Category Archives: Economics

College Savings Plans are the Modern Dowry

Because baby Madeline is half-Indian and half-regular-person, she has both Indian friends and regular-person friends. The parents of her Indian friends worry about dowries, which are expensive gifts that they have to hand over when their daughters marry, and that they have to save for until then. The parents of her regular-person friends worry about college savings plans, which are expensive gifts that they have to hand over when their daughters matriculate college, and that they have to save for until then.

Both represent fairly nasty Prisoner’s Dilemmas. “Save for dowry/tuition” is a dominant strategy, which leads to the unattractive “Everyone saves for dowry/tuition” equilibrium, which is pareto-inferior to the (non-equilibrium) “No one saves for dowry/tuition.” To sustain the “no one saves” optimum you need some sort of rule-changing side-deal.

Because the government of India is run by a bunch of amateurs, they introduced a (revenue-neutral) law that bans dowries. If they had any political savvy at all, they’d instead be selling revenue-generating pre-paid dowry plans. (If you’re reading my blog, Indian government, I suggest a clever name like Dowry Opportunity Provision Experience.)

A common objection to this line of thinking is that a dowry buys your daughter something useless (a husband) whereas a college savings plan buys her something useful (a degree in “Chican@ and Latin@ Studies” and also tens of thousands of dollars of nondischargeable debt to pay the tuition and fees above and beyond what’s in the college savings account). This is a subtle point, which I’ll explore in my future posts “Student-Loan Debt is the Modern Indentured Servitude” and “Dressing up as a Sheep and Waving a ‘Mattress Sale’ Sign is the Modern Working at Borders.”

Will Someone Please Invent the Virtual Locker Room

Bill Gates, always a man with big ideas, suspects that the internet is going to shake up our educational system:

“Five years from now on the web for free you’ll be able to find the best lectures in the world,” Gates said at the Techonomy conference in Lake Tahoe, CA today. “It will be better than any single university,” he continued.

In fact, this is already true today. When I used to bus-commute across the bridge, every bus ride that I didn’t spend reading pirated young-adult Star Wars novellas or playing “Angry Birds” I spent watching “iTunes U” lectures from Stanford and MIT and iPorn about “Machine Learning” and “Computer Science” and “The Naked Female Body.” If only I could somehow put these on my resume, I’d be able to talk my way into all sorts of jobs I’m not really qualified to do. BillG has got a plan for that too:

He believes that no matter how you came about your knowledge, you should get credit for it. Whether it’s an MIT degree or if you got everything you know from lectures on the web, there needs to be a way to highlight that.

Now, there is a cynical school of thought that says that the value of a MIT degree is not that it signals that you learned dozens of MIT-lecture-worths of things; rather, it’s that it signals that you were admitted to and jumped through all the hoops necessary to survive four years at MIT, in which case the hypothetical third-party credentials “watched a bunch of MIT lectures on the bus” probably aren’t that useful to employers.

Furthermore, being lectured at is frequently not the best way to learn something. Nonetheless, I join BillG in applauding this trend. If it puts competitive pressure on colleges, it will be a good thing.

It seems to me that it’s even more promising for K-12 education. Rather than having centrally-assigned, underqualified teachers trying to lecture 30 students who learn at varying paces (and several of whom are disruptive), each student could find the lecturer and lecture style that works best for him. In many cases these might be no lectures at all. Think of the innovations that would ensue! I bet BillG is most excited about this:

He made sure to say that educational institutions are still vital for children, K-12. He spoke glowingly about charter schools, where kids can spend up to 80% of their time deeply engaged with learning.

But college needs to be less “place-based,” according to Gates. Well, except for the parties, he joked.

Wait, what? K-12 education needs to be “place-based”? I mean, I understand that the internet can’t yet teach kids valuable life skills like “staying in your seat” and “raising your hand before you speak” and “not going to the bathroom without getting permission first” and “getting duct-taped to a bench in the locker room for being too slow at running laps.” But surely virtual locker rooms and virtual duct tape are only a few years away!

(Also, for those of you who don’t know, I am delighted to report that the post-college years contain a huge number of parties, including Oktoberfests, Nights of Decadence, 80′s Parties, Bacchinaliae, Shut-up-and-Drinks, and Lovett Casino Parties.)

It’s tough to assert with a straight face that competition (from the internet or otherwise) will provide vast benefits for students in grades 13-16, but has no role to play in grades K-12. If Bill ever decides to spend his vast fortunes improving education, hopefully he’ll revisit his opinion on this first, before he wastes billions of dollars.

The Gold Standard of Health Care Reform

Back during the debate over the Obamacare bill I vehemently insisted that it wouldn’t be “real” health care reform unless it addressed the shameful practice of not requiring people who buy and sell gold coins to file IRS form 1099 for most of their transactions. Thankfully, it looks like Congress didn’t let me down:

With spot market prices for gold at nearly $1,200 an ounce, Heller estimates that he’ll be filling out between 10,000 and 20,000 tax forms per year after the new law takes effect.

“I’ll have to hire two full-time people just to track all this stuff, which cuts into my profitability,” he said.

Plus there’s two new jobs we can add to the “created or saved” list!

The Validity of Keynesian Economics

This morning I saw a bus ad for City University reading “This traffic jam proves the validity of Keynesian economic theory.”

This is actually one of the better defenses I’ve seen of Keynesian economics; nonetheless, there was no traffic jam at the time.

Smash the Synthesizers

There’s a scourge stalking Broadway. It’s called the “synthesizer,” and it uses “technology” to generate sounds that heretofore could only be generated by human “musicians.” And like other human-supplanting devices such as mechanized looms, grain threshers, and sex robots, the “synthesizer” must be stopped.

So warns violinist Paul Woodiel, who is quite sure that Leonard Bernstein would have been at the head of the smashing line:

Now, after 500 performances, our producers have told us and our union that in order to cut costs they will chop our string section in half, releasing five musicians and “replacing” them with a synthesizer piped in from another room. I don’t think Lenny would have approved.

[...]

Soon, though, if all goes according to plan, these songs will be produced by a skeletal string section accompanied by an inert, artificial, electronic device, which an engineer will try to manipulate, hoping to deceive audiences into thinking it’s the real thing.

Indeed, it would be pretty unfair to deceive audiences that way. If we grant the producers this one deceit, they’re sure to follow it with others. Next they’ll replace the story’s gang members with “actors” only pretending to be gang members. Instead of expensive real guns, they’ll probably start using prop guns that only pretend to fire bullets. Heck, they might even start faking some of the deaths in the play!

Better just to pull the plug:

So here’s my proposition: if the show is no longer profitable, the producers should simply close it with its dignity intact. Doing so might put me out of work, but it would honor (rather than demean) the legacy of Bernstein’s crown jewel.

That’s a pretty forceful statement, that he and all his co-musicians and all the actors and all the stagehands and the directors and costumers are all offering to quit their jobs in order to fight off big King Synthesizer. All of the co-musicians and actors and stagehands and directors and costumers are on-board with his crusade, right?

Tough Times for Generation Y

Another day, another sob story in the New York Times. Today’s involves Scott Nicholson, who — like so many in his “lost generation” — had his expensive political science degree completely paid for by his grandparents, turned down a $40k/year job because it was less than his brother makes, and gets his parents to pay his rent while they direct their attention “mainly at sustaining [his] self-confidence.”

Of the 20 college classmates with whom he keeps up, 12 are working, but only half are in jobs they “really like.” Three are entering law school this fall after frustrating experiences in the work force, “and five are looking for work just as I am,” he said.

Although the Times reporter didn’t mention what these “frustrating experiences” were, my suspicion is that they were some combination of

  • being reprimanded for spending too much time on Facebook and not enough time working
  • co-workers inexplicably unimpressed by constant bragging about “dean’s award for academic excellence”
  • office manager’s persistent refusal to switch from cheap Costco coffee beans to expensive shade-grown, “fair trade” coffee beans
  • occasional failings incompatible with unshakeable sense of self-esteem
  • “How are mommy and daddy supposed to help me get my work done when the IT department won’t even give them network access?”

The Modern Panoptic University

I’ve attended two schools with honor codes. At Rice, where I was an undergrad, we used to pledge in writing not to cheat on exams, all the while taking an in-retrospect-bizarre pride that the “honor code” (and by extension “honor”) applied only to schoolwork and not to (for example) pub nights or cast parties.

Serious accusations of cheating resulted in trials whose abstracts were publicly posted, with enough identifying details redacted so that you could never be sure which student-athlete student or course was being written about. Usually you could guess, though, and if someone unexpectedly disappeared for a semester or two, that was a good signal you were right. To the extent I thought about it, I guess I assumed the honor system worked pretty well.

The Caltech honor code is a bit more reasonable (to my mind), in that it specifies that “no member of the Caltech community shall take unfair advantage of any other member of the community.” Alas, I attended Caltech as a grad student in economics, perhaps the only academic field in which cynicism is integral to the methodology. Unlike their counterparts in other departments, economics professors behaved (and tested, as much as they could) as if their students had no honor code at all.

Anyway, I never bothered reconciling the two positions. My guess is that some students are going to cheat either way, some aren’t going to cheat either way, and the honor code makes some difference at the margin. I also suspect that an honor code raises the cost of collaborative cheating (“three may keep a secret…“) relative to individual cheating (e.g. looking in the book when you’re not supposed to, surfing the web for answers, and so on), shifting behavior accordingly.

One solution to “the cheating problem” is some version of Bentham’s panopticon:

No gum is allowed during an exam: chewing could disguise a student’s speaking into a hands-free cellphone to an accomplice outside.

[...]

When a proctor sees something suspicious, he records the student’s real-time work at the computer and directs an overhead camera to zoom in, and both sets of images are burned onto a CD for evidence.

But if you are a good-hearted person, whenever someone insists that a police state is the only way to solve a certain problem (*cough* SSSCA *cough*) you ought to spend some time thinking about whether the problem is itself so bad. Is it so terrible when people get outside help solving their problems?

After all, when I run into problems getting Python to talk to Oracle, or getting LaTeX to typeset my manuscript, no one insists that I figure out the problem on my own. I’m allowed to talk to people and ask questions and see if someone has already solved the problem. In an academic setting these might be “cheating” but in a real-world setting they’re how people get things done.

That doesn’t mean that the ability to solve problems without outside help isn’t valuable. For some (but not all) problems it is, and it’s not that unreasonable that you’d want to test for it. (I am skeptical that proctored exams in the surveillance prison are doing this, but the article doesn’t give enough detail to say.)

Anyway, rather than forcing people to take examinations naked and gumless so that we can place them into carefully bell-curved buckets, we might consider less-amenable-to-cheating ways to simply give them a thumbs-up or thumbs-down. Oral examinations, for instance, ought to be tougher to cheat on and are probably a much better gauge of what students have learned and understood. (On the other hand, they’re much more work for teachers, and they don’t facilitate meaningless, fine-grained distinctions between students, so they’ll probably never happen.)

Of course, if you ask questions like “why have grades at all?” you tend to get dismissed as a heretic and burned at the stake. (Also, the schools that opt for this approach are mostly dirty hippie colleges that you’d never want to be associated with, which probably scares people away from this point of view.)

Nonetheless, one of the primal fitness blogs I read wrote along these lines recently:

While all are working within the system — in many cases very effectively — to change things, there’s something that can be done instantaneously.

1. Tell your kids you don’t care about them doing their homework assignments.
2. Don’t ask to see their report cards or inquire about their grades. You shouldn’t care.
3. Let them know it’s fine to pursue a different passion per week until they find their true one, and if it doesn’t involve going to a top university, or any university at all, that’s just fine.

You can’t imagine doing this, can you?

And perhaps the most heretical approach of all is to ask, “Why school?” But I’ve said too much.

Cars + Freedom = Taxpayer-funded Bailouts?

Next time we take several billion dollars from taxpayers and use it to bailout a private automaker, we should probably think about attaching a condition that forbids that company from running jingoistic commercials depicting a Dukes-of-Hazzard-style revolutionary war battle with George Washington driving a black Dodge Challenger, all while the voice of a cable-TV serial killer solemnly informs the world that America “got right” a couple of things: “cars and freedom.”

Financial Weapons of Mass Destruction and the Illinois Legislature

There are a number of somewhat incredible articles floating around about the grotesque insolvency of the state of Illinois. Many parts are appalling, but what leapt out at me most was the following:

The state’s last elected governor, Rod R. Blagojevich, is on trial for racketeering and extortion. But in 2003, he persuaded the legislature to let him float $10 billion in 30-year bonds and use the proceeds for two years of pension payments.

That gamble backfired and wound up costing the state many billions of dollars.

Based on a quick sampling of Illinois legislators, this multi-billion-dollar bet was approved by a combination of lawyers, policemen, schoolteachers, and bricklayers.

Now, lawyers are supposed to be good at suing people. Policemen are supposed to be good at punching jaywalkers. Bricklayers are supposed to be good at laying bricks. Schoolteachers are supposed to be good at … um … something, I’m sure.

But there’s no reason to expect any of them to be good at making multi-billion-dollar-bets with other people’s money. If one weren’t blinded by status quo bias, one might observe that a system that not only allows them to do so but encourages them to do so is, in some fundamental way, broken.

To his credit, even the President acknowledges this:

As you know, part of what led to this crisis was [states like Illinois] and others who were making huge and risky bets, using derivatives and other complicated financial instruments, in ways that defied accountability, or even common sense. In fact, many practices were so opaque, so confusing, so complex that the people inside the [legislatures] didn’t understand them, much less those who were charged with overseeing them. They weren’t fully aware of the massive bets that were being placed. That’s what led Warren Buffett to describe derivatives that were bought and sold with little oversight as “financial weapons of mass destruction.” That’s what he called them. And that’s why reform will rein in excess and help ensure that these kinds of transactions take place in the light of day.

What’s that? You say he was actually talking about private firms making bets with their own money? Well, in that case he ought to be even more critical of state legislatures doing the same thing. He is, isn’t he? I mean, it’s not like he was a member of the Illinois Senate when they took this multi-billion-dollar bet. He wasn’t, was he?

On the value of a college degree

I believe this is what they call “throwing good money after bad“:

She’s making so little money with a college degree, she’s considering returning to school for her master’s.

And don’t even get me started on how a BusinessWeek writer has absolutely no clue what ROI is.