Deluded socialists and health care

Tyler Cowen spells it out beautifully:

The "poorest" people are not those with low incomes but rather those with low human capital endowments. That includes the elderly because, even if they are very talented, on average they will die sooner. A typical 23-year-old lower-middle-class immigrant has a higher real endowment than does Warren Buffett.

Through Medicare, the U.S. government subsidizes the health care of the elderly. Given the embedded incentives in the system, the subsidy is especially large for people in the last year of life or so, namely the very poorest.

Western European welfare states may be more efficient, because they do more to expand routine health care access for the relatively young and this may have a higher rate of return. But those same systems are in critical regards less egalitarian. Bravo to them.

Many people do not look at the contrast this way. They wish to think they believe in egalitarianism, they wish to be skeptical of the United States, they wish to condemn the U.S. for its inequality, and they wish to raise the relative status of people who are not very successful under capitalism. When you put all those wishes together, those people will be deeply allergic to my argument.

A few of these people also confuse "high social status" with "well off." Since old, high-bank-account white males have lots of social status and power, these onlookers cannot bring themselves to regard those males as holding very poor overall endowments. They substitute in assessments of social status for assessments of absolute endowments (another sign of the claim that "politics is not about policy" but rather it is about whom we should admire and condemn).

I am amazed (but not surprised) by how frequently people think of egalitarianism in terms of social markers of status rather than actual forward-looking endowments.

It is common for more egalitarian policies to be less efficient.

Tyler is saying that socialists sell nationalized health care as egalitarian when in fact it is efficiency enhancing. Oh, the tangled web we weave. I believe he is right for the most part, but if you look at the dynamics of a policy of nationalized health care I think you will find that, yes, initially it is unegalitarian in that it takes away from the old and feeble and gives to the young and healthy but over time I think it becomes more egalitarian in that it takes from the young and healthy and gives to the young and feeble. However, all of this ignores the role of education, which I believe is the main determinant of health outcomes.

Move the voting age to 30?

Or maybe we just need to better teach better economics:

Adults under 30 are essentially evenly divided: 37% prefer capitalism, 33% socialism, and 30% are undecided. Thirty-somethings are a bit more supportive of the free-enterprise approach with 49% for capitalism and 26% for socialism. Adults over 40 strongly favor capitalism, and just 13% of those older Americans believe socialism is better.

Read  the rest here.

The patience of 8th graders

Something to keep your mind off your 401k. Marco Castillo and Regan Petrie, two visiting economists at GMU, have an interesting study which certainly breaks new ground in education research. From the abstract:

We experimentally investigate the distribution of children's time preferences along gender and racial lines. Black boys have significantly larger discount rates than any other demographic group. Discount rates among Black girls are comparable to rates among White girls. Although White boys exhibit higher discount rates than girls, the difference is small and not statistically significant. These results are robust to alternative measures of patience and to regression analyses that control for socio-economic background and school performance. The measured differences in discount rates are large. All things equal, a Black boy requires expected returns to education 13-15% higher than Black girls to compensate for his larger discounting of future payoffs. Equally importantly, we show that impatience, as measured by discount rates, has a direct effect on behavior. An increase of one standard deviation in the discount rate increases by 5 percent the probability that a child incurs at least 3
school-related disciplinary actions. This result suggests that experiments capture new and relevant information on children. Overall, our results suggests that time preferences might play a large role in setting appropriate incentives for children. Understanding the factors behind these differences in preferences is an important area for future research.

Mind you, given their data limitations, they cannot fully identify the conditions which create such differences in time preferences, e.g. family characteristics such as education of the parents. But this is a start.

Starting over in New Orleans, Mancur Olson style

When I asked Paul Vallas what made New Orleans such a promising place for educational reform, he told me that it was because he had no “institutional obstacles” — no school board, no collective bargaining agreement, a teachers’ union with very little power. “No one tells me how long my school day should be or my school year should be,” he said. “Nobody tells me who to hire or who not to hire. I can hire the most talented people. I can promote people based on merit and based on performance. I can dismiss people if they’re chronically nonattending or if they’re simply not performing.”

Read the rest from the NY Times.

Also, the EIA looks into who's paying the bills in Denver.

New book about Teach for America

Relentless Pursuit by Donna Foote. Here is what the Weekly Standard says about it:

The last few chapters are especially fascinating for policy enthusiasts as they offer a hopeful look at the changes taking place in public education. TFA teachers at Locke launched a special "academy" within the larger school that was showing promising results. An important component of the academy was an extra period that allowed teachers to spend time with students in subjects where they needed extra help. The TFA teachers persuaded Locke's principal to call a teachers' meeting to discuss making the extra period a schoolwide reform.

When the TFA teachers made impassioned pleas to their colleagues regarding the need for more class time, the teachers' union rep coldly retorted: "If you guys want to work 20 percent more, and not get paid 20 percent more, then vote for seven periods." The teachers voted down the proposal to extend the school day by a 72-to-36 vote. (Interestingly, Locke students supported the idea of a longer school day.)

But the story does not end there. After the 2005-06 school year, several TFA teachers left Locke to start two nearby "Green Dot" charter schools where bureaucracy and union work rules would not be an impediment to student achievement. These schools immediately proved so successful that Locke's principal, Frank Wells, saw the light and decided to join forces with Green Dot. After a protracted struggle with the union, Wells was able to convince a majority of Locke's tenured teachers to sign a petition that would allow the school to convert to charter status. Last year the Gates Foundation provided $8 million to fund Locke's transformation into 10 small Green Dot charter schools, and the new Green Dot Locke campus opened its doors last September--minus 22 incompetent teachers Wells had long sought to get rid of.

Principles of microeconomics

I just finished teaching this as a summer school course at George Mason, my first time teaching. I had no idea what to expect, but I'm happy to report that I really enjoyed it. My students were fantastic. We covered 15 of the 16 chapters in Gwartney and Stroup's Microeconomics, an excellent introduction to the subject.

Here are some of the questions I asked on the final, and for which most students gave very good answers:

1) Why are wages lower for women on average?
Answer: Specialization in the household.

2) Is the lottery fair? Explain using the difference between procedural justice and social, or redistributive, justice.
Answer: It's voluntary so it's procedurally just, but it widens income inequality so it's not socially just. See Hayek's "Atavism of Social Justice" in New Studies. (Do you think voters and pols get this distinction?)

3) Why are gas prices so high?
Answer: Many reasons, including supply constraints from OPEC and Congress, inelastic demand, and government subsidies.

4) Why do theaters offer discounts to students and the elderly?
Answer: Price discrimination.

I also wanted to ask a question about the difference between inequality and diversity, but we didn't spend enough time on that.

Cristo Rey schools

The concept of having students work to earn their tuition was borne of financial necessity. Children like Muñoz are desperate to escape the gangs and low expectations of big city public schools, but few can afford the full cost of a private education.

Over the past decade, though, members of the Cristo Rey network have discovered that requiring students to work does more than keep tuition low. It teaches children that there’s life beyond high school, with its teen-centered obsessions on things that don’t matter. It teaches them that working hard can help them get ahead—a lesson students from far nicer areas than the Pilsen/Little Village neighborhood could stand to learn, too. The model has helped revive Catholic inner-city education, and it offers some lessons for education more broadly. Anyone can create one school that works. The Cristo Rey Network has hit upon one of the few education models that can actually be replicated with reasonable success. It seems to be working everywhere it’s been tried.

More from Doublethink.

In other education news:

1) How to kill charter schools

2) Privatized student loans

Since when does DC pass up federal money?

When the teachers' unions demand it. Here's Dan Lips describing Del. Norton's absurd battle:

How much funding for the education of students is District of Columbia Delegate Eleanor Holmes Norton willing to lose to prove a political point? At least $18 million, apparently.

Del. Norton is using her voice in Congress to try to end the D.C. Opportunity Scholarship program, a federally-funded program that currently helps more than 1,900 disadvantaged kids attend private schools in the District.

This program has proven widely popular with D.C. families. Since it began in 2004, approximately 7,200 students have applied -- about four applicants per scholarship.

...

Unfortunately, Del. Eleanor Holmes Norton remains fiercely opposed to vouchers. She was honest about her intentions: "I can tell you that the Democratic Congress is not about to extend this program." As the House Appropriations Committee considers whether to fund the program, Norton appears intent on leading an effort to block the $18 million in funding for scholarships.

For D.C. taxpayers, this is a costly way to score points in the political struggle over public education. Terminating the program would pull $18 million out of the D.C. public education system and increase the burden on the school budget by sending 1,900 kids back into public schools.

For families with children in the scholarship program, it's impossible to quantify what taking these scholarships away will mean. You can hear directly from participating families themselves by visiting http://www.voicesofschoolchoice.org/. There, families explain how they are benefiting from the opportunity to choose a safe and effective private school for their children.

Conveniently, as the House Appropriations subcomittee considers the issue today, the Department of Education issues a report claiming no significant improvement from vouchers. From the Post:

The congressionally mandated study, conducted through the Institute of Education Sciences, the department's research arm, compared the performance and attitudes of students who had scholarships with those of peers who sought scholarships but weren't chosen in the lottery.

Both groups took widely used math and reading tests, such as the Stanford Achievement Test. Overall, there was no statistically significant difference in performance.

But some groups of voucher recipients showed improvement. For instance, among students who earned relatively high reading scores before the program started, those with scholarships progressed faster and are now about two months ahead of their peers.

Students who previously attended struggling schools -- a group the program is designed to help -- showed no boost in test scores compared with their peers. Grover J. "Russ" Whitehurst, director of the institute, said one possible explanation is that those children lagged far behind academically and had trouble adjusting to what may be a more demanding classroom.

Parents of students with scholarships were more satisfied with their children's new schools and were less likely to worry that schools could be dangerous, the report found. Students showed no difference in their level of satisfaction.

First, the program has purposely been hobbled by its political enemies through regulations and spending limits, precisely to limit any significant effects. Second, insignificance indicates just that, i.e. neither significantly positive nor negative effects. This is not surprising in a new (and hobbled) program. Third, so why give up the federal money? There's no loss to DC taxpayers. Fourth, a little perspective is in order. We're talking about allowing parents and kids, poor parents and kids, the freedom to choose a way out of a miserable state run monopoly. If monopoly is so great, why not expand it to shoe sales, let the government do that. Or consider the beautiful irony of the Senate's monopolized cafeteria, courtesy of Jonah Goldberg:

As befits a government-run commissary, the Senate cafeteria has a decidedly Soviet attitude toward variety. It has averaged only two new menu items a year over the last decade. The food is so bad, every lunch hour Senate staffers rush to the House side of the Capitol, like starving New Yorkers of the future storming the last Soylent Green vendor.

According to auditors, the chain of restaurants run by the Senate food service, including the snooty Senate Dining Room, has almost never been in the black. It's lost more than $18 million since 1993 and dropped about $2 million last year alone. If the food service doesn't get an emergency bridge loan of a quarter-million dollars, it won't be able to make payroll.

So how will the Senate fix the problem? Well, with California Sen. Dianne Feinstein taking the lead, the Democrats -- that's right, the Democrats -- have called a classic Republican play: Privatize it.

The House of Representatives made the switch in the 1980s, and its food service is now better. And profitable: the House has made $1.2 million in commissions since 2003. True to the founders' vision of the Senate as the more slow-moving branch of government, the Senate has taken 20 years to follow suit.

This was a painful decision for many Democrats who believe that privatization cannot be justified simply because it delivers better service and higher quality for less money. "What about the workers?" they cried. Apparently, some in the Democratic caucus feel that the top priority in the restaurant business is to generate paychecks for people who are bad at their jobs.

Feinstein, head of the Senate Committee on Rules and Administrations, was forced to deal with reality. "It's cratering," the Washington Post quoted Feinstein as saying. "Candidly, I don't think the taxpayers should be subsidizing something that doesn't need to be. There are parts of government that can be run like a business and should be run like businesses."

Yes, yes, go on Dianne. Run with that thought. Explore it, as the therapists say.

Perhaps you might meditate on the District of Columbia's public school system, which spends roughly $14,000 a pupil in exchange for one of the worst educations in the country. Every year, one of the greatest mysteries in the nation's capital is whether textbooks have been delivered to the right kids, or even to the right schools. It can take until Christmas to get it all worked out. FedEx Corp., meanwhile, can tell you where any of its millions of packages are in more than 100 countries, right now. (Why not just FedEx the textbooks to the kids?)

And fifth: There's an immense amount of evidence that vouchers work. See Salibury and Tooley's international overview, especially Lewis Andrews chapter on special education.

DC v. New Orleans

Jay Greene talks about DC vouchers v. Louisianna vouchers. Remember when we competed for murder capital of the world?

Education roundup

1) Alex Tabarrok and the New York Times on New Orleans' new schools.

2) Paul Peterson on the eduction industrial complex.

3) Marion Barry comes out in support of school choice.

4) Juliet Williams on teachers unions busting the budget in California.

Obama's dilemma

A) This survey indicates that 80% of African-Americans favor school choice, and 70% of African-American Democrats would be more likely to vote for a candidate supporting school choice.

B) 41% of the National Education Associations' rank and file likes McCain, while the 1% in charge do not.

Education reform in DC looking ever more likely

Mayor Fentry has named Rick Hess and Kenneth Wong as independent evaluators of the city's school reforms. That is yet more good news for DC's kids, maybe not so good for the adult interest groups which stand in the way of reform. Here is Hess on the need to focus on labor market reform:

For two decades, choice-based reform has been unwisely and deceptively offered by its proponents as something akin to a miracle cure that will boost student achievement, unleash competition, and advance core democratic values.

Along the way, little attention has been paid to the design of these efforts to deregulate a $500 billion a year industry, fostering a vibrant supply of effective providers, nurturing effective mechanisms for quality control, or understanding the multiplicity of arrangements and practices that stifle even nontraditional schools and service providers. For instance, the choice community has had next to nothing to say about the need for venture capital in education, about the ways in which personnel policies and benefit systems stifle new ventures, or about how consumer choices should impact the compensation and job security of educators and school leaders.

One result is that some who were once enthusiastic proponents of “choice” have reversed course and expressed doubts about the viability of educational markets — without ever having stopped to consider all the ways in which simply promoting one-off choice programs falls desperately short of any serious effort to thoughtfully deregulate schooling or promote a coherent K-12 marketplace. Indeed, some have abandoned the choice bandwagon with the same ill-considered haste that marked their initial enthusiasm.

For decades, we have poured money into schooling while seeing few obvious benefits. Current per-pupil spending in constant dollars more than tripled between 1961-62 and 2003-04, from $2,603 to $8,886. Pupil-to-teacher ratios plunged, from 25.1 students per teacher in 1965 to 15.3 per teacher in 2007. Meanwhile, educational progress has been disappointing, at best, over the past quarter-century. This is the epitome of pushing on a string. In an economy marked by new technologies, labor-saving devices, steady growth in productivity, and an evolving labor pool, we are hiring and deploying educators just the way we did a half-century ago. The result is that new investments have not delivered the hoped-for results.

In other words, we need to do what is difficult, we need to fire people, and overcome the special interests which protect them. School Chancellor Michelle Rhee is doing just that. God bless her.

Addendum: Good to see the DCist is in agreement.

Wondering why education reform is so hard?

Largely because the teachers unions have an inside track on pulling down money for themselves, money that could have been used to educate kids. For example:

New York City is paying $81 million over two years in salaries and benefits for teachers without permanent teaching jobs, according to a report being released on Tuesday.

The teachers are part of the so-called reserve pool, which holds teachers whose positions have been eliminated, but who have yet to secure a new permanent teaching position at another school.

The reserve is an outgrowth of the city’s contract with the teachers’ union, which ended seniority rights in staffing decisions as well as the automatic transfer of teachers who had been cut because of shrinking enrollment, the closing of large schools or the elimination of particular programs. At the time, Chancellor Joel I. Klein said he would rather absorb the cost of the teachers in the reserve pool than saddle principals with teachers they did not want.

Under the contract, teachers whose positions have been eliminated from one school and cannot find another to hire them, or who simply do not look for a new job, are assigned to schools to fill in as substitute teachers or temporary replacements. They collect full teacher salary and benefits.

Teachers at those schools are required to show up every day at regular school hours and are available for principals to use as substitutes, but the principals are not required to do so. Officials at the Education Department said they did not track how often the principals used the assigned substitutes, or whether they did at all.

It's not just New York, or the U.S., it's anywhere special interest politics is allowed to prosper. New Zealand in the 1990s came closest to a complete overhaul of education, and yet one institution remained: the teachers unions lobbied to prevent any real changes to the labor market, effectively preventing schools, principles and parents, from choosing their personnel.

As for which candidate is most likely to fight these interests, it's looking like it might be McCain, though Obama may be better suited to negotiate the increasing gap between teachers unions and black voters.

Need investment advice?

It looks as though high school seniors know something about economics, even public choice, and, crucially, the benefits of trade. And they appear to be skeptical of the benefits of education. Have they been reading Bryan Caplan's blog?

Enlightenment 101

Emory University, apparently responding to my post on academic atheism, has hired the Dalai Lama. Holy shit. Is he tenure track? This definately presents a serious challenge to George Mason's own Center for the Economic Study of Religion.

Modern Drunkard

So, Robin Hanson again shocked us with the facts last night in health econ class. Most compelling to me, and all the undergrads who were there, is the apparent health benefits of drinking. This is different than all those reports about "one glass of wine per night turns out to be healthy." The statistical evidence indicates there is no upper limit on the health benefits of drinking, ie the more you drink, the healthier you are. Why does this not make the news? Well, you may have guessed that government and other paternalistic organizations don't like the message.

And I would agree, based on the reaction of the undergrads. I certainly didn't need this information in college. I almost wish someone had told me "drinking makes your stomach hurt, because everytime you take a drink I'm going to punch you in the stomach."

One wine hangover will convince anyone that drinking cannot possibly cause health benefits. So, Robin offered up an alternative explanation: drinking signals health. At least in part, people drink to signal their health. The last guy standing is the alpha male. Maybe that was my problem, I never figured out the standing part.

So this may explain why drinking is so prevalent on college campuses. Young'ns have a comparative advantage at drinking a tremendous amount without taking on that evil, drink-sodden look. Does this mean we should consider moving the drinking age up to 22, or 25? After all, it does appear to be a market failure, of the kind Robin was referring to in his signaling example.

At Sewanee, Max will remember the university banned kegs during our second semester freshmen year. The first semester was truly a drunkard's dream. Free beer everywhere. The ban made drinking beer a little more expensive. So we switched to whiskey. It was more fitting anyway, since Sewanee is located in the hills of East Tennessee, surrounded by distilleries. My point is that I doubt there is any good way to actively suppress such an effective signaling equilibrium.

In Europe, as we know, youth drinking laws are less restrictive. And youth drinking appears to be less of a problem. I speculate that this has more to do with alternatives to drinking, while the laws are of little consequence. Being surrounded by castles and art museums, as opposed to hillbillies and 'stills, the signaling in Europe occurs along more refined cultural dimensions. This factor alone may explain why K-12 produces better results in Europe, as I wondered in a previous post.

This illustrates another of Jane Jacob's major themes, which she focused on in The Death and Life of Great American Cities. It is that cities, as the highest form of human civilization, offer many more benefits than costs. In economic terms, the positive externalities, e.g. networking, far exceed the negative externalities, e.g. pollution. See more on this here.

I wonder if she knew about Robin's health stats that indicate city living takes 15 years off your life. Smoking only takes 3.

Bottomline: I'm not really sure where this leaves us. But it's happy hour at the Big Hunt.

On the minimum wage

There is no good purpose served by complicating matters. By definition, the minimum wage bans jobs below the prescribed minimum wage. So those jobs are destroyed as a first effect. More people, primarily kids, are out of work, replaced by cheaper alternatives, such as automation. Illegal and black market employment increases. Product prices go up to reflect the higher cost of inputs.

So why do some economists still support it? I figure because it makes them more powerful. Tyler discusses Dan Klein's research, which, as always, is a fascinating look inside academia. It reminds me of Joan Robinson's quote on economics:

The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.

Addendum: Tyler and Don Boudreaux skillfully discuss the heart of the issue: How concerned about inequality should we be?

More on our crappy public schools

I forgot about Joanna, she's speaking to my heart on school choice issues. And she's trying to do something about it. 50 years after Milton Friedman first proposed vouchers, who are these people defending the status quo? I mean besides the douche bag politicians, who are the special interests behind them? Is the teacher's union responsible? Joanna, somebody, tell me who's responsible, and show me some of their pictures.

Here she shows the typical arguments against school choice, but it seems to me most of us are apathetic and don't even bother to consider the arguments. This leaves policy to be dominated by special interests. A la public choice, I assume union members get the concentrated benefits, in the form of higher salaries, job security, light teaching loads, etc., while the rest of us suffer the dispersed costs of poor education.

Addendum: So I met one of those advocates of the other side at church today. Her name is Amy, and she is also the wife of our rector, Father Lane Davenport. Anybody know how to delete a post? OK, taking to heart Sam's very nice sermon on fear, I'll leave this up for now. Amy, if you find this, please join in the debate. It sounds like you know of what you speak.

Why are academics twice as likely to be atheists?

Robin Hanson asks the question, Tyler Cowen and Jane Galt pick up on it, but I alone have just written a paper on the topic of atheism in academia. This is no conincidence. All except Jane are professors of mine, as is Larry Iannaccone, who beat us all to the punch on the economics of religion.

Here are my comments posted at the other blogs:

The 1975 Carnegie Foundation National Survey of Higher Education revealed the same basic facts, especially that academics are twice as likely to be atheists. It also revealed that atheism is highest among social scientists, whereas "hard" scientists to not exhibit higher than average levels of atheism. I figure there are four ways to explain this:

1) Academics lack exposure to the business world, and are less moral because of it. Sounds harsh, but this is Adam Smith's idea.
2) Also from Adam Smith, academics are prone to group-think, and produce sciences which are "a mere useless and pedantick heap of sophistry and nonsense." Here, the bad science is the secularization thesis, which has dominated the study of religion for 100 years.
3) Academics seek fame more than fortune, and this is at odds with Christian theology.
4) Academics seek to persuade and influence society, partly because their minority views put them at a disadvantage. This applies to atheism as well as extreme political views.

I do find support for all of these. Let me know if you'd like to see the paper.

Addendum: More from Arnold Kling, and my posted comment:

I don't doubt there is a certain degree of socialization going on, but I still think selection explains most of it. If I'm recalling correctly, this is supported by Wuthnow's article "Science and the sacred" found in "The sacred in a secular age" edited by Phillip Hammond.

I'm going to go check that out again myself. There's a lot of good research on this summarized in that article.

Too much of a good thing, student loan edition

Here is Richard Vedder on why lowering the interest rates on student loans is not the answer. There is actually a sound economic argument for subsidizing education. Since slavery is illegal, poor students cannot offer sufficient collateral to obtain loans in the private market. But then put that argument alongside your own personal college experience. How many kids did you know who were really that poor? How many did you know who were spending most of their time emulating Bluto on Animal House? I was going for Otis.

Tutoring at George Mason has shown me the real problem: the sorry education students get before college. Many students come to me with calculus problems having never learned algebra. This creates an insurmountable barrier of intimidation.

The bottom line is that our universities are the envy of the world, and our K-12 is below par. This is because our university system atleast resembles a free market, whereas K-12 is dominated by a federal monopoly. Check out The Marva Collins Story to see what I mean.

Most European universities charge either a nominal tuition or none at all. I lived in Sweden for a while and attended Lund University. There is no Swedish word for tuition. They get student loans for beer money. The parties were great, the classes generally sucked. Do not expect any more Nobel prizes to come from Sweden. Also, do not expect to find any Swedes who cannot do algebra, or speak reasonably good English for that matter. There K-12 system does seem to work much better than ours. I'm not entirely sure why. I suspect it is more locally controlled than ours. Anyone know? Gisela?