Education

Here’s the data on Swedes at Oxford.

The average acceptance rate for EU applicants was 9.2%. For Swedish applicants it was 3.2%.

For 2013, both Oxford and Cambridge accepted 140 students from Singapore, a country of 3.3 million citizens.

They took 26 from Canada, which has 33 million people.

http://www.ox.ac.uk/about/facts-and-figures/admissions-statistics/undergraduate-admissions-statistics/nationality-and-domicile

That is from Chip.

From a recently published research paper by Gustaf Bruze:

Counterfactual analysis conducted with the model suggests that Danish men and women are earning on the order of half of their returns to schooling through improved marital outcomes.

For the pointer I thank the excellent Kevin Lewis, and there are ungated versions here.

married-at-first-sight

In addition to my earlier pick of Chile, I now must nominate Sweden and Norway for this honor.  Both are wonderful countries, and in absolute terms very likely to remain strong performers.  But I think a good deal of that old Nordic magic is slipping away, and this has become more evident in the last few years.

Let’s start with Sweden and maybe I’ll get to Norway another time:

1. The average product of their education system seems to have declined rather rapidly, as measured by test scores.  On PISA they have gone from #4 to #21.

2. Arguably the basic Swedish economic social model is inconsistent with their level of immigration, and I don’t see them switching to a different economic and social model anytime soon.  You can be pro-immigration, and still not think Sweden is honing in on the right mix of domestic policy and immigration policy.

3. Swedish manufacturing seems to be deindustrializing at a faster than expected pace.  And some of Sweden’s most successful sectors are exposed to a lot of competition from emerging markets, in particular because they rely heavily on engineering talent.  Sweden also has a significant presence in financial services, but they are not an obvious future winner in that area.  And do timber, hydropower, and iron — their main commodity exports — have such a promising future?  There are probably few disasters lurking here, but lots of question marks.

4. Sweden doesn’t seem to have a lot of low-hanging fruit left.  Female participation in the labor force already is high, and they already have done lots of liberalization, privatization, and deregulation.  It is not clear where the next generation of policy improvements will come from.  The McKinsey report recommends “increasing government productivity” as a major source of potential gains, but that is hardly easy, even for the Swedes.

5. The Swedish central bank seems to have scored an “own goal” by engaging in premature tightening, coming out of the earlier recession.  They’ll make much of that up over time, but still it is a sign the country has lost some mojo.

6. Sweden’s household to debt ratio is about 170%, one of the highest in the world.  This is not only troubling in its own right, but arguably it is a sign debt is being used to make up for a slow accumulation of underlying economic deficiencies, as was the case in the United States.  Furthermore “Four in 10 mortgage borrowers in Sweden are not paying off their debt, according to data collected by Reuters, and those that are repaying the principal are doing so at a rate that would on average take nearly a century.”  They are probably still in the middle of a housing bubble.

7. There is an erosion of support for mainstream Swedish political parties.  You don’t have to approve of those parties to see this as a symptom of a very slight underlying political rot setting in.  The “extreme Right” party has seen a rapid rise in support.

8. A rampaging Putin probably won’t harm them directly, but still recent Russian events raise geopolitical risk in their neighborhood.

Don’t worry, the Swedes will do fine, but they have arrived at officially overrated status.  I was more sanguine about their prospects a few years ago than I am today and I would not invest in their stock market.  If you wish to count their pluses however, they still have a very good system of government, a strong ethic of trust and cooperation, a good ability to change course when necessary, high productivity, a strong presence in information technology, a wonderful export capacity, low public debt, and first-rate proficiency in English, among other virtues.

That all said, the Swedish currency is actually down against the euro since the beginning of the year.

Should economists shy away from teaching hard topics for fear of offending someone’s moral sensibilities? Should we restrict ourselves to the market for ice cream? The tagline of our textbook, Modern Principles, is See the Invisible Hand: Understand Your World. We take understand your world seriously and we teach topics that other textbooks do not such as the economics of network goods like Facebook or the economics of tying and bundling which students see regularly when they purchase cell phones and minutes and Cable TV.

The world, however, is not always a pleasant place and so we also discuss modern slavery and how the concept of the elasticity of supply can help us to evaluate programs like slave redemption. It’s important to teach this material with seriousness, it’s not an idle exercise in “freakonomics,” and it’s possible to misstep but we think students need to see economics as a vital discipline that can be used to make the world a better place, even if only one small step at a time.

Here is Tyler on elasticity and the economics of slave redemption. This is from the elasticity section of our course at MRUniversity, released today along with taxes and subsidies. You can also find a lengthier treatment with more details in Modern Principles.

Based on my paper, Lessons from Gurgaon, India’s Private City (with Shruti Rajagopalan) I discuss private cities with Russ Roberts over at EconTalk this week.

I think the conversation went well but I haven’t heard it yet so let me also take the time to point you to my favorite recent EconTalk, Russ interviewing Greg Page, the former CEO of Cargill, the largest privately-held company in America. Their discussion covers the global food supply, false definitions of national food security, the role of prices, comparative advantage and more. It’s a great discussion.

Mostly, yes, although with some caveats (the headline of the piece doesn’t exactly capture this).  That is the topic of my latest column for The Upshot.  Here is one excerpt:

Niclas Berggren…and Therese Nilsson…have produced a fascinating series of papers on these questions, sometimes writing singly, sometimes together or with the collaboration of a variety of co-authors. Their most notable study is perhaps a paper they wrote together, “Does Economic Freedom Foster Tolerance?

…One of their most striking findings is that societies characterized by greater economic freedom and greater wealth do indeed exhibit greater tolerance toward gay people, a tendency suggesting that gay rights, including gay marriage, will spread globally as national economies liberalize and develop.

Some metrics of economic freedom count more than others:

This greater tolerance is strongly associated only with certain features of what has often been defined as economic freedom. For example, a smaller government, measured as a share of gross domestic product, is often included in so-called economic freedom indexes as an objective measure of freedom. But the data show that smaller government has a slight negative correlation with tolerance of gay people by heterosexuals. One implication is that many conservatives may be overly preoccupied with the size of government as a measure of how free societies actually are.

On the other hand, the data shows that when a society has impressive scores on property rights security and low inflation — two other components of economic freedom indexes — these characteristics are strongly and positively correlated with tolerance of gays. It’s possible that low inflation, and the behavior of a central bank, are stand-ins for the general trustworthiness of a nation’s government and broader institutions, and such trustworthiness helps foster tolerance.

The results for race are not nearly as strong, namely both freedom and prosperity are less clearly associated with higher levels of racial tolerance, although the correlation is still a positive one.

And there is this:

We are often told that education is an important remedy, yet it does not register as a meaningful factor in the cross-country data in this paper. Higher levels of education simply have not correlated significantly with higher levels of tolerance across countries.

Do read the whole thing.

The Supply Curve

by on January 23, 2015 at 7:25 am in Economics, Education | Permalink

Here is our video introducing the supply curve from our principles of micro-economics course at MRUniversity. Supply, Demand and Equilibrium are available now. Next week, elasticity!

From the letters page of the FT:

Sir, Whether the European Central Bank chooses to embark on a programme of sovereign QE (or quantitative easing, as it used to be known) is of little day-to-day interest to most citizens of the EU. Whether the compilers of dictionaries accept that QE is now a word in its own right — as opposed to an abbreviation — is of far more relevance to us scrabble players. Using a Q without needing a free U it would rapidly be up there with Qi (the Chinese word for life force) as one of the most useful words in the lexicon.

Richard Kemmish

Surbiton, Surrey, UK

I would think that for the foreseeable future QE would be ruled an abbreviation, not a word, although enough years of macroeconomic misery eventually could flip this the other way.

Some abbreviations, however, are acceptable Scrabble words because they have entered common parlance.

Here are other “Q without U” words which are eligible for use in Scrabble.

John Bayley has passed away

by on January 22, 2015 at 12:12 pm in Books, Current Affairs, Education | Permalink

An Oxford Don, he wrote one of my all-time favorite books:

“Elegy for Iris” — titled “Iris: A Memoir” in Britain — appeared in 1998, when Murdoch was in the final stages of her disease. She died in February 1999 at age 79.

One obituary is here, more are here.  The book is here.

SNB tweets to ponder

by on January 21, 2015 at 11:20 am in Economics, Education, Political Science | Permalink

It’s funny how faculty who work at universities with large endowments can’t understand the decisions of the Swiss National Bank…

That one is from me.  In this kind of status-driven, bureaucratic environment, the incentive is to extend your cushion, not run it down and have to print up new money to replenish it, thereby receiving egg on your face and appearing dependent and outside the rules of the game.  You’ll do better understanding the SNB by reading Pierre Bourdieu on social capital than portfolio theory or the literature on optimal seigniorage.

I will note that university endowments are somewhat of a puzzle too (pdf) — for instance why don’t schools spend them down more, as a kind of crude political business cycle theory might suggest?

(On the other hand, just try dropping your items into a Swiss recycling bin on a Sunday.)

There is at least one big difference here: the SNB doesn’t want a balance sheet which is as large as possible, because that means both assets and liabilities.  Colleges and universities are far more likely to wish to maximize their endowments, which do not (one hopes) come with offsetting liabilities.  The “endowment” of a central bank has more to do with political chits, favors, and public impressions, backed by extreme solvency but not too big a target either.

Paul Krugman makes some good and interesting points about the comparison with Hong Kong; in my view influence capital in Hong Kong has been (ultimately) determined externally for a very long time, first Britain now China.  That gives the territory some special feasibility properties for a wide variety of issues.  Krugman is falling into a kind of sophisticated “public choice” mistake that is more frequently committed by libertarians.

In none of these cases am I suggesting that the current incentives are optimal from a social point of view.  And here is an earlier post on central banks and capital.  It is not that a partially privately-owned, cantonally owned SNB is maximizing raw seigniorage, a view which has come in for some rebuttal as of late.  Rather the partial private ownership helps account for what kind of legitimacy needs to be produced and what kinds of rules that legitimacy requires.

C’mon people, read your Gramsci!

Here is the latest:

It was not what Derek Nash expected to find in his 5-year-old’s school bag: A bill demanding a “no-show fee” for another child’s birthday party.

Nash said the bill from another parent sought 15.95 pounds ($24.00) because his son Alex had not attended the party at a ski center in Plymouth, southwest England.

Nash told the BBC on Monday he had initially accepted the party invitation, but later realized Alex was supposed to visit his grandparents that day. He said he did not have contact details to let the other family know.

The birthday boy’s mother, Julie Lawrence, told the BBC that her contact details were on the party invitation.

Nash says Lawrence has threatened him with small claims court but he has no plans so far to pay.

The link is here.  And here is yet another account.  I thank Drew for the pointer.

A lot of them are, actually.  The efficient markets hypothesis might be one, as I’m not sure I understand it myself!  (Would the existence of just one investor “beating the market” disprove it?  Probably not, but then how many are needed?  How many of them have to beat the market “for the right reasons”?  And for how long?  How many dimensions exactly does this problem consist of?)

But today I’ll nominate Rudi Dornbusch’s exchange rate overshooting model.  When I see it cited, and I mean by professional economists or economics writers, more than half the time  people seem to get it wrong.  They use it to refer to all sorts of back and forth exchange rate movements, whereas the Dornbusch logic requires that the overshooting be in line with covered interest parity and thus the subsequent adjustment of the exchange rate is both expected and predicted by interest rate differentials in advance.  That’s hardly ever how it happens.

What else?  How about real balance effects and price level determination, as analyzed by Patinkin, Pesek and Saving, Harry Johnson, and others in the 1960s and 70s?  Most people get the right answer, but if you push them on it they fall apart, quivering and begging for mercy.  “Hey bud, that explanation sounded nice!  How about applying it to the difference between inside and outside money?  How does that shake out?”  Talk about microaggression.

Most economists do pretty well stating the Modigliani-Miller theorem.  They do less well when you ask them how it relates to the infamous “spanning condition,” which indeed it does.

Paul Krugman has remarked a few times on how many economists seem to get Ricardian Equivalence wrong.

At least half the time, in casual conversation, economists seem to forget that for a normal indirect utility function consumers are not risk-averse in terms of prices.

How about a Fisher effect question:? “If people expect prices to go up in the future, why don’t a lot of those prices go up right now?”  Thereby removing much of the inflation premium from the nominal interest rate.  Oops.

Or try this one: “Why is the interest rate a market price which can be expected to rise (fall) in the future, without rising (falling) now in anticipation of the future change? After all, liquid cash doesn’t have much of a storage cost.”  Unpack all of that in two sentences or less and set it straight.  Deadly.

Most economists who don’t do finance don’t know much finance.

Can one economist in forty properly define the “independence of irrelevant alternatives” axiom behind the Arrow Impossibility Theorem, taking care not to confuse intra- and inter-profile versions of the theorem, the latter of course being canonical?  Me thinketh not.  Wikipedia gets pretty close but is not fully clear.  The typical mistake is to think it is about “taking something off the menu,” and a resulting invariance of choice, when in fact the pairwise ordering alone should contain all of the relevant information.  Ah, but how exactly are those two conditions related?

How many people can define “rational expectations” correctly?  Is it: a) the market forecast is right on average, b) individual errors are serially uncorrelated over time, c) market forecast errors are serially uncorrelated over time, d) individual errors are normally distributed, symmetric around the mean, or e) individuals know the “correct model” of the economy (with what specificity?  That of God in the Quran?).  Maybe all of the above?  Some of the above?  Let’s put this one on the SAT.

Time consistency vs. subgame perfection anyone?

Sometimes economists confuse “the law of large numbers” with the potential risk benefits from subdivision of a gamble into many smaller parts.  Arrow himself made this mistake at least once.

How many people can get all of those right?  And how many other common but frequently misunderstood propositions in economics can you think of?  Nothing partisan or policy-based please, and please leave macroeconomics aside, let’s stick to analytics for this exercise.  I’ve already covered the Heckscher-Ohlin theorem.

I am sure this post contains several errors.

He was one of the original builders of the GMU Law School, and an important founding scholar of law and economics, very sad news of course.

Addendum: David Henderson comments.

In widely reported article the Washington Post says a Majority of U.S. public school students are in poverty. The article cites the Southern Education Foundation:

The Southern Education Foundation reports that 51 percent of students in pre-kindergarten through 12th grade in the 2012-2013 school year were eligible for the federal program that provides free and reduced-price lunches.

Eligibility for free and reduced-price lunches, however, depends on eligibility rules and not just income levels let alone poverty rates. The New York Times article on the study is much better:

Children who are eligible for such lunches do not necessarily live in poverty. Subsidized lunches are available to children from families that earn up to $43,568, for a family of four, which is about 185 percent of the federal poverty level.

The number of children eligible for subsidized lunches has probably increased in part because the federal Agriculture Department now allows schools with a majority of low-income students to offer free lunches to all students, regardless of whether they qualify on an individual basis or not.

Frankly I suspect that this study was intended to confuse the media by conflating “low-income” with “below the poverty line”. Indeed, why did this study grab headlines except for the greater than 50% statistic? It is very easy to find official numbers of the number of students in poverty according to the federal poverty standard. Here is what the National Center for Education Statistics says about school-age children and poverty (most recent data):

In 2012, approximately 21 percent of school-age children in the United States were in families living in poverty.

The number of school-age children living in poverty today is relatively high and not surprisingly did increase with the 2008 recession and its aftermath (green line in figure below – the numbers here differ slightly from NCES but the time line is longer). But recent numbers do not look like especially remarkable compared to the history.

It’s certainly worthwhile discussing why poverty has increased. The economy is one possible reason as are issues to do with family formation and marriage rates. Another possibility is immigration. A higher poverty rate caused by the immigration of more low-income children is compatible with everyone becoming better off over time and not necessarily a bad thing. Those are just a few possible topics worthy of investigation. I don’t claim that any of them are correct.

I do claim, however, that we won’t get very far understanding the issue by shifting definitions and muddying the waters with misleading but attention grabbing statistics.

Brendan Greeley has the scoop:

Before she won an Academy Award in 2014 for her role in 12 Years a Slave, Lupita Nyong’o starred in two seasons of the TV drama Shuga. Set first in Nairobi and then in Lagos, Shuga features young, attractive people who sleep with each other. It’s wildly popular and shown on broadcast channels that reach 500 million people, mostly in Africa.

“I would say that it’s an African version of Gossip Girl, but with sexual-health messages weaved through,” says Georgia Arnold, executive director of MTV’s Staying Alive Foundation, which produces the show with the twin goals of promoting safer sex and removing the taboo around HIV. Shuga isn’t a commercial project; it’s sponsored by donors including the Bill & Melinda Gates Foundation. Now in its fourth season, the show recently added a new member to its production team: Eliana La Ferrara, a professor at the University of Bocconi in Italy who specializes in a mix of behavioral and development economics. La Ferrara wasn’t hired for her writing talent. MTV and its donors want to apply a more rigorous approach to make sure Shuga’s message actually creates change where it airs.

The article has numerous other points of interest.