Many if not most people do not like math. They will tell you they are “not a math person.” Perhaps you are one of these people. You took exactly as much math in school as they made you, and not ε more!
The problem with being “not a math person” is that math people enjoy a significant earnings premium over non-math people. Take a look at this list of the highest earning degrees (source):
Classical liberals like Milton Friedman and Friedrich Hayek have supported the idea of a basic income guarantee as an improvement on the current patchwork of welfare programs. The welfare systems in most countries are the product of a century of piecemeal reforms, where politicians have created many overlapping programs targeting different problems and interest groups. This makes perfect sense from the politicians’ perspective; creating a new program allows one to attach one’s name to a high-profile bill, thus winning favorable media attention and votes. It’s the same reason governments often create shiny new highways rather than filling in the potholes on old ones. Where’s the glory in marginally improving something with someone else’s name on it?
As a result of this political process, welfare systems have dramatically higher administrative costs than they need to have. Rather than having separate (and often multiple!) bureaucracies to administer welfare programs for the homeless, the temporarily unemployed, seniors, disabled workers, single mothers, etc., why not fold them all into one? In fact, Milton Friedman’s negative income tax would fold them all into the agency responsible for administering taxes. Replacing a hundred parallel agencies with one agency tasked with administering a simpler system would clearly reduce overhead costs.
The other consequence of the patchwork welfare system is that it creates more severe unintended consequences than it needs to. All redistribution schemes affect incentives, but a basic income guarantee paired with a reasonable tax scheme (maybe a flat tax or a progressive consumption tax) would avoid the worst of the perverse incentives. Current welfare systems feature “welfare cliffs,” where many programs abruptly cut off at the same income level, leading to absurdly high implicit marginal tax rates. The examples I’ve seen have situations where earning $1,000 more income can make one ineligible for $10,000 in benefits from various programs. That’s an implicit marginal tax rate of 1000%, far higher than the tax rate paid by the highest of high earners! Continue reading A Basic Income Guarantee Can Work if it Replaces State Education and Medicine→
I’m in the second year of my PhD, and I’m working to develop a research program; hopefully one that gets me a finished dissertation as soon as possible.
I’m drawn towards studying education because (1) I have spent my entire life in schools and (2) schools are seriously, and obviously, messed up. The marginal benefit of an additional perspective on education could be very high if that perspective were to shape education reform in some way.
It’s a cliché to make fun of “soft” degrees, so I’m surprised there isn’t a large body of research on why people choose to pursue them anyways. However, there is a body of research on why people fail to treat education as an investment more generally, as detailed in the working paper “Behavioral Economics of Education: Progress and Possibilities” by Lavecchia, Liu, and Oreopoulos. To avoid typing out Lavecchia, Liu, and Oreopoulos many times, and to make it seem like I’m periodically pausing to laugh, I will refer to them as LOL.
LOL use the dichotomy of “system 1” versus “system 2” thinking. System 1 is the unconscious, mostly automatic part of our brains that says “Don’t get out of bed, it’s warm and nice here and getting to work on time isn’t so great anyways.” System 2 is the part that rationally deliberates our long-term choices and says “You need to get up and go to work because working yields the following long-term benefits: (1) wages, (2) the promise of future wages, (3)…” LOL include the obligatory footnote saying that neuroscientists dispute whether this is actually what the brain is doing, but go on using the dichotomy anyways because it’s an extremely useful way to organize our thinking about the brain even if that’s not how it literally works. Continue reading Thoughts on the Behavioural Economics of Education→
As a Canadian, it’s very strange hearing Americans talk about the Great Depression. The American public education system apparently has a monolithic view on the subject. Based purely on my interactions with people who have passed through that system, I imagine their kindergarten classes must be something like this:
TEACHER: Alright students, what’s 1 + 1?
TEACHER: What’s 2 + 2?
TEACHER: What do you call someone who doubts the efficacy of FDR’s policies in bringing an end to the Great Depression?
The Great Depression is a complex historical event, so the level of confidence I see from American laymen certainly makes it seem like they’ve been brainwashed from a young age. Maybe it’s just the sort of Americans who make internet comments.
If you believe that it is clearly and obviously true that (1) the New Deal ended the Great Depression or that (2) World War 2 ended the Great Depression, this article is for you. I’m not going to make a slam-dunk case against these notions; if you’re looking for one, you’ll need to read something far longer than a blog post. I recommend Robert Higgs or Bob Murphy. My goal here is to make the case that these ideas, far from being obvious, are actually very counter intuitive given the facts. Continue reading The Prima Facie Case that Great Depression Policy was Really Really Bad→
When I was young, I played a lot of Age of Empires. For those who are unfamiliar with the series, they are games where the player must direct a tiny civilization’s development. He begins with one building and only a few villagers. By right clicking on a villager, then left clicking on a tree, stone mine, gold mine, or animal, the player can direct the villager to gather wood, stone, gold, or meat. He can also direct villagers to make buildings. And with buildings, he can recruit more villagers or soldiers.
By directing every action of every person in his civilization, the player can eventually turn his tiny village into a sprawling city, clashing militarily with other players’ civilizations.
I think a game economy like that one could be a good teaching tool for young people. In the early stages of the game, centrally managing a few villagers works well. But as the civilization grows, the player’s attention becomes more stretched. It is common, in the game economy, for the player to discover a group of villagers clustered around a (now exhausted) mine or forest. The growing economy becomes ever more difficult to manage, and it becomes more difficult to coordinate the growing numbers of workers and soldiers. Continue reading Teaching Economics: Age of Empires and Central Planning→
A key difference between Austrian economics and the neoclassical-mathematical economics developed in the mid-twentieth century by Paul Samuelson and others is the assumption by the latter that people are essentially omniscient. What neoclassical economists call “rationality” effectively means omniscience. When the agents in neoclassical models face any uncertainty, the uncertainty is always fully understood in advance; for instance, a stock’s value tomorrow might be drawn from a normal distribution with a known mean and variance. Without the assumption of omniscience, the Austrian school faces the important question of how people can make economic decisions in a complex, uncertain world.
Ludwig von Mises’ answer (see his 1920 essay, Economic Calculation in the Socialist Commonwealth) was that capitalist entrepreneurs calculate in monetary terms. That is, they use the prices of the immediate past as their starting data, and attempt to direct factors of production in such a way as to maximize the spread between costs and revenues. If their predictions of price changes are good, they earn profits. If their predictions are bad, they earn losses. Thus, their direction of scarce resources is subject to immediate and consequential feedback allowing a selective process for only the best entrepreneurial forecasting methods. Without monetary exchange and prices, the problem of directing factors of production to their highest uses becomes intractable.
An interesting thing about Mises’ calculation argument is that it does not only relate to socialism, but to free, capitalist societies also. Mises states that, “Economic goods only have part in this system [of monetary calculation] in proportion to the extent to which they may be exchanged for money.” Thus, when a good cannot be exchanged for money, for any reason, it is subject to a Misesian calculation problem. Continue reading Economic Calculation and Education→
Today I will be dispensing life advice. There’s a certain type of person who will tell you that you should follow your passion regardless of money concerns; to do otherwise would be “selling out.” This is pretty terrible advice. If eating, sleeping, and going to the bathroom are not my passions, should I never do these things? What is it about money (or rather, all the things that exchange for money) that makes it unacceptable to include among one’s goals?
The big problem with this advice is that it is often given to young people. Young people have passions, but they can only be passionate about the things they have experienced at their young age. When I was young, I was passionate about painting. Now I am passionate about economics. If I had taken the oft-repeated advice to “follow my passion,” I would be struggling to make a living as an oil painter. Only by not following my passion was I able to discover a different (and much more remunerative) passion.
I was reading the comments on another blog, where I found someone complaining about Austrian (and Austrian-sympathizing) economists. This person’s undergraduate institution had a few Austrian (and Austrian-sympathizing) economists who would closely watch bright students (like vultures!), befriend them (how creepy!), help them to get TA-ships (oh no!), and invite them to private seminars where there would be uncritical readings of Hayek (the horror!). There were no similar opportunities offered by mainstream professors.
This person’s distaste for Austrians seems to have clouded his thinking. He thinks the Austrians were doing a bad thing, inducting people into some kind of cult. Really, all these Austrian economists were doing was mentoring students and being passionate about their field. The real complaint should be against every professor who doesn’t do these things! Continue reading Mainstream Economics has a PR Problem→
An opinion piece in the Harvard Crimson, written by one Sandra Y. L. Korn, is a work of such utter sophistry that the fact that it comes from the top academic institution on the globe is not the least bit surprising. Korn argues that Harvard should jettison academic freedom in favour of her concept of “justice.”
In its oft-cited Statement of Principles on Academic Freedom and Tenure, the American Association of University Professors declares that “Teachers are entitled to full freedom in research and in the publication of the results.” In principle, this policy seems sound: It would not do for academics to have their research restricted by the political whims of the moment.
Spot on, Sandra.
Yet the liberal obsession with “academic freedom” seems a bit misplaced to me. After all, no one ever has “full freedom” in research and publication. Which research proposals receive funding and what papers are accepted for publication are always contingent on political priorities. The words used to articulate a research question can have implications for its outcome. No academic question is ever “free” from political realities. If our university community opposes racism, sexism, and heterosexism, why should we put up with research that counters our goals simply in the name of “academic freedom”?
Instead, I would like to propose a more rigorous standard: one of “academic justice.” When an academic community observes research promoting or justifying oppression, it should ensure that this research does not continue. [links removed, bold added]
I liked it when she said that the policy of academic freedom was sound in principle. The logical next step would be to elaborate this principle and show why it does not apply. She seems to think it follows that, since total academic freedom in its most perfect form is unattainable, the principle should be jettisoned entirely. Continue reading Harvard No Longer Requires Critical Thinking Skills, Apparently→
Garrett M. Petersen's blog about markets, institutions, and ideas.