Popping in to say hello...

Slow month for posting, but busy month for me. My wife and I welcomed our third baby this month and I am finally settling back into my normal routine of husband/father/worker/student/blogger/programmer. At least, I think that it is a normal routine.

Much has happened over the last few weeks, but one of the most interesting things I saw was the presidential debate. While I don't much respect either candidate and thus didn't have high hopes for the debate, I was still surprised and disappointed at just how economically illiterate both candidates seem to be. Hillary was better than Donald, but that is like saying being punched is better than being stabbed. Both are painful and neither one is good for you. From what I heard, you would think the general consensus is that trade is ruining the world. If this kind of thinking gains traction, I genuinely fear for our future. Markets and trade have done more to lift people out of poverty than every charitable and humanitarian effort in history combined. No, I don't have research to back up that statement, but I don't know many serious people who would disagree with it either.

As for what I've been reading lately, I just saw a post this morning that I thought was interesting on Andrew Gelman's blog about air rage on planes with first class seating. The article talks about a poorly done statistical analysis of air rage incidents that managed to get published in a journal despite all the obvious issues. One part I really liked:

When posting on this study, I threw gratuitous shade at one of America’s most trusted news sources in my “tl;dr summary”:

NPR will love this paper. It directly targets their demographic of people who are rich enough to fly a lot but not rich enough to fly first class, and who think that inequality is the cause of the world’s ills.

The next day I posted a roundup of media outlets that’d fallen for this story, including CNN, the LA Times, and ABC News, along with respected tech sources Science and BoingBoing. I discussed the selection bias that occurs when the best science reporters realize this study is empty and don’t report it, while everyday journalists just follow the PPNAS label and don’t even think there could be a problem. All jokes about “stat rage” aside, this is a big problem in that consumers of the news only see the sucker takes, never the knowledge.

I think Andrew points out something here that doesn't get enough thought. News outlets report what they think will be interesting to their readers, but often don't have the technical knowledge about some of the subjects they cover to really know if what they are reporting is true. They rely on gatekeepers, such as field journals, to weed out good information from bad. So when these journals drop the ball and let shoddy work through, we end up with gross misinformation. It goes back to my concern with the presidential debate. When the two most visible candidates for the highest office in the US are spouting nonsense about trade, that matters. People will assume these candidates are smart, or at least have smart people advising them on these subjects, so what they say will heavily influence people.

Part of the reason I decided to write this blog, and why I agree with Miles Kimball that blogging is important, is to have another voice to contradict bad information and influence other thinkers. This also provides a forum for me to put ideas I have out in public, which makes me think about them more. An example is a post I have probably rewritten a half dozen times (or more) about the guaranteed basic income ("GBI"). Morgan Warstler had a post a while back that proposed an alternative to GBI that I thought was interesting. But whenever I have put together a post to comment on it, I realize I have more questions that I want to dive into before I post. That process continues to sharpen my own thinking on the subject and I feel more confident that when I do finally post something, I will at least have taken the time to think through many of the issues with such a policy change. From the Andrew Gelman piece, it seems like more journalists need to go through that process as well.

Cowen and Smith debate government role in boosting growth

They call it a "debate," but there really wasn't much debating going on (link). After reading it, I was disappointed how little substance there was to the whole thing. Many of the responses felt like they were talking past the other side, not even engaging the ideas. If I could sum it up, it would be:

Cowen: We have pretty much reached full employment, so increasing demand through government spending doesn't make much sense.

Smith: Maybe, but there might be some room left for government spending, and I would rather spend money on infrastructure that we need anyway, even if it turns out there isn't really any demand gap. Besides, wages are still flat so we probably have at least a little slack.

Cowen: Government spending should pass a supply-side test - if we go beyond that, we are likely misallocating resources. Even if wages are flat, it might be that employers value labor less, and maybe human labor is actually less valuable. Video games and porn might be more enjoyable for workers, so they don't care to work hard for more pay.

Smith: But if some workers are valuing leisure time over productivity and work, then shouldn't we see wages going up? That would be a negative supply shock to labor.

Cowen: Not if labor quality is lower. You have fewer workers but they aren't as valuable.

Smith: But women are staying home too... are women staying home and playing video games/watching porn?

Cowen: Maybe we just hit a bubble in the labor market and this is more of an equilibrium level of women in the workforce.

Smith: Even if there really isn't any demand gap, more stimulus! More infrastructure!

Cowen: Sure, more infrastructure is fine. But only in cases where it is really necessary.

I had a lot of questions reading through their exchange that I would have hoped they would have addressed. My thoughts -

• What types of infrastructure does Noah propose? Another bridge to nowhere (what I call "Krugmanian stimulus") doesn't seem like a worthwhile investment, even if there is a demand gap. I agree that some spending might be justified even if unemployment is essentially 0.
• There is a lot to be said about the value of leisure. It has become extremely inexpensive to maintain a comfortable lifestyle with more and more consumer goods available at ever cheaper prices. Anecdotally, I see many of my peers happy to accept less disposable income for more disposable time. Turns out that a comfortable life is easy to afford. Is this a problem? And if so, what are potential solutions? I don't know if it is a problem yet, but if more people trade in work for leisure, there is probably a tipping point where things get bad.
• Why aren't wages increasing with labor participation getting back toward historical levels and unemployment below 5%? Tyler says it's because of a lack of skills among those workers who are playing games in their spare time. But Noah has a good point, if the labor pool is shrinking for skilled workers, why aren't we seeing more wage growth? I would guess that substitutes for labor are improving, and not just for unskilled workers. As the perceived value of human labor has declined, companies would be more willing to invest in technology which picks up the slack in labor markets.
• What is happening with women in the labor force? Are we seeing any sign that women are leaving the work because of family responsibilities? Are industries dominated by women (service, education, etc) shrinking?

Frances Woolley: The Educational Smorgasbord

There is a lot to digest in this post - and if you didn't read it, you won't get the pun (and you don't deserve to!). While the post is a kind of "thinking out-loud" put to paper, Woolley makes some great points about the university conundrum (he is writing specifically about Canadian universities, but I think it applies to the US as well). With so many options in front of students, why are the classes that one might think of as the most valuable (courses that teach skills that will be most profitable after graduation) often under-subscribed while "fluff" courses are so popular?

Education has some serious issues, both for our neighbors to the north and here in the US. Woolley points out that some of this problem is likely due to the poor preparation we give to college students. From my own experience, if I didn't seek out career guidance, I likely would have graduated from college even more poorly prepared than I was. It wasn't until my senior year that I had somebody to help me with putting together a coherent plan for my career, and he was not employed by the university. Instead, we connected through a business society for students. He gave me invaluable guidance (for which I am extremely grateful) that I should pursue the Chartered Financial Analyst (CFA) designation. I had studied business administration and finance in college, but lacked the type of training that would make me valuable to an employer. My timing was especially poor as I entered the job market in 2010, just as thousands of well-qualified, experienced financiers were seeking employment after the fallout of the financial crisis. In pursuing the CFA charter, I gained the skills that helped me get into my current career in financial analysis and (now) credit risk analysis.

I imagine that I am a fairly bright individual, and though the resources available now are far and away better than they were over a decade ago, I didn't have a clue what I was doing in college. I am currently pursuing further education, in part to make up for what I should have done as a full-time student. I went to a school counselor, and even met with a few professors during office hours, and still my education leaned more toward "fluff" than substance.

So what went wrong?

One issue - I didn't know enough about what I wanted to do with life. As someone that has now spent nearly a decade in finance, I still don't exactly know what I want to do with my life. I have way more interests than I have time, and my freshman year I spent split between political science, economics, and journalism. After my freshman year, I had dropped the journalism bit, and instead focused on finance and business with a minor in politics that focused more on social theory and economics than political systems. Still, I graduated with very little insight as to what employers might want from a prospective employee in those fields. I took courses across a wide variety of subjects, from western swing to accounting to theatre history to biology. Fortunately, I was able to find work quickly (probably as a result of applying to anything that bore even a passing resemblance to finance and investment analysis).

Had I known what I know now, I likely would have done several things differently. First, I would have chosen an institution where I would have worked with experts in the fields that I am most interested in (political/experimental economics, finance, statistics). I instead chose a school where I could play football. While I love playing sports, I don't think the trade-off was worth it. I don't think this is stressed enough to high school students - we put a lot of emphasis on going to college, but not nearly enough emphasis on choosing which school to go to and what to study. The "what to study" should be the most important factor in the "where to go" equation, but it didn't even cross my mind when applying to schools. I mostly thought about things like location (I wanted to be in the mountains, close to a beach was a bonus), cost (despite trying to go somewhere to keep costs minimal, I graduated with over $20k in debt), and overall academic reputation (at least I considered that piece!). Since I didn't give much thought to what I wanted to study, I didn't put nearly enough emphasis on where I should go. None of the top 3 schools I applied to my freshman year would have made the cut.

Second, I would have spent more time doing research projects or internships. This is a crucial piece of the educational experience that does not get enough attention. I think education would ideally have more time spent outside of a classroom doing real work. If a typical degree took six years instead of four, but the extra time was spent in a real world setting doing real work, I think the overall product (i.e. the laborer/employee) would be much better. This could also greatly reduce the cost of education because a student would be able to earn income while attending school instead of foregoing any earnings while getting a degree.

And third, schools need to improve the onboarding and academic advising process. Almost all the advice I got from the two universities I attended was " to earn a degree in Major X, you need to take courses A, B, and C." What about asking if Major X is the right one? The advisors in universities need to take on a more prominent role in helping students navigate the academic experience. Woolley wonders if there is a bit of homo economicus to blame as colleges might steer students toward courses that may be more profitable but aren't as beneficial to the student. Since all students are charged a flat rate for full time tuition, it is in the best interest of the college to have more students taking Literature of the Western World from the professors that make half (or less) than the professors that teach Advanced Econometrics or Business Law. Another explanation in the blog is that this information isn't intentionally hidden, people are just less interested in knowing which courses are most valuable so it isn't as visible.

One other explanation that Woolley doesn't cover, but Bryan Caplan gives great insight into, is that of signaling. If a degree is more about getting a high GPA in a subject that tells employers that I would be a profitable hire, then why waste time taking difficult courses that I might not do well in? Instead, I will take the bare minimum of difficult coursework to get my degree, and the rest will be in fluff classes to pad my GPA. While I didn't do this personally in college (as a result of my indecisiveness, I took major courses in several subjects which used all my extracurricular slots), I know people who did. Once they met the bare minimum for the degree, they filled the rest of their schedule with known fluff. I admit to doing this in my final semester of high school. Knowing that I was already accepted to college, I took the easiest classes I could and had a great time.

As the price of college soars, the points Woolley raises are important. As an aside, I'm amazed at the thought that universities aren't awash in money. With how much they charge for tuition, I can't understand where it all goes. If anybody knows where I can see itemized financial statements for public universities, pass that along (I know, I could search, and I'm sure I will get around to it... eventually...).