To some, a MBA is a yardstick of business acumen or a launch pad for great accomplishments. While graduate students are expected to exercise increased independent and critical thought, the amount of leftist indoctrination that goes unchallenged is startling. In nearly every department, the MBA curriculum has got it wrong.
MBA programs teach that government spending and expansive monetary policy stimulates GDP expansion. Keynesian formulas suggest that recessions can be cured by stimulus spending and money supply growth. Stimulus ‘primes the pump’ of the economy. Well, no, stimulus has never worked, but MBA professors fail to mention this, as they also fail to mention other economists like Hayek, Taylor, and Hazlitt whose theories refute Keynes.
Keynesian stimulus does not work for two real world reasons: 1. When the government stimulates, it almost always procures things nobody needs or wants. The government spends based on political favoritism, and those items are unlikely to stimulate further productive economic activity (e.g. bridge to nowhere); and 2. People don’t measure their wellbeing by GDP growth, they measure their wellbeing by prosperity. The fact that Pres. Obama’s stimulus grew the public sector component of GDP did nothing for regular Americans. People do not really want more money; they really want things like food, houses, cars, and TVs. Stimulus is largely busywork that creates nothing, especially in the short term, to increase real prosperity. Paul Krugman’s recent ludicrous endorsement of government spending on alien invasion preparedness as a way to grow the economy is the perfect example of Keynesianism’s fatal flaw.
MBA programs teach the IMF mantra that when a country has a trade deficit, or it can’t pay its obligations, it should devalue its currency. The theory posits that after a devaluation, the troubled country’s exports will be more competitive, imports less competitive, and soverign debt more affordable. As Argentina and every other test case has shown, this never works. MBA professors cite a ‘J-Curve’ effect whereby devaluation causes the opposite of its stated goals in the short term, but as consumption and production shift, the devalued economy will reach a balance. The J-Curve must take a long time, because devalued economies continue to suffer for a long time.
Devaluation does not work because, as with Keynes, people do not want money, they want goods. No magic wand increases the real efficiency of a labor force. Further, when a government inflates its currency (devaluation), it makes foreign capital formation less attractive. Without capital formation, modern economies cannot grow, and real prosperity becomes impossible. Currency devaluations are just a form of surprise inflation, which is stealing from those who save to pay off government debt. Only an ivory tower academic can think that is the path to prosperity.
Union Management Partnerships:
MBA academics are big on labor partnerships. True to their socialist instincts, they can’t believe that unions are bad for business. They laud each effort to find a new way to harmonize union and shareholder interests. In the real world, these partnerships never work. UAL gave its unions ownership and board seats, and GM’s Saturn division gave unions decision authorities, but both of these experiments failed, resulting in bankruptcy. The steadily declining private sector union ranks prove that unions cause business failure wherever they take root, otherwise businesses would be inviting unions to form and their ranks would be growing. There is no aligning union and shareholder objectives; shareholders seek to avoid Ch. 11 bankruptcy at all costs, while unions see Ch. 11 as at most a temporary setback.
Efficient Market Hypothesis:
MBA professors hate Wall Street traders because academics think that what they do is impossible. The religion of MBA finance professors is that the markets are efficient (i.e. their prices always reflect true value and that without inside information nobody can make a supernormal profit). Securities’ prices fall along a line that sets their price relative to their risk, so stock picking is a waste of time.
Shout Bits apologizes for the following obscure references, but every assumption underlying the efficient market hypothesis is wrong. Investors are not objectively rational; their decisions are based on needs other than risk adjusted return. Stocks’ returns are not a random walk; returns are auto-correlated. Stock returns’ correlations are not constant; in times of extreme gains or losses, correlations increase. Likewise, betas are not constant and are difficult to predict. Every foundation of the efficient market hypothesis is bunk. The efficient market hypothesis is a classic example of MBA professors living within their walls of assumptions and formulas while those less constrained by theory make a killing.
The list of MBA fallacies goes on (e.g. more regulation creates more safety, the green movement and its economy, strategic reorganization creates value, Japan’s model of government / private partnerships). Of course a lot of smart people earn their MBAs, but they would have been smart without them. As with liberal arts BAs, the hidden price for expanding minds at an MBA program is the indoctrination into left wing and academic fantasies that have no use in the real world. The best business education is getting one’s teeth kicked in by tough competitors who know their trade and know how to win. That is a lesson that no MBA program can teach.