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Why can’t “the market” get education right?
Adam has a series of posts on the market for education. His latest details a paper by Jim Heckman showing that the availability of GEDs might actual make students worse off by leading them to substitute towards a seemingly worthless product.
In addition, there is no shortage of hand wringing over what appears to be the growing short comings of the for-profit education sector.
We have excellent private schools at both K12 and higher education levels but overwhelmingly they are not for profit.
To make matters worse it seems that the “best schools” do everything wrong. Take Harvard. One gets a job as a Harvard educator not by being talented at or even particularly interested in education. Furthermore, Harvard turns down the overwhelming majority of potential customers and actively discourages millions of others from even attempting to buy its product.
Yet, surprisingly it doesn’t attempt to use this market constriction to wring the highest possible prices from its students (yes Harvard could charge much much more and still fill every class). Instead, it goes out of its way to attempt to make “price not a concern.”
What way is this to run a business? Yet, it seems to be a crackerjack way of running an educational institution. What gives?
Some economists will tell you that its all farce. Harvard doesn’t actually educate you see. It selects. By only allowing in the certain students it is stacking the deck in favor of amazing outcomes. How can your graduates fail when they came in with such stellar test scores?
But there are at least two problems.
1) Economists who study education consistently find that institutions like Harvard do seem to be doing something useful. In instances where random luck determines whether or not a particular student goes on to University, going on seems to make a big difference. Perhaps, this is success by osmosis but it seems difficult to reject out of hand the possibility that the students might just be learning something
2) If the students aren’t learning anything then this poses no less of a challenge to market efficiency. Maybe university is a signal that you can hack four years of tough work. But, then why isn’t hacking four years of tough work, as say a lowly paid or even volunteer probationary worker an even stronger signal.
Maybe Harvard is really just a master selector. Picking out the best and brightest. If a student whose ultimate entrance is determined by luck still gets the resume glow of having been picked by Harvard and hence the subsequent success. But, then is all of the pomp, the vast research apparatus and the still high, if not as high as possible, tuition bill really necessary. I am sure that some enterprising chaps could provide an excellent search and selection tool for far less than that. Call it Google Worker.
While I’ve heard dozens of theories to explain what the heck is going on in the educational universe, none of them seem really satisfying. Education seem to be important, perhaps crucial to the function of capitalist institutions. Yet, capitalism, that is for profit enterprise, just can’t seem to get education right.
In general, the availability of lower quality, lower cost, consumer choices is beneficial to low income people who often are able to afford these goods when the bottom rung of the product quality ladder is lowered. The availability of a new line of washing machines that is cheaper, crappier, and dies sooner than any kind before it can mean that many families are able for the first time to have a washing machine. However, when information is uncertain, and the decisions are being made by individuals with myopically high discount rates or high costs of attaining information about the value of the good, the the availability of these goods can make them worse off. A recent NBER paper by James Heckman, John Humphries, and Nicholas Mader sums up the economic literature on the GED, and suggests that the GED may be one of these low quality products that is doing more harm than good by causing students to substitute graduating high school for dropping out and getting a GED. One study the authors cite found that the option of GED causes four-year high school completion rates to fall by 5%.
This would not be a problem if the returns to a GED were close to that of a high school degree, or significantly greater than dropping out. Unfortunately, the GED does not seem to significantly improve labor market outcomes compared dropping out, whereas high school graduation improves them greatly:
Once Heckman and LaFontaine correct for selection and control for AFQT scores, male GEDs earn on average 1% less per hour than dropouts while terminal high school graduates make 3.6% more per hour on average than dropouts. Similarly the and that female GEDs earn 1.7% more per hour than dropouts while high school graduates with no college earn 10.6% more per hour. They also show that the GED has little or no benfit after controlling for reported test scores using the National Adult Literacy Survey (NALS) data.
This problem of substitution to lower quality is relevant to recent discussions of the value of lower quality private, for-profit colleges, and Walmart’s new program that helps it’s workers earn college degrees. Are these options increasing human capital or simply allowing people to substitute away from more valuable educational choices by lowering the effort bar? I am not going to make that claim, but simply suggest that it is a question worth asking.
There are many fans of walking away from mortgages these days. Economic and financial pundits are advising homeowners who owe more than their homes are worth to be as businesslike as the foreclosing banks and simply walk away even if they can afford the payments; taking what is called a “strategic default”. Even rappers are getting into it:
Chamillionaire purchased the 7,583 sq-ft. Houston home for around $2 million in 2006. Now he tells TMZ that the house “isn’t worth anything” but that it was still his most expensive mortgage.
Explained Chamillionaire when cornered by TMZ’s camera on a NYC street:
“So I just decided to make a business decision, to let it go, give it back to the bank. I just didn’t feel like it was a good business investment to keep paying that much mortgage for a house that I’m never at.”
Some buyers -maybe many- are far enough underwater and in dire enough straits that walking away is the right move. I don’t want to give any advice to particular homeowners, but rather make a general plea against walking away to the pundit class who has been advocating it as a good and just choice.
My concern is that there is an intergenerational unfairness to current homebuyers walking away. Past generations didn’t think of a mortgage like ruthless businessman, but rather felt some moral duty towards repayment. This made lending to homebuyers less risky, and thus kept interest rates down. Current homeowners benefitted from these lower rates, and therefore received a transfer of wealth from past generations. If the current generation abandons those social mores against strategic foreclosure and begins walking away from their mortgages en masse, then future generations will have to pay higher interest rates.
This is akin to a time inconsistency problem where past generations have committed to a dynamically efficient regime that is beneficial for all generations but not statically optimal for them, and the current generations is going to toss aside the dynamically optimal regime for their own static benefit. I suspect Chamillionaire has not considered this.
My question is this: are we bequeathing more or less to future generations than was bequeathed to us? I worry that along with global warming and long-term debt this is one more way that current generations are cashing out at the expense of future generations.
Daniel Indiviglio finds 74 studies nestled within the House and Senate financial reform bills. One of these is titled “the effect of drywall presence on foreclosures”. I dug into the house bill and found out that it is even more absurd that you might first assume:
Subtitle J: Study of Effect of Drywall Presence on Foreclosures – ( Sec. 9901) Directs the HUD Secretary to study and report to Congress regarding the effect upon residential mortgage loan foreclosures of: (1) the presence of drywall imported from China between 2004 and the end of 2007; and (2) the availability of property insurance for residential structures in which such drywall is present.
The amendment that created this study was offered by Mario Diaz-Balart of Florida, and according to his website he is a member of the “Congressional Contaminated Drywall Caucus”… yes, such a thing does exist.
Financial reform seems to be getting distracted.
Pretty interesting peice on avatars in New Scientist:
For now, Lifenaut relies on a series of personality tests, teaching sessions and uploaded personal material such as photos, videos and correspondence. The result, Mayer says, will be an avatar that looks like you, talks like you and will be able to describe key events in your life, such as your wedding day. But how far can such technology go? How much of your personality and knowledge can be reproduced by a computer? Can we ever hope to use avatars to resurrect the dead?
This seems like the perfect application for information stored in the online social networking databases like Google, Twitter, Facebook, etc. Imagine chronicling your whole life with a user interface that is basically transparent (at least for those purposes), which is then decoded using an incredibly large algorithm to determine your personality type, speech patterns, likes, dislikes, etc.
How realistic do you think an avatar could become?
I see that I caught Mark Thoma’s attention with my last post regarding fiscal stimulus. I’m assuming (from previous posts on both Economist’s View and CBS Moneywatch) that Mark believes fiscal stimulus has not been (maximally) effective for two reasons:
- It was targeted poorly.
- It was too small.
I have a previous post that I made on the anniversary of the ARRA that lays out my views on why the stimulus was ultimately ineffective at raising NGDP expectations…which is what we’re trying to stimulate. Future expected nominal income growth will increase current consumption expenditure. So what we want is for future expected NGDP to be higher by some amount…ideally we would like to have enough nominal growth as to rejoin our previous growth path (which we are something like $1.3tn below currently). Today, I would like to quote Milton Friedman regarding fiscal stimulus, which echoes my reasoning about why the fiscal stimulus package has had a less-than-spectacular impact on Y=C+I+G+NX:
What is Washington’s advice? Fiscal stimulus; spend more; cut tax. It’s bad advice. Japan has introduced fiscal stimulus five times in the past seven or eight years and each time it’s been a failure and that’s not a surprise. Fiscal stimulus is not stimulating in and of itself, in my opinion. I think the Keynesian view is wrong on that issue. Fiscal stimulus has generally been accompanied by monetary expansion and then monetary expansion has been stimulating. However, in the Japanese experiments of the last five or seven years, fiscal stimulus has been accompanied by a restrictive monetary policy rather than an expansive monetary policy and the result has been that you’ve had continued recession or depression.
I’ve heard a lot about how there weren’t enough this-or-that in the stimulus bill. Mostly transfers to states (to prevent layoffs). However, the layoffs are a symptom of the same problem causing fiscal policy to have been lackluster, not a cause…and people seem to be reasoning the exact opposite. We need an accommodative monetary policy before there can be any hope of fiscal policy working.*
[H/T DanC]
Update: Scott Sumner is making the same claim:
If fiscal policy is to work, then it must raise AD, and hence the future expected price level. If the Fed won’t let them do that, then it won’t work. It doesn’t even matter if the short term rate is stuck at zero right now, and there is nothing the Fed can do right now to sabotage fiscal policy. Just the expectation that in the future they will act to prevent the price level from rising as the fiscal authorities hope, is enough to sabotage current fiscal policy.
Of course, as Sumner notes, this doesn’t have to be “intentional sabatoge”. A 2% inflation rate is not high enough to close the output gap, thus the Fed (like the BOJ before it) is accepting a lower level of NGDP. If you take sticky prices seriously, then the disconnect between nominal and real prices (wages) is causing the inevitable friction creating high unemployment “for a prolonged period” (aka recalculation), as I stated previously in the post.
*By working, I don’t mean preventing some layoffs, and easing some hardship. I don’t deny that the ARRA did just that. By work, I mean raise inflation expectations such that it lowers real interest rates.
Another paper finds that Google trends data are useful for improving nowcasts (meaning forecasts of current events for which data has not been released), this time of US consumption data:
“In this paper, we investigate whether the Google search activity can help in nowcasting the year-on-year growth rates of monthly US private consumption using a real-time data set. The Google-based forecasts are compared to those based on a benchmark AR(1) model and the models including the consumer surveys and financial indicators. According to the Diebold-Mariano test of equal predictive ability, the null hypothesis can be rejected suggesting that Google-based forecasts are significantly more accurate than those of the benchmark model.”
Like other papers nowcasting with Google data, the models used are simple. In fact, when the authors use a model with more explanatory variables, the Google data no longer improves predicability.
Improvements on simple AR(1) models are interesting, but I am very curious to know whether Google data is useful in improving the large, complex, and finely tuned forecasting models that professional forecasters use. An Economy.com and Google partnered study on this issue seems like an obvious win-win. What’s the hold up?
As you may know from reading my other blog, I’m a proponent of the concept of complementary currencies — currencies that are circulated alongside national monies, which operate under different mechanisms, like demurrage, and thus incentivize different behaviors.
I was reviewing my copy of A History of Interest Rates (which covers history all the way back to Sumer) after reading a very very old article by Bernard Lietaer and noticed something very peculiar; there is not one mention of alternative money systems which have existed throughout the world during different time periods (and indeed, continue to exist today). I will recreate the article here with as many links as I can.
Egypt
Starting all the way back in Egypt, we find the biblical story of Joseph. Joseph interpreted a dream of Pharoah’s and save Egypt from “seven lean years” by stockpiling food. Of course, this seems like a rather mundane thing to have “invented”…and indeed, Joseph didn’t actually “invent” anything. He didn’t even discover it. What he did was incentivize the use of stockpiling by making it the basis for Egyptian money.
Egypt, of course, used gold rings and Greek coins for international trade, but domestically they used something very different, ostarca — which were receipts for grain storage at the temple — which circulated as money. The key feature of this type of money was that there was a negative time charge for holding your grain at the temple (the storage loss to vermins, the guard fee, etc). This demurrage fee caused the money to have a very high velocity, as its value would erode with time.
This type of money was used in Egypt for over a thousand years (coinciding with the time of the Pyramids and other impressive architectural feats), until forcibly supplanted by the use of Roman currency (and the fall of Egyptian civilization).
The Middle Ages
Few people realize that the great economic and spiritual enlightenment that happened after the Dark Ages in Europe also coincided with the beginning of the use of the Brakteaten money system. Local lords issued silver plaques which were called in every six months or so, taxed (physically, which made the coins thinner, and thus reduced their value) and returned to the users. The demurrage fee was around 2-3% per month for the entire period of about 1150-1300AD. Again just as in Egypt, this prevented hoarding by the people, and increased the velocity of the money, creating ample investment demand.
What did lords invest in? Since this was a time of globalization, cities were looking to attract Christian immigrants from around Europe. What better way than massive (and impressive) cathedrals as celebration of their spirituality? The Brakteaten money system facilitated this kind of long-term investment. What even coincided with the downfall of this architectural era? The king’s monopoly on money.
1930′s Germany
In 1930, Herr Hebecker, the owner of a bankrupt coal mine in Schwanenkirchen, Bavaria, (out of desperation) decided to pay his workers in coal instead of Reichsmark. The scrip he issued, called Wara, was redeemable in coal from the mine. The interesting feature of this currency is that the bill was only valid upon the issuance of a “current month” stamp applied to the back of the note. Again, this demurrage fee prevented hoarding, and incentivized a high money turnover rate. Workers paid for food and services with Wara. This scrip was so popular, the Freiwirtschaff (free economy) movement spread all across Germany by 1931. At its height, over 2000 corporations and a number of commodities backed Wara. However in 1931, the German Central Bank prohibited the use of Wara…and Germany fell into deep depression.
1930′s Austria
Possibly the most famous story about the use of alternative currencies comes from Worgl, Austria. In 1931, mayor Herr Unterguggenberger, a socialist, decided that he needed to act in the face of a grave economic situation. Worgl faced 35% unemployment, and the only people left work worked for the state train and post. He convinced the town hall to issue 14,000 Austrian shillings’ worth of “stamp scrip,” which were covered by exactly the same amount of ordinary shillings deposited in a local bank.
After two years of use, Worgl became the first Austrian city to achieve full employment. Water distribution was generalized throughout, all of the town was repaved, most houses were repaired and repainted, taxes were being paid early, and forests around the city were replanted. Of course, this was due to the individual initiatives embarked upon by the city’s residents — everyone was looking for ways to rid themselves of money! On average, the velocity of Worgl stamp scrip was fourteen times higher than conventional Austrian shillings. That means each dollar created an extra 14 jobs on average.
Of course, news of the “Miracle of Worgl” spread, and the Central Bank became involved, and in 1933 prohibited the use of “Certified Compensation Bills”. An appeal to the Supreme Court was made, which upheld the ban. Worgl returned to 30%+ unemployment within a year.
1930′s North America
Emergency currencies have a very illustrious history in the US, appearing just about every time there was a severe downturn. The best-documented of which, of course, was the Great Depression.
None other than economist Irving Fischer was behind the movement to institute stamp scrip. Popular that the time were the ubiquitous “wooden nickels“. There was also a movement to issue this stamp script officially nationwide: Senator Bankhead of Alabama presented a bill to the Senate February 18, 1933, and Representative Petenhill of Indiana presented a bill to the House of Representatives on February 22, 1933.
I hope you found this brief history interesting =]. Currencies that offer different mechanism can indeed be a powerful tool to counteract the cyclicality of the macroeconomy. They have also proven themselves to make the economic network more robust.
Will Wilkinson provides a nice Gapminder chart analyzing the relationship between per-capita GDP and life expectancy:
[Click image to enlarge]
Scott Sumner has some comments relating to a vague allusion to “culture”…but I want to be more specific:
Trust.
Trust is positively correlated with wealth, and happiness.[1] Denmark (a wealthy country), for instance, is the “happiest” place in the world (if you believe in happiness measures)…and not surprisingly, also has high levels of societal trust. Trust is also positively correlated with better institutions, including freer markets. Indeed, if everyone was highly skeptical of eachother, it is unlikely that a highly-functioning market would be able to evolve. Trust is also correlated with high levles of robust social norms, and the rule of law. Frances Wooley of Worthwhile Canadian Initiative has a piece on evolutionary theories of markets — which relies heavily on the development of trust between people.
Look at the countries in the lower-left quadrant of the chart. Most are from Africa, and all are relatively poor. But what else do they have in common? A rampant lack of trust between people. This lack of trust prohibits functional institutions from forming (both public and private).
Rich countries, of course, dominate the upper-right quadrant…having achieved very high levels of both income and life expectancy…and the cause? High levels of societal trust, which is the seed that causes wealth-generating institutions to arise…which in turn, increases health outcomes (as wealthier people can eat better, have more leisure and less physical and mental stress, and have access to better health care).
Countries in southeast Asia are also traditionally very “trusting” societies, even though some are poor…they also rank high-ish on the life expectancy side.
[1]Zak, P. J. and Knack, S, Trust and Growth.
One difference in mentality between otherwise similarly inclined progressives and libertarians is the level of deferment and humility exhibited towards prices. Progressives seem much more confidant in their ability to identify prices that are “too high” and call for prices to be regulated. Libertarians tend to be more reticent; having what I see as humility in the face of complexity and unintended consequences, and what progressives might call an unfounded faith.
This difference was apparent in the debate over recent efforts by Congress to set the amount of interchange fees that credit card companies can charge to merchants. A new paper by Todd Zywicky (hat tip MR) makes the case for libertarian humility:
Critics of interchange fees argue that the government should intervene to reduce those fees. This ignores the extreme difficulty of devising workable political interventions in a system as interdependent and complicated as payment card systems, especially when those interventions would engage in price-setting of the interchange fee either directly or indirectly. The U.S. Government Accountability Office recently released a report detailing its study of the effect of interchange fees on merchants and consumers in the U.S. credit card system. The GAO Report highlights the remarkable complexity of the issue and supports the central claims of this white paper: No one has demonstrated that a problem exists and any available solution would likely produce unintended consequences that would do more harm than good for consumers, merchants and the U.S. economy.
Here is Korby Kummer writing about the New York Times recent piece on salt regulation:
“After Moss’s thorough study of industry tactics with sodium, it will be hard to take seriously whatever new arguments against taxes soda makes bring up—and hard not to champion regulations that will bind food processors to produce sounder foods long after the political climate has moved away from anti-obesity initiatives and earnest promises of voluntary compliance.”
I’m not really sure what the industry’s tactics have to do with the desirability of the regulations, but Kummer for some reason finds it dispositive. Also interesting is Kummer’s admission that he is “incapable of eating, or at least enjoying, most processed food precisely because of the salt levels”, which he finds “intolerable”. I don’t want to malign the motives of those pushing for salt regulation, but their writings suggest to me that their personal desire for more low salt food choices is an important motivation for their position. Case in point is Marion Nestle:
To someone like me who has been trying to reduce my salt intake for years, those soups taste like salt water. That’s because the taste of salt depends on how much you are eating. If you eat a lot, you need more to taste salty. If you are like me, practically all processed and restaurant foods taste unpleasantly salty.
So what to do? I say this is indeed a matter of personal choice and right now I don’t have one. If I want to eat out at all, I know I’m going to feel oversalted by the time I get home.
I find the idea of supporting a policy because it would force producers to offer a range of products that you like more to be a selfish and unprincipled stance. I actually get a lot of utility out of restaurant smoking bans, but I oppose them because I don’t think the government’s job is to increase my personal utility. I want to believe that selfishness is not an important motivation for salt regulation proponents, but I am not sure.
A much more useful take come from from Michael Kinsley at the Atlantic Wire:
Then comes the dubious statistic that “Government health experts” say “deep cuts” in salt use “could save 150,000 lives a year.” This sent me Googling and it was the work of under a minute to find a column in the New York Times in February casting doubt on this very factoid. The column was by John Tierney, whose specialty is poo-pooing studies that suggest the need for more regulation. I don’t necessarily trust him either. But still, the Sunday piece might at least have mentioned that this figure has been contested.
Over at my previous blog, I had a series of posts regarding a theory of “Too Brittle to Sustain“. Part of this theory rests on the idea that because of our blind devotion to economic efficiency, we tend to create economic ecosystems that are very homogeneous, and quite prone to catastrophe.
Indeed, I believe that the TB2S theory explains the recent financial catastrophe quite well; which probably reflects bias, as I coined the term and have been nearly the only one outlining the core principles.
TB2S rests heavily on a theory of measuring throughput of an economic system in terms of both efficiency and resilience. In traditional economic terms, efficiency would be represented by a measure of GDP, which represents actual economic activity. However, we have yet to devise an adequate measure of an economic system’s reserve (or, ability to “draw from savings” to maintain a level of demand) or ascendancy (which roughly measures the paths of throughput).[1]
Remember, system capacity is given as C = A + ϕ, where A is ascendancy, and ϕ is reserve.
When an adverse shock occurs in natural systems that as significantly robust, what happens is that instead of experiencing a total system collapse, the ecosystem draws heavily upon its reserve capacity, while ascendancy changes very little, as throughput adjusts to “less efficient paths”. The US economy as a whole is diversified in this manner, as to be very resilient to adverse shocks. However, specific sectors of the US economy do not exhibit this trait. Namely, the financial sector — which, far from being resilient, was toppled by the equivalent of a slight gust of wind.
At the very basic, the financial sector is an input/output system that involves a homogeneous good, money. Money in, investment out. The financial sector exists to find the most efficient paths of making money into…well, more money by facilitating increased productivity and return on investment. Unfortunately, because it is so successful at performing this task, it de facto eliminates all other competing paths of throughput. Thus, when the system breaks we have a “total system collapse” because ascendancy and reserves are heavily marginalized.
Now, all of that long-winded explanation was provided simply to get your opinion: I believe that if we had robust measures of ascendancy and reserve, we would be better able to distinguish between sustainable investment growth, and bubbles. In my opinion, bubbles form when an economy moves away from the natural “window of viability” toward a high level of efficiency (and stagnation happens when moving in the other direction). So having these measures could be quite useful, as they would allow us to see if an investment boom was eroding the system’s capacity to react to adverse shocks.
What do you think?
[1]Nikas Blanchard, see here and here.
The US economy is like Rocky Balboa — it can take multiple hard hits, spend a good deal of time beaten down…but then come back and win the fight against striking odds.
As you may know, I’m a proponent of the Scott Sumner view of events surrounding the Great Recession. Indeed, I think monetary policy remains too tight relative to the needs of the economy (to return to our previous NGDP growth path). However, from Stephen Gordon (via the BEA), we learn that on net, not even fiscal policy has been particularly expansionary:
There has been much talk of the size of the US federal stimulus, and much debate about whether or not it has been an effective counter-cyclical policy instrument.
But it’s important to remember that the proper measure for fiscal stimulus is not spending by the federal government; it is spending by all levels of government. And when you look at the contributions to US GDP growth (Table 1.1.2 at the BEA site), total government spending has been a drag on growth over the past two quarters. The increases at the federal level have not been enough to compensate for the spending cuts at the local and state levels.
And yet, even severely battered, the little engine that could keeps chugging along.
There is a lot of ink being spilled over the theory of fiscal policy “expectation traps”, or what Krugman terms the Tinkerbell principle. The theory is very interesting, and well-worth pursuing, but is a fiscal policy that is demonstratably not expansionary ever expansionary?
[H/T Mark Thoma]
I should have done this post before I did any commentary, but in dyslexic fashion I’d like to thank both Karl and Adam for inviting me to contribute to ModeledBehavior! It is an honor to be writing amongst such intelligent people.
I will definitely work hard to bring you (the readers) interesting and insightful analysis! Please e-mail me [cheapseatsecon (at) live (dot) com] with any questions, suggestions, or comments! And I hope you find my entries to be valuable and informative!
Welcome Niklas Blanchard of Cheap Seats Econ fame to Modeled Behavior as we continue to strive to combine trenchant analysis, stunning wit and a set of Adonis like physiques tailor made for blogging.
According to Yahoo News, a group of four people protested a spelling bee in Washington DC. The cause for the dissatisfaction? The complication of the English language:
Roberta Mahoney, 81, a former Fairfax County, Va. elementary school principal, said the current language obstructs 40 percent of the population from learning how to read, write and spell.
“Our alphabet has 425-plus ways of putting words together in illogical ways,” Mahoney said.
The protesting cohort distributed pins to willing passers-by with their logo, “Enuf is enuf. Enough is too much.”
According to literature distributed by the group, it makes more sense for “fruit” to be spelled as “froot,” “slow” should be “slo,” and “heifer” — a word spelled correctly during the first oral round of the bee Thursday by Texas competitor Ramesh Ghanta — should be “hefer.”
Logically speaking, these protesters have a point. The English language is indeed needlessly complex. The extent to which it hampers people from learning the language is something that I can only guess at…however, through the benefit of hindsight (or hindsite?), they can plan out how to optimally structure language. The problem is, language (verbal and written) is something that evolves in real time…and it’s almost impossible to control.
The problem that I have with the protester’s intent is that the English language is very robust because of it’s lack of planning, and inefficiency. The English language includes a lot of words, and a lot of ways to structure words that allow new concepts to have interesting (to say the least) naming conventions. This is a feature of evolution, and a feature that you would be hard-pressed to find in real-time planning.
The complexity of the English language is what makes the network resilient. Which is why I was happy to continue reading the article to find this paragraph:
Meanwhile, inside the hotel’s Independence Ballroom, 273 spellers celebrated the complexity of the language in all its glory, correctly spelling words like zaibatsu, vibrissae and biauriculate.
Cheers to you, novel spellers!
P.S. Matt Yglesias offers a different (decidedly pro) perspective.
Plenty of ink has been spilled already about the latest jobs report which shows a large gain in total jobs but a tepid gain in private employment. Let me just add a few things.
First off, for the purposes of kick starting demand jobs are jobs – sort of. What is key about the census jobs is that they are temporary and the job holders know that. This means that landing a census job doesn’t do a lot to encourage the household to spend. Or, if you prefer, temporary employment has far less effect on money demand that permanent employment.
However, the effect is not negligible. Census employment likely relieves cash-flow constraints in some households. One thing that many macro models ignore is the bid-ask spread in credit markets. This means that there is an asymmetry between saving money and borrowing money that will wind up trapping some households in a cash zone. Saving doesn’t pay enough to be worth it but borrowing is too expensive to be worth it.
One of the ways in which I view our current climate is that rising credit spreads increase the cash zone and thus make more households sensitive to cash-flow constraints. To the extent this is true temporary employment may relieve cash constraints and encourage spending.
What is not important from a demand stimulation point of view is public versus private jobs. That’s a demand trend issue. And, on that front the trend don’t look so hot. That is, what we would like to see is previous increases in final goods demand stimulating current demand for private sector labor. This report does not show that.
Perhaps, Casey Mulligan will want to tell us that this is due to crowding out by the government. That is all that census hiring sucked up workers that would have gone into private business. With all due respect to Casey’s standard case I, quite frankly, think that focusing on crowding out during a recession makes little sense. There is plenty of slack in labor markets and there is plenty of slack in industrial capacity. If markets were clearing we would see the two getting together.
So bottom line – 400K+ jobs is a nice bump to future demand but 20K private sector jobs is a poor showing for current demand.
Ross Douthat looks at the results of the Michigan Empathy survey and asks
how can the same generation be more solipsistic and more interested in human betterment and ambitious social activism? But maybe they actually go hand in hand. There’s a kind of humanitarianism that’s more interested in an abstract “humanity” than in actual people, and a kind of idealism that’s hard to distinguish from moral vanity. Perhaps this is the spirit that’s at work among the empathy-deficient world-changers of Generation Y — visible, for instance, in the way that community service has become a self-interested resume-padding exercise for ambitious young climbers, or in the way that Barack Obama’s rhetoric (“we are the ones we’ve been waiting for,” etc.) managed to appeal to younger voters’ idealism and flatter their egos all at once.
I took the test myself and scored pretty low on some of the measures of empathy. The ones that I scored the highest on had to do with seeing others arguments. Given that this is a self-assessment and given that I pride myself on this trait I am bound to have answered these highly whether that truly represents me or not.
However, there were also question like this:
- Sometimes I don’t feel very sorry for other people when they are having problems.
- I believe that there are two sides to every question and try to look at them both
Are there sometimes when I don’t feel sorry for people.
Really?
That’s a question.
Of course I sometimes don’t feel sorry for people because sometimes people are not worthy of sorrow. Ross think suggests the internet is making us more narcissistic. Perhaps it’s making us more realistic. Some things simply don’t warrant sorrow. Ten minutes on youtube and you can find a dozen really unfortunate events for which the participants deserve zero pity.
And the two sides issue. This actually drives me nuts about Baby Boomers. There is an obsession with “both sides” as if there is something magical about the number two.
Some issues have multiple competing answers – six – eight – ten – etc. But, some issues have only one rational answer. Two plus two is four. Its not always a matter of how you look at it.
Even if we don’t know what the answer is for sure there is still an answer. Either the minimum wage typically causes unemployment or it does not. Either a 5 percentage point increase in taxes will retard growth or it will not. Either welfare reform will increase the number of children who grow up in poverty or it will not.
There are facts and these facts can be understood. Indeed, via the internet many of them can be looked up. This is a godsend for debates in which people seem to believe that being a “conservative” or being a “liberal” means that you have to believe this or that fact.
No.
Go to www.bls.gov and look the fact up. Its right there. But perhaps, I just don’t have enough empathy for those who would prefer not to.
Online MBA has a nice graphic on the internet porn usage. A few highlights
- Porn subscriptions are highest in Utah possibly representing either the need for a private outlet or the honesty of Mormons in actually paying for porn rather than stealing it like the rest of us.
- Porn is least popular on Thanksgiving and most popular on Sundays, indicating that family is a substitute for sex but apparently the lord is not. The stat I really want is mobile porn downloads that can be GPSed back to a church pew.
- I am actually shocked that only 1 in 3 porn viewers are women. I have to wonder if they are counting “erotic stories” as porn. If so the number has got to be closer to 55-45.
- I am also betting that the companion stat should read 70% of men aged 18-24 admit to having watched porn online.
Subbing for Ezra Klein, Mike Konczal analyzes food prices and purchasing decisions. He concludes that the poor have it worse than some would believe
The poor have more purchasing power because, in part, they are buying food that isn’t very healthful. And the important thing about this different inflation rate quantification for income inequality is that nobody
gets diabetes. The long-term health costs of "choosing" a different inflation rate for your food isn’t estimated, nor are they included to see if it all balances out economically.
There are important points here that I am sensitive too. However, I simply must drive home the point that the underlying logic is built on a mountain of speculation. We don’t have a really solid explanation for why people are poor. We don’t really have a really solid sense for what food is healthy nor how food contributes to long term disease. We have mountains of speculation. However, recognizing them as such is important because we have seen such mountains before.
Here are a few links to some promising treatment to a form mental illness recognized during the 20th Century
The application of anticipatory avoidance to the treatment of homosexuality
A learning approach to the treatment of homosexuality
Treatment of Homosexuality by Individual and Group Psychotherapy
The authors of these well published scientific studies developed methods which they sincerely believed to be effective in treating a psychological disorder.
We now know that not only is homosexuality not a disorder but it is almost certainly not “psychological” in the sense meant by these authors. That is, at this point it seems all but certain that people are either born gay or straight and that no series of life events can affect this.
The drama here is easily lost, so let me repeat. These were scientific papers reporting the successful psychological treatment of what we now know to be congenital traits. To be even more blunt - they were reporting empirical success in accomplishing something that is not even logically possible.
Moreover, at the time they were well within the conventional wisdom and strongly supported by a theoretical framework. This was not quackery – yet it was deeply, deeply wrong.
To wit – it is very, very easy to get carried away with a theory of disease, disability or affliction. Passions run high. Prejudices run deep. Really useful data is frustratingly hard to come by. And fueling it all is the conviction on all sides that “something” must be done. Even if that something is to justify away the problem.
So I am strongly urging everyone involved to be careful assembling our very shaky models of health on top of shakier models of nutrition and then combining those with our almost complete ignorance of the deep causes and consequences of poverty. Such an assemblage quickly becomes an edifice of supposition and the foundation of potentially hurtful policy.
I am have my own prejudices on these issues and in full disclose they run slightly counter to Mike’s. However, this isn’t about who is right. This is about the need for everyone to tread lightly.
The pool of teachers in this country is almost certainly less risk averse than the pool of financial company executives. One important reason for this is that each job selects for certain risk profiles in the way that employee contracts and payments are structured. Teachers are offered (up until recently) nearly guaranteed employment for life with pre-specified and certain raises. People who don’t like risk do well to become teachers.
Finance executives, in contrast, are paid heavily in stock options in order to align their incentives with their shareholders. As Murphy and Hall argue, paying employees in options means paying them with undiversified and illiquid assets, which means that the value of the options to risk averse employees is half of what the option costs the company. So the more risk hungry someone is, the more they value being paid in options, the more they will want to be a finance executive. Given this selection, it’s no wonder we end up with risk hungry finance executives. In fact, as Murphy and Hall also demonstrate, this extends beyond executives because it’s not just executives that get paid in options, but a large share of employees; 90% of stock options are granted to employees below top-level executives. This means that the financial sector as a whole is selecting for risk hungry workers.
If we think this is a problem, then there is good reason to think that it is going to get worse. Efforts to make options more aligned with long-run performance make these options less liquid, and thus more risky. In the short run this may make the financial system less volatile by incentivizing executives for long-term rather than short-term performance, but in the long-run it may make it riskier by selecting for more risk hungry executives.
There is a balance to be struck between selecting for risk-hungry and risk-averse workers. I think the education system probably needs to select less for risk aversion. But I think you can also make the case that the finance system should select more for risk aversion. My question is this: will the increase in risk from this selection problem mean that efforts to align incentives with long-term performance will actually make the financial system riskier?
Kevin Drum must really really dislike price discrimination. He recently complained about supermarkets offering reward card discounts, and now he is against Proposition 17 in California, a ballot initiative that would allow a little bit of price discrimination in auto insurance. Although perhaps I should not say that he really really dislikes price discrimination, because as with the rewards card discounts I think Kevin’s objection is based on an incorrect assesment of the impact of the price discrimination on consumers. I think if he agreed with me on the impacts, he would likely agree that price discrimination is desirable in both cases.
The issue here is that California prevents auto insurance companies from setting rates for an individual based on anything other than three factors: their driving record, how many miles they drive, and their years of driving experience. There are exceptions to this rule though, one of which is loyalty discounts, where an insurance company can offer lower rates to a customer who has been with them for a couple of years. The proposition seeks to change the law so that insurers can offer a discount for length-of-time insured by any company, which effectively lets individuals take their loyalty discounts with them to other insurance companies.
So right now if you’ve had auto insurance with Company A for 5 years and are getting a 10% discount, if you want to switch to Company B you lose that 10% discount. If this law passes, then Company B can also offer you a discount so that you don’t lose the discount by switching. Thus the effect of the law will be to lower switching costs for people who have had auto insurance for a long time. By lowering switching costs, this law will make the market for insurance for people who have been insured for a long time more competitive, and will force auto insurers to offer better deals to long-time customers to prevent them from switching to other auto insurers. In fact the law as structured doesn’t really serve any purpose but to protect entrenched insurers with existing customer bases from competition by market entrants.
Kevin claims this will raise rates for some people, but the rates for people who have not had insurance for long enough to receive a discount, like first time buyers, will be just as competitive as before, and thus will not be affected by this law.
I think Kevin’s problem is that wherever he sees price discrimination he sees prices going up for some people, but that is not always the case, in fact a lot of price discrimination is pro-competitive. This auto insurance example seems likely to be one of those pro-competitive cases.
Gambling site PaddyPower.com is taking bets on which species will be the first to go extinct as a result of the BP oil spill. Although there will be righteous complaints about the morality of profiting off of something as unfortunate and tragic as an animal extinction, I think this seems like an eminently reasonable way to gauge extinction risk, which could allow us to focus resources on the species that are in the most immediate danger.
The current odds favorite is the kemp’s ridley turtle at 4/5 odds. The blue whale is at 16/1 odds, but is it seriously a possibility that the blue whale will become extinct sometime soon? According to Wikipedia they are only currently listed as endagered and there are several large concentrations in the North East Pacific and the North Atlantic. Does this mean there is a 1 in 16 chance that the oil spill will spread disastrously around the globe, polluting oceans as far and wide as the North Atlantic and the North East Pacific?
Perhaps this will provide some solice to the outraged:
But the misfortune of animals isn’t the only oil spill-related event you can bet on. Paddy Power is also taking bets for the next CEO of BP — assuming that the current top exec, Tony Hayward, is bound to resign or get fired. Iain Conn, the company’s current executive director, is the odds-on favorite at 3-1.
1. One complaint I received about the slew of salt regulation blogging last week was, “it doesn’t matter”. Well, tell it to the New York Times, who ran a story on the ongoing battle over salt regulation in the front page of the Sunday paper. The article is well worth reading and full of many interesting facts, including an informative case study of the roll of salt in a cheez-it, and this warning about unintended consequences:
Joanne L. Slavin, a committee member and nutrition professor at theUniversity of Minnesota, told her colleagues that reducing salt in bread was difficult and warned of unintended consequences. It is an argument also made by food companies.
“Typically, sodium, sugar bounces around,” she said. “So you take sodium down in a product and then sugar a lot of times has to go up just for taste.”
2. Relevant to my previous post on the use of rewards card data by supermarkets is this story, also in the Times, about Sam’s Club and other stores creating custom tailored discounts for consumers. The article compares the technology they use to the predictive analytics used by Netflix and eHarmony. Here is one quote which is suggestive of how stores using this type of analysis and their customer’s can benefit:
“I got like $2 off the bananas, a $1 off the Toasted,” he said, referring to a package of crackers in his cart. Mr. Mayoral, 36, said the best eValues deal yet was $300 off a $1,200 television.
“I remember that day,” he said later. “I came to buy food, and I bought two TVs.”
