Month: November 2011

Assorted links

1. Chinese Austro-Chinese prophets on transportation overbuilding, via Chris F. Masse; California HSR is also a financial wreck.  Is anyone repenting?

2. A conversation with Jeff Friedman, who should put his thoughts down in book form.

3. A farewell to Bill Niskanen.

4. OWS supporters should be embarrassed by this garbage behavior.

5. What are the limits to human speed?

6. New view of the German labor market “miracle.”

7. Video tribute to Paul Krugman.

College has been oversold

Here, drawn from my new e-book, Launching the Innovation Renaissance (published by TED)  is part of a section on college education. (See also the op-ed in IBD)

Educated people have higher wages and lower unemployment rates than the less educated so why are college students at Occupy Wall Street protests around the country demanding forgiveness for crushing student debt? The sluggish economy is tough on everyone but the students are also learning a hard lesson, going to college is not enough. You also have to study the right subjects. And American students are not studying the fields with the greatest economic potential.

Over the past 25 years the total number of students in college has increased by about 50 percent. But the number of students graduating with degrees in science, technology, engineering and math (the so-called STEM fields) has remained more or less constant. Moreover, many of today’s STEM graduates are foreign born and are taking their knowledge and skills back to their native countries.

Consider computer technology. In 2009 the U.S. graduated 37,994 students with bachelor’s degrees in computer and information science. This is not bad, but we graduated more students with computer science degrees 25 years ago! The story is the same in other technology fields such as chemical engineering, math and statistics. Few fields have changed as much in recent years as microbiology, but in 2009 we graduated just 2,480 students with bachelor’s degrees in microbiology — about the same number as 25 years ago. Who will solve the problem of antibiotic resistance?

If students aren’t studying science, technology, engineering and math, what are they studying?

In 2009 the U.S. graduated 89,140 students in the visual and performing arts, more than in computer science, math and chemical engineering combined and more than double the number of visual and performing arts graduates in 1985.

The chart at right shows the number of bachelor’s degrees in various fields today and 25 years ago. STEM fields are flat (declining for natives) while the visual and performing arts, psychology, and communication and journalism (!) are way up.

There is nothing wrong with the arts, psychology and journalism, but graduates in these fields have lower wages and are less likely to find work in their fields than graduates in science and math. Moreover, more than half of all humanities graduates end up in jobs that don’t require college degrees and these graduates don’t get a big college bonus.

Most importantly, graduates in the arts, psychology and journalism are less likely to create the kinds of innovations that drive economic growth. Economic growth is not a magic totem to which all else must bow, but it is one of the main reasons we subsidize higher education.

The potential wage gains for college graduates go to the graduates — that’s reason enough for students to pursue a college education. We add subsidies to the mix, however, because we believe that education has positive spillover benefits that flow to society. One of the biggest of these benefits is the increase in innovation that highly educated workers theoretically bring to the economy.

As a result, an argument can be made for subsidizing students in fields with potentially large spillovers, such as microbiology, chemical engineering, nuclear physics and computer science. There is little justification for subsidizing sociology, dance and English majors.

College has been oversold. It has been oversold to students who end up dropping out or graduating with degrees that don’t help them very much in the job market. It also has been oversold to the taxpayers, who foot the bill for these subsidies.

*The Price of Civilization*

That is the new Jeffrey Sachs book, with the subtitle Reawakening American Virtue and Prosperity.  Here is one excerpt:

Though I can’t prove that America’s mass-media culture, ubiquitous advertising, and long hours of daily TV watching are the fundamental causes of its tendency to let markets run rampant over social values, I can show that America represents the unhappy extreme of commercialism among the leading economies.  To do this, I have created a Commercialization Index (CI) that aims to measure the degree to which each national economy is oriented toward private consumption and impatience rather than collective (public) consumption and regard for the future.  My assumption is that the United States and other heavy-TV-watching societies will score high on the CI and that a high CI score will be associated with several of the adverse conditions plaguing American society.

Here is Sachs writing further on TV; here is Steve Johnson on TV.

What does the Old Keynesian economics predict here?

I will ask the Old Keynesians, here is the report from last week:

“The lack of income growth meant that the boost in spending came from a decline in the savings rate,” said David Semmens, US economist at Standard Chartered.

…The savings rate fell 0.5 per cent in the period, reaching a level last seen at the end of 2007.

I will predict that the savings rate does not substantially rise next quarter.  Absolute savings will go up over some time horizon but I don’t expect it to do so immediately for cyclical reasons.  Are the Old Keynesians now expecting savings to go up in some manner, due to “the paradox of savings”?  After all, spending has risen.  Here is a chance for Old Keynesian economics to score some points, so what will happen with savings?  What does a liquidity trap model predict?  Should savings be higher already, or does it take longer for that effect to kick in?  How long?

Note that the New Keynesians generally do not have much to do with the paradox of savings; my view is that it may have applied to parts of 2008-2009 but is unlikely to apply today.

When it comes to Old Keynesian predictions I don’t want to count “money matters” (formerly an anti-Keynesian prediction by the way),”the recession was really bad,” or beating up on various odd right-wing views.   I want forcing predictions which discriminate against the best available alternative theories.

In the comments I also would like to hear Keynesian accounts, New or Old, of why gdp growth was suddenly 2.5%, not a great number for a recovery in absolute terms, but was it the predicted number or direction, given that the stimulus was finally exhausted?  I am comfortable citing “noise,” but does a liquidity trap model offer this same freedom?  Doesn’t the model itself imply that one margin is what matters and you are truly “trapped”?

Drawing really long time-lines to obscure false predictions of the moment does not count as an answer!

Sugar doesn’t cause hyperactivity

Here is Aaron Carroll at The Incidental Economist:

Let’s cut to the chase: sugar doesn’t make kids hyper. There have been at least twelve trials of various diets investigating different levels of sugar in children’s diets. That’s more studies than are often done on drugs. None of them detected any differences in behavior between children who had eaten sugar and those who hadn’t. These studies included sugar from candy, chocolate, and natural sources. Some of them were short-term, and some of them were long term. Some of them focused on children with ADHD. Some of them even included only children who were considered “sensitive” to sugar. In all of them, children did not behave differently after eating something full of sugar or something sugar-free….

In my favorite of these studies, children were divided into two groups. All of them were given a sugar-free beverage to drink. But half the parents were told that their child had just had a drink with sugar. Then, all of the parents were told to grade their children’s behavior. Not surprisingly, the parents of children who thought their children had drunk a ton of sugar rated their children as significantly more hyperactive. This myth is entirely in parents’ heads. We see it because we believe it.

Even when science shows time and again that it’s not so, we continue to persist in believing that sugar causes our kids to be hyperactive. That’s likely because there’s an association. Times when kids get a lot of sugar are often times when they are predisposed to be a little excited. Halloween. Birthday parties. Holidays. We may even be causing the problem ourselves. Some parents are so restrictive about sugar and candy that when their kids finally get it they’re quite excited. Even hyper.

This does not mean that there aren’t a ton of great reasons why our kid should not ingest large quantities of sugar. As almost any parent knows, sugar has been linked to cavities and the obesity epidemic. Just don’t blame it for your child’s bad behavior.

Why is Greece turning down the “bailout”

Make no mistake about it, the decision to hold a “referendum” is a decision to turn down the deal altogether.  The referendum will never be held.  It is scheduled for January and the current deal, which is not even a worked out deal, won’t be on the table by then.  It’s already not on the table.  The opposition leader is already opposed to the referendum, there are months more of market volatility to come, the other EU powers will get skittish about the deal, how is the conscientious Slovakia supposed to feel, and how many other factors do I need to cite?  And how can the Greeks decide how the referendum will be worded?

This is a way to back out of everything, under the guise of “democracy” and ex post blame the speculators and the rest of Europe.  But why?  Here is one on the mark take on the matter:

A plan be­ing devel­oped to help reduce Greece’s debts — and pre­vent it from becom­ing the first eu­ro-zone country to default on its debts — will fall hard­est on the country’s banks and the national pen­sion system. They would face tens of billions of dollars in losses on invest­ments in Greek govern­ment bonds.

Accord­ing to data from the Eu­ropean Bank­ing Au­thor­ity, major Greek banks hold about $70 billion

in Greek bonds, more than one-fourth of the total held by private investors worldwide. Greece’s national pen­sion system has about $30 billion at risk, accord­ing to local bank and corporate of­ficials.

Even as Greece ben­efits from emergency debt re­lief included in the new bailout plan approved by Eu­ropean leaders last week, the Greek govern­ment will have to borrow even more mon­ey to shore up its financial system and replen­ish the pen­sion fund. Greek bankers say they doubt they could come up with the mon­ey on their own.

In other words, the deal would make the country totally bankrupt.  Greek voters already feel blackmailed.  A good rule of thumb is that if a very unpopular government holds a referendum on something — anything — that government will lose.  Seriously now, which way do you expect the Greek bus drivers to vote?

Did I mention that the Italian ten-year yield was up to 6.31%?

I would not have written the paragraph this way

This is from the NYT:

Even the generic drug industry is calling for more regulation. The industry recently agreed to provide the F.D.A. with nearly $300 million annually to bolster inspections and speed drug applications. That amounts to about 1 percent of the industry’s revenues and about 5 percent of its profits in the United States, an extraordinary vote of confidence in the government’s ability to improve the situation.

Two economists explain the NBA lockout

Those two economists are Tyler Cowen and the excellent Kevin Grier, we were very happy to produce this piece for Bill Simmons (one of my favorite writers), at, excerpt:

How far apart are the two sides?
The split on BRI (Basketball Related Income) is supposedly the biggest point of contention. Players want 52.5 percent (down from 57 in the previous contract). Owners are “adamant” on 50 percent and started with an initial lowball offer of 37.

Take the NBA’s 2009-10 BRI estimate of $3.6 billion; 2.5 percent of that is $90 million. Let’s say the life of the contract is 6 years. The total value of that over six years, with reinvestment, is around $500 million.

Is it economically worthwhile for the players to hold out for $500 million?
No. Total NBA salaries last year were over $1.5 billion, about three times the amount they are fighting over. Canceling a third of the current season would wipe out the gain of winning the extra 2.5 percent of BRI over the life of the new collective bargaining agreement. Canceling the whole season over 2.5 percent of BRI is insane for the players.

Addendum: Here is the paragraph which did not make the final cut.