K12

This is not surprising:

Nearly 60 percent of its students are behind grade level in math. Nearly 50 percent trail in reading. A third do not graduate on time. And hundreds of children, from kindergartners to seniors, withdraw within months after they enroll.

By Wall Street standards, though, Agora is a remarkable success that has helped enrich K12 Inc., the publicly traded company that manages the school. And the entire enterprise is paid for by taxpayers.

Now, we've long been test score critics at OE. So I will accept the argument that test scores should not necessarily be the most important feature of a school. But if they are the motivation for shifting to private education then I'd at least like to see reasonable scores (after all, this is the reason for the existence of these options).

Nor is the fact that the schools are focusing on aggressive expansion reassuring:

Despite lower operating costs, the online companies collect nearly as much taxpayer money in some states as brick-and-mortar charter schools. In Pennsylvania, about 30,000 students are enrolled in online schools at an average cost of about $10,000 per student. The state auditor general, Jack Wagner, said that is double or more what it costs the companies to educate those children online.

“It’s extremely unfair for the taxpayer to be paying for additional expenses, such as advertising,” Mr. Wagner said. Much of the public money also goes toward lobbying state officials, an activity that Ronald J. Packard, chief executive of K12, has called a “core competency” of the company.

I think that it is concerning that a core competency of a large (and growing) private school is that it focuses on lobbying governments for money. If the main issue that we have with traditional public education is rent-seeking by teachers, how much worse is rent seeking by a corporation? After all, if teachers gain a small surplus per teacher that at least has a broad social impact. Clearly K12 has managed to avoid expensive teachers:

But online schools have negligible building costs and cheaper labor costs, partly because they pay teachers low wages, records and interviews show. Parents, called “learning coaches,” do much of the teaching, prompting critics to argue that states are essentially subsidizing home schooling.

At what point is the school simply letting the parent home school their children and accepting educational grant money for the purpose? This is a model that, I suspect, has a chance if and only if you have a stay at home parent that focuses on working with the child on education (or if sleep is an activity that you engage in only on weekends).

Now, I do not want to be a luddite. There may be a role for online education and this particular NY Times piece may not capture all of the nuances of K12 (the articles about traditional schools often has this issue as well). But this sort of business model has long been one of my major concerns about the push towards privatization of schools.

Smart comments from Matt Yglesias and Dana Goldstein are also worth reading.

Question about Airlines

Mark Thoma tweets:

MarkThoma Mark Thoma
Just once, I'd like to be able to get on the plane at the scheduled time, and make all my connections. Once doesn't seem to much to ask. Grr

I cannot agree more. Why is it so difficult for modern airlines to provide basic services? Why is the city bus more likely to be on schedule than Delta Airlines?

This week's appalling story of intellectual property abuse

Brought to us by Alex Tabarrok:

Prometheus gave man fire, thankfully he didn’t charge every time man lit a match. Prometheus Labs in contrast wants to charge patients for a rule that says when to increase or decrease a drug in response to a blood test. Quoting Tim Lee:

The patent does not cover the drug itself—that patent expired years ago—nor does it cover any specific machine or procedure for measuring the metabolite level. Rather, it covers the idea that particular levels of the chemical “indicate a need” to raise or lower the drug dosage.

Even this is not quite right for suppose a physician notes that the patient’s metabolites are within the range where a change in dosage is not necessary; although the physician takes no action she still has used the patent and thus must pay Prometheus Lab a fee or infringe.

Maybe the Republican primary is going just as we should expect

I don't mean that in a snarky way. This is a completely non-snide post. I was just thinking about how even a quick little model with a few fairly intuitive assumptions can fit seemingly chaotic data surprisingly well. This probably won't look much like the models political scientists use (they have expertise and real data and reputations to protect). I'm just playing around.

But it can be a useful thought experiment, trying to explain all of the major data points with one fairly simple theory. Compare that to this bit of analysis from Amity Shlaes:

The answer is that this election cycle is different. Voters want someone for president who is ready to sit down and rewrite Social Security in January 2013. And move on to Medicare repair the next month. A policy technician already familiar with the difference between defined benefits and premium supports before he gets to Washington. What voters remember about Newt was that some of his work laid the ground for balancing the budget. He was leaving the speaker's job by the time that happened, but that experience was key.

This theory might explain Gingrich's recent rise but it does a poor job with Bachmann and Perry and an absolutely terrible job with Cain. It's an explanation that covers a fraction of the data. Unfortunately, it's no worse than much of the analysis we've been seeing from professional political reporters and commentators.

Surely we can do better than that.

Let's say that voters assign their support based on which candidate gets the highest score on a formula that looks something like this (assume each term has a coefficient and that those coefficients vary from voter to voter):

Score = Desirability + Electability(Desirability)

Where desirability is how much you would like to see that candidate as president and electability is roughly analogous to the candidate's perceived likelihood of making it through the primary and the general election.

Now let's make a few relatively defensible assumptions about electability:

electability is more or less a zero sum game;

it is also something like Keynes' beauty contest, an iterative process with everyone trying to figure out who everyone else is going to pick and throwing their support to the leading acceptable candidate;

desirability tends to be more stable than electability.

I almost added a third assumption that electability has momentum, but I think that follows from the iterative aspect.

What can we expect given these assumptions?

For starters, there are two candidates who should post very stable poll numbers though for very different reasons: Romney and Paul. Romney has consistently been seen as number one in general electability so GOP voters who find him acceptable will tend strongly to list him as their first choice even if they may not consider him the most desirable. While Romney's support comes mostly from the second term, Paul's comes almost entirely from the first. Virtually no one sees Paul as the most electable candidate in the field, but his supporters really, really like him.

It's with the rest, though, that the properties of the model start to do some interesting things. Since the most electable candidate is not acceptable to a large segment of the party faithful, perhaps even a majority, a great deal of support is going to go to the number two slot. If there were a clear ranking with a strong second place, this would not be a big deal, but this is a weak field with a relatively small spread in general electability. The result is a primary that's unstable and susceptible to noise.

Think about it this way: let's say the top non-Romney has a twelve percent perceived chance of getting to the White House, the second has eleven and the third has ten. Any number of trivial things can cause a three point shift which can easily cause first and third to exchange places. Suddenly the candidate who was polling at seven is breaking thirty and the pundits are scrambling to come up with an explanation that doesn't sound quite so much like guessing.

What the zero property and convergence can't explain, momentum does a pretty good job with. Take Perry. He came in at the last minute, seemingly had the election sewn up then dropped like a stone. Conventional wisdom usually ascribes this to bad debate performances and an unpopular stand on immigration but primary voters are traditionally pretty forgiving toward bad debates (remember Bush's Dean Acheson moment?) and most of the people who strongly disagreed with Perry's immigration stand already knew about it.

How about this for another explanation? Like most late entries, Perry was a Rorschach candidate and like most late entries, as the blanks were filled in Perry's standing dropped. The result was a downward momentum which Perry accelerated with a series of small but badly timed missteps. Viewed in this context, the immigration statement takes on an entirely different significance. It didn't have to lower Perry's desirability in order to hurt him in the polls; instead, it could have hurt his perceived electability by reminding people who weren't following immigration that closely that Perry had taken positions that other Republicans would object to.

Of course, showing how a model might possibly explain something doesn't prove anything, but it can make for an interesting thought experiment and it does, I hope, at least make a few points, like:

1. Sometimes a simple model can account for some complex and chaotic behavior;

2. Model structure matters. D + ED gives completely different results than D + E;

3. Things like momentum, zero sum constraints, convergence, and shifting to and from ordinal data can have some surprising implications, particularly when;

4. Your data hits some new extreme.

[For a look at what a real analysis of what's driving the poll numbers, you know where to go.]

Model assumptions

Felix Salmon and Matt Yglesias:

The entire debate in congress over taxes is that President Obama wants to restore the top marginal rate to the level that Dimon thinks it already is. Meanwhile, Dimon doesn’t even know what tax rate he pays.

I think that this quote is really, really important. Classical economic models presume that individuals act to maximize their utility. But real people often have limitations, including lack of perfect information about what costs really are. I would be surprised if Mark did not have follow-up thoughts.

But the key point is that if these assumptions about informed persons can't hold for the CEO of JP Morgan Chase (whom you would assume is numerate) then how likely is that these models are going to be good at prediction? After all, we presume Jamie Dimon is maximizing his utility for a 39.6% marginal tax rate; so a change in taxes to what he currently thinks that they already are would alter his incentives how?

Quote of the day

However, one view of pure research is that it is research that has not yet found application; pure research is a long-term investment just as applied research is a short-term investment.

M.F. Goodchild
"Geographical Information Science"

Defined Contribution Health Insurance

Via Austin Frakt, there is an interesting piece on defined contribution health insurance. It is an interesting idea and likely not a bad policy direction. I know I would contribute more to my health saving account if the balance could roll over. But, as things are currently set up, it is impossible to plan against a major medical event.

I think that it might be useful to consider this model with some tweaks. Essential to making it work is to include catastrophic event coverage (major medical insurance). Patients will not go out of their way to have heart attacks, stroke, and major cancers just to take advantage of their health care insurance. These events are what really create the "risk" (and thus insurance) part of health care.

Otherwise, it is actually plausible for people to budget for health care expenses and tax sheltered accounts might be a great transition move.

Eating Eric Roberts

I've spent half my life in small town and rural America, so I have a pretty good feel for just how big a role the postal service plays in many people's lives. And it's not just in the country. There are millions of others who depend on the mail, housebound seniors, the unbanked, people left behind by the internet age. (To say nothing of the businesses that rely on the service and the benefit we all get as a society from being able to get documents and packages to anyone in this country.)

I don't see a lot of concern about these people, not from the pundits and certainly not from Patrick Donahoe, the U.S. Postmaster General, who seems to view himself as a consultant brought in to smoothly dismantle the institution rather than a leader appointed to represent its interests.

And (because my mind works in strange ways) that got me thinking about the South Park episode where members of the town are trapped by a storm and decide to eat visiting celebrity Eric Roberts. What makes the bit so inspired is how quickly and casually the townspeople descend to the last resort, arguing that they could be there for hours and that some of them had skipped breakfast.

I see similar reasoning in this debate. We have jumped to the extreme measures (having mass layoffs, slowing down first class mail, closing small town post offices) when there are simpler, far less painful steps that can usually be achieved just by loosening some of the highly restrictive rules that hobble the USPS:

Allow pricing a little closer to what the market would bear. Even after a twenty percent jump, postal rates would still be a good deal;

(From Andrew Gelman) Round prices up to the nearest round number (would anyone really mind paying forty-five or even fifty cents instead of the current forty-four?);

(From Felix Salmon) Allow the post office to offer a wider range of products and services;

End Saturday delivery (not my favorite, but less drastic than much of what's been suggested);

And finally, remind congress that since they passed all these rules effectively preventing the service from turning a profit and storing money away in good times they should take responsibility when times turn bad.

I realize that at some point drastic steps may be necessary, but I don't see why they always have to be our default option.

Your tuition dollars at work

Remember, when we underwrite student loans for private schools, we subsidize this:

SIEGEL: So, who would be the highest paying university president who remained in place?

STRIPLING: That would be Nicholas Zeppos, who's the president of Vanderbilt University. He collected just under $1.9 million for the 2009 calendar year.

SIEGEL: And there's another measure used, you say, which is this year you also compared university presidents' pay to the pay of professors on their campuses. What did you find?

STRIPLING: Well, we found that, by and large, most presidents make about three and a half times that of full professors on their campus. At the same time, we found six institutions where presidents made more than 10 times that of professors on their campus. The biggest disparity was at Stevenson University in Maryland, where Kevin Manning made 16 times that of professors on this campus.

A big part of that was a deferred compensation payout that he received in 2009. But, at the same time, even if you looked at him in the year prior, he still made seven times that of professors on his campus, which was considerably greater than the median.

Agendas

I think that this is correct:

Less honest single-payer advocates ignore the issue entirely. More honest and thoughtful single-payer advocates sometimes address it by talking about central planning, global budgets, and transition away from any fee-for-service care. They also talk about moving to an all-non-profit-facility delivery system. And if you think single-payer is unpopular now, wait until people start hearing about those things.

I get why many on the right are uncomfortable with this. There are days I am, too. But I’ll concede one point: if Medicare is so awesome for people age 65 and up, why is it socialism for someone who’s 64?

I, of course, like the plan of going for central planning, global budgets with competitions between treatments based on QALY's, reducing or eliminating fee for service, and see all non-profits in medicine as a great idea. It would do wonders for efficiency and make medical care widely available. It would also do very bad things to people currently invested in health care.

Trying to find a way to compromise on this front is a hard issue. Unlike Dr. Carroll, I think a discussion of end state is important even if it is not a politically feasible option (as it is good to have the end state out and in the public debate). We could lose the debate, but better to lose a debate (this is a democracy and not all policy ideas are going to be implemented) than to try (or appear to try) to sneak an long term agenda in under the radar.

That way there can be an evidence based debate on the issues. So I think that this is a good focus point for those of us thinking single payer -- we need to really lay our cards on the table and explain the totality of why we think that it would be an objective improvement. That way we present a hypothesis against which evidence can be applied and political will gauged.

Cascading failure

"A cascading failure is a failure in a system of interconnected parts in which the failure of a part can trigger the failure of successive parts."

Wikipedia

Here's Paul Krugman again railing against the cult of balance:

All indications are, however, that Campaign 2012 will make Campaign 2000 look like a model of truthfulness. And all indications are that the press won’t know what to do — or, worse, that they will know what to do, which is act as stenographers and refuse to tell readers and listeners when candidates lie. Because to do otherwise when the parties aren’t equally at fault — and they won’t be — would be “biased”.

This will be true even of those news organizations specifically charged with fact-checking. Yes, they’ll call out some lies — but they’ll also claim that some perfectly reasonable statements are lies, in order to keep their precious balance. This is already happening: as Igor Volsky points out, one of the finalists for Politifact’s Lie of the Year is a Democratic claim — that Republicans want to abolish Medicare — that happens to be entirely true.

While Bruce Bartlett discusses how reliable sources of information have been dismantled because they've been politically inconvenient:

In addition to decimating committee budgets, he also abolished two really useful Congressional agencies, the Office of Technology Assessment and the Advisory Commission on Intergovernmental Relations. The former brought high-level scientific expertise to bear on legislative issues and the latter gave state and local governments an important voice in Congressional deliberations.

The amount of money involved was trivial even in terms of Congress’s budget. Mr. Gingrich’s real purpose was to centralize power in the speaker’s office, which was staffed with young right-wing zealots who followed his orders without question. Lacking the staff resources to challenge Mr. Gingrich, the committees could offer no resistance and his agenda was simply rubber-stamped.

Unfortunately, Gingrichism lives on. Republican Congressional leaders continually criticize every Congressional agency that stands in their way. In addition to the C.B.O., one often hears attacks on the Congressional Research Service, the Joint Committee on Taxation and the Government Accountability Office.

Lately, the G.A.O. has been the prime target. Appropriators are cutting its budget by $42 million, forcing furloughs and cutbacks in investigations that identify billions of dollars in savings yearly. So misguided is this effort that Senator Tom Coburn, Republican of Oklahoma and one of the most conservative members of Congress, came to the agency’s defense.

And Andrew Gelman (and countless others) have pointed out numerous cases that suggest there is no real consequence when a journalist doesn't bother to get even the most basic and easily-checked facts right.

I don't want to push this analogy too far -- there are some important dissimilarities -- but all sorts of failures have grown more common in what you might call our feedback system, the channels we use to get the information we, as a democracy, need to make informed collective decisions. Worse yet, these failures have the potential to trigger and intensify each other, leading to catastrophic results.

1. Reliable information sources like the CBO are undermined;

2. An increasing amount of our information comes from unreliable subsidized sources like Heritage;

3. Journalists suffer no penalty for publishing inaccurate information;

4. Journalists also fashion for themselves an incredibly self-serving ethical rule that lets them, in the name of balance, avoid the consequences that would have to be faced if they honestly assigned responsibility for screw-ups;

5. A growing tendency to converge on a narrative makes the media easier to manipulate.

All these things are serious. All are getting worse. And if we don't do something about them, I think we're all pretty much screwed.

p.s. I added a link to number 4

What fictional character has been worst served by his or her movie adaptation?

Here's my nominee.

Student Loans: a continuing series

This is a really depressing story about how devastating referrals are in modern student loans:

Notice anything?

Original balance: $37,099.00

Current balance: $35, 908. 41

I’ve been in repayment since 2006. I had to do one deferral – as to not default. I signed up for a program to minimize my payments that, I was told, was beneficial to someone who is going through financial difficulties – yet I regularly made payments over the minimum payment.

Because Sallie Mae helpfully provides a payment history, I was able to whip out a calculator and count up the exact amount I have paid over these last few years.

That amount is $23, 449.65

The penalties are pretty spectacular for needing to defer the loans. After 5 years of repayment, Ms. Antonova paid 50% of the starting balance of the loans. Presuming that she is being honest, the effective interest rate on this loan beats that of unsecured debt. Is this really a sustainable pattern? Do the "no bankruptcy provisions" not reduce the risk of the debt and suggest more moderate effective interest rates.

If we consider this in light of the "risk-free" borrowing rate (TIPS are now 0.2%) then an inflation adjusted loan at such rates should be 50% gone already. Why are rates not reflecting the new reality of how hard it is to be forgiven your student loans?

Also germane to Mark's recent post, there is an ant/grasshopper dichotomy here as well:

We have a myth of the “deserving poor” in our culture – it’s similar to the myth of the “good rape victim.” But like most people living real lives, I have my financial ups and downs. I’ve all sorts of things these last few years: walking people’s dogs for grocery money, sitting in a cafe in Chelsea, drinking a glass of moderately priced champagne and asking the readers of this blog for Paypal donations.

As a writer and journalist, I supplement my income with freelance writing gigs, much like my director husband supplements his with acting gigs. All of that together makes up our family budget. When the gigs dry up, so does the money going towards my loans. We’ve been chasing more work, but as the economy continues to suffer, and the cost of living goes up while jobs evaporate, people like us end up competing for jobs that barely exist.

Now it is true that some people manage to graduate with degrees and without debts. In many cases, they have families who made huge sacrifices in order to make this happen -- they feel like they avoided a debt trap through virtue. But the plain truth is that a lot of young Americans can pick between college (and bankruptcy proof, high interest debt) or questions about "why didn't you go to college"?

If we walked back and asked if education is a public good, that would be a good step. I don't want to spur a false dichotomy, but we have the highest rate of incarceration in the world in the United States. That isn't free, either. Are we sure that we have our priorities correct?

h/t: Erik Loomis

I happen to like handles on my coffee cups

Other than that, though, I pretty much agreed with everything Thomas Hayden had to say in this interview about 'crap technology,' devices with "no cachet but all the functionality you'll need."

And yes, I listened to the interview on a Coby media player. It's more than a year old, cost me twenty-four bucks and I also watch videos on it when I'm at the gym.

More "moral" economics via Chait

While we're on the subject...

One of the really insidious things about the ant-and-the-grasshopper view of the European crisis is the way that the conflicting facts have been revised and the revisions have gone directly into the conventional wisdom. Jonathan Chait has a recent example:

David Brooks today devotes his column on Europe to the familiar conservative morality tale, in which the European countries in trouble are paying the price for their slothful, profligate ways:

Over the past few decades, several European nations, like Germany and the Netherlands, have played by the rules and practiced good governance. They have lived within their means, undertaken painful reforms, enhanced their competitiveness and reinforced good values. Now they are being brutally browbeaten for not wanting to bail out nations like Greece, Italy and Spain, which did not do these things, which instead borrowed huge amounts of money that they are choosing not to repay.

Does anybody else on the Times op-ed page care to rebut this? Perhaps somebody who has glanced at the relevant data? Yes, you there, the bearded man with the Nobel Prize in economics:

How did things go so wrong? The answer you hear all the time is that the euro crisis was caused by fiscal irresponsibility. Turn on your TV and you’re very likely to find some pundit declaring that if America doesn’t slash spending we’ll end up like Greece. Greeeeeece!

But the truth is nearly the opposite. …

Only Greece ran large budget deficits during the good years; Spain actually had a surplus on the eve of the crisis.

On his blog, Krugman also has a chart showing that Italy and Spain both had shrinking debts as a percentage of GDP in the dozen years before the crisis.

Perhaps the most remarkable thing about this is the fact that Krugman and numerous other economists have been trying to correct these mistakes for a long time, often in prominent forums, and yet even normally reliable sources like Marketplace nonchalantly refer to the profligacy of Spain and Ireland alnog with that of Greece as established facts.

It's funny. In a debate that focuses so much on virtue and personal responsibility, so little attention is given to dishonest arguments and professional negligence.