Assorted links

Comments

Re: 5.
Yes, but they are unstable.

Th collusion result seems similar to the simulations by Sigmund and Novak a long time ago that showed primitive microorganisms (without any memory ) were forming co-operating colonies as a dominant evolutionary strategy. "Co-operations without Reciprocation" was their conclusion; organisms can be altruistic even when no direct possibility of later reciprocal rewards.

agreed.

The memory seems to lie within the colony. Each organism is born into a system that is already set up for cooperation. I would not call this altruistic when there is a clear advantage for them in cooperating.
I did not read Sigmund and Novak so I could be missing some of the story.

Right, all that needs to happen is for buyers to shop around a bit more. Poof goes the emergent "cartel."

The Romer piece brings up some interesting points, but I think he neglects some important differences between regulating financial markets and determining air safety. For instance, as he points out there may be no other market with such opportunities for profit via manipulation as the financial market, and the potential for regulatory capture with more discretion would seem to be quite large as well. Further, verifying an airplanes airworthiness, while by no means a simple task, seems like a much more concrete and tractable problem than many of the issues facing financial markets.

I'm not saying I don't agree that the current system is probably too rigid, and Romer is right to suggest we should evaluate it on a cost-benefit basis compared to others, but I wonder about some of the potential unexpected consequences of such a change. However, he suggests that the more successful Canadian system as being an example of what he is suggesting, and given that I know nothing of the Canadian financial regulations or how successful it is, I will have to take his word on it.

Yep, Romer is right to talk about rules vs. meta-rules, but ends up sounding like he is advocating for Platos republic, where everyone's actions are controlled by the judgement of some responsible wise one.

Now I agree that the written rules in this world are too detailed - legislators should be sticking to higher level generalities. In effect this means that lower level regulators will get a lot of discretion. Which is all the more reason why the meta rules should think hard about how to keep those guys honest. Just because *some* hierarchical organisations work without outside accountability does not mean that all will. History is littered with examples.

Beyond that, it also means the scope of what can be ruled should be kept small.

1. Children should be charged $750 per year just in case they might need college.

They are. Its called taxes on their parents.

That makes sense considering how impossible it is for students to internalize benefits from education.

I am leery of arguments from externality, as they tend to lead to very very open interpretations. However, from standard economics, it does make sense for the state to subsidize education on that basis. Unless, of course, the state would mess it up for other reasons.

This is the same problem with Social Security. If you give money to the government, well, demands for money are pressing *now*. Re-election is in a few years. Those children's college applications are in a decade or so. So they will take the money and use it for something else.

The problem is that the government is constantly pressed by people who want money. The politicians want to be re-elected. The taxpayers don't want to pay any more tax. Quietly governments are shifting as many burdens as possible on to tax payers. Things that they used to do for us, they now charge for or make us do. They have not reduced taxes, they just spend that money on other things. On more important people.

So college students will always get the short end of the stick in the long run. Because they can pay. They go on to earn a lot of money. It is always foolish to stand between a politician and a bucket full of money. So the government will always seek to transfer those costs on to students after graduation. One way or another. Just as they would make single mothers pay - if only they had any money to pay with.

So if they paid in to a scheme, the government would loot it and make students pay again.

You are absolutely correct.

1. While I like this idea (as I currently pay much more than 5% in student loan payments), I wonder what effect the plan could have on gift-giving. While I can't find the numbers, I would imagine UC Riverside is like most universities and relies on alumni gift-giving for a substantial amount of revenue. If graduates are already cutting a check to UCR every year, I would imagine they will be less inclined to give more to the school.

Australia has had in place a system conceptually similar to that in (1) for decades now. I know that this is crazy talk and that it hasn't really happened till in happens in America, but for what it's worth, from the wikipedia article "Tertiary Education in Australia":

y the mid 1980s, however, it became the consensus of both major parties that the concept of ‘free’ tertiary education in Australia was untenable due to the increasing participation rate.[citation needed] Ironically, a subsequent Labor Government (the Bob Hawke/Paul Keating Government) was responsible for gradually re-introducing fees for University study.[citation needed] In a relatively innovative move, however, the method by which fees were re-introduced proved to be a system accepted by both Federal political parties and consequently is still in place today. The system is known as the Higher Education Contribution Scheme (HECS) and enables students to defer payment of fees until after they commence professional employment, and after their income exceeds a threshold level – at that point, the fees are automatically deducted through income tax. Students also have the option of paying up-front for their education and receiving a discount commensurate with the interest rate saving associated with non-deferral.

That sounds like a good system being used in Australia. The percent of income scheme in the blog would suffer from low earning "free riders" and discourage attendance by top students.

Yeah, so many people deliberately condemn themselves to a life of poverty to avoid paying. Also, whatever your income, you still end up paying the standard charge for the courses you took. So no discouragement of people who expect to earn a high income.

"Salary contingent" tuition would probably have some problems so you might want to address them in detail first.

What is salary? If you inherited money, would that count as "salary", even if it supported you for a lifetime? Stock options "salary", or not. Is it adjusted gross income, w-2 income, dividend and cap gains income?

I do like the idea though, particularly for occupations that have salaries--medical, law--but wonder how it would work for an entreprenuer who made it with stock.

Now, the California college system is a known system, so the value might be established.

But, what about the fly by night schools--would they take this 5% offer? Probably not, so maybe this is a program that should be required as a condition of the student receiving a federal loan from institutions which have poor or no records. As a condition of receiving federal loan money from the student, the 5% rule could be used to screen out flim flam schools. If the fly by nite offered programs which didn't pay off for the student, they wouldn't receive income and they wouldn't recruit likely failures. They also would not be the indirect recipients of federal loan money.

The 5% idea is pretty good. It aligns the incentives of the school and the student.

I'll take: how to incintivize institutions of higher learning to emphasize degrees in demand for $2000 Alex.

Bingo!

Name, I agree, you just have to be careful with the terms up front and be willing to accept a number of people graduating with theatre arts degrees.

This system couldn't work. All the 'money' motivated students would go to schools outside of the California system while the 'social work' students would stay in system. The average income for in system students would fall to maybe $30k and wreck the entire model.

This type of system could be done, but it would have to be done like ObamaCare where you can't opt out. Which is basically income taxes supporting the education system.

And how do you force someone to pay? What if they leave the state? The country? Why would the high earners not negotiate non-salary benefits? What if they win the lottery or get an inheritance? Why should the university get a share of that? Would any student athlete with decent prospects ever go to a school with this kind of agreement?

"What? You mean I got a BA in Communication and had to play football for 4 years and then you want 5% of my 5 year $12 million per year NFL contract. FU!"

In short this is a pie-in the sky idea and without some kind of pragmatic enforcement mechanism. It's just wishful thinking and I don't see any reasonable enforcement mechanism that is going to survive the inevitable law suits. "I was just a 18 year old when I signed, those evil university pay managers beguiled me into signing a contract with incredibly high effective interest rates."

Yeah pie-in-the-sky in certain respects but I do like the idea of some way to force schools to actually produce graduates who can get jobs.

the inevitable law suits. "I was just a 18 year old when I signed, those evil university pay managers beguiled me"

If that tactic actually worked, it would have been used successfully already by people desperately needing to get out of crushing non-dischargeable-in-bankruptcy student loan debt under the current system.

Here is Alex's old post regarding this topic:
http://marginalrevolution.com/marginalrevolution/2010/03/markets-in-everything-invest-in-people.html

Best criticism thus far. How much of the income (or salary) is the result of the degree and how much is from factors separate from the degree?

A person who has a 4.0 from the same university as someone who got a 3.0 is perhaps likely to earn more and thus pay more. Let's assume the difference in GPA is either due to personal characteristics or damned hard work. Let's also assume these characteristics and propensities to work carry into future employment. Why should someone pay more tuition SOLELY because they are a better student/worker?

This bears more relevance if we take a college degree (and GPA) to be a form of signalling rather than providing useful job-related skills.

I'm highly skeptical of any plan with a zero marginal cost. You get too many admissions, too many Theater Arts majors, and too much cross-subsidization from the successful to those whose degrees got them a job at Starbucks. Our current student loan interest deduction already punishes success and rewards failure.

How do you stop someone from becoming a degree collector? What about foreign students?

I'm not sure how a university would allocate its resources to maximize expected revenue. Would UC Berkeley, the highest ranked school in California, eliminate all its low-earning majors and accept only the very best students? Could they arrange a kick-back scheme with employers?

I'll stick with the model that has proven itself the best: you pay for the value of the resources you use. Andrew' was correct when he said that the benefits of higher education are almost entirely compensated by the price system.

The argument is not that universities must admit any moron who's willing to pledge his 5%. The idea is, let's say there is a student that the university thinks has reasonable potential but lacks present funding sources, then he might be allowed this option.

To me the plan has a lot of similarity to the debt versus equity tradeoff. The university buys a 5% equity in promising candidates. No gurranted payoff but the chance to get super-normal returns.

To capture the non-salary earnings they could use the 5% based on IRS returns filed. That'd outsource the headache to IRS although it does leave open the option of temporally delaying realized gains beyond the 20 year mark.

Why would you want to capture non-wage earnings? It seems to me that the economic value of the education provided is in the degree to which it enhances a person's human capital. Only returns from that human capital should be subject to recapture. Or am I missing something?

Imagine you went to school and learned to be a great investor and subsequently made a lot of capital gains.

People would ask their employers to make them only "gifts" otherwise.

I don't know about this line of argument - then why don't people ask their employers to do that any way to avoid taxes?

You can't. IRS will tax them too. IRS includes a wide variety of items under "income" I think.

If this was in effect, there would be a whole new creativity in non-salary compensation -- or whatever form of compensation was not to be included.

Correct. However, I think it would be better than the current system.

Excellent! The IRS does all the work. And there's no uncertainty about what is owed. And since, in theory, US citizens have to file even if they work abroad, you'll cover everyone.

#1 - that's a pretty good idea and just think, if you major in Math you can get your degree for free

You want to major in Math when you grow up?

#2

Is HBD finally being accepted by the more mainstream crowd?

#2

Back in the 1960s this issue could actually be discussed in in high school. I take it no one reads Young's
"The Rise of the Meritocracy" these days.

@1. That would be a lousy deal for pre-med, engineering, and other high-paying professions and a good deal for people heading to the non-profit sector. It would be a much better deal for women than men (because women are much more likely to work part-time or not at all for many of the 20 years following graduation). It would be a bad deal for the best students and a good deal for the least qualified. Private schools would poach the students that the universities most want (Or the universities would have to offer the option of paying up front, and the students heading for the most lucrative professions would exercise that option -- so the '5% pool' would suffer from adverse selection). The transition would be difficult, too (who pays for the instruction while the university is waiting years for payment?). I don't see it happening, but it doesn't cost anything for the UC president to seem agreeable about the idea.

On the surface it seems that way but I don't think it would be so. Berkley is a pretty respected school - are good students really going to not go there because they might earn higher incomes in the future and therefore would have to pay a higher absolute amount? I doubt it, and it would still probably be cheaper then many private schools.

The upper half of the UC Berkeley student body has a LOT of options and will be offered discounts/scholarships from a lot of elite private and out-of-state public schools. Those are the students that Berkeley can least afford to lose if they want to maintain their current levels of respect (aka U.S. News rankings).

I don't see why they couldn't have some optional system where it's either/or. I don't think the idea is that bad, especially for students who can't afford to pay up front.

Selection bias would really screw with things. People who expect to make next to no money (for example, people who expect to skip the country once they get their degree) would be the ones that chose the lifetime tax option. Doctors and the such would pick the flat fee.

I think you overestimate people's ability to predict the future. Many entering students think they're going to end up making more money then they really are. Also don't you have to pay taxes on overseas income any way, so that doesn't really mean that UC wouldn't be able to recover their fees if people "skipped the country".

Some of that might come out in the wash. It's a flat 5% after all. But is it crazier than what we do today, charge everyone the same and then push people from engineering into education? If it really costs the same to educate two different majors then why move people from high ROI to low ROI? More likely, they know they only want X engineering students but accept X+Y knowing that once people are on campus for a year they will jump to the cheaper major and pay the same rate.

The current system doesn't charge everyone the same. It's almost like airline pricing.

@Slocum #1 -- Right. It would be a bad deal for engineering students and a good deal for philosophy majors. Does society really need to shift more students out of productive majors and into fun majors? The people who would benefit most are the slackers who would only pay 5% of whatever earnings they report to IRS. Does society want to encourage new college grads to become slackers for 20 years? And from the UC perspective, the real Achilles heel is that the 5% scheme wouldn't generate nearly as much revenue as expected, because engineers would opt out and philosophers would pay pack very little.

OTOH, why don't universities have differential tuition across majors already? It'd make perfect sense to charge an Engineering undergrad, say, twice the fees of a philosophy undergrad based on expected earnings.

Yeah most schools already do charge Engineering/Science majors more - I don't get the big deal people are making, it's really not that bad of a deal

Hmm, never heard of that.

Are you serious? Maybe that don't do that everywhere but it's pretty common, the excuse is always that engineering/science students have lab equipment that needs to be paid for.

I don't really know what tuition costs are in the US but I've heard some insane figures. 5% per year for 20 years doesn't really sound like it works out to much more even if you expect to earn a lot. Another thing is many of these people who THINK they're going to be earning the big bucks won't be. Premed is a perfect example - I know there's always legions of people cramming into biology degrees because they think they're going to become doctors. VERY few of them end up getting into medical school - even amongst the good students, few make it there just aren't enough spaces.
In the end though maybe with your useless bio degree you'd be better off with the 5% per year then the 50K per semester at the private school.

UC Berkeley's tuition for 2011-2012 was $13K for the year for in-state residents. Out of state students pay much higher rates, $36K for the year.

I guess that's not as much as I thought but 13K is fairly excessive

A free society has neither a central bank nor a standing army, nor a FAA, nor an OSHA.
Voluntary exchange and the rule of law would replace all of these with better institutions. And no $16 donuts, $600 toilet seats, and bridges to nowhere.

Funny thing about those "free societies" that have "neither a central bank nor a standing army, etc., etc.".
There is not a single existing example of such a "free society" on Earth.

If you think about it, there are some obvious reasons that such a utopian "free society" does not exist (like the "non-free" society next door takes its' standing army and invades, or like the un-regulated"free market" banks get caught in a market bubble/fraud/corruption, collapse and destroy the economy, etc.,etc.).

But of course, "thinking about it", is just what utopians never do, preferring just to "believe about it".
Which is why they are disregarded by practical people, and are usually harmless, except to themselves (because they pass their lives in silly delusion).

or like the un-regulated”free market” banks get caught in a market bubble/fraud/corruption, collapse and destroy the economy, etc.,etc.).

And that is why the illegal drug industry does not exit. It is a figment of our imagination. If it had existed unregulated as it were it would have collapsed.

Illegal Drug markets are regulated by virtue of how law enforcement, diplomacy and drug cartels control and attempt to control the supply and demand.

Everyone is missing the truly amazing part of #1, that students in Berkeley -- Berkeley, by God -- are supporting a flat tax with no income progressivity!

Joking aside, I certainly do think the first $10 grand or so should be exempt. The pragmatic problems are (a) determining what "income" is and (b) the problem of collecting. The school is effectively offering an unsecured loan; there's no way to repossess an education, and it would be all too easy for students to scatter to the four winds and never repay. Also this obligation is presumably dischargeable in bankruptcy, absent some Congressional amendment, so there's nothing stopping an unscrupulous student from declaring bankruptcy the day after he graduates.

One other serious problem -- this will *destroy* Cal's ability to recruit 5* football players. Those players, who can expect to be high draft picks, are at the far right edge of the curve for income right out of college, and they have the most to lose from paying the fee. For most Cal grads, 20 years out is when they'll just be started making real money, and that's when the 5% payment disappears. For football players, all their income is in the first ten years out, and it will all be subject to the 5% fee. Of course, maybe "athletic scholarship" in this context just means waiving this fee. It'd be interesting to see how the NCAA would try to deal with that.

TommyVee,

Free banking has had a long and successful history, including Scotland before Peel's Bank Act. The recent economic problems were not caused by an unregulated banking system. On the contrary, it was central banking and government regulation that led to the underpricing of risk and all the cascading consequences of that.
Ditto for standing armies as invaders.
If anyone isn't doing any thinking (or reading) about this, it's you.

Ideally, the tuition should vary according to the cost of educating the student in the particular major. I suspect some of the hated liberal arts majors are comparatively cheap.

For the rest, I can see a fee based on the student's eventual salary, to capture the boost given to the student's employability, and a flat fee applicable to everyone to capture whatever the university contributes in manners, well roundedness, etc. And also the salary portion should be paid by the employer, not the student (they can take it out of the student's wages). Businesses have been increasingly expecting colleges to to their job training for them and free riding off that.

I would imagine the primary input on cost of educating a student is the salary of the professor, which is probably dependent on how likely it is that the professor could find a high-paying job in a non-academic context. Therefore, English professors get paid way less than law professors and PE professors.

Maybe science majors are somewhat expensive because of the cost of the labs and such, but there are very few instances where an *undergraduate* education requires expensive or unusual equipment.

In any case, most services seem to be priced at what consumers will be willing to pay for them; not on the basis of what it cost producers to produce them. Why should undergraduate education be an exception?

It kinda is, because most undergraduates don't really feel like they're "paying" for anything. My dad likes to tell the story of the day he got his student loan check, which was supposed to pay his groceries that semester, and went and bought the biggest speakers he could find. These are not the actions of someone who is carefully considering the long-term costs of student loan payments. On the other hand, the speakers still work great, so you could argue he made the right choice. Maybe this was a bad example.

5. Is it possible that in the 'emergent cartels' that value differentiation has simply been pushed to margins other than the price paid?

Isn't there a pretty big adverse selection problem with the '5% of salary as tuition' solution? Students expecting big salaries would choose other schools, while students who study acting would be getting a great deal.

A fun solution might be to let students choose between the 5% and flat rate option and then let the college administrators have a veto at it. It'd be an interesting to see which cases go through.

#1 wouldn't it be better to spend much less and charge less for classes in sociology and history and the less in demand majors. Maybe even move all of those classes to online.

Any "real students" around here?

If your are a brilliant guy with wealthy parents that pay your tuition and start making lots of money after commencement, surely 5% is completely out of mind.

But if you don't have any savings, neither your parents & no "sports" scholarship? All you got is the desire to be better, your high school diploma and a half time waitress job..... that "5% of income deal" starts to look better.

You can also analyze presents situations. It would be great if you ask all those graduates with a big credit debt what do they prefer: 5% income deduction or $50,000 debt getting bigger every time you miss a payment? Unemployed or subemployed.

A simple and fair solution for high earners and the rest of the people would be: 5% income for 20 years (low income boundary) or 5% income until you complete payments for $75,000 it doesn't matter if you pay in in 1, 2 or 5 years (high income boundary). This way low incomes (half-time workers, NGO workers, etc) can do what they prefer and high earners get rid of the 5% deduction as fast as their desire and accomplishments can.

ps. all the integers and %s used here are only for explaining the idea, no hard math behind them.

I paid my whole way through school, though I took out some student loans as well. If you go to a reasonably-priced school it is certainly challenging but not impossible either.

I might have taken the 5% deal, but it would have been very short-sighted. Of course, it's interesting to think of the 5% deal as a credible commitment mechanism for the schools - they're staking their future on the ability of their graduates to get a good-paying job after they graduate.

We're really going to discuss the position that America became a genetic-meritocracy since 1950, so inequality is okay? Do people actually believe this position is anything but self-serving Social Darwinism?

"Gentleman, a magic test devised by our top-pseudo-scientists of yester-year has determined that we and our children should always be at the top of the social hierarchy because our parents did well on that test. Yes, the test contained innumerable biases in favour of people that were wealthy, but it correlates with people being wealthy today. So, the test clearly predicts who should be wealthy."

Talk about self-serving nonsense. No wonder Marxism is becoming strong on the left.

Nice to know predestinationism (www.en.wikipedia.org/wiki/Predestination) is alive and well in America.

Marxism seems to have it's own pseudo-science to deal with... I don't see how the people going to it are any better off in terms of knowing what the heck they are talking about. This caste model at least contributes an interesting idea to the untangling of the correlation between social class and merit.

Your criticism is not entirely fair either, because the model says nothing about wealth just yet, and wealth is not entirely interchangeable with social class. The Pew study referenced actually used education and not wealth to measure parents' social advantage. Also, even if low social mobility was justified by more accurate caste models it would not by itself justify any particular distribution of wealth between the classes. Pointing something like that out is probably more effective than just attacking what is actually a sound argument on Harpending's part.

Surely the problem in America is that there is no test? Americans do not much like academic selection. Schools are mostly what the British call comprehensives - large and more or less unstreamed. Which means they hold the smartest back. As well as encourage bullying given everyone is educated in the same large school. America's Universities have a long tradition of opposing admission based purely on merit - precisely because they did not want them to become the preserve of the physically feeble, overly academic nerds who do well on exams. In the old days they were admitted because of who their fathers were, now because of how much their fathers have given (with a large group of people who have some merit to their applications).

The Scandinavian countries have a lot more social mobility than America and they stream their High Schools. They copied the Germans and at about 15 or so they give them a test and separate those destined for university from those who should be doing an apprenticeship. America does not. There would be a lot more social mobility, I think, if they did.

The mess that American education is in is the result of trying to find some system of "just" admissions process that is agreeable to everyone. They have not found one yet.

Do you have anything against assortative mating as a possible driver behind socioeconomic mobility in a society on a logical or empirical basis, or is all you have the histrionic indignation, strawmen, and ad hominems you've displayed so far on this thread?

Do you mean In addition to reducing concerns about equality, fairness and value to a crude pseudoscientific test? Or do you mean in addition to being so pregnant, it is a joke?

"We’re really going to discuss the position that America became a genetic-meritocracy since 1950, so inequality is okay? Do people actually believe this position is anything but self-serving Social Darwinism?"

Are you really objecting to what other people discuss?

Frankly, yes. If you are going to believe this drivel, it is one thing. If you are going to publicly display your ignorance and aggrandized sense of entitlement, then you deserve to be taken down a peg or two.

Publicly discussing such an idiotic theory under the auspices of an academic discussion is revolting. While the comment is in no way illegal, we certainly have have an obligation to call anyone willing to attach there name to such drivel to task.

I'm surprised more Americans aren't discussing class-warfare, if this is the among the best or most creative justifications for a lack of social mobility.

Face it, the justification is gross.

You obviously grossly misunderstood the post you are commenting on. It was purely a thought experiment and an obviously very preliminary examination.

Let's not hide behind the study being "preliminary" or the ideal of “fair inquiry”. The implication of the study is that our system of class – social class being all but synonymous with wealth – exists because the upper classes children are qualitatively superior to lower classes. Further, the statement’s implication is not only that the upper classes children are better, but that the upper classes children and grandchildren will also be more valuable.

Now, whatever you think of Marx (I tend to agree there are a lot of problems with Marx and support capitalism) do you think that a theory premised on the above is going to be a good way of explaining things like justice and ethics? Aren’t these areas where we meld emotion and logic to create persuasive reasoning? Accordingly, when the premise is so counter to our contemporary idea of justice, why should we even entertain it, when there appears to be no good reason to?

Cliff,

Surely the onus of proving that social mobility has slowed because of an innate hereditary difference between classes of people lies on the person making the claim. Not only is the claim not widely accepted, but the emotional and logical implications of the claim also serve to justify rule by birth. Further, (i) the only way to prove class is genetic is to look at differences in performance among upper class and lower class children adopted out of their class, and (ii) as class in America is still so highly polarized based upon racial lines that race and class are almost interchangeable, any wide spread acceptance of the point could bias the results of any study trying to prove the point. Hence, a very public discussion of these ideas is gross.

Josh

The math behind the tuition plan is pretty dubious.

Assuming 12k in tuition, a average starting salary of 50k, tuition growth of 3$, salary growth of 3%, a discount rate of 3%, and an undergaduate of enrollment of 160k the plan would cost the school system over $127 million per year. And that's not even counting the increased costs of enforcing such a system, the lost revenue from dropouts, and the huge shift it will cause in the student body.

How about a capital market where students sell shares of their future income to investors?

#1 - The unincorporated man has that idea, except that that system also has ability to trade the shares and most people don't attain majority until very late. You need majority shares to make important decisions about your life. And parents and government get 25 to 30 percent of your shares even before you begin anything.

5 is exactly the factual scenario raised, but not really analyzed by the Supreme Court in Twombly.

Comments for this post are closed