Fresh out of 12+ years of high end public education in Canada I had learned two (and a half) things about education. These two bits of information are relevant for understanding the closely related problems of poor academic performance and school violence.
1) Education means going to a school where bundles of knowledge are presented to students who are compelled by law (and subsidy, but I figured that out later) to be there. This learning occurs while sitting quietly at desks in rows, listening patiently to a teacher (most of whom genuinely care) teaching a standardized curriculum (the best!). Smart students will get good grades without much effort, “dumb” students will pass without much effort (because they need that education to succeed it would be unfair to deny them their future).
1.5) Europe’s version of this system has higher standards and works better some how.
2) The above I learned from experience and discussion with my peers, the following from watching discovery channel and in science class: all mammals learn by play fighting. Bear cubs gnaw on each other’s faces, squirrels chase each other, and in this constant movement they learn how to survive.
This second stylized fact about education points to a deep systemic cause for gruesome violence in schools. School is not the same thing as education. By confusing the two and establishing policy to dramatically increase schooling, we are essentially bear baiting teenagers and being left with predictable results.
Hayek made the point that the debate of whether to have central planning was not over whether or not there would be planning, but over who would plan for whom. This point has an analog in the debate over gun control. The option is not between reason and chaos, but between centralized (and therefore bureaucratic) control and decentralized control.
Just because you (i.e. your ideals as embodied in the Democratic National Convention) aren’t in control, doesn’t mean that nobody is. A decentralized gun control regime is one where individual gun owners are responsible for securing their weapons and criminals are responsible for crimes they commit. Will mistakes be made? In the imperfect world we live in that’s almost a certainty. Will the results be worse than one with government gun control? That’s an empirical question. Political gun control will raise the cost of getting guns, but it will also raise the relative criminal effectiveness of guns. It will save some lives but will also cost some. There will probably be fewer accidental deaths and suicides, maybe fewer crime-of-passion murders, but likely more “kill the witness” murders. If the penalty for using a gun in a crime is high, then the relative cost of killing a witness is low (for example, adding a life sentence for murder on top of a 30 year sentence for armed robbery is like getting a 30-year off coupon on that life sentence).
With 3D printed guns on the horizon (to say nothing of the “dangerous” lack of regulation of machining tools!) an effective political gun control regime would have to expand to all manner of regulation. This regulation would cost a lot! But, one might object, mere money is not worth as much as the lives that might be saved. But it’s not embossed portraits of dead white men that’s at stake. I don’t think we should let economists play God, but I think there is something to economists’ activity of considering what we might be willing to give up for a life.
Money is a medium of exchange; it’s not the end, just a tool we use to make life easier. The cost of regulation is real human well-being, time, and effort foregone. Taking someone’s money prevents them from spending it on what they otherwise would have. It also discourages them from investing further effort into producing something valued by others. Regulation also takes people’s (irreplaceable!) time; saving someone’s (irreplaceable) life provides some moral justification for this, but the cost must be acknowledged.
If (if!) there is a benefit to political gun control (that is if we judge the lives lost under a decentralized regime as morally superior to those lost under a political regime), then we should still consider the cost. In any case, we should all stop using the term “gun control” when we mean “political gun control.” A problem defined is a problem half solved, and the blanket term “gun control” mis-defines the problem.
When an intervention is proposed, it’s usually offered that it will create jobs, or somehow otherwise create work. In Clash of Economic Ideas I’m reading about Indian economic planning and how in the early 5-year plans they proposed to subsidize low-scale labor-intensive cloth making. Otherwise power looms could take their jerbs! On the face of it, it looks like a policy where home weavers get more money (and maybe the price of cloth goes up… but people will be richer because of jobs, right?), but if we strip away the monetary veil, things look different.
What would this policy look like on Gilligan’s Island? The professor comes up with a way to harness the tide so that Gilligan doesn’t have to ride a stationary bike to generate power (bankrolled by Thurston Howell III). But the Skipper can’t let them take Gilligan’s job! So he forbids the professor from using his labor saving invention and there’s no costly transition from the status quo. Essentially the Skipper is consigning Gilligan to work harder than he otherwise would. For his own good!
Okay, that example is too easy, so let’s take it a step further. The Skipper decides they need a bridge (to where? Never mind, it’ll create jobs!) and sets Gilligan to work collecting materials while the professor draws up plans. This time the jobs created will actually result in something new, which is good. But is it good enough? If the discounted present value of the bridge is less than the present value of the costs they will have to incur, then a bridge building policy is like forcing or tricking Gilligan to work at a low wage when he would rather relax on the beach. Or if he pays Gilligan a good wage, then it’s like forcing the island’s tax payers to buy overpriced goods they don’t want; If I make you buy a Hyundai for $200,000, it hardly matters that you ended up with a reliable and efficient car because you got ripped off! The only alternative is that the person who decides to build the bridge eats the loss.
Entrepreneurs make mistakes, and that’s part of the learning process of the market. These sorts of mistakes are not just economically superior than poor policy, but they are ethically superior to state intervention or full-blown socialism. Let’s imagine that a government policy is passed with the expectation that it will be a net gain for the economy (tough, right?). This project is financed by either forcing/tricking someone to pay for it (taxes or inflation), or directly forcing someone’s hand (regulation or conscription). Even if the project turns a profit and the financiers are paid back, there’s something unsettling about the use of coercion. Contrast that with an honest mistake made by an entrepreneur. The financiers make a loss, but by their own volition. Nobody forced their hand, but they learned something and they can use what they learn to guide their actions in the future. Not so with a government failure.
tl;dr: Focusing on a policy’s effects on producers (“the seen“) overlooks what’s going on behind the veil of money: more work for producers without a commensurate gain is simply making them work harder than they need to, and it’s cruel. If (as is more often the case) it’s really a matter of making taxpayers buy something they don’t want for the price, it’s a ripoff and equally cruel. Even the ethical standing of “good” policies is questionable because it removes the element of choice from the individuals forced into backing the project.
A comment on my recent post made me realize that I’ve been wrong about Social Security this whole time. It isn’t quite a giant Ponzi scheme, but if we’re being flexible with our definition of Ponzi scheme it may still be the biggest.
Many people are happy to pay into Social Security thinking they’ll get a reasonable return on their “investment”. To the extent that that’s true, and that return is financed by other people paying in (rather than on actual investments) it’s a Ponzi scheme. But others don’t pay in voluntarily. To the extent that that’s true, it’s like theft but with the robber systematically dropping some of the money. Quasi-Ponzi scheme might be a better term. Social Security paid out $615B in 2008. Let’s guess $650B for 2012. If that was all happy money, it’s one big Ponzi scheme.
But the U.S. government has another project that more closely resembles a Ponzi scheme: Treasury bonds. Here people voluntarily fork over money for a return that is financed in part by later “investors” buying Treasury bonds. Of a $3.5T budget with a $1T deficit, 6% went to paying interest last year (that’s $223B). So 29% of the budget was deficit, and we might conclude that approximately $65B of interest (0.29*$223B) is “Ponzi-financed”.
So now the question is how much of Social Security is “happy money”? Anything more than 10% makes it the bigger Ponzi-scheme. But even if Social Security is heavily financed with “happy money” it is still taken at gun point while purchasers of bonds are there voluntarily. If the government were looking to save $223B and only Social Security benefits and interest payments were on the table, the more ethical choice is to default (if not repudiate). As I recall, I’m ripping off this point from Jeff Hummel.
So Tomorrow’s the big day. The U.S. government is slated to hit the debt ceiling, and with it will be faced with the prospect of actually having a balanced budget. I think the situation is nicely summed up in the opening sentence to an article from Cato: “America faces two very serious budget problems: Democrats, and Republicans.” Of course behind those problems are voters who vote for their congressman to steal and object to others’ doing the same.
This root problem is interesting and I’d like to take a minute to speculate about it. It looks like long term economic growth in the U.S. will slow down. The pace of government expansion can only continue so long before growth slows to a crawl and we hit some equilibrium. What happens then? I think there will be two changes in patterns of entrepreneurship.
The first change is a general decline in growth-oriented entrepreneurship. As the returns to private investment fall, young innovative entrepreneurs will focus on improving their (non-taxable) lifestyle rather than getting rich. Better to run a cool boutique shop and spend lots of time loafing around than work your ass off to pay taxes. Even more likely, students trained in navigating public schools and subsidized colleges will find themselves more at home in bureaucracy than industry. C students will get productive jobs and A students will shuffle papers.
The second change is an exodus of entrepreneurs. The U.S. isn’t the only game in town. The ambitious few who decide they want to make it big (and whose entrepreneurial spirit hasn’t been ground down by life in a culture that isn’t any longer interested in such ambition) will go elsewhere. And places like the Cayman Islands will get freer and flourish as they attract these entrepreneurs.
The U.S. as a country will gradually fade from prominence, the world will be less free overall, but some places will do well and will perhaps foster long run shifts.
Let’s say you’re going to buy a T-shirt. You’ve narrowed it down to two identical shirts, one of which costs $12 and was made by a surgeon and another which cost $10 and was made by a poor high school dropout. You can spare a couple extra bucks so you’ve decided to make your decision based purely on ethics. I think most of us would agree that you should buy the $10 shirt. First off, whoever made it probably needs the money more than the surgeon. Perhaps more importantly, you shouldn’t be encouraging the surgeon to waste her capacity to create value by saving lives.
Okay, what if the poor dropout is really really poor? Same decision. Shirt costs $5? Same decision.
Alright, what if the more expensive shirt isn’t made by a surgeon, but by someone who is ten times as wealthy as the person who made the $5 shirt? Same decision. Five times as wealthy? Twice as wealthy? Same decision, same decision.
This is why that marketing gem “Made in the USA!” really grinds my gears. American workers are lucky enough to work in a place with good institutions and a capital structure that allows them to be incredibly productive while working in comfort. Using this productivity to deny opportunities to the poor is morally reprehensible. Using this productivity to do something a poor person wants to do is morally reprehensible (okay, none of us want to go to work, but we’d all prefer some jobs to others or to no job at all).
Caveat: If something is made in the USA and is higher quality I’m fine with that if the selling point is the quality and not that it was made by rich (in relative and historical terms) Americans.
Cab medallions is one of the most popular textbook examples of destructive government policies. Despite this, Brookline’s government has decided to implement a medallion policy. In 2013 I can only assume this was done specifically to anger economics professors in the Boston area.
Fair warning: this post isn’t about anything in the news, or even anything particularly liberty related. This is just some economic musings about the motorcycle I just bought. I feel pretty darn free when I ride it, but ultimately this post is just (“just”) economics and just (again with that “just”) for fun.
When I got my bike, the mechanic I bought it from suggested that I get the oil changed every 3000 miles. The owner’s manual suggests 8000 miles. The first number feels a bit like when you leave the dentist’s office (“We’ll see you in two months for your next check up!”). It’s obviously in my mechanic’s interest to have a steady income, and an oil change is an easy job. On a machine that can be replaced for $4000, it’s a much more certain income than if I trash the engine and just buy a new bike. So is he just profit maximizing?
What about Honda’s number? What do they want? If they wanted my bike to last forever, they might say something like 3000 miles, but they also want me to buy a new bike at some point. But that isn’t all they want. They want me to enjoy my bike enough that I buy another Honda. And they want a reputation for selling reliable machines. And they want a healthy used bike market to bring in new riders (like myself… I bought a used Honda Shadow). On the one hand they want my bike to eventually die, but they want it to go in such a way that I’ll go back to them for my next bike. On the other hand, they want their bikes to last longer than their competitors. So it’s some form of oligopolistic competition on a non-price margin.
If it’s a Cournot-Nash equilibrium (and all manufacturers have about equivalent quality), then by suggesting 7000 miles their bikes would last longer, bringing new riders to the Honda fold, but reducing demand for new Hondas. If they suggest 9000 miles, riders will need new bikes sooner, but reduced longevity would reduce demand by a greater amount. The implication: I should change my oil more frequently than 8000 miles.
If it’s a Bertrand equilibrium, then they’ll give it all away to the consumer implying that 8000 maximizes my experience. But then competition among mechanics must be Cournot (unless the conditions in Lubbock are really awful)! When I took my industrial organization class, as a young libertarian economist-in-training, Bertrand was appealing (“companies always have our best interests at heart! See, they strive for the lowest price by assumption!”), but not terribly compelling. There are two lessons here: 1) Bertrand is taking the easy way out of our critics’ questions and will hurt us in the long run (take note fellow econolibertarians!). And 2) static/neoclassical economics, useful though it often is, doesn’t get us far enough: study your Austrian economics!
I’m working on a paper on subsidy and accreditation of post-secondary schooling and the Chronicle of Higher Ed, conveniently, posted an article on the City College of San Francisco’s upcoming loss of accreditation. This article highlights a few key thoughts from my paper. But let me start with a general statement of my argument, and the key insight driving that argument.
In my paper (Accreditation: Introspection Turned to Incapacitation), I argue that call for college subsidies overlook important costs that reduce the educational effectiveness of those subsidies. This is because public discourse confuses the distinct concepts of “education” and “schooling”. A school is an organization with certain features that we hope will advance the education of students. Education is a nebulous concept, a sort of general intellectual improvement and growth, that is inherently unmeasurable and comes from many sources besides schooling. For this reason, I refuse to use the term “higher education”, instead opting for “post secondary schooling” (PSS).
Accreditation of some form or another is inescapable as long as there is subsidy. A subsidy for schools requires a definition of what a school is, and the voluntary accreditation system that already existed in the U.S. was designed to do just that. The original accreditation agencies (now the Big 6 regional accreditors) arose to define what exactly PSS was, how it related to secondary schooling, and set general guidelines defining what sort of schools could be accredited members of these organizations. This created some standardization as well as minimal quality assurances that helped students to understand what to expect from these schools. This standardization and quality assurance prompted the commissioner of education to leave eligibility for federal aid up to the Big 6 when the second GI Bill was instituted in 1952. This was considered necessary when the first GI Bill (of 1944) lead to a proliferation of low quality schools intent on profiting from the sudden availability of free money.
The current accreditation standards set requirements such as including certain types of courses in the curriculum, academic standards (to be evaluated by the institution in question!), and availability of certain resources to students (such as a professionally staffed library). For the most part, there is a focus on inputs rather than outputs. And as the CCSF incident makes clear, “institutions must meet standards in areas that include financial solvency, and that student achievement alone is not a sufficient means of retaining accreditation.” It’s rare for a school to lose accreditation, but when it happens it’s usually for financial reasons rather than quality or standards. Obviously this leads schools to be more conservative and less entrepreneurial than they might otherwise have been. Schools can only change as the accrediting standards change. That is, innovation must beat the system level for any schools intent on maintaining access to subsidies that make up around half of the industry.
There’s a lot to talk about here so I’ll leave the rest for another post.
Notes On Liberty 