Organized by Tim Kane, with John Cochrane, several GMU stalwarts, Tevi Troy, Brink Lindsey, and others. These were some of the questions I asked.
1. Are colleges deteriorating in quality as fast as I think they are? This was a side conversation, and several participants expressed the viewpoint (wishful thinking?) that all but the most well-endowed colleges could find themselves suddenly overwhelmed by alternative modes of education and credentialing.
2. In the 1950s, many of the large successful businesses (McDonalds, Holiday Inn) were founded by men who never attended college. Why does that seem unlikely today? One answer given was that in the 1950s, you could have only a high school education and still be well above average in terms of cognitive skills, self-control, and other traits.
3. There was a lot of talk about how things are not really as bad for the middle class as the left makes them out to be. I asked, if things are not so bad, then imagine giving a talk to people in a small town in Ohio or in rural Oklahoma. What sorts of advice about future jobs would you give? Some of the answers were glib (“Move to the city.”) Others suggested that the jobs would be in fields like nursing. But not everyone is cut out to be a nurse.
4. Think of a world with momentum investors (“the trend is your friend”) and contrarian investors “If something cannot go on forever, it will stop.”) Can we get bubbles when for a period of time momentum investors overwhelm contrarian investors? The response (I’ll take a risk that I am violating some implicit rules and give away that it was John Cochrane who gave it) is that this sort of thing is more likely to happen in real estate markets than in financial markets, because in real estate markets transaction costs are high. You cannot go short. It is hard to take a large long position (you buy one house at a time, not many houses).
One question that came up concerned the effect of Chinese exports on American wages. With manufacturing a relatively small share of GDP, it was argued that the effect on overall wages cannot be large. Still, the effect on some niches of workers seems to be large.
Someone else asked about the narrative that American workers are worse off than they were 50 years ago or 100 years ago. To those of us at lunch (all on the right side of the political spectrum), that seems ridiculously inaccurate. Yet it holds sway on the left, and it seems to work with the general public.
One answer is that people who take a pessimistic view of recent decades may be thinking in terms of the second derivative. That is, the standard of living is still increasing, but it is increasing much more slowly than it did 40 years ago, and thus it has disappointed expectations.
Another possible answer is that “average is over.” If you are poor and not always employed, then between government benefits and low-cost goods, you can get by. But if you work full time and aspire to be middle class, your consumption basket is more expensive and government is not helping you.
Later, it occurred to me that the left’s story has the advantage that there is a villain. The evil CEOs and capitalists have taken away something from ordinary workers. No matter how many facts you throw back at them, any story with a villain is more compelling than one without one.
Incidentally, that makes it pretty futile for conservatives to try to play the compassion card (sorry, Arthur Brooks). People respond to villains. To compassion, not so much.
#2 Facebook, Apple, Microsoft would be 3 modern counter examples.
But also the exceptions that prove the rule.
How do we know this? Arnold’s sample size is 2 and mine is 3…we need more data.
You listed all software companies.
JetBlue. Does that help?
Yes.
Apple and Microsoft were founded about a generation ago. As for facebook, the whole point of it is that it sprang out of an elite university working as a social club, which the rest of the world then apes.
Twitter and WhatsApp…I’ve got a few more up my sleeve.
I tend to agree with Arnold’s overall sentiment, but the example provided is lacking without more data.
‘Some of the answers were glib (“Move to the city.”)’
That really doesn’t sound glib to me, but rather it sounds accurate.
I’m a rural guy at heart and I have sympathy for people who lack opportunities because their geographic location just doesn’t offer many likely career choices, but there is a cure for that, and it’s not glib to say so. What alternatives are there? Compete for one of the extremely few decent jobs in a field you’re interested in (‘few’ may be ‘zero’); make the best of a bad career match; sit around and wait for lightning (see North Dakota) to strike?
But note that this is not anything new. The same was true going back to at least the 50’s. The long trend of lower employment in agriculture has driven both agricultural and non-agricultural jobs out of the rural regions for many decades. Also, the small factories which used to be somewhat dispersed across the country have steadily disappeared (the small textile mills of the south, for example). Even if you didn’t want to be a farmer or a mill hand, that economic activity supported other jobs in retailing or education or other areas you may have favored. The compounding effect of job growth also works in reverse.
I get what you are saying. I suspect Arnold means the advice, more properly labeled stark, was offered in a glib fashion or tone. That doesn’t make the advice untrue, but if when you are telling someone – just pull up stakes from where your family has been for five generations, or whatever – then the non-pecuniary cost of the decision deserves acknowledgement.
On what basis do people than things aren’t bad?
People like job security. They like clear paths where if you follow the rules you steadily advance and do a,little better than your parents. They like knowing what careers are likely to reward hard work. The left is,correct that we’ve lost these things. They like not having to speculate on where to hunt for transient jobs.About 10 out of a million people can move to North Dakota for their boom and bust and that can evaporate if the government just implemented a sane energy policy. That isn’t real advice.
Are you doing worse than your parents at a similar age? Almost everyone I know is doing great compared to their parents at a similar age, and often even compared to their parents *now*. It makes me think that people want to hear a sad story.
It’s also not so hard to see what careers to invest in. Law is not the best choice right now, but otherwise it hasn’t changed in decades. Medicine, business, and anything in STEM are all extremely reliable. If you study any of those at school, you will learn things that you eventually apply, and you will have a healthy job market once you get your degree. As well, you can dodge most of the recent labor laws that are clogging up the economy at the bottom end.
You can’t count technology, that is if this discussion is to have any useful meaning.
STEM is basically the only sure thing and you can’t even bank on that really now that people are likely to off shore manufacturing even when it hurts the firm.
You also can’t fully count second incomes in a “are you better off than your parents” comparison. At least not without a full accounting.
Also, I’m not doing good if my parents do worse now. I’m also doing worse!
Auto mechanic, small engine mechanic. If you are a little smarter machinist. Real-estate manager.
Also plumber is evidently not bad. My son started as a plumber’s helper out of high school. That was about 2 years ago, he saved $25k and added some college money he got from my father and bought a nice condominium. He rents a room to a friend and nets out even on housing expenses.
It will take many years for most college grads to catch up with him if they ever do. Who knows he might start his own plumbing firm or take over management for his boss, who he likes.
The conservative / libertarian villain is of course the State itself. The trouble is, that’s the progressives’ hero.
Surprised there wasn’t more discussion of absolute vs relative “well being.” In any absolute sense we are better off as a country. But relatively speaking, I sense that more people than ever feel like “have nots.” Seems to me this is associated with a poor mental state and potential political volatility down the road. This cannot be cured by simply pointing out that we are better off in absolute terms. Humans appear to be “wired” to be particularly sensitive to relative standing. We shouldn’t be so quick to just brush it aside.
1 There is value in scarcity and as college becomes ever more common it becomes less valuable. It is still valuable though as specialization and technology continue to advance.
2 It takes higher degrees of knowledge and specialization which aren’t as suitable for those with only a high school education. The near exception would be the development of specialty food and drink or the arts and entertainment, where taste matters more, even if still more likely to be developed by the college educated.
3 Anyone with high speed internet can compete across the globe but that is not that attractive without a special niche. Rural areas are always dominated by farming and work supporting it, implements, service and repair, sales and distribution, transport and communications. Health is just another of these.
4 The ease of taking a long position in equities increases the likelihood of less sophisticated investors becoming involved and herd following, so bubbles are equally likely there.
Technology is probably even more important. Second derivative is a good way of looking at it, increasing the doubling time to the point of not noticing growth significantly. The big problem is gdp continues to increase, it is just not being distributed but instead concentrated. Equality rises as the difference between poor and middle class narrows while inequality becomes greater than ever as concentration increases. CEOs happen to fall into that category.
short/long: REIT? (although I don’t like the tax treatment so only hold in retirement accounts)
villain = government doesn’t work for me (though i’d agree that’s how some conservatives see it). the aims of government are good; the flaws are in individuals (policymakers who are overconfident or negligent in their analysis).
For the past 30 years or so, rent inflation has outpaced core inflation ex. shelter by almost 1% per year. This is largely because of supply constraints in the large metro areas. There are some NIMBY issues in the expensive suburbs, but much of this is because multi-unit housing can’t be built in the core cities. This causes costs for renters to rise while homeowners are shielded and it also imposes more costs on low income households, because housing is a larger part of their expenses.
If we are adjusting for inflation with a single aggregate figure and we don’t account for capital gains in incomes, then we will not capture a significant divergence between real incomes of low income households (especially in the cities) and high income households. In this way, the trend in income inequality may be much worse than we think it is.
The solution is to unleash metropolitan real estate owners to build high rise housing at market rates until the market is sated and all of these years of artificial rent increases are reversed. Instead of building 5000 sq. ft. McMansions in the exurbs, people will move into 1500 sq. ft. condos in the cities, which is clearly what they want to do anyway.
Good luck with that. It ain’t the right that’s stopping it from happening, though.
BTW. Even the BEA says that real housing expenditures have declined over the past 30 years while nominal expenditures remain level. In other words, we keep spending the same portion of our incomes on a dwindling stock of housing. We never came close to “overbuilding” in the 2000s. If you don’t agree, take it up with the BEA.
Kevin, I’ll take it up with you. Dwindling stock of housing? Is that why the amount of living space per person has been rising, even though population has gone up? I think it is self-evident that, in fact, the stock of housing has gone up over the past 30 years. If you accept that, then the amount of spending (which is a flow) has been more than sufficient to maintain the stock. That means that either that nominal spending on construction was really high relative to the housing stock 30 years ago or that the BEA has over-deflated housing expenditure. Or perhaps both.
Arnold, square footage is a substitute for location. The larger homes are a sign of the artificial scarcity. If we could build residential high rises in California, NYC, and Washington DC, real housing expenditures would rise but square footage and residential investment would not.
Also, if you want to be committed to the idea that we are overestimating housing inflation, keep in mind that if real housing has been flat as a portion of total expenditures then core cpi has been overstated by nearly 1% per year for many years. If real housing has been expanding, then core cpi inflation has been overstated by well over 1%. So you would need to significantly increase your estimate of real growth and decrease your estimate of inflation. This would make it very difficult to argue that monetary policy has been anything but very tight for decades. Cpi inflation less food energy and shelter has ranged between 1 and 2% since the mid 1990s.
I don’t think much of aggregate measures of inflation to begin with, and I don’t subscribe to monetarism, so I’m not much moved by this. I like your other point, which I take to be that land rents have soared in big cities while construction of big homes has taken place elsewhere. So, if you want to live in a city, your cost of living has gone up. If you happen to like distant suburbs, then maybe your cost of living has gone down.
I think that on some key points we agree. Looking at Manhattan or San Fran, the housing stock is way below what we think it should be, and what we think it would be with less regulation. Looking at exurbia, that is where houses keep getting bigger, and we can argue about whether construction inflation is over-estimated or not.
The other thing to note is that commuting has gotten much worse. The new housing stock is in the exurbs. There is an increased number of two car or three households, and as woman entered the workforce, that meant more people drive during rush hour, thus more congestion.
The real statistic to look at would be “cost of a three bed room home within 30 minutes commuting of a major job center.” I don’t think such a statistic exists. But I would bet that it would show that price increases have substantially outpaced income growth of the average 30-year-old full-time worker.
So a lot of millennials want to buy more expensive, centrally located real estate, simply to enjoy the same commuting times their parents enjoyed while living in the cheaper suburbs. So while the housing on average is not more expensive, it is more expensive to maintain the same quality of life.
And while size of home has gone up, happiness studies generally show that commuting times and stress has far more impact on happiness than the size of a home.
Arnold, I thought the entire “New Commanding Heights” idea, along with Handle’s points around it, Baumol’s etc., was a theory of why things are worse? Did that come up?
Don’t all oppressor/oppressed relationships have a villain? If your conjecture were true, that this villainous presence lends substantial persuasiveness to an argument, would not the left hold a structural advantage? How ought the civilized/barbarian and freedom/coercion contingents rephrase their arguments?
“People respond to villains. To compassion, not so much.”
Maybe it is true to some extent, but people surely respond to (perceived) existent problems and believable (even if wrong) solutions, e.g., few people are trying to blame someone for the Martian invasion. And (merely stated) compassion is cheap and overabundant, almost everyone claims to feel it. If I were an unemployed or underployed worker with a family depending on me, I would prefer to have my share of it in cash — preferably a well-paying job– , so, yes, when there is a perceived problem, people who promise change instead of “more of the same” have the advantage–remember Hitler, Reagan, Nixon, the Bolshevik Party and Obama). This “the people just don’t get how great things really are” talk could be heard in American liberal circles in 1968 and 1980 (Reagan’s “The Speech” was an indictment of it in 1964: “Now, one side in this campaign has been telling us that the issues of this election are the maintenance of peace and prosperity. The line has been used, ‘We’ve never had it so good.'”) as well as it is heard in conservative circles nowadays.