slower rate of 3.7 percent per year, which is not strong enough to support a big improvement in the labor market.
There is a long-term one-to-one relationship between real GDP and the PCI, which makes a PCI growing at 3.7 percent a good number, but in recessions, the PCI swings at about three times the rate of GDP. This is due to the fact that the truckable goods sector suffers more than the service sector during recessions, as consumers and businesses postpone their purchases of durable goods and equipment but continue to pay for housing and facilities, go to school, visit doctors and the like.
“We had an extraordinary GDP of 5.7 percent in fourth quarter 2009, but that came coupled with continuing weakness in the labor market,” Leamer said. “There was no significant improvement with regard to hiring, and there were very high levels of initial claims of unemployment. It is puzzling, because we had this exceptional growth without any improvement in the labor market. The story for 2010 is whether we’re going to get the labor market healed, whether we’re going to see firms hiring substantial numbers of people.”
Leamer said that for hiring to take place during the recovery, GDP must be between 5 and 6 percent. If there is only about 3 percent growth, it is enough to keep people working who are currently employed but not to employ those who have been laid off. The question posed by January’s PCI was whether or not December’s GDP level will be sustained. After an exciting December, Leamer said, the PCI has gone back to normal.
“Many analysts believe that December was a one-time phenomenon. Firms built up their inventories, and a full 3 percent of the GDP growth was due to this buildup,” Leamer said, echoing the PCI report that stated a similar buildup is unlikely to be repeated. “The question is, having built up their inventories, will firms need to do some production and building in 2010, based on sales? There is evidence that production for sales is actually occurring, and there’s some hope that some components of spending, not just consumer spending but business spending, might be strong the first couple of quarters and give us good GDP numbers.”
News from More Recent Developments
The second monthly release of the PCI for February depicted a national economy essentially flat over the first two months of the year, according to the official press release (found at www.ceridianindex.com). February’s decline offset modest gains previously reported in the first month of the year. With the index numbers now enhanced to include adjustments for monthly workdays, as well as seasonality, February’s index fell 0.7 percent – basically negating January’s increase of 0.6 percent. This flat performance followed the robust 2.8 percent monthly increase in December.
When the February PCI report came out, Leamer said, “February was disappointing, but the geographic pattern underlying the index suggests this was due in large part to extreme snowfalls during the month. As we indicated with the release of our January report, we still need much stronger growth in the PCI to get Americans back to work. To sustain at least a 4 percent GDP number for the first quarter, the March PCI has to be significantly stronger at over 1 percent growth. That number will be very important. It will reveal where the economy is headed and whether March truly is a catch-up month after a snowy February.”
As suspected, the March release of the PCI did in fact confirm that the declines were weather-related. Staging a healthy comeback, the index grew by 1 percent, making up for the downturn in February. Therefore, based on the PCI alone, GDP for the first quarter of 2010 is expected to grow at a rate of 4 percent, much stronger than the consensus forecast of 2.9 percent. This indicates that the U.S. economy remains in steady recovery, with the March PCI experiencing the fourth consecutive month with growth over the same period the prior year.
“The good news in March is that the economy is still recovering at a pace that should support job growth, but unfortunately, not enough that it will drive rapid improvement in the unemployment rate,” said Leamer. “It also indicates that we fell into the recession much more rapidly than we are climbing out of it.”
Focusing in on Regional Details
These initial releases of the PCI focused on its ability to track the national economy and correlate with GDP. But in the Forecast’s most recent publication, the March Forecast for the Nation and California, Leamer demonstrated the index’s ability to shed light on regional economies. Significantly, the PCI data allows for analysis of trucking commerce at very local levels. For highways, total fuel purchases are one measure of the importance of each route. A measure that more accurately reflects the amount of goods being moved is found by dividing gallons by miles. In California, the PCI shows that it is the southern routes, I-10 and I-40, that carry the most product, along with I-5 in the center of the state. By contrast, I-80 is not so heavily traveled and has the most extreme seasonal variances.
While examining California and its neighboring western states, Leamer used the PCI to demonstrate how seasonal conditions impact the various states in the region. Nevada and Utah, where winter has a larger impact on travel, were shown to have the biggest declines in trucking activity over the last three months, while California, and to an even greater extent Arizona, suffer almost no seasonal impact at all. Overall, California trucking, which experienced relatively smaller declines than its neighboring states, is almost fully recovered in relation to the peaks enjoyed in 2006 and 2007. However, Utah, Arizona and Nevada show the steepest declines related to their peaks – with Utah still in free fall.
Going forward, the data set will be used to study the California economy. Forecast economists will study the activity around the Southern California ports and examine activity on the routes coming south from Oregon and Washington to get a sense of the lumber coming into the state. They will also look at the corridor between San Francisco and Los Angeles to get a picture of what’s happening with regard to trucking between the two cities.
“This is a data set that’s incredibly rich in terms of its geography. Ceridian has other databases to explore as well, which might also provide valuable insight,” Leamer said.
More Where That Came From
Todd Dooley is Ceridian’s senior vice president of finance. His team at Ceridian believed that there was something that could be done with the data Ceridian was collecting. The concept led to Dooley approaching Brian Palmer at CRA and later Leamer and UCLA Anderson about the data. He concurs with Leamer on the notion that the PCI may only be the beginning. In addition to issuing the cards used by truckers to purchase their fuel, Ceridian is, at its core, a human relations and data processing firm, holding a wealth of potentially insightful information.
“We have a tremendous amount of real-time data from our presence in payroll processing, benefits administration and e-payment business services. For example, we can see employment levels and first-time
COBRA jobless claims,” Dooley said. “We are also a leading provider of employee assistance programs and other health and productivity solutions that enable us to monitor employee stresses. And, as a leading stored value card provider, we have deep insight into the health of the retail segment. Ed, Brian and I worked on all these dynamic data sources and have spent significant time understanding them and trying to correlate them with economic data like retail sales, GDP and employment. We also looked at qualifying overtime hours to employment levels and how financial distress calls correlate to consumer sentiment and stock market performance. While we have this data, economic analysis is not a core competency.”
Also excited about the partnership is Craig Manson, Ceridian’s senior vice president of investor relations and business development. He said the company is pleased about the positive response received so far. Metrics from mid-April show increasing interest in the PCI from media and target stakeholders in the financial community. For example, a widening spectrum of media is writing about the PCI. This includes national media such as Bloomberg BusinessWeek, Reuters, the Wall Street Journal and USA Today, as well as regional dailies such as the Arizona Republic, Dallas Morning News and Los Angeles Times. Also, www.ceridianindex.com has rapidly risen in Web visibility. In the three months since launch, it has achieved a Google page rank of five. Google assigns websites a “page rank” (PR) on a scale of 0-10, and by comparison, the Wall Street Journal has a PR of eight and the New York Times a nine.
“The response is obviously very gratifying and really gives us encouragement about subsequent releases. It makes us more confident in what are doing. Ed and his team do great work in interpreting the data,” said Manson.
The Academic Mission and the Real World
Leamer also is confident about the PCI, hoping in the near future that companies like Bloomberg, which aggregates leading indicators, will include the PCI in its web-based economic calendar. In the meantime, he believes that its creation extends and enhances the relationship UCLA Anderson has with the world beyond the campus.
“I think it’s important for the Forecast and for UCLA Anderson to demonstrate its connection with the business community,” Leamer said. “We need to show our willingness to work to improve the understanding of where the economy is and where it is going by developing new databases. We believe that this index is going to be used by people around the country, once they become familiar with it. I think our work here fits perfectly with the core mission of the Forecast and the school as a whole.”
As an economist or econometrician, interpreting data is what Leamer does. However, he knows the real world is not so easily categorized and understood. Leamer is pragmatic about what he considers an underlying fact of life: Economic data analysis, no matter how well done, falls short of revealing scientific truth. Remember, this is the academic who over a quarter century ago wrote a paper called “Let’s Take the Con Out of Econometrics.” A paper published this year by professors Joshua Angrist of the Massachusetts Institute of Technology and Jorn-Steffan Pischke of the London School of Economics attempts to demonstrate that the credibility of empirical work has increased since Leamer wrote his paper in 1983. The following quoted passage was taken from Leamer’s written response to their paper in his essay, “Tantulus on the Road to Asymptopia.”
“We economists trudge relentlessly toward Asymptopia, where data are unlimited and estimates are consistent, where the laws of large numbers apply perfectly and where the full intricacies of the economy are completely revealed. But it’s a frustrating journey, since, no matter how far we travel, Asymptopia remains infinitely far away. Worst of all, when we feel pumped up with our progress, a tectonic shift can occur, like the panic of 2008, making it seem as though our long journey has left us disappointingly close to the State of Complete Ignorance whence we began.”
Space prevents us from examining the three essays; suffice it to say, Leamer is not backing down from his original assertion. However, make no mistake, Leamer is not suggesting that empirical data analysis is useless. What he is suggesting is that it has built-in limitations and that economists would be better off acknowledging these limitations than pretending they don’t exist.
Knowing the Limitations
“For a forecaster, understanding one’s limitations is essential. It’s not science,” Leamer said, acknowledging how some of his peers describe forecasting work. “I would say this is exactly true, and other economists are not doing science either. The scientific method of research does not translate well to the complexity of human systems. Forecasters are marching backwards into the future. While forecasters render commentary on what will be, all they can see accurately is the past. We’re hoping there aren’t any unforeseen potholes in our path, but inevitably, there are some. This recession is a pothole, and economists collectively fell into it.”
Some followers of the UCLA Anderson Forecast focus on the numbers. They wait to see what the group will say about the future gross domestic and/or state product or unemployment numbers or what interest rate the Federal Reserve will settle on. These followers, who flip immediately to the bottom line, take a similar approach to those who wait to see if one of the Forecast’s economists will utter the word “recession” as some signal that the economy has taken a turn for the worse.
However, those who track the Forecast just for the numerical predictions or one-word definitions miss the point of what the project attempts to do. It’s not the exact numbers that are important to Leamer and his colleagues, but the story behind the numbers. Responding to critics who note he missed the most recent recession call, Leamer acknowledged that they are technically correct. He did believe that the nation’s slowing economy would avoid what became a full-blown recession. But he stands by the story he told at the time, a story of a troubled economy. In short, he said, he’d rather be wrong for the right reasons than right for the wrong reasons.
The story behind the missed recession call is rooted in payroll numbers that suggested the nation was losing 50,000 jobs per month, serious losses but not recessionary losses. Those numbers were later revised to job losses of 250,000 per month. In addition, nobody at the Forecast – or anywhere else for that matter – anticipated how Washington would react to Wall Street’s downward spiral. Leamer today believes that the fear caused by a government overreaction greatly amplified consumer reaction and helped plunge the nation into the recession. But now, with the accuracy of the PCI data, Leamer can point to how the economy began to deteriorate in January 2008, signaling that it was a lot weaker than government data at the time suggested. He said, if he had access to the PCI then, it would have been clearer that the national economy was in worse shape than the then-current data showed.
“Having had that experience, we won’t make that mistake again,” Leamer said. “But there will be another kind of pothole. It’s better to recognize the limits of our abilities, rather than maintain the image that we’re marching toward scientific certitude.”
The Process of Prediction
On an almost-daily basis, the UCLA Anderson Forecast team receives e-mail alerts regarding a variety of data releases from the government and an assortment of other providers, including other academic entities. Though they participate in the surveys that track forecasters and create consensus, Leamer said they never look at the consensus forecast and compare it to their own. To create its quarterly forecasts, Leamer, Shulman and Nickelsburg talk on a weekly basis, and by the time they begin to discuss the final forecast, the group has a pretty good idea about where they agree and where they disagree.
“If there’s not unanimity, I’m the one that has to rule the roost,” Leamer said, adding with a belly laugh. “Though from past rulings, I’ve learned that is not always perfect. Forecasting is competitive, and accuracy plays a role in what we do. But our job is not just to provide the numbers but to provide insight and wisdom. We think we’re distinct in that way. Most other forecasters provide only numbers. Our numbers are footnotes; they’re illustrations. Like writing a novel, you wouldn’t read someone else’s book and try to copy it.”
David Shulman is currently doing his second tour with the Forecast. When he was with the group in the 1970s, the economists endured what he calls “weird hours” on a mainframe computer, logging late and weekend time when computer costs were cheaper. Shulman, a former real estate investment trust analyst at Lehman Bros., where he was a managing director, brings a Wall Street perspective to the group. He agrees with Leamer’s assessment that forecasting is more art than science.
“We start with the prior quarter and try to decide what’s changed, what’s the same, where were we right and where did we go wrong and what the recent evidence is telling us,” Shulman said, noting that each of the three economists has a different perspective. “I’m more in tune with the Wall Street markets than Ed is, and that’s the source of most of our disagreements. It’s very difficult to predict the future, and what we’re basically doing is having an argument about the future. If I were really good at predicting the future, my stock portfolio would be a lot better.”
Becoming a forecaster has had a profound influence on Leamer and his work, including in the classroom, of which he said, “If we lead our students to the conclusion that there are mechanical tools for decision making or for seeing the future, we do them a terrible disservice. I try to get across that business and personal decisions are all about complexity and ambiguity, and the same is the case with macroeconomic systems. Students find that annoying and unsettling, because they came to class to learn the truth. My advice is that the truth resides in each one of them. I’m not some guru who knows how the economy really operates. Their job is to study and understand and deal with the complexity and ambiguity, so that they can have well-formed opinions instead of mere opinions.”
By Paul Feinberg
Eugene “Gene” S. Rosenfeld (B.S. ’56), chairman of the UCLA Anderson Board of Visitors, was awarded the UCLA Medal, the highest honor bestowed by the university. Created in 1979, the medal is given to “those who have made truly extraordinary and distinguished contributions to their professions and to our society.” Previous winners include such luminaries as William Ackerman, Carol Burnett, John Wooden and John E. Anderson (B.S. ’40).
Rosenfeld has an impressive record of business and community accomplishments, as well as magnanimous philanthropy. He began his career with accounting firm Deloitte, Haskins & Sells, evolving into one of the region’s most prominent real estate developers. With Kaufman and Broad from 1963 to 1976, eventually serving as chief executive officer, he expanded the company internationally to become one of the world’s leading producers of housing. Along with Apollo Advisors, he founded Western Pacific Housing, a residential development company that merged with Schuler Homes Inc. In 2002, the combined companies were sold to D.R. Horton for $1.4 billion. Currently, Rosenfeld is the sole proprietor of ForestLane Group, a significant investor and developer of commercial and residential properties in the United States and Europe.
As a Los Angeles civic leader, Rosenfeld has served on numerous boards of art, health and academic organizations. In addition to his leadership of the board of UCLA Anderson, Rosenfeld previously served as chairman and trustee of The UCLA Foundation and currently is a member of the UCLA Chancellor’s Associates. He has endowed a chair at the UCLA David Geffen School of Medicine in Computational Genetics and also serves on the board for the Pardee RAND Graduate School.
The award ceremony was held at the home of Gene Block, chancellor of UCLA, and attended by family and guests, including several UCLA undergraduate students, who are fortunate recipients of fellowships provided by Maxine and Gene Rosenfeld. At the awards ceremony, Dean Judy Olian paid tribute to both Gene and Maxine Rosenfeld, recognizing their shared role in philanthropic decisions. She referred to them as “decisive, honest, fun-loving, grounded and modest.” Praising their extraordinary generosity, she recounted how Gene Rosenfeld’s admission to UCLA was enabled by a $50 scholarship.
“Gene has never forgotten that generosity and has dedicated his life to creating opportunities for others; he just loves to give,” Olian said. “Gene also loves to build things – organizations and futures. He helped build UCLA Anderson and the Rosenfeld Library, and he has built programs all over campus.”
In the formal presentation of the medal, Block noted that, “Rosenfeld’s generosity is seen all over campus and the city. UCLA would not be the institution it is today without him.”
After accepting the award from the chancellor, Rosenfeld got a laugh when he recalled how his high school guidance counselor told him that he wasn’t college material and that he should go to work at Sears, where they had a good pension plan.
“I never forgot that $50 scholarship that enabled me to attend UCLA,” Rosenfeld said. “I received a super education and made great friends here. It’s my pleasure and honor to serve as chairman of the UCLA Anderson Board of Visitors. UCLA changed the destiny of our family. It was truly a life changing event for us. Thank you so much for the honor.”
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