The Liberal Order

Never, ever . . .

. . . mix economics, love, and music. It's just a disaster waiting to happen.

HT: Greg Mankiw.

Oh Cr_p!

Ever have one of those "oh crap" moments? You know, you react to something and then after a while realize what you've done and that it's going to be a nightmare to clean up? 

I wonder if Ben Bernanke is feeling the same. Hello again to the seventies!

The Decline of Higher Education

Stuart Rojstaczer, a retired Duke University professor, collects data on grading. He has this to say about grade inflation:

What will it mean if in 2040, A is average in many of America's colleges? It certainly means that grades will be meaningless. It also undoubtedly means that we will have severely discounted the value of higher education. Grade inflation represents the greatest collective failure in education in America over the last 20 years.

A nice op-ed on the perils of grade inflation. But I believe the decline in higher education has a different cause - the decline in the median student. In 1960 about 30% of high school graduates went on to college, today more than 70% do. The result is a regression to the mean in both acceptance requirements and curriculum.  

What's In Your Future?

[T]he per capita share of America's total obligations, including entitlements, is more than $184,000 each. The typical American family's share is roughly half a million dollars.

Link here.

Let's get that straight. For a family of four the total debt - explicit and implicit - is more than one-half million dollars. The average home in this country is value at about $200,000.  

Dilbert On the Use of Corporate Jets

We vs. Me

Isn't it interesting that politicians always discuss policy and tax issues using "we" to define the beneficiaries and decry those who oppose them as selfish. But isn't it so that their objective is universally the "me" instead of the "we"? Daron Acemoglu offers a ripe example.

The impact of the stimulus and bailout plans on long-run economic growth has received little attention so far. This is unfortunate. Barring a complete meltdown of the global financial system the possible loss of GDP for most countries is in the range of a couple of percentage points. In contrast, modest changes in economic growth will compound into a much larger percentage within a decade or two. From a policy and welfare perspective, it should be self-evident that sacrificing economic growth to deal with the current crisis is a bad option.

How many politicians are looking beyond the next two, four, or six years on the issue of stimulus spending?

Raising Revenue - The Illegitimate Way

Troopers issued 26,845 speeding tickets during the past two weeks as part of Operation Slow Down-Interstate Initiative.

Story here. 

No, it's more like "Operation Let's Write More Tickets to Fill the State's Diminishing Coffers." 

And it's this gem that adds more fodder to the tickets as a means of raising revenue argument given that roadways frequented more by out-of-state drivers were targeted.

It focused on motorists speeding on interstates and major four-lane highways throughout the state.

Here is Thomas Garret and Gary Wagner on this issue.

Municipalities have revenue motives for enforcing traffic laws in addition to public safety motives because many traffic offenses are punished via fines and the issuing municipality often retains the revenue. Anecdotal evidence supports this revenue motive. We empirically test this revenue motive using panel data on North Carolina counties. We find that significantly more tickets are issued in the year following a decline in revenue, butthe issuance of traffic tickets does not decline in years following revenue increases. Our results suggest that tickets are used as a revenue generation tool rather than solely a means to increase public safety.

How Does Michigan's Governor Granholm Make These Statements With a Straight Face?

On Fox News Sunday, Michigan Governor Jennifer Granholm made the following arguments about Michigan in general, and the Detroit automakers in particular.

1. GM and Chrysler are not looking for bailouts, they have asked for a loan.
2. The UAW has made major concessions as part of the first bailout installment. 
3. The Detroit automakers are at a cost disadvantage to their foreign competitors because foreign automakers benefit from nationalized healthcare provided their employees in their respective countries. 
4. Manufacturing in this country is on the wane due to free trade and agreements such as NAFTA.  

First, if the automakers had viable plans for recovery private capital would be forthcoming. The fact that it isn't is evidence that investors view the likelihood of at least one of the Detroit automakers filing bankruptcy soon is high. The government handout is as much of a loan as the recently passed stimulus package is about economics, not politics.

Second, the UAW has made concessions on wages, but those concessions apply almost exclusively to newly hired workers, not the current workers who, until recently, were paid $103,000 per year for driving a forklift. As we know, the companies are shedding jobs, not hiring new workers at renegotiated wages and benefits.

Third, the argument that having universal healthcare provides foreign automakers a cost advantage over the Detroit Three (or as Granholm argued on FNS, "We're starting fifty yards back.") is a red herring. It doesn't matter whether a U.S. worker is paid $20 per hour plus health care benefits, from which $5 per hour is taken out in taxes, or is paid $25 per hour, from which $10 per hour is taken out in taxes and the government provides him health care. He is still walking home with $15 dollars per hour and some kind of health care. And let's not forget that the foreign transplants are eating Detroit's lunch and their employees have private healthcare coverage. Now, whether the value per dollar of healthcare provided by the state or through private markets is a different matter, but that's not the argument here.

Lastly, I'll just let Russ Roberts explain the fallacy of her manufacturing argument.

Michigan is an economic wasteland for one reason and one reason only: The socialization of profits. Both the autoworkers under the UAW and other unions since the late fifties, and the state and local governments since the sixties, have viewed the profits earned by firms as a collective asset. Having market power in the past, the firms responded by raising their prices and U.S. automobile consumers subsidized Michigan and their unionized workers. Now that the market is competitive, Michigan and the Detroit Three cannot compete. 

Ranked the tenth worst state in which to operate a business (most of the lower ranked states offset their low rankings with better educated populations than the mean, Michigan's is pretty low), Michigan ranks dead last in new business formation by the Kauffman Index of Entrepreneurial Activity. An abundance of idle labor and houses people are almost paying you to purchase and this state cannot attract new businesses?!? 

As part of her race for the Governorship in 2002, Granholm remarked boldly, "In five years we will blow you away." Hmmm!!!!  

Student Expectations

This is a problem I've been fighting for quite some time now. 

A recent study by researchers at the University of California, Irvine, found that a third of students surveyed said that they expected B’s just for attending lectures, and 40 percent said they deserved a B for completing the required reading.

And from where stems the problem?

Professor Greenberger said that the sense of entitlement could be related to increased parental pressure, competition among peers and family members and a heightened sense of achievement anxiety.
Aaron M. Brower, the vice provost for teaching and learning at the University of Wisconsin-Madison, offered another theory.
“I think that it stems from their K-12 experiences,” Professor Brower said. “They have become ultra-efficient in test preparation. And this hyper-efficiency has led them to look for a magic formula to get high scores.”

I can see one other (major) cause of the problem, which is the entitlement society that's developed over the past sixty years and to what we've become acculturated in many areas of our lives. 

Every kid is awarded a trophy simply for participating in a league sport, regardless of his or her actual performance and contribution to the team. Every worker is entitled to some level of consumption for just showing up (i.e., "working Americans"), despite how little value he or she produces for others. Our entitlement society knows no bounds and we only see the undue pressure from family and peers, as well as the failure of our K-12 education system?

The ending offers some sound advice for students:

[Brower] said that if students developed a genuine interest in their field, grades would take a back seat, and holistic and intrinsically motivated learning could take place.