Tuesday, November 9, 2010

Open Letter to the Editors of First Things

Note: First Things just released an issue in which they ranked colleges based on academic, social, and religious criteria. The rankings are not available online unless you are a subscriber, but for people at Calvin, I can send a copy of the article from our library upon request. What follows is my response. Thanks to Kurt and Irene for helpful editing.

To the Editors of First Things:

First, I would like to thank you for doing a service to parents and educators in the United States: by publishing rankings of schools that explicitly engage the academic culture and treatment of faith on campuses, you have provided sorely needed information to those making difficult choices. I am sure that the process of producing these rankings was expensive and time-consuming, but I hope that you will consider making them a regular feature.

Second, as a faculty member at Calvin college, I would like to thank you for the great compliment you have paid my institution. Placing us 13th overall and 2nd among Protestant schools is a generous recognition of what we do here, given the number of fine institutions that you examined. The point of this letter is not to argue that we were ranked unfairly. This is most certainly not the case.

The process of producing rankings is always one in which false precision is inevitable, and the methods of ranking will never make everyone happy. This is particularly true when the rankings are intended to express a set of priorities different from those that are common in academia. But let me, as an empirical social scientist, offer some suggestions for improving your methods, should you choose to repeat this process.

First, rankings are only useful if a reader can understand the criteria used to rank the schools. There are a couple of ways by which you could make these criteria clearer, and thus make the rankings more useful. First, your inclusion of “descriptions from our FT experts” mixed in with the other data makes it difficult to interpret the final rankings. If your goal was to produce a ranking of “the favorite schools of FT editors and friends,” then you really don’t need all of the empirical apparatus that you include, such as explicit weights on different surveys. In fact, to those of us who respect what FT does, it would be more helpful to produce a separate “FT Favorites” set of rankings, so that we can see those data in isolation.

The second move that you could make for more clarity is to share, somewhere, some or all of the questions that were used to arrive at the scores given in various categories. One example will illustrate the point. Hillsdale College, a fine institution in most respects, inexplicably has a higher “religious” score than Calvin College. This may be a testament to Hillsdale’s ability to be hospitable to Christian students outside of a confessional framework, something for which they deserve credit. Without more knowledge of the questions in the surveys, however, a reader can only be left to speculate about why a college that does so much to integrate faith and learning (Calvin) ends up ranked lower than a school with no explicit institutional faith commitments.

One more note of caution. In surveying people in very different institutional contexts, the students' context can affect the comparability of their answers. A student at a religious school might have very different reference points for questions about faith and social life than a student at a non-religious institution.

Again, thanks for the hard work. This particular issue was especially interesting and insightful.


Steven McMullen

Department of Economics

Calvin College

Thursday, October 7, 2010


A number of studies recently have purported to measure people's happiness, and then correlated that happiness with things like marriage, divorce, religion, kids, education, etc. One book that has popularized much of this research is Daniel Gilbert's Stumbling on Happiness. One type of argument that comes up in this book, and in some of this research goes like this (see this for an example):
  • people report being less happy when with their kids
  • on average kids make people unhappy
  • people are generally wrong if their vision of "happiness" includes children
The problems with this argument might be obvious, but nevertheless I found myself returning to this argument as I read a very interesting essay in the New York Times today by David Sosa. His argument goes something like this:
  • When given the choice, people will not choose happy fake experiences over unhappy real experiences.
  • Therefore people must be aiming for something other than happy feelings.
I would add that people are rightly aiming for something other than a large number of happy feelings over their lifetimes. Which goes to the heart of the problem with Gilbert's book.

Here is one paragraph that summarizes what Sosa is arguing for:
One especially apt way of thinking about happiness — a way that’s found already in the thought of Aristotle — is in terms of “flourishing.” Take someone really flourishing in their new career, or really flourishing now that they’re off in college. The sense of the expression is not just that they feel good, but that they’re, for example, accomplishing some things and taking appropriate pleasure in those accomplishments. If they were simply sitting at home playing video games all day, even if this seemed to give them a great deal of pleasure, and even if they were not frustrated, we wouldn’t say they were flourishing. Such a life could not in the long term constitute a happy life. To live a happy life is to flourish.

Thursday, September 9, 2010

Henninger on class war

Daniel Henninger's column in today's WSJ questions the idea he attributes to Pres. Obama that "the 'well-off and well-connected' economic factions in the U.S. have done something explicit to shaft the middle class." He thinks that the President should instead be "getting everyone, from top to bottom, believing they are on the same national team."

The problem is that there is plenty of evidence to suggest that the President is right about this. Look for example at the current campaign being waged by the Chamber of Commerce and advanced vigorously by the Grand Rapids Press to pass a "right to work" law in Michigan. Look at the attempts by the Mott company to cut wages for its workers at its applesauce plant just because of high unemployment in the region. Look at the conservative program of shifting tax burdens away from the affluent, like Reagan cutting income taxes while increasing payroll taxes, or Engler cutting property taxes and raising sales taxes, or Bush junior abolishing the estate tax. Look at the rates of wage increases over the last 30 years for executives and for hourly non-supervisory workers. Look at the enthusiasm for cutting the pay of teachers and other government workers. Look at the data on income inequality in the U.S. over the same period.

Of course, Henninger and his ilk speak out of both sides of their mouth about this. When he wants to woo middle-class folks to his political program, we're all on the same team. When he wants to reduce capital-gains taxes or cut wages for working folks, it's all about market forces and competitiveness and looking out for your own interests.

The tell-tale language in today's piece is this: "Our economy has been free-riding on corporate training programs for years...." This is part of the myth that businesses operate training programs, open stores and factories, invest in technology, and "create jobs" out of the goodness of their heart, and not because it's profitable to do so. It also betrays the sense of entitlement, bred by decades of corporate welfare programs, that insists that government should pay a big share of businesses' costs because of the social good businesses do. The social problems they create we're supposed to let slide.

If indeed we are all on the same national team, then business leaders and their apologists in the media need to start talking and acting that way. First of all, economic growth has to be for everybody. Productivity gains should show up as higher real wages. Executive pay should not increase at a faster rate than anybody else' pay. Cutting the pay of your employees or the government's employees should not count as a virtue. Corporate leaders also need to own up to their mistakes and misjudgments, and recognize that sometimes government regulation is the best way for them to be accountable for the consequences of their decisions.

If that happens, we can get past class warfare. The war that's on now was declared by the leadership on the business side. For the war to end, they need to accept the terms of the peace.

Tuesday, August 31, 2010

Reinhardt on Value Judgement in Economics

Uwe Reinhardt posted a nice article on the New York Times website discussing some of the not-so-subtly hidden value judgments in standard economic writing. Here is a good quote:

As the economist Steven E. Landsburg explains it bluntly to students in “Price Theory and Applications” :

In applications, the Kaldor-Hicks criterion and the efficiency criterion amount to the same thing. When Jack gains $10 and Jill loses $5, social gains increase by $5, so the policy is a good one. When Jack gains $10 and Jill loses $15, there is a deadweight loss of $5, so the policy is bad.

Evidently, on the Kaldor-Hicks criterion one need not know who Jack and Jill are, nor anything about their economic circumstances. Furthermore, a truly stunning implication of the criterion is that if a public policy takes $X away from one citizen and gives it to another, and nothing else changes, then such a policy is welfare neutral. Would any non-economist buy that proposition?

Readers will notice an irony in the widespread acceptance of the Kaldor-Hicks criterion by economists. On the one hand, they claim that their science is rooted strictly in the personal preferences of individuals in society, which seems democratic. In their application of the Kaldor-Hicks criterion to real-world problems, however, economists act like collectivists who seek to allocate society’s resources under a preferred moral doctrine. Economists take on the role of a benevolent dictator presumed to be empowered by someone to redistribute welfare among individual members of society for a larger social purpose — increases in what economists call efficiency and the maximization of what they call overall social welfare.

Friday, August 27, 2010

Bernanke's options

In his speech today at the annual Fed conference in Jackson Hole, Wyoming, Ben Bernanke laid out the options for further stimulus from the Fed. He dismissed the possibility of lowering the interest on excess reserves rate (IOER, what the Europeans call the Lombard rate), the interest rate the Fed pays to banks on money they keep in their deposit accounts at the Fed. Excess reserves (above those required to back checking deposits) are normally almost nothing, but since the crisis began have hovered close to 2 trillion dollars. The IOER is currently 25 basis points (0.25%), while the Fed funds rate hangs around 10 to 15 basis points, and the primary discount rate is at 75 basis points. The chairman argues that cutting IOER to zero would not affect the Fed funds rate, and so is useless. He's probably right about that, but the point of doing it would be to make holding excess reserves less attractive, inducing banks to make loans instead. Bernanke also says that pushing IOER to zero "could disrupt some key financial markets and institutions." I'm much more convinced by the argument of Alan Blinder in a recent WSJ op-ed (is he running for something?). Paying a non-zero IOER at this point just gives banks a way to make money without sacrificing liquidity or making loans, and so keeps credit stopped up, especially to small businesses and consumers. The Fed did not even have the authority to pay IOER until three years ago, so it's not clear why going back to a zero rate would disrupt market institutions. It's certainly not having its expected effect of setting a floor under the Fed funds rate. This seems to me to be one of the few potentially effective tools the Fed has left in its toolbox. Now is the time to get it out and use it.

Monday, June 14, 2010

The New Feudalism

Today's Wall Street Journal listed Michigan as one of the states (26 in all, plus DC) that now permit perpetual trusts (p. R4). I was surprised, so I did some digging on the Web. Sure enough, Michigan abolished the Rule Against Perpetuities as recently as the spring of 2008. Somehow I missed that. It did not become a big issue in the media for some reason, but it should have.

It seems that a good part of the reaction (a word I use advisedly) in our country to the crisis of capitalism is to give up on the capitalist system in favor of a return to feudalism. We have no estate tax right now, and a recent New York Times story on the consequences of this raised a great many reader comments approving of the new situation. We have repealed the RAP in more than half the states. In the last election, it looked for a while like the Presidency would become the property of the Bushes and the Clintons, recalling the good old days of Lancaster versus York. Now all we have to do is bring back primogeniture and entail, and we'd be back in 1400.

I guess that some people would be comfortable putting themselves under the protection of the DeVos's or the Van Andel's. For myself, I prefer democratic capitalism. No, not the kind caricatured in some economic theory where all people do is follow their pecuniary interest. (See today's Times about a new idea: paying people to take their prescriptions.) I want the kind of capitalism where corporate leaders look out for their investors, creditors, vendors, customers, workers, and neighbors as much as they look out for themselves. I want capitalism where the standards of conduct go beyond "Is it legal?" or "Would it enhance my personal wealth?"

But maybe that's where the push for a new feudalism comes from. Yes, people want security, physical and economic, and they don't trust government or corporations to give it to them. Beyond that, they want a world of "noblesse oblige", where they wealthy felt an obligation to look out for the interests of ordinary people, at least in their own community (manor). They want a world where the Christian church had real power, and where everyone shared a common, distinctively Christian understanding of the structure of society and individuals' roles in it. I understand the nostalgia. (My wife watches HGTV, and you'd be amazed at the number of guys building castles in their backyards.) The trouble is that you end up with a stagnant economy, a world where most people are poor and dependent, and no hope for anything better.

John Tiemstra

Tuesday, May 4, 2010

The Limits of Policy

David Brooks has another good column. His advice and perspective is especially good for those heavily invested in the policy world. The entire column is worth reading, but a good section is quoted below, with my thoughts following:

In her book, “What Money Can’t Buy,” Susan E. Mayer of the University of Chicago calculated what would happen if you could double the income of the poorest Americans. The results would be disappointingly small. Doubling parental income would barely reduce dropout rates of the children. It would have a small effect on reducing teen pregnancy. It would barely improve child outcomes overall.

So when we’re arguing about politics, we should be aware of how policy fits into the larger scheme of cultural and social influences. Bad policy can decimate the social fabric, but good policy can only modestly improve it.

Therefore, the first rule of policy-making should be, don’t promulgate a policy that will destroy social bonds. If you take tribes of people, exile them from their homelands and ship them to strange, arid lands, you’re going to produce bad outcomes for generations. Second, try to establish basic security. If the government can establish a basic level of economic and physical security, people may create a culture of achievement — if you’re lucky. Third, try to use policy to strengthen relationships. The best policies, like good preschool and military service, fortify emotional bonds.

I think he might over-state the case with this line: "Bad policy can decimate the social fabric, but good policy can only modestly improve it." This seems to imply that we are in a "diminishing returns" region in terms of policy quality, where we get a big negative impact if we mess up, but a small positive impact if we do the right thing.

The overall tone of the article certainly seems to fit with recent experience in education policy though. Even radical reforms of the way we structure and fund schools seems to have a relatively small impact relative to the relevant "cultural" factors that Brooks mentions.

Thursday, April 15, 2010

Dear "Henry"

I read your op-ed in today's Wall Street Journal. Congratulations. You're in the 32% federal tax bracket. I'm in the 25% bracket, and haven't seen a raise in a while now. You're better off financially than the vast majority of Americans, including me, which is why you pay a lot of taxes.

You do work very hard, which is admirable, but that is not the only cause of your affluence. Many people work harder than you do and make less money. Others work less than you do, and earn more. Within occupational categories, working harder usually gets you more pay, but across occupations, the connection often fails. So don't take the view that your hard work entitles you in some way to your affluence. Markets are much more capricious than that. Economists can make a case that if markets are sufficiently competitive, the market-based distribution of income is efficient. But we know that markets, especially labor markets, are not that competitive. Neither mainstream economics nor mainstream moral philosophy gives us any reason to think that the market distribution of income has any important moral qualities. To think that we somehow "deserve" our market incomes is a mistake. (It is an increasingly common mistake in the WSJ. Arthur Brooks made the same mistake yesterday.) So pardon me, but I find it hard to feel sorry for you.

Then you complain about tax money being "wasted", too much being "confiscated", and having to "carry so many people on my back". What about all the money that went to defend your country, protect you from crime, ensure the safety of your food, pave the roads you ride on, educate you and your children, maintain the parks you enjoy, and provide high culture to enlighten you? I think you benefit a lot from your tax money, and you would miss these government services if they were gone.

You talk about dropping out and living "on the dole" for a while. Well, it's your choice I suppose. I think the reason you haven't done it yet and probably won't ever do it is that you realize how big a reduction in your standard of living would be involved. You like being affluent. Nothing wrong with that. But your whining about taxes is just ill-informed and, frankly, inappropriate.