“It was a good idea to get science and democracy from the ancient Greeks. It’s not such a good idea to get fiscal policy from the modern Greeks.” — David Boaz from The Cato Institute
I’m guessing Professor Wulf would find this amusing.
Speaking of Professor Wulf and Freshman Studies, it is shaping up to be awesome this fall, so I encourage you to enroll as a Freshman to take advantage.
The Educated Entrepreneur blog has tipped us off to 10 TED talks for entrepreneurs. “ideas worth spreading.” Their conferences and gatherings tend to host blockbuster talent, and this list of 10 talks is no exception. I suggest you listen to what Alex Tabarrok has to say. He argues that “free trade and globalization are shaping our once-divided world into a community of idea-sharing more healthy, happy and prosperous than anyone’s predictions.”
Let’s hope so.
Several blogs that I read have pointed to Russ Roberts’ new essay on the financial crisis, Gambling with Other People’s Money. This from the Executive Summary:
I argue that public-policy decisions have perverted the incentives that naturally create stability in financial markets and the market for housing. Over the last three decades, government policy has coddled creditors, reducing the risk they face from financing bad investments. Not surprisingly, this encouraged risky investments financed by borrowed money. The increasing use of debt mixed with housing policy, monetary policy, and tax policy crippled the housing market and the financial sector. Wall Street is not blameless in this debacle. It lobbied for the policy decisions that created the mess.
In the United States we like to believe we are a capitalist society based on individual responsibility. But we are what we do. Not what we say we are. Not what we wish to be. But what we do. And what we do in the United States is make it easy to gamble with other people’s money—particularly borrowed money—by making sure that almost everybody who makes bad loans gets his money back anyway. The financial crisis of 2008 was a natural result of these perverse incentives. We must return to the natural incentives of profit and loss if we want to prevent future crises.
Roberts, of course, is the voice of EconTalk, a principal at Cafe Hayek, and one of the brains behind the Keynes v. Hayek video. So, my guess is that this will have some elements of a “government failure” story.
Well, the Department of Interior finally got around to approving a wind farm off Cape Cod. This seems to be an executive branch move, though I suppose Congress could rescind it legislatively (if it could override a veto) or cut funding to Interior for implementation. The long-running, and I do mean long running, standoff pitted on the one side former Senator Ted Kennedy and like-mined people living there who think windmills are something of an eyesore. Others, such as Kennedy’s nephew, Robert, call them a financial “boondoggle,” that will cost Massachusettsians a lot of money in additional energy costs.
On the other side is an odd coalition of business and environmental groups. Businesses like money and environmental groups like wind, so there you have it.
Obviously, the monied interests will not throw in the towel after fighting this for nine years — they are going to sue sue sue.
Such is the regulatory process.
In a just published book entitled The Great Reset, Richard Florida explains how recessions can be Schumpeterian moments. See today’s Financial Times article on innovation inspired by economic recessions for some juicy examples.
The indefatigable Ralph Nader came, he saw, he sold some books, and he raised some hell. Are you wasting the prime of your life with hang ups you should have dealt with as a teenager? Do you find yourself spending more time looking at yourself in the mirror than keeping tabs on Congress? Mr. Nader isn’t shy about asking the tough questions.
I was amazed and surprised with his digression on the 1872 Mining Law and his browbeating of the audience about our ignorance of the statute and its implications. Having done some research on the subject myself, I would put the ball back in his court. Does he know that environmental group opposition is stifling volunteer cleanups of abandoned mines? In this month’s Atlantic Monthly there is a short piece describing the situation. The basic problem is that there is a single policy instrument in place to prevent pollution and to govern cleanups. It turns out, this is like throwing one stone at two birds:
But as these volunteers prepare to tackle the main source of the pollution, the mines themselves, they face an unexpected obstacle—the Clean Water Act. Under federal law, anyone wanting to clean up water flowing from a hard-rock mine must bring it up to the act’s stringent water-quality standards and take responsibility for containing the pollution—forever. Would-be do-gooders become the legal “operators” of abandoned mines like those near Silverton, and therefore liable for their condition. In mid-October, Senator Mark Udall of Colorado introduced a bill that would allow such “good Samaritans” to obtain, under the Clean Water Act, special mine-cleanup permits that would protect them from some liability. Previous good-Samaritan bills have met opposition from national environmental organizations, including the Sierra Club, the Natural Resources Defense Council, and even the American Bird Conservancy, for whom any weakening of Clean Water Act standards is anathema.
In other words, it is the environmental groups who are standing in the way of environmental progress in this case. The reasons for this are straightforward, predictable, and understandable. It is all described cogently in this testimony on similar proposed legislation from ten years ago!
The sad state of affairs is that as the various groups dig in their heels, the acid drainage continues to pollute the waters in the west. Again, from The Atlantic:
Just a few miles from Silverton, in an icy valley creased with avalanche chutes, groundwater burbles out of the long-abandoned Red and Bonita gold mine. Loaded with aluminum, cadmium, and lead, it pours downhill, at 300 gallons a minute, into an alpine stream. The Silverton volunteers aren’t expecting a federal windfall anytime soon—even Superfund-designated mine sites have waited years for cleanup funding, and Udall’s bill has been held up in a Senate committee since last fall. Without a good-Samaritan provision to protect them from liability, they have few choices but to watch the Red and Bonita, and the rest of their local mines, continue to drain.
The Economics Department is pleased to announce that Emeritus Professor of Economics Jules LaRocque will return this fall to teach a course in his specialty: the history of economic thought (see description below). This course will only be offered in the Fall term at the 2:30 – 4:20 time slot on Tuesdays and Thursdays. Timing prohibited publishing the course in the official course schedule prior to the registration period; therefore, if you are interested, please see or send an email to Professor Finkler. We are excited to provide this opportunity and encourage students to take advantage.
History of Economic Thought The course examines the origins and development of ideas pertaining to production and distribution of goods and services in ancient to modern civilizations. Special attention will be devoted to ideas (and their authors) that led to the emergence of market-oriented societies. Examples of such authors are Adam Smith, J.B. Say, David Ricardo, Karl Menger, Alfred Marshall, F.H. Knight, and J. M. Keynes. The Marxian and socialist challenges to the market-based ideas will also be examined.
…said the great Lenin—at least that is what we all heard in Soviet countries.
I couldn’t find the source of the quote, but it is written in giant letters on buildings, carved into stone in numerous places in the former USSR, so it must be true. Well, the great Lenin was born exactly 140 years ago, on April 22 1870, as Vladimir Ilyich Ulyanov. Happy Birthday, Comrade! The living room window of the apartment where I spent much of my childhood faced the Lenin statue you see on the right. I am sure in a drawer back home there is a black-and-white photo of 10-year-old me bicycling around it… You can’t tell from this picture, but the statue is 4 meters tall.
Lenin, on the other hand, was rather short, but extremely persuasive, as this video will no doubt convince you. He came back from his exile in Switzerland just in time to lead the October Revolution.
He wrote a lot, including some quotable bits such as “Where the bourgeois economists saw a relation between things (the exchange of one commodity for another) Marx revealed a relation between people.” He died after a stroke, which was confirmed in this study of his brain.
I could say a lot more, but I’d better get back to my five-year plan.
Carl Bialik of the Wall Street Journal takes a look at the grimy rot that is government economic statistics. It has probably occurred to you at some point that there is uncertainty about whether numbers like the Gross Domestic Product (GDP) actually measure economic activity or are a reasonable proxy for well being. What has not perhaps occurred to you is that maybe we aren’t all that certain about whether those numbers are accurate at all?
[A]t a time when high unemployment tops many people’s worries about the economic recovery, the BLS can say only that it is 90% confident that the true change in the number of unemployed in March was somewhere between a drop of 243,000 and an increase of 511,000. In other words, it isn’t even clear whether the number of unemployed rose or fell last month.
That emphasis is mine, and it is a point worth emphasizing.
Another important point, of course, is that it’s not my fault! Aside from the point that the numbers might not represent what we think they represent, it is also important to note that we are trying to measure things that are difficult to measure with questionable samples in a short time horizon. So always be sure to ask for the confidence interval.
Have you ever wondered why your grade point average is so high? Is it because you close The Mudd every night? Your raw intelligence? Your unusually good problem-solving skills? Your avoidance of my classes?
Or maybe it’s because it’s 2010 and Lawrence is a private university. It seems that the average college GPA has been going up at the rate of about 0.1 per year for the past 50 years, with private schools leading the charge. Here’s Exhibit A:
That’s from the NYT‘s Economix column. The green series is the GPA for private schools over time, which appears to have started at about 2.3 in 1930 and increased to right around 3.3 today. That’s right, the average student at a private college has a 3.3. GPA. The grey dots show the data points surrounding the series, so this is no selection bias problem. In fact, the lowest average GPA in the sample (about 2.7) is higher than virtually every single recorded data point prior to 1950.
The big question, of course, is why? The answer to that is probably not so simple. We have seen one of the consequences, however — students really do work less these days. Recent scholarship documents an inverse relationship between the expected average class grade and the amount that students work. To wit: average study time would be about 50% lower in a class in which the average expected grade was an “A” than in the same course taught by the same instructor in which students expected a “C.” In other words, students are working less and getting higher grades.
One point of interest is that science classes have traditionally graded much more harshly than the humanities.
[S]cience departments today grade on average 0.4 points lower than humanities departments, and 0.2 points lower than social science departments. Such harsher grading for the sciences appears to have existed for at least 40 years, and perhaps much longer… Relatively lower grades in the sciences discourage American students from studying such disciplines, the authors argue.
So does that account for the dearth of American-born scientists — the fear of getting a B?
How do you suppose a maximizing professor should think about these issues? If I want to push my students, do I have to be a tough grader? Or do I just end up with fewer students grouching about how much work I give them?
Click on the “making the grade” tag for more on grade inflation.
The administration at Louisiana State University removed a professor from the classroom for grading too harshly. Evidently, Professor Homberger gives tough multiple choice exams that aren’t curved, the logic being that “students must achieve mastery of the subject matter, not just achieve more mastery than the worst students in the course.”
I’m sympathetic to her. Why give a student a decent grade if s/he doesn’t know what’s going on?
But, on the first exam she flunked 90% of the class, and enough of the students whined and moaned that the administration gave her the hook.
I’m sympathetic to the students. About the harsh grading, not the whining.
The irony is that her tough standards seemed to be having a positive effect: “[Homberger] said that her tough policy was already having an impact, and that the grades on her second test were much higher (she was removed from teaching right after she gave that exam), and that quiz scores were up sharply. Students got the message from her first test, and were working harder, she said.”
I think she might be on to something. Incentives matter, as they say. And we’ve seen before, students do seem to work harder when they aren’t handed high grades.
Fortunately for her, she’s tenured and probably would get a nice fat settlement if push came to shove here. Of course, if she wasn’t tenured, she might think twice before busting out the big red pen.
Week three of the Spring term is shaping up to be a busy one for the economics crowd. On Monday we have our usual Economics TeaBA, featuring a discussion of health insurance reform (see here for the source article and here for Professor Finkler’s post). Stop by some time after 4:15 in Briggs 217 for discussion with students and faculty.
On Tuesday, Ambassador Mulford will be giving a talk at 1:30 in the Cinema, and will follow that up with a talk to the Economics Club at 4:30 in Briggs 217. Here is the campus announcement and here we have the previous blog post.
Then, on Wednesday, students reading Prophet of Innovation for the Innovation & Entrepreneurship reading group will meet for dessert at 8:40 p.m. Contact Professor Gerard for details. Keep an eye out for a few more posts on the Schumpeter Live Blog.
Karl Hailperin has penned an op-ed for the latest Lawrentian, arguing that the U.S. tax system could use some work. You can usually find him at the Economics TeaBA if you’re hankering for a good tax dialog.
Relying on incumbents to produce your revolutions is not a good strategy. They’re apt to take all the stuff that makes their products great and try to use technology to charge you extra for it, or prohibit it altogether.
That’s Cory Doctorow at Boing Boing, who won’t buy an iPad, doesn’t think you should buy an iPad, doesn’t think the iPad is going to do much for the beleaguered publishing industry, and, frankly, doesn’t seem to have many nice things about the iPad at all. In fact, he contends that Apple is showing “palpable contempt” for its customers.
Here’s some more:
For a company whose CEO professes a hatred of DRM, Apple sure has made DRM its alpha and omega. Having gotten into business with the two industries that most believe that you shouldn’t be able to modify your hardware, load your own software on it, write software for it, override instructions given to it by the mothership (the entertainment industry and the phone companies), Apple has defined its business around these principles. It uses DRM to control what can run on your devices, which means that Apple’s customers can’t take their “iContent” with them to competing devices, and Apple developers can’t sell on their own terms.
A very provocative perspective. Probably even more so if you know what DRM is.
I recommend you would-be innovator types check it out.
There often seems to be a disconnect between what academics say and what other people hear, but the problem seems particularly acute in the economics profession. Steven Landsburg has a rather amusing post on the subject, detailing how what we think are rather innocent comments can make us sound rather callous, to say the least.
Here’s my favorite from that piece:
A few years ago, in the state of Washington, some apartment buildings were converted to public housing. The buildings were described as having “million dollar views”. I was a silent witness to a conversation that went like this:
Person A: They’re giving million-dollar views to people below the poverty line?!!!???!
Person B (in an aside to Person C): He’s got some problem with that?
Well of course he’s got a problem with that. Ask any poor person in America to choose between a million-dollar view and a million dollars cash, and I guarantee you he will take the cash. So how callous would you have to be to give that person a grand apartment instead of selling the apartment and giving him the cash?
That, I am certain, is what Person A (who had some economics training) meant. What Person B heard was something like: “Why would you want to do anything nice for poor people?”
I’d probably take the cash, too.
The Economist is taking a look at the unpleasantness that is the U.S. fiscal situation, and it finds most Americans ready to cut government spending. In fact, when asked whether to cut spending or raise taxes, we chose cutting spending by a 62% to 5% margin (with the other 33% unwilling to commit).
Unfortunately, people don’t want to cut spending on things that we actually spend money on. Check out this comparison from my favorite political science blog, The Monkey Cage:
What is clear from the graphic is that the vast majority of Americans are eager to slash all of that foreign aid we shell out. The problem is, we don’t actually spend much on foreign aid. Many are also willing to gut environmental protection spending, but that doesn’t seem like a very big target, either (though government spending isn’t the same as spending on environmental compliance; then again, spending on compliance doesn’t add to the public debt).
Perhaps we will just inflate the debt away instead.
Q: When are we going to get our tests back?
A: When I get them back from Bangalore.
The Chronicle of Higher Education has an interesting piece about outsourcing of homework grading to markers in India via the firm, Virtual-TA. No, papers aren’t physically sent to India to be graded, but rather the transaction is done electronically.
Is that ethical?
Well, the story profiles Lori Whisenant, the director of business law and ethics studies at the University of Houston. So the ethics professor thinks it’s ethical. Or maybe that’s just how they roll down in Texas?
That dimension aside, we spend a lot of time talking about the outsourcing/insourcing decision in Economics 450, and one of the main drivers for doing something yourself is the specificity, not necessarily the complexity, of the task. And this comes out in the article a little bit:
Critics of outsourced grading, however, say the lack of a personal relationship is a problem.
“An outside grader has no insight into how classroom discussion may have played into what a student wrote in their paper… Are they able to say, ‘Oh, I understand where that came from’ or ‘I understand why they thought that, because Mary said that in class’?”
On the other hand, it would be difficult to argue that the Virtual-TA is playing favorites.
The whole story reminds me of the opening of Ed Leamer’s classic review of Thomas Friedman’s The World is Flat:
When the Journal of Economic Literature asked me to write a review of The World is Flat, by Thomas Friedman, I responded with enthusiasm, knowing it wouldn’t take much effort on my part. As soon as I received a copy of the book, I shipped it overnight by UPS to India to have the work done. I was promised a one-day turn-around for a fee of $100. Here is what I received by e-mail the next day: “This book is truly marvelous. It will surely change the course of human history.” That struck me as possibly accurate but a bit too short and too generic to make the JEL happy, and I decided, with great disappointment, to do the work myself.
It was only a matter of time.
Craig Pirrong at the Organizations & Markets blog weighs in on the quizzical financial constraints placed on start ups under proposed financial reform legislation.
The most fascinating question is the political economy one: whose interest is served by this provision? The most likely explanation is that incumbents — including, no doubt, one-time startups — having made theirs prefer to make it harder for others to displace them. They liked creative destruction on the way up, but the idea of being swept away in some future gale is far less appealing. So hobble potential future competitors, future creative destroyers, by increasing the costs startups incur to raise capital. This pernicious provision also gives advantages to big investors, venture capitalists, and existing companies who would face less competition in supplying capital to potential startups.
I’m not sure I buy that — who is this group of now-successful former start ups banding together to create barriers to entry? On the other hand, I don’t have a better explanation.
Anyone?
Thomas Friedman might tout the start up, but proposed financial regulation does not. According to Robert Litan from Kaufmann, there are provisions in the legislation making its way through Congress that would slow down start ups.
Under existing law, startup companies can raise money easily and quickly from “accredited investors” — individuals with substantial wealth or income. There is no need for the companies or the investors to gain approval from any state or regulatory official.
All of this would change if Section 926 of the Dodd bill is included in any final reform legislation. That section would require, for the first time, companies seeking angel investment to make a filing with the Securities and Exchange Commission, which would have 120 days to review it. This would both raise the cost of seeking angels and delay the ability of companies to benefit from their funding.
The negative impact of the SEC filing requirement would be aggravated by the proposed doubling of the net worth or income thresholds required for investors to be “accredited.”
Ouch.
So why are these provisions in the bill? Again, according to Litan:
It is difficult to know why these provisions are in a much larger bill whose primary aim is to address the fundamental causes of the recent financial crisis… There is no evidence that angel investment in startup companies played any role whatsoever in events leading up to the financial crisis.
A few months ago in this space, we pointed you to a speech by Robert Litan of the Kaufmann Foundation on the importance of start ups in job creation. The remarkable conclusion was this:
Since 1980 until the recession, all net new jobs—net meaning gross jobs minus layoffs — have been created by firms under five years old.
Not to be outdone by the Lawrence Economics Blog, New York Times columnist Thomas Friedman trots out the same data in his column this past Saturday. Friedman argues that the U.S. needs to foster innovation, promote start ups, and relax its, um, restrictive immigration policies.
