Capitalism? Nah

Bryan Caplan’s EconLog post, Diseases of Poverty: Neglecting the Obvious is worth a read. He points out that solutions proposed on the Wikipedia entry for diseases of poverty focus on redistribution, rather than best proven solution:

It’s almost like the last two centuries never happened.  Quick recap: During the last two hundred years, living standards exploded even though the distribution of income remained quite unequal.  How is such a thing possible?  Because total production per person drastically increased.  During this era, no country escaped dire poverty via redistribution, but many escaped dire poverty via increased production.  And while the effect of moderate redistributive policies on growth is unclear, there is no doubt that populist and socialist movements determined to “tackle the inequitable distribution of money, power and resources” and “change the way that society is organized” sharply retard growth.

Why does government work so well? Huh?

In this post on EconLog, Bryan Caplan explores why government enterprises work so well.

He makes a good point.

I think the small-government types (like myself) can overplay disasters of government involvement and we lose credibility when we do so. So, I do think its helpful to recognize when government seems to be doing, at worst, okay.

On the flip-side, I think big-government types can overplay the successes of government enterprises.

But, I think much of this is explained to the extent of what level of government we are talking about and the dynamics of that level, to what extent it is bottom-up or top-down.

I discussed this in more detail in this post back in 2013. I think government enterprises that work pretty well are more bottom-up and the ones that don’t work so well are top-down.

That post was inspired by an apples-and-oranges comparison often made by government-types.  They say that fire and police departments are government, and work pretty good. Then they make the logical leap to use this to support that some Federal government enterprise will work.

The lapse in that logic is that fire and police departments, while government enterprises, operate at the local level. There are thousands of these departments, that operate rather independently of one another, across our country. This makes these enterprises operate much more like a bottom-up organization, than top-down. This allows these enterprises to benefit from the same dynamics of innovationism as businesses.

Signals vs Causes: Education

In this excellent EconTalk podcast, EconLogger Bryan Caplan discusses his upcoming book on education. He closes with this:

…the private return [of education] is high is really a very bad argument for pouring more money on.

Now, the other point, as we were saying, the return that you should be looking at in terms of this argument of not being able to borrow against your future earnings–what you are looking at is return for the marginal people who are just on the edge of going or not going. And as we’ve seen, the return for those people is actually… quite mediocre. And then finally if you adjust for ability and everything else, really I would say that once you appreciate signaling you realize that, so we have subsidized education way past the point of [?] returns. So by my calculations, actually, the social return to education is now quite negative.

And it would be a much better policy to drastically scale it back, so rather than encouraging more people to go, I think it’s better to discourage them from going or at least to encourage them less. So in fact–so, the biggest policy implication that’s going to come out of my book is we just have way too much education. I call this the white elephant in the room. There are way too many people going to school, maybe not from their own selfish point of view, but certainly from a social point of view to go and pour more money on this really is just throwing gasoline on the fire. And we need to do less of it.

I agree. Caplan’s argument is that we college education isn’t the cause of higher income, rather it’s just become the customary path that people with above average ambition and ability take and along the way we’ve mistaken it for the cause of that higher income.

It’s similar to the mistake ‘we’ made with housing. We thought owning a house made people responsible, so we made it easier to irresponsible people to own homes. We learned the hard way that owning a home was a marker of a responsible person, not a cause.

Now, we’re learning the same about college education as many kids graduate and find themselves deep in student loan debt and no higher income job to pay it off.

Enhanced by Zemanta

Two more good ones from Bryan Caplan

Bryan Caplan thinks it’s inconsistent for the left to believe the poor shouldn’t be blamed for their predicament, but Republicans can be blamed for a host of things like not helping the less fortunate or ignoring evidence of global warming.

He also points out that the predatory pricing practiced by public schools yields only a 90% market share after decades, not a monopoly as folks believe.


Enhanced by Zemanta

Minimum wage links

Don Boudreaux has had several great posts about the minimum wage lately, but a couple are exceptional. In this one, he does a great job of giving illustrative analogies to make the economics easier to understand. In this one he writes a letter to the New York Times to dispute the left’s favorite Nobel-laureate, Paul Krugman.

In this one, Greg Mankiw, also responding to Krugman, points to research that found a link between jobs and the minimum wage. Mankiw also points to a great post from Steve Landsburg, that introduces some interesting and different points. Steve edits that post here.

Mankiw also disagrees with the President about research on minimum wage.

Of course, there’s one single point that most of these economist, except Don Boudreaux, misses: What business is it of your’s?

It was really hard to write this one without cuss words, sorry

Bryan Caplan suggests that students in the bottom half of their class begin vocational education after elementary school. I recommend reading the whole post.

According to Caplan, a critic of his idea thinks this might:

…intensify the already severe problem of business brainwashing…[of] narrow materialism, unquestioning conformism, and outright deception…[and that] Academic education is a vital counterbalance [by teaching us] to challenge the status quo to think for ourselves, and appreciate the plurality of values.

Caplan has seven points for his critic to think about. I like this one:

Academic education does indeed instill a distinct set values.  But I see near-zero evidence that schools encourage students to “think for themselves.”

I think what his critic really means by “think for ourselves” is to present a set of values that agrees with his own.

One point Caplan doesn’t mention: folks in the bottom half of the class probably won’t get whatever the academic world is trying to instill in them.

I don’t mean that they’re too dumb to get it.

I know quite a few people who were in the bottom half of their class. Part of the reason they were is because they seemed advanced in thinking for themselves and thought school was bullshit (looking back, I think their point has some merit).

They spent considerable time developing skills with something they enjoyed and are doing fine now doing something that uses those skills.

Plus, isn’t education supposed to teach us how to read, write and do arithmetic? If Caplan is accurately portraying his critic’s viewpoint, then I think he exemplifies one thing that’s wrong with education — the education body sees itself as “vital” for something other than education.

Update: For clarity, it wasn’t Caplan’s point that made me want to use cuss words, it was his critic’s.  Also, while I agree with the intent of Caplan’s point, I don’t agree that it is as simple as putting the bottom half of the class through a vocation.

Rather, I think it is something that should be able to be done as a choice and not degraded as the ‘path for dummies.’

Also, I think that many vocations that are now achieved through the university track could easily be achieved through more of a vocational track. For example, I could have been successful in my former profession as an engineer with all the humanities hoopla added into my education by university requirements.

One of the unintended consequences of subsidizing college education has been the consolidation of vocational professions into universities.

“The worst possible thing is to have people with good motives, but bad understanding.”

The title is quoted from Bryan Caplan at about 8:30 of the Freakonomics podcast, We the Sheeple.

I recommend listening to the entire 24 minute podcast.

In one segment, Caplan addresses some Obama and Romney campaign planks and explains why they are terrible economics, but good vote-getters.

Regarding making it easier to go to college, Caplan points out that the benefits are not that clear from economic standpoint because:

We already have an enormously high drop-out rate, especially for marginal students. Most of the benefit from college is from actually finishing it.  Over the last decade we’ve seen a large rise in the number of people who start college, but the fraction that actually finishes is very flat. It seems quite likely that this is just going to encourage some people to waste a couple of years of their lives with very little to show for it.

But the reason politicians campaign on it:

And yet, what I just said is not anything you’d ever want to tell voters. You certainly don’t want to get in front of a national audience and say, ‘you know, I think too many go to college, a lot of people aren’t very serious. That’s just the fact. A lot of people aren’t meant for college.’ That sounds terrible.

[Host Dubner]: And, therefore, campaigning on the idea of sending more people to college is a great thing to campaign on.

[Caplan]: Sounds great. And, of course, we’re going to pay for all this stuff…sounds good… I mean who wants to pay for stuff?

That last question sums up politics. Who wants to pay for stuff? Nobody really. But we hope others will.

Shameless Society

Ours’ was once a society that expected able-bodied folks to carry their own weight and not be a burden on others. And, it didn’t take much to be considered able-bodied.

Depending on others was looked down upon, shamed. Putting up a genuine effort to take care of your responsibilities earned you respect and dignity, and those marks of character use to carry some clout.

This seems to have changed over the past few decades. The standard seems to have gone from ‘able-bodied’ to ‘no fault of your own.’ If an intellectual from an elite university, or politicians seeking re-election can make a plausible sounding argument that passes the 5 second sniff test that some poor sap wound up in a bad position ‘through no fault of their own,’ then it’s ‘our’ job to help him out.

I say 5 second sniff test, because if most of us thought about the poor sap who lost his job ‘through no fault of his own’ two years ago, hasn’t found another job and has a family to feed and a house payment to make for more than 5 seconds we might start asking questions. Has he had any job offers? How many resumes has he sent out? Did he save an emergency fund? Has he tried to take a lower paying job to make ends meet? Does he have any other skills? Did he really need to buy a house with a mortgage payment so large that he couldn’t afford to pay it if he lost his job? Did he need to take out the home equity loan to remodel the bathroom? We might start to think of this poor sap who is in a tough spot ‘through no fault of his own’ as an ‘able-bodied’ person who maybe does deserve some of the fault.

Reading this exchange between university professors Bryan Caplan and Bill Dickens (the latter was the former’s Econ 1 teacher) troubles me.

Caplan steadfastly holds that a major cause of poverty is irresponsible behavior, that correcting this behavior is a good way out of poverty and rewarding this behavior is not a good way to stop it. Rather, that’s a good way to get more of it.

That part of the exchange I had no problem with.

It’s Dickens response that troubles me. First, I find its high fallacy and emotion content unbecoming of a university professor. Second, he goes out of his way to make excuses for irresponsible behavior. One example:

I must have spoken with, in the neighborhood of, 100 welfare recipients when I was working on the reform… Overwhelmingly those on public assistance were full of regret and/or a sense of hopelessness that they are fated to their condition. They know they should have worked harder in school, they know they should be working to support their family, they know it would be better if their children’s father was there to help support their kids. There is no shortage of hectoring from society, welfare caseworkers, family members, and the media.

From Caplan’s response:

I don’t think they’re sorry for their behavior.  I think they’re sorry they’re experiencing the predictable consequences of their behavior.  I see them the same way I’d see a serial adulterer enduring a hellish divorce: “Sure you’re sorry.  Sorry you got caught!  Sow the wind, reap the whirlwind.”

I’d add that there’s also no shortage of folks like Dickens who psychologists from circa 1980 would call enablers. While Dickens sees plenty of ‘hectoring from society’, I see plenty of people telling them it’s okay. It’s not their fault. Society has just left them behind. We have a safety net to help. Please, feel no shame.

I don’t have much problem with social safety nets, with the exception that they tend to devolve into dependency reinforcement programs, rather than true anti-poverty programs.

We don’t have real safety nets. Real safety nets would look more like this. Do you want to receive unemployment benefits? Report to your local Parks & Rec guy on Monday and spend 8 hours cleaning parks. We’ll help, but we expect you to do something productive in return.

Do you want welfare? How about a drug test? Did you get a free visit to the emergency room? There’s plenty of work to be done at the hospital. Maybe you can scrub a floor. Want a student loan? Sign up for a degree program that leads to a paying job. But how will we know if it will or not? By looking at whether past students who took loans out for the same program paid their loans back.

In the old days, if you were down on your luck and needed a free meal, you at least offered to wash dishes. Now, it’s okay to get a free meal and simply ask for more.

One of the most destructive things that has happened in our society has been removing shame, which has devalued dignity. Why work to earn respect when you can get by without it? Sure, there are some parts of society where the shame and dignity feedbacks are still vibrant, but they’re dead or dying in many parts controlled by government, which is around 40% of the economy.

Later in Dickens response, he suggests that Caplan spend time with some poor people. I’d recommend the same thing for Dickens. Except, this time, don’t do it while working on the President’s welfare reform task force. Interact with them on a regular, day-to-day basis. Go to the billing departments of hospitals. Become a checkout clerk at a grocery store. See what is bought by folks with government assistance. Go visit some folks receiving Social Security disability. Or, when they are getting a payday or title loan. The stories I hear from folks in these areas would have been considered shameful by most not long ago.

I hate to throw the baby out with the bath water. There are people who still value dignity who are helped by these programs and eventually work to become self-sufficient. It’s much more palatable to me to at least attempt to direct and limit these programs for such folks. That should be what it’s about, right?

That was the whole idea of the ‘able-bodied’ standard. Get off the dole if you can so we have enough to help the ones who really need it.

Daniel Hannan addressed this in his book, The New Road to Serfdom, as well. I wrote about here. I quote myself and Hannan from that post (his is the double indent):

Then Hannan goes on to analyze why the 1996 welfare reform in the U.S. was successful.  He gives several reasons, but one of the most important was localism in the administration of welfare.  Ultimately, the reform pushed welfare administration from a centralized federal level, to a local, in some cases, sub-state level, which has many benefits.  This is probably one of the best:

…localism under-girds the notion of responsibility: our responsibility to support ourselves if we can, and our responsibility to those around us–not an abstract category of the “the underprivileged,” but the visible neighbors–who, for whatever reason, cannot support themselves.  No longer is this obligation discharged when we have paid our taxes.  Localism, in short, makes us better citizens.

“Yes, but…”

Bryan Caplan wrote that in his first 17 years of life, he never encountered an opponent to policies like the minimum wage, FDA and social security. And he grew up in “bland Northridge, California”, not some “leftist enclave.”

He has me beat by 5 years. I, too, did not grow up in a leftist enclave. Just a “bland” midwestern town where the populist defenses for these policies that Bryan wrote more about in his post were taken as gospel.

Caplan’s post is worth reading. In it, he criticizes intellectuals who “yes, but…” the writings of French Economist Frederic Bastiat’s, who dismantles these populist defenses.

Caplan asserts that said intellectuals don’t display higher regard for Bastiat’s work for fear of damaging the political base they need to sport their solutions on the rest of us.

What I learned in business school

Bryan Caplan asks a great question, What Did You Learn in Business School? He goes on his post to clarify that he’s looking for things that you learned that you actually use in your career. I believe he is doing research for a book. I can’t wait to read it.

We live with the mostly unchallenged general belief that all school is good and the more school the better. I think that belief is something that more of us should challenge.

To answer Bryan’s question about what I learned that I use in my career, very little. Much of what I do I learned on-the-job or by researching topics on my initiative.

I’ve been thinking about this question myself a lot lately. I’ve been working on a blog post with the same theme.

One of the first things I credited b-school with was teaching me how to read financial statements. But, then I remember that I took an accounting class one summer while I was attending engineering school. I was interested in finance and thought that would be a good way to dip my toe into it.

I took a community education course, taught by the finance manager of an auto dealership. It cost $40. We met twice a week in the classroom of a junior high school. I remember one classmate of mine was a floral designer at grocery store who was considering a career change.

Later, when I took the accounting course offered in my university MBA program, which was taught by a PhD who advised state treasurers, I remember being underwhelmed with how remarkably similar it was the $40 community education course that I took.

Next, I thought that maybe b-school taught me how to value business and business cases, something I do a fair amount of now. I think it laid some groundwork, but after b-school I read Robert Hagstrom’s book on Warren Buffett’s investment decisions, The Buffet Way, and was impressed with the simplicity and elegance of the valuation approach Hagstrom described. I thought it was better than what I learned in b-school, so I adopted it and have done better in that regard than many of my b-school peers who have not read the book and struggle to even express in words what exactly a stock price is.

What about economics? I think a broad base in the economic way of thinking is a good tool to have a business analyst or manager. I loved micro and came as close as I could to not passing macro in my MBA program. But, neither did much for me. By the way, that was the second time I had taken both. The first time was as an undergrad. Economics was an area of emphasis (whatever that means) I remember being impressed with the “multiplier” in macro as an undergrad and I scored better there.

But none of the economics courses did much for me. It wasn’t until I read Thomas Sowell’s book, Basic Economics, later that I gained a better understanding of the economic way of thinking. Since then I’ve become quite the pop economist, thanks to reading many more pop econ books, a few heavier econ books and years and years of economics blogs, along with learning exchanges in the comments sections of those blogs (sounds a lot like an online course).

As I posted here, I think it would be good if b-school were to transition into more of an applied experience. Go do something. Start a business. Do a project for a business. Buy a business, try to grow it and sell it. You’ll learn a lot more valuable stuff and you will probably end up adding more value to the economy than hanging the standard sheepskin on your wall.