Flynn on the Flynn Effect

Posted on April 7, 2013 by Arnold Kling

Interviewed for the Smithsonian Magazine. Self-recommending, as Tyler would say. When he reads the article, Tyler will no doubt note Flynn’s prediction for Brazil, Turkey, and Kenya.

The ultimate cause is the Industrial Revolution. It affects our society in innumerable ways. The intermediate causes are things like smaller family size. If you have a better ratio of adults to children in the home, than an adult vocabulary predominates rather than a child vocabulary. Family size fell in the last century throughout the Western world. Formal schooling is terribly important; it helps you think in the way that IQ testers like. In 1910, schools were focused on kids memorizing things about the real world. Today, they are entirely about relationships. There is also the fact that so many more of us are pursuing cognitively demanding professions. Compared to even 1950, the number of people who are doing technical, managerial or professional jobs has risen enormously. The fact that our leisure has switched away from merely recovery from work towards cognitively taxing pleasures, like playing video games, has also been important.

This did not make me feel good:

The brighter you are, the quicker after the age of 65 you have a downward curve for your analytic abilities. For a bright person, you go downhill faster than an average person.

Given my age, either I am a bright person and about to lose my abilities rapidly, or I am not so bright to begin with.

Pointer from Jason Collins.

The Null Hypothesis in Education is Hard to Disprove

Posted on April 7, 2013 by Arnold Kling

Tyler Cowen reports on a study that shows no difference between students taught traditionally and students taught with a blended-learning approach (combining on-line and in-person teaching). Tyler entitles his post The Hybrid Educational Model Works. I would only have said that if the blended-learning approach were shown to be better.

In education, the null hypothesis is that nothing makes a long-term, scalable, replicable difference. That is:

1. Take any pedagogical innovation or educational intervention.

2. Subject it to a controlled experiment.

3. Evaluate the experiment’s outcome several years later.

4. If the experiment works, attempt to replicate the experiment in more situations.

By the time you reach step 4, if not sooner, you will be unable to show that the innovation makes any difference in outcomes. What this suggests to me is that in the long run it is the characteristics of the students that determine outcomes, at least on average. Think of an individual student as “predestined” to reach a certain outcome. An educational intervention can disturb their path to the predestined outcome but will not change the outcome. I do not literally believe this model, but it is a null hypothesis that is difficult to disprove.

Where Have We Seen This Movie Before?

Posted on April 6, 2013 by Arnold Kling

The Washington Post reports,

Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.

The government should have tightened credit standards in 2005, when the housing market was taking off. It did the opposite. The government should have leaned against tightening in 2009, when the housing market was depressed. It did the opposite.

Maybe the government is getting it right this time. But (a) I don’t think they will get it right all the time and (b) when they get it wrong it’s you and I who pay the price.

Betting on the direction of the housing market is a job for private speculators, not government officials.

If government officials would take this lesson, they would at least have some basic understanding of mortgage lending decision analysis.

Visualize Whirled Peas

Posted on April 6, 2013 by Arnold Kling

Bryan Caplan writes,

Everyone is used to the existence of government. If the police were suddenly replaced by a dozen private police firms, people would expect CEOs to say, “Let’s attack the competition and become the new government.” Since people would expect this, many CEOs would expect such a proposal to succeed – and some would advocate it. Since these CEOs wouldn’t sound crazy, many of their underlings would go along with their plan – and their plan (or a rival’s) would probably come to fruition.

So far, so bad. Suppose however that a stable anarcho-capitalist system existed. Then this logic reverses. Since everyone is used to this system, people expect private police firms to amicably resolve disputes. In such a setting, a CEO who advocates a war of conquest would seem crazy – and his pleas to his co-workers would fall on deaf ears. In a stable anarcho-capitalist society, a war-mongering CEO doesn’t get a war. He gets fired.

Bryan makes a similar point subsequently.

Is the equilibrium locally stable or globally stable? Think of a roulette wheel stopped with ball resting in number 12. If there is a small disturbance, such as slowly spinning the wheel, the ball will remain where it is, in a locally stable equilibrium. However, if you take the ball out and spin the wheel, the ball could land in any slot. There is nothing globally stable about number 12. If it turns out that no matter where the ball starts it always lands on number 12, a gambler would say that the wheel is fixed*, and an economist would say that 12 is a globally stable equilibrium.

Bryan is arguing that democratic government is only locally stable. If the roulette wheel enabled us to land on anarcho-capitalism until we got used to it, we would not return to democratic government. A similar argument might be made about higher education. If the roulette wheel landed us in a culture in which not going to college is regarded as higher status than going to college, then we would not return to treating a college degree as important.

My own view is that the college equilibrium is not globally stable but that the democratic government equilibrium is globally stable. That is, I think that once the college equilibrium becomes sufficiently disturbed, it will never return. However, in the absence of government, my guess is that social norms would not be sufficiently strong to protect people from defecting coalitions. I think that government is likely to return.

*(meaning that it has been tampered with to make it unfair)

The Basel Did It

Posted on April 5, 2013 by Arnold Kling

Ken Rogoff has described a mystery.

As policymakers and investors continue to fret over the risks posed by today’s ultra-low global interest rates, academic economists continue to debate the underlying causes. By now, everyone accepts some version of US Federal Reserve Chairman Ben Bernanke’s statement in 2005 that a “global savings glut” is at the root of the problem. But economists disagree on why we have the glut, how long it will last, and, most fundamentally, on whether it is a good thing.

Brad DeLong suggests that this is

a catastrophic market failure in the inability of financial markets to properly mobilize the risk-bearing capacities of society as a whole

So who done it? My nominee is Basel. The Basel capital accords blessed certain assets as “low risk.” This fueled growth of Freddie and Fannie. Then, in 2000, private securities with AAA ratings were added to the list, fueling a boom there. We know how that turned out.

The financial crisis served to differentiate two types of investments–the ones that get bailed out and the ones that don’t. Investors naturally have a preference for the former. That means big banks can get cheap credit. And what does Basel tell them they can do with their cheap credit? Buy government bonds.

So what we have had over the past ten years is a massive exercise in credit allocation by the world’s bank regulators. They offer explicit and implicit guarantees to banks that invest in assets officially designated as low risk, and now they are shocked, shocked to find capital pouring into exactly those assets.

The Minimum Wage Debate

Posted on April 5, 2013 by Arnold Kling

Clearly, the debate left things unsettled, because the protagonists are still arguing. [update: Betsey Stevenson contributes noise to the debate.]

The point that I would like to hear shouted from the rooftops is that the minimum wage in the United States is just barely effective. We teach in freshman economics that a price floor is only binding if it is above the equilibrium price. But looking at the number of workers covered by the minimum wage is small, and knowing that the vast majority of unemployed workers are not clamoring for minimum-wage jobs, I would say that you should draw your labor supply and demand diagram with the minimum wage just epsilon above the market equilibrium. It should be hard to see the effect of the minimum wage on employment in your diagram, and it should be hard to see the effect in the real world.

In that sense, Elizabeth Warren is right–if you really want to have an effective minimum wage, it needs to be a lot higher. That is what the debate should focus on, in my opinion. What would happen if we raised the minimum wage by $5 an hour or more? In that case, if somebody wants to try to argue that the effect on employment would be negligible, good luck to them.

Macro-Prudential Tools

Posted on April 4, 2013 by Arnold Kling

Olivier Blanchard explains, (link fixed)

It’s very clear that the traditional monetary and fiscal tools are just not good enough to deal with the very specific problems in the financial system. This has led to the development of macro-prudential tools, which what may or may not become the third leg of macroeconomic policies.

[Macroprudential tools allow a central bank to restrain lending in specific sectors without raising interest rates for the whole economy, such as increasing the minimum down payment required to get a mortgage, which reduces the loan-to-value ratio.] In principle, they can address specific issues in the financial sector. If there is a problem somewhere you can target the tool at the problem and not use the policy interest rate, which basically is kind of an atomic bomb without any precision.

The big question here is: How reliable are these tools? How much can they be used? The answer — from some experiments before the crisis with loan-to-value ratios and during crisis with variations in cyclical bank capital ratios or loan-to-value ratios or capital controls, such as in Brazil — is this: They work but they don’t work great. People and institutions find ways around them. In the process of reducing the problem somewhere you tend to create distortions elsewhere.

Although Blanchard is appropriately cautious about these tools, I do not think that he is sufficiently cynical. I wrote,

Politicians want to make credit allocation decisions. Whatever its nominal purpose, bank regulation is used to enable politicians to undertake credit allocation.

State Universities Be Damned

Posted on April 4, 2013 by Arnold Kling

By this story.

The result of this “party pathway” is more than just a substandard education for those students, whose significant family resources and connections — which set them up for jobs after graduation, regardless of credentials — allow them to take easy majors and spend as much time if not more drinking as they do studying. It also deters those on the “mobility pathway,” as those low-income students seeking entry into the middle class are both poorly supported and distracted by the party framework. As a result, many of these students struggle to succeed — meandering through college for six years or more — or drop out altogether.

Read the whole thing. It might be the most damning article ever on higher education (and makes me curious to read the book).

Deschooling Society

Posted on April 3, 2013 by Arnold Kling

My latest essay.

within a decade or two, the idea that learning can be located in time and space will no longer seem natural. The essence of the revolution that I foresee will be our embrace of anywhere-anytime learning. It could be that schooling as an institution will adapt to this paradigm, but I would bet against it.

Meanwhile, a more moderate proposal (still radical by today’s standards) is to get rid of school districts. As Bruno Behrend points out, the case against school districts is a strong one. Still,

people can’t yet envision an education system without the bureaucracy, powerless boards, “group rights” (what a frightening, tribal, concept), and the millions of unnecessary jobs that school districts force upon us.

As I have said before, people are really afraid of letting go of coercion in education. They think that we need adults to be in a position to coerce children, school officials need to be in a position to coerce parents and teachers, local politicians need to be in a position to coerce school officials, state politicians need to be in a position to coerce local officials, and national politicians need to be in a position to coerce state politicians. And, of course, teachers’ unions need to have particularly strong power.

UKIP and Xenophobia