Category: Education
Sentences to ponder
From a new NYT article:
“Education policies here are always written to be ‘the best’ or ‘the top this or that,’ ” he said. “We’re not like that. We want to be better than the Swedes. That’s enough for us.”
There is also this:
Besides high-quality teachers, Dr. Sahlberg pointed to Finland’s Lutheran leanings, almost religious belief in equality of opportunity, and a decision in 1957 to require subtitles on foreign television as key ingredients to the success story.
And this:
Dr. Sahlberg said another reason the system had succeeded was that “only dead fish follow the stream” — a Finnish expression.
Finland is going against the tide of the “global education reform movement,” which is based on core subjects, competition, standardization, test-based accountability, control.
A large number of Finns want to grow up to be teachers.
For the pointer I thank Adam Ozimek. Here is Adam’s post on education and mood affiliation.
Teachers Don’t Like Creative Students
One of the most consistent findings in educational studies of creativity has been that teachers dislike personality traits associated with creativity. Research has indicated that teachers prefer traits that seem to run counter to creativity, such as conformity and unquestioning acceptance of authority (e.g., Bachtold, 1974; Cropley, 1992; Dettmer, 1981; Getzels & Jackson, 1962; Torrance, 1963). The reason for teachers’ preferences is quite clear creative people tend to have traits that some have referred to as obnoxious (Torrance, 1963). Torrance (1963) described creative people as not having the time to be courteous, as refusing to take no for an answer, and as being negativistic and critical of others. Other characteristics, although not deserving the label obnoxious, nonetheless may not be those most highly valued in the classroom.
….Research has suggested that traits associated with creativity may not only be neglected, but actively punished (Myers & Torrance, 1961; Stone, 1980). Stone (1980) found that second graders who scored highest on tests of creativity were also those identified by their peers as engaging in the most misbehavior (e.g., “getting in trouble the most”). Given that research and theory (e.g., Harrington, Block, & Block, 1987) suggest that a supportive environment is important to the fostering of creativity, it is quite possible that teachers are (perhaps unwittingly) extinguishing creative behaviors.
From Creativity: Asset or Burden in the Classroom?, a good review paper. What the paper shows is that the characteristics that teachers use to describe their favorite student correlate negatively with the characteristics associated with creativity. In addition, although teachers say that they like creative students, teachers also say creative students are “sincere, responsible, good-natured and reliable.” In other words, the teachers don’t know what creative students are actually like. (FYI, the research design would have been stronger if the researchers had actually tested the students for creativity.) As a result, schooling has a negative effect on creativity.
My experience as a parent is consistent with the idea that teachers don’t like creative students but I try not to blame the teachers too much. Creative people, for better and worse, ignore social conventions. Thus, it can be hard for teachers to deal with creative students in a classroom setting where they must guide 20-30 students en masse. As Jonah Lehrer puts it:
Would you really want a little Picasso in your class? How about a baby Gertrude Stein? Or a teenage Eminem? The point is that the classroom isn’t designed for impulsive expression – that’s called talking out of turn. Instead, it’s all about obeying group dynamics and exerting focused attention. Those are important life skills, of course, but decades of psychological research suggest that such skills have little to do with creativity.
One hope I have for personalized learning, ala the Khan Academy, is that teachers will not feel the need to suppress creative students when classroom dynamics do not require that all the students follow all the rules all the time .
Hat Tip: Erik Barker.
College Subsidies Fuel Salaries
“Who pays a tax is determined not by the laws of Congress but by the law of supply and demand,” as Tyler and I say in Modern Principles. In particular, whether demanders or suppliers pay a tax is determined by the elasticities of demand and supply. The more elastic side of the market can better escape a tax, leaving more of it to be paid by the inelastic side. The same thing is true for a subsidy but in reverse, the inelastic side of the market gets the benefit of the subsidy. Virginia Postrel applies the idea to education and education subsidies.
If you offer people a subsidy to pursue some activity requiring an input that’s in more-or-less fixed supply, the price of that input goes up. Much of the value of the subsidy will go not to the intended recipients but to whoever owns the input. The classic example is farm subsidies, which increase the price of farmland.
A 1998 article in the American Economic Review explored another example: federal research and development subsidies. Like farmland, the supply of scientists and engineers is fairly fixed, at least in the short run. Unemployed journalists and mortgage brokers can’t suddenly turn into electrical engineers just because there’s money available, and even engineers and scientists are unlikely to switch specialties. So instead of spurring new activity, much of the money tends to go to increase the salaries of people already doing such work. From 1968 to 1994, a 10 percent increase in R&D spending led to about a 3 percent increase in incomes in the subsidized fields.
“A major component of government R&D spending is windfall gains to R&D workers,” the paper concluded. “Incomes rise significantly while hours rise little, and the increases are concentrated within the engineering and science professions in exactly the specialties heavily involved in federal research.”
The study’s author was Austan Goolsbee, then and now a professor at the University of Chicago but until recently the chairman of the president’s Council of Economic Advisers.
….Goolsbee declined a recent request to comment on the subject, but the parallels to higher education are hard to miss.
In the short-term, the number of slots at traditional colleges and universities is relatively fixed. A boost in student aid that increases demand is therefore likely to be reflected in prices rather than expanded enrollments. Over time, enrollments should rise, as they have in fact done. But many private schools in particular keep the size of their student bodies fairly stable to maintain their prestige or institutional character.
…On the whole, it seems that universities are like the companies making capital equipment. If the government hands their customers the equivalent of a discount coupon, the institutions can capture at least some of that amount by raising their prices
…This doesn’t mean that colleges capture all the aid in higher tuition charges, any more than capital-equipment companies get all the benefit of investment tax credits. But it does set up problems for two groups of students in particular. The first includes those who don’t qualify for aid and who therefore have to pay the full, aid-inflated list price. The second encompasses those who load up on loans to fill the gaps not covered by grants or tax credits only to discover that the financial value they expected from their education doesn’t materialize upon graduation.
Addendum: Long time readers may remember my rebuttal to Krugman on a similar point. Liberal Order has graphs and further discussion.
British STEM
In my book (Amzn, Nook, iTunes) I discuss the stagnation of STEM majors in the United States. According to a new report something similar, although somewhat less pronounced, has been happening in Britain over the last decade:
In fact, overseas students accounted for more than 100 per cent of the increase in student numbers between 1996/97 and 2006/07 in engineering and technology. This means the total number of British engineering and technology students fell during the period.
Don’t Check Asian
USA Today: Lanya Olmstead was born in Florida to a mother who immigrated from Taiwan and an American father of Norwegian ancestry. Ethnically, she considers herself half Taiwanese and half Norwegian. But when applying to Harvard, Olmstead checked only one box for her race: white.
“I didn’t want to put ‘Asian’ down,” Olmstead says, “because my mom told me there’s discrimination against Asians in the application process.”
Her Mom is correct:
Asian students have higher average SAT scores than any other group, including whites. A study by Princeton sociologist Thomas Espenshade examined applicants to top colleges from 1997, when the maximum SAT score was 1600 (today it’s 2400). Espenshade found that Asian-Americans needed a 1550 SAT to have an equal chance of getting into an elite college as white students with a 1410 or black students with an 1100.
Note that this is true even though there is a history of discrimination against Asians in the U.S., Asian children also do well on extra-curricular activities and many have poor, immigrant backgrounds.
Comparing schools which can and cannot legally discriminate suggests a lot of discrimination. At Yale the class of 2013 is 15.5 percent Asian-American, at Dartmouth 16.1 percent, at Harvard 19.1 percent, and at Princeton 17.6 percent. These figures are above the Asian share of the population but compare:
The California Institute of Technology, a private school that chooses not to consider race, is about one-third Asian. (Thirteen percent of California residents have Asian heritage.) The University of California-Berkeley, which is forbidden by state law to consider race in admissions, is more than 40 percent Asian — up from about 20 percent before the law was passed.
Interestingly, the Obama administration has recently reversed Bush era rules and interpretations in order to promote race-based admissions:
Bush guidelines: “Before using race, there must be a serious good faith consideration of workable race-neutral alternatives.”
Obama guidelines: “Institutions are not required to implement race-neutral approaches if, in their judgment, the approaches would be unworkable.”
Governor Jerry Brown would also like to repeal or limit CA’s ban on race-based admissions.
Seth Roberts on Diversity, Education and Innovation
Wonderful post from Seth Roberts. Not sure if I even agree but Seth makes me think about how I can better serve my students:
People can do great things in dozens of ways, but somehow student work is almost never judged by how beautiful, courageous, practical, good-tasting, astonishing, vivid, funny, moving, comfortable, and so on it is. Because that’s not what professors are good at….To fail to grasp that students can excel in dozens of ways is to seriously shortchange them. To value them at much less than they are worth — and, above all, to fail to help them grow and find their place in the world after college.
At Berkeley, I figured this out in a way that a libertarian should appreciate: I gave my students much more choice. For a term project, I said they could do almost anything so long as it was off-campus and didn’t involve library work. What they chose to do revealed a lot. I began to see not just how different they were from me but how different they were from each other. One of my students chose to give a talk to a high-school class. This was astonishing because she has severe stage fright. Every step was hard. But she did it. “I learned that if I really wanted to, I could conquer my fear,” she wrote.
One of my Tsinghua students recently asked me: “Are you a brave man?” (She wanted to give me a gift of stinky tofu.) I said no. She said she thought I was brave for coming to China. Perhaps. I have never done anything as brave as what my student with stage fright did. I have never done something that terrified me — much less chosen to do such a thing. Her homework hadn’t been very good. When I read about her term project — conquering stage fright — I realized how badly I had misjudged her. How badly I had failed to appreciate her strengths. I saw that it wasn’t just her and it wasn’t just me. By imposing just one narrow way to excel, the whole system badly undervalued almost everyone. Almost everyone had strengths the system ignored. And it’s a system almost everyone must go through to reach a position of power!
…The glorification of IQ has had a solipsistic aspect and has ignored what should be obvious, that diversity of talents and skills promotes innovation. Without a diverse talent pool, any society will do a poor job of solving the problems that inevitably arise.
Hat tip to Bryan Caplan who is less of a romantic than Seth, or I.
“The moral superiority of the Germans”
Ryan Avent tweeted:
Dear
@tylercowen, Germany and the periphery ARE morally equivalent.
How might a response go? Not an argument that German citizens are morally superior to other Europeans; that would be false and indeed repugnant. I mean the kind of “system-wide” moral judgments that progressives offer up when they judge the institutions of Denmark to be superior to the institutions of Mexico, of course without ever judging the residing individuals per se. Let’s play at intellectual Turing test — with no commitment to endorsing these views — and draw up a short list of, dare I so label them, (ostensible) German moral superiorities:
1. When it comes to default, there is no moral equivalence of debtor and creditor. The debtor is the one breaking the agreement and breaking his word.
2. When it comes to debt, the periphery countries simply don’t want to pay up. Their national wealth is many times their gdp and thus much much greater than their debts, even for Greece. It’s amazing how many people won’t come out and utter or recognize this simple truth. Italy for instance doesn’t have to make a huge fiscal adjustment.
3. It is a privilege for a poorer country to be in an economic union with Germany, France, the Netherlands, and other wealthy EU countries, just as you might feel privileged to co-author a piece with a great scholar. If the poorer countries have to engage in some economic sacrifice to stay on good terms in such a union, so be it. There is also such a thing as catch-up growth, and it is robust in the broader world today, at least if a country is willing, like the East Asian countries have been, or for that matter Turkey and Brazil these days. The sacrifices being asked from the periphery countries are quite small in comparison.
4. We did a deal with East Germany, and the terms of that deal violated a lot of precepts of economic theory. It even included an overvalued currency for the poorer region and a long period of adjustment. Yet we insisted up front that all dealings be done on the terms of the more successful region and culture, with very little compromise. This transition, for all of its short-term flaws, will go down in the history books as a great long-run success. In part it succeeded because it was all done on the terms of the values of the successful nations of northwestern Europe. (I am surprised that this angle is not discussed more in the press, given Merkel’s own story.)
5. Economic unions do not succeed by lowering all members to the standards of the economically less successful and less responsible members.
6. If it wasn’t for us, would Greece, Spain, and Italy (plus Ireland and Belgium) all currently have technocratic, reform-oriented governments as they do?
7. If you are trying to estimate the future economic fate of a country, shouldn’t you put aside a bit gdp drops and the like, and instead look at what do people in that country esteem and which values are transmitted by their system of education? Do read the Estonia story at the previous link.
8. The German emphasis on rules, and the attachment to the idea of an abstract order, worthy of loyalty in its own right, above and beyond any immediate personal connection or loyalty, is exactly what makes them able to run such a successful economy and successful social welfare state. When it says “Don’t Walk,” they don’t cross the street, even if no cars are coming. An economic union should be set up to support those principles, not tear them down, and social democrats should value this most of all.
Even if you disagree with these perspectives, they shape real world behavior. And might you still bet on a country which stuck to them? Be honest now. Let’s go back into intellectual Turing test mode:
9. One clear warning sign of trouble is when you see “trade imbalances” put at the center of the argument, as if “being very productive” and “not being productive enough” were somehow the same kind of disease.
10. There is a view something like “Germany has benefited from the eurozone, and therefore it is obliged to…”, as if those arguments were stronger than the nine principles outlined above. By the way, might left-wing American intellectuals occasionally engage in a bit of transference and view Germany as a stand-in for the American top earners, the American financial system, and so on? It isn’t.
11. Another doozy is to think the problem is due to some weird German obsession with Weimar-era inflation, as if there is a need to apologize for an elderly uncle who went bonkers. I would instead start with the simpler point that Germany does not want to transfer resources to countries which do not wish to pay back their creditors, and which will not commit to good economic policy in the future.
Let’s move out of Turing mode and back to Tyler. I believe that the Germans have approached this crisis with some bad economic theories, a lack of understanding of how government spending cuts can be self-defeating in the short run, and a good deal of more or less deliberate self-deception about its partners in the union, not to mention Germany’s own ability and willingness to act “fully European.” I’m also not sure that Germany has a path out of this which leaves their own financial system intact. You can rack up the moral and practical minus points there in considerable number. That said, I see a lot of intellectuals dismissing the perspective outlined above, rather than figuring out why it makes so much sense to so many people, not just in Germany. I think the financial elites in the periphery countries themselves actually see it quite clearly.
The result is significant misunderstandings about what can happen and will happen in the eurozone. Germany cannot and will not drop its moral perspective, even if there is some theory — and yes theory is the right word here, because no one knows these broad guarantees will work — of how a broader and far more costly commitment can set things right.
In reading American discussions of the eurozone, I am frequently reminded of earlier discussions of the Soviet Union. Most outsiders simply didn’t realize how little social capital was left in the system, though some of the Soviet insiders did. Might the same be true of the eurozone? I’m not calling these countries corrupt, rather there may be remarkably little cross-national cultural capital, and remarkably little deep public support for a costly EU bargain, so little that many German (and other) insiders know that no grand bargain can be sustained or even seriously attempted.
I believe we need to be exposed to this moral perspective, and this intellectual Turing test, as a bracing slap in the face, as a wake-up call, and I see our unwillingness to do anything with this perspective, other than summarily dismiss it as a kind of tragic juvenile moralizing, as a sign of our own decline, right here in the USofA.
Addendum: This piece is actually pretty good.
Are CEOs paid their value added?
Remember Paul Krugman’s forays into “the wage reflects what the top earners are really worth” topic, and the surrounding debates? Why should this discussion be such a fact-free zone? Why so little discussion of tax incidence?
Let’s start with the literature.
Read this paper by Kevin Murphy (pdf), especially pp.33-38. Admittedly the paper is from 1999 and it won’t pick up the more recent problems with the financial sector. But most of the data are from plain, ol’ garden variety CEOs. In many of the estimations we see CEOs picking up less than one percent of the value they create for the firm, and all of the estimates of their value capture are impressively small, albeit rising over time. Never is the percentage of value capture anything close to one hundred percent. “One percent value capture” is an entirely plausible belief.
You might think this sounds whacky but it makes theoretical sense. For instance often CEO performance is motivated by equity and options, but few CEOs are wealthy enough to own more than a very small chunk of the company (risk-aversion may be a factor too), and that will mean their pay won’t reflect value created at the margin. It’s a standard result of agency theory, stemming from first principles.
Maybe you’re suspicious of this work but the way these estimates are done is quite straightforward, and results of this kind have not been overturned. You can formulate a “pay isn’t closely enough linked to performance” critique from these investigations, but not a “they’re paid as much as they contribute” conclusion or anything close to that. (And, if it matters, the “conservative” and also WSJ Op-Ed page view has embraced these results for almost two decades, at least since the original Jensen-Murphy JPE piece; Krugman identified the conservative position with the Clarkian perfect competition w = mp stance but that is incorrect.)
You might be thinking “Ha! Burn on Krugman!,” but not so fast. Like Wagner’s music, Krugman’s position here is “better than it sounds,” though not nearly as strong as Krugman would like it to be.
Let’s turn to taxation of the top 0.1 percent, and focus on these CEOs. If the tax rate on their income/K gains goes up, the firm will compensate by giving them more equity/options, to keep them working hard. In other words, the tax rate on the top earners can be hiked without much effect on CEO effort because there is an offset internal to the firm. At some margin the firm’s shareholders will be reluctant to chop off more equity/options to the CEO, but the marginal value created by maintaining the incentive seems to be very high, for reasons presented above, and so the net CEO incentives will be maintained, even in light of new and higher taxes on CEO earnings.
But here’s the problem, if that’s the right word. The incidence of that tax is going to fall on shareholders in general and thus on capital in general. These top CEOs could even get off scot-free, if the shareholders up the equity/options participation of the CEO to offset completely the effects of the new and higher tax rate. This is also relevant to the Piketty-Saez-Stantcheva analysis that everyone has been talking about; they don’t see these mechanisms with sufficient clarity.
Moral of the story: it’s harder to tax the top earners than you think.
The second moral is that tax incidence remains a neglected topic, even among top economists.
The third moral is that too many people, including both Krugman and his critics on this point, have been neglecting the literature.
By the way, other assumptions can be made and other results generated, but I am focusing on one of the core cases.
Model this
Students in George Parrott’s psychology courses have an unusual requirement: they must bring homemade snacks each week to the laboratory section, and they need to work out a schedule such that groups of students make sure each session is covered, and that snacks aren’t repeated from week to week. If there are no snacks, Parrott walks out of his class at California State University at Sacramento, and the students lose that week’s instruction.
Parrott has been teaching at the university since 1969. He says he started this requirement a few years after he arrived — and that most students have appreciated the ideas behind the rule (which he says are more educational than culinary). But on Thursday, when students in the morning section of Foundations of Behavioral Research didn’t bring muffins (or anything), he enforced his rule. He left class and took his teaching assistant to breakfast. One of the other sections missed its snack obligation one day last month, and he left that class, too. Ever since, the snack schedule has been followed by the students in that class.
I snickered at this sentence:
This is Parrott’s last semester before retirement, but his teaching technique — in use for more than 30 years — is now being subjected to scrutiny.
Here is more.
Doctors with Borders
It’s hard to know what is worse about a new paper in the British Medical Journal, the simplistic economics or the troubling ethics. The paper, The financial cost of doctors emigrating from sub-Saharan Africa, adds up the government-paid cost of educating a health worker in Africa and then multiplies that cost over ~33 years by an investment factor to find the “losses” to the educating country of educating a health worker who emigrates to Canada, the US, the UK, or Australia. The authors do this for nine sub-Saharan African countries with an HIV rate of 5% or greater or more than one million people with HIV/AIDS.
The numbers, by the way, are quite small since the cost of education in developing countries is low and because our laws make it difficult for workers to immigrate, thus the authors find just 567 doctors from Ethiopia currently practicing in the four western countries that they consider; n.b. 567 is the total number not an annual flow. (Note also that the authors gin up the costs by multiplying by an investment factor which adds virtually nothing to the analysis and confuses present and future value calculations.)
You can get an idea of the quality of this paper by asking why the authors chose to focus on countries with high HIV rates. The only reason for this is to suggest that doctors who emigrate and the countries that attract them are responsible for millions of deaths. See below.
Turning to the simplistic economics we have first the suggestion that there is a fixed number (flow) of health care workers so if the U.S. were to forbid Ugandan health care workers from emigrating to the United States this means more health care workers for Uganda. Not so; without the prospect of high wages earned abroad, investment in education (the major cost of which is born by the worker) will likely decline. The Philippines “exports” more nurses than any other country but also has far more nurses than one would expect for a country of its income class, on par with that of Spain, Hungary or Singapore. Here is Michael Clemens:
…there is no such thing as a fixed quantity of nurses to be “drained” from the Philippines or Africa, like petroleum from the ground. People — in this case mostly low-income women — react to global markets and change their career plans accordingly. Many Filipinas wouldn’t have become nurses if not for the migration opportunity, and thus are not ‘lost’ in any sense when they depart. Africans are starting to follow suit, opening career paths for professional women who would otherwise have few. This should not be discouraged through closed immigration policy, but rather taken advantage of — through the establishment of for-export nurse training programs as the Philippines has done en masse. Unlike petroleum, these women are human beings. They have rights and ambitions whose fruition in the United States is a beautiful thing.
Even on their own terms the authors calculations are faulty. Emigrating workers, for example, don’t leave immediately after they have finished their education (as the authors assume in their primary analysis), there are fixed costs to building an education infrastructure which can reduce the costs of education for non-emigrating workers and emigrating workers often send remittances back to the home country. Not all emigrating workers send remittances but wages for high-skill workers can be five or even ten times higher in say the U.S. than in a sub-Saharan African country so educating workers and sending them abroad could be a net benefit for the educating country just based on remittances. Indeed, many families make exactly this calculation. Finally, the authors don’t even try to measure externalities which is what they should be measuring.
What is most ethically troubling is that the authors implicitly treat people as if they were the property of the state. Thus, an emigrating physician is a loss even though the physician improves his life prospects and those of his children. Development is about making people better off not about making geographic units “better off.”
Lest you think that I exaggerate consider that the lead author of this paper is also the lead author of an editorial in the Lancet that advocates making it an international crime to hire African workers.
Although the active recruitment of health workers from developing countries may lack the heinous intent of other crimes covered under international law, the resulting dilapidation of health infrastructure contributes to a measurable and foreseeable public-health crisis….There is no doubt that this situation is a very important violation of the human rights of people in Africa.
…Active recruitment of health workers from African countries is a systematic and widespread problem… the practice should, therefore, be viewed as an international crime.
Yes, you read that correctly: recruiting African workers with prospects of higher wages and a better life is a “very important violation of the human rights of people in Africa.”
Addendum: See this excellent paper by Michael Clemens for more on these issues.
I’m not saying we should do this!
China’s Ministry of Education announced this week plans to phase out majors producing unemployable graduates, according to state-run media Xinhua. The government will soon start evaluating college majors by their employment rates, downsizing or cutting those studies in which less than 60% of graduates fail for two consecutive years to find work.
The move is meant to solve a problem that has surfaced as the number of China’s university educated have jumped to 8,930 people per every 100,000 in 2010, up nearly 150% from 2000, according to China’s 2010 Census. The surge of college grads, while an accomplishment for the country, has contributed to an overflow of workers whose skillsets don’t match with the needs of the export-led, manufacturing-based economy.
One of the targeted sectors might be biology, whose majors are not currently finding good jobs. But is that the right decision for the future of China? Here is yet another problem with the plan:
An op-ed in the Beijing News criticizes the approach for a different reason, saying that it will only spur false reporting of employment rates from schools that are looking for greater autonomy to produce more diversified, higher qualified students.
By the way:
What if the U.S. government were to adopt China’s approach? According to the most recent U.S. census data, among the first majors to go: psychology, U.S. history and military technologies.
For the pointer I thank Samuel Oehler.
Betting markets in everything
A new website is assembling what it calls “the world’s best economics department” in a bid to give prominent academic economists a louder and unfiltered voice in key public-policy debates.
The site, run by the University of Chicago Booth School of Business, plans to pose one question a week and post answers from 40 senior professors at elite U.S. universities. The site went live Sunday, though the panel has been responding to questions for the past few weeks.
Alas, I cannot check the “weblogs” category for this post. The David Wessel article is here, the website itself is here. Let’s bet: pick your metric, how many site visits (or whatever) will they be pulling in six months from now? I bet Scott Sumner beats them with one hand tied behind his back.
Sumner on Yglesias
PS. Congratulations to Matt Yglesias on his new gig. He’s arguably the best progressive economist in the blogosphere, which isn’t bad given that he’s not an economist. I said “arguably” because Krugman’s a more talented macroeconomist. But Yglesias can address a much wider variety of policy issues in a very persuasive fashion. So he’s certainly in the top 5. His blog is the best argument for progressive policy that I’ve ever read. (But not quite persuasive enough to convince me.)
Scott writes more, on the euro.
Sentences to ponder
It is estimated that up to 40 percent of prescriptions go unfilled…
That is from Ezekiel J. Emanuel, here is more. I read somewhere that Zeke has a memoir under contract somewhere, but now Google fails me. Can this be true?
The Bond Market on Education
…Stark Investments is staying away from all student loan bonds right now. It is instead focusing on mortgage-backed debt with comparable yields and less risk…
You know it’s a bad job market when bond investors would rather invest in mortgages than students. As the article in the WSJ notes, investors in student loans have an incentive to be realistic about the value of education and the job market.
Investors like Mr. Ades have a unique view on the future for America’s job-seekers. Their investments depend on accurately predicting young people’s ability to repay their loans, which means they obsess about everything from employment rates by profession to the long-term earning potential of young graduates.
Historically, investors have assumed 25% to 30% of student loans bundled into their bonds will default. But today they are baking in between 30% and 40% default rates among the current crop of graduates…
Not every investment in education is a poor bet:
…This analysis translates into some surprising insights for students and policy makers. For example, in the current economy, it may make more sense to enter a technical college than to go to law school.
…”It’s not just about where you can get the best education,” he said during an interview in the Miami Beach office of his hedge fund, Kawa Capital Management. Students should pick schools where the payoff from higher salaries upon graduation exceeds the cost of the education by the widest margin, he contends, especially when the job market contracts.
By that arithmetic, technical colleges come out on top, Mr. Ades said. “We’re in a skills based economy and what we need is more computer programmers, more [nurses],” he said. “It’s less glamorous but it’s what we need.”