Archive for the ‘Education’ Category

Everyone waive to all the children left behind

Posted: February 10, 2012 by nullpointerexceptional in Education, Politics
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Well BamaBoi just modified the requirements for the “No Child Left Behind” idea by granting 10 states waivers, basically skirting around the law. Let’s assume you know nothing about the “No Child Left Behind Act” (NCLBA) and walk you through some of the important bits of the act. The Act was signed into law circa 2002 by a bright-eyed, bushy-tailed individual in an effort to hold educators accountable for the academic performance of their students. The law is pretty simple: that by 2014, all schools receiving federal funding test “at grade level” in math and reading. I don’t see any part of that statement being unreasonable – twelve years is one full academic cycle, meaning kids in first grade are now seniors in high school, meaning that you’ve had more than enough time to change the course of that student’s academic career. Secondly, shouldn’t students be testing “at grade level” already?

The weird thing is that educators have been up in arms over the repercussions for not meeting the requirements. The slaps-on-the-wrists occur on a graduated scale, summarized below (all actions are cumulative):

  • 2 Consecutive years of missing marks – School is labeled as “needing improvement” while administrators must put together a 2 year corrective actions plan. Parents are given the option to transfer students for free to another school in the district if one exists.
  • 3 Years -Free tutoring and supplemental education services to be made available to schools.
  • 4 Years – School is labeled as requiring “corrective action” opening the possibility for widespread staff replacement
  • 5 Years – School administration is transferred to the state or privatized

The role of educators is the preparation of students to be contributing members of society, each academic year building on the previous. Teaching is still a job and in jobs there are always performance metrics to gauge success. Failure to meet the metrics in your job and you get a pink slip – no asking for do-overs or extensions. The NCLBA sets the bar pretty low already (since schools average out student standardized test scores and that average is all that is needed to pass), why oh why are the educators crying the blues on this Act? Because they are being, for the first time, actually held accountable for their ability to educate students and their performance is being measured and reported on for the world to see.

I’ve never been a fan of unions as they often protect longevity rather than effectiveness – the teacher’s union fits that bill pretty well. How many teachers have you heard about being fired for lack of performance? I haven’t heard of any – the law of averages suggests that there has to be at least one bad teacher. How bout, being laid off due to budget cuts? I’ve heard a lot about those but it’s always the newest teachers being the ones cut.  Isn’t it a little backwards to assume that just because a teacher has been in the union longer that they are a better teacher than a newbie?

I’m just saying, don’t leave the kids behind with these stupid waivers – they are the ones being hurt by things like this. If educators couldn’t correct a problem over the course of 12 years why are they still teaching?


Growing up you learn to appreciate history, if only in an effort to not repeat the mistakes others have made through out history. Things like the horrors of slavery, treatment of native Americans or the brutality of the Civil War. It’s sort of funny looking at how history is written, some sort of fixation on the bad which has occurred rather than focusing on the lighter sides of things. Think that Tiger Woods will ever be remembered as a family man? How bout that OJ Simpson was actually a half decent football player?

Race is always a difficult subject to talk about – say something controversial and you’ll have swarms of lawyers at your door step looking to pad their pockets with oodles of cash – but I have to ask…how did we get here? Why is it such a bad thing to call into question the merits of things? Why can’t we talk about touchy subjects and not worry about things. February is a great time to discuss affirmative action and the merits for both the work force and educational settings while at the same time remembering the history of how we got to this state of society.

What is racism? It’s the preferential treatment of one group of people versus another based on some physical or genetic aspect. What is affirmative action? Basically it’s the legal foundation for reverse racism, that is to say, that in a given situation, preferential treatment of a protected person is legal. It was originally implemented to promote diversity in educational settings and later extended to the work place. The theory here being that by offering a move diverse learning experience, students will be better prepared for the work place and will increase the competitive advantage which American institutions bring to the world market place.

Inherent to affirmative action are multiple layers of racism. That, without some sort of legal protection, minorities or another protected group would never be privy to the same  higher education or employment opportunities as their non-protected counter parts who take these things for granted. I read this as meaning that there is a general understanding that the skills and education performance for a protected individual is below that of an unprotected group of people. In addition to this general understanding, that the better equipped non-protected group should for some reason be discriminated against due to the fact that they arbitrarily fit into that non-protected class of peoples.

To me, this comes off as nothing but racist. Why should equally qualified students jockying for the same spot at a university be subject to differential treatment. Isn’t the purpose of higher education to produce a highly qualified individual which contributes to society? If the university is no longer accepting the best student for a given position, isn’t that somehow defeating the purpose of higher education at the cost of the other student’s education?

I want to attempt a bit of a social experiment here, encouraging people to share their results. Think about high school or college – was there ever really a cross pollination of ideas across races or was there a stigma that like should hang out with like. I attended a well-to-do private high school with one of the most diverse campuses in the country. The one thing which always stuck out in my mind was the formation of cliques – Asians were always with Asians, Blacks were always hanging out with Blacks, Latinos with Latinos and so on. It makes sense, people want to be around people which similar experiences with them – it’s a comfort factor that we all inadvertently became imbued with. Even in the classrooms for group projects I found groups were almost always homogenous.Even in groups where diversity was forced, I feel that the overall outcome was unchanged, meaning regardless of the experiences of the group we would have gotten the same grade on the project.

I am slightly jaded in the sense that I know of a few students with lower SAT scores and academic records being accepted into programs which I also applied to only to personally receive rejection letters. I’m pretty jealous of them, I’ll admit it… but my argument still stands true – diversity would exist without affirmative action and the use of affirmative action is racist. Why can’t we learn from the mistake that racism in any form (even reverse racism) does not benefit society?

I’d like to pull particular attention to two of my favorite Black inventors: Lonnie Johnston (inventor of the Super Soaker) and George Washington Carver (invented peanut butter)

Let’s talk about the budget deficit, baby

Posted: February 5, 2012 by alephnaughty in Economics, Education, Politics
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What is the government’s budget deficit? It is the difference between the government’s expenditures and its income in a given year. The government’s expenditures must be financed–if not by income, then by borrowing. Hence, the budget deficit is the contribution that a given year makes to the public debt.

What causes the budget deficit to grow? If the government’s expenditures rise, other things being equal, or if the government’s income falls, other things being equal, the budget deficit increases. That’s it. It is always one, the other, or both that cause the deficit to swell. Consequently, any recipe for shrinking the budget deficit must involve less expenditures, more income, or some mix of the two.

Why does the budget deficit matter? The government’s savings is, like for a household, the difference between its income and its expenditures in a given year. Thus, a bigger budget deficit implies less public savings. As long as decreases in public savings do not induce equal or offsetting increases in private savings, therefore, a bigger budget deficit makes for less national savings. Less national savings either contracts the supply of loanable funds, expands the demand for loanable funds, or both, raising the natural rate of interest. A higher natural rate of interest, other things being equal, stimulates the aggregate demand for goods and services (AD).

The central bank is usually tasked with managing AD by way of managing the market rate of interest. If AD was previously on target, by the central bank’s lights, then the market rate of interest will be raised in order to offset the AD stimulus induced by the swelling of the budget deficit. Thus, under normal circumstances, a bigger budget deficit raises interest rates. At higher interest rates, private borrowers do not wish to borrow as much, which means that the government’s additional borrowing is “crowding out” some private borrowing. In most cases, therefore, it only makes sense to increase the budget deficit if we have reason to believe that the government’s borrowing will prove to be more productive than the private investment it is crowding out.

Additionally, the government’s financing need not come solely from domestic lenders. Foreign lenders who wish to buy the government’s debt will first have to exchange their own currency for the domestic currency. This expands the demand for the domestic currency, causing it to strengthen in foreign exchange markets. A stronger currency makes importing from the domestic country more expensive, causing the domestic country’s exports to fall. Thus, a bigger budget deficit also produces a bigger trade deficit.

There is also a question of how the debt produced by bigger budget deficits is to be retired. One option is to roll over the debt, which is to say, borrow some more to make principal and interest payments on the debt in a timely manner. This is feasible so long as interest rates on government debt remain low. Another option is to increase the government’s savings, by increasing its income (collecting more tax revenues), decreasing its expenditures, or a bit of both, in order to pay down the debt. A final option is to default on the debt.

The first option is the most painless. A government’s ability to service its debt depends upon its power to tax its citizens, for this is its only (significant) source of income. As a result, the higher a country’s GDP, the more able it is to service its debt, for this makes possible the raising of greater tax revenues. A government’s ability to service its debt, therefore, is best revealed by its debt-to-GDP ratio, rather than its debt in absolute terms. So long as the country’s economy is growing as fast, or faster, than the government’s debt, investors do not have cause for concern. In such cases, the government typically enjoys low interest rates, making rolling over its debt feasible (forever, potentially).

The second option is more or less painful depending on the circumstances. Economic growth raises the government’s income–often reducing its expenditures on safety net programs, too–thereby increasing its savings without anyone making sacrifices. In countries with serious growth problems, or serious debt problems, though, this may not be enough. In such cases, sacrifices must be made. Either tax rates go way up, expenditures go way down, or both. The more growth-friendly the reforms, and the more slowly they’re phased in, the less painful the transition. The longer a country waits to make these sacrifices, the more hurried and more extreme they have to be.

If a country’s debt problems get out of hand, the result is a ‘hard landing’. Investors lose confidence in the government’s ability or willingness to service its debts, so they charge higher interest rates for the greater risk they’re bearing. Higher interest rates, in turn, worsen the government’s finances, causing investors to charge even higher interest rates, worsening the problem further, etc. Eventually, it becomes impossible for the government to service its debts through either economic growth or budget reforms (see, e.g., Greece). At that point, the choice is between explicit default, or implicit default through debt monetization. Only countries with their own currencies have the latter option, and this option usually serves to slow the aforementioned interest rate death spiral. Both courses subject economies to severe financial/macroeconomic dislocation in the short run (due to either banking panics or currency crises), and much higher borrowing costs in the long run.

There’s more to say on the subject, but the short story is: maintain budget deficits when crowding out is not much of a problem (i.e., when financing productive public investments, in the midst of a recession, etc.), but maintain budget surpluses the rest of the time, so that investors chillax and the government doesn’t risk a hard landing. Don’t wait to fix long-term deficit problems–the more thoughtfully they’re approached, and the more slowly they’re implemented, the happier the outcome. And don’t worry so much about future generations. Debt is indeed a burden upon them, but they’ll be richer than us, so, whatever.

ADDENDUM: In the United States, bigger budget deficits have not, of late, raised interest rates. The reason is that the US central bank, the Federal Reserve, would like to see lower interest rates, but its policy rate is near zero (its lower bound). As a result, the Fed has not raised interest rates in order to offset bigger budget deficits–in effect, it is having fiscal policy to do some of the work (of stimulating AD) that would normally be performed entirely by monetary policy. Nor have investors lost confidence in the US government (yet!), because they expect currently bloated budget deficits to shrink substantially as the US economy returns to full employment. The real deficit problem in the US stems from the implicit liabilities of Medicare, Medicaid, Social Security, etc. Without reform, these programs imply (under plausible assumptions) unsustainably large budget deficits that would, almost surely, shake investor confidence. Investors have been giving us quite a bit of breathing room to reform these programs, but the longer we take to do so, the more likely it is that we (or the next generation) will suffer a hard landing.

Misconceptions concerning inflation, Pt. II

Posted: February 4, 2012 by alephnaughty in Economics, Education
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Misconception #4: Inflation is the very same thing as printing money. Define inflation however you like–be my guest. Just note that if inflation is defined to be the printing of money, then the dominant theory of inflation, the quantity theory of money (QTM), becomes a tautology. The QTM says that x% money growth, in the long run, causes x% inflation. If inflation is the very same thing as printing money, then the QTM says that inflation leads to inflation in the long run. No shit. Let’s call rises in the price level ‘schminflation’, then, so we can carry on.

Misconception #5: Inflation causes bubbles, which cause busts. I should begin by observing that no one has a definition of “bubble” that satisfies anyone else. Note that just as the US housing bubble was supposedly developing, home prices were appreciating in many other countries, too. While US prices eventually came crashing down, prices in many other countries (e.g., Canada) have kept on rising. Have these countries figured out ways to keep their bubbles from bursting, or should we conclude that the diagnosis of bubbles ought to be left to Captain Hindsight? Prices go up, then they go down, then up, then down, … What insight is gained when we conclude that some one upturn followed by a downturn was a bubble, when no one can systematically identify bubbles ex ante?

In any event, below is the inflation rate during the 2000s:

And here is the Case-Shiller home price index during that same period:

Which came first, the housing bubble or the uptick in inflation? And which was first to reverse course? As for bubbles causing busts, note that the housing market began to fall apart long before the broader economy followed suit. Indeed, the collapse in the housing market didn’t even accelerate once the economy went into the tank. By contrast, inflation lingered at 2.0-2.5% per year before plunging in concert with the broader economy. A prescient paper by Ben Bernanke (with a coauthor) contends that the responsibility of monetary policy is not to identify bubbles in order to burst them, but rather to keep the broader economy stable as it absorbs the shock. The economy didn’t tank because the housing bubble burst; it collapsed because the Fed failed to keep AD on target. Had the Fed been aggressive enough in its response, the housing bubble would’ve ended with a whimper, not a bang. And it wouldn’t make a difference whether we thought the movement in home prices was a bubble or not. Inflation would seem, correctly, to have nothing to do with any of it.

Misconceptions concerning inflation

Posted: February 4, 2012 by alephnaughty in Economics, Education
Tags: ,

We want a positive rate of inflation in order to keep the unemployment rate at tolerably low levels. We want a low rate of inflation in order to minimize relative price distortions due to price stickiness. Most importantly, we want a stable rate of inflation in order to facilitate intertemporal transactions (for example, almost every financial transaction). Occasionally, we may want a higher than normal inflation rate (now is one of those times) in order to lower real interest rates when nominal interest rates are stuck at zero. Normally, however, a low, positive, and stable rate of inflation is what we seek, and ever since Paul Volcker broke the back of unstable, double-digit inflation during the early ’80s, the central bank of the United States, the Federal Reserve System, has more or less delivered on those inflation objectives. Why, then, do some people worry so much about inflation, and insist upon monetary regime change in order to contain an inflation problem that exists only in their own minds?

Misconception #1: Inflation hurts those who save. Recall the lending example in my previous post. If I naively lend you my savings, without taking inflation into account, then I will end up getting back less than I was expecting. If inflation is stable, however, I need only adjust the interest rate I charge you for the rate of inflation in order to get back exactly what I was expecting. In general, so long as inflation is stable, savers need not fear it, for they may simply demand higher interest rates to compensate them for it, which is what savers in fact do. (This is why high inflation is correlated with high interest rates, low inflation with low interest rates, etc.) The only savers that stable inflation hurts are those who save by hoarding cash (by stuffing it under their mattresses, for example). These people, however, have nobody to blame but themselves. Even in the context of perfect price stability (0% inflation), the rate of return on cash is inferior to equally safe alternatives (e.g., Treasury securities). And if you’re really concerned about inflation, you can always buy TIPS (Treasury inflation-protected securities), which adjust Treasury yields for CPI inflation. The reality is even the most insecure people typically don’t stuff a lot of cash under their mattresses; instead, they stick their cash in government-insured bank deposits. And banks, of course, adjust their interest rates for inflation. Savers have nothing to fear, therefore, besides unpredictable inflation, but everyone has a stake in keeping inflation predictable, not just the savers.

Misconception #2: Inflation raises people’s cost of living. Inflation is any rise in the general level of prices. Hence, the more inflation we experience, the higher the price of gas, right? The higher the price of gas, the higher your cost of living, right? Not quite. Inflation does show up in higher gas prices, but it also shows up in higher wages. Much like savers adjust interest rates to compensate for inflation, workers adjust wages for the same reason. Even though gas prices are higher, so is your income, which means gas is just as affordable now as it was when gas prices were lower. The same reasoning applies to other commodities. Inflation raises the prices of the things you buy, but it also raises the amount of money you have with which to buy those things. It has nothing to do, therefore, with your cost of living. What does determine your cost of living? One word: scarcity. The less stuff there is, the more expensive it is to buy. If higher gas prices raise your cost of living, it is not because the Fed is printing too much money. Rather, it is because there’s not enough gas out there to support the previously lower price of gas. Unfortunately, Dr. Bernanke is not known for his oil drilling skills, seeing as the only way he may lower gas prices without also lowering your wages is by drilling for more oil.

Misconception #3: The gold standard is the best recipe for keeping inflation in check. This is probably the nuttiest idea out there. The gold standard is a monetary regime in which the money supply is adjusted over time in order to keep the money-price of gold fixed. The idea is that gold’s value is inherently stable, and thus the value of money would be thereby stabilized. Here’s the problem: suppose miners in South Africa unexpectedly discover enormous reserves of gold. Such a discovery would sharply depress the goods-and-services-price of gold, but in order for the money-price of gold to remain fixed, the goods-and-services-price of money would have to fall sharply, too, generating a sudden burst of inflation. Sound stable to you? Or consider a historical example: just before the Great Depression, France began hoarding lots of gold, for reasons unknown to the rest of the world. This raised the goods-and-services price of gold dramatically, which under the gold standard meant that the good-and-services price of money had to rise dramatically, too. The result was that France imposed catastrophic deflation on every country on the gold standard, triggering the Great Depression. How do we know this? Countries like China and Spain, which were not on the gold standard, suffered only mild recessions, and essentially no deflation, because of the collapse of their trading partners. Every country on the gold standard plunged into depression, in the midst of historically rapid deflation. But here’s the best part: the timing with which countries began to recover from the Great Depression is precisely the timing with which countries abandoned the gold standard. Here is US industrial production at the beginning of the Depression:

Guess what happened right at the trough in early 1933? FDR took the US off the international gold standard. For serious.

The last few decades show that determined central banks are perfectly capable of keeping inflation at low, positive, and stable rates, without surrendering monetary policy to the random forces at play in the gold market. Why, oh why, does anyone want to go back on the gold standard?

Let’s talk about inflation, baby

Posted: February 3, 2012 by alephnaughty in Economics, Education
Tags: ,

Inflation is a concept that many people seem to struggle with. A brief overview may be helpful.

What is inflation? Inflation is any rise in the general level of prices. What, then, is the price level? It is the average price of goods and services produced by the economy. Suppose, for example, that the price of everything doubles over the course of a year. In that case, the average price of goods and services–that is, the price level–doubles, too. The rate of inflation, in turn, averages 100% per year.

What determines the rate of inflation? The price level is determined by the intersection of the aggregate demand (AD) schedule and the aggregate supply (AS) schedule. Thus, the rate of inflation is determined by the rates of change of AD and AS.

The value of money is determined by the intersection of the money demand schedule and the money supply schedule. The prices of goods and services are quoted in units of money. As a result, it makes sense to think of the price level as the money-price of goods and services, and the value of money as the goods-and-services-price of money. These variables are two sides of the same coin. A higher price level means that one needs more money to buy the same goods and services, implying a lesser value for money. A lower price level means that one needs less money to buy the same goods and services, implying a greater value for money. The price level is thus simultaneously determined by the intersection of the money demand schedule and money supply schedule. Consequently, the rate of inflation is simultaneously determined by the rates of change of money demand and money supply.

The economic function of inflation is to concurrently equilibrate the market for goods and services (AD and AS) and the market for money (money demand and money supply). Suppose, for illustration, that the government creates some extra money, with which it buys things. This expands the money supply, putting downward pressure on the value of money, which in turn puts upward pressure on the price level. The result, in equilibrium, is inflation. Another way of seeing this play out is as follows: when the government buys these things, it puts extra money in the hands of people who were previously satisfied with their money balances. Not needing to add to their money balances, they spend the money instead, expanding AD, putting upward pressure on the price level. Again, the equilibrium result is inflation. The reverse experiment, contracting the money supply, puts downward pressure on the price level, the equilibrium effect of which is deflation (the opposite of inflation).

Why does the rate of inflation matter? First, in the short run, prices are sticky. The higher the rate of inflation, the faster each price must adjust in order for relative prices to remain the same. Price stickiness means that some prices may not keep up with the rest, altering relative prices, causing resources to be misallocated.

Second, inflation instability undermines intertemporal transactions. Suppose I lend you $100, to be paid back in one year at a 10% per year interest rate. A year from now, you will pay me back $110. If, in the interim, the rate of inflation averages 20% per year, then $110 in next year’s dollars is equivalent to $91.67 in this year’s dollars. You’ll pay me back less, in real terms, than I intended. If instead I charge you a 32% per year interest rate, then a year from now you’ll pay me back $132, which is equivalent to $110 in this year’s dollars. By modifying the interest rate that I charge, I may nullify the effects of inflation. I can only do this, however, if the rate of inflation is predictable. If it isn’t, then I do not know how much I will be paid back, regardless of the interest rate I charge; hence, I will be discouraged from entering into this transaction in the first place.

Third, there is a short-run tradeoff between inflation and unemployment. More AD/money supply, in the face of sticky prices, boosts employment at the expense of higher inflation, while less AD/money supply contains inflation at the expense of lower employment.

Ergo, the dual mandate of macroeconomic policymaking: maximum employment (enough AD/money supply to fully employ the labor force) and stable prices (not so much AD/money supply as to produce high and/or unstable inflation). The question, then, is which regime is most conducive to fulfilling this dual mandate. I believe the answer is NGDP targeting, but either way the above is most everything you need to know about inflation. In my next post, I’ll try to put to rest some misconceptions about inflation. (E.g., inflation is bad for savers, inflation raises people’s cost of living, the gold standard is the best policy for managing inflation, etc.)

There are two kinds of Americans. The first are autistic. The second are drunk, drugged up, and manically depressed. Why? Don’t ask me. But, here’s a theory: the economy hates the second group, just like you hate your drunk, drugged up, and manically depressed cousin (and yes, the Oxford comma is absolutely essential) who just eats all your food and complains about life being unfair.

Now, Mr. Scientist (you might say), what use is this theory? Just seems like you’re hating on people who already hate themselves. Well, I am doing just that. But, I’m also doing science. If my theory is right, here’s a prediction it makes: the second group has shitty economic fortunes compared with the first. Ta da…

From personality to neuropsychiatric disorders, individual differences in brain function are known to have a strong heritable component. Here we report that between close relatives, a variety of neuropsychiatric disorders covary strongly with intellectual interests. We surveyed an entire class of high-functioning young adults at an elite university for prospective major, familial incidence of neuropsychiatric disorders, and demographic and attitudinal questions. Students aspiring to technical majors (science/mathematics/engineering) were more likely than other students to report a sibling with an autism spectrum disorder (p = 0.037). Conversely, students interested in the humanities were more likely to report a family member with major depressive disorder (p = 8.8×10−4), bipolar disorder (p = 0.027), or substance abuse problems (p = 1.9×10−6). A combined PREdisposition for Subject MattEr (PRESUME) score based on these disorders was strongly predictive of subject matter interests (p = 9.6×10−8). Our results suggest that shared genetic (and perhaps environmental) factors may both predispose for heritable neuropsychiatric disorders and influence the development of intellectual interests.

You know whose economic fortunes are better than humanities majors? Science majors. Just look at those p-values. Hot damn. I didn’t pay much attention in AP statistics (I just remember gems like “power is desirable”, and “we want small Ps”), but this looks pretty sciency to me. And the authors are from Princeton!

OK, so, my theory sucks. Granted. But how about them p-values? And for the record, I belong to the first group, have shitty economic fortunes, and I spend my days eating other people’s food and complaining about the unfairness of life. I am the two Americas.