The proportion of U.S. adults who are “in the labor force”–that is, who either have jobs or are unemployed and looking for a job–has been falling for a decade, as I explored in an April 26, 2012, post on “Falling Labor Force Participation.” But for one demographic group, the elderly, labor force participation is rising substantially.
He cites a Census Bureau Study. This is a two-decade trend, and I think that the most plausible explanation is better health for those in the 65-75 age bracket.
Sometimes, I make a good call. In an op-ed in 2006 on what was then the newly-enacted Massachusetts health plan, I wrote,
The problem of paying for health-care coverage, which politicians are declaring they have “solved,” is really just beginning. The only way to make zero-deductible health insurance available at low cost is with a large subsidy; how much will depend on negotiations with insurance companies. Only when the size of the necessary tax increase becomes clear will Massachusetts’s leaders learn the laws of arithmetic.
Now, we have this WSJ editorial:
Health care was 23% of the state fisc in 2000, and 25% in 2006, but it has climbed to 41% for 2013. On current trend it will roll past 50% around 2020—and that best case scenario assumes Mr. Patrick’s price controls work as planned. (They won’t.) In real terms the state’s annual health-care budget is 15% larger than it was in 2007, while transportation has plunged by 22%, public safety by 17% and education by 7%. Today Massachusetts spends less on roads, police and schools after adjusting for inflation than it did in 2007.
The editorial is about a proposal for a hefty tax increase proposed for Massachusetts.
My earlier post on administrative bloat has found some echoes. For example, Niklas Blanchard writes,
Bloat, or creep is the organizational manifestation of this phenomenon. Whereas organisms will die, organizations without active management will stagnate, become bloated and inefficient, and (from the perspective of a product) continue adding features that sound good in an echo chamber, because there is too much gridlock everywhere else to get consumer feedback to product design. From an S-curve analysis perspective, this problem is endemic at the top of the S curve, when a market participant is dominant (or in econospeak, maximally monopolistically competitive).
Here is the problem: universities won’t fail. The threat of failure is the single best way to insure against institutional sclerosis.
Read the whole thing. Also, Matt Kuhns writes,
Instead of the centralized, monolithic single-point-of-failure model for colleges, why not a new concept of a college or university as an ecology? Instead of a single organization, e.g. Iowa State University, you could have a living network of independent organizations, within which a student could experience much if not more of the familiar diversity of ideas and opportunities at various geographic clusters of those organizations, e.g. Ames, Iowa. Replace a centrally-run, hermetic Soviet Science City with Silicon Valley, in other words.
I wonder whether the Claremont Colleges or the college community at Amherst have a had start at this.
Derek Thompson cites what he calls an “eye-opening” paper breaking down international test score data by social class. The result, if you look at the various graphs, is that across countries there is no meaningful difference by social class. However, across social classes, the differences are huge.
As I read it, the most likely reason for this pattern is that schooling makes no difference, taking innate characteristics as given. I am not saying that this particular study proves this hypothesis, but it offers no evidence to the contrary.
On the page at the Economic Policy Institute that discusses the study, the authors highlight this:
The performance of the lowest social class U.S. students has been improving over time, while the performance of such students in both top-scoring and similar post-industrial countries has been falling.
To my eye, the gains and losses are not quantitatively significant (if the sample sizes are large enough, you could argue that they are statistically significant, although the authors’ own doubts about the consistency of sampling procedures would suggest caution there as well). So the “good news” about American education, if any, is close to zero.
These results are hardly surprising. Most studies of education show that variation in outcomes has almost nothing to do with variation in teaching methods.
In my view, the policy implication is that we should spend a lot less on classroom education and instead spend more on better research, including randomized controlled trials, to find out what, if anything, makes a difference. For now, I see no evidence that the money we spend on education is anything other than an enormous waste.
One of Tyler Cowen’s readers asks,
Which avoidable/contingent event in history did the greatest harm? (e.g. the burning of the library of Alexandria)
As Tyler points out, you never know whether avoiding catastrophe X could mean that worse catastrophe Y is in store. But with that caveat, when I think of avoidable events that did harm, here is what comes to mind:
World War One. You can start with the direct, immediate harm, in terms of death and destruction. Then proceed to the post-war flu epidemic, the Communist Revolution in Russia, the collapse of Germany and subsequent rise of Nazism and a second world war; the retreat from globalization and the destabilized world economy, which arguably helped to cause the Great Depression; the fondness that American leaders developed for central planning during the war, which was highly influential in the way that they responded to the Depression–a lot of New Deal initiatives that ratcheted up government were inspired by World War I era government boards.
In summary, before the first world war, global trade was expanding, governments were small, and many people lived in peace. The war unleashed numerous plagues, some of which are still with us a hundred years later.
This topic came up at lunch yesterday with Tyler Cowen. Could universities cut costs by firing half of their administrators?
I argued that administrators did not just descend on universities like a plague of locusts. In the economy as a whole, the ratio of middle managers to production workers is rising. You can see this by looking at the ratio of white collar workers to production workers in specific industries, such as automobiles.
In universities, I would argue that the growth in administrators is symptomatic, not an independent cause. The problem is what is known in the software business as scope creep or feature bloat. The more you add features to software, the more complex it becomes, and the harder it becomes to manage. Organizations are the same way.
Universities, like government, add new programs with alacrity, while almost never discarding old programs. Any university today has many more majors, many more activities, and many more technologies in use than was the case 30 years ago.
How do you introduce efficiency and cost saving at universities? Narrow scope and reduce features. Do students choose your school because of the chemistry department? If not, then get rid of it. Better to have three excellent departments than dozens of mediocre ones. Let students take courses on line in the ones that you do not cover.
What if a university unbundled its non-academic activities? Instead of using tuition to subsidize athletics, social events, and clubs, make students pay to participate in each of these activities. My guess is that participation would plummet. Students would find less costly ways to socialize.
If you want to reduce administrative overhead, you have to think in terms of radically reducing scope.
A commenter reminded me of Red Sox Technologies, an essay that I wrote nine years ago about technologies that always seem promising but fail to deliver (at the time, the Red Sox were still without a World Series win). It is interesting to look at what I wrote as predictions and to evaluate them. In effect, I was predicting failure for micropayments, e-books, speech recognition, video conferencing, social networking software, and online education.
Micropayments, as they were envisioned back then, are still a non-factor.
e-books are ubiquitous, but my guess is that within a decade they will be in a phase of rapid decline. The book format just does not seem right to me for the digital world.
Speech recognition is still a disappointment, I think. Siri is looking like another iteration of “not quite there yet, but shows the potential….”
Video conferencing is still remarkably unused. In my essay, I was snarky about business meetings in general. I became very bullish on videoconferencing when I saw how it worked on Google+. But it still seems to be way under-used relative to in-person meetings. The best explanation I have heard is that there is some important signaling value in in-person meetings that overwhelms the efficiency gains from video conferencing.
Social networking software really took off. I was way off base on that one.
Online education is picking up, but the hype is still ahead of the reality. I still think that teaching=feedback, and too many educational technologies fail to put feedback front and center. I think at this point a lot of the interest in online education is driven by the fact that in regular education costs are going way up and quality is, if anything, going down.
Reihan Salam discusses the idea.
The problem with Kenny’s proposal, in my view, is that if we are going to set a tariff, $50,000 is almost certainly not the “correct” price. Kenny’s concern is that the price might be too high, yet the findings of Miao Chi and Scott Drewianka suggest otherwise. Moreover, his thought experiment stipulates that a $50,000 tariff would lead to an influx of 1 million, but of course we don’t know what the market-clearing price would be. In the first year of the new system, in light of pent-up demand, the $50,000 tariff might lead to far more than 1 million immigrants, which in turn might lead to a backlash against immigration tariffs.
The way to fix the number slots, Salam argues, is with an auction of immigration slots, rather than a tariff. But I do not see why this is an instance where it is easier to know the number of slots than the correct price. (Not that i have any idea about what the correct price would be.)
When I thought about this issue nine years ago, I wrote
The tax rate for guest workers would provide a means with which to fine tune the competition between domestic and foreign workers. If we believe that foreign workers are driving domestic wages too low, we can raise the tax on foreign workers. On the other hand, if the economy is at full employment and we want continued expansion without inflationary pressure, we could lower the tax on foreign workers.
I was talking about a high payroll tax for guest workers, not about an immigration fee.
Note that the employers of illegal immigrants would much prefer a quota to something like my payroll tax proposal.
Deeper in debt, according to my sixteen tons essay. A very brief except:
The historical record does not clearly support the Keynesian view. There are many instances in which fiscal expansions did not produce economic expansions and in which fiscal contractions did not produce economic contractions.
Tyler Cowen writes,
Prices are sticky, AD is falling, and almost all of the adjustment is in quantities. Yet this still doesn’t explain why prices are inching up, and furthermore it is grossly at variance with the actual empirical literature on price stickiness (much neglected in the blogosphere I should add), which is not nearly as strong as wage stickiness.
This is one of several explanations Tyler finds unsatisfactory for the fact that unemployment is so high in Greece and yet inflation is still greater than zero there. In a follow-up, he writes,
For a simple point of comparison, the rate of U.S. price deflation in 1932 was greater than ten percent with overall deflation running at about twenty-five percent over a period of a few years. More recently, Japan had nine straight years of core CPI deflation and Greece cannot even manage anything close to that. Just what is the Greek Phillips Curve supposed to look like?
I recommend a recent article by Marga Peeter and Ard den Reijer. I may be confused about what I am reading, but it appears to me that the Phillips Curve in Greece shifted adversely over a period of a decade. To put this another way, the natural rate of unemployment in Greece may be quite high.
If my reading is correct, then aggregate demand policies, including converting to a cheaper currency, would not do much for Greece. If workers’ reservation wages are high relative to productivity, you are going to have a lot of unemployment.