George Friedman, the director of STRATFOR, the world's larges private intelligence agency, has a very good piece on the STRATFOR site: Obama's Dilemma: U.S. Foreign Policy and Electoral Realities. It is a concise appraisal of just where President Obama stands today, and the forces that constrain his possibles avenues of action until the election.
It is well worth reading.
Tuesday, September 20, 2011
Monday, September 19, 2011
Recommended: The great schools revolution
The Economist has an interesting article in this month's issue: Reforming education - The great schools revolution. While the USA has been spending more and more money on education, our ranking has fallen further and further behind the rest of the developed world. We now spend more per student than almost any other country, yet our 15 year olds rank between 17th (reading) and 25th (math) among the developed countries of the world.
As the article notes:
As the article notes:
"Above all, though, there has been a change in the quality of the debate. In particular, what might be called “the three great excuses” for bad schools have receded in importance. Teachers’ unions have long maintained that failures in Western education could be blamed on skimpy government spending, social class and cultures that did not value education. All these make a difference, but they do not determine outcomes by themselves."and:
"So what are the secrets of success? Though there is no one template, four important themes emerge: decentralisation (handing power back to schools); a focus on underachieving pupils; a choice of different sorts of schools; and high standards for teachers."
Recommended: The Social-Democratic Illusion
One of the persistent dangers of political discourse is falling into the "group mind" trap -- of beginning to believe that all the solutions are somewhere within the range of political views commonly discussed. In our case that means the political narratives of the two major parties - Republicans and Democrats. But a study of history will reveal many occasions in which neither the ruling elite nor their "loyal opposition" understood the current circumstances correctly , and in which the political consensus was completely wrong. One suspects we are at such a point right now.
In that context, it pays to begin to cast further afield for new ideas and different perspectives. Immanuel Wallerstein has always been outside the mainstream of political thinking, viewing circumstances from a different perspective, and for that reason I pay attention to his occasional writings. His Sept 15 posting
The Social-Democratic Illusion is a case in point.
Wallerstein argues that the "Social-Democratic" view (which in America corresponds roughly to the neo-liberal view) of an expansive welfare state was sustainable through the decades following World War 2 because of two factors: the incredible expansion of the world economy, and the stabilizing influence of America. However, both of those have lost their force now, so the social-democratic welfare state system is tottering, both here in America and especially in Europe. His argument has some force, since in both America and Europe the current economic crisis seems to be driven largely by the huge debt governments have built up, largely trying to sustain entitlement programs.
It is an article well worth reading.
In that context, it pays to begin to cast further afield for new ideas and different perspectives. Immanuel Wallerstein has always been outside the mainstream of political thinking, viewing circumstances from a different perspective, and for that reason I pay attention to his occasional writings. His Sept 15 posting
The Social-Democratic Illusion is a case in point.
Wallerstein argues that the "Social-Democratic" view (which in America corresponds roughly to the neo-liberal view) of an expansive welfare state was sustainable through the decades following World War 2 because of two factors: the incredible expansion of the world economy, and the stabilizing influence of America. However, both of those have lost their force now, so the social-democratic welfare state system is tottering, both here in America and especially in Europe. His argument has some force, since in both America and Europe the current economic crisis seems to be driven largely by the huge debt governments have built up, largely trying to sustain entitlement programs.
It is an article well worth reading.
Sunday, September 18, 2011
Recommended: They Gave a Recovery and Nobody Came
There is a very interesting posting over on Reason.com by Tim Cavanaugh: They Gave a Recovery and Nobody Came. He argues that the economic figures show that as far as Keynesian economic models are concerned, the recovery has already happened. Despite the repeated claims by Keynesians that the problem with the economy is that consumption is down, the government's own figures show that both personal and government consumption is now higher than it was before the recession, so there is no aggregate-demand gap at the moment. But of course the disastrously-high unemployment figures have hardly moved, so clearly the Keynesian model of what needs fixing is simply wrong.
Cavanaugh argues that Keynesian economics has no way to deal with high indebtendess -- its models are essentially blind to that condition -- but that it is just the high indebtedness of companies that is keeping unemployment high, along with all the uncertainty over future taxes, future regulations, and future employee health care costs. It is, he argues, just too uncertain a future for companies to hire lots of new workers.
All in all an interesting alternative view of our problems. And since the current Keynesian view of what is wrong and how we ought to fix it is by now clearly wrong, we need fresh ideas like this.
Cavanaugh argues that Keynesian economics has no way to deal with high indebtendess -- its models are essentially blind to that condition -- but that it is just the high indebtedness of companies that is keeping unemployment high, along with all the uncertainty over future taxes, future regulations, and future employee health care costs. It is, he argues, just too uncertain a future for companies to hire lots of new workers.
All in all an interesting alternative view of our problems. And since the current Keynesian view of what is wrong and how we ought to fix it is by now clearly wrong, we need fresh ideas like this.
Wednesday, September 14, 2011
A Real Dilemma
The upcoming 2012 presidential election (and the accompanying House and Senate elections as well, for that matter) present a real dilemma – two alternatives neither of which is particularly attractive.
On the Democratic side we have President Obama with his lackluster first term. Actually, I don’t fault him for not solving the recession problem – it is clear that no one really knows how to resolve this issue, and the high-powered academic economists can’t even agree among themselves as to the proper course.
But I do fault him for not trying harder – for wasting his first three years in office saving the bonuses of Wall Street executives and CEOs, and subsidizing the jobs of union members who make up his base, and pushing through his heath care bill while all across the nation ordinary people’s homes were being foreclosed and jobs were being lost and small businesses were being forced out of business.
And I fault him, and especially Nancy Pelosi, for ramming through a messy and expensive (and perhaps even unconstitutional) health care bill while cutting Republicans completely out of the negotiations. It caused such bitterness among Republicans that it has been full-scale civil war between the parties in Congress ever since, and resulted in putting some 70+ intransigent Tea Party freshmen onto the House that even Republican Speaker John Boehner has difficulty controlling.
And finally I fault him for not putting in place a medium-term plan for cutting the ballooning federal debt. One might reasonably argue that the middle of a recession is not the time to cut the federal budget, but that argument only holds water if accompanied by a credible plan to cut the deficit in the medium term. He has presented no such plan, and such “budget cutting” he has finally agreed to (forced to it kicking and screaming by the Tea Party members) has largely been smoke and mirrors, and far too little to make any real difference.
All-in–all this Democratic administration has clearly been over its depth both domestically and in foreign policy. Remember the Russian “reset” and the “open hand” offered to the Arab world? – not much came of either of those initiatives.
But on the Republican side we have what appears to be equal incompetence. None of the current candidates look particularly promising, and while at this point the presidential election is the Republican’s to lose, they do seem quite capable of nominating some right-wing extremist and losing it.
The Republican fixation with cutting taxes, while there is indeed some logic behind it, appears to be held as an unthinking non-negotiable ideological position, not a logical one. More than that, there is little evidence from their performance in the previous Republican administration that they are any less feckless about the debt problem than the Democrats. It is true that this Democratic administration managed to add as much to the nation’s debt in three years as Bush did in eight years, but that isn’t saying much good about the Bush administration either.
Finally, despite all the hype and talking points, I have yet to hear from any Republican candidate a better idea for getting the economy moving again.
So we have a real dilemma – I may again want to vote “none of the above” in this next election.
Saturday, September 10, 2011
Recommended: Obama's Crony Capitalism
Over on Reason.com A. Barton Hinkle has written an article entitled Obama's Crony Capitalism that summaries the issues with the recently bankrupt Solyndra solar cell company that the administration poured so much money into and touted as such a big deal. As he notes, aside from the Chicago-style politics involved (one of the biggest investors was also one of Obama's biggest money men in the last campaign), it is a case study in why the government ought not to try to pick winners and losers in the marketplace. It is worth reading.
Friday, September 9, 2011
Is Social Security a Ponzi Scheme?
Governor Perry has made quite a splash with his repeated claim that Social Security is simply a Ponzi scheme. The liberal press has had a field day with this, and even some of his Republican opponents have attacked him on this.
But is he right? Well, a Ponzi scheme, like the one run by Bernie Madoff, works by taking the money from people who invest later and using some of it to pay "dividends" to people who join earlier, and then diverting the rest of the "investment" to the crook's own use. It works fine until there are no more new people joining and investing new money, after which the whole scheme collapses and the latecomers all discover that they are going to get nothing back for their investments.
That sure sounds like Social Security. We older folks put our money in, and theoretically it went into a "lockbox" (the Social Security Trust Fund) not to be used for anything but eventually paying monthly checks out to us. But in fact the money didn't go into a "lockbox" -- it went back out to Congress as fast as it came in to pay for all sorts of pet Congressional programs, replaced by paper IOUs (Treasury Bonds). So all that is really in the "lockbox" is paper IOUs, no "real" money. So where does Social Security get the money to pay out the monthly Social Security checks? It can't get it from the "lockbox" because there is no real money there, just paper (actually electronic) IOUs. So it gets it from the people paying in the month before.
This system works fine until there aren't enough new people paying in each month to cover the amount that Social Security needs to pay out, and we are just about at the point, as our population ages and we have an increasing number of older people collecting Social Security against a smaller number of workers paying in each month.
But what about the Treasury Bonds in the "lockbox"? Isn't that real money? Fancy as it sounds, a Treasury Bond is nothing more than an IOU that promises to pay back the capital and a little interest at some future date. These days when a Treasury Bond comes due, the government just sells another Treasury Bond to get the money to pay out the first bond, "rolling over" the debt rather than really paying it back (something the government and banks frown on individuals doing, but seems for some reason to be OK if you are the US Treasury....) . That works fine so long as someone will buy the new Treasury Bond. The day there are no new buyers the whole scheme falls apart.
If you or I tried to run a scheme like this, we would be quite properly arrested, tried, convicted and jailed, as was Bernie Madoff. But when the government does it.............
So it may be offensive to liberals to call Social Security a Ponzi scheme, but if it walks like a duck and looks like a duck and quacks like a duck..........
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Added thought: To say it is a Ponzi scheme now (which it is) is not to say it couldn't be repaired and "un-Ponzied". In fact, it could with some relatively simple changes, such as slowing raising the eligability age, taking the cap off of earnings taxed for Social Security, and changing the over-generous inflation adjustment to make it track core inflation rather than wages. The problems with Social Security are much smaller, and much easier to repair, than those for Medicare/Medicaid.
But is he right? Well, a Ponzi scheme, like the one run by Bernie Madoff, works by taking the money from people who invest later and using some of it to pay "dividends" to people who join earlier, and then diverting the rest of the "investment" to the crook's own use. It works fine until there are no more new people joining and investing new money, after which the whole scheme collapses and the latecomers all discover that they are going to get nothing back for their investments.
That sure sounds like Social Security. We older folks put our money in, and theoretically it went into a "lockbox" (the Social Security Trust Fund) not to be used for anything but eventually paying monthly checks out to us. But in fact the money didn't go into a "lockbox" -- it went back out to Congress as fast as it came in to pay for all sorts of pet Congressional programs, replaced by paper IOUs (Treasury Bonds). So all that is really in the "lockbox" is paper IOUs, no "real" money. So where does Social Security get the money to pay out the monthly Social Security checks? It can't get it from the "lockbox" because there is no real money there, just paper (actually electronic) IOUs. So it gets it from the people paying in the month before.
This system works fine until there aren't enough new people paying in each month to cover the amount that Social Security needs to pay out, and we are just about at the point, as our population ages and we have an increasing number of older people collecting Social Security against a smaller number of workers paying in each month.
But what about the Treasury Bonds in the "lockbox"? Isn't that real money? Fancy as it sounds, a Treasury Bond is nothing more than an IOU that promises to pay back the capital and a little interest at some future date. These days when a Treasury Bond comes due, the government just sells another Treasury Bond to get the money to pay out the first bond, "rolling over" the debt rather than really paying it back (something the government and banks frown on individuals doing, but seems for some reason to be OK if you are the US Treasury....) . That works fine so long as someone will buy the new Treasury Bond. The day there are no new buyers the whole scheme falls apart.
If you or I tried to run a scheme like this, we would be quite properly arrested, tried, convicted and jailed, as was Bernie Madoff. But when the government does it.............
So it may be offensive to liberals to call Social Security a Ponzi scheme, but if it walks like a duck and looks like a duck and quacks like a duck..........
-------------------------
Added thought: To say it is a Ponzi scheme now (which it is) is not to say it couldn't be repaired and "un-Ponzied". In fact, it could with some relatively simple changes, such as slowing raising the eligability age, taking the cap off of earnings taxed for Social Security, and changing the over-generous inflation adjustment to make it track core inflation rather than wages. The problems with Social Security are much smaller, and much easier to repair, than those for Medicare/Medicaid.
Obama's Proposals
Finally, three years into his term and three years into a devastating recession, President Obama took on the jobs issue for real. It is what he should have done at the beginning of his term, instead of wasting time and political capital on the healthcare issue.
As usual, President Obama was eloquent in his speech last night. But as usual, it offered nothing new. It was clearly a re-election speech, designed to maneuver Republicans into damaging positions ahead of the upcoming election, rather than a problem-solving speech aimed at really solving the nation's problems.
As usual, his solution was to throw more (borrowed) money at the problem rather than address any of the underlying structural problems. The word "stimulus" was assiduously avoided, but that is in fact what he proposed. Since a "stimulus" twice that big had almost no measurable effect except to dramatically increase the national debt, it is not clear how one half that size can be expected to have much effect. He proposed tax cuts, but since he didn't propose cutting federal spending at all the reduced revenue just increases the deficit.
I didn't really expect anything new from the president's team, and I see most pundits didn't expect much either. The coverage of the speech this morning is remarkably sparse, even from the pundits who usually think he walks on water.
---------------------------------
PS - I see that the world's stock markets have taken a steep nose dive in the wake of President Obama's speech (the Dow is down 338 points as I write this). Last time he gave a speech the stock market dropped a hundred points even as he was speaking. One might think this was a message...............
As usual, President Obama was eloquent in his speech last night. But as usual, it offered nothing new. It was clearly a re-election speech, designed to maneuver Republicans into damaging positions ahead of the upcoming election, rather than a problem-solving speech aimed at really solving the nation's problems.
As usual, his solution was to throw more (borrowed) money at the problem rather than address any of the underlying structural problems. The word "stimulus" was assiduously avoided, but that is in fact what he proposed. Since a "stimulus" twice that big had almost no measurable effect except to dramatically increase the national debt, it is not clear how one half that size can be expected to have much effect. He proposed tax cuts, but since he didn't propose cutting federal spending at all the reduced revenue just increases the deficit.
I didn't really expect anything new from the president's team, and I see most pundits didn't expect much either. The coverage of the speech this morning is remarkably sparse, even from the pundits who usually think he walks on water.
---------------------------------
PS - I see that the world's stock markets have taken a steep nose dive in the wake of President Obama's speech (the Dow is down 338 points as I write this). Last time he gave a speech the stock market dropped a hundred points even as he was speaking. One might think this was a message...............
Thursday, September 8, 2011
What the government should (or can) do (Part 1 – what we know)
There is no question that the roots of our current economic mess are very complex indeed. The crisis stems from a long accumulation of natural circumstances, shifts in technology, demographic changes, short-sighted corporate and government policies, poor consumer choices, and improvident government by both political parties, among other factors. Decades or centuries from now, with ample perspective, historians may be able to untangle the threads enough to identify the major contributing factors, but in the present day we can only go from what we know or understand now.
So what do we know right now? Well, we know that Keynesian “pump priming” by the government with its last massive stimulus package didn’t work very well. Nick Gillespie yesterday had an interesting piece on Reason.com, One Reason Why Keynesian Stimuli Aren't Working: They Aren't Keynesian, that argues that Keynes himself would have been appalled at how his theory is being applied (or rather, misapplied) today.
We also know that the current academic economic models don’t fit the real world very well. We have had the nation’s leading academic economists using their models over the past two decades to project the results of various policies, and more often than not these models have failed. As I noted in a post a few days ago, these models didn’t predict the current recession (in fact most of them projected continued strong growth through this period), they didn’t correctly predict the result (or lack of result) of the first stimulus package, they didn’t correctly predict the real risks in all the fancy new risk derivatives swamping Wall Street, they didn’t predict the 2006-2007 housing bubble, nor for that matter the 1999-2000 “dot.com” bubble.
We also know that increasingly the American workforce is not adequately prepared for the jobs of tomorrow. We still have an infrastructure and educational system and regulatory environment suited to the agricultural and manufacturing nation we were decades ago, but blue-collar manufacturing (and to a certain extent agriculture as well) provide less and less US jobs every year, while the growing number of high-tech technical, engineering and innovation jobs in the US are increasingly filled with bright foreigners because there are not enough American citizens trained to take those jobs. The three-yearly OECD Program for International Student Assessment (PISA) report, which compares the knowledge and skills of 15-year-olds in 70 countries around the world, ranked the United States 14th out of 34 OECD countries for reading skills, 17th for science and a below-average 25th for mathematics.
We know that the federal government, in the form of Congress and the Presidency, have become thoroughly dysfunctional, so polarized ideologically as to be hardly able to function at all. For example, this administration has been funding the government for over two years now on continuing resolutions, because it can’t get a budget passed at all, let alone by the end of the preceding fiscal year. This sharply limits what can reasonably be expected from federal government action. Nor is this likely to change as long as both parties have gerrymandered their House districts to make them safe seats for one party or the other – which has produced the undesirable side effect of eliminating moderates of either party from the House.
We know that the current federal government funding, in which we borrow almost half the federal budget every year, is unsustainable, and that major entitlement programs like Social Security and Medicare will have to sharply curtail their benefits soon, because there simply won’t be enough money to cover these obligations in the near future as they are currently constituted. Economist Lawrence Kotlikoff has recently estimated the total unfunded liabilities of current federal programs, largely Social Security, Medicare and Medicaid, at $70 trillion.
We know that we have too many regulations in this nation, promulgated by too many federal agencies which often have overlapping authority and conflicting agendas. Certainly regulations are necessary in a large nation like ours, but like the Sorcerer’s Apprentice, things have long since gotten way out of hand in the regulatory sphere. Of course, this is to be expected – once an agency is established and given some authority, it will naturally work to perpetuate itself and expand and defend its area of authority, its legitimate “tuft”. That is simply human nature – or at least the nature of bureaucracy.
Regulations are estimated to cost US businesses somewhere between $2 trillion and $2.8 trillion per year. According to the Office of the Federal Register, in 2007, the Code of Federal Regulations (CFR), the official listing of all regulations in effect, contained a total of 145,816 pages that claimed 21 feet of shelf space. In 2011 alone, 50,000 pages of new regulations have been added thus far to the Federal Register. Clearly something is wildly amiss.
We know that the federal tax code has become unwieldy and ineffective. The Federal Tax Code weighs in at 71,684 pages as of 2010! We have one of the highest corporate tax rates in the world (and then double tax the dividends as well), but offset it with trillions of dollars of special interest exemptions and rebates, so that some US companies that report billions in profits pay no federal tax at all.
We also know that we have put off maintenance and improvement of our national infrastructure too long. Bridges, roads, rail lines, power transmission lines, power plants, dams, etc etc are all aging and in need of repairs or replacement, but we haven’t been doing it at either the federal or the local government level, preferring to put funds into social programs, entitlements, public employee pension funds, and unfunded wars in the Middle East. We are the inventors of the internet, yet US average internet service speed, at 4.8mbps, ranks 15th in the world (Japan, at 61mbps, is the leader, with South Korea close behind).
This is what we know. Part 2 will deal with what, if anything, the government could do about these issues.
Recommended: Obama's Economic Trifecta
Joel Kotkin has an interesting piece over on the Forbes website this morning: Obama's Economic Trifecta: How The President Helped Kill Progressivism, Capitalism And Moderation. It is not very flattering to the administration, as is obvious from the title, but on balance I think his charges are pretty accurate. Of course, he is not particularly kind to the Republicans either, and again I think his criticisms are accurate.
What has been notable about this administration's attempts to deal with the recession is that despite all the rhetoric, the measures actually taken have been aimed largely at preserving jobs on Wall Street, in large corporations like the auto companies, and among union members, with little or no effective action to help main street small businesses, homeowners facing foreclosure, or the jobless. It is hard not to come to the conclusion that despite being a Democrat (supposedly representatives of the common working person), Obama is actually more concerned with shoring up the in-group wealthy establishment and his union political base than helping the nation as a whole.
He will apparently propose yet another expensive stimulus plan tonight, even though his last, much larger stimulus plan didn't seem to do much to help the situation. There is a legitimate question, of course, about just how much the government can do in any case to "create" jobs.
Government policy can certainly make it harder for companies to function, but I think there is relatively little the government can do to actually create more productive jobs (as oppose to simply more bureaucratic jobs). Only private businesses can create jobs that actually add to the national wealth, and the administration's efforts to push high speed rail and green technology companies as new sources of jobs has been pretty naive at best, and look more like pandering to his supporters than actually trying to do anything effective.
It will be interesting to see exactly what he does propose tonight, and whether it is any departure from Washington's usual solution of just throwing more (borrowed) money at a problem.
What has been notable about this administration's attempts to deal with the recession is that despite all the rhetoric, the measures actually taken have been aimed largely at preserving jobs on Wall Street, in large corporations like the auto companies, and among union members, with little or no effective action to help main street small businesses, homeowners facing foreclosure, or the jobless. It is hard not to come to the conclusion that despite being a Democrat (supposedly representatives of the common working person), Obama is actually more concerned with shoring up the in-group wealthy establishment and his union political base than helping the nation as a whole.
He will apparently propose yet another expensive stimulus plan tonight, even though his last, much larger stimulus plan didn't seem to do much to help the situation. There is a legitimate question, of course, about just how much the government can do in any case to "create" jobs.
Government policy can certainly make it harder for companies to function, but I think there is relatively little the government can do to actually create more productive jobs (as oppose to simply more bureaucratic jobs). Only private businesses can create jobs that actually add to the national wealth, and the administration's efforts to push high speed rail and green technology companies as new sources of jobs has been pretty naive at best, and look more like pandering to his supporters than actually trying to do anything effective.
It will be interesting to see exactly what he does propose tonight, and whether it is any departure from Washington's usual solution of just throwing more (borrowed) money at a problem.
Tuesday, September 6, 2011
President Perry?
As President Obama's numbers plummet along with the stock market and the nation's economic growth numbers, and Governor Perry's poll numbers continue to rise, now well past his only serious opponent, Governor Romney, the possibility that Perry might become our next president is increasing. One cannot discount the fact that Texas, under his stewardship for the past twelve years, is booming economically and has produced about half of the new jobs in the nation over this recession.
Still, he has some extreme views that worry me. But Russ Smith in his piece Is Barack Obama Dumb? (he argues he isn't) makes this point:
Still, Republicans would be wise to listen to Mike Huckabee's recent advice:
Still, he has some extreme views that worry me. But Russ Smith in his piece Is Barack Obama Dumb? (he argues he isn't) makes this point:
As I’ve written before in this space, Perry’s adherence to creationism, apparent fear of homosexuals, abortion opposition, constant invocations of God and dismissal of global warming make me queasy, but in next year’s election those extreme right-wing positions won’t really matter. The only issue is the dreadful economy, which shows no sign of improving before voters pass down their verdict, and while you can scoff at Texas’ remarkable job creation in the past several years—the general liberal reckoning is that all those jobs are at minimum-wage fast food joints—it’s not as if Obama can make any boasts about his own record on that score.I think he is right. President Obama has said all the right things (from my point of view, at least) about gays, global warming, and abortion, but he has failed miserably at getting the economy going again and dealing with the joblessness. I could tolerate some extreme views on these subjects (especially since the President can't really put many of them into practice without the full support of Congress) if it came along with some effective and hard-nosed approaches to things like the economy and the debt.
Still, Republicans would be wise to listen to Mike Huckabee's recent advice:
Republicans have to nominate someone better than the person they want to defeat. If they get so adamant that they will only support a candidate that believes everything on their checklist, they will re-elect Obama.
Sunday, September 4, 2011
Recommended: Economyths
If there is one thing that is painfully obvious these days, it is that the grand economic models that have won some economists fame, fortune, and even Nobel Prizes, are shams. All those fancy models didn't accurately model the risks in the derivatives market. All those fancy models didn't forecast the current global financial crisis. The stimulus steps those models predicted would stem the recession and limit unemployment well below 8% have failed, and failed miserably. Economists are quick to explain away these failings in all sorts of ways, but the test of a scientific principle is that it works, and their models clearly don't work.
Of course there have been people telling us all along that the emperor had no clothes, among them Nassim Taleb (author of The White Swan), Warren Buffet (the immensely successful investment manager) and economist Nouriel Roubini (known as "Dr Doom" before his predictions of imminent market failure all turned out to be highly accurate). But the academic economists and their highly-paid brethren in the financial industry ignored these voices, naively content that their elaborate models accurately modeled the world.
Oxford mathematician David Orrell argues in his book Economyths: Ten Ways That Economics Gets it Wrong (2010) that the fundamental assumptions underlying current economic dogma (or ideology, as he terms it) are false, and explores the roots of these myths in the history of civilization. This is a serious book, despite being only a 250 page paperback (proof that size, cost, and abstruseness of an economics book is no reliable indicator of its worth). This book is well worth reading, and a good follow-on to my previous recommendation, Economics Without Illusions.
Of course there have been people telling us all along that the emperor had no clothes, among them Nassim Taleb (author of The White Swan), Warren Buffet (the immensely successful investment manager) and economist Nouriel Roubini (known as "Dr Doom" before his predictions of imminent market failure all turned out to be highly accurate). But the academic economists and their highly-paid brethren in the financial industry ignored these voices, naively content that their elaborate models accurately modeled the world.
Oxford mathematician David Orrell argues in his book Economyths: Ten Ways That Economics Gets it Wrong (2010) that the fundamental assumptions underlying current economic dogma (or ideology, as he terms it) are false, and explores the roots of these myths in the history of civilization. This is a serious book, despite being only a 250 page paperback (proof that size, cost, and abstruseness of an economics book is no reliable indicator of its worth). This book is well worth reading, and a good follow-on to my previous recommendation, Economics Without Illusions.
Friday, September 2, 2011
On choosing colleges
I have been involved a great deal lately in helping to find colleges for my grandchildren. In the course of this I have done a good bit of research and a lot of thinking. The results of this research and thinking will not please – and indeed may well offend – those who work in colleges, but I offer it for consideration by others facing the same daunting task.
College is certainly an important part of growing up middle- or upper-class in America, though of course for 7 out of 10 American youngsters college isn't even an option they are interested in. But let’s put some realistic perspective on it.
1. College is not highly correlated with success in life. For example, a number of billionaires, beginning with Bill Gates (who created Microsoft), and including Steve Jobs (who created Apple computing) and Steven Spielberg (who doesn’t know who he is?), never finished college and many more successful people never even started college. But of course, a lot of hamburger-flippers are also college dropouts, so dropping out isn't a predictor of high wealth either!
2. Colleges, for obvious marketing reasons, like to quote the correlation between college education and higher earnings through life. The correlation is real, and substantial, but it does not logically follow that college is the cause of those higher earnings. People who go to college in the first place are (a) brighter than average, (b) more motivated than average, (c) more disciplined than average, (d) usually come from a more intellectual home than average, (e) and generally come from relatively well-off families who start them off with more financial support, better education, and better health. Those factors alone would correlate highly with more work success and higher earnings, even absent college.
3. Nonetheless, it is true that having a college degree substantially increases job opportunities, and is a pre-requisite for many jobs. But only in a very few fields does it matter what college granted the undergraduate degree, or even what one’s major field was. That is even true for those going on to graduate school. While it is true that colleges offer specialized undergraduate preparation for some fields, like pre-med or pre-engineering, in fact I have known a number of people who went on to graduate school in fields completely unrelated to their undergraduate major, and did just fine.
4. College does not really educate people (yes, I know this will be a controversial claim) . Most of what they will teach (though perhaps less so in math and some sciences) is, if not outright wrong, at least heavily biased by the narrow academic outlook and/or oversimplifed and dumbed-down to the level of the mediocre student -- after all, professors who flunked almost all their students wouldn't last long.
Unlike trade schools, where electricians learn to do real wiring and welders learn to actually weld and accountants learn to actually keep real books and doctors learn to actually treat real sick people (yes, medical school is a trade school too), undergraduate college teaches very few practical skills of use in the job market. Good expository writing may be one of the few exceptions here, and since the majority of graduates don't even learn that very well, colleges can hardly take much credit. In general, companies train their new employees in what they need to know, because their college degree didn't teach them that.
5. College these days is exorbitantly expensive for what one gets from it. As one parent put it, “putting your child through college is like driving a brand new $60,000 Maserati luxury sports car to the college every year, leaving it parked unlocked with the keys in it, and taking a bus back home”. College prices have gone up much faster than inflation for years now, as colleges grew from modest educational institutions into big businesses. But is college really worth that much?
Bright Asian students all over India and China are training themselves to be top-flight engineers and scientists and programmers and entrepreneurs for free over the internet and from used, dog-eared textbooks without spending $200,000 for an undergraduate degree. It is true they don't by this method get exposure to an anal-retentive analysis of American short stories, an abbreviated and biased survey of European history, or the economic fallacies and useless oversimplifications taught in Economics 101, but one would be hard pressed to argue that is worth hundreds of thousands of dollars to anyone except the college faculty members who teach these courses.
6. College rankings are largely meaningless. Read Malcolm Gladwell’s New Yorker article The Order of Things. Of course, if status is important, than going to a “high-status” school does matter, whatever it costs.
7. The average college curriculum, and for that matter the college entrance requirements as well, have emerged from a complex mix of historical precedence (the so-called "liberal" education of 19th century rich and privileged young men), marketing requirements (to keep up with other colleges), and bitter faculty infighting (about the amount of funding for each department). It has very little to do with what students really require to prepare them for today's world or today's job market.
8. In that regard, it is worth noting that European universities, following the Bologna Process, which aims to standardize university-level education across Europe, offer undergraduate programs that last only three years (6 semesters of 13 weeks each). And students can complete their undergraduate studies in two years if they participate in two intensive summer semesters. American undergraduate schools bulk that out to 4 years or more with “distribution” requirements to force students to take courses in fields that don’t even interest them. This is rationalized as “broadening their education”, but in reality has more to do with assuring that every academic department gets enough enrollments to survive and prosper. Of course it also costs students and their parents 25-30% more in money and time.
The objective, I have decided, is to find a college where one’s children or grandchildren can earn an undergraduate degree without (a) bankrupting the family or (b) leaving the child with a massive student loan debt at the end of college, and where (c) they can get some reasonable contact with good teachers. There are colleges that fit these requirements, but one has to look
College is important in today's America, but it is not all-important, whatever college recruiting materials like to say.
College is certainly an important part of growing up middle- or upper-class in America, though of course for 7 out of 10 American youngsters college isn't even an option they are interested in. But let’s put some realistic perspective on it.
1. College is not highly correlated with success in life. For example, a number of billionaires, beginning with Bill Gates (who created Microsoft), and including Steve Jobs (who created Apple computing) and Steven Spielberg (who doesn’t know who he is?), never finished college and many more successful people never even started college. But of course, a lot of hamburger-flippers are also college dropouts, so dropping out isn't a predictor of high wealth either!
2. Colleges, for obvious marketing reasons, like to quote the correlation between college education and higher earnings through life. The correlation is real, and substantial, but it does not logically follow that college is the cause of those higher earnings. People who go to college in the first place are (a) brighter than average, (b) more motivated than average, (c) more disciplined than average, (d) usually come from a more intellectual home than average, (e) and generally come from relatively well-off families who start them off with more financial support, better education, and better health. Those factors alone would correlate highly with more work success and higher earnings, even absent college.
3. Nonetheless, it is true that having a college degree substantially increases job opportunities, and is a pre-requisite for many jobs. But only in a very few fields does it matter what college granted the undergraduate degree, or even what one’s major field was. That is even true for those going on to graduate school. While it is true that colleges offer specialized undergraduate preparation for some fields, like pre-med or pre-engineering, in fact I have known a number of people who went on to graduate school in fields completely unrelated to their undergraduate major, and did just fine.
4. College does not really educate people (yes, I know this will be a controversial claim) . Most of what they will teach (though perhaps less so in math and some sciences) is, if not outright wrong, at least heavily biased by the narrow academic outlook and/or oversimplifed and dumbed-down to the level of the mediocre student -- after all, professors who flunked almost all their students wouldn't last long.
Unlike trade schools, where electricians learn to do real wiring and welders learn to actually weld and accountants learn to actually keep real books and doctors learn to actually treat real sick people (yes, medical school is a trade school too), undergraduate college teaches very few practical skills of use in the job market. Good expository writing may be one of the few exceptions here, and since the majority of graduates don't even learn that very well, colleges can hardly take much credit. In general, companies train their new employees in what they need to know, because their college degree didn't teach them that.
5. College these days is exorbitantly expensive for what one gets from it. As one parent put it, “putting your child through college is like driving a brand new $60,000 Maserati luxury sports car to the college every year, leaving it parked unlocked with the keys in it, and taking a bus back home”. College prices have gone up much faster than inflation for years now, as colleges grew from modest educational institutions into big businesses. But is college really worth that much?
Bright Asian students all over India and China are training themselves to be top-flight engineers and scientists and programmers and entrepreneurs for free over the internet and from used, dog-eared textbooks without spending $200,000 for an undergraduate degree. It is true they don't by this method get exposure to an anal-retentive analysis of American short stories, an abbreviated and biased survey of European history, or the economic fallacies and useless oversimplifications taught in Economics 101, but one would be hard pressed to argue that is worth hundreds of thousands of dollars to anyone except the college faculty members who teach these courses.
6. College rankings are largely meaningless. Read Malcolm Gladwell’s New Yorker article The Order of Things. Of course, if status is important, than going to a “high-status” school does matter, whatever it costs.
7. The average college curriculum, and for that matter the college entrance requirements as well, have emerged from a complex mix of historical precedence (the so-called "liberal" education of 19th century rich and privileged young men), marketing requirements (to keep up with other colleges), and bitter faculty infighting (about the amount of funding for each department). It has very little to do with what students really require to prepare them for today's world or today's job market.
8. In that regard, it is worth noting that European universities, following the Bologna Process, which aims to standardize university-level education across Europe, offer undergraduate programs that last only three years (6 semesters of 13 weeks each). And students can complete their undergraduate studies in two years if they participate in two intensive summer semesters. American undergraduate schools bulk that out to 4 years or more with “distribution” requirements to force students to take courses in fields that don’t even interest them. This is rationalized as “broadening their education”, but in reality has more to do with assuring that every academic department gets enough enrollments to survive and prosper. Of course it also costs students and their parents 25-30% more in money and time.
The objective, I have decided, is to find a college where one’s children or grandchildren can earn an undergraduate degree without (a) bankrupting the family or (b) leaving the child with a massive student loan debt at the end of college, and where (c) they can get some reasonable contact with good teachers. There are colleges that fit these requirements, but one has to look
College is important in today's America, but it is not all-important, whatever college recruiting materials like to say.
Wisdom
I have decided that true wisdom is an acute awareness of how much one doesn't know, together with an intense suspicion of the validity of everything one thinks one does know.
I have attained that state.
While reading Heath's provocative book Economics Without Illusions, cited in my last post below (and listed in my book list in the sidebar) I realized that I subscribed firmly to two or three each of the economic fallacies of the left and of the right (I am politically a moderate in the center, so can be deluded equally by either side). I am now having to rethink those positions as a result of Heath's arguments. I can take some comfort in the fact that many prominent economists, politicians, and even a few Nobel prize winners have been and still are deluded by the same logical fallacies, and since I have no political or academic reputation to defend in the field, I have the luxury of simply admitting I was wrong and changing my views.
I have attained that state.
While reading Heath's provocative book Economics Without Illusions, cited in my last post below (and listed in my book list in the sidebar) I realized that I subscribed firmly to two or three each of the economic fallacies of the left and of the right (I am politically a moderate in the center, so can be deluded equally by either side). I am now having to rethink those positions as a result of Heath's arguments. I can take some comfort in the fact that many prominent economists, politicians, and even a few Nobel prize winners have been and still are deluded by the same logical fallacies, and since I have no political or academic reputation to defend in the field, I have the luxury of simply admitting I was wrong and changing my views.
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