1. Russ Roberts talks with long-time Web visionary Doc Searls on econtalk.

2. At MRUniversity, I am trying to have weekly video chats as part of my course on housing finance. Here is a recording of the first one.

Sugata Mitra is the subversive.

He calls it the grandmother technique, and it goes like this: expose a half dozen or so kids to a computer, and let them have at it. The only supervision required is an adult to listen the kids brag about what they learn. It’s the opposite, he says, of the disciplinary ways of many parents—more like a kindly grandmother, who rewards curiosity with acceptance and encouragement. And it is a challenge to the past century and a half of formalized schooling.

Does this idea come across as libertarian? To me, it actually owes something to the New Left of the hippie era. Anyone remember Ivan Illich?

Wednesday evening in Phoenix. Here is the flyer. The title of the talk is “Competition in Education: Is it a Solution or it is a Problem?”

I find it difficult to prepare such talks far in advance. Instead, I prepare more like a rock or jazz musician, going over various riffs. Anyway, here are my current notes.

1. Over the course of their lives, today’s students will be involved in education much more than they expect. It is a growth sector in terms of jobs. The need to acquire more education will be greater than expected.

2. Non-traditional education will grow in importance relative to traditional schooling.

3. People are uncomfortable using market terminology to describe education. It is similar to health care in that regard.

4. What matters in determining lifetime outcomes? My views:

–genetics 50 %
–parental environment, particularly in early childhood 20 % +
–unsystematic factors (luck, if you will) 20 % +
–schooling and other controllable environmental factors < 10% 5. Pre-K plausibly can tweak the parental environment factor for children of low-functioning parents. 6. With K-12, we do not have any proven, reliable, scalable way to improve outcomes. If the market were fully competitive, costs would be driven down, with little or no effect on quality. Note, however, that the survival of charter schools depends on the opposite--their ability to show an effect on quality, with little or no regard to cost. 7. I think of colleges as being of two types: "experiential" and "transactional." The experiential colleges provide social activities, entertainment, and experiences that build an identity, along with the curriculum. Transactional colleges mostly just offer courses. Students are more interested in credentials. 8. Experiential colleges have a "bundling" model. As long as that model is sustainable, they do not face strong pressures to adopt innovative teaching methods. 9. Transactional colleges are under stronger pressure to adapt. Blended learning, that combines computer-based instruction with live coaching, is likely to emerge. 10. Both experiential colleges and transactional colleges make you fill out an application. But only the experiential colleges are highly selective. 11. In education, the answer to the question posed in the title probably depends on whether you think that the customers in education know what they should be looking for. The traditional answer to this question is "no."

Read his speech at Cato.

As the BA began to take on this gateway function, the customer started asking for something that the school could provide independently of the quality of education. And what happened as a result? Schools had every incentive to produce as many graduates as possible but no incentive to improve their product. As such, any remnants of a classical liberal education havemostly disappeared from college campuses.

Later in the speech:

No technical barriers stand in the way of evolving toward a system where certification tests would replace the BA. The problem is a shortage of tests that are nationally accepted like the CPA exam.

Suppose that college is nothing but an elaborate filtering/signalling device. Then it would seem that there are huge piles of $20 bills waiting to be picked up by the sort of certification enterprise that Murray hopes for.

Field writes,

The thesis that massive monetary accommodation in the early 1930s could have almost entirely eliminated the output cost of the Great Depression needs to be reconsidered. Balance sheet considerations were likely implicated in the slow recovery then as well as now, and might have resulted in persistent output losses, even in the presence of different monetary policy.

In fact, the analysis behind this claim is certain not to impress Sumner, because Field views monetary policy in the recent crisis as accommodative and Sumner does not.

Later, Field writes,

whereas the real economy appears to have largely shrugged off the end of the residential real estate bubble in 1926, that does not appear to have been the case with the stock market crash of 1929 and the slow, sickening slide to a trough in 1932, marked as it was by some of the largest one day percentage increases in stock prices. And whereas the real economy appears to have largely shrugged off the collapse of the Tech stock bubble in 2000-2001, that does not appear to have been the case with the real estate collapse that began in early 2006…This asymmetrical real economy response to asset price deflation is associated with almost diametrically opposed opportunities for leveraged asset acquisition in housing and equities during the run ups to the two crises.

In other words, there is a parallel between buying houses with little money down in the recent period and buying stocks on margin in the 1920s.

Some other points.

1. In both circumstances, the leverage created in the financial sector was even greater than that among households. Think of the thin capital margins that banks had for their mortgage security portfolios. Think of the stocks that were issued in the 1920s merely to buy other stocks.

2. Field’s view that the real estate collapse of the 1920s was relatively harmless runs explicitly counter to that of Steven Gjerstad and Vernon Smith.

3. Field notes that in the 1920s the housing collapse was larger in construction volume but much smaller in house prices than the recent collapse. I imagine that one explanation for this is that in the early 19th century there was much less land use regulation, so that the supply elasticity of housing was greater.

From a WSJ blog.

Wages rose 3.4% from 2011 to 2012 for full-time workers in computer and mathematical occupations, 5.1% for accountants and auditors, 7.5% for electrical engineers, and 4.4% for mechanical engineers.

…For job seekers across the occupational spectrum, bigger paychecks for the most sought-after workers could signal higher turnover and faster wage growth throughout the economy.

But the ratio of employment to the working-age population remains abysmally low, and unemployment among workers under 30 remains abysmally high. I would think that if you’re an aggregate-demand, Phillips-Curve type of guy, you have to forecast continued low wage growth. If instead we see bigger paychecks “across the occupational spectrum,” what sort of AD story could you tell?

From a Treasury publication called the Financial Report of the U.S. Government.

The projections in this Report indicate that current policy is not sustainable. The debt-to-GDP ratio is projected to reach 395 percent in 2087 and to rise continuously thereafter. Preventing the debt-to-GDP ratio from rising over the next 75 years is estimated to require some combination of spending reductions and revenue increases that amount to 2.7 percent of GDP over the period. While this estimate of the “75-year fiscal gap” is highly uncertain, current fiscal policies cannot be sustained indefinitely.

It is important to address the Government’s fiscal imbalances soon. Delaying action increases the magnitude of spending reductions and/or revenue increases necessary to stabilize the debt-to-GDP ratio. Relative to a reform that begins immediately, for example, it is estimated that the magnitude of reforms necessary to close the 75-year fiscal gap is nearly 20 percent larger if reforms are delayed by just ten years, and more than 50 percent larger if reform is delayed 20 years.

Thanks to James Pethokoukis for the pointer.

The Treasury report says that its projections show that the primary deficit (excluding interest payments) is

projected to fall rapidly between 2013 and 2018 as the economy recovers and spending reductions called for in the Budget Control Act of 2011 (BCA) take effect, reaching primary balance in 2018 and remaining relatively flat and near zero through 2021. Between 2022 and 2039, however, increased spending for Social Security and health programs due to continued aging of the population and anticipated rising health costs is expected to cause the primary balance to steadily deteriorate and reach 2.3 percent of GDP in 2039. After 2039, the primary deficit-to-GDP ratio slowly declines to 1.7 percent as the impact of the baby boom generation retiring dissipates.

A couple of questions.

1. In order in order to avoid the “fiscal cliff”, did Congress effectively override the BCA? (This is not a rhetorical question. I genuinely wonder whether the BCA should still be considered operative.)

2. Although economic growth helps the primary deficit, will it help the overall deficit? The conventional macro view would suggest that as the economy recovers, real interest rates will rise. Because debt is now high, a rise in real interest rates really makes a difference to the interest burden.