Letter from an “Anti-School Teacher”

I recently received this email from a self-styled “anti-school teacher.”  Reprinted unchanged with permission of the author, Samuel Mosley.


Dear Professor Caplan,

My name is Samuel Mosley. I studied economics at Beloit College, my advisor was a former graduate student of yours, Laura Grube.

I recently read The Case Against Education and it explained so much of what I see. Like many new graduates who do not know exactly what they want to do but want to do something that helps people, I became a teacher right after college. I have spent the last year teaching math at a high school in Chicago. Observing how unlikely it was that the decisions we make increase our students human capital, I wondered how it could be of benefit to the students. Your book helped me answer that question.

I was swayed to believe that education is overfunded. I began to view every decision made by my boss with the question “is this to add to our students’ human capital or their signaling value?” Looking at the school from this framework, I have come to suspect that education is best understood as a game theory problem. Often, my bosses are faced with options where one option would be better for the students’ human capital and another would help the student send a more functional signal. The school I teach at invests time in signals (like AP Calculus) because it will enrich our students’ lives more than classes that would cultivate their human capital (like AP Statistics). Because every school can choose to signal, we arrive at a Nash Equilibrium where students at none of the schools acquire human capital and the decisions of schools’ to signal cancel each other out.

Assume schools can either set the average grade to B or C. Schools that set the average grade to C have higher standards so students from those schools graduate college at a higher rate. Assume also that college admissions officers do not have perfect information about the standards of each high school so they admit students from schools where a B is the the average grade more often than students from schools where a C is the average grade.

Now, say Theoryville College only admits students from Row High School and Column High School. There are only 1000 spots available. Students from Row and Column only apply to Theoryville. Both schools have 1000 seniors. Theoryville accepts students evenly if they both come from schools with similar standards. If one school chooses lower standards (B), 700 of their students will get in and 300 from the other school. 45 percent of students from low standards schools graduate college while 55 percent of students from high standards schools graduate. Assume the utility function for both high schools is the number of its students who complete college, with no penalty for having students go to college and leave degreeless in debt.  So, the game matrix can be expressed:

C B
C 275, 275 135, 315
B 315, 135 225, 225

This simple prisoners’ dilemma does not seem immediately relevant to the human capital vs. signaling debate and it does not address the question of whether or not college brings human capital. I choose college completion as the utility function for simplicity. Schools of standard C produce graduates who are more ready for college. Schools of standard B produce graduates who appear more college ready. Replace the idea of college readiness with “human capital,” and this becomes relevant. Signaling has become more profitable to schools, so they invest resources in signals when they could invest resources in human capital. This is a different claim from the one that schools cannot produce human capital. My time at this job has convinced me prisoners dilemmas like this one exist for course offering, course placement, pass rates and a number of other decisions schools face.

Do you think it’s at all likely that schools would be better human capital factories given an incentive structure that accounts for the game theory problem? Do you think game theory is a useful framework for this problem?

Sincerely,

Samuel Mosley

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“Politics Awaits”

Consider this scene from Quentin Tarantino’s WWII epic, Inglourious BasterdsGerman movie star (and war hero) Fredrick Zoller is trying to persuade Joseph Goebbels to switch the venue for his new movie’s premiere.  Zoller’s real motive is to impress his would-be girlfriend, Shosanna, who owns a small theater.

GOEBBELS: How many seats in your auditorium?

SHOSANNA: Three hundred and fifty.

GOEBBELS: That’s almost four hundred less than The Ritz.

FREDRICK:  But dear Goebbels, that’s not such a terrible thing. You said yourself you didn’t want to indulge every two-faced French bourgeois taking up space currying favor. With less seats it makes the event more exclusive. You’re not trying to fill the house, they’re fighting for seats. Besides, to hell with the French. This is a German night, a German event, a German celebration. This night is for you, me, the German military, the high command, their family and friends. The only people who should be allowed in the room, are people who will be moved by the exploits on screen.

GOEBBELS:  I see your public speaking has improved. It appears I’ve created a monster. A strangely persuasive monster. When the war’s over, politics awaits.

[Table chuckles.]

While this is all fiction, it’s profound fiction.  Ponder Goebbels’ last phrase: “Politics awaits.”

Fredrick shows zero understanding of policy.  Indeed, it’s hardly clear that he even understands the optimal way to plan a movie premiere.  So what has Fredrick displayed?  A talent for demagoguery.  He scorns foreigners – “every two-faced French bourgeois taking up space currying favor” and “to hell with the French.”  He panders to nationalist identity: “This is a German night, a German event, a German celebration.”  And Fredrick scorns and panders eloquently enough to bemuse the Minister of Propaganda himself.

When you watch Inglourious Basterds, Goebbels’ reaction to Fredrick’s appeal seems obvious, even banal.  Why?  Because Goebbels is speaking like a generic politician, not a Nazi.  And when he does so, we all nod, because deep down we know the ugly truth that demagoguery rules the world.  We’re just afraid to say it.

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Backlash Immortal

Here’s a two-step exercise.

Step 1: Read this passage.

Based on research to date, there would seem to be little reason to worry about a protectionist backlash against globalization in response to rising inequality. If the “average” economist thinks that technology’s role has been four times as important as that of trade, surely policy discussion is focusing on how to even out the gains from technology, not on how to erect new trade barriers? Unfortunately, this is not the case. My reading of the current U.S. policy debate is that such a backlash is already underway. This is particularly so with respect to setting the terms of trade-policy debate.

This assessment is based on a few broad observations. First, in the United States there has not been a concerted policy effort — at either the federal level or the state level — to ameliorate the recent wage problems of the less skilled. Whether this is good or bad is open to debate on various philosophical and ethical grounds. But regardless of this, inaction has an important political implication: the median U.S. voter has experienced disappointing wage performance for more than 20 years. Labour economists often distinguish the more-skilled and less-skilled by the college-graduate / high-school graduate distinction. Table 3 shows that by this convention about 75% of the U.S. labour force is less-skilled. The wage problems of the less-skilled affect the majority of the U.S. population, not just a small minority of it. Has this voting bloc made its political might felt?…

[S]everal recent political events in the United States suggest a marked turn away from policies aimed at freer trade.

Step 2: Guess the year it was published.

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Done guessing?  Here are the “recent political events” the author names.

The events include Ross Perot’s strong electoral performance in 1992; the NAFTA (North American Free Trade Agreement) debate and close Congressional vote in 1993; Pat Buchanan’s strong electoral performance in 1996; and the failure by Congress to renew “fast-track” negotiating authority for the President in 1997; and the House of Republicans’ reluctance to renew funding for the International Monetary Fund in 1998. Clearly, all these events involved other issues in addition to trade. But the consensus analysis of them factored in sentiment for greater protectionism. Based on events like these one can argue that a protectionist backlash is already underway.

Yes, this piece (Matthew Slaughter‘s “Globalisation and Wages: A Tale of Two Perspectives“) was published a full two decades ago in The World Economy.  

What should we conclude?

You could call the piece “prescient.”  But how prescient is it to predict a “backlash against free trade” almost two decades in advance?  What if that backlash is itself mostly rhetorical?

I say the real lesson of this piece is that free trade is a hardy weed.  Politicians are always complaining about free trade.  Free trade is never popular.  If you look at policy, “warning signs” and “harbingers” of radical change abound.  Before you announce the “beginning of the end” for free trade, though, remember that the world is vast.  A thousand dead “canaries in the coal mine” shows next to nothing when the world contains billions of canaries.  Whispers of change pale before status quo bias.

The preachers of backlash habitually paint themselves as “realists.”  The real realists, however, aren’t the people who highlight the multitudinous threats to free trade.  The real realists aren’t the people who opine, “We need to seriously address inequality or else the populists will win.”  No, the real realists are the people who stare at the multitudinous threats and say, “Meh.”  The real realists are the people who refuse to be stampeded into fighting populism with populism.

Be a real realist.

P.S. The rest of Slaughter’s piece, by the way, is golden.  He wasn’t the first to say this, but he says it well:

In the United States, supporters of free trade have ceded the terms of debate to their opponents, making it very hard to argue the true merits of free trade. Trade supporters, knowingly or not, are increasingly making specious arguments that are prone to fail and thereby lend support to opponents. Consider, for example, the argument that “freer trade creates jobs.” No: on net trade neither creates nor destroys jobs — it is about the kinds of jobs in an economy, not the number of jobs. Similarly, consider “freer trade raises exports.” Maybe, at best: the overall level of U.S. exports depends mainly on macroeconomic considerations like the exchange rate and the level of foreign aggregate demand.

[…]

To reverse the trend towards greater trade protection, I think that the key change needs to be with the terms of debate. The proponents of free trade need to make the correct arguments
about trade’s benefits: comparative advantage, greater product varieties, greater product-market competition, and so on. This recommendation is probably not new, but it still seems timely.
To solidify support for freer trade, debate needs to move away from trade balances and jobs — if for no other reason that business cycles and recessions will always drive these numbers the
“wrong” way. In particular, successful arguments might develop the “trade is a form of technological change” analogy. In the United States the baseline assumption tends to be that technology’s aggregate gains outweigh any redistributive costs; public-policy and media discussions of technology often get at its general-equilibrium gains. But discussions of trade almost always get stuck in the partial-equilibrium issue of job creation and job destruction. Maybe this can change with a change in the terms of debate.

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Triple Standards: The Dollar, the Throne, and the Altar

The last chapter of Tyler’s Big Business is called “If Business Is So Good, Why Is It So Disliked?”  At risk of seeming narcissistic, this passage put a big grin on my face:

Perhaps in part because we cannot do without business, so many people hate or resent business, and they love to criticize it, mock it, and lower its status. Business just bugs them. After I explained the premise of this book to one of my colleagues, Bryan Caplan, he shrieked to me: “But, but . . . how can people be ungrateful toward corporations? Corporations give us everything! Corporations do everything for us!” Of course, he was joking, as he understood full well that people are often pretty critical of corporations. And they are critical precisely because corporations do so much for us. And do so much to us.

Does my colleague’s outburst remind you of anything? Well, immediately he followed up with this: “Hating corporations is like hating your parents.”

Hmm. Your parents too (usually) have done lots and lots for you, but—especially in America—large numbers of people are unhappy with how that all turned out, or at least some parts of it. For all of their gratefulness, they resent what their parents have done to them.

On reflection, though, my “Hating corporations is like hating your parents” quip misses a crucial point.  Namely: In the absence of extreme abuse or neglect, virtually every society condemns hating your parents!  When you retrospectively rate your parents, you’re supposed to forgive even serious character flaws and obvious cruelty with, “Well, mom did her best” or “Well, dad loved us in his way.”  When you rate a business, however, almost no one expects you to give it the benefit of the doubt.

You could object, “Well, we hold large impersonal organizations to higher standards than familiar individuals.”  But that’s utterly wrong.  Governments are large impersonal organizations, and people hold them to absurdly low standards.  They’re even willing to brush mass murder under the rug.  Churches, too, are large impersonal organizations, and people also hold them to shockingly low standards.  Many Catholics briefly punished their Church after massive sexual abuse scandals, but virtually none cried, “These child molesters can go to hell; I’m finding a new religion!”  Note, moreover, that government and organized religion aren’t two itsy-bitsy counter-examples.  They are by most measures the oldest and largest kinds of large impersonal organizations.

Tyler spends many pages developing a specific version of the “higher standards for large impersonal organizations” story:

[P]eople tend to anthropomorphize even when such attributions are inappropriate. Along these lines, we tend to think of corporations as being like people and we tend to judge them by the same standards that we use to judge people, whether we seek to do so consciously or not. To some extent we are bound to talk that way, but we need to understand that it can mislead us, and it is a kind of shorthand that has pitfalls and hazards if we take the metaphors too literally or allow them to drag around our emotions too much. It is simply very hard for most people to think about corporations without investing them with the personal attributes of human beings or at least the attributes of those small groups of social allies and enemies we evolved to obsess over.

Since the general story is utterly wrong, however, there’s no hope for Tyler’s specific version.  If he were right, people would also anthropomorphize governments and churches, leading to unfairly harsh judgment.  In fact, however, governments and churches enjoy overwhelming deference even when they’re engaged in vile crimes.  We damn the dollar, yet honor both throne and altar.

What’s really going on?  I’ve spent many years highlighting mankind’s anti-market bias: our irrational pessimism about the social benefits of markets.  I’ve even argued that this bias provides the common core of leftist ideology.  Scapegoating business and the rich comes naturally to psychologically normal humans – and big (≈ “rich”) business is one of the best scapegoats of all.  The only better scapegoat, really, is foreign big business – those beastly multinational corporations you keep hearing about.

Why do human beings have this corrupt emotional make-up?  I sincerely don’t know.  While I’ve heard Darwinian explanations, most seem like shaky just-so stories to me.  All I know is that human beings do have this corrupt emotional make-up.  And that’s why we I hope Big Business inspires a chorus of imitators – because our emotional corruption is not going to fix itself.

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The Noble Crony: Big Business on the Politics of Business

Tyler’s Big Business insists that the influence of business over American government is greatly overblown:

I am against virtually all manifestations of crony capitalism, but I’m also not sure people are getting the basic story right. Business does have some real political pull, but the basic view that big business is “pulling the strings” in Washington is one of the big myths of our time. On closer inspection, most American political decisions are not in fact shaped by big business, even though business does control numerous pieces of specialist legislation. Voters drive most of the major decisions about the government budget, more so all the time as entitlement spending consumes more of the federal budget. In reality, corporations, as they relate to our federal government, are devoting more and more of their time and energy to minimizing legal risk, deciphering complex government regulations, and trying to avoid major economic losses from adverse decisions coming from Washington or state and local governments.

Big business doesn’t secretly run the Republican Party:

For instance, for years many critics alleged that big business controls the Republican Party. Yet even though the Republicans nominated Donald Trump to run for president, as of late September 2016 not one Fortune 100 CEO had donated to Trump’s campaign, whereas in 2012 about one-third of them had supported Romney by that point. Why did Trump win the nomination? It is obvious: because the voters supported him to a sufficient degree.

Getting meta:

Steven Pearlstein, commonly a critic of big business and former economics columnist of the Washington Post (and currently my colleague at George Mason University), wrote in the fall of 2016: “Indeed, one irony of the 2016 election is that populist antipathy toward corporate America seems to be peaking at precisely the moment when corporate influence on government policy is as low as anyone can remember.” And Jeffrey Immelt, the former CEO of General Electric, wrote in a 2016 shareholder letter: “The difficult relationship between business and government is the worst I have ever seen it.” William Daley, chief of staff in the Obama White House, opined, “Honestly, I don’t think big business matters much anymore.”

I believe these views are exaggerations, as the relationship between big business and Washington has some inevitable cyclical elements, as perhaps those commentators would themselves admit. For instance, after those statements were issued, the Trump administration responded with a tax plan that was very favorable to business, especially large multinationals, and business interests responded with enthusiastic support. So at the time I am writing this chapter, American policy is in some ways especially heedful of business interests, as indeed is sometimes the case. If the influence of business is again high by the time you are reading this book, keep in mind that most of my discussion is focused on what is the most typical state of affairs.

Even in 2018, big business is hardly dominating the agenda. America’s corporate leaders often promote ideas of fiscal responsibility, free trade and robust trade agreements, predictable government, multilateral foreign policy, higher immigration, and a certain degree of political correctness in government, all ideas that are ailing rather badly right now. Again, you can expect some cyclical ups and downs, but the losses sustained by these causes is a sign that big business is not in charge. The resurgence of interest in doing something about national infrastructure is another example of a business priority surviving in the national debate, but it may or may not happen, and it seems to depend more on the personal priorities of Donald Trump than the strength of the business lobby. Even if a major infrastructure program does break through and become policy, it will have taken decades for this talk to have come to fruition.

Once again, though, I say Tyler sells business short.  There are major policies where the business community prevails over the popular will.  Indeed, there are major policies that would be helpless political orphans without the patronage of business elites.  But happily, business has both prudence and justice on its side.

Land-use policy is the clearest case.  If the construction industry were not tirelessly clawing for the right to build homes and offices, regulation would have long since choked off development.  Psychologically normal people cotton to virtually all complaints about new construction.  “Traffic!”  “Noise!”  “Harm to the environment!”  “Hurting property values!”  “Crowding our schools!”  “Not in My Backyard!”  Only lobbying from builders counters this mad populist negativity, allowing the creation of the structures in which we all reside.   Thank you, business.

The same goes for labor market regulation.  Psychologically normal people love minimum wages, firing restrictions, mandated benefits, and the right to sue your employer.  But these regulations have awful side effects – especially unemployment.  Without business resistance to this feel-good legislation, the U.S. would likely be stuck at 10% unemployment or worse.  Thank you, business.

Finally, don’t forget immigration.  While business hardly favors open borders, it almost never opposes existing immigration – and routinely argues for a bit more.  How much does this sway policy?  Probably a lot.  Most obviously, without the nay-saying of immigration-dependent businesses, the Republicans would probably have probably passed the RAISE Act years ago.  Thank you, business.

Why doesn’t Tyler say any of this?  My best guess is Straussian.  He knows that business makes policy better – but he also knows that business influence works best in the shadows.  Hailing the political benefits of business puts those benefits at risk.  Sadly, perhaps he’s right.

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Could Such a Man Care?

Nicolas Maduro now rules a land of chronic hunger, horrific crime, terrible fear, and mass exodus.  How does he maintain his dictatorship?  With a pact of steel between his ruling party, the military, the secret police, and on-site foreign allies – especially Cubans.  You would have to be mad to think that Maduro’s doing all this for the good of his people, or the good of the world.  His only credible motivation is power-lust gone wild.  Maduro is a pervert for power.

He’ll never admit this, of course.  He still claims he’s doing it all for the people and the higher good.  Here’s Maduro in an interview this February:

Venezuela is a country with dignity. We are patriots, revolutionaries. We have an ideology, that of Simon Bolivar. Our movement came from the depths from the Venezuelan people. We’ve been governing democratically for 20 years. Everything that we are, everything that we have, we have because of the popular vote.

Which raises a deeper question.  Namely: Deep in his soul, when did Maduro stray from the path of decency?

For Maduro’s former fans, it’s tempting to sigh, “Power corrupts.”  Power turns a good man bad.  He – like his mentor Chavez – started out as an idealist.  Yet ironically, he ended up a tyrant.

On reflection, however, this “ironic” account is absurd.  Think about the nicest, sweetest person you personally know.  Can you seriously imagine that this person, given power, would forge a brutal police state, destroy the economy, and cling to power with fire and blood?  I can’t.

Indeed, think about the average person you know.  You can probably imagine that this person would go along with great evil out of cowardice.  Still, would the average person you know take the initiative to commit these horrors?  That doesn’t make sense to me.

The lesson: Maduro was never an idealist.  Indeed, he was never an average person.  The average person in his shoes would have done far less evil, and relinquished power long ago.  What Maduro has done reveals what Maduro has always been: insatiably hunger for power.

So what?  Well, while this is all clear in hindsight, Maduro used to have millions of fans all around the world.  Millions of fans who took his rhetoric at face value.  Millions of fans who thought he was a noble man.  And these fans would have called me paranoid and unfair for calling their idol a power-luster.

The fans’ error would have been understandable if Maduro were the first politician to start with idealistic rhetoric and end in savagery.  In fact, however, history provides countless examples of this pattern.  Which means two things.

First, while extreme power-lusters are a small fraction of humanity, they are a large fraction of successful politicians.

Second, regular human beings are awful at the detection of extreme power-lusters.  When humans hear flowery words, their impulse is to take them at face value, instead of reminding themselves, “That’s just what a power-luster would say – and politics is packed with power-lusters.”

You could object, “Well, popular gullibility is for the best.  If the man in the street assessed politicians realistically, political progress would be almost impossible.”  The tempting reply is, “Yes, but political disaster would be almost impossible too.”

This reply, however, gives gullibility too much credit.  Imagine a world where people were ever-mindful of politicians’ proclivity for power-lust.  What would happen?  Politicians would compete for popularity by promising and doing things that power-lusters hate to do.  Things like: Respecting individual freedom, welcoming dissent, defining crime narrowly, heeding international criticism, avoiding even the appearance of demagoguery, and yes – shrinking government and cutting regulation.  And given the documented dangers of politicians’ power-lust, that is just what anyone who cares about human welfare should be hoping for.

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