Archives: 08/2012

Liberating the Liberal Arts—-and Making Higher Education Affordable

If you wanted a liberal arts education in 1499, you were probably out of luck. But, if you happened to be a 0.01 percenter, you might have been able to saddle up the horse and ride to Oxford or Cambridge. Because that’s where the books were. Books didn’t generally come to you, you had to go to them.

Today, every one of us has more works of art, philosophy, literature, and history at our fingertips than existed, worldwide, half-a-millennium ago. We can call them up, free or for a nominal charge, on electronic gadgets that cost little to own and operate. Despite that fact, we’re still captives to the idea that a liberal arts education must be dispensed by colleges and must be acquired between the ages of 19 and 22.

But the liberal arts can be studied without granite buildings, frat houses, or sports venues. Discussions about great works of literature can be held just as easily in coffee shops as in stadium-riser classrooms—perhaps more easily. Nor is there any reason to believe that there is some great advantage to concentrating the study of those works in the few years immediately after high school—or that our study of them must engage us full-time. The traditional association of liberal arts education and four-year colleges was already becoming an anachronism before the rise of the World Wide Web. It is now a crumbling fossil.

Handing colleges tens of thousands of dollars—worse yet, hundreds of thousands—for an education that can be obtained independently at little cost, would be tragically wasteful even if the college education were effective. In many cases, it is not. Research by Richard Arum and Josipa Roksa reveals that almost half of all college students make no significant gains in critical thinking, complex reasoning, or written communication after two full years of study. Those are skills that any liberal arts education should cultivate. Even among the subset of students who linger for four years at college, fully one-third make no significant gains in those areas.

And yet, instead of recognizing the incredible democratization of access to the liberal arts that modern technology has permitted, and the consequent moribundity of this role of colleges, public policy remains mired in a medieval conception of higher education. Politicians compete to promise what they think young people want to hear: more and larger subsidies for college fees. Even if perpetuating a 15th century approach to higher education were in students’ interests—which it clearly is not—increased government subsidies for college tuition would not achieve that goal. We have tripled student aid in real, inflation-adjusted dollars since 1980, to roughly $14,000 per student, and yet student debt recently hit an all-time high of roughly $1 trillion. And barely half of students at four-year public colleges even complete their studies in six years. Aid to colleges is good for colleges, but it is an outlandish waste of resources if the goal is to improve the educational options available to young people.

These same realities apply, to an only slightly lesser extent, to the sciences and engineering. In those areas, colleges sometimes have equipment and facilities of instructional value that students could not independently afford. But even in the sciences and engineering, such cases are limited. It is perfectly feasible for an avid computer geek to learn everything he or she needs to know to work in software engineering by doing individual and group projects with inexpensive consumer hardware and software. This was even possible before the rise of the Web. My first direct supervisor at Microsoft was a brilliant software architect hired right out of high school… in the 1980s.

Though most politicians have been slow on the uptake, the public seems increasingly aware of all this. A Pew Research survey finds that 57 percent Americans no longer think college is worth the money. So why are they still sending their kids there? Habit is no doubt part of the picture, but so is signaling. People realize that colleges are instructionally inefficient, but being accepted to and graduating from an academically selective one signals ability and assiduity to potential employers.

So what’s the solution? Alternative signaling options and better hiring practices would be a good start. Anyone who studies hard for the SAT, ACT, GRE, or the like, and scores well, can send the academic ability signal. But in the end, employers want more than academic ability. What they really want are subject area expertise, a good work ethic, an ability to work smoothly with a variety of people, and, for management, leadership ability. Any institution that develops good metrics for these attributes, and issues certifications accordingly, will provide an incredibly valuable service for employers. Students would then be free to study independently, occasionally paying for instruction where necessary, and then seek a certification signaling what they’ve learned. In the meantime, job candidates can create a portfolio of work on the Web showing what they know and can do (a “savoir faire”)—which would be more useful to employers than most resumes.

What is certainly not useful is raising taxes still further in a time of economic difficulty in order to pad the budgets of colleges and encourage students to take on yet more college debt.

Ryan and the Janesville Plant: the Fact that Matters

The latest conflagration over the media’s attempt to “fact-check” campaigning politicians centers on comments Paul Ryan made in his speech last night about a shuttered GM plant in his hometown of Janesville, Wisconsin:

President Barack Obama came to office during an economic crisis, as he has reminded us a time or two.  Those were very tough days, and any fair measure of his record has to take that into account.  My home state voted for President Obama. When he talked about change, many people liked the sound of it, especially in Janesville, where we were about to lose a major factory.

A lot of guys I went to high school with worked at that GM plant. Right there at that plant, candidate Obama said: “I believe that if our government is there to support you … this plant will be here for another hundred years.” That’s what he said in 2008.

Well, as it turned out, that plant didn’t last another year.  It is locked up and empty to this day.  And that’s how it is in so many towns today, where the recovery that was promised is nowhere in sight.

A number of “fact checkers” cried foul. The left was pleased. The right was not pleased and has been crying foul on the left and the fact checkers. If you’re unfamiliar with the claims and counter-claims, you can Google the controversy if you’d like because I’m not going bother hyperlinking to all the back-and-forth.

I’m not going to bother because lost in all the predictable haggling between the left and the right over veracity of Ryan’s claim is the fact that really matters: Paul Ryan voted for the federal government’s bailout of the auto industry. In fact, he was 1 of only 32 Republicans to do so.

But it gets worse. Following his comments on the Janesville plant, here’s what Ryan had to say about the president’s failed stimulus package:

The first troubling sign came with the stimulus. It was President Obama’s first and best shot at fixing the economy, at a time when he got everything he wanted under one-party rule. It cost $831 billion – the largest one-time expenditure ever by our federal government.

It went to companies like Solyndra, with their gold-plated connections, subsidized jobs, and make-believe markets. The stimulus was a case of political patronage, corporate welfare, and cronyism at their worst. You, the working men and women of this country, were cut out of the deal.

If you replace “Solyndra” with “General Motors” the story is essentially the same: “a case of political patronage, corporate welfare, and cronyism.” The only real difference that I can see is that Solyndra didn’t have a plant in Ryan’s backyard.

Hayek Wasn’t a ‘Free Market Marxist’

Why can’t liberals provide a fair portrait of a thinker they disagree with? It was a reasonable prediction that Mitt Romney’s choice of Paul Ryan as his VP appointee would ignite a discussion over the first principles of politics and the role of government in society. So far, however, it hasn’t been much of a discussion: rather, we shall speak of a goofy attempt to graft the practice of smearing the enemy from day-to-day politics to the realm of political thinking.

David Boaz has wisely commented upon Adam Davidson’s piece on Hayek. Even more surprising is a blog post from historian Timothy Snyder in the New York Review of Books. Professor Snyder sees Mr. Ryan as aiming to revive an “outdated ideology”—as  “taking some of the worst from the twentieth century and presenting it as a plan for the twenty-first.”

What he finds outdated is, basically, Hayek’s allegiance to the principle of limited government. Revealingly, he maintains that “Austria became a prosperous democracy after World War II because its governments ignored Hayek’s advice and created a welfare state.” Linking the economic performance of Western democracies after WWII to the institutions of the welfare state (a national health care service, compulsory education, unemployment insurance et cetera) is at best naive.

Making “provisions for citizens in need” may be “an effective way to defend democracy” from the temptations of populism and authoritarianism but this doesn’t say much per se. Which provisions? Provided by whom? For the benefit of whom? The answers to these questions aren’t trivial.

What is most surprising in Snyder’s piece is how he portrays Hayekianism as the opposite of what it is. He writes:

Like Marxism, the Hayekian ideology is a theory of everything, which has an answer for everything. Like Marxism, it allows politicians who accept the theory to predict the future, using their purported total knowledge to create and to justify suffering among those who do not hold power.

You may wish to make a caricature of a thinker. A successful caricature should, however, resemble the subject, at least a little.

A cursory glance at the titles of Friedrich von Hayek’s books should be enough to understand that what he was preoccupied with was precisely the hubris of decision-makers who pretend to predict the future and manage it. Hayek’s best known paper is poignantly entitled “The Use of Knowledge in Society.” His last book was called The Fatal Conceit. His best work in history of ideas bore, as a subtitle, a reference to the “abuse of reason.”

Hayek was convinced that “no human mind can comprehend all the knowledge which guides the actions of society.” What he stressed, over and over and over, are the inherent limitations of our knowledge, that politicians and regulators, being human beings, share with the rest of us. He was skeptical even of the “purported total knowledge” of his own discipline, economics, as he claimed that “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

Hayek defended individual liberty, precisely because the future is unpredictable.

The case for individual freedom rests chiefly on the recognition of the inevitable and universal ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depend. It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it.

For Hayek,

If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants.

Does this sound like a man that had an answer for everything, or wanted to propose a grand plan for society as a whole? Hayek’s worldview does not have much of a following among intellectuals, not least because it doesn’t see “knowledge” as a monolith. For Hayek, knowledge is dispersed in society, it is by and large “know-how” hence it belongs as much to the little guy on the street than to the Yale professor. The free market economy is a process by which these different pieces of knowledge somehow are put together to the good of society. Professor Snyder portrays Hayek as a “reacting” against national socialism and communism. It is an elegant way to dismiss him, by claiming that “precisely because they [Hayek and Rand] were reacting, they flew to extreme interpretations.”

Reality fascinates profound thinkers, as it may either ignite or terrify common people too. But the economic calculation debate, in which Hayek and his mentor Ludwig von Mises were the main actors, was not a mere “reaction:” it was, as brainy socialists at the time acknowledged, a discussion over the possibility of economic planning. Hayek stumbled upon a more refined understanding of the role of knowledge in society, while participating in that debate—this is certainly true. But he was not a political copywriter, as Professor Snyder seems to believe.

As an Italian, I envy the fact that until next November Americans will be having a discussion over the fundamental pillars of their political state. Neither Obama-Biden nor Romney-Ryan are political thinkers: they are politicians, and the very fact they have (some) convictions is rare enough to be praised. But it is good and exciting that the electoral contest will bring people to go back to basics and, perhaps, try to make sense of what this Hayek guy or that Rawls guy actually meant.

It is, however, rather depressing to see such a systematic misrepresentation of Hayek’s ideas. Let’s assume it is due to genuine ignorance.  We shall then recommend some links to liberal chastisers of Mr. Ryan, so that they may know better what they disagree with.

  • The Universitad Francisco Marroquin has made available online this collection of interviews with Hayek.
  • This 1984 Cato Policy Report provides a quick introduction to some of the core themes in Hayek’s thinking.
  • Hayek’s Nobel lecture is a short but intriguing introduction to his thought.
  • Arch-liberal George Soros has a short appreciation of Hayek’s ideas, that was initially delivered in a conference at the Cato Institute.

I (and many others) would have quarrels with some of Soros’s points, but perhaps his article may suggest that critics of Hayek’s “free market Marxism” pause for a moment before rushing to their keyboard.

Democrats to Propose Increasing Unemployment at Convention?

Rumor has it that Democrats will include, at their up-coming convention, a proposal to increase the minimum wage.  As documented in a recent Cato study, such a policy is likely to increase unemployment, especially as I noted elsewhere among teenagers.   One would think that given how a weak economy is undermining Democrats’ chance to keep the White House, they’d actually make proposals to reduce, rather than increase unemployment.

Perhaps the most bizarre, but honest, claim was made by Julie Vogtman, a lawyer at the National Women’s Law Center, “It can be very good for the economy because you are putting money in the pockets of the lowest wage workers who are likely to spend that money quickly.”  Perhaps because she’s a lawyer, what Ms. Vogtman misses is that money comes from someone else, who will lower their spending (or investment).  At best the distributional effects are close to zero, if not outright negative.  If you want to claim that minimum wage workers have a higher marginal propensity to consumer, then provide the data and make that argument.  It has been Washington’s continued confusion between wealth creation and re-distribution that has contributed to the weak recovery.

Now my friends on the left continue to dismiss the unemployment effects, citing a study by economists David Card and Alan Krueger.  Setting aside the oddity of rejecting much of economics on the basis of one study, even one of the authors, David Card, states that proponents of increasing the minimum wage are mis-representing his work.  In an interview with The Region, Card states:

“I think my research is mischaracterized both by people who propose raising the minimum wage and by people who are opposed to it.”  Professor Card also goes onto say that, “nowhere in the book or in other writing did I ever propose raising the minimum wage.”    So if Democrats want to continue to push for higher minimum wages, with the resulting higher unemployment, they should stop claiming to have any scientific backing for the position and just admit that they want to redistribute from one group of Americans to another group of Americans (mostly those in organized labor), and leave it at that.

Of course all of this ignores the basic fact that the minimum wage is an infringement on the freedom of consenting adults to make contracts.  If party A agrees to work for party B at rate X, what right does the State or anyone else have to stop that agreement?  In my book, none.

Explaining the GOP’s Silence on (Current) Wars

At Time’s Battleland blog, Mark Thompson notes the relative dearth of discussion – on what was supposed to be foreign policy night at the Republican National Convention – surrounding the wars that the nation is fighting (correction: that the troops are fighting at the behest of the politicians). It is a good piece, but the GOP’s reluctance to focus on these wars is less puzzling than he suggests.

He cleverly tweaks Ryan, John McCain, Condoleezza Rice, and Rand Paul who collectively mentioned Afghanistan and Iraq one time each, but managed to work in seven references to Iran and three to Syria: ”Didn’t they learn as kids that you have to finish your vegetables (in this case, Afghanistan) before dessert (Iran and Syria, at least the way some in the GOP are salivating)?”

And he singles out Sen. Paul’s sensible statement “that not every dollar spent on the military is necessary or well-spent,” as “the night’s lone provocative line.”

Thompson concludes:

it is amazing that after more than a decade of war, and 6,593 American dead (2,107 in Afghanistan and Operation Enduring Freedom; 4,487 in Iraq), the political party that spearheaded both wars is so silent on them now.

I don’t think it is amazing at all (and I sort of doubt that Thompson does either). The wars that McCain, Rice, and other Republicans championed are unpopular, even the war in Afghanistan that garnered strong public support before it morphed into a quixotic nation-building mission. Some polling suggests that Afghanistan is now even less popular than Iraq, and that was before the spike in attacks by supposedly friendly Afghans against U.S. troops.

The public is equally unenthusiastic about new wars. In contrast to McCain et al’s complaint about the Obama administration’s “reluctance to lead” in Syria (or Iran or some other as-yet-to-be-named country), the American people display little enthusiasm for having U.S. troops broker civil wars in distant lands. In one recent poll (see Q47 here), fewer than one in ten support intervention in Syria without reservations (“no matter how many military deaths the United States suffered”) whereas 42.2 percent refuse to support U.S. military intervention under any circumstance (“even if the United States suffered no military deaths.”) See also the Pew Research Center’s polling on intervention in Syria. Americans’ retrospective judgment on the war in Libya, despite the fact that it was relatively short, and resulted in no U.S. fatalities, is that the U.S. “should have stayed out” (49 pct vs. 37 pct who approve of the war).

GOP leaders can read these polls as well as I can. They understand that talking about new wars (or even the old ones) is a political loser.

(Now if only they would learn that starting wars is equally stupid.)

Hayek in the New York Times

Sunday’s New York Times magazine included an article by Adam Davidson of NPR, “Prime Time for Paul Ryan’s Guru (the One Who’s Not Ayn Rand).” I thought when I read it that if you’re going to call an economist “largely ignored,” you should at least mention that he won a Nobel Prize so readers could judge your claim. But incredibly, Davidson left that fact out.

Now Richard Epstein has taken him to task at greater length and explains how much more sophisticated Hayek’s understanding of markets was than those of his contemporaries. Epstein writes:

But it is utterly inexcusable to overlook, as Davidson does, Hayek’s enduring influence.  A year after the Road to Serfdom came out, Hayek published his 1945 masterpiece in the American Economics Review, “The Use of Knowledge in Society,” which has been cited over 8,600 times. In this short essay, Hayek explained how the price system allows widely dispersed individuals with different agendas and preferences to coordinate their behaviors in ways that move various goods and services to higher value uses.

Alas, Davidson’s dismissive account of Hayek does not mention even one of Hayek’s major contributions to weaning the United States and Great Britain from the vices of centralized planning. Thus Hayek’s 1940 contribution to the “Socialist Calculation” debate debunked the then-fashionable notion that master planners could achieve the economic nirvana of running a centralized economy in which they obtain whatever distribution of income they choose while simultaneously making sound allocations of both labor and capital, just like in Soviet Russia.

Hayek exposed this fool’s mission by stressing how no given individual or group could obtain and organize the needed information about supply and demand conditions throughout the economy.

Epstein goes on to examine the contributions that Hayek made to economists’ – and policymakers’ – understanding of planning, contracts, and competition. Too bad his article didn’t appear in the New York Times.

More on the Times’s misunderstandings of Hayek here and here. More on Epstein – plus George Soros and Bruce Caldwell – on Hayek here.

Swiss Monetary Policy: Dangerous Contradictions

The Swiss National Bank is conducting a bizarre, contradictory, and potentially dangerous set of monetary policies.

During the past year, the SNB has mandated the imposition of super-high bank capital requirements. Indeed, the SNB, in its annual Financial Stability Report, even admonished Credit Suisse for not building up a big enough capital cushion. The Swiss capital mandates have caused the rate of growth in money created by Swiss banks (bank money) to plunge.

As can be seen in the accompanying chart, Swiss bank money was 25 percent lower in July 2012 than it was in July 2011. This should be alarming because bank money is, by far, the biggest component of the total money supply. In fact, since the beginning of 2003, bank money has, on average, constituted 89 percent of the total Swiss money supply.

Bank regulations in Switzerland and elsewhere, have resulted in, you guessed it: very tight bank money.

Not being one to sit on its hands, the SNB has turned on its money pumps. Indeed, Swiss state money—the money produced by the SNB—was 305 percent higher in July 2012 than in July 2011.

This explosion in state money has been more than enough to offset the contraction of the all-important bank money component.

In consequence, Switzerland’s total money supply grew at a 10 percent year-over-year rate in July 2012. With double-digit money supply growth, and overall prices declining, it’s little wonder that prices in certain asset classes, such as housing, are surging in Switzerland.