More on DeLong-term Interest Rates

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Brad DeLong writes,

the most likely–possibility is that the fact that r < g for the government is a byproduct of an extremely large outsized risk premium because of private financial markets’ failure to mobilize the risk-bearing capacity of the public and failure to establish trust and overcome moral hazard in the credit channel. Thus more government debt provides the private sector with something that it is willing to pay through the nose for: a low-risk way to transfer purchasing power into the future.

Pointer from Mark Thoma.

Imagine you had a bank that, whenever it got into trouble through bad investments, could pay off its creditors by taking wealth from people at gunpoint. Such a bank could issue debt with a low risk premium. It is not as clear to me as it is to Brad that the social optimum is for this bank to be very large. Particularly when its “investments” may earn so little in return that at some point even taking wealth at gunpoint may not be enough to enable the bank to meets its obligations.

Another Education Peculiarity

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Neerav Kingsland writes,

the wealthy are paying for status (and perhaps peer effects) more so than they are paying for educational programming.

Schools respond when people pay for status: we get beautiful buildings, wonderful extracurriculars, and a lot of social events.

Of course, these things don’t spread to all schools because they involve costly goods rather than innovations in instruction.

So instead of the wealthy subsidizing the early adoption of innovation, the reverse seems more likely true: it’s the practices of urban charter schools (Teach Like A Champion, Leveraged Leadership, blended learning, etc.) that will end up spreading to the suburbs.

Read the whole thing. If elite schools are status goods, then it will be difficult to dislodge them from their perches–until it becomes easy. I have suggested before that you could see a very rapid “tipping” away from elite schools. Once enough parents decide that there are other ways to achieve parenting status than sending kids to erstwhile elite schools, the elite schools collapse.

A Schooling Peculiarity

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Joshua Gans writes,

There was nothing this calculator did that you could not do for free on the web or through Wolfram Alpha. My teenager, with surprising patience, explained to me that (a) they weren’t allowed to be on the Internet during class and (b) even if they could be, they couldn’t be on it during exams and they needed a calculator they were familar with there. And when you are thinking about SATs or ACTs, that isn’t changing any time soon.

The reaction of schools to the Internet is to try to ban its use during school, particularly during tests. I do not think that these sorts of policies will hold up for very long.

Imagine that the printing press had just been invented. Schools would be telling students that they are not allowed to bring books to school, because books foster cheating. The proper reaction of students would then be to stay home and read, so that they can learn something.

Alex Tabarrok on Labor Market Flexibility

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He writes,

more than half of current workers have jobs that are new since the end of the recession. A majority of workers have new jobs, some workers have wages that are increasing (and thus a fortiori not downwardly rigid) and quite a few workers have flexible wages due to piece rates, commissions, bonuses and so forth. Not all of these categories perfectly overlap. Thus, the scope for nominal wage rigidity as an explanation for current problems appears to be small.

In macroeconomics, the economy is one enormous GDP factory with one price and one wage. But macroeconomics is, in my view, misguided and misleading.

An Elite Higher-ed Peculiarity

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Steven Pinker writes,

The common denominator (belying any hope that an elite university education helps students develop a self) is that they [students] are not treated as competent grown-ups, starting with the first law of adulthood: first attend to your priorities, then you get to play.

Later,

Is this any way to run a meritocracy? Ivy admissions policies force teenagers and their mothers into a potlatch of conspicuous leisure and virtue. The winners go to an exorbitant summer camp, most of them indifferent to the outstanding facilities of scholarship and research that are bundled with it. They can afford this insouciance because the piece of paper they leave with serves as a quarter-million-dollar IQ and Marshmallow test. The self-fulfilling aura of prestige ensures that companies will overlook better qualified graduates of store-brand schools. And the size of the jackpot means that it’s rational for families to play this irrational game.

Pinker’s main suggestion is to de-emphasize factors other than aptitude test scores in admissions. However, I do not think that the worst problem with elite schools is the oddity of their admissions process. I think it gets back to not treating students as grown-ups. Part of that is rewarding students for reciting politically correct catechisms rather than for thinking.

I Wish I Knew More About This

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From Technology Review.

Heimerl’s innovation comes in a gray box roughly the size of a microwave oven. It has solar panels on the outside to power cellular equipment inside, along with the software for management functions like billing and analytics. Secure the box somewhere and link it via satellite to a voice-over-IP network, and you’re ready to open shop as a mobile service provider. Heimerl’s nascent company, Endaga, sells it for $10,000

…Just one hitch: it’s illegal. Regional mobile providers hold licenses to the necessary airwaves. Indonesian officials were willing to look the other way, but in general, regulation is a significant hurdle for Heimerl’s vision of universal access. To resolve that issue, he has helped develop a “white space” workaround that occupies unused radio frequencies until another network needs them.

The Endaga company web site does not tell me much.

What I’m Also Reading

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A review copy of How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness. So far, my favorite passage:

Because of our romantic views of their happiness and importance, we are happy, in Smith’s eyes, to be subservient to the politically powerful and even to tolerate their abuse. Even the tyrant can be adored because of our inclination to be overly sympathetic to greatness…we idealize his greatness and happiness.

The book is a reformulation of Smith’s Theory of Moral Sentiments. Roberts takes Smith’s positive theories and draws normative lessons.

What I’m Reading

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Building a Better Teacher, by Elizabeth Green. p. 281:

infrastructure had three elements: a common curriculum suggesting what students should study; common examinations to test how much of that curriculum they learned; and finally, teacher education to help teachers learn to teach exactly what students are supposed to learn.

She argues that

1. Good teachers make a difference.
2. Teaching itself is a skill that can be taught.

I remain skeptical on both points. On (1), why do researchers like Heckman consistently find support for what I call the null hypothesis, which is that no educational interventions make a large, reliable, long-term difference?

On (2), suppose that there are 50 habits that a great teacher has, and each of these habits can only be learned with intensive practice and immediate feedback. Suppose that it takes two months to learn each habit. If a natural teacher starts with 40 of these habits, it will be a lot less costly to train that teacher than to train a teacher that starts out with just 5 of these habits.

As the author pointed out in a live talk at a local bookstore, there are inevitable tensions in the teaching process. When some students get a concept and others do not, when do you move on?

Also, students respond to a teacher’s authenticity and love. How much rote technique can a teacher use before you lose that?

Montgomery County, Maryland, where I live, smothers its teachers in the common curriculum and common examinations components of infrastructure. The result is that teachers feel stifled by the requirement to be on lesson x on day y. I would add that whenever I have looked at the data, Montgomery County test scores are mediocre. The county spends much more per pupil than other counties in the state, but its test scores are in the middle of the pack. One consequence of the infrastructure is that the student-teacher ratio is high even though the student-staff ratio is low. Actual classroom teachers work very long days and have very little time to receive and reflect on feedback.

I would note that higher education in America has even less of the infrastructure components than does K-12 education, yet higher education is said by some to work well here.

The strength of the book is that it gives us a picture of what better teaching looks like. The author’s descriptions of quality lessons and of schools that develop and guide their teachers are inspiring. If she is correct, and what works idiosyncratically can be made to work systematically, then reading the book would motivate educational leaders to try.

Health Policy Proposals

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From a RAND paper.

The first five options would decrease costs and risks of inventing new products or
obtaining regulatory approval for products that would advance our two policy goals.

1. enabling more creativity in funding basic science
2. offering prizes for inventions
3. buying out patents
4. establishing a public interest investment fund
5. expediting FDA review.

The last five options would increase the market rewards for inventing products
that would advance our two policy goals. These options are
1. reforming Medicare payment policies
2. reforming Medicare coverage policies
3. coordinating FDA approval and CMS coverage processes
4. increasing demand for products that decrease spending
5. producing more and more-timely technology assessments.

Pointer from Timothy Taylor, who comments

I confess that as I look over their list of policy recommendations, I’m not sure they suffice to overcome the incentives currently built into the U.S. healthcare system.