Wednesday, September 26, 2012

What is the new interest in complexity?

One thing that I have been wondering a lot about lately is the move towards more and more complex ways of doing things that should be relatively simple.  Consider a few examples:

  1. School choice and voucher systems.  This requires an informed parent to research options, see through marketing hype and balance factors like location versus performance.  How is this necessarily better than a system designed to just improve schools?
  2. Medicare advantage programs.  This requires older adults to balance complex features of different plans and try to ensure that their provider is going to treat them well at a point of great personal stress.  How is having the government or the courts acting as a post-hoc check better than just have a simple system of insurance to begin with?
  3. 401(k) and other defined contribution accounts.  Individual investors have enormous information deficits relative to instituitional investors.  Individual investors bear far higher levels of market risk and making the funds able to be withdrawn (even at a penalty) forces complex balancing decisions.  How is this better than an automatic pension plan like Social Security?
I totally understand that high information individuals may be able to optimize more clearly in a complex environment.  But the increase in transaction costs (needing to advertise, sorting through options) seems to suggest the median user will be worse off. 

Now this might be different if there was an open market in any of these examples.  But medicine is tightly regulated, we have laws saying that children must go to school, and anybody who was worked for an employer with a badly selected 401(k) knows that there is no free market alternative to shop your account to another employer.  It is not like a restaurant or a clothing store where the conditions for free markets will end up making it easy to find what you want.  But you can't switch health care providers or schools based on the sale of the week. 

So why do we want to make these things harder and harder to understand or engage with? 


  1. I think there's a tendency for naive analysts to plug in the best-possible numbers rather than thinking about what's likely.

    Driverless cars and congestion estimates come to mind.

  2. I heard Geoffrey Canada say something along the lines of charter schools are great because they can innovate and the ones that choose the best innovations will succeed and the ones that don't will fail.

    When I heard that I thought - that's great for all the kids in the charters that work but when a charter school is shut down because it's not working then it's the kids in the charter who have been given a failing education. Who picks up the cost of sorting out their education or are they just left to fend for themselves as best they can?

    Also, the best don't always survive - look at how microsoft won out with ms-DOS an inferior operating system and the vhs/beta wars for video tape recording.

  3. That is a good point. Schools don't have the flexibility to easy have students move in and out of the school. Mid-year transfers are famously rough on children. This friction should be part of any assessment.

  4. On point 1, two responses:

    1. The idea of imposing a "system designed to improve schools" is nice, but it ignores the interest-group nature of politics. To take a minor controversy, I'm convinced that the evidence for phonics-based reading instruction in early grades is fairly strong, but some people (even teachers) still disagree. Why would I ever think that my way of improving schools is guaranteed to emerge from the political process unscathed and be imposed on the very teachers who disagree?

    2. The more important argument for school choice is this: let a thousand flowers bloom. Different kids have different preferences in many ways: progressive vs. traditional pedagogy, curriculum such as a focus on the arts or sciences, size of school, number of extracurricular and sports offerings, religion, etc., etc., etc. In many ways, what one student experiences as an improvement will be experienced by another student as a curse. So why force everyone into the same mold?

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  6. @Stuart: The notion of letting a thousand flowers bloom is attractive at some levels. In general, I can see two major barriers.

    1) Current regulations. All students need to go to school so if the "let a thousand flowers bloom" approach leads to no schools in a particular neighborhood how do we handle this?

    It is true that children can be home schooled but they can't be left home alone before about 12, depending on the jurisdiction. If both parents work then this could be a major issue.

    These real geographical issues are why we regulate utiltiies as well.

    2) Fraud. Parents are unlikely to be experts on education. With other professionals (doctors, lawyers) we provide best practices and regulation to prevent them from fleecing unsuspecting patients.

    It'd be a complex system to do this for teachers.

    None of this is to say that letting a thousand flowers blood is necessarily the wrong approach. But it would require the state to rethink the way that it interacts with education and would require some tough thinking about things like location.

  7. Well, if you take it to the extreme, and give every kid money that follows him or her to any school -- then we could just look to how the Netherlands and Belgium have used exactly that system for several decades. Short of that, regulation isn't any mystery; we already have accreditation standards for private schools, and even in the northern European countries with complete voucher systems, there are government-run schools. So I'm not sure why we would worry that entire jurisdictions would somehow end up without a school.

  8. Though how many schools will find their way to the inner-city or rural America?