Notes from Robert Kaplan’s Presentation to Rice Alumni (19-Feb-2019)

On February 19, 2019, I went to a Rice Alumni event at the Federal Reserve Bank in Dallas.  The Dallas Fed is one of twelve Federal Reserve Banks in the United States.  The CEO’s of the Fed banks meet every six weeks or so to set national monetary policy.

Robert Kaplan, the CEO of the Dallas Fed was speaking about the state of the economy.  Peter Rodriguez, the Dean of the Jones School of Business at Rice University, was asking Dr. Kaplan questions.  Late in the presentation, Rice Alumni and their guests asked questions.

Here are some key points that I took away:

  1. Business Pricing Power:  In the current market, consumers have real-time access to prices of products.  They have never had such comprehensive access before.  Because of this, price competition is extremely stiff and businesses are not able to pass on cost increases to consumers.  Dr. Kaplan specifically mentioned the recent steel and aluminum tariffs as costs that businesses are not able to pass on to consumers.
  2. The number of people in the labor force and productivity are the primary drivers of GDP growth.  More people in the labor force yields higher GDP growth.  Likewise, higher productivity yields higher GDP growth.  Technology and education drive productivity increases.  Education is a big problem for Texas because Texas lags the US in general.  And, likewise, the US lags many countries in the developed world.  (More on this below.) Texas’ growth looks positive for at least the short and medium term, however, because Texas is experiencing large population growth.  This is dampening the education disadvantage that Texas has.  Likewise, Texas’ population growth – which results in higher GDP – allows Texas to solve its education problem in the future easier than states with stagnant or declining populations.  Dr. Kaplan specifically mentioned Kansas, where he is originally from, and Illinois.Dr. Kaplan mentioned immigration as a component of population growth in Texas.  But, he did not explore the subject.
  3. Technology helps people with post-secondary educations or specialized training in the trades.  It hurts those with a high school (or less) education.  This is the biggest driver of the growing divide between the wealthy and the poor.  Dr. Kaplan mentioned STEM many times as the path to growth.
  4. Dr. Kaplan specifically mentioned Khan Academy and edX as potentially disruptive forces in the post-secondary education arena.  He stated that education delivery needs to be significantly revamped.  He believes this should be done with steps such as busting teachers’ unions, eliminating tenure for college professors, and financially separating teaching from research at the university level.
  5. The media concentrates on the U3 unemployment rate.  However, the Fed primarily looks like the U6 unemployment rate which considers people who have given up looking for work and part-time workers who would prefer to be full-time.  The U6 unemployment rate is about 8%.  This paints a much less positive picture of the economy than the U3 rate that the media reports.
  6. The US owes $54 Trillion in unfunded entitlements such as social security, medicare, and retiree pensions.  This is a ticking time bomb.  It does not show up in the deficit or national debt numbers that we hear.
  7. 2018 saw GDP grow at a rate of 3%.  That was largely due to the tax overhaul and increases in government spending.  The effects of the tax overhaul are likely over for individuals.  The effects of the tax overhaul for businesses may be longer lasting.  But, that is not clear.  The effects of increases in government spending last year are probably over.  Therefore, GDP will likely grow at 2% or less in 2019.
  8. Dr. Kaplan believes that education spending will yield productivity increases (which will yield GDP increases).  He specifically mentioned early childhood education and that 60% of children who enter 1st Grade behind will never catch up.  He also believes that college prep should have more emphasis at the high school level.
  9. Shale oil/fracking:   The petroleum yield from this kind of oil production is short-lived.  That likely means that the US’ production levels will struggle to maintain their historic high levels and that the oil industry will profit from high oil prices in the future.

Short Commentary

During the question and answer session from Rice Alumni and their guests, one gentleman told Dr. Kaplan that there is either no correlation, or negative correlation, between spending on education and educational achievement levels.  If you think about it, such an assertion is absurd because, if true, the best thing for society (including individuals) would be to spend absolutely nothing on literacy.  Obviously, Dr. Kaplan disagreed.

After the presentation, I spoke with Dr. Rodriguez, the Jones Business School Dean.  I told Dr. Rodriguez that I was surprised by this question and was also surprised that Robert Kaplan did not point out that much of the spending labeled as “education” spending really goes for athletic programs which do not increase literacy.  Dr. Rodriguez agreed and mentioned the huge high school stadium in Allen as a great example.

I told Dr. Rodriguez that I would like to understand the research about the relative effect of employment growth and productivity on GDP.  For example, immigration increases the number of workers in the workforce.  But, immigrants come with various educational levels depending on their circumstances.  So, more immigrants cause GDP to grow.  And highly educated immigrants increase productively and that causes GDP to grow too.  But, illiterate immigrants have the opposite effect on productivity – at least initially.  That means that the positive effects of increased workers are dampened if those workers have lower than average productivity.  Unfortunately, Dr. Rodriguez seemed to take this as a political question and brushed it aside.  It was not meant to be.  I am sure that the Fed has data on this question.  I would love to see it.

 

SSH Access to OpenWRT without a Password

OpenWRT is an open source router firmware that can be installed on most consumer WiFi routers for increased security, functionality, and performance.

One way to configure OpenWRT is through a web interface.  The other, more powerful, way to configure it is through SSH.  OpenWRT comes with dropbear for SSH.  Dropbear is a optimized, reduced functionality, SSH server.  So, the typical methodology of creating public/private key pairs for authentication does not always work.  Here is what I have found to work:

  1. Assume that the OpenWRT router has an assigned IP address of 192.168.1.1
  2. In Cygwin, or in a Linux terminal, run the following commands:
    • ssh-keygen
    • ssh-copy-id -i root@192.168.1.1

The first command creates a 2048 RSA key, which is the strength recommended by NIST for RSA.  To login without a password, just choose the defaults by pressing enter at each prompt.  The second command copies the public key to the OpenWRT router.  Now, log in to the OpenWRT router with SSH:

ssh root@192.168.1.1

You will be prompted for a password.  Use the password that you set up for the OpenWRT web interface.

Once logged into the router, execute the following command:

cp /root/.ssh/authorized_keys /etc/dropbear/authorized_keys

This will copy the public key to the location expected by dropbear.  This has to be done because ssh-keygen puts the key in the directory expected by openssh, not dropbear.

Now, exit from the router:

exit

Back that the Cygwin or Linux terminal, try logging into the OpenWRT router again with SSH:

ssh root@192.168.1.1

This time, you should be able to get in without a password.

Finally, use the OpenWRT GUI (under System->Administration) to turn off SSH password authentication and disallow the root user to login with a password.  Test to verify password authentication is turned off by typing the following in Cygwin or a Linux terminal:

ssh -o PreferredAuthentications=password -o PubkeyAuthentication=no root@192.168.1.1

You should get an error that says root@192.168.1.1: Permission denied (publickey).

Two things to note:

  1. Unfortunately, OpenWRT makes it difficult to create anything but a root user.  There are ways to do so, however.  Google it.
  2. I tried generating RSA keys larger than 2048 bits.  However, they did not seem to work with dropbear.