Author Archives: mdbold

Obama’s Keystone Delay

The construction of the Keystone XL Pipeline has been a hot-button political issue for a while now. For those who do not know, the Keystone Pipeline is a system that runs from Canada to states as far south as Texas. The idea is that it will greatly reduce transmission costs of obtaining oil from Alberta, which has very large oil reserves, to the United States. The hope is that this will create jobs and lower the cost of oil for consumers.

The final phase of Keystone is awaiting government approval. Terry O’Sullivan, who runs the Laborer’s International Union that represents many construction workers, had this to say, as quoted in a recent Wall Street Journal article:

It’s not the oil that’s dirty, it’s the politics. Once again, the Administration is making a political calculation instead of doing what is right for the country. This certainly is no example of profiles in courage. It’s clear the Administration needs to grow a set of antlers, or perhaps take a lesson from Popeye and eat some spinach.

O’Sullivan may have a point here. There has been a lot of political backlash surrounding the project (many cowboys and Indians marched through Washington DC on Tuesday to “show Obama, to show Washington DC the very faces of the people that the decision of the KXL pipeline represents) in spite of the fact that a report by the Obama Administration (a liberal group, not a conservative one!) shows that there will be negligible increases in emissions caused by the pipeline (an idea which economic theory, the Hotelling Model in particular, also supports). It seems that Obama may be more concerned with pleasing a liberal audience than following the numbers.

But why should anyone be opposed to the pipeline at all, then? Many are concerned about environmental effects other than emissions. Some environmental activists would point to the fact that more oil production puts ecosystems in danger. This is a fair point, but, of course, we must weight the costs with the benefits. The aforementioned report concludes that only one endangered species — a fish species — is likely to be adversely affected by the implementation of the pipeline. That is unfortunate. But it must be weighed against the fact that the pipeline will create thousands of jobs, make energy cheaper, and reduce America’s dependence on Middle Eastern oil. There are other concerns to be raised against the pipeline, not all of which I have time to discuss here, but I encourage all interested in the pipeline to weigh costs and benefits carefully.

So, Obama probably does need to “grow some antlers” in this situation.

On The Trials of Being an Economics Student

Sigh. Being an economics major really isn’t an easy thing, and not just because the material is conceptually difficult.

If you feel that economics is so divided along party lines that it is difficult for you to know what to believe, you are not alone. If the fact that economists are divided on the nature of issues as fundamental as inflation, I feel your pain.

This semester, one of the economics classes I took was Econ 437, Energy Economics and Policy. I rather enjoyed the class and learned quite a bit, though it was obvious that my professor had a conservative slant. Nearly every problem set he assigned us came with a moral: government intervention in the energy market is no good. Solar panel subsidies in developing countries? Bad. Emissions standards for new cars? Bad. The University of Michigan building stations for drivers of electric cars to juice up? A ploy to make the ‘U’ look good.

In spite of the conservative slant, I did my best to learn what this professor had to teach me. I looked at the numbers he provided and took what I could from them. Today was the last day of the class, and in a way he had gotten through to me: renewable energy is not always the best way to address climate change. The stories of the developing nations that attempted to implement such technology seemed testament to this, and the data on the sub-par electricity production of wind farms and solar panels seemed compelling.

And then I read this from Paul Krugman:

Like just about everyone who has looked at the numbers on renewable energy, solar power in particular, I was wowed by the progress. Something really good is in reach.

And so, inevitably, the usual suspects are trying to kill it.

For the Kochs, it’s partly a matter of financial interest. But for the conservative movement in general, Kevin Drum has it right: it’s all about tribalism. Liberals like solar power, so we’re against it.

Look, it’s not that I can’t make up my own mind about these things. But the frustration that comes with taking a class entirely dedicated to energy economics, and then having one of the most famous economic commentators of the day shoot down much of what my professor had to teach me in a few short sentences, is nothing short of discouraging. Through my time in the energy economics class I have formed my own views, and I certainly know better than to base my opinions off the words of one economist. But the frustration is immense. The physicists don’t have to deal with this.

And now that I’ve bickered, let me offer a ray of hope: our generation has a choice. We can continue down the road of partisan pettiness that has dominated economics since its inception. Or we can choose to work together in an atmosphere of mutual understanding and respect. It would be naive to think that politics will cease to play a role in economics. The field is political by nature.

But we can do much better.

The Census Bureau is Probably Not Cooking the Books

Writers at the Wall Street Journal (and, as far as I can tell, ObamaCare haters everywhere) are angry that the Census Bureau has changed the way it measures how many people are covered by health insurance, saying that

[T]he Census revamped the CPS household insurance questions, muddying comparisons between the pre- and post-ObamaCare numbers. The results of the new method will be disclosed this fall […]

Robert Pear of the New York Times obtained internal Census documents that note that the new CPS system produces lower estimates of the uninsured as an artifact of how the questionnaire is structured. One memo refers to the “coincidental and unfortunate timing” and that, “Ideally, the redesign would have had at least a few years to gather base line and trend data.”

The insinuation in this article is obvious: that the Census Bureau timed this change so that it would exaggerate the benefits created by ObamaCare. But I’m not convinced.

First of all, it is misleading to say that the new method producing lower numbers of uninsured is an “artifact” of the new questions. The new questions intend to produce lower numbers of uninsured Americans because research at the CB shows that the old questions they used create an upward bias. They are correcting an artifact, not  creating one.

Second, the change was announced in September 2013, before the botched ObamaCare roll out. If the CB meant to cover up the bad numbers, it must have been clairvoyant about the fact that the launch of healthcare.gov would encounter so many problems, and it should be obvious that this is not the case.

Moreover, do we really have any reason to think that the CB biases their results in Obama’s favor? Sure, one could claim that the statisticians at the CB have a liberal bias (though I see no evidence of this). But do they really have an incentive to construct an elaborate plan that will potentially muddy numbers so terribly that Obama looks good when he should look bad? If they do have such an incentive, I do not see what it possibly could be.

That said, this probably was not the best time to roll out a new measurement system, considering that health care coverage is such a charged topic right now. Still, we want the best estimates that we can get, and in the link provided above, the CB cites several sources that show that the new question formats provide more accurate data. The alternative to changing the method would be keeping a system that gives biased results for several more years.

Anyway, I imagine that once people cool down a bit and realize that the change is probably not a sign of corruption, this story will fade fast. But it gives us a good chance to reflect on the role government statisticians and whether we accuse certain organizations of being corrupt because it bodes well with our political ideology.

Do we have an economic theory of everything?

Physicists search for what they refer to as a master theory, or Theory of Everything (ToE). The Theory of Everything is the hypothetical rule or equation from which everything else can be derived; it relates everything we know about physics to everything else. Theoretical physicists like Michio Kaku even imagine that the corresponding equation is so elegant that it is the size of the top half of a thumb.

Noah Smith thinks he has a good contender for a Theory of Everything of behavioral economics: the Random Utility model. He seems to like this model because, like me, he believes that human behavior is too complex to be modeled perfectly with equations, and the Random Utility model addresses the fact that peoples’ choices often seem, well, random:

A Random Utility model treats human decision-making as if it has two components – a predictable, deterministic component, and a random component. But if there are a huge jumble of behavioral effects going on, it seems to me that outside of the lab, that’s usually just going to be observationally equivalent to randomness in the objective function. Which is exactly a Random Utility model.

I quite agree with Noah that this sounds like an excellent contender for an economic Theory of Everything. Noah and I both agree that human decision-making may be too complex to calculate deterministically. That is, humans have so many thoughts, ideas and biases running through our heads that it would be impossible for an economist to write out an equation that encompasses them all. Thus, we need to add randomness to the equations to account for that.

Now, I think that a lot of scientists would dislike the idea of a Random Utility model as an economic ToE. Why? Because, in theory, we should be able to come up with equations that predict things perfectly, without any randomness. That is, if we were smart enough, we would be able to map out the brain so thoroughly that we can predict what people will do without introducing randomness. As Paul Krugman says, “everything is quantum mechanics in the end.” I imagine that many would say that until we figure out those equations, we do not have an economic theory of everything.

This is a fair point, I suppose. I think whether you would accept a Random Utility model as an economic Theory of Everything depends on your philosophical paradigm. Do you believe that every decision we make has the potential to, one day, be perfectly predicted by a set of equations? If so, the Random Utility model as a ToE probably isn’t for you. If you’re more like me, and think that human behavior isn’t perfectly describable with equations, you can probably see the appeal of a Random Utility model as a ToE.

How to cut the costs of a higher minimum wage

Robert Stack is the president of a non-profit called Community Options, which aids the disabled in finding housing. Most of his revenue comes from Medicaid payments. In an article in the Wall Street Journal, he claims that a minimum rate hike would be devastating for his organization:

If President Obama’s advocacy for increasing the minimum wage succeeds, without a calibrated increase in Medicaid rates, we would be forced to shut down in most of the states where we pay $8 an hour. Why? Because the increase would add $3.1 million to our costs. […] Even if my executive staff works for free, that would still not cover the cost. We’d have to pull out of states like Texas, Kentucky, Tennessee, New Mexico and South Carolina, and we’d never open in Mississippi, where we know that our organization’s services are much needed. Other states in which we operate, such as New York, New Jersey and Pennsylvania, will see services compromised, as there are caregivers we now employ who will gravitate toward other industries, like food and hotels, where the pay will be higher.

Okay, obviously it is tough to judge the validity of testimonials like this. Any organization with low-wage employees have an incentive to, if not lie, exaggerate the harm that would be done to them if the minimum wage were increased. And let’s be real — is his organization really going to have a worker shortage because workers will gravitate elsewhere? If that isn’t happening now, why on earth would it happen if the minimum wage increases? Moreover, even places that pay low wages do not really struggle to find employees. There is always someone looking for a job.

That said, this article made me wonder if the non-profit industry would indeed be most hard-hit by an increase in the minimum wage. If an organization truly makes no profit, then any increase in cost would have to somehow translate to a decrease in services.

However, I believe there is a solution to this problem (or at least a way to lessen the pain that it may cause). As it turns out, most of the people that earn the minimum wage do not live in poverty; in fact, 63% of those who earn the minimum wage are second or third earners in households who’s income is more than three times the poverty income. It seems to me that a way to majorly cut the costs of a minimum wage increase would be to only offer it to those who really need. Indeed, it would not be all that difficult for an employers to acquire income tax paperwork from anyone who wished to receive the higher wage. Of course, to prevent hiring discrimination, employers would have to wait until after they have hired a person to determine if they are eligible for the higher wage.

Actually, something like this already happens in Michigan; if you’re under a certain age, you only have to be paid a fraction of the minimum wage the adults get. So it must be feasible legislation.

I won’t try to claim here exactly who should be eligible for a higher minimum wage, but it’s something to think about.

How do we improve race relations?

Noah Smith had a really interesting article on race relations and racism in America. Noah says:

…it is not even enough for white people to act in a fair and unbiased manner toward black people. Respect is important, but mere distant, cold respect is not going to be enough. What needs to happen is for white and black people to actually be friends and hang out with each other on a regular basis. “Black America” can no longer continue to exist as a separate, foreign mini-nation within the American nation, because separate is inherently unequal. Real integration is the only real answer. Fortunately, I think attitudes are changing among the younger generation of Americans, but powerful people – political leaders, the media, churches, etc. – need to do their part.

I think that Noah is mostly correct here. Indeed, laws themselves will not get us to equality. For instance, even in spite of the overturning of Plessy v. Ferguson, which ruled state-sponsored segregation as long as the two separated parties had “equal” benefits, schools and neighborhoods today are still largely segregated, with the enormous disadvantage going to non-white students. So laws themselves are not enough.

Noah is right that what is really needed is friendship. Growing up in a mostly white community, the vast majority of my daily interactions were with white people. When I came to the University of Michigan, which is home to a large non-white population, I gained many non-white friends, and that was really a life-changing experience. The subject of race was no longer so uncomfortable, and I felt that my understanding of the world grew.

It is precisely this type of understanding that is the deadliest weapon against racism.

I also agree with Noah that the media needs to do its part, but here we must be cautious. Indeed, we should expect the media to represent the opinions of all Americans, not just the wealthy white men who usually run the media outlets. Some media outlets are actually half-way decent about this. But we must also be on the lookout for media outlets who use the subject of race to inspire anger in their audience to entice the interest of their readership and viewership. This actually does happen: whatever your opinion on the George Zimmerman case is, the unfortunate fact is that NBC edited the 911 tapes that recorded Zimmerman’s call to make his remarks sound incredibly racially charged. But it worked: people were up in arms about those tapes, and it was, I think, those tapes that made the story as big as it was. Instances like these should damage our trust of the media.

So, I agree with Noah that what is needed for better race relations is more friendship, and the media indeed has a part — but we should be weary of it.

College is still worth it

Not long ago, it was easy to argue for the usefulness of attending college: if you are willing to put off work for a few years and occur some debt, you’d be on your way to a high-paying job and the ability to live in relative comfort. These days, people are casting a more critical eye on the value of education. Critics like Tyler Durden point to the fact that in 2013, 260,000 people with a college or professional degree made at or below the minimum wage.

Personally, I think that the view that college is generally not worth it is highly misguided. Indeed, there are many for whom college is not worth it because of work preferences, and we should be happy about that: the economy needs all kinds, from ditch diggers to entrepreneurs. But college is, on average, worth it financially.

As Google’s Eric Schmidt points out, in spite of debt, degree holders significantly strengthen their earnings potential (even if the advantage of having a college degree has decreased, the average college graduate will earn more than the average high school graduate, even after paying off debt.)

But I think peoples’ fears about the usefulness of college go beyond debt repayment. People are afraid that college graduates will not even be able to find a skilled job (the image of the Art History major brewing coffee for Starbucks comes to mind). To see what I mean, consider this graph I obtained from the FRED:

fredgraph

 

I think that one of the reasons people have recently been calling the value of obtaining a college degree into question is because we just went through an era where the unemployment rate for college graduates was unusually high. This scared people; why go to college if you won’t even be able to find a job after?

But there are a couple of things to realize here. The first is that the unemployment rate for college graduates tends to rise in recessions, just like it does for everyone else. Experience from the past and present shows that things will tend back to being normal. A bout of high unemployment for college graduates should not deter the prospective student from obtaining higher education.

What is more, even at its highest point, the unemployment rate for college graduates was nowhere near as high as the unemployment rate for the general population. Indeed, for college graduates, the unemployment rate did not even hit 5.5%; if the unemployment rate had been that low for the general population, the Great Recession might not have even been considered a recession at all.

So, when considering whether or not to attend college, prospective students should think about the type of work they want to do, and know that, as long as they are sensible during their college years, their degree will pay off.

Koch’s piece is shallow and unfounded, with one exception

I’m going to go ahead and hop on the bandwagon of bloggers commenting on Charles’ Koch’s recent piece in the Wall Street Journal. Koch has this to say:

The central belief and fatal conceit of the current administration is that you are incapable of running your own life, but those in power are capable of running it for you. This is the essence of big government and collectivism.

I do have to wonder where Mr. Koch gets his idea that the current administration believes that citizens are incapable of running their own lives. As far as I can tell, the only program the Obama administration has presided over that can be seen as an attack on personal liberty is the NSA data mining program (though I suppose I could also see a case for saying that requiring people to purchase health insurance is an intrusion on liberty, but such policies are hardly new — we are all required to purchase auto insurance, and I have yet to hear anyone call that an attack on liberty). Mr. Koch’s lack of substantive examples — or even examples at all — should be a signal to the reader that Koch is simply engaging in rhetoric, echoing the common conservative and libertarian claim that liberal government officials like to run peoples’ lives for them.

Most of the rest of the article is a continuation of a tirade against the left and why he sees their criticisms of his company as unfair; however, I found a nugget of truth in his article that we should all consider:

Instead of encouraging free and open debate, collectivists strive to discredit and intimidate opponents. They engage in character assassination. (I should know, as the almost daily target of their attacks.)

Unfortunately, Koch’s statement is true for many prominent commentators on the left. Paul Krugman is a brilliant economist, but he engages in frequent character assassination. He refers to Koch as “thin-skinned” and frequently cites Paul Ryan as a cruel con man. As a liberal myself, I find such attacks disheartening and not conducive to productive discussion. Even on this internal blog, I have found that when I respond to criticisms to my ideas with a cool, welcoming tone my critics are much more likely to hear out what I have to say.

That said, the right is as guilty of character assassination as the left. It is a phenomenon we should all be weary of.

So, Koch’s article is mostly conservative rhetoric with little basis in reality, but sometimes even silly articles can remind us of important truths.

Is an MBA Worth it?

There has been some buzz in recent years as business people and lay-commentators debate the usefulness of an MBA degree. Many, like Emma Boyde at ft.com, point out that MBA students are not scarce; so many people obtain an MBA degree that the skills that come with it are not as valuable.

Another consideration is that many of the skills you learn in business school are actually skills you learn in the job place. How to manage people, for instance, is, I think, a skill that is best learned in the work place, but business schools often offer classes in human management. Is it worth it to obtain a high-cost degree when you can learn many of the skills it offers without the degree?

Still, I definitely think that an MBA has its upsides. Here are the two credentials I think make obtaining an MBA worth it:

1. If you can get it for low cost

This is probably not too realistic; business school tuition costs, especially good business school tuition costs, are astronomical. At the Eli Broad College of Business at Michigan State, tuition in the MBA program is $27,191 for in-state students (and remember that this takes two years to complete) while the average starting salary was $86,508. This is an excellent salary, but potentially obtainable at much lower cost without the MBA. However, if you could go to Eli Broad on a large scholarship, there is little doubt that going to the school would be worth it if it was the top school you got in to. With less debt, that $86,508 speaks much louder.

2. If you go to an elite institution

While the bang-for-your-buck is questionable at Eli Broad, obtaining an MBA from an institution like Stanford is almost definitely worth it. Tuition at the Stanford School of Business is an astounding $59,550. But the average salary of a Stanford Business Graduate is $195,553. If you have your heart set on a large salary, attending Stanford would still be worth it in spite of the terrifying amount of debt you’d likely to incur.

So, it seems to me that there are certainly still legitimate reasons to get an MBA. But we should remember that the fact that the value of a school lies in its prestige may not be a good thing. There is the question of whether graduates of places like Stanford really do learn more than graduates of schools like Eli Broad. Certainly, the graduates come out of their degrees with very similar skill sets.

 

 

Animosity Toward Charter Schools

An interesting article comes out of the Wall Street Journal today on an issue that is close to my heart: success in public schools. The author, Nicholas Simmons, echos the distress of one of his students, who asks why people seem to be hostile toward charter schools, like the Success Academy where Simmons teaches math, even while their performance on standardized tests is outstanding. Simmons claims that one reason is prejudice:

The newest theory regarding our test scores is the most outlandish. Jonathan Westin, executive director of New York Communities for Change, a union-funded nonprofit, was quoted in Bloomberg News saying that Success Academy is “trying to find ways to increase test scores; that’s why they go into the wealthier neighborhoods.”

Really? Is it just me—or does anyone else hear the prejudicial undertone in that statement? Is it really impossible for Mr. Westin to believe that Success Academy’s poor black and Latino children can achieve at extraordinarily high levels?

I think that Simmons is right here. Often we do not recognize our own prejudices. But there is much more to the story: many traditionally-trained teachers feel threatened by charter schools because they often hire non-traditional teachers like those who are trained by Teach for America. TFA takes recent college graduates (generally from excellent academic institutions like the University of Michigan and Harvard) and places them in underachieving areas like Detroit and Chicago. TFA teachers are not required to have a formal background in education (some do, but most don’t); rather, they spend the summer before the school year in intensive classroom training and then begin teaching that fall. Critics of TFA, including former Connecticut school principal Ann Evans de Bernard, singles out the lack of undergraduate education training as proof that TFA teachers must be ineffective.

It is easy to understand why traditional teachers would resent teachers from TFA. After all, traditional teachers spent years in undergraduate and/or masters programs to train to be a teacher, and TFA teachers only have a summer of preparation before they begin teaching (though training continues throughout these teachers’ two-year teaching commitment). What is more, because TFA teachers are often drawn from outstanding universities, an image of elitism surrounds them. So, if you’re already hostile toward the fact that TFA teachers have much less training than you do and seem to ooze glamour, it is not wonder that seeing their students succeed at unprecedented levels is infuriating for many traditional teachers.

Of course, testing isn’t everything in education. I might even argue that it’s much less important than we often give it credit for. But the numbers, which you can explore in Simmon’s article, do speak for themselves.