Comments on economics, mystery fiction, drama, and art.

Monday, October 14, 2019

The Coming Educational/Skills/Training Apocolypse

I've been thinking a lot lately about the consequences of the increases in the costs of acquiring post-high-school skilled and training and education, on the one hand,, and about the increasing importance of those skills and education on the other. The depressing thing is how things have  changed (slowly) over time.  I managed to attend a somewhat selective small liberal arts college based on actual financial aid (scholarships), working (both during the school year and summers), and an affordable contribution from my parents (who had 4 kids to put through college in the space of about 10 years). 

In the intervening 55 years (my older brother started college in 1964), tuition t the school I attended has gone up from $1500 a year to over $50,000 a year a factor of 33, and average family income has increased by a factor of 14, while prices in general have increased by a factor of 8.  One of the things this means is that, when I entered college, tuition at the school I attended amounted to about 20% of average family income.  Now, it's basically 50% of average family income.

Everything I know about higher education tells me that financial aid (I DO NOT COUNT STUDENT LOANS as financial aid) has not increased anything near enough to make it possible for someone like me (my family's income was probably 150% of the average family income in 1965, my tuition plus my brother's tuition probably would have amounted to about 30% of the family's income--before taxes) to have attended the school I did.  At 150% of average family income today, my tuition and my brother's would amount to roughly 65% of family income.  So there's no way we could attend those schools today.

At a public schools--like, for example, Indiana University--tuition was about $350 a year in 1965 and about $10,500 in 2018.  For a family with 2 kids in college, with family income at, say, 2/3 of the average, tuition would have been 14% of average family income in 1965--and 21% today.  And, remember, that does not include books and supplies (textbooks alone have increased tremendously--my intro econ boon was $7--new--in 1966.  A "standard" intro econ book is around $250 (again, new)--a price increase on a par with tuition increases.  It also does not include room and board--also about $10,500 in 2018. 

A college education--or any post-high-school education--which is becoming more and more important has also become disproportionately more expensive to obtain.  It's more and more difficult to make a compelling case for post-high-school education if we expect students to pay for it largely by borrowing. 

On the other hand, it's also the case that the prosperity of our country is more and more dependent precisely on workers with more knowledge, more skills of all sorts.  And we are doing an increasingly bad job of making it possible for people to obtain the education and training that they need--and that we, as a society, need them to have.  We have, it seems, begun to think that there are no society-wide benefits to having a highly-skilled work force.  And, in thinking that we are completely wrong.

Wednesday, September 25, 2019

Mark Twain on Christianity and Patritism

A man can be a Christian or a patriot, but he can't legally be a Christian and a patriot -- except in the usual way: one of the two with the mouth, the other with the heart. The spirit of Christianity proclaims the brotherhood of the race and the meaning of that strong word has not been left to guesswork, but made tremendously definite -- the Christian must forgive his brother man all crimes he can imagine and commit, and all insults he can conceive and utter- forgive these injuries how many times? -- seventy times seven -- another way of saying there shall be no limit to this forgiveness. That is the spirit and the law of Christianity. 

Well -- Patriotism has its laws. And it also is a perfectly definite one, there are not vaguenesses about it. It commands that the brother over the border shall be sharply watched and brought to book every time he does us a hurt or offends us with an insult. Word it as softly as you please, the spirit of patriotism is the spirit of the dog and wolf. The moment there is a misunderstanding about a boundary line or a hamper of fish or some other squalid matter, see patriotism rise, and hear him split the universe with is war-whoop. The spirit of patriotism being in its nature jealous and selfish, is just in man's line, it comes natural to him -- he can live up to all its requirements to the letter; but the spirit of Christianity is not in its entirety possible to him.


The prayers concealed in what I have been saying is, not that patriotism should cease and not that the talk about universal brotherhood should cease, but that the incongruous firm be dissolved and each limb of it be required to transact business by itself, for the future.


From Mark Twain's Notebook

Tuesday, August 20, 2019

Should the Fed be driving interest rates down now? Trump says yes; I say maybe

Trump's appraisal of Jay Powell when he nominated him to be Chair of the Federal Reserve Board of Governors:
"That is why we need strong, sound, and steady [pause] leadership, at the United States Federal Reserve. I have nominated Jay to be our next Federal Chairman. [pause] And so important, because he will provide exactly that type of leadership. He's strong. He's committed. He's smart. And, if he is confirmed by the Senate, Jay will put his considerable talents to work, leading our nation's independent central bank. Jay has learned the respect and admiration of his colleagues for his hard work, expertise, and judgment. Based on his record, I am confident Jay has the wisdom and leadership to guide our economy through any challenges that our great economy may face..."
Trump's appraisal of him now:
"Our Economy is very strong, despite the horrendous lack of vision by Jay Powell and the Fed, but the Democrats are trying to “will” the Economy to be bad for purposes of the 2020 Election. Very Selfish! Our dollar is so strong that it is sadly hurting other parts of the world.* The Fed Rate, over a fairly short period of time, should be reduced by at least 100 basis points, with perhaps some quantitative easing as well. If that happened, our Economy would be even better, and the World Economy would be greatly and quickly enhanced-good for everyone!.."
https://www.bradford-delong.com/…/donald-trump-that-is-why-…
My own take (keeping in mind that monetary policy is not something in which I have any deep expertise) is that Powell has done a better job than I expected, but that we may be at a point at which some cuts in the interest rates that the Fed controls are probably warranted. How can the Fed do this? Well, it would have to buy existing (presumably short-term) bonds--like 30-day US government bills; the interest rate on those is currently about 1.91% (annual basis). Driving the rate on 30-day Treasury bills down to 0.9% would have a spillover on other interest rates, which could be expected to fall as well, probably by less than 100 basis points (1 percentage point). So borrowing becomes cheaper, and, presumably, there would be some increase in purchases typically made on credit.
But the effect depends on the extent to which *other interest rates* fall when the Fed forces the T-Bill rate down. So, for kicks, I looked at the relationship, since 2008, between the 30-month T-Bill rate and the interest rate on 48-month car loans. It look like driving the T-Bill rate down from its current 1.91% to 0.02% would push the car loan rate down from about 4.75% to about 4%, or, on a $30,000 car loan, the monthly payment down from about $690 to about $677--a 2% reduction in the monthly payment. Frankly, that's unlikely to provide a strong incentive for more car purchases. (And similarly for other types of consumer loans.
The point, really, is that even if the Fed cuts interest rate to essentially zero, it's likely to have a fairly small impact on consumer behavior. The Fed should probably cut rates some, but, because it has so little room for maneuver, it won't make much difference in the short run.
(DISCLAIMER: MY ESTIMATE OF THE EFFECT OF A RATE CUT ON CAR SALES MAY WELL BE SERIOUSLY WRONG.)
(Incidentally, a 100-basis point reduction in the interest rate that the Fed actually directly controls--the Federal Funds rate--is currently 0.12% (annual rate)--would mean a Fed Funds rate of -0.88% (per year). The Fed Funds rate, by the way, is "The interest rate at which banks and other depository institutions lend money to each other, usually on an overnight basis." So if Bank A wants to borrow $100 million overnight from Bank B, Bank B would actually *PAY BANK A* about $2400 (again, for an overnight loan)--Bank B would be repaid LESS than the $100 million that it lent. Cutting the Fed Funds rate by 100 basis points would make Bakn A a lot more willing to borrow--but what other bank would be willing to lend?)
*I gotta comment on this. A "strong" dollar means it takes more euros or remnibi of pounds or Australian dollars or Canadian dollars of pesos to buy a dollar. So those countries will react by buying less stuff from the US because it has become more expensive. But a "strong" dollar also means that the US can buy more euros (and so on) for a dollar. Wo we will react by buying more of the stuff people in other countries produce. It's arguable, then, that a "strong" dollar actually helps other countries' economies...that they have no particular desire to see the dollar "weaken."

Friday, August 16, 2019

In which I suggest that Jared Bernstein got some things wrong.


This was written by an economist whose work I generally find worthwhile.
https://www.vox.com/2019/8/16/20807099/trump-tariffs-china-trade-policy-democrats
But see if you can determine what's wrong with this:

"For example, about a decade ago, the Obama administration placed a tariff on a specific grade of Chinese tire exports, which our Commerce Department believed were being sold here as much as 200 percent below their normal market value."

I'm sure you all got this one right. Assume the normal value of those tires was $75. To sell then to us for 200% below their normal value would be...let's see...200% of $75 is $150...so they were selling them for -$75? PAYING us $75 per tire to take them?

You know what he meant? He meant that the normal market value was 200%--2 times-- as much as they were being sold for. So the normal market value of those tires would have been $150 and they would have sold, or course, for $75...If say "At 50% below their normal value," it's not as dramatic as saying "At 200% below their normal market value.\

Am I picking nits? I don't think so...And then there’s more:

"Another problem with Trump’s current approach is that its goal is balanced trade."

The real problem AS TRUMP SEES IT is not balanced vs. unbalanced trade, it's RUNNING A TRADE DEFICIT WITH A SPECIFIC COUNTRY. That is, Trump believes (or seems to believe) that trade between the US and China should result in either balance--our exports to China are equal in value to our imports from China--of in a trade surplus for us. But bi-lateral trade balances are all but meaningless. I would guarantee you that China has bilateral trade deficits with some countries. And that the US has bilateral trade surpluses with some countries.

AND Bernstein is wrong (in my judgment, although trade economics is not one of my specialties) in saying that the goal is an overall balance--value of exports equals value of imports across all the countries that we trade with.[1] For most of the 19th century, the US ran export SURPLUSES, mostly because we were (particularly relative to Europe) a developing country. And a lot of developing countries run export surpluses. And China is still (relatively speaking) a developing country. And the US is not.[2] He's also wrong in saying "On the other side, globalization’s cheerleaders...view trade deficits as always benign." Even globalization's "cheerleaders" would answer, if asked whether persistent trade deficits or trade surpluses are "benign" or "problematic" would answer, "It depends." (Which is almost always the correct answer in economics.)

[1] GLOBALLY, the value of exports equals the value of imports, because we don't currently trade with any other planets. Just wait...

[2] According to the CIA's "fact book", [ the US ranks 19th globally in GDP per capita, mostly behind a group of small countries, like Liechtenstein, Bermuda, the Isle of Man, and some larger economies, like Singapore and Ireland. China is 108th, just ahead of Brazil.
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html


Sunday, August 04, 2019

Too Many People Have Died

[In which I write to two senators (Todd Young and Mike Braun) and one member of Congress (Susan Brooks).  I expect nothing from any of them.]

It has been another week of deaths.  Deaths that almost certainly would not have occurred—but for the fact that almost anyone can legally obtain weapons for which the only use is to kill people. 

It has been another year of such deaths.  According to the Gun Violence Archive (https://www.gunviolencearchive.org/), there have been 251 mass shootings in the first 216 days of this year—an average of more than one per day.  And in just the last two days, 29 people have been killed.  


We allow almost anyone to buy weapons that are designed for one purpose—to kill people—with little apparent concern for the consequences.  We do not effectively regulate the manufacture of those weapons, or of the ammunition used in those weapons.  We do not effectively regulate the sale of such weapons, in large part because of the ease with which private sales escape any sort of regulation.  And what regulations that do exist vary significantly from state to state, meaning that, in practice, restrictions on gun sales are no stronger than the weakest state regulation.

Many states (42, according to the Gifford Law Center to Prevent Gun Violence: https://lawcenter.giffords.org/gun-laws/policy-areas/guns-in-public/open-carry/) permit the open carry of handguns and/or long guns.  Every state permits the concealed carry of handguns (in 35 states, a concealed carry permit is required: https://lawcenter.giffords.org/gun-laws/policy-areas/guns-in-public/concealed-carry/).  And there do not appear to be any significant requirements for training in the use of these weapons.


Indiana, for example,
--Does not require a permit to purchase , handguns or long guns
--Does not require registration of long guns of hand guns
--Does not require any license for the possession of long guns or hand guns
--Places no restrictions on the possession of assault weapons
--Places no restrictions on magazine size
--Does not require a license for the carry of a long gun
--Does require a license for the carry of a hand gun
--Does allow concealed carry of a handgun (but not a long gun) on college campuses
--Does not allow local jurisdictions to enact stricter laws
--Does not require background checks
https://en.wikipedia.org/wiki/Gun_laws_in_Indiana


In short, Indiana places essentially no restrictions purchase or ownership, or on the types of weapons that many be acquired.



Texas laws—which I mention because of the recent mass killing in El Paso—are apparently almost identical.


The consequences of the lack of regulations of the ownership pf firearms in the United States is quite clear.  Deaths from the use of firearms, both suicides and killings of others, occur at a much higher rate than in other countries (aside from those in which there are wars or armed insurrections in progress).  Mass killings occur frequently in the U.S. but rarely elsewhere.  Any yet Congress does not act.  How many deaths, how many permanently disabling injuries are too many before Congress acts?  Bob Dylan wrote a song more than 40 years ago in which he asked “how many deaths will it take ‘til we know that too many people have died?”  He said that the answer was blowing in the wind.  That was not good enough then, and it’s not good enough now.  Too many people have died.  This year, and this week.  It is time for Congress to act.  It is time for you to act.


Monday, July 22, 2019

That Wasn’t Supposed to Happen…






(The title of this blog post is taken from the title of the blog post I link to immediately below.)

"Why are enrollments falling at community colleges and rising at higher-priced four-year universities?"
https://www.insidehighered.com/blogs/confessions-community-college-dean/wasn’t-supposed-happen…

Not at all of them...

My alma mater, a small, relatively prestigious (in its part of the country) liberal arts college has just enrolled its smallest entering class since the early 1950s. Total enrollment is on a course to decline from around 2300 to around 1600-1700 over the next few years. And this comes on the heels of major construction projects, leaving the school with what are potentially redundant facilities and higher operation and maintenance costs. Meanwhile, full-cost tuition will break the $50,000 barrier for the 2019-2020 academic year. That's up from $33,000 in 2009-2010--a 67% increase in tuition during a period in which the CPI rose by 19%.

Since I matriculated there in 1965, tuition has increased 33-fold (from $1500 to $50,000), while the CPI has increased only (roughly) 8-fold.  Room & board was about $900; I spent about $150 on textbooks for the year (the last time I taught intro econ, in the spring of 2018, the price of a new copy of the textbook I used cost $175; my intro econ book, in 1966, was $7…but there’s more to the increasing price of textbooks than simply inflation).  I had about $40 per month for personal spending.  So, in 1965-66, one year of college was about $2900; let’s round that up to $3000.  If college costs had increased at the same rate as prices in general (a factor of 8), one year of college at a reasonably selective small liberal arts college would cost about $24,000. 

In the upcoming academic year, the total cost (with no financial aid) will be about $65,000.  That is roughly the median family income in the US.  For a family to pay the full cost of attending my alma mater and spend half of its pre-tax income—they’d need an income of $130,000—which is at the 80th percentile of the income distribution—only 20% of the households in the US have incomes higher than that. 

So what about attending Indiana University, as an in-state student, paying the full cost today?  Roughly $25,000, up from roughly $1500 (or half the cost of my school in 1965 and 40% of the cost today)—a relative bargain, I suppose, although that cost is up by a factor of 16—twice the rate of inflation.
(All the above data is readily available through judicious use of a search engine.)

I am fully aware that institutions of higher education are subject to what is known as “Baumol’s Disease.”*  That does not mean that we should just accept that the price of attending college in the US must rise at the same rate as the costs of providing a college education—and, indeed, we have not.  But we have relied too much on debt to finance the current pricing structure, in effect shifting the cost from the present to the future.  What we need is to expand support for higher education—through taxes for public schools and, implicitly, also for private schools (through the use of tax-financed grants).  Private schools will (and should, really) remain more expensive.  But if a selective private liberal arts college cost families/students only $24,000 per year and public universities cost them only $12,000, then advanced educations would be much, much more affordable, and the promise that we thought, in the 1950s and 1960s, we were making to our citizens about education would again become a reality rather than, increasingly, a pipe dream.

*Named for William Baumol, who presented the first rigorous analysis of the problem:
https://en.wikipedia.org/wiki/Baumol%27s_cost_
disease

Monday, July 15, 2019

"Those who cannot remember the past are condemned to repeat it."

Beginning very early on in the history of the United States, immigrants have been regarded as somehow "other," and inferior, possibly not fully human. Look at the response to the Irish immigration (late 1840s/early 1850s), which was a consequence of the potato famine. (The "know-nothing" party was maybe the clearest manifestation of this:
https://en.wikipedia.org/wiki/Know_Nothing)
Later, as immigration from eastern (Poland; Russia--many of these immigrants were also Jewish) Europe, southern Europe (Italy. Greece), and Asia (especially, but not only, China), anti-immigrant sentiments shifted. Chinese immigration was *legally prohibited* beginning in 1882 (https://en.wikipedia.org/wiki/Chinese_Exclusion_Act).
(Read the whole thing...)
And a discussions of the response to European immigration. (https://herb.ashp.cuny.edu/items/show/513)
Eastern and southern immigration:
"Between 1880 and 1910, almost fifteen million immigrants entered the United States, a number which dwarfed immigration figures for previous periods. Unlike earlier nineteenth century immigration, which consisted primarily of immigrants from Northern Europe, the bulk of the new arrivals hailed mainly from Southern and Eastern Europe. These included more than two and half million Italians and approximately two million Jews from Russia and Eastern Europe, as well as many Poles, Hungarians, Austrians, Greeks, and others.
"The new immigrants’ ethnic, cultural, and religious differences from both earlier immigrants and the native-born population led to widespread assertions that they were unfit for either labor or American citizenship. A growing chorus of voices sought legislative restrictions on immigration. Often the most vocal proponents of such restrictions were labor groups (many of whose members were descended from previous generations of Irish and German immigrants), who feared competition from so-called “pauper labor.” "
Note the opposition of earlier German immigrants to the immigration of Italians, Greeks, Poles, Russians (and especially Jews).
IQ tests were used (and, I think, developed) as a tool to restrict immigration in the early 1900s:
"Low test scores (given as an intelligence quotient, or IQ) were used by eugenicists to lobby in the US Congress for restricting immigration of those claimed to be genetically inferior in IQ."
https://www.researchgate.net/…/230435620_Intelligence_Tests…
And, as this articles in the Smithsonian puts it:
"This Jigsaw Puzzle Was Given to Ellis Island Immigrants to Test
https://www.smithsonianmag.com/…/puzzle-given-ellis-island…/
Famously, Jews attempting to flee the Nazis were denied entry to the US in the 1930s; the Dominican Republic, unlike the US did admit them:
"In the end, only one country, the Dominican Republic, officially agreed to accept refugees from Europe. (Dictator Rafael Trujillo, influenced by the international eugenics movement, believed that Jews would improve the “racial qualities” of the Dominican population.)"
https://www.facinghistory.org/defying…/america-and-holocaust
While the response to the "boat people" from Viet Nam was somewhat more restrained (in terms of official immigration policy--perhaps in part because so many were children of US military personnel), they were not warmly welcomed in a lot of US communities, especially along the Gulf coast.
https://en.wikipedia.org/wiki/Vietnamese_boat_people
and
https://www.jstor.org/stable/2545339…
(In my opinion, the response to the plight of Vietnamese refugees was particularly unfortunate, because the US was largely responsible for the conditions that led them to flee their homes.)
So what we are facing today is not anything new. In all--or almost all (we have not really escaped our reluctance to allow immigrants from Latin America)--the previous cases, attitudes changed; groups that were excluded or stigmatized (especially the Chinese) became desirable.
It's almost as if we don't want to remember our past, and, we refuse to remember it, and we keep making the same mistakes over and over again. Or, as George Santayana put it more eloquently:
"Fanaticism consists in redoubling your efforts when you have forgotten your aim... Those who cannot remember the past are condemned to repeat it."