Alternative Education

Thanks to Forbes magazine’s The Names We Need to Know in 2011 for bringing the Khan Academy to my attention.  From the Forbes article (emphasis added):

Salman Khan was a hedge fund analyst educated at MIT and living in Boston in the summer of 2004. The job was okay but he so much more enjoyed recording Web videos to tutor his younger cousins in New Orleans in math and science. Other people started asking him for tutoring help so started putting math videos up on YouTube. He’d put 70 videos up in a row on algebra, geometry and calculus. Soon a lot of people started watching  the Khan Academy

Since Khan started putting videos up, his Khan Academy videos have been watched 24 million times. You Tube told him he has the most popular open-course video library on its site, with more views than MIT, Stanford or UC-Berkeley. Khan has produced 1,600 videos so far, all simple 8- to 20 minute takes on subjects such as torque, ebitda, debt loops, probability, exchange rates, the Paulson bailout, binomials and the battle of Trafalgar.

Sal Khan at Gel 2010 (founder, the Khan Academy) from Gel Conference on Vimeo.

The video of Mr. Khan presenting at the Gel conference was worth 20 minutes.

Here are some of my thoughts:

If true, it’s amazing that this one person has more people watching videos than MIT, Stanford or UC-Berkeley.  But, applying my analytic mind it could be that his videos target a wider audience.  Even so, it’s still a commendable accomplishment.

Khan’s relative success also could be evidence of a few things:

  • Repackaging the same product (lectures) for a different distribution channel (youtube) isn’t as effective as a format tailored specifically for the distribution channel.
  • Folks don’t attend MIT, Stanford and UC-Berkeley just learn specific skills, but also for the social affiliations (value proposition).
  • Folks on youtube go to Khan Academy to learn specific skills and not so much for the social affiliations (value proposition).

In the Gel video, Khan explains how he started by recording videos to tutor his cousins and it seemed to work for them.  He accidentally stumbled upon his tutorial format and it seems to work better for his students than other formats.   That’s a black swan.  A relatively cheap one at that.

I particularly like the reason his voice, not his image, appears on his tutorials.  When he started, he didn’t have a camera and that worked well for his cousins (market testing).  From that accidental experiment emerged the knowledge that not showing the tutor made it easier to learn.

While watching Khan’s video, I thought about the debate on paying teachers based on performance.  When folks discuss whether pay for performance would produce higher quality education, they tend to assume that the people who would teach under pay for performance would be the same people who teach today.  Then they cannot imagine how pay for performance could motivate these same teachers to do better.

They fail to consider that pay for performance might draw other people into the profession.  Khan is a good example.  He initially chose to be a hedge fund analyst because it paid better, even though he liked teaching.

Khan found an innovative, productive and far-reaching path into teaching.  Which brings up another point, he doesn’t appear to have teaching credentials, though I could be wrong about that (I didn’t research that thoroughly).  I think credentials are an unnecessary barrier to becoming a teacher, a barrier that benefits holders of those credentials more than students.

I don’t think the Khan Academy will replace schools just yet (but after hearing the last letter Khan read in the Gel video, I’m not so sure).  The Academy already appears to be a great supplemental resource.  It could further evolve into a better alternative for education and others might choose to get in the game with different variations that will be even more successful.  Perhaps large swaths of secondary and college course work could be commoditized.

I will be interested to see what emerges.  It seems promising.   I might even try producing something similar with some of my topics of interest.

In the meantime, I have a few Khan tutorials I plan to watch.

Giving Gifts

At this time of year, I like to review Milton and Rose Friedman’s Four Ways to Spend Money.  It helps me feel better about converting Category II to Category I spending by giving cash and gift cards in place of more thoughtful gifts.  But, not that much better.

I’m always interested in new gift exchange ideas.  In the past couple years, my extended family has migrated to a white elephant gift exchange from the traditional gift exchange.  Most of us like it better because it’s a more social activity and you get a chance to get something you might like.

Here’s a few variants to the white elephant exchange that I’d suggest:

  • To encourage more useful gifts and fewer humorous gifts (or trash that people haven’t had the heart to throw away) in the white elephant exchange, consider adding a rule where the participants who contribute gifts that get stolen the maximum amount of times in the main round get an extra round to steal any gift, even those that were locked in.  The extra round would work similar to the first round.  Those eligible to steal would draw a new set of numbers to determine order and the 2-steal rule would be in effect again for this round.
  • Oprah-inspired: Try changing it from a white elephant exchange to an our favorite things exchange.  This is a perfect chance to share something that you love or find really useful and find out who else in your group shares that preference with you.  That might also be a good way to build bonds with those folks and give you something to talk about.

There are many variants you could do on the ‘favorite things’ exchange.  You could choose a theme it each year.  For example, one year might be our favorite tolietries.  The next year it could be our favorite snack food.  Other possible favorites themes: movie, music, activity, drinks, sport, tool, charity and so forth.

Feel free to post your gift exchange ideas.

Let’s Thank the Top 1%

Alan Reynolds makes a great point in his opinion piece, Taxes and the Top Percentile Myth, in the Wall Street Journal today.

Arguments for these retaliatory tax penalties [reinstating pre-Bush tax rates] invariably begin with estimates by economists Thomas Piketty of the Paris School of Economics and Emmanuel Saez of U.C. Berkeley that the wealthiest 1% of U.S. households now take home more than 20% of all household income.

This estimate suffers two obvious and fatal flaws. The first is that the “more than 20%” figure does not refer to “take home” income at all. It refers to income before taxes (including capital gains) as a share of income before transfers.

Reynolds’ first fatal flaw is obvious and I’m surprised that I haven’t heard it before.  Though, I wish Reynolds would have provided the share of actual take-home pay for the top 1% to illustrate how tax rates impact the gap between rich and poor that the left.

I performed some math on the numbers from this link and I estimate that while the Top 1% earned 20% of income in 2008 (or AGI), their after-tax income makes up 17.5% of total after-tax income.

This point also reminds me that when talking poverty statistics, we again usually talk only about taxable income.  We rarely adjust for the value of the sources of assistance received by government and/or private charities.  This seems odd, since the main point of the government programs is to help alleviate the poverty conditions.

Now, I think I know why Reynolds didn’t provide the number.  I’m not sure many on the left would find a 2.5 percentage point “leveling of the playing field” compelling.

Reynolds does go on to point out that:

…no other major country is dependent on so few taxpayers.

And Reynolds references a 2008 OECD study that concludes:

“Taxation is most progressively distributed in the United States…”

This bolsters two points I like to make to those who complain that the tax code is not progressive enough.

First, I point out that it is polite to thank those Top 1% earners for shouldering so much of the cost of government for us.  The left claims  that government, or society, makes their riches possible (they should read Hayek).  I like to point out that their riches make the government we have possible.  If a wealthy person picks up the tab for 40% of your dinner, you should thank them.

Second, I like to ask them how progressive should we be?  I’d like to know what they think is the ideal spread of income and taxes so we’ll know when we get there.  Even though the OECD says we have the most progressive income tax system, we apparently aren’ t progressive enough for progressives.  Failing to ask them to state their desired goal lets them always say, “we should be more progressive.”

The second fatal flaw Reynold’s points out in the Top 1% data isn’t so obvious, but it’s still a good point.  The point is that tax rates influence the types of income that are reported.  Put a high tax rate on income, and the wealthy will take more of their income as capital gains, which is taxed at a lower rate, or won’t report income at all.  They’ll hold it long-term in stocks.

Building from this, Reynold’s final point is that if we seek to increase the share of taxes paid by the wealthy, we may come to find that they will not report as much income and they’ll pay a smaller share of taxes, which Reynolds calls an

…ironic consequence of listening to economists and journalists who form strong opinions about tax policy on the basis of an essentially irrelevant statistic about what the top 1%’s share might be if there were not taxes or transfers.

Last Call!

In a recent interview with Dennis Miller, Tim Pawlenty offers a great illustration of how incentives matter.

All you really need to know about what we need to do with government is go to two weddings.  Go to one where there is a cash bar, go to one where there’s an open bar and you’ll see very different behaviors.

And the government has been running itself like an open bar.

If you run systems and programs where people have no idea what the price is, no idea what the quality is, the only measurement is how much they consume, and the provider of it has the measure of how much volume they can provide and the fiction is created that the bill goes somewhere else, that system is doomed to fail.

Unfortunately, that’s most of what we have in government, we’ve been running it as an open bar mentality.  The party needs to come to an end in that regard.  We got to switch to people being in charge of more of their own money, give them good information about price and quality and to the extent we can afford it, give them help, but give it to them directly.  Don’t run it through a big bureaucracy based out of Washington DC.

Sometimes the answers are hiding in plain sight.  The open bar analogy is perfect.  We can all identify with it.  I’ve had some rough nights after an open bar.  Not so much with a cash bar.  We all respond to incentives.

Yet many people unrealistically want to believe that we can have an open bar and somehow control behavior to prevent the downsides that causes.

Private Solutions: Getting Off Your Duff

Some folks advocate for government solutions when they see something that just “ain’t right” and “we ought to do something about it.”  There’s a few directions the discussion can take from here.

One direction:  If I agree that whatever it is “ain’t right”, I tell them so and suggest that what we ought to get off our duffs and take voluntary action to solve the problem, rather than force everyone else to do it through government.

I appreciate it when I see good examples of people getting off their duffs.  Here’s one good example of a morning radio show that does just that: The Johnny Dare Morning Show Hope for the Holidays.

People experiencing hard times write to the show and get on the air to discuss their bad situation and describe what could help make their Christmas better.  That typically involves getting presents for the kids and keeping the lights on.  The requests are usually relatively modest.  Within seconds callers donate cash and gift cards to help out.

Everyone’s involvement in the process is voluntary and they all benefit from it.  That’s good.  My only suggestion that I think could make this even better is if Dave Ramsey got involved and gave out a reduced tuition to his Financial Peace University for some of these folks.

This post will start a new category that I plan to continue in the future, featuring private solutions.  That’s a blind spot I’ve noticed with the folks who advocate government carry out their philanthropic wishes, they have a hard time recognizing the private solutions that are working or they under appreciate the effectiveness and magnitude of these solutions.

Allocation Through Pricing

Several years ago a friend got me hooked on the annual tradition of buying Beaujaolais Nouveau in November.  This red wine is made from the grapes of this year’s harvest and is shipped out across the world on the third Thursday in November.

It was fun.  For a few years we went together to purchase the wine.  It made for a nice story on Thanksgiving.  And, it was cheap.  I think I recall paying around $5 a bottle for the wine.  But, you had to get there within a day or two or supplies would run out.

Another friend asked me if I bought the Beaujaolais this year?  “No.”  “Why not?”

My first answer was, well it has become too mainstream now.  Everybody knows about it.

Then I thought for a second and continued…

“And, they raised the prices.  At $5/bottle, I’d buy 2 or 3 bottles.  Now the prices are around $10 – $14.  I guess it wasn’t worth it to me.  I have other wines I enjoy more for that price.  Also, I notice you don’t have to get there on day one now, supplies last with the higher pricing.”

I thought back to the story of flashlight pricing at Big Box retailer in Russell Roberts’ The Price of Everything.

After an earthquake, Big Box raised prices.  Of course, that made everyone mad, yet Big Box was the only place in town where you could get what you needed (p. 71).

[Ruth - Econ professor]: “On the night of the big earthquake, there aren’t enough flashlights to go around. At the usual, everyday prices, people want to buy more flashlights than there are flashlights on the shelves, agreed?”

[Ramon - outraged consumer]: “Yes.”

“Given that there aren’t enough flashlights to go around, who should get them?”

“That’s easy.  The people who need them the most.  Not the people who already have one.  Not the people who have lots of candles.  Not the people who are going to sleep most of the night anyway.”

The conversation continued.  Ruth asked how you would decide who needed the flashlights the most.  She points out the problem is knowledge.  You could interview people and see who makes the best case, but Ramon is skeptical that people might not tell the truth.  Ruth adds that along with flashlights you would need to make the same decisions for candles, diapers, portable generators and items to numerous to have any hopes of being effective.

[Ruth]: “If you leave prices alone at their regular everyday levels, who gets the flashlights and the milk and the generators?”

[Ramon]: “The people who need them.”

[Ruth]: “I don’t think so.  If you leave prices alone, the people who get the flashlights are the people who get there first.  When you went to Home Depot, the stuff you wanted was already gone.  But at Big Box, anyone who wanted a flashlight could have one.”

[Ramon]: “If they were willing to pay for it.  That made it harder on the poor people…”

[Ruth]: “Agreed. But for thousands of people, there were flashlights waiting for them.  Remember that knowledge we wanted to have? The knowledge about who needed flashlights the most? When Big Box raises the price of flashlights, someone who had candles at home decided to do without the flashlight and left it there for you on the shelf.  No one had to interview either of you. The higher price induced both of you to act as if you had been interviewed.  The person with the candles, by refusing to buy the flashlight at the higher price, was saying, I’ll pass on buying a flashlight. I’ll leave it for someone who needs it more. But no one begged him to do the right thing or passed a law that would have to be enforced or interviewed him to find out who needed it the most.  The higher price made sure you got the flashlight, that seems pretty just to me.”

With the higher price on Beaujaolais, I decided to pass on it and leave the 2 to 3 bottles I would have bought on the shelf for someone else who valued it more.  I would make due with other wines and without the stories of drinking this year’s harvest.

If you’re still curious about poor people not being able to afford flashlights and would like to know more about what Ruth Lieber says, I encourage you to get a hold of Roberts’ book and read it.

As for me, I’m thinking about buying extra flashlights, batteries and a generator while the prices are reasonable.

Double team

Walter Williams and Thomas Sowell are double teaming the electorate.

Heres’ the opener from Walter Williams’ column this week, Changing America.

Dr. Thomas Sowell, in “Dismantling America,” said in reference to President Obama, “That such an administration could be elected in the first place, headed by a man whose only qualifications to be president of the United States at a dangerous time in the history of the world were rhetoric, style and symbolism — and whose animus against the values and institutions of America had been demonstrated repeatedly over a period of decades beforehand — speaks volumes about the inadequacies of our educational system and the degeneration of our culture.” Obama is by no means unique; his characteristics are shared by other Americans, but what is unique is that no other time in our history would such a person been elected president. That says a lot about the degeneration of our culture, values, thinking abilities and acceptance of what’s no less than tyranny.

And the closer:

Fighting government intrusion into our lives is becoming increasingly difficult for at least two reasons. The first reason is that educators at the primary, secondary and university levels have been successful in teaching our youngsters to despise the values of our Constitution and the founders of our nation — “those dead, old, racist white men.” Their success in that arena might explain why educators have been unable to get our youngsters to read, write and compute on a level comparable with other developed nations; they are too busy proselytizing students.

I was disappointed with both tickets in the last presidential election. I didn’t think any of the candidates were yet qualified for the highest offices. When I pointed that out to folks, I got an assortment of non-sense responses.

One popular response: “He ran a great campaign.”  That’s a qualification for President?  Would you hire a head football coach for the NFL based solely on a good job interview?

Another popular response:  “I want an articulate President.” To which I’d respond, can you listen to his last speech and explain what he said?  I could rarely make out what he was saying. Everybody was in awe of his style, not his substance.

Maybe that ties back to Williams’ comment about our education system. We can no longer differentiate between style and substance. Don’t get me wrong, not many politicians actually deliver much substance. But that’s our fault. We have such low expectations of them.

More common responses:  “He seems like a good guy. I’d like to have a beer with him.”   That’s how you choose your President? In that case, most of my buddies should be President! Again, what are we learning in our education system?  The sad thing is that a lot of people would let that pass as an acceptable answer, when they should let that person know that he should not vote until he he becomes an adult.

Here’s a short list of what I would like to know when considering who to vote for President:

  1. What’s their view on role of government and how does that fit with the Constitution?  It’s amazing to me that we let people in office when we’re not entirely clear on this.
  2. What does freedom mean?  Of the two following statements, which best matches their view of freedom?  The ability for individuals to make decisions that suit their needs and preferences…
    • …free of coercion from others.
    • …free of negative consequences that might result from such.
  3. What do they think of the Constitution?  What is its purpose?
  4. What is the process for changing the Constitution from it’s original intent?
  5. What actions have they taken in the past that support or contradict their stated views?
  6. What makes for a good federal judge and Supreme Court justice?
  7. What does “uphold the Constitution” in their oath of office mean to them?
  8. Where does the candidate think government has overstepped it’s boundaries in the past?
  9. What do they like about the U.S. and dislike about it?
  10. Why do they think Rome fell?
  11. How have they led in the past against politically unpopular things?
  12. What do they think about capitalism?  Property rights?
  13. Why do they think the U.S. is the wealthiest country ever?

Those are a few of the questions I would like to know the answer to before casting my ballot.

A different kind of evolution

How did we get here?

I carry a Blackberry, use an iPod touch, live in a home with indoor plumbing, central air and heat, kitchen, refrigerator, washer and dryer.  That doesn’t even scratch the surface of modern conveniences. We have an amazing standard of living.  A common theme on this blog is recognizing that.  We too often forget it.

Years ago, while watching a Discovery channel show on how early homo sapiens lived, it occurred to me that early homo sapiens had the same basic resource and constraint as us.  They had 24 hours in the day (maybe a second longer) and needed one to two thousand calories.

Until they learned to cook, they chewed meats for hours to begin the digestion process. Cooking was a major innovation, allowing them to reduce the time spent ingesting food by hours.  This freed up time to do other things, like make better tools for hunting and the Internet.

To get from there to here, we’ve basically found ways save more time and make better tools.  Now we can accomplish much more in 24 hours and the effort we need to expend to consumer 2,000 calories is minimal.  Such innovations come from trade and specialization.

But trade and specialization are not the only mechanisms that took us on our path. Other things helped as well.

Things that are so natural and innate to us that they are invisible.  So few people see them or understand them or think much about them.  Those things are the rules that govern how we interact with each other.

Our interactions with each other have evolved to allow us to get along and be productive, so says F.A. Hayek in The Fatal Conceit (p. 20):

That rules become better adjusted to generate order happened not because men better understood their function, but because those groups prospered who happened to change them in a way that rendered them increasingly adaptive.  This evolution was not linear, but resulted from continued trial and error, constant ‘experimentation’ in arenas where different orders contended.  Of course there was no intention to experiment — yet changes in the rules thrown forth by historical accident, analogous to genetic mutations, had something of the same effect.

Amazingly enough, we really don’t know why the rules work or why we do what we do (p. 23):

Though in a sense based on human experience in that they [custom and tradition] were shaped in the course of cultural evolution, they were not formed by drawing reasoned conclusions from certain facts or from an awareness that things behaved in a particular way.  Though governed in our conduct by what we have learnt, we often do not know why we do what we do.

And it just so happens that the successful experiments displace the unsuccessful ones (also p. 23):

Learnt moral rules, customs, progressively displaced innate responses, not because men recognised by reason that they were better but because they made possible the growth of an extended order exceeding anyone’s vision, in which more effective collaboration enabled its members, however blindly, to maintain more people and to displace other groups.

I’m looking forward to reading the rest of this book.

Letting tax “cuts” expire aka BIG government bailout

We bailed out mortgage lenders who made the mistake of loaning money on the promise of rising home prices.

We bailed out homeowners who made promises they could not keep.

We bailed out auto companies who wrote checks to their workers that could not be cashed (at least, not without stiffing debt holders).

Government borrowed to “jumpstart” the economy.  Not surprisingly that didn’t happen.  Now, the folks who would like to see tax rates increase to help the deficit want to bail out BIG government by taking more from us.

I find it irksome that for some folks cutting government spending from its new and enlarged levels seems to be a distant priority, while taking more from taxpayers to fix the deficit seems so tantalizing.

Besides, are we to believe the people who told us that spending more money would pay for itself with a growing economy when they now tell us that increasing tax rates will result in more tax revenue.