Archives: 09/2009

Solid Analysis of Michigan’s ‘Economic Development’ Bureaucracy

Michael LaFaive at the Mackinac Center of Policy Analysis in Michigan is doing excellent work exposing the state’s “economic development” bureaucracy for the press release economics smokescreen that it is.  Along with his colleague James Hohman, Michael takes a thorough look at the Michigan Economic Development Corporation in a new study that anyone interested in the issue of state subsidies to businesses should find informative.  In fact, I’d like to see other state-based organizations (as well as the local press) conduct similar analyses of the “economic development” bureaucracies in their back yards.  I suspect the findings will be very similar.

From the executive summary:

MEGA [Michigan Economic Growth Authority] is the MEDC’s flagship tax credit vehicle for “creating” jobs…To analyze MEGA’s impact in greater detail, the Mackinac Center commissioned an analysis of the program from Michael Hicks, a Ph.D. economist at Ball State University…Hicks was able to find a statistical relationship between MEGA manufacturing tax credits and county manufacturing employment, but the relationship was negative. Hicks reports that from 2001 to 2007, every $1 million in MEGA manufacturing tax credits awarded in a county was associated with the loss of 95 county manufacturing jobs. While the statistical model cannot imply causation, it does strongly indicate that MEGA credits are not working to improve manufacturing employment.

Obama to Seek Cap on Federal Pay Raises

USA Today reports that President Obama is seeking a cap on federal pay raises:

President Obama urged Congress Monday to limit cost-of-living pay raises to 2% for 1.3 million federal employees in 2010, extending an income squeeze that has hit private workers and threatens Social Security recipients and even 401(k) investors.

…The president’s action comes when consumer prices have fallen 2.1% in the 12 months ending in July, because of a massive drop in energy prices. The recession has taken an even tougher toll on private-sector wages, which rose only 1.5% for the year ended in June — the lowest increase since the government started keeping track in 1980. Private-sector workers also have been subject to widespread layoffs and furloughs.

Last week, economist Chris Edwards discussed data from the Bureau of Economic research that revealed the large gap between the average pay of federal employees and private workers. His call to freeze federal pay “for a year or two” received attention and criticism, (FedSmith, GovExec, Federal Times, Matt Yglesias, Conor Clarke) to which he has responded.

As explained on CNN earlier this year, the pay gap between federal and private workers has been widening for some time now:

Lots of Higher Ed Stuff

Probably because it’s back-to-school time, there are lots of interesting higher education related items worth checking out today. Here are a few:

  1. I have a new op-ed on the Student Aid and Fiscal Responsbility Act, the bill that we’re told will save taxpayer money but will almost certainly cost us tens of billions. Meanwhile, the Associated Press published a big article on “spin” about the legislation that ignores supporters’ extremely dubious assertions about SAFRA’s true costs – the AP repeats the supposed savings line without question – but instead focuses on whether Pell Grant increases will be as large as some people hope .
  2. Over at the Pope Center for Higher Education Policy, they’re running a three-part series that’s really a lengthy email exchange among numerous experts, including myself, on controlling college costs. The central question is whether more government “transparency” requirements hold the key to containing skyrocketing college prices, or whether what we really need is to cut third-party payments. I think I’ve made it clear where I stand, but if you’re not sure (or even for some reason want other opinions) definitely take in the Pope series. Also, mark your calendars for a debate we’ll be having on this subject right here at Cato on October 6!
  3. William McGurn has an excellent commentary in the Wall Street Journal explaining that – shocker! – you can make a very good living without getting a college degree.
  4. I haven’t read it yet but have seen a summary, and if the summary is accurate a new paper from the National Bureau of Economic Research shows that colleges and universities contribute no more to their local economies than “other forms of economic activity.” This puts another serious hole in the highly suspect argument that more public money for higher education is good because enriching colleges is better for everyone.

And that’s the ivy-ensconsed news for today!

George Will Says It’s Time to Leave Afghanistan

Conservative columnist George Will wants out of the war in Afghanistan.  And his recommendation is getting some notice.  Reports Mike Allen in Politico:

George F. Will, the elite conservative commentator, is calling for U.S. ground troops to leave Afghanistan in his latest column.

“[F]orces should be substantially reduced to serve a comprehensively revised policy: America should do only what can be done from offshore, using intelligence, drones, cruise missiles, airstrikes and small, potent special forces units, concentrating on the porous 1,500-mile border with Pakistan, a nation that actually matters,” Will writes.

President Obama ordered a total of 21,000 more U.S. troops into Afghanistan in February and March, and casualties have mounted as the forces began confronting the Taliban more aggressively. August saw the highest monthly death toll for the U.S. since the invasion in 2001, the second record month in a row.

Will’s prescription – in which he recalls Bismarck’s decision to halt German forces short of Paris in 1870 - seems certain to split Republicans. He is a favorite of fiscal conservatives. The more hawkish right can be expected to attack his conclusion as foolhardy, short-sighted and naïve, potentially making the U.S. more vulnerable to terrorist attack.

The columnist’s startling recommendation surfaced on the same day that Army Gen. Stanley McChrystal, the commander of U.S. and NATO forces in Afghanistan, sent an assessment up his chain of command recommending what he called “a revised implementation strategy.” In a statement, McChrystal also called for “commitment and resolve, and increased unity of effort.”

With a liberal Democrat having become president and made Afghanistan his war, and George Will leading the charge, might conservative Republicans rediscover their inner anti-war feelings?

Author of the Private School Spending Study Responds

Bruce Baker, author of the study of private school spending about which I blogged yesterday, has responded to my critique. Dr. Baker thinks I should “learn to read.”

He takes special exception to my statement that he “makes no serious attempt to determine the extent of the bias [in his chosen sample of private schools], or to control for it.” Baker then points to the following one paragraph discussion in his 51 page paper that deals with sample bias, which I reproduce here in full [the corresponding table appears on a later page]:

The representativeness of the sample analyzed here can be roughly considered by comparing the pupil-teacher ratios to known national averages. For CAS and independent schools, the pupil-teacher ratio is similar between sample and national (see Figure 21, later in this report). Hebrew/Jewish day schools for which financial data were available had somewhat smaller ratios (suggesting smaller class sizes) than all Hebrew/Jewish day schools, indicating that the mean estimated expenditures for this group might be high. The differential, in the same direction, was even larger for the small group of Catholic schools for which financial data were available. For Montessori schools, however, ratios in the schools for which financial data were available were higher than for the group as a whole, suggesting that estimated mean expenditures might be low.

Even with my admittedly imperfect reading ability, I was able to navigate this paragraph. I did not consider it a serious attempt at dealing with the sample’s selection bias. I still don’t. In fact, it entirely misses the main source of bias. That bias does not stem chiefly from class size differences, it stems from the fact that religious schools need not file spending data with the IRS, and that the relatively few that do file IRS Form 990 (0.5% of Catholic schools!) have a very good reason for doing so: they’re trying harder to raise money from donors.  This is not just my own analysis, but also the analysis of a knowledgeable source within Guidestar (the organization from which Baker obtained the data), whose name and contact information I will share with Dr. Baker off-line if he would like to follow-up.

Obviously, schools that are trying harder to raise non-tuition revenue are likely to… raise more non-tuition revenue. That is the 800 pound flaming pink chihuahua in the middle of this dataset. According to the NCES, 80 percent of private school students are enrolled in religious schools (see p. 7), and this sample is extremely likely to suffer upward bias on spending by that overwhelming majority of private schools. They may spend the extra money on facilities, salaries, equipment, field trips, materials, or any number of other things apart from, or in addition to, smaller classes.

Baker’s study does not address this source of bias, and so can tell us nothing reliable about religious schools, or private schools in general, either nationally or in the regions it identifies. The only thing that the study tells us with any degree of confidence is that elite independent private schools, which make up a small share of the private education marketplace, are expensive. An uncontroversial finding.

It is surprising to me that this seemingly obvious point was also missed by several other scholars whose names appear in the frontmatter of the paper. This is yet another reminder to journalists: when you get a new and interesting paper, send it to a few other experts for comment (embargoed if you like) before writing it up. Doing so will usually lead to a much more interesting, and accurate, story.