Category: Education
The Government Profits from Student Debt Defaults
Matt Taibbi’s expose of Federal educational loan programs is over-the-top and not balanced but it does have some shockers. Most importantly, according to Taibbi, the Federal government makes a profit on student defaults.
While it’s not commonly discussed on the Hill, the government actually stands to make an enormous profit on the president’s new federal student-loan system, an estimated $184 billion over 10 years, a boondoggle paid for by hyperinflated tuition costs and fueled by a government-sponsored predatory-lending program that makes even the most ruthless private credit-card company seem like a “Save the Panda” charity.
…In 2010, for instance, the Obama White House projected the default recovery rate for all forms of federal Stafford loans (one of the most common federally backed loans for undergraduates and graduates) to be above 122 percent. The most recent White House projection was slightly less aggressive, predicting a recovery rate of between 104 percent and 109 percent for Stafford loans.
The government claims the net after costs is less than 100%:
..Still, those recovery numbers are extremely high, compared with, say, credit-card debt, where recovery rates of 15 percent are not uncommon…. After the latest compromise, the 10-year revenue projection for the DOE’s lending programs is $184,715,000,000, or $715 million higher than the old projection – underscoring the fact that the latest deal, while perhaps rescuing students this coming year from high rates, still expects to ding them hard down the road.
The loans are profitable even when the student defaults because the government has ways of making people pay:
…”Student-loan debt collectors have power that would make a mobster envious” is how Sen. Elizabeth Warren put it. Collectors can garnish everything from wages to tax returns to Social Security payments to, yes, disability checks. Debtors can also be barred from the military, lose professional licenses and suffer other consequences no private lender could possibly throw at a borrower.
The upshot of all this is that the government can essentially lend without fear, because its strong-arm collection powers dictate that one way or another, the money will come back. Even a very high default rate may not dissuade the government from continuing to make mountains of credit available to naive young people.
The government has also made sure that many laws, such as the Truth in Lending law, do not apply to student loans.
Some student debt can make sense but when 40% of students drop out of college, when even the graduates do not graduate with the degrees that pay and when the job market is weak, student debt can be life-crippling:
…Bottomless credit equals inflated prices equals more money for colleges and universities, more hidden taxes for the government to collect and, perhaps most important, a bigger and more dangerous debt bomb on the backs of the adult working population.
What explains regional variation in health care spending?
It doesn’t seem to be demand side factors, but rather what doctors believe, including false beliefs. That is scary. There is a new NBER paper by David Cutler, Jonathan Skinner, Ariel Dora Stern, and David Wennberg and the abstract is this:
There is considerable controversy about the causes of regional variations in healthcare expenditures. We use vignettes from patient and physician surveys, linked to Medicare expenditures at the level of the Hospital Referral Region, to test whether patient demand-side factors, or physician supply-side factors, explains regional variations in Medicare spending. We find patient demand is relatively unimportant in explaining variations. Physician organizational factors (such as peer effects) matter, but the single most important factor is physician beliefs about treatment: 36 percent of end-of-life spending, and 17 percent of U.S. health care spending, are associated with physician beliefs unsupported by clinical evidence.
There is an earlier ungated version here (pdf).
Child labor during World War II
Many states had induced this crisis by suspending or relaxing their child labor laws, but even those still operative proved ineffective. By one estimate 900,000 children between twelve and eighteen were working in defiance of the law in their state. Philadelphia saw a decline of 13 percent in high school attendance,while in Oakland 15 percent of the children under sixteen had gone to work. Nothing demonstrated the failings of the educational system more than the irony that many of these kids earned more than their teachers did.
That is from the new Maury Klein book A Call to Arms: Mobilizing America for World War II.
How meritocratic are white Californians?
Specifically, he [Frank L. Samson] found, in a survey of white California adults, they generally favor admissions policies that place a high priority on high school grade-point averages and standardized test scores. But when these white people are focused on the success of Asian-American students, their views change.
The white adults in the survey were also divided into two groups. Half were simply asked to assign the importance they thought various criteria should have in the admissions system of the University of California. The other half received a different prompt, one that noted that Asian Americans make up more than twice as many undergraduates proportionally in the UC system as they do in the population of the state.
When informed of that fact, the white adults favor a reduced role for grade and test scores in admissions — apparently based on high achievement levels by Asian-American applicants. (Nationally, Asian average total scores on the three parts of the SAT best white average scores by 1,641 to 1,578 this year.)
When asked about leadership as an admissions criterion, white ranking of the measure went up in importance when respondents were informed of the Asian success in University of California admissions.
Computers which magnify our prejudices
As AI spreads, this will become an increasingly important and controversial issue:
For one British university, what began as a time-saving exercise ended in disgrace when a computer model set up to streamline its admissions process exposed – and then exacerbated – gender and racial discrimination.
As detailed here in the British Medical Journal, staff at St George’s Hospital Medical School decided to write an algorithm that would automate the first round of its admissions process. The formulae used historical patterns in the characteristics of candidates whose applications were traditionally rejected to filter out new candidates whose profiles matched those of the least successful applicants.
By 1979 the list of candidates selected by the algorithms was a 90-95% match for those chosen by the selection panel, and in 1982 it was decided that the whole initial stage of the admissions process would be handled by the model. Candidates were assigned a score without their applications having passed a single human pair of eyes, and this score was used to determine whether or not they would be interviewed.
Quite aside from the obvious concerns that a student would have upon finding out a computer was rejecting their application, a more disturbing discovery was made. The admissions data that was used to define the model’s outputs showed bias against females and people with non-European-looking names.
The truth was discovered by two professors at St George’s, and the university co-operated fully with an inquiry by the Commission for Racial Equality, both taking steps to ensure the same would not happen again and contacting applicants who had been unfairly screened out, in some cases even offering them a place.
There is more here, and I thank the excellent Mark Thorson for the pointer.
Is “outside” overrated?
People are going to read this as a kind of #Slatepitch but as I live my life I see that despite all the talk about how great it is to be outside, people don’t really put their money where their mouth is. Property owners are much more likely to build an addition to their house (thereby increasing the inside/outside ratio of their property) when they’re feeling flush than to orchestrate a subtraction in order to get more open space. Even in places like Southern California where there’s really great weather all the time, the landscape is covered with buildings and people spend a very large sum of their income on purchasing or renting inside space in which to live over and above the inside space in which they work.
Here is much more, from Matt Yglesias, who explains why “inside” has “crucial advantages.” For a useful discussion on this matter I thank also Claire Hill.
The future of higher education in Alabama?
The video that was posted online appeared to be a tour of the spa area at some swanky new hotel.
There were cascading waterfalls into hot and cold pools. There was an arcade section. A smoothie bar. Flat-screen TVs adorned every open space. There were lockers the members at Augusta National would find acceptable.
This was luxury, no doubt. But it was not at a hotel.
Instead, this shaky video tour was of the inside of a college football team’s training and lounge area. Specifically, it is the training, weight room and lounge area within the Mal Moore Athletic Complex on the campus of the University of Alabama.
Pricetag: $9 million. (And that’s just for the upgrades. The original facility, which opened in 2005, cost about $50 million.)
The host school, the University of Alabama, raised tuition seven percent last year.
Great Economists class
We now have up all the videos and also the final exam for our class on The Great Economists. The class includes coverage of the entire Wealth of Nations, as well as a section on economic history, which covers the Bullionist debates, the Irish famine, the debt and sinking fund controversies, living standards in the Industrial Revolution, and other topics from economic history which influenced the classical economists.
You can find the iTunes downloads here.
Our next class will be International Trade and it will be available late August/very early September.
My International Trade reading list
Many people have been asking me for this. It’s not yet finished, but you can find the current version under the fold of this post. Suggestions for adding are of course welcome…
Books: Paul Krugman, Pop Internationalism, Geography and Trade, and Development, Geography, and Economic Theory. Dani Rodrik, One Economics, Many Recipes, and Jacob Viner, Studies in the Theory of International Trade (on-line).
All videos can be found on MRUniversity.com, if not in the (forthcoming, in September) international trade section than in the development economics class or a few on Mexico in the Mexico class. In general I recommend viewing the videos before tackling the readings.
I. Comparative advantage and free trade
Bernhofen, Daniel and John C. Brown. 2005. “An Empirical Assessment of the Comparative Advantage Gains from Trade: Evidence from Japan.” American Economic Review.
Autor, David H. David Dorn and Gordon H. Hanson. 2013. “Untangling Trade and Technology: Evidence from Local Labor Markets.” NBER Working Paper.
Acemoglu, Daron, David Autor, David Dorn, and Gordon H. Hanson. 2013. “Import Competition and the Great US Employment Sag of the 2000s.” NBER Working Paper.
Goldberg, Pinelopi Koujianou and Nina Pavcnik. 2007. “Distributional Effects of Globalization in Developing Countries.” Journal of Economic Literature.
Videos: The two videos on Comparative Advantage, Sources of Comparative Advantage, Development and Trade, empirical evidence, Evidence on Comparative Advantage from Japan.
II.Free trade and tariffs
Paul Krugman. “The One-Minute Trade Policy Theorist.” (powerpoint)
Humphrey, Thomas M. 1987. “Classical and Neoclassical Roots of The Theory of Optimum Tariffs.” Economic Review, Federal Reserve Bank of Richmond.
Broda, Christian, Nuno Limao, and David Weinstein. 2008. “Optimal Tariffs and Market Power: The Evidence.” American Economic Review.
Arkolakis, Costas, Arnaud Costinot and Andres Rodriguez-Clare. 2012. “New Trade Models, Same Old Gains?” American Economic Review.
Kehoe, Timothy J. and Kim J. Kuhl. 2006. “How Important Is the New Goods Margin in International Trade?” NBER Working Paper.
Bernhofen, Daniel M., Zouheir El-Sahli, and RIchard Kneller. 2012. “Estimating the Effects of the Container Revolution on World Trade.” University of Nottingham Discussion Paper Series.
Nunn, Nathan and Daniel Trefler. 2010. “The Structure of Tariffs and Long-Term Growth.” American Economic Review.
Videos: Tariffs v. Quotas, International Trade Disciplines Monopolies, Effective rate of protection, Theory of Optimal Tariffs, Does “fair trade” help?, Malawi restrict trade in corn, Market reforms in Bangladesh, John Stuart Mill Terms of trade, The Shipping Container.
III. Heckscher-Ohlin and factor abundance theories of trade
Helpman, Elhanan. 1999. “The Structure of Foreign Trade.” Journal of Economic Perspectives.
Debaere, Peter. 2003. “Factor Abundance and Trade.” Journal of Political Economy.
Deardorff, Alan V. 1979. “Weak Links in the Chain of Comparative Advantage.” Journal of International Economics.
Trefler, Daniel. 1993. “International Factor Price Differences: Leontief Was Right!” Journal of Political Economy.
Davis, Donald R. and David E. Weinstein. 2001. “What Role for International Trade.” NBER Working Paper.
Davis, Donald R. 1995. “Intra-Industry Trade: A Heckscher-Ohlin-Ricardo Approach.” Journal of International Economics.
Deardorff, Alan V. 1982. “The General Validity of the Heckscher-Ohlin Theorem.” American Economic Review.
Videos: What is at Stake in Trade Theories?, The Heckscher-Ohlin Theorem, Evidence on the Heckscher-Ohlin Theorem.
IV. Increasing Returns
Donaldson, David. “Increasing Returns to Scale and Monopolistic Trade.” Powerpoint, on-line.
Helpman, Elhanan. 1987. “Imperfect Competition and International Trade: Evidence from Fourteen Industrial Countries.” Journal of the Japanese and International Economics.
Davis, Donald R. and David E. Weinstein. 2003. “Market Access, Economic Geography, and Comparative Advantage: An Empirical Test.” Journal of International Economics.
Baldwin, Richard and James Harrigan. 2010. “Zeros, Quality, and Space: Trade Theory and Trade Evidence.” NBER Working Paper.
Antweiler, Werner and Daniel Trefler. 2000. “Increasing Returns and All That: A View from Trade.” NBER Working Paper.
Debaere, Peter. 2005. “Monopolistic Competition and Trade, Revisited: Testing the Model Without Testing for Gravity.” Journal of International Economics.
Yi, Kei-Mu. 1999. “Can Vertical Specialization Explain the Growth of World Trade?” Journal of Political Economy.
Harrigan, James. 2001. “Specialization and the Volume of Trade: Do the Data Obey the Laws?” NBER Working Paper.
Bernard, Andrew B., J. Bradford Jensen, Stephen Redding, and Peter K. Schott. 2007. “Firms in International Trade.” NBER Working Paper.
Helpman, Elhanan. 2013. “Foreign Trade and Investment: Firm-Level Perspectives.” NBER Working Paper.
Tybout, James R. 2001. “Plant- and Firm-Level Evidence on “New” Trade Theories.” NBER Working Paper.
Bernard, Andrew B. and J. Bradford Jensen. 2004. “Why Some Firms Export.” Review of Economics and Statistics.
Videos: Trade and External Economies of Scale, Monopolistic Competition and International Trade, Trade and Increasing Returns: Evidence, Paul Romer, Robert Torrens on strategic trade policy, The Economics of Bollywood.
V. Gravity models
Anderson, James and Eric van Wincoop. 2004. “Trade Costs” Journal of Economic Literature.
Head, Keith. 2011. “Gravity for Beginners.” Presented at US-Canada Border Conference.
Hummels, David. 2007. “Transportation Costs and International Trade in the Second Era of Globalization.” Journal of Economic Perspectives.
Deardorff, Alan V. 1998. “Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?” NBER Working Paper.
Feenstra, Robert C., James R. Markusen, and Andrew K. Rose. 2001. “Using the Gravity Equation to Differentiate Among Alternative Theories of Trade.” The Canadian Journal of Economics.
Evenett, Simon J. and Wolfgang Keller. 1998. “On Theories Explaining the Success of the Gravity Equation.” NBER Working Paper.
Trefler, Daniel. 1995. “The Case of the Missing Trade and Other Mysteries.” American Economic Review.
Anderson, James and Eric van Wincoop. 2003. “Gravity with Gravitas: A Solution to the Border Puzzle.” American Economic Review.
Novy, Dennis. 2012. “Gravity Redux: Measuring International Trade Costs with Panel Data.” Economic Inquiry.
Eaton, Jonathan and Samuel Kortum. 2002. “Technology, Geography, and Trade.” Econometrica.
Donaldson, David. 2011. “Gravity Models.” No Journal—powerpoint.
Rossi-Hansberg, Esteban. 2005. “A Spatial Theory of Trade.” American Economic Review.
Chaney, Thomas. 2008. “Distorted Gravity: The Intensive and Extensive Margins of International Trade.” American Economic Review.
Anderson, James E. 1979. “A Theoretical Foundation for the Gravity Equation.” American Economic Review.
Video: The Gravity Equation and the Costs of Trade.
VI. Offshoring and factor prices
No Author. “Trade and Factor Prices” (powerpoint)
Feenstra, Robert C. 2008. “Offshoring in the Global Economy.” Ohlin Lecture Series.
Grossman, Gene M. and Esteban Rossi-Hansberg. 2006. “The Rise of Offshoring: It’s Not Wine for Cloth Anymore.” Federal Reserve Bank of Kansas City.
Grossman, Gene M. 2008. “Trading Tasks: A Simple Theory of Offshoring.” American Economic Review.
Donaldson, David. 2011. “Trade and Labor Markets.” powerpoint.
Khandelwal, Amit. 2009. “The Long and Short (of) Quality Ladders.” Review of Economic Studies.
Bernard, Andrew B., Stephen J Redding, and Peter K. Schott. 2012. “Testing the Factor Price Equality with Unobserved Differences in Factor Quality or Productivity.” U.S. Census Bureau Working Paper.
Baldwin, Richard. 2011. “How Trade and Industrial Organization After Globalization’s 2nd Unblundling: How Building and Joining a Supply Chain are Different and Why it Matters.” NBER Working Paper.
Videos: Factor price equalization, Specific Factors Models, Economics of Offshoring, The Rybczynski Theorem, Trade, Investment, and Migration as Substitutes, Unbundling the Supply Chain.
VI. Trade in economic history
Blecker, Robert A. 1997. “The ‘Unnatural and Retrograde Order’: Adam Smith’s Theories of Trade and Development Reconsidered.” Economica.
Irwin, Douglas. 2002. “Interpreting the Tariff-Growth Correlation of the Late Nineteenth Century.” American Economic Review.
Irwin, Douglas. 2002. “Did Import Substitution Promote Growth in the Late Nineteenth Century?” NBER Working Paper.
Clemens, Michael A. and Jeffrey G. Williamson. 2001. “A Tariff-Growth Paradox? Protection’s Impact on the World Around 1875-1997.” NBER Working Paper.
John Nye, “The Myth of Free Trade Britain and Fortress France,” Journal of Economic History, 1991.
Harrison, Ann and Andres Rodriguez-Clare. 2009. “Trade, Foreign Investment, and Industrial Policy for Developing Countries.” NBER Working Paper.
Irwin, Douglas. 1997. “From Smoot-Hawley to Reciprocal Agreements: Changing the Course of U.S. Trade Policy in the 1930s.” NBER Working Paper.
Irwin, Douglas. 1998. “The Smoot-Hawley Tariff: A Quantitative Assessment.” The Review of Economic Statistics.
Crowley, Meredith A. and Xi Luo. 2011. “Understanding the Great Trade Collapse of 2008-09 and the Subsequent Trade Recovery.” Journal of Economic Perspectives.
Gopinath, Gita and Oleg Itskhoki. 2009. “Trade Prices and the Global Trade Collapse of 2008-2009.” NBER Working Paper.
Francois, Joseph and Julia Woerz. 2009. “The Big Drop: Trade and the Great Recession.” No Journal, article online.
Videos: Corn Law debates, Friedrich List, Robert Torrens on sliding tariffs, The deindustrialization of India, Tariffs and Growth in the late 19th Century, South Korea and Industrial Policy, The Smoot-Hawley Tariff, Why Did Trade Plummet in the Great Recession?
VII. FDI and multinationals
Blonigen, Bruce A. 2005. “A Review of the Empirical Literature on FDI Determinants.” NBER Working Paper.
Ramondo, Natalia and Andres Rodriguez-Clare. 2009. “Trade, Multinational Production, and the Gains from Openness.” NBER Working Paper.
Antras, Pol and Stephen R. Yeaple. 2013. “Multinational Firms and the Structure of International Trade.” NBER Working Paper.
Videos: Basics of multinational corporations, Intra-firm Trade, Intra-industry Trade, Gains from Multinationals, Who Gains from FDI?, Productivity in firms, Foreign investment in India, Competition from foreign retailers, What is a Maquiladora? Introduction to NAFTA, NAFTA and Mexican Agriculture, The Effect of NAFTA on the Mexican Economy.
VIII. The politics of trade
Grossman, Gene M. and Elhanan Helpman. 1994. “Protection for Sale.” American Economic Review.
Goldberg, Pinelopi Koujianou and Giovanni Maggi. 1999. “Protection for Sale: An Empirical Investigation.” American Economic Review.
Mayda, Anna Maria and Dani Rodrik. 2005. “What are Some People (and Countries) More Protectionist than Others?” European Economic Review.
Grossman, Gene M. and Elhanan Helpman. 1995. “The Politics of Free-Trade Agreements.” American Economic Review.
Harrison, Ann and Jason Scorse. 2010. “Multinational and Anti-Sweatshop Activism.” American Economic Review.
Videos: The Political Economy of Tariffs, Does Trade Help the Environment?, Regulation as a Major Trade Barrier, Who Supports Free Trade?, The Cultural Diversity Critique of Markets.
Competency-based transcripts
Why not I say?:
Students who enroll in a new competency-based program at Northern Arizona University will earn a second transcript, which will describe their proficiency in the online bachelor degree’s required concepts. The university will also teach students how to share their “competency report” transcripts with potential employers.
The university shared a sample version of a competency report. The document looks nothing like its traditional counterpart, and lacks courses or grades.
Here is more.
Against subjectivism (and for taxonomy)
Aristotle Circle, the company that employs Vanessa and was co-founded by Ms Rheault in 2008, sells an ERB preparation workbook with sample test questions in it such as “Apples and oranges are both . . . ”. Children get two points for “fruit”, one for “sweet things I eat” and none for “yummy”.
The bulk of its business is providing tutors at $350 an hour, who prepare children for the tests, and admissions experts for parents desperate for information. But demand for play date instruction is increasing.
That is to help get your children into the best private schools. There is more here.
“No recovery for young people?” (The Great Reset)
In July 2013, just 36 percent of Americans age 16-24 not enrolled in school worked full-time, 10 percent less than in July 2007.
That is from Diana G. Carew, via Michael Mandel.
Testing labor quality without degrees and credit hours
Quite possibly this could be a more significant development — for the United States at least — than on-line education:
Testing firms are offering new ways to measure what students learn in college. Their next generation of assessments is billed as an add-on – rather than a replacement – to the college degree. But the tests also give graduates something besides a transcript to send to a potential employer.
The latest arrival of the bunch will be a revised version of the Collegiate Learning Assessment, dubbed the CLA+, which the Council for Aid to Education is rolling out this fall. The new test, which is the CLA’s first upgrade in a decade, includes a work readiness component and more student-level data.
Earlier this year the Educational Testing Service (ETS) introduced two new electronic certificates for student learning. And ACT Inc. continues to develop its WorkKeys skills assessment system.
Superstar Teachers
In Why Online Education Works I wrote:
… the market for teachers will become more like the market for actors, a winner-take-all market with greater inequality and very big payments at the top…. Bigger markets support larger salaries, so the best teachers will earn much more in an online world.
Evidence for just how much some teachers could earn in the online world comes from Amanda Ripley writing in the WSJ about South Korea’s private education market:
Kim Ki-hoon earns $4 million a year in South Korea, where he is known as a rock-star teacher—a combination of words not typically heard in the rest of the world. Mr. Kim has been teaching for over 20 years, all of them in the country’s private, after-school tutoring academies, known as hagwons. Unlike most teachers across the globe, he is paid according to the demand for his skills—and he is in high demand.
…The bulk of Mr. Kim’s earnings come from the 150,000 kids who watch his lectures online each year. (Most are high-school students looking to boost their scores on South Korea’s version of the SAT.) He is a brand name, with all the overhead that such prominence in the market entails. He employs 30 people to help him manage his teaching empire and runs a publishing company to produce his books.
Competition in higher education
When undergraduate students at Southern Methodist University peruse their course catalogs this fall, several listings may strike them as odd.
First, the courses will be taught entirely online—an option that Southern Methodist has never before offered to undergraduates.
Second, the courses will be taught by professors at other universities—including Emory University, the University of Notre Dame, and Washington University in St. Louis, among others.
Southern Methodist, along with Baylor University and Temple University, plans to announce on Tuesday that it will allow undergraduate students to take online courses from other colleges for credit.
The courses, offered through the online-education company 2U, will come from a consortium of colleges participating in 2U’s Semester Online program, which is focused on undergraduate education at selective institutions.
Southern Methodist, Baylor, and Temple will be “affiliates” of the program, meaning they will not produce courses but will list certain courses developed by other members of the consortium and will grant “elective credit”—that is, general-education credit—to students who pass.
Participating in the 2U consortium as an affiliate will allow Southern Methodist to see how well online courses work for its students without committing resources to building its own, said Stephanie Dupaul, associate vice president for enrollment management at the university.
In California, however, plans for for-credit MOOCs in public universities have been put on hold.