Ask the grumpies: Private vs. public colleges

Sandy L. asks

Cost benefit of public vs private college. What is the value of the network, etc.

The question isn’t really about public vs. private.  Berkeley is going to open a lot more doors and have a much more impressive network than the expensive small regional private liberal arts college one of my sisters-in-law went to.  The question is really about the prestige of the school.  There’s a lot of interesting new research on that topic.  And the answer is that, first off, we don’t really know, and second off, it is nuanced.

In general, for your white upper-class/upper-middle-class kid, it doesn’t really matter where they go.  Harvard, top flagship, regional state school– it just doesn’t matter.

For your lower income family, minority, etc. etc. etc. student, it can matter quite a bit.

But even with that mattering, some schools are better than others at elevating kids into higher socioeconomic status.  And some schools (like Harvey Mudd) are phenomenal at elevating low SES kids, but don’t actually admit very many of them (that $72K/year sticker fee and all).

I’m too lazy to source and cite this, but if you’re interested in finding out more, flip through the NBER working papers abstracts for the education group.  If you need to narrow your search window down, Carolyn Hoxby is a good place to start– she’s written extensively on this topic and cites a lot of the other work that has been and is being done.


Ask the grumpies: Better political and economic systems?

Solitary Diner asks:

Working in an inner-city clinic, I think a lot about the political and economic systems that contribute to the poverty and marginalization of my patients. What do you think can/should be done to make the world’s systems more fair to everyone?

Yeah, these aren’t hard questions at all.

Most economists favor socialism-lite.  We think government should intervene in cases of market-failure when the benefits of intervention outweigh the costs of intervention.  In practice that usually means something like what Europe has (not entirely though), with a lot of focus on making sure that the social safety net is high for everyone and even more focus on early childhood equality.

Of course, the rational-actor model is blind to structural inequalities stemming from racism, and many of our models seem to think that sexism is a feature, not a bug (they start out with the assumption that women are differently-abled and that’s why they get paid less… even in jobs for which they have comparative advantage).  I don’t know how to get rid of -isms.  I can tell you that Marxism doesn’t do it.  Nor monarchy.  I presume a benevolent dictatorship would even have difficulty, though maybe it would have a shot depending on how long the dictator can stay in power and how good they are at forcing behavior.  If we could somehow manage to get rid of segregation, that might also help since so many of our policies use geography as a way to discriminate.  Though perhaps changing those policies to be less local could help.  There’s no reason, for example, for local property taxes to fund schools.  Of course, we would no doubt still see inequalities from “voluntary” requested donations.  Paradise requested a $500 donation from every parent at the beginning of the year, and got it from many– less wealthy areas are not able to do that.

So… what should be done?  More socialism with a focus on the children.  What can be done?  Beats me.  :(  If I knew the answer to that, I’d tell it to one of the economists who hangs out with Bill Gates and they’d get to work!


Ask the grumpies: Privatizing nation’s air controllers?

Crone asks:

opinion on privatizing our nation’s air controllers. I oppose but was told the whole system should be moved to computer based GPS system and then Highways in the Sky for planes could be free form making flights faster and private industry can do this more rapidly than government. (I was in social situation so could not say I have never known a single computer system that did not ‘go down’ or ‘have ‘undocumented features ‘ so how would that work…) The topic of pipelines that ‘will not fail but ALL LEAK at some time’ had already come up.~~ I had been assured I was wrong on that point and ignorantly female. SO, back to air controllers: If this would be profitable for private companies to do why isn’t it done profitably or better by public government?


Well, it’s only the WORST IDEA if you think that airplane passengers are more important than prisoners. If you think prisoners are people too and should have rights, then privatizing prisons is actually the worst idea and this is only second worst. I guess there’s also privatizing foster care systems… if you think all people are equal then that might be slightly above air traffic control but still below prisons in potential harm done by privatization. (Foster care systems empirically aren’t as bad as prison systems, even though the potential is there to be as bad. This has to do with better state oversight.)

I had a section on privatizing public systems in one of my classes last semester and students brought in stuff– if I’d known it would come up as an ask the grumpies I’d have taken a picture of the whiteboard commonalities of when it works and doesn’t that we came up with. It can be ok, but it depends on a lot of stuff and it really shouldn’t be something where you know, people could die.

Ugh, so no, not you being ignorantly female. There’s a reason there’s a role for government for various systems.

We generally think that there is a potential role for government intervention when there is market failure in the competitive markets.  One form of market failure comes from monopolies.  Something like air-traffic control is what we call a “natural monopoly”– natural monopolies occur when it just doesn’t make sense for more than one company to be in one market.  A lot of utilities are in this kind of situation– where it doesn’t make sense for two companies to lay down pipes or what-have-you.  (You can also have government-private partnerships, where, for example, the government owns the rail-lines but allows different companies to pay to use them.)  Air traffic control is an example of a natural monopoly.  At an airport, it makes sense for only one company to do the air-traffic control.  Any more could lead to planes, for example, hitting each other.

The government in this situation could still allow private contractors to bid on the ability to be that one company doing all the air traffic controlling.  Unfortunately, air traffic control benefits a lot from experience and there are switching costs when an old company leaves and a new one takes its place.  Those switching costs could lead to not just inefficiency but also death.   Finally, oversight is really important with privatization.  Unlike the government, companies can just go out of business when they cut costs so much that people die, so they don’t have as much of an incentive to stay safe when it means cutting into profits.  Government can combat that by making it costly for them to cut corners before someone ends up dead, but that oversight comes at a cost.  Those costs could be large enough (and the possibility of bribes could be high enough) that it makes sense for the government just to do it itself.



Conversation with a friend about political economy: Two economists lament

In case you wonder what economists talk about when they get together…

Economist 1: I have a friend who is not speaking to me because I sent hir an article by Alan Krueger saying that a $15 min wage is probably too high (after zie made a big deal on social media about attending a “fight for 15” rally). And I have another friend who is avoiding me because zie voted for Trump and knows I think that’s despicable. I think I quit.

Economist 2: Don’t quit! Can you tell hir 15 is probably right for [expensive city]? You’re better off without the Trump supporter in your life. Keep fighting for evidence based policy, even if you only get to see people who truly understand once a year and at work…

Economist 1: I told hir I thought it was right for [other expensive city]. I was nice about it (I thought) and I sent it to hir over email – not publicly on Facebook. But zie’s ticked off anyway. And yes – I probably am better off without the Trump supporter but I’m so disappointed in hir and I’m sad about it.

Economist 2: Maybe if we lived in a different world with more social support and greater support of people getting education and also more automation…

Economist 1: Yes. Exactly. I don’t like arguing with people who are on the same side but… This friend was a strong Bernie supporter [#notallberniesupporters], which I guess explains a lot. Sigh.

Economist 2 [still imagining a theoretical world in which a $15 minimum wage is imposed across the US]: Probably what would happen though is we would have a highly functioning black market with little to no worker protections. *sigh* Reality just doesn’t care about ideals and opinions.

Economist 1: The side that *supposedly* cares about science and evidence won’t listen when the science doesn’t perfectly support their ideals. And everyone hates economists :(

Economist 2: We were briefly listened to under Obama… Everybody should love us– we have a hand for everyone! There are very few one handed economists!

Economist 1: Exactly!!! But instead we get crap from BOTH sides.

Economist 2: It really makes one not believe the median voter model. What bunk! (To think I so strongly believed in it prior to the Gore v. Bush election. How naïve I was.)

Economist 1: Maybe if we didn’t have gerrymandering and the electoral college…

Economist 2: Excellent point.

Have you lost (or gained) friends over politics recently?


Ask the Grumpies: Where to learn economics?

Leah asks:

I’d love to learn some basic econ. Where’s a good place to start that is not too arduous but is also accurate?

I know there are a lot of Econ for laypeople books out there (Freakanomics being the most famous), but when people ask me this question I always stick to two textbook recommendations.  The first is the Intermediate Microeconomics by Robert Frank called Microeconomics and Behavior.  The second is Public Finance by Jonathan Gruber.

I love Frank because he discusses microeconomics in a way that contrasts how the rational person would behave with how people actually behave.  This I think makes the theory more believable and more powerful.

Public Finance I really think ought to be taught in high school.  If you want to understand the role for government, it is a must read.  So much of what is going on with healthcare right now violates basic economic principles and after reading about adverse selection, you, too, will understand why.

Note for these that you do not at all need to buy the most recent edition.  The 1998 edition of Frank is fine for understanding the basics.  The first edition of Public Finance by Gruber is still a fantastic read.  Get whatever is available and cheap.

What economics tomes/videos do you recommend, Grumpy Nation?


Ask the grumpies: If you were a supercommittee with superpowers where would you start reducing the federal government budget?

chacha1 asks

If you were the supercommittee, with actual governmental superpowers, where would you start with reducing the federal government’s budget so that we could actually start reducing the national debt without condemning the nation’s poor to starvation, homelessness, and/or death from preventable illnesses and workplace injuries?

Well, the answer to this would depend a lot on how much power said supercommittee had.  Like, does what we say become law?  Does it have to be voted on?  What happens when people protest?  And so on.

Here I’m going to assume that the committee has the power to force through legislation and people just have to lump it, but doesn’t have supernatural powers to change the hearts and behaviors of people.  We make the laws, they try to get around them.  They can’t vote us out.  In any case, some really easy cuts would be to go with evidence-based policy.

Note:  We may not actually *want* to reduce spending when times are bad because even just throwing money out of a plane over a city is better than reducing spending.  So I’ll assume that in those situations the money saved goes to feed kids, fix infrastructure, fund education, stimulate important research, and otherwise fix the economy in ways that are good for our long-term growth.

So easy things:

  1. Phase out the mortgage benefit– this benefit does not encourage homeownership, only overconsumption of houses
  2. Phase out the SS tax cap
  3. Completely eliminate ridiculous agricultural subsidies that are making us fat.
  4. Examine the corporate tax code– this is hard because there’s a lot to be cut, but there is a real worry that corporations will move things overseas, so it’s not just a slam-dunk.  I’m sure more educated folks than I have better ideas.
  5. Go with the Poterba policy recommendations for stream-lining the tax code so that there are fewer loopholes for extremely high earners (this is essentially expanding the alternative minimum tax system)
  6. Make stock earnings taxed as income (or otherwise make it so the Buffett tax hits people who own American stocks)
  7. Cut inefficient military spending, replace it with efficient military spending or infrastructure spending so as not to hurt communities dependent on the industry (possibly phasing out plants)
  8. I’m not so good at foreign policy, but there’s a lot that can be done to decrease our spending in this arena without jeopardizing our national security.  We need more focus on doing things with coalitions rather than unilaterally.  And we do need to help out more like with the Syrian refugee crisis.
  9. Cut foreign policy aid to Israel and possibly to Egypt.
  10. Cut some Medicare spending– allow Medicare better bargaining power, allow outcomes from experiments to influence policy, cut some doctor reimbursement (but not to Medicaid levels)
  11. Allow federal funds to fund abortions.
  12. Add a public option to health care with an eye towards eventually transitioning to single payer health care (this will actually cost money and we’ll have to pay more taxes but it is good for efficiency).

There’s probably a lot I’m forgetting.  In my work office I have a chart of government spending, but I don’t have one off the top of my head here.


When economists prefer tossing economic theory to being woke

I seriously do not understand how so many economists (white male etc.) think that “cultural differences” explain things that are easier explained by “different constraints.”

As if we’re not all rational actors, only the white guys are.  Everyone else is doing worse because they are worse.  They’re either low quality or have bad culture.  If everyone acted like a white guy, then everybody would be doing as well as white guys.  As if.

It’s like, do you not listen to your own theory? How is it that when someone who isn’t a rich white guy is involved, all of a sudden you become a poor quality sociologist (who doesn’t really understand sociology)?