Matthew Yglesias's Blog, page 2347

Choose Your Own Adventure: Mid-Ranked University President Edition

In my mind, the way to start getting at the crux of the problem of why higher education costs keep going up is to try to put yourself in the shoes of the President of the University of Miami* in Coral Gables, Florida. Currently you're ranked 47th on US News and World Report's "national universities" rankings. Naturally, you know that this is a highly imperfect methodology. But in a broad general sense you accept the judgment that your school is a lot better than a lot of other schools, but also that there are many better universities in America. Nevertheless in the 2010-2011 academic year, you're able to charge $37,836 in tuition. That's more than Princeton ($36,640) and only slightly less than the comparably sized University of Pennsylvania ($40,514).**

Now along comes a clever faculty member who figures out a way to teach a lot of your large introductory courses just as well at a small fraction of the cost. You implement the changes, and now your cost structure is lower. What happens next?

Well what doesn't happen next is that you cut tuition. Maybe you use the extra money to pay yourself more and to hire more staff. But you probably don't do that either. If you want to get paid more, you need to deliver results. But results in this case don't mean cutting tuition. Results mean getting higher in the rankings. And you don't move up the rankings by getting more cost-effective at educating the kinds of students you're currently getting at the University of Miami. You move up the rankings, roughly speaking, by increasing the average SAT scores of your freshman class and/or by poaching faculty stars from other schools. To accomplish the latter, you need to spend more money. And to accomplish the former, you need to do two things. One is spending more money on fancier facilities to make more kids want to apply to your school (thus allowing you to be more selective) and the other is through very targeted financial aid to try to bribe some kids with high SAT scores into going to the University of Miami instead of to Princeton. If you do those things, the school will get more selective so your rankings will go up. Alumni will like that, faculty will like that, and your new cohorts of graduates will probably earn more money than your previous ones did and so all things considered your personal earnings will increase.

To change the trend, you need to change that dynamic.

If you look at Freddie de Boer's ideas about how university administrators could control tuition costs they seem very sensible from a managerial perspective. But from the policy perspective the issue isn't so much "what are some cost-reducing management practices?" as it is "why don't university managers want to implement cost-reducing practices?" The answer is that the structure of the system gives them very little incentive to. When Wal-Mart cuts costs, it lowers prices to gain market share and make even more money. When universities cut costs, they plow the savings back into fancier facilities to move up the league tables.

* I use this is an example for two reasons. One is that I've visited their lovely campus. The other is that when I visited their lovely campus, someone stole the GPS devise that came with my rental car and I'm bitter.

** I why Princeton is cheaper than the other Ivy League schools.

The Case For National Universities

Noah Smith notes that America's human capital stagnation has been accompanied by a drastic increase in the price of education that suggests a supply shortfall:

Which brings me to my idea of the day: A federally funded National University System.

When you have a supply shortage, one solution is to shift the supply curve to the right. Sometimes this is impossible. But in the case of U.S. public universities, it is very doable! Plenty of other countries have national university systems, and these national universities are often very high-quality. Why not us? Why don't we build a system of high-quality, federally funded national universities to co-exist alongside our already excellent state universities?

That analysis naturally raises the question of why the supply of universities should be so inelastic in the faace of rising demand. I think a potential answer here is that the shortage isn't so much of "universities" as it is of prestige. You could hire some people with PhDs and throw a few classrooms together pretty easily, but it would be extremely difficult to replicate the decades of history associated with America's selective colleges and universities. Federal intervention really might make a difference here if it was done in the right way. One way to do this would be to create a National Civil Service Academy modeled on the military service academies. A National Law Enforcement Academy and a National Teacher's College might also make sense.

To me these are all pretty good ideas, but I don't think they're really the fundamental issue. I'll explain what I do think is fundamental in a followup post.

If You Don't Trust The Dollar, You Have Lots Of Good Options Besides BitCoin

Evidently some people in the realm of monetary crankdom are excited about a new firm called BitCoin that's going to be offering private e-money of some kind. I'm happy to give hard money types as many distractions and outlets as possible so as to minimize the amount of time they spend on their effort to destroy the world economy by influencing the Federal Reserve, but I agree with Tim Lee that there are a lot of problems with this idea.

But I think the most fundamental one is that many libertarians don't seem to realize that they've already won on the question of currencies. The United States of America doesn't restrict outward flows of capital and our exchange rate floats. If you lack confidence in the US dollar there's nothing stopping you from ditching your US dollars in favor of Canadian dollars or Australian dollars or Euros or Mexican Pesos or Swiss Francs or British Pounds or Swedish Krona or whatever else you want.

You don't need to buy gold, you don't need to buy survival seeds, and you don't need to invent a new form of currency. You just need to swap some of your existing stockpile of currency and use it to buy some other currency.

Congress Is Unlikely To Enfranchise Washington, DC No Matter How White It Gets

Ta-Nehisi Coates wonders how much of the District of Columbia's disenfranchisement is about race: "Put bluntly, as the city grows whiter, and wealthier, will the issue of representation become more urgent to Congress?"

My gut tells me that the racial aspect of DC disenfranchisement is generally overstated. The objection to giving DC's 601,000+ residents the kind of congressional representation enjoyed by Wyoming's 563,000+ residents is basically the same as the objection to splitting California's 37,253,000+ residents into separate states of North California and South California—partisan politics. It's true that DC's black majority is one of the reasons that it's so overwhelmingly Democratic, but white Washington is lopsidedly partisan too. And over the years, admission of new states has always had a hefty partisan element to it. What it would take to get DC admitted as a state would probably be some other reasonable candidate for statehood that would be Republican-leaning.

National Stereotypes Confirmed By Time Use Data

The Economist brings us a chart of excellent stereotype confirming research on how people spend their time:

French people spend a lot of time eating and grooming. The Japanese are hard-working. Germans put a lot of effort into plotting world conquest "other" activities.

But of course these averages can be somewhat misleading. I'm fairly confident that if you did a distribution analysis of how much "paid work and study" Americans do, you wouldn't see a normal distribution with a single peak slightly below five hours. You're averaging together people who work full time with people who've retired, etc. So when French people spend less time working than Americans, it's not clear if that's because the average full-time French workers works less than the average full-time American worker, or if it reflects the fact that French people retire earlier.

Anti-WalMart Activists Seeking Concessions

Wal-Mart in West Hills, CA (wikimedia)

Supermarkets exercise a degree of monopoly power over consumers since it's difficult and expensive to build a new supermarket. This creates profits for incumbent supermarket owners. And in markets like DC where the workforce of supermarkets is unionized, the union is able to force the owners to share some of that monopoly surplus with the workforce. This gives both owners of supermarkets and labor unions that represent supermarkets very good reason to fear the entry of new competitors like WalMart into the marketplace. The more competition there is, the lower the surplus there will be, and that will make both owners and employees of incumbent firms worse off. That's the background you need to have to understand the dynamic Lydia DePillis is describing around WalMart opening some stores in DC:

What can Walmart do for D.C.? A lot, according to the labor-backed Respect DC coalition, which has taken the stance of demanding concessions from the giant retailer rather than opposing its entry altogether. The Post outlined a few yesterday. Below is the executive summary from the Coalition. But you're going to have to wait until Thursday for the full, 11-page schedule of benefits that they'd like Walmart to sign. Tidbits from that not included in the summary: Requests that Walmart include free wireless in all of its stores, commit to green roofs for all stores and parking structures, provide employees with $50 per month in Metro smart benefits, and not operate before 6:00 a.m. or after 10:59 p.m. (Walmart is considering keeping some stores open 24 hours). The agreement would cover all future stores, and riders would be added to tailor benefits for each location.

I'm all for green buildings, but of course you have to ask yourself why should an environmental policy regulation be targeted at one specific firm rather than citywide? Doesn't it make more sense to establish firm-neutral environmental targets? Similarly, for all the rhetoric about concern for Wal-Mart's hypothetical employees these hypothetical employees would clearly benefit from 24-hour store operation. Longer opening hours equals more jobs. The basic aim here seems to be to make entry into the marketplace more costly and in the case of the hours restriction to just directly limit competition. If I owned a Safeway or a Giant or ran a union representing the people who work at a Safeway or a Giant, that's what I'd be doing too. At the same time, groceries and clothing are a much larger share of income for low-income people than for higher-income ones, so increased competition would have a disproportionately beneficial impact on their lives.

Kay Hymowitz Warns That Increased Female Educational Attainment Will Lead To Spinster Surge

Truly, there's no stranger beast on the planet than the professional anti-feminist. Different from the man with somewhat misogynistic attitudes, this creature is almost invariably a woman and oftentimes seems to me to be deliberately offering nonsensical arguments in order to stir the pot. For example, Kay Hymowitz in the Daily Caller argues that it's bad that female educational attainment has risen since it will lead to a plague of college-educated spinsters. You get several hundred words of throat-cleaering before she offers her key argument:

Still, the biggest reason we probably won't see a lot more college-educated women walking down the aisle with their plumber is one we don't like to say out loud: they want to have smart kids. Educated men and women are drawn to spouses they think will help them produce the children likely to thrive in the contemporary knowledge-based economy. That means high IQ, ambitious, and organized kids who will do their homework and take a lot of AP courses. The preference for alpha kids is the reason there is a luxury market for Ivy League egg and sperm donors. It also explains why, though we don't have solid research distinguishing between elite and State U mating choices, Ms. Harvard will probably not accept a proposal from Mr. Florida State. The economist Greg Mankiw has quipped that "Harvard is probably the world's most elite dating agency." A glance at the New York Times nuptial pages suggests he's right.

Not only does the conclusion here not fit the premise, the argument points in the opposite direction. Colleges aren't genetic engineering facilities. Women may well be motivated to enter into relationships with men who have "smart genes" but shifts in the relative share of the population who go to college don't change the underlying genetic factors. If the median man doesn't go to college and the median woman does, but Median Man still wants to signal to Median Woman that he's smarter than Twentieth Percentile Man he'll just have to find some other way of doing so. Given that Median Woman is unlikely to marry anyone sight unseen irrespective of where he went to college, Median Man ought to have ample opportunity to achieve this by (for example) engaging Median Woman in conversation.

Giving Taxpayers Choice Could Boost Satisfaction With Big Government And Boost Social Spending

Cait Lamberton from the University of Pittsburgh writes in Democracy: A Journal of Ideas about a fascinating experiment she ran. What happens if you give people a list of broad areas of public endeavor and tell them that they get to take 10 percent of their tax dollars and decide which functions they'll be allocated to? The result is less guns and more butter. Defense spending went way down and a bunch of other stuff went up:

Comparing actual current allocations to how our survey respondents said they would allocate tax dollars yielded some intriguing results. Respondents across the board shifted spending toward education, training, and social services—all areas that are major job-creation engines and paths to sustainable improvements in standards of living. Democratic respondents allocated 25 percent of their allocable tax dollars to education, training, and social services, while Republicans allocated about 21 percent.

Other categories also saw substantial gains. Most notably, energy, the environment, and science increased from approximately 4 percent to 16 percent of spending. Even Republican respondents showed substantial upward movement in this category, allocating about 14 percent to energy and scientific issues. Bipartisan consensus also prevailed on housing and community development funding, which more than doubled for both parties, from 5 percent to about 11 percent. Interestingly, dollars for anti-poverty measures did not change substantially, holding at approximately 13 percent of the budget overall, but higher among Democrats, who allocated 16 percent to such efforts, compared to 10 percent among Republicans.

People also reported feeling happier about the overall tax situation, which seems like a natural consequence of choice.

This is a reminder that one of my least-favorite sayings about politics is the idea that democracy is the worst form of government except for the alternatives. Not that I favor dictatorship, but this often seems to me to reflect a failure of imagination. There are lots of non-authoritarian modes of governance, including selecting people by lottery (like we do for juries), plebiscites, direct citizen input (as in this tax choice concept), along with different balances between elected officials, appointees, and civil servants. It's important to actually think about the flaws in our current approach and whether better ideas exist.

The Producerist Politics Of Energy

NASA photo of Gulf oil slick, May 9

Kate Sheppard lists 10 reasons to still be pissed off about the Gulf Oil Spill. My favorites:

2. People are sick. Nearly three-quarters of Gulf coast residents that the Louisiana Bucket Brigade, an environmental justice group, polled this year reported health concerns that they believe are related to the spill. Of the 954 residents in seven coastal communities, almost half said they had experienced health problems like coughing, skin and eye irritation, or headaches that are consistent with common symptoms of chemical exposure. While the National Institute for Occupational Safety and Health (NIOSH) is conducting health monitoring for spill cleanup workers, residents in the areas closest to the spill are concerned that their own health problems have gone unattended.

3. Fish and other sea life in the Gulf are still struggling after the disaster. The death toll for dolphins and whales in the Gulf may have been 50 times higher than the number of bodies found, according to a recent paper in Conservation Letters. Earlier this year, a large number of dead dolphin calves were found on the coast, and scientists have linked many of those deaths to the oil disaster. Anglers are also reporting dark lesions, rotting fins, and discoloration in the fish they're catching in the Gulf, as the St. Petersburg Times reported last week.

What I think is interesting about this is that the harms are so localized, even while the benefits of increased fossil fuel production in terms of lower consumer prices are extremely diffuse. And yet the offshore drilling issue isn't at all a NIMBY question where Gulf Coast politicians oppose it while far-away people want to get our hands on gas and oil. Which just goes to show how dominated energy politics are by producer interests. The places where coal is mined are home to the politicians that advocate for coal mining, the places where oil is drilled are home to the politicians that advocate for oil drilling, etc. And that's true even though a lot of the downside of these activities is concentrated in those very same places.

Fighting Cognitive Bias With The Assumption of Good Faith

I wrote yesterday about the problems of cognitive bias and motivated reasoning. It's important to fight these things in your own life and not just complain about their existence among your adversaries. A good example of how to do this arose yesterday when I read a Ross Douthat column that I strongly disagreed with that also contained the odd factual assertion that the median income for a family of four is $94,900. I didn't know the right number off the top of my head, but I was sure that was wrong.

Lots of other people noticed the error and denounced Douthat with various degrees of vehemence, oftentimes assuming nefarious motives and dishonesty on his behalf. I've known Ross a long time, disagreed with him for a long time, and never known him to be someone who would think it's a good idea to misrepresent a number like that. So I thought I'd see if he had a reasonable response. And on this point, it turns out he does:

My column today includes an estimate, taken from this Congressional Budget Office report, of what a median-income family would pay in taxes over the next few decades under the "current law baseline" — a scenario in which tax rates rise fast enough to cover the budget deficit without any kind of entitlement reform. The median income figure the C.B.O. used (see Table 4-4 on p. 65 of the report) is $94,900 for a family of four, which (as a number of readers have noted) seems much higher than the usual estimates for median income in a four-person household. It turns out that I didn't catch a crucial footnote in the C.B.O. document: "All income is assumed to be from compensation, which includes employment-based health insurance and the employer's share of payroll taxes." That is to say, the $94,900 in income includes the estimated value of the median family's health care plan as well as their salary, which is not what most people think of when they hear the term "median income."

We still disagree, but now we're learning! On the one hand, Douthat misstated the number which he rightly concedes. On the other hand, now that I understand where this number comes from I have to say that it's a lot higher than I would have guessed. The figure "$94,900″ doesn't represent the "median income" of four-person households in the United States but it does represent the total compensation of such families and it's a pretty high figure. The fact that so much of the labor compensation in the United States takes the "hidden" form of employer-provided health insurance is an important part of the landscape.

As for the overall issue, the shape of the river is this. We have certain sectors (most notably health care and education) that the state has traditionally played a large role in financing, and the costs in those sectors are rising at a disproportionate rate. That means that to continue having the state play it's traditional role will require taxes that are higher than they've traditionally been. To read that and conclude that deviation from the traditional level of taxation is impractical and unworkable strikes me as odd, especially when faced with the fact that America is an unusually low tax country. We ought to seek policy measures that lean against the inflationary tendencies in the health and education sectors, but we should accept that these sectors will nonetheless grow relative to the rest of the economy and that this means somewhat higher taxes. The alternative of completely repudiating traditional commitments to health and education is, to me, what's really impractical and unworkable.