Tag: tyler cowen

This Month’s Cato Unbound: The Online Education Revolution

As Joseph Schumpeter famously wrote, markets are agents of “creative destruction”: when market forces are free to operate, and when entrepreneurs are free to act on their ideas, the old must often give way to the new.

Innovation and cultural dynamism are the hallmarks of a free economy. This state of constant flux is to our way of thinking a welcome and valued thing. Only an economy that is constantly in transition can hope to approximate the changing needs and wants of a robust and flourishing society.

Our love of dynamism is one reason why libertarians aren’t really conservatives, and why we might even wish that we could claim the label “progressive” for ourselves—if it hadn’t been taken, long ago, by individuals whose beliefs differ sharply from our own.

At Cato Unbound this month we are discussing what may prove to be a remarkable example of creative destruction. Within the last few years, Massive Online Open Courses—MOOCs, for short—have become one of the most important trends in higher education. As our lead essayist Alex Tabarrok argues, traditional higher education hasn’t changed substantially for centuries. Yet there is no good reason why this should be, not with all of the new information technology that the market has put at our disposal.

Together with his colleague Tyler Cowen, Tabarrok has founded Marginal Revolution University, which is planned as a growing series of free, online courses that anyone can take. The lectures are brief, watchable on your own schedule, viewable on mobile devices, and replayable. You can ask questions of the professors and receive detailed, personalized feedback. You can study in a group or entirely on your own, and students are invited to create supplemental videos that might be included in future class sessions.

MR University, as it’s called for short, hopes to deliver flexible, inexpensive higher education to the masses, in a way that Oxford, Cambridge, and Harvard—for all their tradition—never could. And it’s just one small player in a burgeoning new educational sector. So how should educators and policymakers think about these developments?

To answer that question, we have recruited a panel of distinguished commentators: Siva Vaidhyanathan is the Robertson Professor in Media Studies and Chair of the Department of Media Studies at the University of Virginia; Alan Ryan is the former Warden of New College, Oxford, and a frequent commentator on developments in liberal education; and Kevin Carey is director of the education policy program at the New America Foundation.

As always, Cato Unbound readers are encouraged to take up our themes, and enter into the conversation on their own websites and blogs, or on other venues. We also welcome your letters. Send them to jkuznicki at cato dot org. Selections may be published at the editors’ option.

ObamaCare’s Threat to Free Speech

On Friday, I blogged about HHS Secretary Kathleen Sebelius’ letter to the health insurance lobby, in which she attempts to stifle political speech by using the new powers that ObamaCare grants her to threaten health insurance companies that claim ObamaCare’s coverage mandates are one cause behind rising premiums.  (Never mind that the insurers’ estimates – which project that ObamaCare will increase premiums in 2011 by as much as 9 percent – are in line with those put forward by HHS.)

Here’s a smattering of reactions from others.

  • The Wall Street Journal: “The Health and Human Services secretary…warned that ‘there will be zero tolerance for this type of misinformation and unjustified rate increases.’   Zero tolerance for expressing an opinion, or offering an explanation to policyholders? They’re more subtle than this in Caracas.”
  • Chicago Tribune: “President Obama’s health care reform plan, enacted in March, is not terribly popular with the American people…The administration can’t tell the public to stop grousing. It can, however, try to silence health insurers who have the nerve to say out loud what basic economic theory indicates…Apparently, harsh punishment is in store for anyone who refuses to parrot the administration line. But there is every reason to think this alleged libel is true.”
  • Tyler Cowen: “Nowhere is it stated that these rate hikes are against the law (even if you think they should be), nor can this ‘misinformation’ be against the law…[The letter] is worse than I had been expecting.”
  • Ed Morrissey: “Rarely have we heard a Cabinet official tell Americans to stay out of political debates at the risk of losing their businesses. It points out the danger in having government run industries and holding a position where politicians can actually destroy a business out of spite.”
  • Michael Barone: “Sebelius is threatening to put health insurers out of business in a substantial portion of the market if they state that Obamacare is boosting their costs…The threat to use government regulation to destroy or harm someone’s business because they disagree with government officials is thuggery. Like the Obama administration’s transfer of money from Chrysler bondholders to its political allies in the United Auto Workers, it is a form of gangster government.”
  • Eugene Volokh: “even if such action would be constitutionally permissible, it would be quite troubling, as would threats that seem to hint as such action: It would involve the Administration’s deliberately trying to suppress criticism of its policies, under a ‘misinformation’ standard that sounds highly subjective and politically contestable. (Consider [Sebelius’] reference ‘to our analysis and those of some industry and academic experts’ — what about the analysis of other industry and academic experts?) Perhaps I’m missing some important context here. But my first reaction is that this is ominous behavior on the Administration’s part, and seems to have both the intent and effect of suppressing criticism of the Administration’s policies — including criticism that simply expresses opinions the Administration dislikes, and makes estimates that it disagrees with, and not just criticism that contains objectively demonstrable ‘misinformation.’”

In The Wall Street Journal, economist Russ Roberts recently explained one of the main themes of Friedrich Hayek’s The Road to Serfdom:

When the state has the final say on the economy, the political opposition needs the permission of the state to act, speak, and write. Economic control becomes political control.

One need not agree with all of Hayek’s conclusions to see how ObamaCare is threatening political freedom.

Free Parking and the Geography of Cities

Unlike Randal O’Toole, I was delighted by Tyler Cowen’s New York Times article on the high cost of free parking. And indeed, if I’m reading O’Toole’s post right, it sounds like Cowen and O’Toole don’t actually disagree on the policy issue: both agree that business owners should be free to decide how much parking to supply.

The debate so far has focused on whether parking mandates push the price of parking below the market rate. But I think the more important effect is on the geography of cities. Parking mandates (and other regulations) preclude developers from catering to people who want to live in pedestrian-friendly neighborhoods.

Parking mandates necessarily mean that every large building is surrounded by a large parking lot. And for someone who doesn’t own a car, a parking lot is just a nuisance: a big, empty space he must walk across to get anywhere. Regulations that effectively require a parking lot around every store and restaurant almost guarantees that walking to them won’t be practical.

As Jane Jacobs pointed out, pedestrian traffic is highly sensitive to density. Even a modest reduction in the density of a neighborhood can have a big effect on pedestrian traffic. And as the number of pedestrians falls, so too will the number of businesses that cater to pedestrians. So it’s probably true, as O’Toole says, that charging for parking spaces wouldn’t dramatically reduce the amount of driving people do. But this is partly because the proliferation of parking lots has made walking impractical. Fewer free parking spaces wouldn’t just raise the price of car ownership; it would make car non-ownership more pleasant and convenient.

Government regulations often have subtle unintended consequences. Parking regulations have been on the books so long that the results have come to seem perfectly natural to us. But free markets are unpredictable. If developers had the freedom to decide how much parking to supply, the results might surprise us.

A Value-Added Tax Is Not the Answer…Unless the Question Is How to Finance Bigger Government

While admitting that spending restraint is the ideal approach, Tyler Cowen of Marginal Revolution asks whether a value-added tax (VAT) might be the most desirable of all realistic options for dealing with an unsustainable budget situation.

Read his post for yourself, but I think a fair summary is that he is basically saying that a) there will be a crisis if we don’t do something about future deficits, b) a crisis will result in very bad policy, and c) if we support a VAT now, we will at least be able to extract concessions from the other side.

I have no idea whether there will be a future crisis, but I think the rest of Tyler’s argument is wrong.

But before explaining my position, let’s start by stating what I assume to be our mutual objective, which is to control the size of government. We all agree that there is a problem because government is too big now, and it is projected to get even bigger because of the built-in growth of entitlement programs. One symptom of growing government is deficits, which are very large today and will be even bigger in the near future as more and more baby boomers retire and push up costs for Social Security, Medicare, and Medicaid.

Our side (broadly speaking) wants to solve the budgetary situation by restraining the growth of government. One proposed solution is Congressman Paul Ryan’s Roadmap Plan, which would reform entitlements and curtail other programs so that the long-term burden of federal spending is reduced to less than 20 percent of GDP. Since long-term federal tax revenues under current law - even if the 2001 and 2003 tax cuts are made permanent - are expected to be about 19 percent of GDP, this solves the budet problem  (the tax reform component of the Roadmap includes a VAT, which is a poison pill in an otherwise excellent plan, but let’s set that aside for another day).

The left, by contrast, generally wants to let federal spending consume ever-larger shares of economic output, and they believe that increasing the tax burden is the right way of keeping the deficit from getting too large. No statist has put forth a detailed plan to match Rep. Ryan, but several high-ranking Democrats have made no secret about their desire for a VAT (see here, here, and here). And everyone agrees that a VAT is capable of extracting a lot of money from the productive sector of the economy.

These two visions are fundamentally incompatible, which helps to explain why there is a standoff. The bad guys do not want to control the size of government and the good guys do not want to raise taxes. But now we have to add one more piece to the puzzle. While gridlock normally is a good result, inaction to some degree favors the other side because entitlement programs automatically expand. The helps to explain why Tyler (with reluctance) thinks that it may be best to acquiesce to a VAT now rather than to wait for a fiscal crisis.

Now, let’s explain why Tyler is wrong. First, it is far from clear that surrendering to a VAT now will result in better (less worse) policy than what will happen during a crisis. It certainly is true that some past crises have led to terrible policy, such as the failed policies of Hoover and Roosevelt in the 1930s or the more recent Bush-Paulson-Obama-Geithner TARP debacle. But at other points in time, a crisis atmosphere has paved the way for better policy, with Reagan’s presidency being the most obvious example.

The wait-for-a-crisis strategy clearly is a bit of a gamble, but even if we lose, we get a VAT in the future rather than a VAT today. So what’s the downside? Tyler and others might say that the future legislation in the midst of a crisis could be a vehicle for other bad provisions, but he offers no evidence for this proposition. And it may be the case that the other side would be forced to add good provisions instead. Moreover, the lack of a VAT in the period between today and the future crisis might help lead to some much-needed spending restraint.

What about Tyler’s argument that the good guys could extract some concessions from the other side by putting a VAT on the table. This is horribly naive. Even though George Mason University is less than 20 miles from Washington, and even though Tyler is a renassaince man with many talents, he does not understand how Washington really works.

Imagine there is a budget summit where politicians from both sides get together to work on this supposed deal. Here are the inevitable ground rules - and the consequences they will produce:

1. The deal will be 50 percent spending cuts and 50 percent tax increases, but the supposed spending “cuts” will be nothing more than reductions in already-legislated increases. The tax increases, by contrast, will be on top of all the additional revenue that is already exepected under current law (not a trivial matter since receipts will be $1.5 trillion higher in 2015 than they are today according to OMB). For proponents of limited government, using the “current services baseline” as a benchmark in budget negotiations is like playing a five-minute basketball game after spotting the other team a 20-point lead.

2. All spending and revenue decisions will be examined through the prism of CBO income distribution tables, and the left will successfully insist that nothing is done to make the tax code less progressive. But since a VAT is a proportional tax, the only way of preserving overall progressivity is to raise tax rates on those wicked and evil rich people and/or to massively increase “refundable” tax credits (what normal people call income redistribution). Any proposal to lower income tax rates or eliminate the corporate income tax, as Tyler envisions, would be laughed out of the room (though Democrats will offer a fig leaf or two in order to seduce a sufficient number of gullible Republicans into supporting a terrible agreement, and that might include a cosmetic change to the corporate tax regime).

3. Many of the supposed spending cuts, for all intents and purposes, will be back-door tax increases on saving and investment. More specifically, a big chunk of the supposed spending cut portion of a budget deal will be from means-testing entitlement programs. This sounds good. After all, who wants to send a Social Security check to Bill Gates when he retires? But consider how such a system actually will work. The government will say that people with income (and/or assets) above a certain level are ineligible for some or all of the benefits available to less-fortunate retirees. From an economic persepective, this is very much akin to a higher tax rate on people who save and invest during their working years. And since means testing would only generate substantial budgetary savings if it applied to millions of regular people in addition to Bill Gates, we would wind up with a system that created big penalties on middle-class families who were dumb enough to save and invest.

I’ve already pontificated enough for one blog post, so let me summarize by stating that Tyler’s approach, while not unreasonable, is about how to lose gracefully. Even if his strategy works perfectly, the result is bigger government. I’d much rather fight. If you want some inspiration for the battle, watch this video. If you haven’t had enough of me already, here’s my video explaining why the VAT is a horrible idea.

Update: Tyler has emailed to object to how his position is being characterized. He writes, “I am asking anti-VAT forces to strengthen their argument and am very clearly agnostic and certainly not calling for a VAT today.” Everyone I’ve spoken with has interpreted his post as pro-VAT, and that’s certainly how I read it, but I want to add this addendum to my post so people can see Tyler’s response in case I’m not being fair.

Average vs. Marginal Effects of Health Insurance

I have to thank Ezra Klein.  I have for some time been trying, without success, to spark a debate about whether expanding health insurance coverage would actually save any lives.  Even my bet with Karen Davenport seemed to go nowhere.  But when Klein accused Sen. Joe Lieberman (I-CT) of being “willing to cause the deaths of hundreds of thousands of people” because Lieberman was jeopardizing passage of legislation that would expand health insurance to 30 million people, Klein made a debate possible.

Following on my first response to Klein that the evidence supporting his claim is remarkably thin, others have joined the discussion.  Matt Yglesias of the Center for American Progress rose to Klein’s defense.  Megan McArdle (in The Atlantic magazine and her blog) and Tyler Cowen (at Marginal Revolution) both argue that we don’t really know if Klein’s claim is true.

Today, Yglesias poses the following question on his Twitter page:

Do rightwingers really believe that US health insurance has no mortality-curbing impact?

I see two problems.  First, there are no right-wingers in this debate.  McArdle, Cowen, and I all support gay marriage, for example.

Second, Yglesias sets up a straw man.  He asks whether health insurance on average has a positive impact on mortality, when the debate is actually over the effect of health insurance at the margin.  In other words, would covering the uninsured save lives?

I don’t know anyone who thinks health insurance has zero effect on mortality overall.  Yet it is entirely possible for the average effect to be positive and the marginal effect to be zero. One reason may be that the uninsured do benefit from the human and physical capital that health insurance makes possible.  It may also be the case that when the uninsured do obtain health insurance, the additional medical care they receive is more likely to harm them than to help them.  The researchers behind the RAND Health Insurance Experiment make essentially the same point.

If the marginal effect of health insurance on health is zero, it raises other interesting questions.  Would it also have zero effect on health outcomes if we were to reduce the number of people with health insurance?  What is the size of the margin over which health insurance has zero impact?  (Robin Hanson suggests it may be very, very large.)

Klein recently declined an invitation to debate these issues at Cato.  Too bad.  This is worth pursuing.

Palmer and Cowen on the Nature of Liberty

Two leading libertarian thinkers, Tom Palmer and Tyler Cowen, discussed Palmer’s new book, Realizing Freedom: Libertarian Theory, History, and Practice, at a recent Cato Book Forum. You can see the video or download a podcast here.

Two years ago, Cowen and Palmer were among the contributors to a Cato Unbound colloquy on the past and future of libertarianism. Cowen was interviewed for Cato’s Daily Podcast and expressed a more critical view of the concept of “negative liberties” than classical liberals typically do. A few days later, in another Daily Podcast, Palmer took on what he considers the coercive confusions of “positive liberty” and defended the necessity of “negative liberty” to a free society.

Listen to them both and buy the book.

Update: Here’s a portion of Palmer’s talk that focuses on the rule of law: