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.

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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.


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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.