Tyler Cowen's Blog, page 560

Udacity

In The Coming Education Revolution I discussed Sebatian Thurn and Peter Norvig's online AI class from Stanford that ended up enrolling 160,000 students. Felix Salmon has the remarkable update:

…there were more students in [Thrun's] course from Lithuania alone than there are students at Stanford altogether. There were students in Afghanistan, exfiltrating war zones to grab an hour of connectivity to finish the homework assignments. There were single mothers keeping the faith and staying with the course even as their families were being hit by tragedy. And when it finished, thousands of students around the world were educated and inspired. Some 248 of them, in total, got a perfect score: they never got a single question wrong, over the entire course of the class. All 248 took the course online; not one was enrolled at Stanford.

Thrun was eloquent on the subject of how he realized that he had been running "weeder" classes, designed to be tough and make students fail and make himself, the professor, look good. Going forwards, he said, he wanted to learn from Khan Academy and build courses designed to make as many students as possible succeed — by revisiting classes and tests as many times as necessary until they really master the material.

And I loved as well his story of the physical class at Stanford, which dwindled from 200 students to 30 students because the online course was more intimate and better at teaching than the real-world course on which it was based.

So what I was expecting was an announcement from Thrun that he was helping to reinvent university education: that he was moving all his Stanford courses online, that the physical class would be a space for students to get more personalized help. No more lecturing: instead, the classes would be taken on the students' own time, and the job of the real-world professor would be to answer questions from kids paying $30,000 for their education.

But that's not the announcement that Thrun gave. Instead, he said, he concluded that "I can't teach at Stanford again." He's given up his tenure at Stanford, and he's started a new online university called Udacity. He wants to enroll 500,000 students for his first course, on how to build a search engine — and of course it's all going to be free.

Authors vs. journals

From Jeff:

The way it works now is you write a paper then you send it to a journal and they review it and decide whether to publish it.  The basic unit is the paper.  What if we made the author the basic unit?  Instead of inviting submissions, Econometrica invites applications for the position of author.  Some number of authors are accepted and they can write whatever they want and have it published in Econometrica. The term would be temporary, maybe 1 year.

Wouldn't it be wonderful to just write the paper you want to write, not the paper that the referees want you to write?  The quality of papers would unambiguously increase.  After all, your acceptance is a done deal, anything you write will be published, why bother writing anything less than the most interesting idea that is currently on your mind.

Quality control is achieved by rotating in the authors currently writing the most interesting stuff. Once the current slate of authors is chosen, there is no need anymore for referees or editors.   But if you want peer review, you can have that too.  Anyone wishing to prepare a referee report is invited to do so, they can even do it anonymously if they want and even make it open to the public.  The journal might even want to append the reports onto the published paper.

Come to think of it, these journals already exist:  blogs…

The pending Greek default

A few of you have asked what I make of the pending Greek default.  I would prefer to call it the "Greek resolution," since I am not sure it matters much whether there is a formal legal default.  You hear some "CDS settlements will go crazy" stories but right now they are just that, stories.  And there may yet be an agreement for Greece, although no agreement will stop their money supply from shrinking sixteen percent a year (or more).  In any case, I see two significant events on the way:

1. Other countries will start asking more vocally why they are not getting some form of the Greek deal.  Ireland in particular is picking up all of its bank debt, or what if Monti wants some real debt relief, asked for quietly but firmly under the table?  Since he is making serious efforts to deliver on responsible policy reform, and he is quite credible internationally and with investors, this in some ways makes him a more dangerous player in the game.  (Such a rebalancing of power in the bargaining game is a neglected aspect of putting in those technocrats.)  These scenarios start looking ugly quickly.

2. After Greece the market will likely focus on Portugal.  It is one thing to say "Greece is an exception," much tougher to hold the general Eurozone line with "Greece and Portugal, they are the exceptions."

It boils down to what kind of focality the Greek resolution will have.  Since theories of focality are not very precise or predictable, this is a tough one to call.  I'll stick with my longer-run view that the Eurocrisis can be solved if a) the 17 countries act in a roughly unified way, and b) Italy shows reasonable prospects of growing at about two percent a year or more.

In other words, I'm still a pessimist.

Sentences to ponder, the eurozone crisis as political failure

Italian Prime Minister Mario Monti's program includes no general wage cuts. In Portugal, the government abandoned attempts to engineer unit labor cost reductions through "internal devaluation" after meeting political opposition. In Ireland, the Croke Park accord prevents the government from further reducing public-sector wages. Despite nearly two years of troika programs, Greek unit labor costs have hardly budged.

That is from Peter Boone and Simon Johnson (pdf).  Here is another batch:

Once risk premiums are incorporated in debt, Greece, Ireland, Portugal, and Italy do not appear solvent. For example, with a debt/GDP ratio of 120 percent and a 500-basis-point risk premium, Italy would need to maintain a 6 percent of GDP larger primary surplus to keep its debt stock stable relative to the size of its economy. This is unlikely to be politically sustainable.

I am not suggesting that a 6 percent of gdp primary surplus is easy.  Nonetheless some countries are unwilling to do it.  One is free to take a Keynesian view of how spending cuts damage gdp in the short run.  Even then, Italy could combine an increase in private debt with wealth transfers (e.g., give creditors a mortgage share in Italian homes), but of course they don't want to.  Today, Italy could still enjoy a living standard better than what the country had in the 1980s, when everyone was calling it so dynamic (not your grandfather's Versailles Treaty).  That's no longer good enough.

Critics get it wrong when they blame the euro crisis on "too much socialism."  For one thing excess public ownership is only a secondary problem (while a problem), for another thing Sweden is doing fine.  When it comes to "failure to remedy the euro crisis," as opposed to initial causes, let's look long and hard at "unwillingness to consider solutions which admit that citizens' standards of living will fall."  That's not socialism, but it is one pernicious form of modern interventionism and you will find it very much here in America too.

On a somewhat different note, here is a good blog post on the shortening of collateral chains, and how the ECB's policies are hitting at some REPO markets.

Assorted links

1. Dan Drezner has a very good post on the future of the United States.

2. Is cybersecurity a public good?

3. Tom Vanderbilt on driverless cars, and the new world of private aerial drones.

4. The 57-page Summers memo on fiscal stimulus (pdf, btw I have not read it yet).  Kevin Drum adds comment.

5. Is there a connection between social values and economic stagnation?

The culture that is Swiss?

The newly approved €20m (£17m) housing project is to be built next to the Swiss village of Wiedlisbach near Bern and will provide sheltered accommodation and care for 150 elderly dementia patients in 23 purpose-built 1950s-style houses. The homes will be deliberately designed to recreate the atmosphere of times past.

The scheme's promoters said there will be no closed doors and residents will be free to move about. To reinforce an atmosphere of normality, the carers will dress as gardeners, hairdressers and shop assistants. The only catch is that Wiedlisbach's inhabitants will not be allowed to leave the village.

There is more here, and the pointer is from @laurenzcollins.

A good paper and model of (part of) the financial crisis

From Gary B. Gorton and Guillermo Ordonez (pdf):

Short-term collateralized debt, private money, is efficient if agents are willing to lend without producing costly information about the collateral backing the debt. When the economy relies on such informationally-insensitive debt, firms with low quality collateral can borrow, generating a credit boom and an increase in output. Financial fragility builds up over time as information about counterparties decays. A crisis occurs when a small shock causes agents to suddenly have incentives to produce information, leading to a decline in output. A social planner would produce more information than private agents, but would not always want to eliminate fragility.

Repugnant

WP…the Obama administration last week asked a San Francisco appeals court to overturn a recent decision that said bone marrow donors can be paid for what their bodies produce.

I wrote about this case here.

Hat tip: Al Roth who has more links.

Betting markets in everything

From the Irish:

You can also bet on which cliché Obama will use first in Tuesday's State of the Union Address…

The long list is here.  Favored is "We have more work to do" while "Life is a box of chocolates" comes in at only 250-1.

For the pointer I thank A.

 

What are the effects of private equity?

There is a recent two-part series by Steve Kaplan, arguably the leading researcher in the area.  Here is part one and here is an excerpt:

Some, including presidential candidates Newt Gingrich and Rick Perry, criticize private equity for gutting companies and destroying jobs. The private equity industry and Mitt Romney argue that private equity creates jobs. The best empirical evidence—co-authored by one of my colleagues, Steve Davis—says the answer is that private equity both creates and eliminates jobs.3After a buyout, employment in existing operations tends to decline relative to other companies in the same industry by about 3 percent. Many of those job losses are undoubtedly painful.

At the same time, however, employment in new operations tends to increase relative to other companies in the same industry by more than 2 percent. Davis et al. conclude that "the overall impact of private equity transactions on firm-level employment growth is quite modest."

Here is part two, which focuses on Bain.