Well Done, Billionaires

I ran into a neighbor on the street the other day and we chatted about life at home during COVID-19 and how we are all coping with social distancing. I mentioned how grateful I am that our nearby Whole Foods market seems well-stocked (except for toilet paper).

She made a comment about how billionaires like Jeff Bezos, founder and CEO of Amazon, which also owns Whole Foods, should really be less greedy and share their wealth. (She didn’t know that Bezos has donated $100 million to US food banks during the pandemic, but charity is beside the point.)

The dominant narrative that billionaires are greedy and big companies like Amazon are monopolistic, exploitative tyrants is not only misguided but deeply troubling for the future of prosperity and human progress. This rhetoric is nothing new. Successful businesspeople have long been smeared as robber barons who take and take, detracting from the “common good.” But this rhetoric and these smear campaigns fail to recognize just how much these billionaires give. And I don’t mean give in terms of charity.

They give by doing, by building, by creating, by inventing. They give by making products or offering services that people want to buy at a price they want to pay in pursuit of things they want to do, and employing thousands of people who choose to work for a wage they choose to accept.

They give by creating value for people, free of force and in an open marketplace of voluntary exchange. In the case of Amazon and Bezos, it got big and he got wealthy by building a superior product that millions of people freely choose to use because they can get goods they want at lower prices and faster speeds, freeing up their precious time and resources to devote to their own personal pursuits.

Amazon is a marvel of modern enterprise, and is one of the few companies keeping our emaciated economy from completely collapsing during this public health shutdown. Instead of disdain, the people who built these companies deserve our respect and appreciation. They are the builders and the creators, the thinkers and the doers. Former Google CEO Eric Schmidt reinforced this point recently in a virtual presentation to the Economic Club of New York. He said:

Think about what your life would be like in America without Amazon, for example. The benefit of these corporations — which we love to malign — in terms of the ability to communicate … the ability to get information, is profound — and I hope people will remember that when this thing is finally over. So let’s be a little bit grateful that these companies got the capital, did the investment, built the tools that we’re using now and have really helped us out. Imagine having the same reality of this pandemic without these tools.

Yes, imagine. In her classic book, Atlas Shrugged, Ayn Rand did just that, showing what life would be like if we mistake success for greed, achievement for exploitation, and progress for oppression. Billionaires, like Bezos, who have built great companies contribute daily to the “common good”—not only through charity, but through human ingenuity and the progress and prosperity that produces for all of us. During this pandemic, Audible, an Amazon company, is offering hundreds of its children’s audiobooks, and many of its adult books as well, for free. Atlas Shrugged is one of them.

We can, and should, balk at attempts to corrupt the process of voluntary exchange when business and government become entangled. That isn’t capitalism, it’s cronyism and it poisons the promise of free markets.

Economist Dan Mitchell describes the difference as being pro-market or pro-business, with the former acting as a champion of free enterprise and trade while the latter relies on government handouts and business buffers in the form of subsidies and bailouts.

Government officials trying to woo Amazon with subsidies and preferential treatment to build additional headquarters in a particular city is an obvious example of being pro-business at the expense of a dynamic free market.

Entrepreneurs like Jeff Bezos assume enormous risk and invest significant time, energy, and resources into inventing products and services that people want and need. They spot an opportunity to create value for others, and build a business around that idea using their own originality and will. If they succeed in creating something that others value, they will be rewarded financially; but even Jeff Bezos isn’t as rich as you think. Most billionaire wealth is inextricably linked to the companies they built, continuing to generate value for others, continuing to give.

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From Telework to Flexible Wages?

Lately I’ve been stunned by reports of nominal wage cuts.  They aren’t just in the news; several professionals that I personally know have received such cuts.  Employers routinely cut total pay during recessions by slashing bonuses and hours.  Even in good times, many employers cut real wages by freezing pay despite inflation.  Yet outright reductions of nominal base pay – hourly wages for hourly workers, base salary for salaried workers – have been exceeding rare for as long as we’ve had data.  Economists have debated whether downward nominal wage cuts are bad, but virtually all economists agree that downward nominal wage cuts are rare.

What on Earth is going on in today’s labor market?

The simplest explanation is that the current recession is terrible.  Quite right; maybe it’s twice as terrible as the Great Recession.  But last time around, I heard zero first-hand reports of nominal wage cuts, and near-zero such stories in the news.  I can understand a doubling of incidents, but not this.

Another tempting tale: Workers today realize that they must take pay cuts or lose their jobs.  Alas, this trade-off is on the table during every recession.  And in every prior recession, falls in nominal base pay have stayed very rare.  What then is really afoot?

Let’s begin with a primordial fact: The best explanation for nominal wage rigidity is psychological. When employers cut workers’ nominal base pay, workers feel robbed and resentful.   This hurts morale, which hurts productivity, which hurts profits.  In contrast, when employers start doing layoffs, the fearful remaining workers respond by working harder.   Logically, of course, there’s no reason for workers to feel more robbed and resentful about a 1% nominal cut in the face of 0% inflation than a 0% raise in the face of 1% inflation.  Human beings, however, are not so logical.

Why then are nominal pay cuts suddenly on the table?  You could say, “Workers have suddenly become more logical,” but as far as I can tell, they’re crazier than ever.  But psychologically speaking, there is one radical and unprecedented change in the emotional experience of labor in the time of coronavirus: the explosion of telework.  Until recently, only 3% of workers teleworked, and a large majority of these teleworkers probably dropped by the office at least every week or two.  Now the telework share has plausibly multiplied tenfold, and our former offices are all but abandoned.

Loneliness is only the most obvious psychological effect.  Teleworkers have also lost most of their opportunities to complain and hear complaints, to feel bitterness and sow bitterness, to feel aggrieved and seek revenge.  As a result, I speculate, the effect of nominal wage cuts on morale has never been lower.

When an employer cuts the pay of a face-to-face work team, the workers constantly remind each other of the perceived affront.  They work down the hall from the executive they hold responsible for the pay cuts.  They see which fellow workers are standing up for themselves, and who’s kowtowing to The Man.  That’s how the classic mechanism – wage cuts –> bad morale –> low productivity –> reduced profits – worked.  Now, in contrast, teleworkers are stuck at home with their families.  They’re juggling childcare, housework, and safety in a chaotic situation.  As a result, they have neither the energy nor the forum to kvetch – verbally or otherwise – with coworkers.  Today’s teleworkers talk to their peers to get the job done, then get back to business.  Supervisors who cut your pay now feel more like a tiresome video than a human villain, which quells the urge to settle the score.

Think about it this way: If your firm cut pay three months ago, what would have happened?  You would have arrived at work and started griping to your friends.  A few would philosophically adjust to the new normal, but a coterie of complainers would have whined, muttered, grumped, and sputtered for months.  In so whining, muttering, grumping, and sputtering, they would have disrupted not only their own work, but teamwork itself.

If your firm cut pay today, in contrast, you’d probably just read the email, groan, and resume your duties.  You might lament your fate to your partner or close friend.  Yet now that you’re teleworking, you plausibly won’t even mention the issue to a single coworker.  You almost certainly won’t lunch with coworkers to denounce the firm’s callousness and greed.  Stripped of this social feedback loop, neither morale nor productivity will fall much.  At long last, pay cuts finally do exactly what firms desire: mitigate losses by cutting costs.

On top of all this, executives and managers almost surely feel much less guilty about pay cuts than they ordinarily would.  Out of sight, out of conscience.

How can we test my story?  Most obviously, industries that switch to telework will be much more likely to impose nominal cuts.  To repeat, that means lower nominal base pay for salaried employees, and lower nominal wages for hourly employees.  In industries where some categories of workers switch to telework and others don’t, I also predict that the switching categories will be more likely to experience cuts.  (There, however, horizontal equity norms may get in the way.  If 95% of a firm’s employees telework, management might cheaply avoid outrage by also cutting pay for the 5% who work on-site).

Note: You don’t have to think that wage cuts are socially desirable to buy my story.  For a tenured GMU professor such as myself, nominal wage cuts are all pain, no gain.  That said, thirteen years after the Great Recession started, I remain convinced that nominal wage cuts are a greatly underrated way to alleviate the grave evil of unemployment.  Nominal wage cuts don’t merely save jobs within the firm; they also save jobs throughout the economy.  Keynes opposed wage cuts, but good Keynesians smile upon them.

Think of it this way: Suppose you have $1M total to pay workers.  Which is better for Aggregate Demand: Retaining your whole workforce and cutting pay 10% – or keeping wages constant and laying off 10% of your employees?  The latter route, though timeworn, reduces workers’ spending because the marginal propensity to consume falls with income – and reduces firm’s profitability in the process.

Does this make me optimistic about the economy?  Hardly.  We’re already in the midst of a second Great Depression, and even perfect nominal wage flexibility won’t restore normalcy anytime soon.  Still, when word of nominal wage cuts reaches my ears, I feel a glimmer of hope.  Unemployment will skyrocket.  Without nominal pay cuts, however, unemployment would have been worst yet.  Unemployment will take years to subside.  Without nominal pay cuts, however, unemployment would have lingered longer still.  As I wrote a decade ago:

Is labor market rigidity a market failure?  I’m afraid so.  But strangely enough, this market failure is largely caused by anti-market bias!  The main reason workers hate wage cuts is that they imagine that wage-cutting employers are satanically “unfair.”  If workers saw wage cuts for what they are – a full-employment mechanism – they’d sing a different tune.  While they wouldn’t be happy to see their wages cut, they’d grudgingly accept that a little wage variability is a fair price to pay for near-total employment security.  Once this economically enlightened perspective took hold, employers would eagerly cater to it – and the market failure would largely go away.

According to Peter Pan, “Everytime a child says ‘I don’t believe in fairies,’ there’s a little fairy somewhere that falls down dead.”  As far as I know, he’s wrong about fairies.  But if Peter had warned, “Everytime a person says, ‘I don’t believe in markets,’ there’s a worker somewhere that loses his job,” he wouldn’t have been far from the truth.  Scoff if you must!  People can and do cause market failure by believing in it.

Teleworkers still don’t believe in markets, but at least they’re less likely to tell each other, “I don’t believe in markets” – or act on their resentment.  Thank goodness for small miracles.

P.S. Disclaimer: The best predictor of future data is past data- and we should never say, “This time it’s different” lightly.  So I wouldn’t be shocked if aggregate data ultimately revealed continued severe nominal wage rigidity despite my current impressions of drastic change.  If so, consider this piece an imaginative yet regrettable attempt to explain “facts” that barely happened…

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Harvard Magazine Calls for a “Presumptive Ban” on Homeschooling: Here Are 5 Things It Got Wrong

Author’s Note: This is a copy of my submitted Letter to the Editor of Harvard Magazine regarding its recent article,“The Risks of Homeschooling.”

Dear Editor:

As a Harvard alum, longtime donor, education researcher, and homeschooling mother of four children in Cambridge, Massachusetts, I was shocked to read the article, “The Risks of Homeschooling,” by Erin O’Donnell in Harvard Magazine’s new May-June 2020 issue. Aside from its biting, one-sided portrayal of homeschooling families that mischaracterizes the vast majority of today’s homeschoolers, it is filled with misinformation and incorrect data. Here are five key points that challenge the article’s primary claim that the alleged “risks for children—and society—in homeschooling” necessitate a “presumptive ban on the practice”:

1. Protecting Children from Abuse

I agree with the author of the article and Harvard Law School professor, Elizabeth Bartholet, who is widely quoted throughout, that it is critically important that children be protected from abuse. They argue that sending children to school prompts “mandated reporters,” such as teachers and school administrators, to identify possible child abuse. But many parents choose to homeschool their children to remove them from abuse at school, whether it’s widespread bullying by peers or, tragically, rampant abuse by teachers and school administrators themselves.

Child abuse is horrific wherever it occurs, but singling out homeschooling parents as potential abusers simply because they do not send their children to school is both unfair and troubling. Child abuse laws exist in all states and should be rigorously enforced. Banning homeschooling, or adding burdensome regulations on homeschooling families, who in many instances are fleeing a system of education that they find harmful to their children, are unnecessary attacks on law-abiding families.

2. Recognizing Homeschooling’s Diversity

One of the more incorrect assertions in the article is the statement that up to 90 percent of today’s homeschooling families are “driven by conservative Christian beliefs.”

It is true that religious conservatives were key to the growth of homeschooling in the late-20th century, as the number of US homeschoolers swelled to 850,000 in 1999. About two-thirds of today’s nearly two million US homeschoolers identify as Christian (equal to the US population as a whole), but the homeschooling population is becoming increasingly diverse, both ideologically and demographically.

According to the most recent data on homeschooling by the US Department of Education, the most significant motivator for parents choosing this education option was “concern about the school environment, such as safety, drugs, and negative peer pressure,” exceeding other factors such as a desire to provide religious or moral instruction.

Much of the current growth in homeschooling is being driven by urban, secular parents who are disillusioned with a test-driven, one-size-fits-all mass schooling model and want a more individualized educational environment for their children. Federal data also reveal that the percentage of black homeschoolers doubled between 2007 and 2012 to 8 percent, while the percentage of Hispanic homeschoolers is about 25 percent.

3. Embracing Civic Values

Bartholet also argues against homeschooling on civic grounds, saying that it’s “important that children grow up exposed to community values, social values, democratic values, ideas about nondiscrimination and tolerance of other people’s viewpoints.”

Indeed, research on homeschoolers finds that they are tightly connected with their larger community and may have more community involvement and participation in extracurricular and volunteer activities than schooled children due to their more flexible schedules and interaction with a wide assortment of community members. This reinforces similar research on private education more broadly, suggesting positive civic engagement and outcomes.

Moreover, public schools are struggling to inculcate a strong understanding of democratic values and civic knowledge. According to a 2017 survey by the Annenberg Public Policy Center at the University of Pennsylvania, 37 percent of Americans could not identify one right protected by the First Amendment of the US Constitution, and more than half of them erroneously believe that undocumented immigrants have no constitutional rights. Worrying about homeschoolers’ civic education when public schools are seemingly floundering in this regard is misguided.

4. Ensuring the Proper Role of Government

The central tension between those who advocate for homeschooling bans and heightened regulation and those who don’t relates to how each side views the proper role of government. The former sees a proactive role of government in “intervening to try to safeguard the child’s right to education and protection,” while the latter relies on the historical underpinnings of our democracy, going back to the writings of John Locke and Thomas Jefferson. We are endowed with “unalienable rights” and that to “secure these rights, governments are instituted.”

If a child is being abused, whether in a homeschooling situation or a public school classroom, the government should intervene to protect that child. But to single out a particular group for increased suspicion, monitoring, and invasion of privacy under the guise of “protection” is as un-American as similar attempts of the past. I agree with Bartholet when she says in the article: “I think it’s always dangerous to put powerful people in charge of the powerless, and to give the powerful ones total authority.” She is concerned with families having this power, while I worry about giving that power to government.

5. Identifying Homeschooling Outcomes

In 2018, The Harvard Gazette spotlighted three Harvard students who were homeschooled using an informal, self-directed approach to learning. “There wasn’t much of a plan or a long-term plan going in; I just took classes I was interested in,” said one of the students, while another asked, “Why would you go to the same building every day and do the same thing every day?” The article said that the students all demonstrated a “spirit of curiosity and independence that continues to shape their education.” While there may always be outliers and more research is needed, most peer-reviewed studies on homeschooling outcomes find that homeschoolers generally outperform their schooled peers academically, and have positive life experiences.

There is room for robust discussion and debate about education and homeschooling, including what is considered effective and beneficial—and who decides. Given Harvard Magazine’s reputation for editorial excellence, I was disappointed to see this article’s emphasis on the potential risks of homeschooling without highlighting its benefits. Bartholet indicates that “tolerance of other people’s viewpoints” is a key civic value. I agree, and I hope future articles in this magazine demonstrate this tolerance.

Sincerely,

Kerry McDonald, Ed.M. ’01

Cambridge, Massachusetts

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Are Kids Learning More at Home During COVID-19?

More than one billion students around the world are currently missing school due to the COVID-19 pandemic. Several US states have already canceled school for the remainder of the academic year, turning to online learning when possible, and other states are likely to extend their school closures soon. Some educationists panic about learning loss while children are at home with their families, and headlines abound about how “homeschooling during the coronavirus will set back a generation of children.”

Learning Outside of a Classroom

Rather than focusing on the alarmist narrative of what is lost during this time away from school, it is worth emphasizing what is gained. There is so much learning that can happen this spring, within families and outside of a conventional classroom.

In many school districts across the country, any assigned coursework has been deemed optional, compulsory attendance laws have been relaxed, and annual testing mandates have been removed. This regulatory respite can provide an opportunity for parents to regain control of their children’s education and expand knowledge using the abundant online learning resources now at our fingertips. Free from state and federal curriculum and testing directives, parents can nurture their children’s education and development, helping them to explore new interests, dive into self-directed projects, and reveal passions and talents.

Whether it’s taking a virtual tour of one of 2,500 museums around the world, listening to a live concert, learning in-demand technology and coding skills for free, engaging in livestream story or art time with renowned authors and artists, or just enjoying special, slower moments together as a family, this is a once-in-a-lifetime chance to disconnect from standard schooling and discover how much learning can really happen.

Some worry about children’s learning slipping away during this time at home. Writing recently for The Washington Post, former Tennessee education commissioner Kevin Huffman notes the alleged “summer slide” phenomenon when students purportedly lose during summertime much of what they learned during the academic year. He suggests several strategies for combating the learning loss that he says will occur during the pandemic, including adding “more instructional days next year and beyond,” and “opening schools in the middle of the summer, lengthening the school day and the school year, or potentially eliminating summer vacation for the next couple of years.”

Does Learning Loss Occur?

But as I’ve written previously for NPR, we should be skeptical about the overall idea of “summer slide,” or learning loss when children are away from school. If learning is so easily lost when a child’s school routine is disrupted, did they ever really learn at all? They may have been effectively schooled—that is, trained and tested on certain material—but they likely never learned.

Now, children and their parents have an unprecedented opportunity to learn without school. While this is a stressful time for all of us, as our routines are altered and we are mostly stuck inside, distanced from our larger community, it can also be a time to use the enormous, and mostly free, digital resources that are sprouting daily to support learning and discovery. It can be a time to nurture and rekindle our children’s natural curiosity and creativity, qualities that are so often dulled within a mass compulsory schooling system focused on compliance and conformity. It can be a time to get to know our children in ways that might have been difficult during our previously packed, always-on-the-go days.

Most parents will eagerly send their children back to school when this is all over, but some parents will be surprised by what they discover during this break from ordinary life. They may see how much calmer their children are and how school-related ailments such as ADHD are less problematic at home. They may see that their children’s mental health has improved, particularly for teenagers who report the most unhappiness at school.

Parents may see their children’s love of reading and writing reappear, when they are allowed to read books and write stories that are meaningful to them and not tied to an arbitrary school assignment or grammar lesson. They may see a strong interest in science and technology emerge, as their children want to know more about how viruses work and what inventions are being created to help fight the pandemic. Parents may see real learning happen and decide not to send their children back to school.

Fortunately, there are now so many more ways to facilitate education without schooling, including hybrid homeschooling models, virtual learning, microschools, self-directed learning centers, and co-learning spaces. With more demand from parents for innovative, out-of-school learning options, more entrepreneurs will build experimental K-12 education models that will expand choices for parents and learners. Opting out of conventional schooling has never been easier or more worthwhile.

Rather than dwelling on the schoolwork that isn’t getting done this spring, let’s celebrate the immense learning that is occurring, in our homes and with our families, as we experience this historic event together. Let’s focus on what we gain, not on what we lost.

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After the Pandemic: Back to School, or Forward to a Better Future?

Anyone who tries to tell you that the COVID-19 pandemic, and its associated social, political, and economic panics, are good things is  an idiot, or trying to sell you some kind of snake oil, or both. Society-wide disasters are always net negatives, or we wouldn’t think of them as disasters in the first place. Silver linings are never as shiny as the clouds they run through are large.

That doesn’t mean silver linings don’t exist, though. They do, and some of them are significant.

One major silver lining in the United States is that the nation’s  patchwork of government-operated daycare centers / day prisons / drone worker boot camps, aka “public schools,” have temporarily shut down as part of the effort to slow the spread of the disease.

That’s a silver lining in itself: Even if the kids only miss a quarter-year of classroom confinement, most of them are probably going to advance at least a full grade level where real life skills are concerned. Yes, they’ll lag in terms regurgitating whatever propaganda they’re spoon-fed, but that’s a feature, not a bug. They’re getting a glimpse of what real freedom might look like.

But when the pandemic and its associated panics end, parents are going to be faced with a wrenching choice: Continue educating their kids, or hand those kids back over to the professional parasite class that’s monopolized “education” in America for more than a century?

The tax burden imposed by that parasite class has increasingly forced both parents in most households to work outside the home over the same time period.

But a second silver lining of the COVID-19 pandemic has been the discovery that working from home is practical for millions who were previously fooled into thinking it wasn’t.

And a third silver lining has been new attention — beyond even that cast by mass school shootings — to the fact that packing dozens of children into single rooms and hundreds or thousands into single buildings on a daily basis would be a bad idea even if the purpose WASN’T to stunt their intellectual growth and turn them into obedient robots.

Millions of American parents just became homeschoolers. That’s a good thing regardless of the reasons. And homeschooling just became more practical as well.

Instead of handing our kids back over to the parasite class when this crisis is over, let’s not.

And let’s stop handing our money over as well.

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How Isaac Newton Turned Isolation From the Great Plague Into a “Year of Wonders”

College students around the world left campus this month, unsure when they would return and what daily life would look like until then. Forced to leave their friends and classmates behind and return to their childhood bedrooms, young people, who on average are less impacted by COVID-19’s dire health effects, may understandably feel angry and resentful. Free and independent, with their futures full of possibility, these students are now home and isolated. It can seem wholly unfair and depressing. But the story of another college student in a similar predicament might provide some hope and inspiration.

Isaac Newton’s Quarantine Experience

In 1665, “social distancing” orders emptied campuses throughout England, as the bubonic plague raged, killing 100,000 people (roughly one-quarter of London’s population), in just 18 months. A 24-year-old student from Trinity College, Cambridge was among those forced to leave campus and return indefinitely to his childhood home.

His name was Isaac Newton and his time at home during the epidemic would be called his “year of wonders.”

Away from university life, and unbounded by curriculum constraints and professor’s whims, Newton dove into discovery. According to The Washington Post: “Without his professors to guide him, Newton apparently thrived.” At home, he built bookshelves and created a small office for himself, filling a blank notebook with his ideas and calculations. Absent the distractions of typical daily life, Newton’s creativity flourished. During this time away he discovered differential and integral calculus, formulated a theory of universal gravitation, and explored optics, experimenting with prisms and investigating light.

Newton biographer James Gleick writes: “The plague year was his transfiguration. Solitary and almost incommunicado, he became the world’s paramount mathematician.” (p. 34). Newton himself would say about this forced time away from university life: ‘For in those days I was in the prime of my age for invention & minded Mathematics & Philosophy more than at any time since.’”

The Great Plague eventually ended and Newton returned to Trinity College to complete his studies, becoming a fellow and ultimately a professor. The discoveries he made during his time away from campus, though, would form the foundation of his historic career for years to come and become some of the greatest scientific breakthroughs.

This is a trying time for all of us, as our lives are upended and our routines are disrupted due to the pandemic. There is much to despair about. But this could also be a time for reflection and discovery. The sudden change to the rhythm of our days, and the associated isolation, could unleash our imaginations and inventiveness in ways that might have been impossible under ordinary circumstances.

Rather than being a nadir, this “social distancing” experience could be the peak of your creativity and production. This could be the time when you formulate your greatest ideas and do your best work. This could be your year of wonders.

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