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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Trump’s “Trade War” is a War on You

“It’s not China that pays tariffs,” Fox News Sunday host Chris Wallace pointed out on May 12. “It’s the American importers, the American companies that pay what, in effect, is a tax increase and oftentimes passes it on to U.S. consumers.”

“Fair enough,” answered Larry Kudlow, head of US president Donald Trump’s National Economic Council, before trying to explain that indisputable fact away.

As Trump continues his “trade war” with the rest of the world (but China more so than other countries), more and more Americans are beginning to understand what’s happening here:

Punitive tariffs on Chinese and other foreign goods are simply corporate welfare. They are a mechanism for redistribution of wealth from American consumers and workers to the most politically connected American business owners. Those businesses can charge more for their product and still remain “competitive” because their product doesn’t have that extra tax levied on it.

In theory, some of that corporate welfare “trickles down” in the form of new jobs for Americans in those particular businesses. That effect seems to be more hype than reality, but even to the extent that it exists, it doesn’t create greater general prosperity. The “new jobs” are an artificial sugar high. Everyone else gets just a little bit poorer for each “new job” thus created.

As the late, great Henry Hazlitt pointed out in his classic Economics in One Lesson, it’s important not to ignore the unseen in favor of the seen.

When we are forced to pay more for one thing (steel, for example), we have less money left to spend on other things (shoes or groceries, for example). Protectionist politicians vigorously direct our attention to every “new job” their policies artificially create at our expense, while hoping we won’t notice the “old jobs” our decreased wealth eliminates (or makes less lucrative) in other industries.

That’s not the only way protectionism makes us poorer. Those artificially created “new jobs” also distort the labor market. They shoo workers away from enterprises in which their efforts are most naturally profitable to them, to their employers, and to the consumers of their product, into enterprises where the profitability is an expensive illusion created at their own expense and yours.

Trump’s “trade war” is indeed a war of sorts, powered by economic sanctions like those levied on Iran and North Korea. But the economic bombs he’s dropping are landing on American, not Chinese, heads.

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Edward Stringham: Do We Need Government? (1h15m)

This episode features a lecture by economics professor Edward Stringham from 2009. Should government provide law enforcement? Most would argue that government is absolutely necessary for law enforcement. Prof. Stringhman, however, argues that government may not even be necessary at all. To come to this conclusion, Prof. Stringham asks a few important questions. First, if something is really important, does it logically follow that government should provide it? Second, are markets capable of providing law enforcement and security in the modern world? Third, how are disputes currently settled between people of different countries? Purchase books by Edward Stringham on Amazon here.

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Tom Woods: The Economics of the Police State (39m)

This episode features a lecture by historian and Austro-libertarian Tom Woods from 2014. In the modern United States, federal laws are now so numerous and written so broadly and vaguely, that it is nearly impossible to make it through the day without breaking at least one of them. And through it all, an enormous government apparatus of prisons, prosecutors, police, and bureaucrats remains well-funded, powerful, and nearly impossible to oppose in court. Purchase books by Tom Woods on Amazon here.

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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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Walter Block: Defending the Non-Contributor to Charity (14m)

This episode features an audio essay written by economics professor and Austro-libertarian Walter Block from 1976, and which comprises Chapter 18 of Defending the Undefendable. Purchase books by Walter Block on Amazon here.

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