Archive for Economics
Will Walmart lower college prices?
In September, Washington Monthly profiled online-education company StraighterLine and its radical pricing of $99/month for college credits. Today, the New York Times reports that Walmart will offer online college credit to its employees through American Public University. Are we witnessing the start of an academic arms race of lower prices?
That could be a good thing for consumers. But it recalls the comedy Idiocracy, where Luke Wilson plays a character who reawakens 500 years from now in a world where intelligence has been debased. His public defender earns his law degree from Costco, adding “luckily my dad was an alumnus and pulled some strings.”
HT Katherine Mangu-Ward.
Arthur Brooks’ “The Battle”
Arthur Brooks, the polymath president of the American Enterprise Institute, today released his newest book, The Battle. It’s one barnstormer of a defense of free markets and a very lucid indictment of Brooks’ ideological opponents. Short, to the point, well-researched, and simple without being simplistic, this is a must-read for anyone who’s been bemoaning what for the last few years has looked like the death of intellectual conservatism.
Brooks’ thesis is that America is in the midst of a culture war, one that splits citizens who support markets and free enterprise from those who distrust it and want to fundamentally transform what America was, is, and will be; Brooks refers to the former as the 70 percent coalition and the latter as the 30 percent coalition, citing a plethora of data suggesting that Americans are split roughly 70/30 on the questions underlying the two different worldviews. (This echoes, but I think is emphatically different from, Grover Norquist’s “leave us alone coalition” and “takings coalition” division of the right and left.)
The difference between these groups has nothing to do with God, guns, and gays; rather, it’s about free markets and free enterprise. (To be sure, Brooks never touches on social issues.) Nor is this merely a consequentialist or Benthamite argument; Brooks writes that the “culture war between free enterprise and statism is not [about] material riches—it is [about] human flourishing. This is a battle about nothing less than our ability to pursue happiness.”
Academic Entreprenuership
As many scholars have observed, the market for tenure-track jobs is declining, relative to contingent faculty positions such as lecturers or instructors. And this trend is not likely to change. Add to this the retirement of the baby boom professors, cost constraints for state higher education budgets, the eroded value of endowments, declining philanthropic support, and new business models by higher education companies –you have a recipe for tumultuous marketplace for faculty jobs over the next decade.
So in this environment, what can grad students and faculty in the early stages of their careers do to pursue a successful career in academia?
One idea emerging is “academic entrepreneurship”–the idea of taking your career into your own hands and discovering your own comparative advantage in this changing marketplace. In a great piece at Inside Higher Ed, “The Entrepreneurial Grad Student,” Christine Kelly offers three things you can do to be entrepreneurial: brand yourself, seek opportunities, and be willing to adapt.
Apologies for the cross-promotion. But for faculty and grad student readers who are interested discussing and exploring this topic, I am moderating a Academic Entrepreneurship group at Kosmos, the online community of classical-liberal scholars. (Kosmos is in beta, so please excuse some part of the website still under construction.)
Sir Mick on music profits
Via Gruber, here is a new BBC interview with Mick Jagger. He makes a very interesting point about music sales:
But I have a take on that – people only made money out of records for a very, very small time. When The Rolling Stones started out, we didn’t make any money out of records because record companies wouldn’t pay you! They didn’t pay anyone!
Then, there was a small period from 1970 to 1997, where people did get paid, and they got paid very handsomely and everyone made money. But now that period has gone.
So if you look at the history of recorded music from 1900 to now, there was a 25 year period where artists did very well, but the rest of the time they didn’t.
Don’t stop at 1900, though. If you think of the entire history of the world, the notion that you could make an outsized return on making music is a complete aberration.
How rich are you?
At globalrichlist.com you can enter in your annual income and see how you rank in the world. It’s a wonderful and wonderfully designed site that aims to make you feel rich so you’ll donate to a good cause.
I’m always telling folks who fret about how little they make that we’re not just richer than most on earth, but most that ever lived. Someone making an entry level salary of $35k in DC is still in the top 5% of income earners in the world.
USA Today and the low-tax myth
Folks on the left this morning are having a heyday with an article appearing in USA Today with analysis that suggests that taxes are actually quite low and falling:
Federal, state and local taxes — including income, property, sales and other taxes — consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century. The overall tax burden hit bottom in December at 8.8.% of income before rising slightly in the first three months of 2010.
The problem is that this number is so incredible it beggars belief. Not that it’s fundamentally incorrect — just that it, perhaps inadvertently, leaves readers with an impression about the size of government spending that is utterly and completely untrue.
The article does point out that consumer spending has decreased in recent years, the stimulus included some tax credits, and tax rates have become even more progressive in the past decades and heavy with credits (traditional and refundable) to the point that almost half of American tax units pay no income tax. (Granted, this last point can be used misleadingly due to the recent bipartisan consensus that the tax code is a great way to institute social programs, a view to which I’m not entirely unsympathetic.)
But taken out of context, the average USA Today reader might well walk away from a quick skim of the article thinking that the government only spends 9.2 percent of gross domestic product. Less than a dime on the dollar. A bargain!
Let’s parse this out a bit.
First of all, ceteris paribus, as personal income decreases, we’d expect the percentage of personal income collected by the federal government to decrease. That’s evidence of our highly progressive tax system. So the story isn’t really one about tax rates at all — it’s about revenues collected.
Second, readers may walk away knowing that the US government costs much more than 9.2% of national income to operate, but figure that corporations or foreigners pay the rest. In other words, “we” pay 9.2%, “they” pay the rest. It’s an iron-clad rule of public finance that corporations don’t pay taxes, people pay taxes. All tax incidence ultimately rests on a person. If you tax a corporation’s profits, for instance, the people who pay are the owners of its shares, who are (ultimately) individuals.
Third of all, it’s important to get a sense of what state and local governments collect. In 2006, state governments collected over $710 billion in taxes, around 5.4% of GDP. When you include local governments, that figure goes to $1.24 trillion, or about 9.5% of GDP. In other words, in 2006, state and federal revenues were about to the percentage of personal income collected by all levels of government in taxes in 2009. That should give you a sense of how skewed this particular figure is. All levels of government in 2009 did not cost less than state and local governments in 2006.
Fourth, the historical tables in the President’s FY2011 budget give a good sense of what tax revenues look like. In 2009, according to table 2.1, the federal government collected $2.104 trillion in revenues. Assuming a GDP of $14 trillion, that means federal revenues were 15% of national income. Including receipts on the state and local level (see the last graf), even assuming they fell to 2006 levels, this means 2009 tax revenues at all levels of government were around $3.35 trillion, or about 24% of GDP.
But perhaps governments took in surplus revenues and spent less than that? Not hardly. The 2009 federal budget deficit was $1.4 trillion, the largest since 1945 at 9.9 percent of national income, and tripling the previous year’s deficit. The states face a total shortfall of another $113 billion.
In other words, in addition to collecting about a quarter of GDP in taxes, governments in the US at all levels tacked on another 10.7% of GDP in future costs. Add that up and governments in the US spent over a third of national income in 2009. A far cry from the 9.2% that the USA Today article inadvertently implies.
I have no doubt the BEA figures are accurate and that the article’s author, Dennis Cauchon, reported them faithfully. But by not giving context and not adequately defining terms, readers can walk away with a belief that American government costs about a quarter of what it really does.
Productivity, consumption, and leisure
Tyler Cowen links to Matt Yglesias writing about the future of capitalism and social democracy. Yglesias writes:
When I was in Finland, where they have quite a mild right-wing, the thing that the conservative politician I spoke to seemed really upset about was the idea that Finnish kids are spending too much time in university. Too many students in college! Too many of them getting master’s degrees! Sometimes people would even take time off from their studies to travel! Here in the United States a huge swathe of the pundit class seems to deem it outrageous that the Social Security retirement age hasn’t increased as rapidly as average life expectancy. Don’t people know that they were put on this planet to work! How dare we, as a society, take some of our increased productivity in the form of an increased measure of liberation from our employers rather than more material possessions? The public, sensibly, doesn’t see it that way. When life expectancy grows faster than the retirement age, humanity is making progress.
Insert gratuitous Monty Python reference here. (Sorry, I couldn’t resist.)
I can’t imagine any defender of capitalism and markets, except those of a strangely Puritanical variety, who name their children Cotton and Jereboam, actually holding the views that Matt seems to ascribe to defenders of laissez faire. This is straw man burning of the silliest order.
Nobody argues that it’s at all wrong to “take some of our increased productivity in the form of an increased measure of liberation from our employers rather than more material possessions.” Indeed, that is exactly why productivity gains matter in the first place. What we cannot do justly is take the productivity gains of other people (specifically, those younger than us) and channel them into our own liberation.
The reason that productivity growth — which capitalism achieves — is so important is that it allows for a greater basket of consumption. From an economic point of view, leisure is a form of consumption, whether taken in the form of a shorter work week, longer retirement, later age of beginning work, or shorter working hours. Productivity growth in an of itself is not a goal; the goal is to do more with less. That’s the essence of economics, the study of scarcity.
Liberalism allows us choice about whether we wish to channel marginal productivity gains into taking more leisure time or consuming more. If my productivity increases by 25%, I can either take Fridays off and maintain the same level of consumption, or keep my working hours the same and enjoy 25% more consumption. (And of course, I can do something in the middle.) Nobody argues that a five-year uptick in life expectancy means we should work five years longer. The relevant question is one on the margin, which Matt misses altogether.
The problem that I and many others have with the way that American entitlement programs are run is that the math doesn’t work out. It’s noble to save for retirement. Many people choose to work extremely hard for 25 years, living frugally, and squirrel enough money away to retire at 50. That’s their prerogative. What is not their prerogative is what is currently being demanded of Social Security: for inputs to remain more or less the same today and have outputs increase tomorrow. That’s about intergenerational wealth transfers, not increased worker productivity. (And lest we forget, wealth is a stock while income is a flow. A transfer of a stock is not the same as a flow.)
What proponents of raising the Social Security retirement age to, say, 67 are saying is this: Your retirement is going to be about 15 years longer than your parents’, so you should probably work 2 years longer to pay for it. That’s still a 13 year marginal increase in the length of retirement. Which is something brought about by productivity gains, which are notably lacking in the social democratic countries of Europe.
Microloansharking
The New York Times home page is carrying a story this evening about how banks and financial institutions are entering the microloan business and — gasp! — giving loans to poor people in poor countries. But there’s a catch:
But the phenomenon has grown so popular that some of its biggest proponents are now wringing their hands over the direction it has taken. Drawn by the prospect of hefty profits from even the smallest of loans, a raft of banks and financial institutions now dominate the field, with some charging interest rates of 100 percent or more from their impoverished customers.
Without giving much in the way of details, other than dropping the name of Deutsche Bank, and some interest rates that appear high (though no comparison is given to what loan shark or grey-market credit rates are), the Times suggests that this once good-hearted enterprise is now falling drip to the tentacles of capitalism.
Folks, this is a feature and not a bug. One of the longstanding criticisms of microlending is that it isn’t scalable. If you or your foundation lend a few hundred dollars to a group of women weaving baskets in Bangladesh, and they grow their business, we all pat you on the back. But what’s the next step? What if this group wants to expand further, or move into related enterprises? How does microlending help them? Answer: it doesn’t.
The only way that microlending works to really help poor countries become rich is if it serves as a bridge to the formal financial sector, so that a $100 loan today becomes a $1,000 loan next year and a $10,000 loan the year after that. That’s growth. That’s enterprise. That’s meaningful poverty alleviation through capitalism. And that’s not something that the charitable microlending sector can accomplish, any more than charity can help me get a mortgage or a car loan.
We should be applauding international financial institutions, with access to trillions of dollars or capital, who get into the microlending business. That’s the only way this process works in any meaningful sense. Otherwise, all we’re doing is marginally expanding arts and crafts enterprises and leaving the poor dependent upon the charity of wealthy nations. That’s not meaningful development.
If microlending sharks are charging exorbitant interest rates, then presumably people will get their money elsewhere or choose not to take out loans. But the Times has an answer to that:
But poor borrowers are often too inexperienced and too harried to understand what they are being charged, experts said.
Ah, the poor are too stupid to engage in commercial transactions! They should only be able to get loans through well-meaning charities! Your new-caught, sullen peoples cannot be trusted in the worlds of contracts and commerce!
Perhaps — just perhaps — poor entrepreneurs know what they’re doing and are making decisions that are responsible based on their needs, skills, and goals. And perhaps allowing these people to participate in the international flow of capital and commerce that those of us in rich countries take for granted expands their opportunities and doesn’t make them victims.
The expansion of the international finance community into microlending is a development to be applauded. It means that poor entrepreneurs are increasingly moving into the formal economy, becoming banked, and developing relationships that will open their access to vast amounts of capital.
We should celebrate this, not condemn it.
Technology in Higher Education
I’ve pre-ordered a copy of Anya Karmenez’s new book, DIY U, addressing the hot topic in higher education these days–whether technology will change the higher education marketplace much as blogs and Craigslist have changed the media marketplace. The Chronicle has a interview where she speculates:
Technology accelerates disaggregation or unbundling of services. For the newspaper industry, it meant the stock scores went to one place and the classifieds went to Craigslist, so all of a sudden the features of the newspaper were being provided by a bunch of different places. And I see the same type of thing happening much more easily in education, through technology. So now at MIT the best physicists in the world provide free lectures, but you might still need one-on-one tutoring.
This is not exactly a bold prediction. And based on Kerry Howley’s review of Karmenez’s previous book, Generation Debt, I suspect that her reporting will be on firmer ground than her advocacy. Nonetheless, looking forward to reading.
More on academic entrepreneurship at Washington Post and AEI.
The Kristof-Herbert Curve
Don’t get me wrong, I have a tremendous amount of respect for Nicholas Kristof, and I enjoy and learn from his writing on international affairs and human rights. His book Half the Sky: Turning Oppression into Opportunity for Women Worldwide, coauthored with his wife Sheryl WuDunn, is tremendous. And he has reported from parts of the world that even seasoned travelers would be wary of visiting.
But his cheerleading for health care reform goes way over the top. Consider his column in this morning’s New York Times, entitled “Access, Access, Access.” Kristof argues that increasing access to something — it might be health care, or it might be medical coverage; the terms are used more or less interchangeably — for some group of people is so breathtakingly obviously the right and necessary thing to do that to voice skepticism is to be “on the wrong side of history.”
Yikes! That’s a good bit of Whig history for me to digest before my first cup of coffee. But let us proceed with his argument.
Kristof writes,
In short, great health care is often less about breakthrough technologies than it is about access. And for all the disagreements about President Obama’s health care proposal, let’s focus on this: it unquestionably would increase access, while its defeat would diminish access.
Stipulate for the moment that the proposal as adopted and signed would increase coverage by a significant amount. And we can know these benefits (again, stipulating). And let’s stipulate further that people do die sooner due to lack of health insurance, despite a lack of serious evidence for this assertion. But what of the costs?
Who knows. Kristof makes it through his entire breathless paean to reform without once using the words “price,” “cost,” or “payment.” Nowhere in his column do we get a sense that there any costs associated with the supposed benefits. Nowhere does he suggest that access for all at any cost necessarily precludes spending on other, perhaps more beneficial, priorities, whether private-sector investment in business and job creation (as conservatives like) or public sector spending to increase childhood literacy or reduce teen pregnancy (as liberals prefer). For a man who has traveled Southeast Asia cutting through the dense social, economic, cultural, and political webs that underlie child sex trafficking, and through the Horn of Africa delving into the causes of and solutions to maternal mortality, this is a stunning omission.
Even more stunning is a sentence in Kristof’s penultimate graf:
While countries with liberal social policies typically make abortion accessible and cheap, they make other elements of health care accessible and cheap as well — such as contraception and child care.
Parson? What does child care have to do with health care? Or are we just wrapping all the trapping of social democracy — universal health insurance, non-priced health care, free state-subsidized day care — into one big undifferentiated mess? The public debate has already confused and conflated health insurance and health care beyond recognition. Adding in a literal nanny state is just too much piling on.
Kristof’s fellow Times columnist Bob Herbert beats the drum regularly about unemployment, particularly persistent unemployment among young African-American males. The editorial pages of the Times regularly present full employment and universal health care as both good things that should, of course, be key policy goals.
The problem is that there’s a tradeoff. The benefits that Kristof and Herbert believe their public policy recommendations will achieve have costs. And while hardly a perfect correlation, an increase in Kristof-favored policies will in general cause a decrease in Herbert-favored policies. Just as the Philips curve was once thought to show the tradeoff between inflation and unemployment — reducing one meant increasing the other — the goals of these columnists are at odds.
So my question is: Where do they believe the US should fall on the Kristof-Herbert Curve?
How to get free breast implant surgery
A grad student I’m working with is writing a paper about alternative financing. There are peer-to-peer lending services like Kiva and Prosper, then there are services that focus on equity. Alex Tabarrok recently linked to Thrust Fund, which allows students to finance their education by paying a share of their lifetime income to their investors.
I’m very interested in yet another model: donation-based for-profit funding. Kickstarter is the poster child for this concept. An indie band can seek funds (say $5,000) to finance recording an album. Fans can make contributions large and small. They are incentivized because they receive rewards for their contributions. Donations of $5 of more might get you access to the band’s behind-the-scenes blog, $1000 might get you and some friends backstage at a show. The trick is that none of the funds are released until the fundraising goal is met. Kickstarter takes a small cut for facilitating the transaction.
Today I’ve come across another donation-based funding site that predates Kickstarter by a few years and is very alternative. MyFreeImplants.com is exactly what you think it is. From an article about the site:
Guys who are willing to front the $9.95 monthly membership fee get chat access to every woman on the site, along with access to each woman’s photo galleries, blog, and whatnot. Benefactors can donate money directly to their favorites; the women can send spicy photos and the like to their benefactors in return if they so choose. No phone numbers, e-mail addresses, or other contact information is exchanged — the guys give money without ever getting to meet the girls. All benefactor bucks are collected by the site management and held in escrow by an associated trust for each client’s benefit. Once a given woman on the site racks up enough benefactor bucks to pay for her procedure, the trust pays the doctor out of escrow–in full, and in cash. After the surgery, women who have their breast enhancement funded by MyFreeImplants.com are contractually obligated to stay on the site for six months, chatting with their benefactors and providing them with confidential “after” photos for scrapbooking purposes.
In this case the company keeps the money in escrow, which raises many questions, such as what happens if the goal isn’t met, and who keeps the interest the money earns in escrow? Kickstarter, on the other hand, doesn’t collect a penny until the goal is met. I wonder if women seeking implants might move to Kickstarter since it seems to offer them more flexibility.
What’s really exciting about this model is it can help solve some basic collective action problems. As Mancur Olsen found, you get can organize a big group only if you give folks an “individualized benefit,” and this seems to fit the bill. I predict political candidacies and grassroots issue campaigns funded this way. Any ideas for a project we could start?
Cass Sunstein and other people’s transparency
Cass Sunstein gave a talk at Brookings today about “the power of open government.” (Transcript here.) He stressed the key points of the administration’s Open Government Directive: transparency, collaboration, and participation. What I found interesting, though, is that all the examples he gave of open government were in fact examples of someone besides government being open.
He cited the new product recall database from the Consumer Product Safety Commission as a great example of open government. He also mentioned a tire safety ratings database from DoT, the toxic release inventory from EPA, nutrition labeling, FAA flight delay information, and OSHA workplace death tallies. I’m glad these data are public, but these are not about open government.
As Sunstein said, disclosure is a “high impact, low cost” form of regulation. It keeps actors accountable for their performance and this nudges them to behave well. But if disclosure works for regulated industries, it should work for government, too. To me that’s what open government is about–government disclosing its own performance, not just the performance of those it regulates.
Sunstein did mention the new OIRA dashboard, which is meant to give users a view to all of the Office’s open proceedings. (The site, however, was down during his talk–and still is as of this writing–because it is “experiencing technical difficulties.”) First, I haven’t seen any data in the new dashboard that wasn’t previously available at RegInfo.gov. Second, we need more than just disclosure of what matters are before OIRA now, we need information on performance, something Brookings’s Ted Gayer alluded to when he asked about the prospects of more retrospective review.
For example, Sunstein talked about the President’s SAVE Award program, which asks federal employees to submit ideas for budget savings. Thousands were collected and voted on and the winner was a VA employee who suggested that patients be allowed to take unused medicines home with them. Previously, unused portions of medicine were thrown away when the patient was discharged. Wonderful idea and a very laudable process of collaboration and participation to get at it.
My question is about transparency in performance: what happened to the administator(s) under whom drugs were systematically wasted? Were they fired or reprimanded? Did we at least have a management review of how such a policy came to be? Not to be punitive, but accountability must have consequences.
Roger Ebert half gets it, but that’s half enough
Roger Eebert has announced an online subscription service. On his blog, he writes what he calls a “justification” for the move. While he echoes the familiar complaints of old media–he’s not getting paid for his writing, he doesn’t make enough from ads and big ad buys overlook him, etc.–he seems to understand that trying to force people to pay for his content is just not possible.
If I go behind a firewall, however, and a high school student in Mexico is doing some research, there are lots of other excellent critics on the web, and everybody knows it. I’m pretty sure I could get more than 35 subscribers, but a million?
Ebert also laments that micropayments have not proven workable. He waxes romantic about how after learning of the concept from Nicholas Negroponte’s writing, he and Gene Siskel salivated of the amounts they could make if their readers were willing to pay just two cents a page.
Despite all his charming bellyaching, though, he’s making the right move. All the blog and review content that he now makes available for free will remain free. He’s creating a premium service at $5 a year for which you get extra members-only content and other perks.
I think a key component of his premium package will be a member-only discussion forum. A simple thing like a $5 a year fee is enough of a speed bump that it will keep out anyone not serious about serious discussion. Because of the fee, the level of discourse will no doubt be better than other free online movie forums, and that will attract others who will want to pay the fee to get in.
More old media should take this route. The tribes that would form around different publications would be fascinating. Publications could create quality communities and largely avoid the costs of moderation all while getting paid. I’ll be back in a year to announce the Sometime Right Premium Forum.
Who could argue against better allocation of the radio spectrum?
Tom Hazlett’s work on radio spectrum gets a much deserved airing in Richard Thaler’s latest NYT column. Given the looming deficit crisis, and the fact that less than 10 percent of households get their TV over the air, you’d think it’d be a no-brainer to auction off the malallocated TV band to the highest bidders.
Professor Hazlett estimates that selling off this spectrum could raise at least $100 billion for the government and, more important, create roughly $1 trillion worth of value to users of the resulting services. Those services would include ultrahigh-speed wireless Internet access (including access for schools, of course) much improved cellphone coverage and fewer ugly cell towers. And they would include other new things we can’t imagine any more than we could have imagined an iPhone just 10 years ago.
Off the top of my head I can think of three powerful groups who are likely not thrilled at the prospect of such auctions.
- Broadcasters – As the article states, they’re occupying the bands right now and they will fight tooth and nail to keep them. One proposal now circulating at the FCC would give them a portion of the auction proceeds to compensate them for their loss. Not sure they’ll be easily mollified, though. Their special status as ‘local broadcaster’ likely allows them to reap more benefit than we imagine.
- Wireless Carriers – These are the folks who are supposed to be starving for spectrum and who would be the buyers of any new frequencies. The problem is that they just spent billions to acquire new spectrum in the FCC’s last auction a year ago. If the TV bands are auctioned, and new supply is placed on the market, the value of the spectrum they just bought will decrease. More supply at lower prices also means that new entry will be easier, which won’t make them happy.
- The Commonists – Just because we take away spectrum from broadcasters in favor of wireless broadband, doesn’t mean that the spectrum must be sold at auction. Instead, a large movement of academics and technologists suggest that spectrum should be treated as a commons, free to be used by anyone as long as they don’t interfere with anyone else’s use. The concept can be debated on technical and economic grounds, but I’ll just make the point here that a commons approach means no revenue for the treasury.
Each of these groups has a well-heeled lobby, so here’s hoping that fiscal crisis can overcome the dynamic that to date has kept the radio spectrum as one of the last nationalized natural resources.
