Education

This is an out-of-synch bonus episode, rushed out because I think their new, just-out book — The Captured Economy: How the Powerful Slow Down Growth, Enrich Themselves, and Increase Inequality — is so important.  You will find the podcast here, lots of rapid fire back and forth.

Everyone wanted me to interview them together, but I said no, I would instead interview them separately and ask about 2/3 the same questions to see how their answers might hang together, or not.  That is how co-authors should be treated!  I also asked each what the other has for breakfast, and by the end each had confessed to several crimes, to avoid a longer sentence of course.

Here is the smallest of bits:

COWEN: Are higher levels of executive compensation part of the problem?

TELES: There you probably would get a different answer between me and Lindsey.

COWEN: That’s why I asked

Recommended, again here is the podcast (no transcript, we wanted to get this out right away).

I will be having a Conversations with Tyler with Andy Weir, author of The Martian and assorted on-line works (many of which appear to be off-line at the moment).  He has a new book coming out, Artemis.  Here is Andy’s Wikipedia page.

I thank you all in advance for your ideas and assistance.

There is a new edition out, edited and translated by Stuart Warner and Stéphane Douard.  This eighteenth century bestseller could hardly be more relevant today.  Is it possible to lead a philosophic life?  How do political leadership and wisdom intersect?  How do Christianity and Islam differ politically?  How does politics reflect gender relations in a society?  Is there a case for optimism in modernity?  I still am not sure we have improved on Montesquieu’s investigations, although I cannot claim he gives us final answers.  This is a volume of polyphony, with travel as a source of learning and liberation as a major theme throughout.

Harems play a role too, here are the final paragraphs from Roxane to her sultan master Usbek:

You were astonished not to find in me the ecstasies of love.  If you had known me well, you would have found in me all the violence of hatred.

But you have had for a long time the advantage of believing that a heart such as mine was submissive to you.  We were both happy you believed me deceived, and I was deceiving you.

This language, without doubt, appears new to you.  Could it be possible that after having overwhelmed you with grief, I could still force you to admire my courage?  But it is done: poison consumes me; my strength abandons me; the pen falls from my hand; I feel even my hatred weaken; I am dying.

The introduction and notes are outstanding, and also of interest for those of you who are piqued by Straussianism.  You will note that the book was first published anonymously.

“Jokes in a serious work are acceptable on the condition that they hide a profound sense beneath a trivial form. It is in this way that Montesquieu, in his novel, Persian Letters, has written one of the most philosophical books of the eighteenth century.” – Alexis de Tocqueville [link]

I am pleased, by the way, to have once had the chance to spend two days with co-editor Stuart Warner discussing Persian Letters and nothing but (thank you again Liberty Fund!).  I cannot think of any person more qualified to have undertaken this endeavor.

You can order the volume here.

I very much enjoyed this Molly Ball piece.

…three days into their safari in flyover country, the researchers were hearing some things that disturbed them greatly—sentiments that threatened their beliefs to the very core…

“You’ve got all these parasites making a living off the bureaucracy,” the farmer declared, “like leeches pulling you down, bleeding you dry.” We had been in the state for just a few hours, and already the researchers’ quest for mutual understanding seemed to be hitting a snag.

Others in the group, a bunch of proudly curmudgeonly older white men, identified other culprits. There were plenty of jobs, a local elected official and business owner said. But today’s young people were too lazy or drug-addled to do them.

As we proceeded to meetings with diverse groups of community representatives, this sort of blame-casting was a common refrain. Disdain for the young, in particular, was a constant, across demographic, socio-economic, and generational lines: Even young people complained about young people. “They don’t want to do the work, and they always feel like they’re being picked on,” a recent graduate of a technical school in Chippewa Falls said of his fellow Millennials.

Some of the people we met expressed the conservative-leaning view that changes in society and the family were to blame. One, a technical-skills instructor at the Chippewa Falls school, questioned whether women belonged in the workplace at all. “That idea of both family members working, it’s a social experiment that I don’t know if it quite works,” he said. “If everyone’s working, who is making sure the children are raised right?”

There is much more at the link, but no final meeting of the minds.

Here is Megan on that topic, I agree with much or maybe all of what she says, namely that parents are seeking quality peers for their kids rather than school effectiveness per se.  But I’d like to add another, neglected factor.

If you look at the benefits of opening up international trade, it’s now well-known that the decrease in deadweight loss may be fairly small, but the gains from “putting under” inefficient firms can be large.  You are winning rectangles instead of small triangles, and in the longer run innovation spreads more widely and prices can fall with higher overall productivity levels.

OK, so now consider schools.  Vouchers typically are applied to pre-existing schools, and often in a fairly limited geographic area, such as a single city.  Those schools already had a stable place in the market, and now the demand for their product goes up.  The experiments typically are designed so that no public school goes under.

So, post-vouchers, no schools go under, including no low productivity schools.  Thus the efficiency gains from vouchers of this kind can be quite small, possibly zero.

Of course you can debate whether we should ever let K-12 schools fail, or under what terms.  But the general principle remains that markets are most potent when exit is an available and indeed exercised option.

Tyler and I are thrilled to announce the next great course at MRUniversity, Understanding Data. Understanding Data is taught by our well-known and accomplished colleague Thomas Stratmann and is our most ambitious course to date.

In addition to lectures, Understanding Data features a fantastic interactive data tool, a built-in version of DataSplash, which was designed by Thomas Stratmann and Lorens Helmchen specifically to run small regressions and to teach econometrics. Students can pause the video, run regressions, make predictions, compute correlations look at summary statistics and more–all on the same page! Furthermore, as the video progresses students are asked to answer questions and they receive immediate feedback on their answers.

A lot of work went into producing this course. Not only from Thomas and Lorens but also from our superb team at MRU led by Roman Hardgrave. This is a quantum leap for MRU and what you are seeing is version 1. If you notice some bugs or things that can be improved do email Support@mruniversity.com. Thanks.

The first lecture featuring the interactive data tool is Interpreting the Regression Line.

Here is the transcript and podcast, here is the summary introduction:

She joins Tyler for a conversation covering the full range of her curiosity, including fear, acclimating to grossness, chatting with the dead, freezing one’s head, why bedpans can kill you, sex robots, Freud, thinking like an astronaut, the proper way to eat a fry, and why there’s a Medicare reimbursement code for maggots.

Here are a few excerpts:

ROACH: It is never uncomfortable. People sometimes say, “The questions that you ask people, is it an awkward interview? When you went to Avenal State Prison for the rectum chapter of Gulp, and you, talking to this convicted murderer about using his rectum to smuggle cellphones and other things, was that not a very awkward conversation to have?”

A little bit, but then you have to keep in mind, this is somebody for whom hooping, as it’s called, is . . . everybody does it. It’s just something that you do; it’s everyday to him. Like for a sex researcher, talking about orgasm is like talking about tire rotation for a car mechanic.

And:

COWEN: To do a whirlwind tour of some of your books, you have a book on corpses. If you could chat with the dead, what would you ask them?

ROACH: Oh, if I could chat with the dead. Are we assuming the personality or the body?

COWEN: Well, both.

ROACH: The corpse?

COWEN: The corpse.

ROACH: Oh, is this a research corpse or . . .

COWEN: It’s a research corpse.

ROACH: …So what I’d say to the cadaver is, “Is this embarrassing for you? Are you OK with this? Are they treating you respectfully? Do you wish you had some clothes on?”

And:

COWEN: Why do only 18 percent of people who are in the position to have a life-after-death experience actually have one? What’s your view on that?

ROACH: The trouble seems to be remembering the near-death experience.

And:

COWEN: Why are bedpans dangerous?

There is much, much more at the link.  Jonathan Swift, Elvis, Adam Smith, and Jeff Sachs all make appearances, in addition to Catholicism, bee larvae, Mozambique, whether people know what they really want in sex, and whether it should be legal to harvest fresh road kill in Oregon.

That is a new and important piece by Zachary Mabel and Tolani A. Britton, here is the abstract:

Research on college dropout has largely addressed early exit from school, even though a large share of students who do not earn degrees leave after their second year. In this paper, we offer new evidence on the scope of college late departure. Using administrative data from Florida and Ohio, we conduct an event history analysis of the dropout process as a function of credit attainment. Our results indicate that late departure is widespread, particularly at two- and open-admission four-year institutions. We estimate that 14 percent of all entrants to college and one-third of all dropouts completed at least three-quarters of the credits that are typically required to graduate before leaving without a degree. Our results also indicate that the probability of departure spikes as students near the finish line. Amidst considerable policy attention towards improving student outcomes in college, our findings point to promising new avenues for intervention to increase postsecondary attainment.

Here are ungated copies of the paper. I take these numbers as implicit evidence for an “acculturation” theory of education, where close to the end of the process some people decide they don’t want to join the “people with a college degree community.”

For the pointer I thank the excellent Kevin Lewis.

*The Hard Thing About Hard Things*

by on October 16, 2017 at 12:20 am in Books, Education | Permalink

I loved this book, by Ben Horowitz of Andreessen-Horowitz, the venture capital firm.  While it is hard to pull bits from the broader stories, here are a few:

Most business relationships either become too tense to tolerate or not tense enough to be productive after a while.  Either people challenge each other to the point where they don’t like each other or they become complacent about each other’s feedback and no longer benefit from the relationship.

And:

People always ask me, “What’s the secret to being a successful CEO?”  Sadly, there is no secret, but if there is one skill that stands out, it’s the ability to focus and make the best move when there are no good moves.  It’s the moments where you feel most like hiding or dying that you can make the biggest difference as a CEO.

And:

The first rule of organizational design is that all organizational designs are bad.

And:

The purpose of process is communication.

And:

By far the most difficult skill I learned as CEO was the ability to manage my own psychology.

Finally:

CEO is an unnatural job.

Definitely recommended, it is one of my five favorite management books ever.  Furthermore, its lessons are relevant for people in academic, media, and policy worlds, unlike many other management books.  Is that because of an emphasis on talent evaluation and also work in teams and small groups?

That is a new NBER Working Paper by Atila Abdulkadiroglu, Parag A. Pathak, Jonathan Schellenberg, and Christopher R. Walters, on a much understudied topic.  Here are their main results:

School choice may lead to improvements in school productivity if parents’ choices reward effective schools and punish ineffective ones. This mechanism requires parents to choose schools based on causal effectiveness rather than peer characteristics. We study relationships among parent preferences, peer quality, and causal effects on outcomes for applicants to New York City’s centralized high school assignment mechanism. We use applicants’ rank-ordered choice lists to measure preferences and to construct selection-corrected estimates of treatment effects on test scores and high school graduation. We also estimate impacts on college attendance and college quality. Parents prefer schools that enroll high-achieving peers, and these schools generate larger improvements in short- and long-run student outcomes. We find no relationship between preferences and school effectiveness after controlling for peer quality.

You can read that as the parents either being super-smart about what helps their kids — better peers — or the parents being snobby per se.  Either way, they don’t seem to care so much about value-added from the side of the school.  Or is peer quality actually also the best practical-for-parents measure of value-added, when all is said and done?

So I say this is an inconclusive result from the final normative point of view, but a highly significant result in terms of cementing in some knowledge close to what I already expected was the case.

This is a prize that is easy to understand.  It is a prize for behavioral economics, for the ongoing importance of psychology in economic decision-making, and for “Nudge,” his famous and also bestselliing book co-authored with Cass Sunstein.

Here are previous MR posts on Thaler, we’ve already covered a great deal of his research.  Here is Thaler on Twitter.  Here is Thaler on scholar.google.com.  Here is the Nobel press release, with a variety of excellent accompanying essays and materials.  Here is Cass Sunstein’s overview of Thaler’s work.

Perhaps unknown to many, Thaler’s most heavily cited piece is on whether the stock market overreacts.  He says yes this is possible for psychological reasons, and this article also uncovered some of the key evidence in favor of the now-vanquished “January effect” in stock returns, namely that for a while the market did very very well in the month of January.  (Once discovered the effect went away.)  Another excellent Thaler piece on finance is this one with Shleifer and Lee, on why closed end mutual funds sell at divergences from their true asset values.  This too likely has something to do with market psychology and sentiment, as the same “asset package,” in two separate and non-arbitrageable markets, can sell for quite different prices, sometimes premia but usually discounts.  This was one early and relative influential critique of the efficient markets hypothesis.

Another classic early Thaler piece is on a phenomenon known as “mental accounting,” for instance you might treat a dollar in your pocket as different from a dollar in your bank account.  Or earned money may be treated different from money you just chanced upon, or won that morning in the stock market.  This has significant implications for predicting consumer decisions concerning saving and spending; in particular, economists cannot simply measure income but must consider where the money came from and how it is perceived by consumers, namely how they are performing their mental accounting of the funds.  Have you ever gone on a vacation with a notion that you would spend so much money, and then treated all expenditures within that range as essentially already decided?  The initial piece on this topic was published in a marketing journal and it has funny terminology, a sign of how far from the mainstream this work once was.  It is nonetheless a brilliant piece.  Here is more Thaler on mental accounting.

Thaler, with Kahneman and Knetsch, was a major force behind discovering and measuring the so-called “endowment effect.”  Once you have something, you value it much more!  Maybe three or four times as much, possibly more than that.  It makes policy evaluation difficult, because as economists we are not sure how much to privilege the status quo.  Should we measure “willingness to pay” — what people are willing to pay for what they don’t already have?  Or “willingness to be paid” — namely how eager people are to give up what they already possess?  The latter magnitude will lead to much higher valuations for the assets in question.  This by the way helps explain status quo bias in politics and other spheres of life.  People value something much more highly once they view it as theirs.

This phenomenon also makes the Coase theorem tricky because the final allocation of resources may depend quite significantly on how the initial property rights are assigned, even when the initial wealth effect from such an allocation may appear to be quite small.  See this Thaler piece with Knetsch.  It’s not just that you assign property rights and let people trade, but rather how you assign the rights up front will create an endowment effect and thus significantly influence the final bargain that is struck.

With Jolls and Sunstein, here is Thaler on a behavioral approach to law and economics, a long survey but also constructive piece that became a major trend and has shaped law and economics for decades.  He has done plenty and had a truly far-ranging impact, not just in one or two narrow fields.

Thaler’s “Nudge” idea, developed in conjunction with Cass Sunstein over the course of a major book and some articles, has led policymakers all over the world to focus on “choice architecture” in designing better systems, the UK even setting up a “Nudge Unit.”  For instance, one way to encourage savings is to set up pension systems for employees so that the maximum contribution is the default, rather than an active choice people must make.  This is sometimes referred to as a form of “soft” or “libertarian paternalism,” since choice is still present.  Here is Thaler responding to some libertarian critiques of the nudge idea.

I first encountered Thaler’s work in graduate school, in the mid-1980s, in particular some of his pieces in the Journal of Economic Behavior and Organization; here is his early 1980 manifesto on how to think about consumer choice.  I thought “this is great stuff,” and I gobbled it up, as it was pretty consistent with some of what I was imbibing from Thomas Schelling, in particular Thaler’s 1981 piece with Shefrin on the economics of self-control, a foundation for many later discussions of paternalism.  I also thought “a shame this work isn’t going to become mainstream,” because at the time it wasn’t.  It was seen as odd, under-demonstrated, and often it wasn’t in top journals.  For some time Thaler taught at Cornell, a very good school but not a top top school of the kind where many Laureates might teach, such as Harvard or Chicago or MIT.  Many people were surprised when finally he received an offer from the University of Chicago Business School, noting of course this was not the economics department.  Obviously this Prize is a sign that Thaler truly has arrived at the very high levels of recognition, and I would note Thaler has been pegged as one of the favorites at least since 2010 or so.  When Daniel Kahneman won some while ago and Thaler didn’t, many people thought “ah, that is it” because many of Thaler’s most famous pieces were written with Kahneman.  Yet as time passed it became clear that Thaler’s work was holding up and spreading far and wide in influence, and he moved into a position of being a clear favorite to win.

Here is Thaler’s book on the making of behavioral economics.  Excerpt:

…my thesis advisor, Sherwin Rosen, gave the following as an assessment of my career as a graduate student: “We did not expect much of him.”

Very lately Thaler on Twitter has been making some critical remarks about price gouging, suggesting we also must take into account what customers perceive as fair.  Here is his earlier piece about fairness constraints on profit-seeking, still a classic.

Thaler has written many columns for The New York Times, here is one on boosting access to health care.  Here are many more of them.  Here is “Unless you are Spock, Irrelevant Things Matter for Investment Behavior.”  Here is Thaler on making good citizenship fun.  He also told us that trading up in the NFL draft isn’t worth it.

Thaler is underrated as a policy economist, here is an excellent NYT piece on the “public option” for health insurance, excerpt: “…instead of arguing about whether to have a public option, argue about the ground rules.”

His last pre-Nobel tweet was: “The web site is using lots of . Advertised rates include cashing in of “points”, cancellation policies not salient if bad…”

A well-deserved prize and one that is relatively easy to explain, and most of Thaler’s works are easy to read even if you are not an economist.  I would stress that Thaler has done more than even many of his fans may realize.

That is the topic, here is the abstract:

Many rumors convey information about potential danger, even when these dangers are very unlikely. In four studies, we examine whether micro-processes of cultural transmission explain the spread of threat-related information. Three studies using transmission chain protocols suggest a) that there is indeed a preference for the deliberate transmission of threat-related information over other material, b) that it is not caused by a general negativity or emotionality bias, and c) that it is not eliminated when threats are presented as very unlikely. A forced-choice study on similar material shows the same preference when participants have to select information to acquire rather than transmit. So the cultural success of threat-related material may be explained by transmission biases, rooted in evolved threat-detection and error-management systems, that affect both supply and demand of information.

The piece is by Timothy Blaine and Pascal Boyer.  Of course this is one of the very best tips to know to understand what is actually happening on an Op-Ed page or your Twitter feed.  See through it, yes you can.

For the pointer I thank the excellent Kevin Lewis.

It seems to have been a largely pro-education, egalitarian development, at least according to a new research paper by Richard Murphy, Judith Scott-Clayton, and Gillian Wyness:

Despite increasing financial pressures on higher education systems throughout the world, many governments remain resolutely opposed to the introduction of tuition fees, and some countries and states where tuition fees have been long established are now reconsidering free higher education. This paper examines the consequences of charging tuition fees on university quality, enrollments, and equity. To do so, we study the English higher education system which has, in just two decades, moved from a free college system to one in which tuition fees are among the highest in the world. Our findings suggest that England’s shift has resulted in increased funding per head, rising enrollments, and a narrowing of the participation gap between advantaged and disadvantaged students. In contrast to other systems with high tuition fees, the English system is distinct in that its income-contingent loan system keeps university free at the point of entry, and provides students with comparatively generous assistance for living expenses. We conclude that tuition fees, at least in the English case supported their goals of increasing quality, quantity, and equity in higher education.

I have long been of the view that free tuition for U.S. state schools would be an educational disaster.

Google is the first major tech company to build the Babel fish.

The search company, which is now making a slew of its own hardware products, announced the Google Pixel Buds at a San Francisco event today (Oct. 4). The earbuds connect wirelessly with Google’s latest smartphones, but more importantly, they’re able to access Google Assistant, the company’s virtual personal concierge, which launched exactly a year ago. Through this software, Google claims the earbuds can translate 40 spoken languages nearly in real time—or at least, fast enough to hold a conversation.

Here is the story at Quartz.  It’s funny how economists used to come up with theories that platform monopolies would stifle innovation…

Here’s the latest video from Principles of Macroeconomics at MRUniversity. As always these videos can be used with any textbook but they go great with the best textbook, Modern Principles of Economics. The video is on situations when fiscal policy doesn’t work well or can even reduce growth and GDP.