Friday, June 26, 2015

Free college won't address inequality

Populist proposals for free or reduced college tuition won't help reduce inequality and might exacerbate it. Yet, I still support tuition breaks at state universities for some specific fields of study to encourage more graduates in those fields.

How could free education be a bad idea to reduce inequality?
  • Educational attainment K12 corresponds to income, and parental education attainment;
  • test scores also correspond to income and parents;
  • free colleges still have limited space;
  • elite schools, both private and state, will remain elite; and
  • college breaks benefit the upper-middle class most.
Yes, some students from low-income and lower-middle would be helped by free tuition, but many already qualify for grants and scholarships. The reality is that college tuition is a middle class concern, like the home mortgage deduction. Politicians aim for the middle, where voters are.

Colleges are not going to build thousands of new classrooms and hire tens of thousands of instructors. Not that there is a shortage of doctorates (surpluses explain the adjunct armies). However, free tuition is likely to come from existing spending. That could reduce any (nonexistent) plans to expand facilities and faculty.

Nations with free tuition don't offer the palaces of learning and "student life" now used to recruit at US campuses. Our elite colleges, including many state universities, are resorts and health clubs with some classrooms. And the best have no shortage of applicants; they know the market. It is about the "experience" to many education consumers.

I'd love more focus on teaching, but that's not going to happen. Students now shop on other criteria.

With limited space, schools must use placement tests and other quantifiable entrance requirements. Vague standards lead to lawsuits, so expect rigorous admissions policies. And for whom will these tougher standards work? The upper-middle class, statistically.

Think about it this way: California's best students will still want to attend Cal Berkeley and UCLA, the crown jewels of the University of California system. Out-of-state and international students also want to attend these great institutions. Space is limited. Already, admission into these universities is difficult for all but the best of the best students. Make them free and that situation won't change, and the competition to earn admission will escalate. Who will be able to afford the test-prep, interview training, and other extras that might help with placement? The well-off, of course.

If grants are made, at roughly the median cost of a university, that also benefits the middle-class more than it does other groups (for better or worse). Unless grants cover all expenses, low-income and lower-middle students are likely to attend lower-cost institutions in affordable cities. The rich will attend whatever universities admit them, regardless of cost.

In Germany and Sweden, where universities are "free" (at least the tuition is), students still accumulate debt, and graduation rates are about the same or slightly lower than the United States degree completion rate. How is that possible? Because "free" doesn't offset room, board, books, fees, and the incidental costs of living in the expensive cities in which universities tend to be.

The "free" universities internationally also aren't the leading research institutions they once were. That's probably not a coincidence.

To control costs, time limits would need to be in place to prevent "perpetual students" from taking seats. Colleges and universities would start to resemble large high schools, without much flexibility. If you want the public to pay for higher education, there's simply no way to avoid cost controls and restrictions on choices.

If people complain that universities feel like businesses (a claim I reject, for many reasons), imagine trying to structure them to handle exploding populations with already limited state and federal funds. As with healthcare, the United States actually spends quite a bit on education… with the states and cities spending the most getting some of the worst results. How will this trend translate to higher education without spending restraints? No, there will be restraints and tough choices.

One choice that must be made by states: what degree programs to expand and which to cut. Free or low-cost could result, as it has in France, in an oversupply of humanities graduates. Not that I don't love the humanities (I have an English degree, after all), but yet more English and art majors isn't a good investment of public monies. No, that's not "fair" if you don't believe in telling people what they can study — which is why I only half-heartedly support public subsidies for select fields.

How can I still support low-cost or free state college and university education in some fields?

The science, technology, engineering, and math (STEM) fields are among the most important to our futures. I'd argue these are the fields that will improve lives. Though the humanities matter, they simply aren't the engines of progress. And, despite what some of my colleagues claim, there's no evidence studying the humanities makes for "better" people: consider the painter Hitler or the philosopher Lenin. And I'm not going to argue that STEM experts are any more (or less) humane. But, we need inventors and scientists to move forward.

More importantly, STEM degrees do promote class mobility more than the humanities. Engineering does pay more than being a theatrical artist. Medicine pays more than being a "{fill in the blank} studies" expert.

If we can help students from lower- and middle-income prepare for college admissions, and that will require investing in our K12 systems, then grants for STEM field degrees would be a great way to offer upward mobility.

Reducing the cost of college won't fix the K12 problems. It won't equalize parental influence. It won't change which career paths pay the most or offer the most social standing. Free college isn't a magical solution to anything, and it might make some things "worse" in terms of inequality. Our colleges won't be magically populated by students from disadvantaged urban and rural school districts. That's just not going to happen.

My assumption is that university population profiles wouldn't change significantly with "free" tuition.

It hasn't worked to shift inequality in Germany or Sweden, and low-cost education elsewhere has had little to no effect on mobility. The higher mobility in other industrialized nations has more to do with their narrow class segments, a far more complicated issue than free college tuition.

Promising free or "affordable" college is really about appealing to particular voters. It isn't about improving educational quality, which has actually stagnated in the free-tuition nations.

That doesn't make "free" a horrible idea, but it won't address inequality.


Friday, June 19, 2015

Rhetorical Games Writing Professors Play

My original title for this posting was a bit presumptuous:

Rhetoric of the Liberal Professor Afraid to Debate

After reflection, I realize the professor isn't "afraid" to debate an economic issue, but simply doesn't realize there is a debate because his worldview and selection biases screen out other information. At least, that's my theory.

Recently, as part of a trend of articles on the dangers of too much political correctness and identity politics on campus, an anonymous "liberal professor" mentioned that a (racist) student wrongly associated Fannie and Freddie with the housing bubble. This example was to show that the professor handled "debates" well in the past. Actually, the example shows quite the opposite: that conservative and libertarian ideas are depicted as racist, mean-spirited, ill-informed, and furthered by ignorant people.

Quite simply, the example is a stereotype. Accurate of events or not, this shining example of how great the professor handled debate really shows how his biases led him away from a real, informed, discussion on an important topic.

Every economist, regulator, and financial professional I personally know (and I spend the last two years at a school famous for Nobel Laureates) casts at least some blame on the GSEs. But, by linking argument to a racist, the professor tailored his past defense of debates in class to his likely readers. Rhetoric, layers deep.
I'm a liberal professor, and my liberal students terrify me
by Edward Schlosser on June 3, 2015

What it was like before
In early 2009, I was an adjunct, teaching a freshman-level writing course at a community college. Discussing infographics and data visualization, we watched a flash animation describing how Wall Street's recklessness had destroyed the economy.

The video stopped, and I asked whether the students thought it was effective. An older student raised his hand.

"What about Fannie and Freddie?" he asked. "Government kept giving homes to black people, to help out black people, white people didn't get anything, and then they couldn't pay for them. What about that?"

I gave a quick response about how most experts would disagree with that assumption, that it was actually an oversimplification, and pretty dishonest, and isn't it good that someone made the video we just watched to try to clear things up? And, hey, let's talk about whether that was effective, okay? If you don't think it was, how could it have been?

The rest of the discussion went on as usual.
I am sorry, but only "most experts" this professor happens to read disagree with the idea Fannie and Freddie weren't a serious problem. And the Community Reinvestment Act (CRA), which was targeted at urban minorities, had serious problems with sub-prime and risky loans.

As framed, the "black people" phrase is horrible and inciting, but the professor (if he understood the economics) could have explained the good intentions that led to a bad policy (and are leading to the same policies again).

Using a racist to show how well you handle debate is a rhetoric stunt, not proof of your actual ability to engage in meaningful debate on serious economic and social topics.
The next week, I got called into my director's office. I was shown an email, sender name redacted, alleging that I "possessed communistical [sic] sympathies and refused to tell more than one side of the story." The story in question wasn't described, but I suspect it had do to with whether or not the economic collapse was caused by poor black people.

My director rolled her eyes. She knew the complaint was silly bullshit. I wrote up a short description of the past week's class work, noting that we had looked at several examples of effective writing in various media and that I always made a good faith effort to include conservative narratives along with the liberal ones.
Read the above simplification of what the student had probably said versus how the professor frames it. The student asked about Freddie and Fannie, along with minority lending (in a crude way, possibly). The professor, however, tells his director only that the student in question suggested "the economic collapse was caused by poor black people." No, the student, without the skills of a college-educated professor, was asking about a much larger public policy.

A great professor would have reframed the question, with the student, and suggested doing some additional research and presenting that later in a paper, with citations from both pro- and con- arguments about the role of GSEs in the economic collapse of the housing market and corresponding recession. There's even debate about if the collapse in housing was caused by labor issues or led to those labor market issues. Lots of great questions for study… all ignored.

And, because we are afraid to debate questions or we don't know any better, here we go again… according to The Economist, USA Today, Bloomberg, and other financial news outlets.
America restores the weak lending standards that led to the housing crash
Oct 25th 2014 | NEW YORK | From the print edition
WHEN politicians bashed Wall Street for its reckless mortgage lending in the wake of the subprime crisis, bankers retorted that it was the politicians' enthusiasm for expanding home ownership, even if it meant small deposits and low credit standards, that had really fomented the disaster. Yet that enthusiasm is undimmed: in a speech on October 20th Mel Watt, head of the Federal Housing Finance Authority (FHFA), announced plans to reintroduce mortgages with deposits as low as 3% through Fannie Mae and Freddie Mac, the two government-backed housing giants it regulates.

Both Fannie and Freddie were bailed out during the financial crisis. There was much talk in Congress of winding them down; in the meantime, they tightened loan requirements to limit the risk to taxpayers. But that changed when Barack Obama appointed Mr Watt, a congressman from North Carolina and long-term evangelist for home ownership.

Fannie and Freddie do not issue mortgages. Instead, they buy them from banks and guarantee the securities into which they are bundled for resale. Over the past two years many big mortgage lenders have paid billions of dollars in fines and been forced to buy back piles of dud loans on the grounds that they did not conform to Fannie's and Freddie's rules. These settlements were controversial, in that the pair had actively sought out risky mortgages to satisfy their mission to promote "affordable housing".
Clearly, there is another deep side to this debate. But, not as this professor views it. His biases limit his perspective and his reaction to an ill-informed (aren't most of them) student is not helpful or educational for that student.

I'm convinced this professor is constructing "conservative" questioners in an artificially bad light, but let's assume his recollections are entirely accurate. He still misrepresents the student to the writing program director. This "open-minded" liberal professor heard only the racist subtext of a question, and missed the serious policy question. That's sad. And that's what many conservatives and libertarians dislike about higher education.

Of course, would the writing professor be aware of the concerns about Fannie and Freddie voiced in financial media? Probably not. And certainly, this professor is not a reader of "conservative" or "libertarian" journals.
THERE ARE TWO KEY EXAMPLES of this misguided government policy. One is the Community Reinvestment Act (CRA). The other is the affordable housing "mission" that the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac were charged with fulfilling.
— American Spectator
Yes, the American Spectator is "conservative" but that doesn't mean its facts are incorrect or somehow not worthy of discussion. Our liberal professor, however, doesn't seem to be aware of alternative viewpoints that might have merit.

Things are actually returning to the pre-crash state. That should concern us, but this professor's students likely don't know we're inflating the markets again. Everything from quantitative easing (QE) by central banks to lowering of lending standards, all meant to kickstart weak economies, could create the same bubbles we saw with the dot-com and housing bubbles.

Today (June 2015) Bloomberg data show the MEDIAN down payment is back to 4%, a dangerously low level that means buyers have no equity in their homes. That limits mobility and results in negative liquidity if they must try to relocate.

Yes, I'm picking apart one aspect of what this professor wrote about how great and wonderful he was before becoming afraid of his liberal students. Yet, his example is a cherry-picked "conservative" that readers of this professor's column will find a believable representative of conservatives on campus.

For me, even if I agree with the points the professor later makes about liberals and progressives wanting to avoid any and all disturbing debates, the way the economic debate is depicted calls into question the author's teaching and actual ability to engage in deep discussions.

Friday, June 5, 2015

Bernie Sanders: Nice Guy, Bad Policy

Watching Senator Bernie Sanders on CNBC last week, I was reminded of why I like him as a person and worry that such an earnest, nice politician (a true rarity) could have such misguided ideas about economics. If only I felt the same about the men and women who tend support more classically liberal policies. I do not trust the politicians with whom I agree on economics, and I adamantly oppose the policies of the few politicians I might trust.

Yes, another lousy election season begins, not that they ever end.

Here is what Sen. Sanders said that troubles me. It proves he doesn't get market economics or how the areas in which government is most involved are least responsive to customers.
10 questions with Bernie Sanders
John Harwood
Tuesday, 26 May 2015 | 6:10 AM ET

The whole size of the economy and the GDP doesn't matter if people continue to work longer hours for low wages and you have 45 million people living in poverty. You can't just continue growth for the sake of growth in a world in which we are struggling with climate change and all kinds of environmental problems. All right? You don't necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country.
Forget 23 spray deodorants. I'm sure there are three or four times that number at my local Target and Walmart stores. And 18 different sneakers? Has Sanders not visited a Footlocker or Payless Shoes? I'm willing to wager Nike alone offers more than 18 styles for any demographic.

Limiting choices in clothing or personal hygiene products won't feed more children. What's sad is we have free lunch programs, SNAP, and other programs that aren't as efficient or as effective as planned. I've worked within impoverished urban and rural areas. Education is the only way to help families provide better and budget more wisely.

Children are not going hungry because we have choices within consumer products. Sorry, but developed nations have both the most choices for everything and the lowest rates of genuine starvation on the planet. If anything, because of those choices we have lower prices and allow money to be spent on more essential items.

In the United States, we spend less on housing, food, clothing, electronics, and many other items than in most industrial nations. We spend more on healthcare and education. What do healthcare and education have in common? Oh, yes… government involvement.

We spend (2014):
26.9% on housing
14.8% on transit
6.6% on food (lowest in the OECD nations)
5.1% on healthcare

If you aren't paying for college (which Sanders wants to make free — yet "free" is relative as Germany and other nations have discovered), and you have average healthcare insurance, the United States keeps getting cheaper for most citizens. I know it doesn't feel that way, but look at all the stuff we own today, from smartphones to HD televisions, that our grandparents couldn't imagine. Those things exist because of our free market and choices.

Even food, which I felt was increasing in price faster than inflation, is actually getting cheaper over time. Mother Jones, call it progressive or liberal or whatever, agrees that overall food costs are lower in the United States than elsewhere and getting even cheaper as a percentage of income.
On some level, this is pretty intuitive—food is a basic need, and there's only so much you can eat, no matter how much money you have. But even among developed countries, our food spending is ultra-low: People in most European countries spend over 10 percent of their incomes on food. In fact, Americans spend less on food than people in any other country in the world.
We do spend more of our gross domestic product on healthcare and education than other nations, for mediocre results — and both sectors of the economy are highly integrated with government. Nearly half of the expenditures in healthcare are from government programs (in the least efficient multi-layered payment model imaginable). If you want to drive down prices, make the billing easy and clear, especially for major medical procedures. Right now, people must let their insurance company or the government pay large bills without any understanding of the charges.

Real, transparent markets face pressures to compete.

Higher education assumes the middle-class will keep taking out subsidized loans forever, failing to respond to market pressures. Tuition isn't itemized, beyond the "per unit" cost. Unless you study the budget of a college, there's no way to know what you're really paying to receive. (Again, the "free" education markets in Europe turn out to be expensive, too, because only tuition is free, and the cities with universities are expensive places in which to live. More on that in another blog post.)

Sanders is a nice guy. He genuinely cares about the middle-class and everyone else. But, he doesn't seem to understand markets. That worries me, because people I respect are nodding in agreement with some of the economic statements made by Sanders. Do these people really imagine the federal government will somehow get magically more effective at allocating resources?

The market works, when you have a transparent and fair market. That's what we don't have in healthcare, education, or finance. Sanders' ideas might actually make the markets less transparent and less responsive.

Too bad other politicians support crony corporatism (not genuine capitalism) and don't seem to understand what our small and new businesses need for success. Sanders' policies would not be great for the United States, but I'm not sure they'd be significantly worse than the corporate welfare policies others continue to support.

Can we please have a free market candidate who is honest and able to educate voters in plain English? Not another crony corporatist and not a well-intentioned socialist, but someone with faith in the public and businesses to compete in a transparent market.

One of the mistakes Sanders and others make is claiming that libertarians resist all regulation. Not true. We support disclosure requirements, enforcement of contract law, fair (loophole free) tax policies, and considered public infrastructure. Most of us are not anarchists. We don't want to take away programs for the poor, disabled, and those hit by natural disasters. We want wiser spending, more fairly collected and disbursed.

Classical liberals should be wary right now. Sanders is a nice guy and he's going to sway a lot of voters — shifting policy debates further away from free markets. I blame crony capitalism that supported dishonest and uncompetitive "capitalists" for making Sanders' presidential run more influential.

We don't need government running the markets. We need government standing by to make sure the markets are open and fair. There is a difference.