Fair market test for American universities?

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Tyler Cowen writes,

American higher education does pass a massive market test at the global level — foreign students really do wish to come and study here.

If you just look at the Anglosphere, it’s not clear to me that we are winning a market test. The foreign students are not flocking here from Australia, Canada, and the UK. As for the Asians who are flocking here, I would ask whether they strongly prefer U.S. universities to universities in Australia and Canada, and if so, why. Two seconds of Googling yields this, for example:

A boom in international student numbers in South Australia and the impending merger of two Adelaide universities convinced James Hines to abandon plans for a hotel on a prime city site and instead turn it into one of the world’s tallest student accommodation towers.

And if it turns out that the U.S. does relatively better at drawing Asian students, some reasons could include:

1. A student visa is a relatively easy way to get an extended stay in America, if that is what you want.

2. If you can then get a job here, you can get a green card and stay even longer.

3. Although you might get fine instruction at McGill or Adelaide, you can pick up American culture more readily at Mason.

Wave red cape, get response from bull

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Ryan Williams writes,

On our American Mind website, the Claremont Institute recently launched a campaign to engage citizens in debate about what it means to be an American. We are warning about the danger to the republic posed by multiculturalism, identity politics and politically correct speech restrictions. Google decided that our writings violated the company’s policy on “race and ethnicity in personalized advertising” and prevented us from advertising to our own readers about our 40th-anniversary gala dinner this Saturday.

His Claremont Institute recently held a forum in DC entitled “Multiculturalism vs. America.” I was in the audience, and like most other audience members (and several of the speakers), I disapproved of that framing.

During the Q&A, I pointed out that when Donald Trump pins a label on an opponent, that label is funny, instantly recognizable, and belittling. “Multiculturalism” is none of those. I suggested “crybullies,” a term which I have seen on the Instapundit web site. Apparently everyone thought I said “tribalism.”

The response of the Claremont folks to these complaints was that their framing was not chosen for political purposes or as a marketing slogan. My thoughts:

1. I cynically infer that launching a crusade against “multiculturalism” is an idea that resonated with some major donors.

2. I don’t have much sympathy with Williams’ whine about Google. Hence the title to this post.

3. I did have a positive reaction to many of the speakers at the session, especially Christopher DeMuth. He pointed out that in the 1960s, Martin Luther King and other dissidents were holding up American historical values and saying, in effect, “Live up to these.” In contrast, today’s left sees American historical values as nothing but a set of pathologies–racism, sexism, and rapaciousness.

4. Villanova’s Colleen Sheehan sees universities as at the heart of the problem. I am inclined to agree. Where do young activists in journalism and politics get their ideas?

Along these lines, Liel Leibovitz addresses a plea to Jewish philanthropists:

Please stop offering up lavish new buildings and campus centers and multimillion-dollar bequests in honor of your fathers and mothers, who would probably be rolling over in their graves if they could see and hear what goes on inside the buildings that bear their names. Any Jewish donor invested in any institution in which Jewish students regularly live in fear of retribution from classmates or teachers for asserting their own basic human dignity and attachment to the values of free inquiry and critical reasoning should demand her or his money back.

I am somewhat disillusioned with nonprofits in general. I have three daughters, and for a long time, I have been saying, “I wish just one of them would work for a profit.” I think that my advice to billionaires would be similar. I wish that they would invest for profits, and stay away from non-profits. With non-profits, you are subject to Conquest’s second law. Furthermore, you are raising demand for talent in the non-profit sector. Instead, what you want is for most talented people to obtain exposure to the for-profit sector, where they can better learn to appreciate what it takes to be successful as well as how many flaws and imperfections are going to be found in even the must effective organizations.

Also, non-profits don’t offer the feedback mechanisms that exist in the for-profit sector. Feedback helps to deter for-profit firms from framing major new initiatives in a self-defeating way.

Thoughts on the Adversity Score

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The WSJ reports

The College Board plans to assign an adversity score to every student who takes the SAT to try to capture their social and economic background, jumping into the debate raging over race and class in college admissions.

My thoughts:

1. The graphics that accompany the article show that parents’ income, education, and race are predictive of their childrens’ SAT scores. I suppose that the politically correct interpretation is that this is because wealthy, well-educated, whites and Asians are the oppressors and others are the oppressed. In theory, when social justice prevails, there will be no more statistical differences in SAT scores. But I’ll just come right out and say that I am inclined to believe that the statistical differences primarily reflect genetics.

2. If it were up to me, there would be no admissions decisions and no charge for a college application. Admissions would be by lottery. A student who applies to Harvard is responsible for being able to pass the courses there. If you enter the lottery, get chosen, and flunk out, then the waste of time and money is on you and your parents.

3. With a lottery, the football coach would not be able to recruit players for admission. Oh gosh, what would that do to college sports teams? Make them. . .amateurish?

5. Meanwhile, I am rooting for the existing college admissions process to become discredited. I was glad to see it take a hit with this year’s scandal. I hope that the “adversity score” deals another blow.

Narrower, deeper, older watch

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The WSJ reported,

What’s uncertain is how much longer this kind of bridge club can survive. Below age 60, bridge players are far scarcer. . .

The American Contract Bridge League, a nonprofit that promotes the game and holds tournaments, has about 165,000 members, down from 175,000 in the late 1990s. The average age has risen to around 71 from 58 in the same period.

See my original post on narrower, deeper, older.

What to do with Fannie, Freddie

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Karl Smith writes,

Trump administration officials announced last week that if Congress doesn’t come up with a plan to overhaul Fannie Mae and Freddie Mac in the next couple years, they will. Their plan is to simply privatize the two giant mortgage banks. A better one would be to liquidate them.

1. Liquidation would not be so simple. Their assets are very atypical. They consist primarily of servicing fees, which are small fees that they take on mortgage payments before they pass those payments on to investors. They also have many contracts with counterparties involving financial derivatives, including complex derivatives known as credit risk transfers (CRTs). So who would buy these servicing streams and derivative positions, and how would the buyer value them?

2. Getting rid of Freddie and Fannie would probably result in the death of the 30-year mortgage, because regulators would not allow banks to take on the sort of interest-rate risk that the savings and loan associations carried in the 1960s, which caused their demise in the 1970s and 1980s.

3. I was invited to offer my opinion on the future of Freddie and Fannie to senior staff at their regulator. But we could not get the scheduling to work. I instead submitted my thoughts in writing. I will paste them in below.

Comments on Housing Finance

Arnold Kling
April 2019

1. From approximately 1950 until 2008, housing finance in the United States was characterized by private profits and socialized risks. Through the 1970s, Savings and Loan associations took on interest-rate risk. When many went bankrupt, taxpayers took the losses. Subsequently, Freddie Mac and Fannie Mae dominated housing finance. They took on credit risk, and taxpayers took the losses.

2. Currently, some of the profits from the mortgage guarantee business go to taxpayers, in the form of earnings taken from Freddie Mac and Fannie Mae. Most of the risk in mortgage loans is borne by the private sector. Mortgage-backed securities transfer interest-rate risk to private firms. Credit risk transfers (CRTs) put much of the credit risk of mortgages into the private sector.

3. It would be a mistake to try to take away the profits from taxpayers and return the functions of Freddie Mac and Fannie Mae to the private sector. Once the profits are privatized, socialized risk-taking is likely to follow. Firms that are vital to the mortgage market will have either an explicit or implicit government guarantee. They will find ways to exploit that guarantee, putting taxpayers at risk.

4. Policy makers should be wary of changing the current system. Housing finance today is more sound structurally than it has ever been in my lifetime. Re-introducing old systems or introducing different entities and new regulatory methods would be unwise.

5. There are some tweaks to the current structure that are worth considering:

6. Congress could clarify and limit the charters of the housing finance agencies. In particular, the agencies could be limited to providing guarantees for 30-year, fixed-rate mortgages. Other mortgages, including ARMs and 15-year fixed-rate mortgages, can be supplied by the private sector. The government guarantee is only needed for the 30-year fixed-rate mortgage.

7. Congress could limit to moderately-priced priced homes the mortgages that the agencies can guarantee. Note that the home price ceiling ought to be national. In high-price cities, the problem is one of supply. Subsidized mortgage lending does not enable middle-income people to afford homes in expensive cities. Instead, it simply drives prices up further.

8. Congress could restrict the loan purpose for agency eligibility to primary residences only. It could forbid the agencies from guaranteeing mortgages that are cash-out refinances. This would ensure that the agencies support household saving through home ownership, rather than speculation or consumer borrowing.

9. Congress could ask the regulators to ensure a single, coherent credit policy and pricing policy for Freddie Mac, Fannie Mae, and FHA. This would prevent mortgage lenders from playing one agency off against another.

10. Congress could ask regulators to periodically monitor concentrations of risk in the private sector. We do not want to see one or two firms take on a dominant role in absorbing interest-rate risk or credit risk.

John Quiggin’s neoclassical economics

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Tyler Cowen writes,

John Quiggin, Economics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So Badly. The third lesson, however, is government failure, and you won’t find much about that here. Still, I found this to be a well-done book rather than a polemic.

I also received a review copy of the book. No, the term “Public Choice” is nowhere to be found in the index.

It is straight neoclassical economics, which, as you know, I find frustrating.

Suppose that in baseball, every time a batter makes an out we call it “batter failure.” By that definition, Mike Trout is guilty of “batter failure” more than half the time. A really naive manager would replace Mike Trout with a pinch-hitter. But if you know anything about baseball, you know that pinch-hitting for Mike Trout is pretty unwise.

Neoclassical economics takes the naive approach. It suggests pinch-hitting for markets without making any estimate of the pinch-hitter’s propensity to fail.

Alice Rivlin, 1931-2019

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Timothy Taylor has a helpful obituary. Brookings has a useful intellectual bio.

She was the first director of the Congressional Budget Office. She was a straight shooter and highly competent, and that is how the CBO is regarded to this day. The reputation of the CBO is, if anything, too good. See my essay, The Congressional Budget Office and the Demand for Pseudoscience.

She had various connections in the economics profession, most notably with some very nice economists at Swarthmore, Penn, and elsewhere. One of her friends was Bernie Saffran, the center-right professor at Swarthmore who was my mentor.* Her second husband, Sidney Winter, a highly-regarded academic economist, was also a Swarthmore alum (but more than a decade before Bernie came to teach at Swarthmore).

*It says something that Swarthmore College, of all places, had a center-right econ professor 5 decades ago. Rather unlikely to happen today.

Her daughter, Cathy, went to Swarthmore, and Cathy married a classmate and friend of mine. Both she and her husband are extremely nice.

In fact, one of the shocks that hit me when I went to MIT for graduate school in 1976 was finding economists who were not so nice. Some were downright nasty. Most were highly egotistical. Alice Rivlin and her colleagues were free of those traits.

Through the connection between Alice and Bernie, I got a job as a research assistant at CBO in June 1975, not long after it opened. It was a very rich experience for me. You can read about that in my macro memoir.

She had to overcome adversities of various sorts. Being a female grad student in the mid-1950s. Having a voice that would go uncontrollably from a near-falsetto high pitch to a near-bass low pitch. Having a first husband (Lew) who seemingly went off the rails in late middle age. They were divorced in 1977, and two decades later he was accused of financial fraud.

At Brookings, she was one of the economists involved in the project known as “setting national priorities.” Unfortunately, that project has been discontinued. Back in 2015, I tried unsuccessfully to obtain a grant to undertake a project that was a conscious imitation of that old Brookings project.

Alice Rivlin’s family and friends should be proud of her work and also proud of her as a decent human being.

The genes that did not matter

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For predicting depression. The authors of this study report

The implication of our study, therefore, is that previous positive main effect or interaction effect findings for these 18 candidate genes with respect to depression were false positives. Our results mirror those of well-powered investigations of candidate gene hypotheses for other complex traits, including those of schizophrenia and white matter microstructure.

Read Scott Alexander’s narrative about their findings.

As I understand it, a bunch of old studies looked at one gene at a time in moderate samples and found significant effects. This study looks at many genes at the same time in very large samples and finds that no one gene has significant effects.

The results are not reported in a way that I can clearly see what is happening, so the following is speculative:

1. It is possible that the prior reports of a significant association of a particular gene with greater incidence of depression are due to specification searches (trying out different “control” variables until you find a set that produces “significant” results).

2. It is possible that publication bias meant that although many attempts by other researchers to find “significant” results failed, those efforts were not reported.

3. These authors use a different, larger data sample, and perhaps in that sample the incidence of depression could be measured with greater error than in the smaller samples used by previous investigators. Having a larger data sample increases your chance of finding “significant” results, but measurement error reduces your chances of finding “significant” results. The authors are aware of the measurement-error issue and they conduct an exercise intended to show that this could not be the main source of their failure to replicate other studies.

4. If I understand it correctly, previous studies each tended to focus on a small number of genes, perhaps just one. This study includes many genes at once. If my understanding is correct, then in this new study the authors are now controlling for many more factors.

Think of it this way. Suppose you do a study of cancer incidence, and you find that growing up in a poor neighborhood is associated with a higher cancer death rate. Then somebody comes along and does a study that includes all of the factors that could affect cancer incidence. This study finds that growing up in a poor neighborhood has no effect. A reason that this could happen is that once you control for, say, propensity to smoke, the neighborhood effect disappears.

In the case of depression, suppose that the true causal process is for 100 genes to influence depression together. A polygenic score explains, say, 20 percent of the variation in the incidence of depression across a population. Now you go back to an old study that just looks at one gene that happens to be relatively highly correlated with the polygenic score.

In finance, we say that a stock whose movements are highly correlated with those of the overall market is a high-beta stock. The fact that XYZ corporation’s share price is highly correlated with the S&P 500 does not mean that XYZ’s shares are what is causing the S&P to move. Similarly, a “high-beta” gene for depression would not signify causality, if instead a broad index of genes is what contributes to the underlying causal process.

Further comments:

(1) and (2) are fairly standard explanations for a failure to replicate. But Alexander points out that in this case it is not just one or two studies that fail to replicate, but hundreds. That would make this a very, very sobering example.

If (3) is the explanation (i.e., more measurement error in the new study), then the older studies may have merit. It is the new study that is misleading.

If (4) is the explanation, then the “true” model of genes and depression is closer to a polygenic model. The single-gene results reflect correlation with other genes that influence the incidence of depression rather than direct causal effects.

If (4) is correct, then the “new” approach to genetic research, using large samples and looking at many genes at once, should be able to yield better predictions of the incidence of depression than the “old” single-gene, small-sample approach. But neither approach will yield useful information for treatment. The old approach gets you correlation without causation. The new approach results in a causal model that is too complex to be useful for treatment, because too many genes are involved and no one gene suggests any target for intervention.

I thank Russ Roberts for a discussion last week over lunch, without implicating him in any errors in my analysis.

Russ Roberts on non-stagnation

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He has a 7-minute video lesson and a companion essay.

What the snapshots show is that the rich today are richer than the rich of yesterday. If the rich people are the same people as yesterday, than one’s class determines one’s fate. But if they are not the same people, the snapshots tell you that the dispersion of income has increased. That may or may not bother you, but it doesn’t necessarily mean that there is a distinct group called “the rich” who are capturing all the gains while the rest of us tread water.

The mis-reading of snapshots is one of my pet peeves. A snapshot means looking at, say the average income of someone in the 90th percentile in 1980 and comparing it with someone in the 90th percentile in 2010. The mis-reading of snapshots is to treat the two as if they were the same person.

If you follow actual people from 1980 to 2010, the average increase in income for people in the bottom 20 percent in 1980 is actually quite high. The thing is, many of those people no longer show up in the bottom 20 percent! Instead, the bottom 20 percent in 2010 is occupied by a new set of people, including young families, retired people no longer earning incomes, new immigrants, and people who have recently lost jobs. The snapshots can show stagnation at the bottom 20 percent, even though real people in the bottom 20 percent in 1980 did not stagnate.

I would like to see a high-profile debate on what the data show about trends in income distribution. Otherwise, I fear that those of us with a powerful case against the conventional wisdom will be ignored.

My review of Tyler Cowen’s latest

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I wrote,

Much of Big Business musters arguments and evidence against the accusations critics articulate concerning the corporate sector. But to me, this is an exercise in Whack-a-Mole, where every time you knock down one canard against big business another one will pop up.

Overall, Big Business is a genuine attempt to be charitable to those who disagree and to try to nudge them to change their minds. Sadly, my sense is that most people read to reinforce their views rather than challenge them.