Charter schools

Okay, this piece in Forbes about the money to be made in charter schools is really pointing out the potential hazards of these sorts of movements.  It is not that they can't necessarily improve outcomes (at least in a theoretical sense) but that there can be a lot of potential to shift the focus from educating students to making profits.  It is a classic principal agent situation as the person paying (the government) is not the person receiving the services (the students). 

Consider:

Nor does the evidence show that charters spend taxpayers’ money more efficiently. Researchers from Michigan State and the University of Utah studied charters in Michigan, finding they spent $774 more per student on administration, and $1,140 less on instruction.

About the only thing charters do well is limit the influence of teachers’ unions. And fatten their investors’ portfolios.

In part, it’s the tax code that makes charter schools so lucrative: Under the federal “New Markets Tax Credit” program that became law toward the end of the Clinton presidency, firms that invest in charters and other projects located in “underserved” areas can collect a generous tax credit — up to 39% — to offset their costs.

So basically they are hiding the costs of operation in tax credits (reducing tax revenue) to look like they are efficient.  I think it would be helpful to everyone if we counted tax expenditures as a form of spending.  So how is this plan to earn profits via education working out?  Just how good is this plan?

So attractive is the math, according to a 2010 article by Juan Gonzalez in the New York Daily News, “that a lender who uses it can almost double his money in seven years.”

or the salary of the CEO of one of the few publicly traded Charter School companies:

The story also revealed CEO Ronald Packard collected a salary in 2011 — $5 million — nearly double that of the previous year. And that his bonus is linked not to student performance, but to enrollment.

So the real issue here is that costs are not especially transparent and outcomes, on average are not especially wonderful:

Too bad the kids in charter schools don’t learn any better than those in plain-vanilla public schools. Stanford University crunched test data from 26 states. About a quarter of charters delivered better reading scores, but more than half produced no improvement, and 19% had worse results. In math, 29% of the charters delivered better math scores, while 40% showed no difference, and 31% fared worse.

Unimpressive, especially when you consider charter schools can pick and choose their students — weeding out autistic kids, for example, or those whose first language isn’t English. Charter schools in the District of Columbia are expelling students for discipline problems at 28 times the rate of the district’s traditional public schools — where those “problem kids” are destined to return.

So, even ignoring peer effects, these look like similar outcomes (the bias will be towards public schools doing worse because they cannot refuse students as easily).   

So I think two issues arise as matters of policy from these sorts of discussions.  One, it is hard to imagine why we need to disassemble a working system just to create lucrative investment opportunities.  Two, teacher job security and salary become much more salient as issues if they are compatible with decent student outcomes (one average, anecdotes will exist in all directions). 

I am not against innovation in education.  But I tend to be suspicious of drastic transformations of complex systems as they are hard to implement.  Nor is it reassuring that a business magazine is pointing this area out as a profit making opportunity.  Insofar as we have data, it isn't all that reassuring when we compare costs and benefits.   

h/t Mike the Mad Biologist and thanks to Mark Palko for comments

Weekend blogging -- the political cartoons of Dr. Seuss

As TPM pointed out, Ted Cruz made an odd choice when he invoked Theodor Geisel, a lifelong liberal who served as a political cartoonist for the left-wing PM.

Here at West Coast Stat Views, we're always hunting for an excuse to waste time looking at cartoons, so...

Which was also an reference to an earlier and very successful ad campaign

Hunger, homelessness and the George Foreman Grill

In the recent discussion of food stamps (see here, here, and here), one of the recurring points was that the price of food available in an area often played a relatively small role in the problem, particularly compared to the difficulties associated with not having access to flexible transportation or a decent kitchen.

Which brings up one of this blog's favorite villains, the dangers of having policy debated and decided by an economically and regionally homogeneous group. It's not just a case of not seeing things from other perspectives; it's a case of not seeing things from other perspectives and not knowing that you're doing it. When a well-meaning CEO recently tried to live on a SNAP budget for a week, he screwed up the easy part, but more importantly, he skipped the hard part, not because he was trying to cheat but because things like having a car were simply part of his world. 

I've been focusing on transportation, but having an adequate kitchen can be as or more important. I heard an interview with a man who had just gotten off the streets who explained it with the following example: if have a kitchen, you can get a dozen eggs for less than two dollars and have breakfast for a week; if you have to go to a restaurant, that same money will get you one egg sandwich. 

This 2004 NPR story illustrates the point beautifully and it also shows the resourcefulness people can show under difficult circumstances. 

So many immigrants, homeless people and others of limited means living in single-room occupancies (SROs) have no kitchens, no legal or official place to cook. To get a hot meal, or eat traditional foods from the countries they've left behind, they have to sneak a kind of kitchen into their places. Crock pots, hot plates, microwaves and toaster ovens hidden under the bed. And now, the latest and safest appliance, the appliance that comes in so many colors it looks like a modern piece of furniture: the George Foreman Grill. It is, quite literally, a hidden kitchen.
...
This story also led us to the streets. We called our colleague, Steve Edwards at WBEZ, to see if he could help us locate any hidden grills in Chicago. He contacted The Chicago Coalition for the Homeless, which in turn put us in touch with Jeffrey Newton. Jeffry has been homeless or in shelters most all his life, from boy's homes, to reformatories, to prison by age 17. Then he moved out on the streets, where every day he goes "trailblazing" — looking for food, shelter, work, the resources he needs to make it through the day.

Jeffry learned to cook from his grandmother. He feels an urge to cook, especially for other people — under the overpass on Chicago's Wacker Drive; on a George Foreman Grill plugged into a power pole; with a hot clothing iron to toast a grilled cheese sandwich.

We also called Glide Memorial Church in San Francisco's Tenderloin District. We knew they would know. They offer a stunning array of services to the poor, to those in recovery, to those needing assistance, both spiritual and physical.

Pat Sherman lived for quite some time in SROs with no kitchen, where cooking was forbidden. She now has a home and works in Glide's walk-in program. Sherman — whose recipe for "Hidden Beans & Rice" is linked to above — was quite ingenious when it came to cooking. Her Crock-Pot doubled as a pencil holder and a flower pot — nothing that would arouse suspicion. When nobody was around to check, she would slow-cook her beans while she went to school, then come home to a hot meal.

Reactions to DeLong's piece on Global Warming

I am sure that this section will be roundly ignored, but it was the most interesting to me: 

Even half a generation ago, economists interested in global warming like Thomas Schelling saw natural justice to this argument, and expected the North Atlantic to finance the carbon-neutral industrialization of the Global South--an environmental Marshall Plan for the 21st century. Global politics has not been kind to such dreams. I do not know of a way to represent a number as small as the probability that the next generation will see large-scale transfers from the North Atlantic to the Global South to fund its carbon-neutral industrialization.

But it may well be that continued inaction on dealing with global warming itself has mammoth antiegalitarian distributional consequences for the world. There are 2 billion peasants in the great river valleys of Asia from the Yellow to the Indus. Few of them have the human capital or the relationship chains needed to do well in the cities of Asia. For most of them, the economically valuable asset that they have the land that they farm--the land that requires for its economic value that there be enough melting snow off the Tibetan plateau but that the snow not melt too quickly. Global warming means either more or less snow on the Tibetan plateau. Why the governments of East Asia and South Asia are not now screaming about the consequences for their 2 billion peasants of global warming seems to me explicable only as the result of a strange kind of political myopia. To wait for large-scale transfers from the North Atlantic to begin carbon neutral industrialization in East Asia and South Asia seems to me likely to be viewed by historians a century from now as a classic dog-in-the-manger story.

I think that there are two levels that I really like this argument.  One, probably not surprising, is the public health argument.  The biosphere is under a lot of pressure -- pushing on it hard right now is likely to result in all sorts of adverse public health outcomes as things like water supplies become more constrained.  I think that the economic value argument (the melting snow makes the land economically valuable) is less salient than the potential for human suffering if there is a loss of food and clean water in this area.  DeLong doesn't address this directly, but I presume it is subsumed into the consequences of the economic changes. 

The second, though, is to think about the net present value of improved renewable energy sources.  Even with a modest discount rate, the development of improved solar, wind, or water energy production is huge because it extends the likely window of exploitation far into the future.  It is plausible that there might not be petroleum used as fuel in the future; the horizon over which the sun will stop providing energy likely exceeds the expected lifespan of the human race.  Heck, even Nuclear, with known disadvantages, has a much longer time horizon for viability.  This creates a real value to investment in these technologies as small improvement in efficiency could well pay large dividends. 

Of course, Mark would point out that existing technology is also potentially helpful as well. 

Netflix, the Emmys and the power of a happy narrative -- inevitable Motley Fool edition

This is getting sad.

As mentioned in a previous post, those journalists who cover either media or business or both have completely invested in the narrative of Netflix as visionary game changer. As a result they are compelled to put a positive spin on even the worst news such as this weekend's Emmy awards.

I had assumed it was inevitable that Motley Fool would join in. I had not realized, however, that they would actually join twice in the space of as many days, or that their efforts would be so, well, pathetic.

The first, "Why Netflix is still a buy," is merely embarrassing. Though it has a deadline of September 24, no mention is made of the Emmys. Instead we get a standard line about things looking great in Canada and about how people sure do watch a lot of television. All of which simply serves as a come on for one of Motley fool's promotional videos.

It's the second, though, that manages to exceed even Motley fool's standard of you've-got-to-be-kidding.In "Netflix Just Took Another Step Closer to Becoming HBO,"  Tim Beyers makes a full bore run at painting defeat as victory, favorably comparing House of Cards' Emmy performance to that of The Sopranos. Doing so requires grouping basically meaningless Creative Arts Emmys with the majors, underplaying the relatively low prestige of the directing Emmy and completely ignoring the fact that, based on reputation alone, David Fincher (Seven, Fight Club, Zodiac, and The Social Network) was always the favorite to win this category just as Martin Scorsese had been the favorite two years ago.

One of Motley Fool's favorite strategies is to pick a hot company like Netflix or Disney and relentlessly talk it up. Unlike the traditional pump-and-dump, the goal isn't to drive up that individual stock (it's hard to move a Disney); instead what's being pumped is the idea that you're losing money by not being in. This frame of mind makes readers receptive to buying MF's investment books and $199 newsletters even though, based on their columns, they have little to offer other than conventional wisdom and questionable analysis.

MF may not provide the worst investment advice you'll find...






But you can find better places to spend your money.

Why insurance is essential

This post gets to the heart of the reason why I consider the "insurance" piece of health insurance to be the less important part.  Being able to get favorable rates at the time of a medical emergency is far more important.  Consider: 

Lab testing is a vital part of modern healthcare, and can be a valuable tool in helping to diagnose many conditions and illnesses. But they can also be costly, especially if patients don’t pay attention to where their tests are being done. This can even be a problem for those with ‘comprehensive’ insurance, such as Mr. Marcovitz, when their insurer decides after the test is performed that they won’t cover a certain procedure. His story turned out OK, but most self-pay patients would likely have been stuck with a $2,000 bill for a test that they should only have paid $375.

It is fine to argue over whether statins should be covered by insurance, as a patient can actually get price quotes.  But it is less obvious that this is viable after being shot.   It is this emergency care piece of medical care that makes it impossible for a patient to comparison shop prices.  Heck, our ambulance system is completely set up for getting people to care fast and a seriously injured patient is simply not going to be able to bargain.  Imagine the "pay X now or go to hospital Y and pay Z, but on the way you will have irreversible heart damage due to a delay in treatment for your myocardial infarct".

Since the bargaining power in US medicine is entirely with insurers (private or government) this is actually a rather big deal. 

h/t The Incidental Economist

Getting a handle on the paradox of hunger in a country of abundant cheap food

Andrew Gelman has a good SNAP discussion going over at his blog. He also raises an interesting point about the implied statistical content of the previous posts on the subject. The following is a quick attempt (almost entirely dictated into my smartphone while walking to the bank) to make a few preliminary stabs at framing the problem:

We start with household diets. These are collections of individual diets. In some cases we can get economies of scale by combining these while in other cases it makes more sense for them to differ at certain points (for example, if one member is gluten intolerant or is on a low sodium diet). Just to standardize our terms, let's say that each days diet consist of four meals breakfast, lunch, dinner, and a snack. We measure the quality of each of these meals based on three metrics: nutrition, appeal, and how filling it is. Note, these metrics are not weighted symmetrically – a low score in any one of these areas is more bad than a high score is good. Therefore the first objective is to keep any of these metrics from falling below a satisfactory level. After that is achieved the secondary goal is to maximize these three.

Each meal consist of one or more dishes. Each dish consist of one or more ingredients. Everything interacts. One dish may go badly with another. A light dinner might be more acceptable after a heavy lunch.

These ingredients have to be purchased and prepared under various constraints. These include but are not limited to money, time and access.

The ingredients are bought at various stores. Each store is associated with certain time and transportation costs. For each ingredient, there are a wide range of factors that need to be considered before deciding a purchase. These include the quality of the dishes that can be prepared from these ingredients, the cost of the ingredients, how perishable these ingredients are, how easily they can be stored, and their versatility. To further complicate matters, these factors are sometimes dependent on what other ingredients are available, where they are being purchased and the quantities being bought. For example:

The quality, based on the previous listed metrics, of a dry breakfast cereal is dependent on the presence of milk;

The cost of a given item may be cheaper at one store but only if bought in large quantities;

If the constraint of only being able to shop at one store is added, shoppers may be forced to pay a premium price for being able to get all of the items needed for a given dish (99 cent store shoppers run into this problem frequently).

Now add to that the complexity that comes from the huge number of items that potentially may be included in our analysis and the wide range in personal situations.

Here are some examples of the latter:

An individual with a car in an urban area can probably select from a dozen or more stores and visit 2 to 4 of them in the space of an hour;

Outside of a few areas will served by public transportation, an individual in that same area without a car might only have a choice of three or four stores and might require a full 90 minutes to visit just one;

An ambulatory person in good health might be able to shop a 2 mile radius on foot;

The radius for a senior using a walker might be three blocks;

A working parent might find him or herself so time constrained that any shopping trip that takes more than an hour represents a severe sacrifice.

Finally add to that the need to put every meal on the table every day despite the fact that food consumption can be difficult to predict.

Just to be clear, we are talking about big effects here with substantial policy implications. Inappropriate or overly simplistic analyses can easily lead to disastrously wrong conclusions, but I'm not really the person to say what the appropriate approaches are. Maybe there's an epidemiologist in the audience with a suggestion or two...

The enormous difference that $4.45 a day can make

While on the subject of food stamps, you should check out the latest Paul Krugman column. He does a great job spelling out some of the touchstone points of the debate:

Still, is SNAP in general a good idea? Or is it, as Paul Ryan, the chairman of the House Budget Committee, puts it, an example of turning the safety net into “a hammock that lulls able-bodied people to lives of dependency and complacency.”

One answer is, some hammock: last year, average food stamp benefits were $4.45 a day. Also, about those “able-bodied people”: almost two-thirds of SNAP beneficiaries are children, the elderly or the disabled, and most of the rest are adults with children.

Beyond that, however, you might think that ensuring adequate nutrition for children, which is a large part of what SNAP does, actually makes it less, not more likely that those children will be poor and need public assistance when they grow up. And that’s what the evidence shows. The economists Hilary Hoynes and Diane Whitmore Schanzenbach have studied the impact of the food stamp program in the 1960s and 1970s, when it was gradually rolled out across the country. They found that children who received early assistance grew up, on average, to be healthier and more productive adults than those who didn’t — and they were also, it turns out, less likely to turn to the safety net for help.

Netflix, the Emmys and the power of a happy narrative

I probably should have been more explicit about this but the Netflix thread* always consisted of two intertwined sub-threads: The first was a discussion of the business model and methods and how they fit in with the larger television industry; the second concerned the media narrative and the way journalists and pundits found ways to justify the story they wanted to tell.

Last night something big happened to both of those threads. For perhaps the first time in recent memory, the Emmys actually mattered.

To understand the impact on the first thread, you have to take a detailed look at the most likely business model for Netflix. Most likely here does not mean most commonly given. That would be that Netflix hoped to bring in enough additional subscribers to justify the hundred million dollars they spent on House of Cards. Even the numbers from Netflix don't seem to support that claim and as certain shrewd observers (such as Mark Rogowsky and Rocco Pendola), some of the numbers we get from Netflix are questionable.

The far more credible model was that the company was as interested in the prestige and PR value associated with the perception of having a critical and commercial hit. Thus if House of Cards brought in an additional $50 million through new subscribers and decreased churn and also provided the indirect benefits from reputation then the deal made financial sense.

At this point it's useful to step back and compare the way Netflix developed original programming to what we might call the HBO model, also practiced by FX, USA, TNT, and AMC. The HBO model normally starts by hiring a collection of respected B-list talents such as David Chase, Timothy Olyphant, or Louis CK and finding promising C-list talents such as James Gandolfini or Jon Hamm. This increases the risk of failure on the individual show level but it produces a good aggregate ROI and it makes you look like a genius when someone people have never heard of becomes the next big thing.

Netflix took largely the opposite approach with H of C, spending lavishly for hot property, an A-list star and and the director of such films as Seven, Fight Club, Zodiac, and The Social Network. As mentioned before, this expense is difficult to justify strictly in terms of subscribers and churn but it could make sense if the show generates sufficient publicity and has a substantial brand effect.

This is where the Emmy's come in. For a network show an Emmy is not that big of a deal. It can give a nudge to an on-the-bubble series but it generally doesn't translate to a big bump in absolute numbers. It is, however, a valuable branding tool and, more importantly, it's an indicator of branding success. Thus, when AMC was trying to rebrand itself a few years ago, that first award for Mad Men really was a big deal.

Under these circumstances, there's no way that Netflix is happy about the results of these weekend's awards. They wrote huge checks to get House of Cards and Arrested Development (without even managing to acquire all the IP rights). They plastered LA with "For Your Consideration" ads. For all that, they had a poor showing in the nominations and a worse showing on Sunday. After all this effort they got a couple of meaningless "Creative Arts" Emmys (casting and cinematography) and the second tier major, directing (which, given David Fincher's reputation, was almost a given).

Ideally, when a company has devoted this kind of resources to a goal and that goal doesn't pan out, the company will at least reexamine its strategy and tactics, but Netflix isn't really in a position to do that and one of the reasons for that inability to react involves the other thread.

Netflix stock is running very high at the moment and Reed Hastings, Theodore Sarandos and other high ranking people at the company have raked in huge amounts of money in large part because of a pervasive and overwhelmingly positive official narrative. The admission that the model needs work could easily end up costing these executives tens of billions of dollars.

More importantly, the journalists covering the story are working very hard to see to it that Hastings never has to make that admission.

Here's the Wall Street Journal:

If Hollywood wasn't already taking Netflix seriously, it is now.

The streaming video service scored a win at the TV industry's Emmy Awards on Sunday night as David Fincher took the best director prize for political drama "House of Cards." It marked the first victory in a major category for an online video distributor.

The Emmy win could boost Netflix's prestige in Hollywood as an outlet for high-quality original series and further encourage writers, producers and actors to consider Netflix projects at a time when competition for talent among TV networks is as fierce as ever.

You can argue that the Emmys don't matter, but you can't argue that Netflix's one win in a category no one cares about constituted a good night. (Unfairly or not, TV is not considered to be a director's medium. Fincher didn't even show up to collect the statue.) However, we have reached the point in the journalistic narrative process where response is not all that dependent on the nature of the stimulus. Anything short of complete disaster will prompt cheerful, bullish stories. That's what the narrative calls for.

p.s. I dictated much of this using my smartphone. I believe I got all of the homonyms but I apologize if some slipped by me.

* Among others:

Edging away from the genius hypothesis

Netflix can never be the next HBO

Curiously, agressively anti-social

Two quotes about Netflix, presented (almost) without comment

House of Cards -- either already in the black or seriously underperforming

What do the extremely old ultimately die of?

From this article (fascinating throughout):

Professor Coles has done 11 autopsies on supercentenarians and finds that most die of congestive heart failure secondary to “systemic TTR amyloidosis”, a thickening of the blood. The rest tend to inhale food particles and get pneumonia. It is not really clear why women live longer than men; probably something to do with their having a different cocktail of steroid hormones.

It seems that the cardiovascular system is the final point of vulnerability if one makes it past 110 years of age without dying of cancer. 

h/t Tyler Cowen

Of course, tuition is out of control. Just look at what they pay these people

From Yahoo:

That's what some fellow educators in Pittsburgh and around the country are asking, after an 83-year-old adjunct French professor at Duquesne University died earlier this month with no health insurance, no heat in her home and, for the first time in 25 years, no job.

Last spring, Duquesne told Margaret Mary Vojtko that it would not renew her teaching contract that paid her about $10,000 a year. Vojtko, who was battling cancer, had very high medical bills, could not afford to keep heating her home and had been sleeping in her office at the school. 

For epi people, this This American Life is of special interest

If you work in health, you've probably been hearing about the concerns about Tylenol for years now but you'll still want to check out this report from TAL, if only for the larger policy questions it raises.

Counter-example

David Friedman has an interesting counter-example to my claim that the state is essential to enforce claims for damages.  He brings up Icelandic law, which is an area of interest to me due to my passion for European history (my leisure reading right now is Trevor Royle's book on the War of the Roses). 

I am not sure that the Icelandic example would scale to the modern United States of America, nor do I think we necessarily want all of the knock on effects.  But it has the virtue of being a viable approach that lasted for multiple centuries (which is about the most we can say of any modern state). 

If you want to try some leisure reading, he has a book on the topic of alternative legal structures that is in development.

P.S. In the annals of small worlds, I used to be a very involved member of the SCA.  The notion of a self organizing society built around ideals is a lot more rational when you've seen the interesting things that the SCA has managed. 

Weekend blogging -- "The Great Man Votes"

We've been seeing a lot of examples recently of disproportionate voting power, largely as a result of the GOP's decision to compensate for a shrinking base through higher participation (something which raises serious questions about stability but that's a subject for another post). These examples got me to thinking about the 1939 film The Great Man Votes in which the fate of a large city's election comes down to one precinct split so evenly that one last uncommitted registered voter will determine the outcome.

Even without the political science element, the movie is worth checking out. It's a solid picture with another fine late John Barrymore performance. Barrymore should have been reduced to mumbling his lines and dozing off between them but somehow the decay never made it on camera.

And if the basic plot sounds a bit familiar...

Trade reducing labor share of income: paradigm changing if true!

This will be very important if it turns out to be true:

One thing that they find is that the headline decline in this indicator is actually a bit overstated due to technical issues with the treatment of self-employment income. About a third of the total decline, they think, can be attributed to miscalculation. The blockbuster finding, however, is that the remainder is very heavily concentrated in industries that are newly composed to import competition. In other words, the labor share of national income has fallen because many more industries are exposed to foreign competition in a way that's systematically advantaged the owners of capital.

Now go to a rust belt town with this finding, and people are going to say: "That's news?! What the heck is wrong with you economists?!?!"

The reason that this is so important is that the moral basis for things like free trade agreements is the argument that, in aggregate, everybody is better off.  We feel badly for those people who lose their jobs in the process, but it is in everyone's interest to improve the aggregate standard of living of all Americans.  Now there has always been a bit of a paradox between this position and the success of industrial policy in places like Japan.  I have generally accepted the argument that there might be important differences between a nascent economy and a mature economy.  Maybe protectionist policies are good for improving wages when there is a lot of room for "catch-up growth".

But if the game has been rigged so that free trade reduces the labor share of income then that is a completely different issue.  Wealth in the US is much more skewed than income, so the goal of an ownership society is actually further away than an affluent middle class society would be. 

This also can have knock on effects as well.  So, for example, creation of charter schools to introduce competition might reduce teacher wages while creating a new source of a return on capital via a private school network.  For the same money you get richer capitalists and poorer teachers.  I am not saying that is the goal of the movement, but it is worth thinking for a moment as to why this form of competition is pushed so vigorously. 

Mark, any follow-up thoughts?