Private Education in India

Sebastian Mallaby has a good column on the explosion in private schooling in India and the implications for theories of development:

More than four out of five Indian engineering students attend
private colleges, whose potential growth seems limitless. …

Something similar is happening to the Indian
school system…Since the early 1990s the percentage of 6-to-14-year-olds
attending private school has jumped from less than a tenth to roughly a
quarter of the total in that cohort, according to India’s National
Council of Applied Economic Research. And this number may be on the low
side. James Tooley of the University of Newcastle in Britain has found
that in some Indian slums about two-thirds of the children attend
private schools, many of which are not officially recognized and so may
escape the attention of nationwide surveys.

The causes of this
private-school explosion shed interesting light on debates about
development, not just in India but throughout the poor world. The
standard assumption among anti-poverty campaigners is that education
leads to development…the recent private-education boom in India shows how causality can also
flow the other way…Since India embraced the
market in the early 1990s, parents have acquired a reason to invest in
education; they have seen the salaries in the go-go private sector, and
they want their children to have a shot at earning them… Once parents understand that education buys their kids into the new
India, they demand it so avidly that public money for schoolrooms
becomes almost superfluous.

… Apparently unconnected development policies —
cuts in tariffs and oppressive business regulation, or projects to
build roads and power grids — can sometimes stimulate new educational
enrollment at least as much as direct investments in colleges or
schools.

See my earlier post for some more references.

I know that we have a number of readers in and from India so comments are open if you have further information.

Lester Brown vs. Broken Watch

It’s no contest.  A broken watch is correct twice a day.

Hundreds of millions of Chinese have been lifted out of abject poverty in the last several decades but trust Lester Brown to see the downside (Brown, of course, is sadly joined by Paul Krugman and neo-cons itching for another cold-war).  In his latest book, Brown argues that the Chinese will soon be eating little children.  Well, not exactly, but he does think that Chinese eating will cause little children to die.  Writing in the Washington Post, Bill McKibben summarizes the Brown argument (which he endorses):

The Chinese, in particular, are constantly converting farmland to
factory sites (even as they learn to eat more meat), and they have
plenty of American cash stored up to pay for any shortfall. But if they
do so, the first casualties will be the world’s really poor nations,
already reeling from increases in the price of fuel.

Of course this is an old story for Lester Brown who in 1973 said:

The soaring demand for food, spurred by continued population
growth and rising affluence, has begun to outrun the productive
capacity of the world’s farmers and fishermen.  The result has been
declining food reserves, skyrocketing food prices, food rationing in
three of the world’s most populous countries, intense international
competition for exportable food supplies, and export controls on major
foodstuffs by the world’s principal food supplier.

Isn’t it amazing how rising affluence leads directly to mass starvation?  Some people just can’t be happy. 

To be clear, I do think that issues of food production and demography are important  (although what is most important is regional poverty – I have few worries about global food production per se), it’s just Lester Brown who should not be taken seriously.

Daily Ablution has some good links on these issues.  Comments are open.

Constitutional Torture

Liberals are claiming that President Bush has violated constitutional restrictions on torture and spying on Americans.  Don’t they understand that the constitution is a living document that must be reinterpreted in light of new events and understandings?  An originalist reading of the constitution would throw us back into the
primitive past when the minimum wage was unconstitutional.  Fortunately, conservatives know that constitutional interpretation must change with the times and never more so than now.  We live in a different world.  The Founding Fathers may have been great in their time but they did not face the problems that we face today and we should not be bound by their 18th century ideas of liberty and executive tyranny.

David Friedman’s Blog

David Friedman has started a blog.  As you might expect, it’s interesting.  Here is an idea from one recent post.

Libertarians still tend to identify with the Republican party. Save for
historical reasons, it is hard to see why. The current administration,
despite its free market rhetoric, has been no better–arguably
worse–than its predecessor on economic issues. Its policy on public
schooling, the largest governent run industry in the U.S., has been a
push towards more central control, not less. Its support for free trade
has been at best intermittant. Reductions in taxes have been matched by
increases in government spending, increasing, not shrinking, the real
size and cost of government. It has been strikingly bad on civil
liberties. Its Supreme Court nominees have not been notably sympathetic
to libertarian views of the law. Libertarians disagree among themselves
on foreign policy, but many support a generally non-interventionist
approach and so find themselves unhappy with the Iraq war.

The
Democrats have problems too. While things have been looking up for them
recently, their ideological coalition has been losing strength for
decades, leaving them in danger of long term minority status.

The
obvious solution to both sets of problems is for the Democrats to try
to pull the libertarian faction out of the Republican party. How large
that faction is is hard to judge, but it is clearly a lot larger than
the vote of the Libertarian Party would suggest. ….

How
can the Democrats appeal to libertarian Republicans without alienating
their own base?…

I think I have an answer. In 2004, Montana went for Bush
by a sizable margin. It also voted in medical marijuana, by an even
larger margin. Legalizing medical marijuana is a policy popular with
libertarians, acceptable to Democrats, and opposed by the current
administration.

At the very least, prominent Democrats should
come out in favor of the federal government respecting state medical
marijuana laws, as it has so far refused to do. Better yet, let them
propose a federal medical marijuana law. That will send a signal to a
considerable number of voters that, at least on this issue, one of the
parties is finally on their side. It would be a beginning.

The Cuban Cigar Mystery

Why are Cuban cigars good?  It’s not as if communist economies are known for producing quality goods so why the exception for Cuban cigars?  I have a few hypotheses:

  1. Cuban cigars are not good.  The contrary impression is due to rememberances of things past and the sex appeal of the forbidden fruit.  (Testable hypothesis: Are Cuban cigars as highly prized in countries where they are not banned?)
  2. The Cuban "terroir," the soil, climate and environment are unique.   (Maybe but Communists destroy good terroir – see Zimbabwe, the Ukraine etc. – all the time.)
  3. Castro puts a huge amount of resources and incentives into producing cigars because a) he likes to smoke and b) exporting cigars and doctors is good for the brand image.  Cuban cigars are like Soviet chess.
  4. Castro has basically privatized the cigar industry allowing for significant market incentives.

Comments are open for those who know more about cigars and the Cuban cigar industry.

Solving Das XBox Problem

The usual explanation, a shortage generates hype, doesn’t make much sense.  First, as Tim Harford also points out hype can be generated by high prices as well as by shortages.  Very high end luxury items, for example, like Lamborghini’s are difficult to obtain but also very expensive.  Second, it’s implausible that a shortage
now could generate such greater sales later as to be worthwhile this is especially true given that Christmas is the peak selling season.  You want
hype before not during Christmas. 

Plus ca change…

I had the same reaction as Pablo Halkyard at the PSD Blog to yesterday’s article in the NYTimes on Bolivian water privatization so here is his post:

Juan Ferrero’s
article in today’s New York Times discusses the poor results of water
privatization and nationalization in Bolivia, as well as the country’s
turbid future as it struggles to reform.

After
days of protests and martial law, Bechtel – the American multinational
that had increased rates when it began running the waterworks – was
forced out. As its executives fled the city, protest leaders pledged to
improve service and a surging leftist political movement in Latin
America celebrated the ouster as a major victory, to be repeated in
country after country.

Today, five years later, water is again as cheap as ever, and a
group of community leaders runs the water utility, Semapa. But half of
Cochabamba’s 600,000 people remain without water, and those who do have
service have it only intermittently – for some, as little as two hours
a day, for the fortunate, no more than 14.

The sad
part is that I have read the exact same article by Juan at least four
times in the last two years – although sometimes the names of Peru or
Ecuador are plugged in for Bolivia, or electricty/gas replaces water as
the featured sector.

See also my earlier post on some surprising benefits of water privatization.

Adverse selection is NOT the problem

The adverse selection story is a wonderful example of McCloskey’s argument that great rhetoric persuades even when it shouldn’t.  The market for lemons is simple enough for your friends to understand but profound enough for them to be impressed at your learning, so it’s a hard story not to tell!      

The facts of the matter, however, are that adverse selection is not an important part of the market for automobiles (trucks), or of auto, life insurance or health insurance (on the latter see below).

One reason adverse selection may not be that important in practice is because buyers and sellers use testing and certification to remove the most important information asymmetries.  You can buy a decent used car, for example just get it inspected or certified.  Only if such adjustments are illegal, or in some other way not allowed, will adverse selection become important.

Second, the asymmetry may run in favor of the sellers.  Do I really know more about my own life expectancy than an insurance firm that has access to sophisticated actuarial models?  And, assuming that I do have extra information is it all that important?  After all "the race is not to the
swift, nor the battle to the strong, neither yet bread to the wise… but
time and chance happen to them all."  Or, more prosaically, the signal is near irrelevant when the noise to signal ratio is high.
 

Third, propitious selection can be more important than adverse selection.  What sort of person buys a lot of life insurance?  Is it people who expect to die soon?  Or is it the sort of person who is so worried about not leaving their family in trouble that not only do they buy life insurance they also buckle their safety belt and eat healthy?  The price of life insurance falls the more you buy so evidently insurance companies believe it is the latter.

Everyone talks about adverse selection in the market for health insurance but in fact non-group policies in these markets are not relatively expensive and not hard to get.  The national average annual premium for reasonably generous coverage for a single person is just $2,268.

Sure, that’s a lot of money but the point is that it’s not a lot relative to what an employed person and their employer would pay for similar coverage in the group market.  There is no evidence for an adverse-selection death spiral in the market for health insurance.  That’s not surprising because non-group health insurance is medically underwitten (i.e. medical inspections just like car inspections).  Most people are accepted a few are not.  Only in states that require insurance companies to accept all or most buyers are rates high relative to the group market (rates in New Jersey, an outlier, are almost three times as high as the national average.)

There are problems in the health insurance market, including a lack of long term insurance, job lock and the inequity of affordability, but adverse selection is not one of them.

Thanks to Bryan Caplan, Robin Hanson, Tyler Cowen, Tim Harford, and Ray Lehmann for discussion.

Addendum: Comments are open.