Minimum Wage Thoughts

An interesting point from Worthwhile Canadian Initiative:

That's not to suggest that the minimum wage is necessarily bad for the low-skilled. I suspect most low-skilled workers would rather live in a world with a $10.25/hr minimum wage where it's harder to find worker than a $6.85/hr one where it is easier. But given the possible alternatives (technology, outsource, do without) a higher minimum wage does reduce low-skill employment.

I think that this is a very perceptive point. I have often heard that the minimum wage hurts the working poor because it removes their ability to lower their wage rate to get jobs (by biding under the cost of current employees). But it is an open question whether the cost in employment rates is an aggregate harm to low skilled workers. It might very well be the case that the loss in jobs is more than offset by the higher wages; especially given the low bargaining power of those with few job skills.

I think it is worth reflecting on whether the net impact of minimum wage laws might be positive despite the decrease in net employment among these workers.

Settling in

So how long does it take to settle into a new location? I have often figured that it would take about two years to really fit into a new job or a new place. It's funny, I have lived in eight different cities as an adult and i must admit that I have had a very different experience depending on the city. But I wonder how much fitting in can be a self-fulfilling prophecy? If you think it is going badly then do you change how you act to make it harder for things to work out?

Just some thoughts on the cusp of the new year . . .

Warzones and medical research

There was a fascinating story on today's All Things Considered about the ways that our experiences with the Afghanistan and Iraq wars have added to our understanding of emergency medicine:

The medevac choppers land and then taxi over to the gate just outside the emergency room, where gurneys are waiting. Nightfall has brought a bone-chilling wind, and a gang of nurses and orderlies rushes four patients into the warmth of the ER.

It's more than warm inside. In fact it's 100 degrees. It's the first clue that this hospital — the Joint Theater Hospital at Afghanistan's Bagram Air Field — is a little different. Through years of war, combat surgeons have learned that hypothermia is a big risk in patients with significant blood loss. Nine years of conflict in Iraq and Afghanistan have brought some grim benefits: a new wealth of knowledge about treating war wounds.

"At the beginning of this conflict, we were taking the best trauma medicine from the civilian sector, and we brought it to Iraq and Afghanistan," says U.S. Air Force Col. Chris Benjamin, the hospital commander. He says now his doctors tell him it's the other way around.

This got me thinking about another story I heard on the same public radio station last night, the subject of my previous post. In it Steve Levitt said:

One of the easiest ways to differentiate an economist from almost anyone else in society is to test them with repugnant ideas. Because economists, either by birth or by training, have their mind open, or skewed in just such a way that instead of thinking about whether something is right or wrong, they think about it in terms of whether it's efficient, whether it makes sense.

In health and medicine, researchers (some of whom are, admittedly, economists) don't seem to have any trouble getting past the repugnance of ideas like using controversial wars as data gathering opportunities. It's true that these researchers pass up some data that is considered ethically tainted but this has nothing to do with the mentality of the researchers and everything to do with a set of ethical rules that many researchers consider to be overly restrictive and due for an overhaul.

Given these and other counterexamples, Dr. Levitt's quote may, more than anything else, tell us something about the way many economists see themselves.

Freakonomics: disagreeing about why we disagree

On today's Marketplace, Steve Levitt explains why he thinks many people see the world differently than he does:

One of the easiest ways to differentiate an economist from almost anyone else in society is to test them with repugnant ideas. Because economists, either by birth or by training, have their mind open, or skewed in just such a way that instead of thinking about whether something is right or wrong, they think about it in terms of whether it's efficient, whether it makes sense. And many of the things that are most repugnant are the things which are indeed quite efficient, but for other reasons -- subtle reasons, sometimes, reasons that are hard for people to understand -- are completely and utterly unacceptable.

There are few thoughts more comforting than the idea that the people who disagree with you are overly emotional and are not thinking things through. We've all told ourselves something along these lines from time to time.

But can economists really make special claim to "whether [ideas] makes sense"? Particularly a Chicago School economist who has shown a strong inclination toward the kind of idealized models that have great aesthetic appeal but mixed track records? (This is the same intellectual movement that gave us rational addiction.)

When I disagree with Dr. Levitt, it's for one of the following reasons:

I question his analyses;

I question his assumptions;

I question the validity of his models.

Steve Levitt is a smart guy who has interesting ideas, but a number of intelligent, clear-headed individuals often disagree with him. Some of them are even economists.

Not a big deal but...

I generally set up tables so that time goes forward from left to right. Does this bother anyone else?



From CNN via Yglesias via DeLong.

"When $250,000 Equals $315,000"

Good post by David Leonhardt which I've been meaning to link to since it came out (the thing I'll miss most about the holidays is the excuse for procrastination):

There are two aspects of the high-end cuts that often get lost in the public discussion. The first is households with more than $250,000 a year in adjusted gross income would still get a tax cut — on their first $250,000 of such income. On average, this tax cut would equal about $6,500 a year, regardless of whether a household had $250,000 in adjusted gross income or $1 million (or much more) in adjusted gross income. If all the Bush tax cuts are extended, by contrast, households making at least $1 million a year would receive an average annual tax cut of $104,000.

The second issue is that earning $250,000 in adjustable gross income is different from earning $250,000 in total income. High-income households tend to take a significant number of deductions. At our request, Roberton Williams at the Tax Policy Center analyzed the total income of households with $240,000 to $260,000 a year in adjusted gross income. On average, they made $315,000 in adjusted gross income, including $32,000 in capital gains and dividends.

So when you hear talk about taxes on people makes at least $250,000 a year, it really tends to means taxes on income above $315,000 a year.

We have seen numerous pieces telling us how difficult it is to make ends meet on a quarter mil (see Brad DeLong for the latest amusing example). Perhaps when you get closer to a third of a million, life is a bit easier.

"Fixing the economy the scientific way"

Recommended with reservations, this op-ed from the LA Times is worth a read.

Articles that talk about the huge economic pay-offs of scientific research often make me nervous, not because I disagree with the fundamental thesis but because I'm afraid we might make the war-on-cancer mistake, promising an overly specific result in an unrealistic time frame. I also worry about encouraging commentators who argue that we shouldn't bother taking even small steps to address looming problems because some new technology invariably pop up and solve everything.

Take this passage:

Health economists and demographers, surveying the steady aging of the U.S. population, are predicting a dramatic rise in the cost of dealing with neurodegenerative diseases such as Alzheimer's, which already accounts for $172 billion in total spending annually. That number is projected to climb to more than $1 trillion by 2050 as legions of baby boomers reach the age of onset and the population generally ages. Meanwhile, our annual federal Medicare expenditure on Alzheimer's is projected to increase from $88 billion today to $627 billion, far exceeding the current total Medicare budget (about $468 billion this year).

There's just one hope here: scientific advances that will slow the progression of Alzheimer's disease and ultimately uncover a cure. But, ironically, the prospects for scientists who seek federal dollars to study the disease are among the worst in the entire government science infrastructure. The National Institute on Aging, which supports most of this work, is now turning down more than 90% of scientifically meritorious research grant proposals due to an inability to finance them.

Is Alzheimer's research a good use of our money? Almost certainly, but that doesn't mean that these advances will come through or that, if they do, they will arrive in the time to help with the budget problems associated with baby boomers.

Of course, the expected value of this kind of research is very good, particularly when you add in the possibility of an advance in a field that has nothing to do with Alzheimer's. Remember that one of the most profitable drugs in recent memory (Viagra) was originally developed to treat hypertension rather than erectile dysfunction.

Complex Constructs

Andrew Gelman has a very interesting discussion about whether happiness is a U-shaped curve in relation to age. What I found most interesting is how people focused on the "interesting conclusion" (the U-shape) even when there was a broad selection of curves to consider:

At the very least, the pattern does not seem to be as clear as implied from some media reports. (Even a glance at the paper by Stone, Schwartz, Broderick, and Deaton, which is the source of the top graph above, reveals a bunch of graphs, only some of which are U-shaped.)

But what I found the most interesting is that the sub-graphs are on different elements of "well being" (stress, worry,enjoyment happiness, sadness, anger). I wonder if the higher well being among older adults is, in some sense, very different than that of younger adults. Less stress and worry may contribute to increased (overall well being) but it might be a very different positive state than one created by the limitless potential of youth.

So I suppose I wonder if representing a complex vector (as well being has many factors that contribute to it) as a scalar (singl question) might not be eliminating the most useful sources of variability? Even if this approach is the standard in the field, it does not mean that we can't benefit from seeking a more complicated understanding of the phenomenon. I think that Andrew Gelman is on the right track in trying to really understand this complicated (and interesting) relation.

A Quick Christmas Wish

I am hoping that all of you have a prosperous new year, filled with good health and some form of improvement in all aspects of your life.

Merry Christmas

A short letter to James B. Patterson

Dear Mr. Patterson,

I refuse to pick up any book that promotes itself using the word 'unputdownable.'

Sincerely,
M. Palko

If you only read one really long economics lecture this holiday...

Delong, again:

Alexander Hamilton and the Origins of the National Debt: Back in the early 1790s, the national debt was close to 40% of annual GDP. It was close to 40% because the first Treasury Secretary, Alexander Hamilton, thought it was a good idea to make it close to 40%. He convinced congress to let him go to the states and say:

You know all that money you spent winning us our independence from Britain by raising armies during the Revolutionary War? The federal government is going to pay you back for all of that. We in the federal government are going to assume your Revolutionary War debts, and pay off all the bonds you issued at full face value.

Alexander Hamilton did this for three reasons. One was he had a bunch of friends who were financiers in New York. Once they got wind of how he was thinking they had the opportunity to buy up pieces of the debt from the merchants, the soldiers, and the others to whom the government owed money--to say:

You don't think New Jersey will ever pay off that piece of paper, do you? I'm willing to gamble that they will eventually pay something--how about you trade it to me for 40 cents? You get the cash, I take the risk, it is a good deal for both of us.

Then Alexander Hamilton announces his debt assumption plan. New York financiers who understand how Hamilton thinks make an awful lot of money. And they are grateful.

That, however, was only a minor reason.

One major reason was that Alexander Hamilton saw that the United States was then a relatively small country in a world dominated by two super powers, Britain and France. Both Britain and France had ocean-spanning ambitions and blue water navies. Hamilton thought it likely that we would at some time in the future get into a big war with either Britain or France. And he wanted to make sure that if we did get into a big war that the federal government would be able to borrow money in order to fight it effectively. Moreover, even if we did not get into a big war a U.S. federal government that could not borrow--that had no debt capacity--would be weak. Both France and Britain would both notice that we were weak, and they would steal our stuff, press our sailors and make them man their navies, et cetera et cetera. Thus Hamilton thought it was important for the federal government to start its existence by building up its debt capacity. And what better way to convince investors that the federal government would pay off its debts in the future than for it to pay off the debts of the United States incurred during the Revolutionary War--even or perhaps especially if those debts had not been incurred by the current federal government?

The most important reason, however, was that Alexander Hamilton was Secretary of the Treasury in a country where the rich were at best uneasy about the revolution and independence. Of America's upper class as it stood in 1775, full half of them were gone: had fled to Britain or Canada during the Revolutionary War. Those who remained remembered that back before 1775 the British monarch had protected property, that the British army and navy had protected them against deprivations of all kinds, that it was quite clear who the police worked for. Now you have a republic with a much broader electorate. Might politicians run on a platform of soaking the rich and redistributing wealth to the poor? Thus the rich people were nervous--and at least thinking about how maybe it would be good if the British came back and ruled again.

This was where Alexander Hamilton had his good idea. Suppose, he thought, he could set things up so that the rich owned a lot of U.S. government bonds. Then if the British returned--well, the British were not going to pay off the Revolutionary War debt of the United States of America under any circumstances. Having a national debt was a way to bind the United States rich to the country--giving them a stake in the new republic's survival. And by large it worked: the national debt was a national blessing.

Definitely worth reading the whole thing.

The Peacock's Tail -- Analogy of the week from Brad DeLong

From an excellent post on the growth of financial services:

The obverse of that fall is the rise of a peculiar piece of the service sector: the growth of finance, insurance, and real estate transactions (i.e., the paper shuffling and the exchanging, not the construction). It was supposed to be the high-productivity sector of the future. It has turned out to be the equivalent of a peacock's tail--damnably awkward and reducing your mobility and survival characteristics, but fascinating to the peahen, for a while at least.

"Some of us are illegal, and some are not wanted"

There's a tendency to treat certain ideas and attitudes (particularly liberal ones) as modern inventions, usually going back no further than forty or fifty years, but if you do a little digging, you will inevitably find someone (albeit, in this case, someone on the far left) who was expressing these ideas decades (in this case, 1948) or even centuries ago (thanks to Brad DeLong for the Jefferson letter)



Plane Wreck At Los Gatos by Woody Guthrie

The crops are all in and the peaches are rott'ning,
The oranges piled in their creosote dumps;
They're flying 'em back to the Mexican border
To pay all their money to wade back again

Goodbye to my Juan, goodbye, Rosalita,
Adios mis amigos, Jesus y Maria;
You won't have your names when you ride the big airplane,
All they will call you will be "deportees"

My father's own father, he waded that river,
They took all the money he made in his life;
My brothers and sisters come working the fruit trees,
And they rode the truck till they took down and died.

Some of us are illegal, and some are not wanted,
Our work contract's out and we have to move on;
Six hundred miles to that Mexican border,
They chase us like outlaws, like rustlers, like thieves.

We died in your hills, we died in your deserts,
We died in your valleys and died on your plains.
We died 'neath your trees and we died in your bushes,
Both sides of the river, we died just the same.

The sky plane caught fire over Los Gatos Canyon,
A fireball of lightning, and shook all our hills,
Who are all these friends, all scattered like dry leaves?
The radio says, "They are just deportees"

Is this the best way we can grow our big orchards?
Is this the best way we can grow our good fruit?
To fall like dry leaves to rot on my topsoil
And be called by no name except "deportees"?

And bonus stat-nerd points for the title

This New Republic article by Ed Kilgore is a good (if troubling) read and it's an excellent complement to Joseph's earlier post on government services in Washington (the state, not the district).

More on Jump$tart

From an email from Frances Woolley:

Mark: "There are no questions that refer to charts or tables though the ability to read both is an essential part of financial literacy." This is a really good point. I also very much like your point about question 24, with its highly dubious generalization from the general to the particular.

In many ways, teaching people what they don't know, and the types of systematic mistakes they are likely to know, is probably as valuable for financial literacy as anything. For example, when dieting, knowing about standard psychological biases, e.g. that people eat less when they eat from a small plate, more from a large one, helps a person trick herself into eating less - and that's more help than being told that celery is less fattening than cookies.

It's unfortunate in many ways that the Jump$tart has so many flaws of this kind, because it could be really valuable.

If we actually care about financial literacy, we ought to commission a decent test.

Washington Ferries

There was a recent article in the Seattle Times that was quite interesting. It was discussing the consequences of anti-tax initiatives in the state of Washington on government services. In particular, the recent Initiative 1053 means that the state can no longer implement a planned increase in ferry fees. Of course, the alternative (at this point) is cancelling ferry runs.

The reaction of the local representatives of one of the hardest hit communities was instructive:

Yet the first people to squawk about the route cuts and fare hikes were a couple of no-tax Republicans, from Whidbey Island, state Reps. Barbara Bailey and Norma Smith. They pronounced the cuts unfair and "devastating."

What is odd about this case is that there really is a disconnect with reality here. Could we easily imagine telling a private business that it was no longer permitted to raise fares to meet expenses? Or at least consider a business that we wanted to keep around. Now, there is some government subsidy here (clearly to make sure that there is reliable service) – this is not normally considered to be an issue given that transportation networks make commerce possible (imagine not having roads or only privately owned roads). But here the people of the state have decided to cut both the government subsidy (via a previous initiative) and the ability to charge users market rates (via the current initiative).

At some point the result looks awful silly . . .

Toys for Tots

A good Christmas can do a lot to take the edge off of a bad year both for children and their parents (and a lot of families are having a bad year). It's not too late to pick up a few toys, drop them by the fire station and make some people feel good about themselves during what can be one of the toughest times of the year.

If you're new to the Toys-for-Tots concept, here are the rules I normally use when shopping:

The gifts should be nice enough to sit alone under a tree. The child who gets nothing else should still feel that he or she had a special Christmas. A large stuffed animal, a big metal truck, a large can of Legos with enough pieces to keep up with an active imagination. You can get any of these for around twenty or twenty-five bucks at Target;

Shop smart. The better the deals the more toys can go in your cart;

No batteries. (I'm a strong believer in kid power);

Speaking of kid power, it's impossible to be sedentary while playing with a basketball;

No toys that need lots of accessories;

For games, you're generally better off going with a classic;

No movie or TV show tie-ins. (This one's kind of a personal quirk and I will make some exceptions like Sesame Street);

Look for something durable. These will have to last;

For smaller children, you really can't beat Fisher Price and PlaySkool. Both companies have mastered the art of coming up with cleverly designed toys that children love and that will stand up to generations of energetic and creative play;

'Confidence' and 'Rationality'

This post by Andrew Gelman suggests replacing "confidence interval" with "uncertainty interval" based in part on the "awkwardness of explaining that confidence intervals are big in noisy situations where you have less confidence, and confidence intervals are small when you have more confidence."

At the risk of putting words into Dr. Gelman's mouth, his concern is partly about the confusion that often comes from assigning common words specific technical meanings that are subtly different than their common usage. 'Confidence' here doesn't quite mean what people think it means.

One way of addressing that concern is finding new terms that don't have the same potential for confusion. Another is finding better ways of explaining the distinction. But the very fact that this is a concern illustrates an important difference between statisticians and economists.

Both statisticians and economists take common words and assign them specialized meanings. Of course, this is a reasonable, even necessary, process. As thinking in a field becomes more precise, language has to follow suit, which is why you can find a similar process in many other disciplines, but the difference in attitudes toward refined words seems particularly marked in these two.

Based on anecdotal but extensive evidence, statisticians (and I'm definitely guilty of this) constantly, almost compulsively, stop to point out that what we said isn't what you think we said. This is especially true for 'significance,' which often comes with a brief (and unwelcome) lecture on p-value and types of error. This is part of the culture of statistics. We are taught early and repeatedly that the distinctions we are making are important and need to be spelled out explicitly.

Compare this to the way economists (particularly a freshwater economists) tend to use terms like 'rational.' When economists say an actor is rational, they mean that this actor's behavior can be modeled using a simple but highly restrictive set of assumptions. Many behaviors that qualify as rational in the common sense of the term fail to meet these assumptions while more than a few behaviors that do qualify would strike most people as irrational.

But unlike statisticians, economists generally don't feel compelled to spell out these distinctions. You will often see economists using phrases like "Are people rational?" These phrases are occasionally followed by 'in the economics sense,' but they are seldom accompanied by an explanation of just how narrow this sense is.

When an economist says "people are rational" or (Steven Levitt's preferred variation) "people respond to incentives," most listeners tend to take away the impression that they mean "people act in ways that are generally considered rational" or "incentives can change the way people behave." These latter statements are completely reasonable. Most of us would agree with them. They are not, however, what the economist meant.

Wall Street Bonuses and Motivation

Felix Salmon links to a Washington Post article about large “wall street” bonuses:

Fortunately, there were many happy students - and the happiest were by no means the best paid. The most important factor behind job satisfaction was how supervisors handled performance appraisals. Bosses who took the time to give real feedback had happy employees. Those who blew it off had resentful and confused workers.

"Given that junior employees were spending 90 hours per week at work," one student wrote, "we all wanted to be recognized for our efforts."

For many executives, the myth that a big bonus is enough to ensure motivated employees persists. But at least for this next generation of business leaders, it's simply not true. When the public is already infuriated by outsize bonuses for chief executives, clinging to this model is a bad idea. Management matters. Good management pays off. Bad management - including ignoring management altogether - will cost us.

I think that this is an insightful point. It can be taken too far (high levels of compensation do make up for a lot of frustrating moments) but I think that the idea of "fairness" and "predictability" are key items. It's worth a lot to know that you will make $80K this year. Replacing that with a 50% chance of $40K and a 50% chance of $200K is not the same (even if the expected value is higher). Now, if you remove robust feedback and clear expectations than it is only reasonable that workers will not feel like they can predict what the outcome of their year end review. That will be highly demoralizing (and take even higher levels of compensation to correct for).

This principle actually goes back to Adam Smith (if not before). He (paraphrasing the original passage) pointed out that, for a worker paid by the piece, that you not only have to compensate the worker for all of the time spent between jobs but also for the anxiety that the worker suffers.

Is it really efficient to import this type of model to areas like education?

NIH Merger

From DrugMonkey:

Instead it makes it look very much as if NIAAA is being subsumed into NIDA simply to make statutory way for the creation of this new translational medicine Center.

And that is a whoooole ‘nother ballgame. Because the discussion now should be “Is NIAAA worth losing in favor of the new Center?”.

To remind my readers, my approval of the NIDA/NIAAA merger is based on the stipulation that merging ICs is a good idea, will lead to efficiencies, etc. And that there is a general will to further scale back the number of ICs. Given this motivation the NIDA/NIAAA merger is about as obvious as can be. If those goals are not a given, then I’m in a very different stance about this current merger.

And I really, really do not like disingenuous bait-and-switch arguments. This is starting to smell like one.

I was never really sold on the merger, myself, as I thought alcohol research was different (in some interesting ways) then research on other recreational drugs. That being said, I wonder if (at some point) it might be worth rethinking the 27 centers from first principles and making sure that they are the one that best serve the goals of public health?

Testing the Jump$tart Test

The Jump$tart Coalition is a leader among organizations seeking to improve the personal financial literacy of students from kindergarten to the university level. In particular, through its biennial survey of high school seniors—the results of which you will hear about shortly—Jump$tart has brought increased attention to the need for greater financial literacy among the youth of our nation. During the Jump$tart survey’s 12-year history, the data gathered have served as the basis for useful measures of what young adults do and don’t understand about finances. Undoubtedly, we will soon learn that there is plenty of work to be done and that our students have much to learn.

Ben S. Bernanke at the Jump$tart Coalition for Personal Financial Literacy and Federal Reserve Board joint news conference, April 9, 2008

April of 2008 was definitely a time of signs and portents. Many economists and a few farsighted journalist like the good people at This American Life were warning us that we were entering dangerous territory. It's fair to assume that Bernanke didn't need the warning -- the man had essentially spent his entire career preparing for this crisis -- but he took time out of what was unquestionably a very busy day to laud the accomplishments of the Jump$tart Coalition and its survey.

It's easy to understand why Chairman Bernanke was concerned about financial literacy. With the complex, unstable economy, the shift away from traditional pensions and the constant flood of new financial products, financial literacy might be more important now than it has been for decades. You could even make the case for financial illiteracy being a major cause of the economic crisis.

But if the supporters of financial literacy need a good measure of how well we're doing, they'll need to find a better instrument than the Jump$tart survey.

The 'test' part of the survey consists of thirty-one questions. That's not very long but that many questions should be sufficient for a tightly focused, well-structured test. Unfortunately the focus of the Jump$tart survey is ridiculously broad, ranging from investments to retirement to credit cards to debt counseling to auto insurance to macroeconomics to really questionable career advice.

Even within the categories the questions have a random, pulled-from-a-hat quality with no apparent effort to prioritize. There are multiple references to credit histories but no mention of credit scores. None of the few questions on credit cards mention teasers or other cases where rates can change on a credit card. There are no questions that refer to charts or tables though the ability to read both is an essential part of financial literacy.

On the individual question level the situation is no better. Most of the questions are either badly written, trivial/irrelevant, open to interpretation, guessable or factually challenged. The test resembles nothing so much as the homework paper a student teacher might turn in when asked to come up with 31 questions on financial literacy.

If you compare this test to something like the SAT where every question has been repeatedly proofed, tested and rewritten, it becomes obvious how sloppy the writing is here, complete with rookie errors like using the wrong person in a question like this:

24. If you went to college and earned a four-year degree, how much more money could you expect to earn than if you only had a high school diploma?
21.9 a.) About 10 times as much.
8.6 b.) No more; I would make about the same either way.
22.0 c.) A little more; about 20% more.
47.6 d.) A lot more; about 70% more. *

[note: Numbers to the Left of Answers are Proportion Giving Response. The asterisk indicates the correct answer.]

What's the problem with using the second person here? This is one of those statements that's true for a population at large but may not be true for most subgroups of the population. The value of a college degree varies greatly based on proposed career plans. For an architect or database analyst, a ten fold increase would probably be conservative; for a truck driver or someone who plans to work in a family restaurant, a college degree may provide nothing but personal growth opportunities and bragging rights.

Another rookie mistake is the high number of guessable questions, questions where students who know nothing about the information of interest have a good chance of guessing the right answer.

18. Don and Bill work together in the finance department of the same company and earn the same pay. Bill spends his free time taking work-related classes to improve his computer skills; while Don spends his free time socializing with friends and working out at a fitness center. After five years, what is likely to be true?
11.5 a.) Don will make more because he is more social.
9.8 b.) Don will make more because Bill is likely to be laid off.
67.9 c.) Bill will make more money because he is more valuable to his company.*
10.8 d.) Don and Bill will continue to make the same money.

By the time they reach high school, students have long since learned the simplistic moral vision of tests and textbooks. When in doubt, pick the answer that shows hard work and self-discipline pay off. Questions like this may be better measures of students' cynicism than of their financial literacy, particularly given the suspect answer.

As Frances Woolley observes, it is "not at all obvious to me that (c) is the right answer." In most companies, the management track tends to pay better and move faster than the technical track, making (a) a reasonable choice and, in a age of off-shoring, the employee who just brings computer skills to the job is particularly vulnerable to replacement, making (b) a possible choice. In other words, you could argue that the 'correct' choice is neither the best nor the second best answer.

In order to provide useful data with tests and surveys, you have to make sure that the response to each question tells you what it's supposed to and that those questions adequately cover the areas of interest. The Jump$tart survey completely fails under both criteria.

Temporary Workers

The recent rise in temporary workers is appears to be higher than in previous economic downturns:

This year, 26.2 percent of all jobs added by private sector employers were temporary positions. In the comparable period after the recession of the early 1990s, only 10.9 percent of the private sector jobs added were temporary, and after the downturn earlier this decade, just 7.1 percent were temporary.

Temporary employees still make up a small fraction of total employees, but that segment has been rising steeply over the past year. “It hints at a structural change,” said Allen L. Sinai, chief global economist at the consulting firm Decision Economics. Temp workers “are becoming an ever more important part of what is going on,” he said.

I think that this trend has a couple of features that are worth thinking about. One, it tends to mean that workers will have less institutional knowledge than before. I suppose that there are some employment circumstances where basic skills transfer but one assumes that most workplaces benefit from knowledge of the corporate culture, product knowledge, and so forth.

Second, I think that this trend continues to make the link between employment and benefits health insurance less sustainable. It is unclear if the end game is a government based system, but it sure makes the complexity of constant insurance coverage (without an employer) look like a difficult task.

I am not really sure what the best outcome looks like but I do think that this trend, if it should continue, will bring as many challenges as benefits.

Boom, bust and echo

There is a really nice chart in Worthwhile Canadian Initiative (WCI) about youth unemployment over time (in Canada). I was too young to actually be influenced much by the recession in the 1980's but the recession of the early 1990's (about 6% higher than it is today) dramatically influenced my career trajectory. As a young person, I never imagined that I would end up in the United States.

However, poverty has a way of changing opinions and I headed south for employment reasons. I am struck by how different the tenor of the times was: the articles that were linked to in the WCI post suggest that the issue is greed among those in the older generations. But, back in the day, we were much more likely to hear that young people were unmotivated or spoiled.

I think that we are actually seeing signs of the economic power of young people today that the narrative has shifted so far from what it used to be. But, as a card carrying member of Generation X, I can definitely attest that careers were pushed back and we started a lot later than everyone else simply because jobs were so hard to find.

"What is this 'Canada' of which you speak?"

Following up on Joseph's last post, I remember a discussion about careers I had with a group of friends including Joseph a few years ago. I was looking to make a change and Joseph asked if I'd considered the Canadian term for substitute teaching. I looked at him as though he had suggested I apply for a job scraping roadkill. It took several minutes for him to convince me that where he came from, substitute teaching was actually a sought-after career.

This is consistent with Canada's approach toward teaching in general. Canadians have long worked under the assumption that, if you give teachers security, respect and good salaries, you will attract good teachers. This is just one of the ways that Canada has done the opposite of what education reformers have recommended in this country. Here advocates like Joel Klein and Michelle Rhee insist that without charter schools and the option of mass firings the education system is doomed and yet, by the reformers' own favorite metrics, our northern neighbor consistently kicks our ass.

Demographically, economically, culturally and historically, Canada would seem to be the obvious country to look to when trying to determine the effectiveness of potential U.S. policies but it has been conspicuously absent from a number of debates. Before we start looking across half the world to countries with radically different situations and backgrounds, isn't it possible that we can learn something from a spot closer to home?

Canadian Exceptionalism

Megan McArdle has a comment on whether a social safety net will spur entrepreneurship:

But when we try to look at the net effect, it's hard to see much dynamism coming out of the places with a generous safety net. Rates of entrepreneurship and labor mobility are far lower in Europe than they are in America--and one of the many factors restraining European labor mobility is thought to be the social safety net, both because of the difficulty of moving between benefit system, and because the benefits lessen the urgency of say, relocating in order to find a job.

I will now speak at the level of personal anecdote; I beg the reader’s indulgence but I think it is a worthy point to make. I have lived in both the United States and Canada (as any reader of this blog will probably have figured out). At a purely personal level I am way more comfortable with economic risk when I am resident in Canada.

Why? Because the cost of a hospitalization is so high here in the United States as compared with elsewhere. There are two factors that I think are key. One is simply that medical care is intrinsically expensive here in the United States. But the second is the bargaining power of groups. Look at what the difference is between the billed price and what private insurance pays.

Now imagine that you feel dizzy one day. Dizziness can be a sign of a stroke or a heart attack. But if you are unemployed and not covered then what do you do? Visiting the hospital is a guarantee of some sort of economic crisis. But many events can be stopped with early treatment (or at least highly mitigated).

If we had the features of an efficient market, that would be different. But has anybody ever tried to shop around for better prices in the midst of a serious health event? Yet the United States links health insurance with employment. Furthermore, rescission tends to happen at the time of the event; in cases of gross fraud that is perfectly understandable but the examples of very minor book-keeping errors leading to rescission make one leery of not having somebody (like a large employer's HR department) around to advocate for you. Courts, while possible, are expensive at a time when you likely have no money.

Now this is not to say anything about elective procedures or non-urgent medicine; things like elective eye surgery can be areas that markets can exist. But we can already see this in Canada with things like diagnostic scans (that are not time sensitive) are increasingly handled by private firms in Canada (often paid out of pocket) for a surprisingly low cost to the consumer. The same with laser eye surgery or some forms of bariatric surgery. So a mixed economy is possible.

So I have been a lot more concerned about being employed in stable position here in the United States. In Canada I have considered (and applied for) short term and unstable positions: many of which were a lot more entrepreneurial.

After all, correlating employment risk (i.e. loss of job) with medical care cost risk (when insurance is linked to your job) seems like a bad decision. As for why we don’t see this in Europe – I have no idea. But it’s not clear that the European example is conclusive.

A Christmas Reminder

A lot of people out there have had a rough year so if you're in a position to be generous this is a good time for generosity.

From All Things Considered:

SIEGEL: Joining us from New York City's main post office is head elf, Pete Fontana. He's been working with the U.S. Postal Service Operation Santa for 15 years. Welcome to the program.

Mr. PETE FONTANA (Operation Santa Claus, U.S. Postal Service): Well, thank you for having me.

SIEGEL: And what have you noticed that's different in tone this year about the letters to Santa Claus?

Mr. FONTANA: Well, normally the letters would be what you said, you know, more like greedy-type things - big televisions, Xboxs, Wiis, things of that nature, MacBooks. This year, the letters are single moms, three kids, no winter coats, no shoes, blankets, can't pay the bills, not enough food in the pantry. So the need has changed tremendously.

SIEGEL: Perhaps you can read a couple of those letters to us, Pete.

Mr. FONTANA: Hold on. Here's one from Christopher(ph). Dear Santa, My name is Christopher. I'm 11 years old and I have a sister. Her name is Bethania(ph). She is two years old. And I have a brother who is nine months. If possible, we would like some educational toys and some winter clothes. I would like something to make my mommy happy 'cause she is getting chemotherapy after breast surgery. Something like a hat or a scarf for her. Thank you very much, Christopher.

SIEGEL: Now, your program at the post office is designed to pair children in need with volunteers who might donate gifts. I would imagine that you always see letters like this every year. Is this year really different?

Mr. FONTANA: I would say that this year there just seems to be more needy and less greedy I hate to rhyme it but it just seems that thats what the trend is.

The Homebase study looks OK but the New York Times is still a mess

Alex Tabarrok and Joseph both have posts up on a study to determine the effectiveness of a program to prevent homelessness by randomly accepting 200 of the 400 applicants the program received last summer then comparing how the accepted fare compared to the rejected. This isn't exactly how I'd set the study up but the choices the researchers seem both reasonable and ethical. As one of the researchers pointed out, this was not an entitlement; it is a small program that rejects some applicants already. All the researchers are doing is rearranging the pool.

If everything is as it seems, my only major concern is that, given our current exceptionally bad economic conditions, the results from this study might not generalize well.

But the word 'seems' is important because the NYT story that all of these posts have been based on simply isn't informative enough or well enough written for the reader to manage an informed opinion.

The story starts out ominously with this paragraph:

It has long been the standard practice in medical testing: Give drug treatment to one group while another, the control group, goes without.

Now, New York City is applying the same methodology to assess one of its programs to prevent homelessness. Half of the test subjects — people who are behind on rent and in danger of being evicted — are being denied assistance from the program for two years, with researchers tracking them to see if they end up homeless.

It might not be reasonable to expect a dissertation on the distinction between double-blind and open-label studies, but given that the subject of the article is the effectiveness and ethics of certain kinds of open-label studies, the fact that the writer may not know that there is a distinction does not bode well.

It does, however, bode accurately because the writer apparently proceeds to blur a much more important distinction, that between pilot and ongoing programs:

Such trials, while not new, are becoming especially popular in developing countries. In India, for example, researchers using a controlled trial found that installing cameras in classrooms reduced teacher absenteeism at rural schools. Children given deworming treatment in Kenya ended up having better attendance at school and growing taller.

These are pilot programs. The Indian government didn't install cameras in all their rural schools then go to the expense of randomly removing half of them, nor did the Kenyans suddenly discontinue preventative care from half their children. From a practical, ethical and analytic perspective, going from no one gets a treatment to a randomly selected sample get a treatment is radically different than going from everyone gets a treatment to a randomly selected sample get a treatment.

Putting aside the obvious practical and ethical points, the analytic approach to an ongoing program is different because you start with a great deal of data. You don't have to be a Bayesian to believe that data from other sources should affect the decisions a statistician makes, choices ranging from prioritizing to deciding what to study to designing experiments. Statisticians never work in a vacuum.

There is little doubt that the best data on this program that we could reasonably hope for would come from some kind of open-label study with random assignment but, given the inevitable concerns and caveats that go with open-label studies, exactly how much better would that data be? What kind of data came out the original pilot study? What kind of data do we have on similar programs across the country? And most importantly, what's the magnitude of the effect we seem to be seeing?

On that topic we get the following piece of he said/she said:

Advocates for the homeless said they were puzzled about why the trial was necessary, since the city proclaimed the Homebase program as “highly successful” in the September 2010 Mayor’s Management Report, saying that over 90 percent of families that received help from Homebase did not end up in homeless shelters.

...

But Seth Diamond, commissioner of the Homeless Services Department, said that just because 90 percent of the families helped by Homebase stayed out of shelters did not mean it was Homebase that kept families in their homes. People who sought out Homebase might be resourceful to begin with, he said, and adept at patching together various means of housing help.

Before we can ask if this proposed selection effect can explain the impact of Homebase, it would help if we had the slightest idea what that impact was. It's true that over 90 percent of the families in question did not end up in shelters. It is also true that 99.99 percent of the people who took homeopathic remedies for their colds did recover. Neither number is particularly useful without the proper context.

The proper context shouldn't be that difficult to find. We have more than enough information to estimate the likelihood of families in these financial situations ending up in shelters. Of course, there is no upper bound on a possible selection effect, but I'm going to weight the possibility differently if the comparison rate turns out to be 80 percent than I would if it were 40 percent.

None of this is a criticism of the actual research. Other than my concern about generalizing 2010 economic data, this looks like a good study. Governments and large organizations should always be on the lookout for ways that experimental design and sampling theory can improve our data.

But I can't say with any certainty that this is a good place for this kind data gathering because I'm getting my information from a badly written story. There are three papers I read frequently: the LA Times, the New York Times and the Wall Street Journal, and of those, the one that is most likely to run lazy, low-context, he said/she said pieces is the old gray lady.

Merit?

From the comments section of Worthwhile Canadian Initiative:

Actually one of my favourite questions on the 2008 US Jump$tart survey is this one:

Don and Bill work together in the finance department of the same company and earn the same pay. Bill spends his free time taking work-related classes to improve his computer skills; while Don spends his free time socializing with friends and working out at a fitness center. After five years, what is likely to be true?

a) Don will make more because he is more social.
b) Don will make more because Bill is likely to be laid off.
c) Bill will make more money because he is more valuable to his company.*
d) Don and Bill will continue to make the same money.

Not at all obvious to me that (c) is the right answer.

[Note: the * next to (c) indicates that it is the correct answer for the key.] I can certainly think of examples where this answer would seem to be contradicted by empirical reality. And that is before one worried about outsourcing or what happens if the company completely changes software platforms in a major re-org.

The post and comments are worth reading, throughout.

Randomized Social Experiments

In a really fascinating post, Alex Tabarrok discusses controversy about a random clinical trial set within a housing program. It's a very interesting example (and his quote from E. E. Peacock, Jr. was priceless). But it does bring up a serious question: in many areas of social policy there is no realistic way to blind experiments and, similarly, the idea of informed consent is hard to implement in practice.

Consider this point as well: the only way you will be able to get rational actors to consent to an experiment on housing is if all of the options in the intervention are equal or better than the status quo. That means you can never experiment to see if the current plans are working, insofar as informed consent is required. Nor can one really argue that coercion is not present given that people enter these programs out of desperation.

I think the real difference is that we have two different sources of utility: the user of the program and the agency (via the taxpayer) who is implementing the program. So it becomes a complex problem because the status quo might benefit the user (marginally) and harm the taxpayer/state/agency (greatly) but you will never get users to consent to testing how they will do with fewer benefits (or at least the incentives are wrong). Compare this with drug trials: only the patient’s ability to benefit is typically considered (although cost effectiveness may matter later in the approval process).

But the alternative is simply to not know what the right answer is and to risk getting stuck at a very suboptimal policy point. And that seems to be the wrong answer as well.

"I am not now and have never been a constructionist"

(This post also appears at Education and Statistics.)

After my last post thought I should run this titular disclaimer. For those of you not up on the subject, here's a definition from the well-written Wikipedia entry on the subject:

Constructivist teaching is based on constructivist learning theory. This theoretical framework holds that learning always builds upon knowledge that a student already knows; this prior knowledge is called a schema. Because all learning is filtered through pre-existing schemata, constructivists suggest that learning is more effective when a student is actively engaged in the learning process rather than attempting to receive knowledge passively. A wide variety of methods claim to be based on constructivist learning theory. Most of these methods rely on some form of guided discovery where the teacher avoids most direct instruction and attempts to lead the student through questions and activities to discover, discuss, appreciate and verbalize the new knowledge.

Don't get me wrong. For the right topic, executed the right way with the right teacher and class, this can be a great, wonderful, spectacular and really good approach to education. Unfortunately, education reformers (particularly the current crop), are not good at conditional problems. They tend instead to fall into the new tool camp (you know the saying, "to a man with a new hammer, the whole world is a nail.").

Worse yet, (and I'm afraid there's no nice way to say this) many of the educational theorists don't have a firm grasp on the subjects they are working with. This is never more plain than in constructionist science classes that almost entirely eschew lectures and traditional reading assignments and instead have the students spend their time conducting paint-by-numbers experiments, recording the results and performing a few simple calculations.

To most laymen, that's what science is: stuff you do while wearing a lab coat. Most people don't associate science with forming hypotheses, designing experiments, analyzing results and writing papers and, based on my limited but first hand experience, many science educators don't give those things much thought either.

The shining exception to the those-who-can't-teach-teach-teachers rule is George Polya. Though best known as an educational theorist, Polya was a major Twentieth Century mathematician (among his other claims to fame, he coined the term "central limit theorem") so he certainly fell in the those-who-can camp.

But it it important to note that Polya advocated guided discovery specifically as a way of teaching the problem solving process. I suspect that when it came to simply acquiring information, he would have told his students to go home and read their textbooks.

"Reasons to teach what we teach"

I've got a long post up on Education and Statistics on the reasons for including a concept in the mathematics curriculum and how those reasons should affect what we teach and how we teach it.

Here's an excerpt:

Where a topic appears on this list affects the way it should be taught and tested. Memorizing algorithms is an entirely appropriate approach to problems that fall primarily under number one [Needed for daily life]. Take long division. We would like it if all our students understood the underlying concepts behind each step but we'll settle for all of them being able to get the right answer.

If, however, a problem falls primarily under four [helps develop transferable skills in reasoning, pattern-recognition and problem-solving skills], this same approach is disastrous. One of my favorite examples of this comes from a high school GT text that was supposed to develop logic skills. The lesson was built around those puzzles where you have to reason out which traits go with which person (the man in the red house owns a dog, drives a Lincoln and smokes Camels -- back when people in puzzles smoked). These puzzles require some surprisingly advanced problem solving techniques but they really can be enjoyable, as demonstrated by the millions of people who have done them just for fun. (as an added bonus, problems very similar to this frequently appear on the SAT.)

The trick to doing these puzzles is figuring out an effective way of diagramming the conditions and, of course, this ability (graphically depicting information) is absolutely vital for most high level problem solving. Even though the problem itself was trivial, the skill required to find the right approach to solve it was readily transferable to any number of high value areas. The key to teaching this type of lesson is to provide as little guidance as possible while still keeping the frustration level manageable (one way to do this is to let the students work in groups or do the problem as a class, limiting the teacher's participation to leading questions and vague hints).

What you don't want to do is spell everything out and that was, unfortunately, the exact approach the book took. It presented the students with a step-by-step guide to solving this specific kind of logic problem, even providing out the ready-to-fill-in chart. It was like taking the students to the gym then lifting the weights for them.

This is a bit of a work in progress so if you have any relevant experience in mathematics education (and, yes, experience as a student definitely counts), I would greatly appreciate it if you went by and joined the conversation.

Interesting Passage

Via Tyler Cowen of Marginal Revolution fame comes an interesting article on school choice. I was particularly struck by this passage:

This approach helps explain why choice advocates — inclined to approach choice-based reform not as a regulatory question, but as one of justice and rights — have spent so much less time considering the dynamics of deregulation than have pro-market reformers in sectors like transportation, telecommunications, and cable television. Because education reformers have approached choice not as a matter of political economy but as a moral crusade, they have favored grand, sweeping claims over empirical reality.

I think that this has a lot of explanatory power for the postive treatment that charter schools are getting in the press and among pundits. Mark has written about this extensively on this blog.

I think breaking apart the moral and the policy dimensions would be a positive development. The issues with under-servicing of some groups are broad but there is a risk that alternatives could make things worse.

Homework and treatment levels

Previously on OE, we've talked about how norming, placebo and volunteer effects can cause methods like lottery-based analyses to miss significant sampling effects. Here's one more area of potential concern.

The basic problem here is familiar to clinical researchers. You're trying to determine the optimal level of a drug or therapy or exercise regime or type of food. There is an ideal dosage, the level of treatment you would prescribe if your only concern was optimizing the effect. Then there is what we might call a realistic dosage, one that takes into account factors like side effects and compliance. These levels vary from group to group which means the process of finding the right dosage is sensitive to sampling issues. The appropriate level is likely to be different for a group of college students and a group of senior citizens.

Teachers assigning homework face essentially the same problems. Assuming that goal is to improve students' score on a standardized test, there is an ideal homework assignment for each lesson, a subset of the problems available in the text that will tend to maximize the average score of a class (to keep things simple we'll limit the discussion, with no loss of generality, to homework assignments derived from the textbook).

The ideal assignment assumes that students have unlimited time and will complete all the assigned problems. The realistic assignment would take into account factors like time constraints, demands from other classes, compliance, burnout and parental pushback (I can tell you from experience that parents complain if they feel their children are being given excessive work and I would argue this is a good thing -- teachers should remember that their students' time also has value). The realistic assignment would optimize the class's average score when these constraints are in place.

Like the previously discussed norming, placebo and volunteer effects, a sampling/treatment level interaction with the homework assignment here can interfere with the ability of lottery-based analysis to detect sampling effects.

To see how this would work, consider a charter school like one in the KIPP system that very publicly acknowledges that students will be expected to do large amounts of homework each night (some schools even require parents to sign contracts agreeing to sign off on the students' homework). Students who apply for this school are aware of these requirements, as are their parents. This certainly raises the possibility that the optimal realistic homework level might be higher for these students, particularly if this is one of those schools that aggressively culls out the students who can't handle the workload.

If this is the case and if both the charter school and the public schools assign the optimal levels of homework for every class, you will have a sample based effect that will completely evade detection by a lottery-based analysis. That analysis will compare the performance of those who applied for the charter and were accepted against those who applied but lost the lottery. Since the rejected students will receive a treatment level that was optimized for the general population while the accepted students will receive a treatment level optimized to their particular subgroup, we expect the charter school students to do better, leading the lottery-based analysis to incorrectly conclude that there is no selection effect.

I used homework in this post to keep things simple but the principle applies just as well to most elements of the educational models of many highly praised charter schools -- longer days, Saturday instruction, extended school years, holding students responsible for more material on tests. Put bluntly, these schools get their results by giving students lots of work. Because of these results, these schools are often held up as examples for the rest of the educational system, but when you start with a self-selected sample then counsel out the students in that sample who have trouble keeping up, you should at least consider the possibility that the optimal workload for your student body is higher than the optimal workload for the general populace.

This doesn't mean that all high performing charter schools are simply running on undetected selection effects and it certainly doesn't mean that charter schools with high standards should lower them. What is it does mean is that selection effects in education show up in subtle and complex ways. It remains extraordinarily difficult to resolve these issues through observational means. Any study that claims to have settled them should be approached with great caution.

Arnold Kling

Arnold Kling is a skeptic about the importance of peer effects:

Back when the SAT was just math and verbal, I described us as living on the other side of a 250-point SAT gradient--in the better high schools, the SAT's were 1200, and in our high school they were 950. (I took the view that my own kids did not need high-achieving peers in order to do well on their own.)

I am not sure whether this is persuasive (although it does match my personal experience). But it is true that this is the sort of behavior that I would expect from peer-effects skeptics (and if we saw more of it there would be a much smaller premium on good schools for housing costs.

Thomas Jefferson on income inequality

From a letter to James Madison (courtesy of Brad DeLong):

I am conscious that an equal division of property is impracticable, but the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivisions go hand in hand with the natural affections of the human mind. The descent of property of every kind therefore to all the children, or to all the brothers and sisters, or other relations in equal degree, is a politic measure and a practicable one. Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions or property in geometrical progression as they rise.

Whenever there are in any country uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right. The earth is given as a common stock for man to labor and live on. If for the encouragement of industry we allow it to be appropriated, we must take care that other employment be provided to those excluded from the appropriation. If we do not, the fundamental right to labor the earth returns to the unemployed. It is too soon yet in our country to say that every man who cannot find employment, but who can find uncultivated land, shall be at liberty to cultivate it, paying a moderate rent. But it is not too soon to provide by every possible means that as few as possible shall be without a little portion of land. The small landholders are the most precious part of a state.

Profundity adjacent

I'm not a fan of the BBC's the Changing World. The show has interesting topics but the episodes I've caught have an annoying habit of almost saying something profound and insightful then veering off at the last minute. This tendency to be profundity adjacent is particularly notable because, on KPCC, Changing World airs a couple of hours after This American Life, a show with an extraordinary ability to uncover the genuinely important aspects of a complicated story.

The criticism certainly holds for this episode on chess. Repeatedly, I found myself caught up in an interesting thread only to have it end right before it got to the good part. Still, they were interesting threads and if your interests include abstract strategy games and their role in fields like education, you should probably check this out.




http://www.thechangingworld.org/archives/2010/44.php

On Salmon's blog, even the comments are quotable

Felix Salmon has a good post on the economic impact of extending unemployment benefits but for me the most insightful observation was found in the comments:

What’s missing from this discussion is the part about optimization of deployment of resources. If a skilled worker, say a skilled aluminum welder, can stay on unemployment long enough to find a skilled aluminum welder job at higher pay and productivity, that’s good for GDP and has a higher multiplier. But if that worker has to settle for a security guard job because he or she must pay the rent, then there is a net loss of productivity, GDP, and related multipliers.

Wargaming

This article is a very interesting look at the rise and fall of wargaming. Of especial interest was:

In 1982, the 30,000 subscribers of Strategy & Tactics, SPI's flagship magazine, were the most avid wargame enthusiasts on the globe. More than 50% of them, per SPI's own feedback, owned 100 or more wargames; most of them bought a dozen or more games every year, not counting the games they received as subscribers to the magazine. SPI estimated that perhaps 250,000 people, in the whole of North America, had ever bought a wargame; and the 30,000 subscribers to S&T bought an enormously disproportionate number of the games sold.

They were the hard core, the fundament upon which the whole wargame industry was built.

So naturally, when TSR took over SPI, the first thing it did was give the finger to S&T's subscribers. The first thing it did was say to the best customers of its new subsidiary, "Go take a hike; we don't want your custom; your concerns mean nothing to us."

You see, almost every magazine in the country can declare bankruptcy tomorrow, if it wants to, because every magazine in the country has enormous liabilities: the obligation to provide issues to its subscribers. The subscription money came in long ago, and has been spent, and that liability remains. Magazines continue, and make money, because they sell advertising, and expect their subscribers to resubscribe. But SPI had no money -- and S&T had 30,000 subscribers. Over a thousand were life-time subscribers, owed issues in perpetuity in exchange for no further income.

TSR didn't want the liability. Fulfilling S&T's existing subscriptions would have cost it money.

So, TSR decided, it would not honor any subscriptions.

TSR had taken over SPI's assets, but not its liabilities, so they claimed; therefore, they had no obligation to S&T's subscribers.

Gosh. Guess what happened? Few of S&T's subscribers reupped. Few wanted to send more money to the company that had just ripped them off.

And few of them ever bought any of the wargames TSR began to publish.

And TSR never could figure out why their wargames never sold.

I think that this example is very interesting for a couple of reasons. One, the fact that this was such a large setback to the entire field makes it clear just how important barriers to entry can be in making competition difficult (it would have been infeasible to develop the network that had just been destroyed by another publisher). Two, is the market power of corporations. With their ability to raise equity, they can purchase viable business models but they do not necessarily manage them well.

For a luxury good, like wargames are , it is unfortunate for people who enjoyed them but hardly a tragedy -- other goods will have the chance to thrive in the market instead (and perhaps this is a form of creative destruction?).

But imagine this process for an essential good: like water, electricity or education. I think we should keep examples like this in mind when considering the benefits of privatization. There are massive upsides to capturing the efficiency of a functioning market -- but only if players are allowed to fail.

Funding Cuts

From Dead Dad:

Of course, that refers only to general college reserves. It’s also common for various programs to have reserves of their own, earmarked for specific purposes. The college foundation might have reserves dedicated for certain scholarship awards. Some grant-funded programs will have reserves for specific functions and only for those functions. (In the context of multiyear grants, for example, it’s common to have ‘carryover’ of excess funds from one fiscal year to the next. That’s frequently allowed, but that doesn’t give license to transfer the extra grant money to the general college budget.) In cases like those, money comes with strings attached, and violating the terms of the money involves forfeiting the money. You can’t just move it around.

This lack of flexibility actually highlights one of the difficult issues with cuts in grants. If grants are cut by 10%, you don't have the discretation to eliminate 10% of the ongoing projects to make sure that the rest are successful. In the same sense, going after indirects to try and make up these losses would lead to the defunding of other operations.

The modern university budget looks remarkably inflexible to me, which makes planning for adverse financial circumstances appear to be extremely tricky. Not only do you have to cut but what you can cut can be remarkably constrained. This can lead to very poor optics (where something that looks non-essential is fully funded whereas a core operation simply lacks funding).

It is a tough place to be in!

Education reform and the two kinds of knowledge

"Knowledge is of two kinds. We know a subject ourselves, or we know where we can find information upon it. When we enquire into any subject, the first thing we have to do is to know what books have treated of it. This leads us to look at catalogues, and at the backs of books in libraries."
— Samuel Johnson

This came up while I was working on a longer piece but I decided it deserved a short post of its own.

In the two and a half centuries since Dr. Johnson's time, the amount and the value of the second kind of knowledge has increased substantially (as it had in the preceding centuries). Cheap printing, the internet and telecommunications (consulting an expert qualifies as the second kind) have given us ready access to a stunning array of information.

With a few exceptions, the ability to find and manipulate information is far more important than the ability to simply repeat it, but the push for accountability in education often focuses strictly on the first kind.

update: You can find a related discussion here.

Someone finally notices the orphan technology

As I mentioned before, over-the-air broadcasting has been a conspicuous hole in any number of media stories, probably due to the demographics of that market and the lack of interested parties pushing the story. Eventually though, once the market included enough young, photogenic professionals, the New York Times did pick up on the story (from this Sunday):

Many pay TV customers are making the same decision. From April to September, cable and satellite companies had a net loss of about 330,000 customers. Craig Moffett, a longtime cable analyst with Sanford C. Bernstein, said the consensus of the industry executives he had talked to was that most of these so-called cord-cutters were turning to over-the-air TV. “It looks like they’re leaving for the antenna,” he said.

The article has its problems. There are factually challenged passages like this:

The new antennas do pull in more programs than your grandfather’s rabbit ears, because of new channels that broadcasters added during the transition to digital signals. The broadcasters can fit multiple digital channels into the same frequencies that used to carry one analog channel.

In St. Paul, for example, where Ms. Bayerl lives, there are extra channels from ABC and NBC with local news and weather, four public television channels and a music video channel. Big markets like Los Angeles have 40 or more channels, according to Nielsen.

(I live in LA county and, according to my digital converter I get 114 channels. There are at least a half dozen more I could get if I wanted to invest in a better antenna set-up. When you're off by a factor of three, "or more" just doesn't cut it.)

The article also completely overlooks the role that the Hispanic market plays in the over-the-air broadcasting story which is a bit like ignoring the role commuters play in the NPR audience.

Still, compared to what we've seen up till now, this account is almost cutting edge.

Update:

While picking up a printer cartridge this morning I fact-checked the following passage from the NYT story:

Modern antennas, which cost $25 to $150, pick up high-definition signals that can actually be crisper than the cable or satellite version of the same program, because the pay TV companies compress the video data.

Actually HDTV compatible antennas the one I use for my 114 channels are available at Target start at $10.98.

NIH news

From Medical Writing, Editing & Grantsmanship:

According to the AAMC, seems most likely these CRs will be the high-point of FY11:

During debate on the measure, Rep. Jerry Lewis (Calif.), the ranking Republican on the House Appropriations Committee, again expressed opposition to “any potential omnibus spending bill the Democratic leadership may be planning to bring to the House floor before the end of the year.” He also opposed extending the CR for the balance of FY 2011 at current level, which he described as “frankly, too darn high.”

I won't argue the merits or deficits of this view at the policy level except to say that, from a personal point of view, this news doesn't help my plans to start a career in this area.

Perils of studying Small Effects

From Andrew Gelman:

For example, suppose you're a sociologist interested in studying sex ratios. A quick review of the literature will tell you that the differences in %girl births, comparing race of mother, age of mother, birth order, etc, are less than 1%. So if you want to study, say, the correlation between parental beauty and sex ratio, you're gonna be expecting very small effects which you'll need very large sample sizes to find. Statistical significance has nothing to do with it: Unless you have huge samples and good measurements, you can pretty much forget about it, whether your p-value is 0.02 or 0.05 or 0.01.

I think that this is correct and ties into a larger narrative: there are a lot of small effects of great theoretical interest that are really hard to show in actual data due to the limitations of realistic sample sizes. Observational epidemiologists often try to handle this by looking at prescription claims databases (for example). But these studies create a new problem: there is a serious concern of unmeasured confounding due to factors that are not measured in these data sources (e.g. smoking, alcohol use, diet, exercise). It's not really a big step forward to replicate lack of power with potential bias due to confounding.

I think the real issue is simply that small effects are difficult to study, no matter how interesting that they are. So I think that Andrew Gelman is right to call for the interpretation of these studies to done in the context of the larger science.

Yikes!

This is pretty bad. I was surprised at just how inexpensive the organ transplant program really was . . .

Nice Observation

Matt Ygelsias makes a good point:

Today’s report, which is being called bad numbers, we learned of 50,000 new private sector jobs and the loss of 11,000 more public sector jobs.

To me, this really does seem like a bad result. But conservatives in the audience need to recognize that we’re getting what they say they want. The private sector is growing and the public sector is shrinking. If you’re disappointed in the results, you can perhaps consider reviving your view of the desirability of executing this shift in the middle of a collapse in aggregate demand. But what you can’t do is say that the bad economy is somehow being caused by an Obama-era slide toward socialism. The slide isn’t happening. The explosion in government isn’t happening. The public sector is shrinking.

The precise balance between public and private employment is tricky. But I think it is good to recognize what the actual direction of change is.

Lottery based admissions

From the Harvard Crimson:

For one thing, “excellence” in the Harvard admissions process—and at Harvard—has a lot less to do with virtuous character traits than with an ability to game the system. By placing a premium on students who go above and beyond in extracurricular realms, Harvard has attracted a number of truly incredible people but has also encouraged a high school arms race wherein kids cram their schedules with activities in an attempt to attract admissions officers.

By selecting for this kind of behavior, the admissions process doesn’t encourage real excellence, but, to use the novelist Walter Kirn’s term from his hilarious book and essay “Lost in the Meritocracy,” “aptitude for showing aptitude.” This may well be of use in students’ careers after college, but it is orthogonal if not antithetical to the goals of a liberal arts education.

I think that these factors are also an issue when you evalaute education at any level. People compete hard to get into top schools -- the same skills that they use to "game the system" also tend to ensure decent post-Harvard outcomes.

This makes evaluating the actual contribution of the education at Harvard, itself, tricky (to say the least).

h/t: Felix Salmon

More on owning preperty to vote

Commenter David made the point:

This criticism always sounds a little hollow--when people talk about interpreting the constitution 'as the framers intended', I'm pretty sure they don't mean the parts that later amendments changed.

What is difficult is that it is pretty clear from his quote that Judson Phillips really does believe this; go look. Now it could be that this is a minority view and not very typical.

But I jumped on it because this comment seemed to open a lot of issues:

But one of those was you had to be a property owner. And that makes a lot of sense, because if you’re a property owner you actually have a vested stake in the community.

So what happens if you have a mortgage on a property? Do you own it? What about a lien? How do you easily keep track of who has successfully sold their house (and thus lost the right to vote). When does this count? What if you buy a house right before election day?

Furthermore, how much property is enough? Do we value it by space? What about by value? In a country as diverse as the United States, either Wyoming or Manhattan is going to be complicated.

How would this interact with eminent domain? If the state seizes your house are you disenfranchised? Could this interact in unexpected ways with the idea of equal protection?

If you own land in city X but live (by renting) in city Y, where do you vote? What if you rent your house but own a cottage? Or a garden plot?

Finally, I wonder if the act of owning land really leads to stability given how liquid houses are. It might become more of a marker of wealth; arguing that only the wealthy should vote is a dangerous position.

So I was mostly struck by how badly this proposal seemed to be thought out and how complicated it would be to implement.