In validation studies, when controlled for IQ, years of education have a dampening effect on employee performance criteria, such as supervisory ratings. What has occurred with American colleges in recent years--the dumbing down of and politicization of the social sciences and humanities, the increasing emphasis on identity politics, claims of microaggessions, demands for safety blankets and safe spaces, student violence, Antifa, and the linkage of higher education with terrorism--may be increasingly offsetting the traditional signaling value of higher education. College degrees may be a worse predictor of job performance and a worse signal to employers than a two dollar IQ test. Employers may be beginning to favor high-IQ job applicants without college degrees to applicants with degrees, especially if the degrees are in politicized fields like gender studies.
One of the chief impediments to understanding the effects of education is the traditional research approach of combining all majors into a single variable called "education." In fact, gender studies education has zero to do with mathematics education. One is political, the other is intellectually demanding. Saying that students who have been exposed to four years of gender studies education have had an experience equal to students who have studied mathematics or engineering is incorrect.
The traditional debate between human capital and signaling theories of education can likely be resolved by disambiguating different fields of study. The high-wage fields like engineering, science, and mathematics probably do provide human capital. The low-wage fields like politicized humanities and social sciences, and especially the studies fields, likely provide no human capital. What may be occurring is that the zero-added-human capital fields like gender studies have reduced the signaling effect of education to zero, and the chief reason for returns to education is the human capital effects in the rigorous fields.
Tuesday, December 4, 2018
An Extra Credit Class Assignment
I gave the following extra credit assignment to my classes. I wonder whether Antifa, dumbed-down studies majors at universities around the country, Antifa's dumbed-down studies professors, and the dumbed-down New York news media will demand that I be fired for saying that socialism doesn't work.
Dear Class:
At the beginning of the term, I said that you can raise your exam grade by five points by doing an optional extra credit assignment. The assignment requires that you read Friedrich von Hayek's article "The Use of Knowledge in Society" (available here) and write a one- to two- page paper that develops a thesis about the article. Your thesis can be pro or con. You will need to read the paper thoroughly. Adding additional readings is fine but not required.
The paper needs to be one to two pages, double spaced, with 12-inch font, and with one-inch margins. Your name and class section should be in the heading. It needs to be emailed to me by December 16 because I will be submitting the final grades soon thereafter.
The background for Hayek's article is as follows: In the 1920s Ludwig von Mises showed that socialist economic planning is necessarily inefficient because its information requirements are too great. Later, Oskar Lange attempted to refute von Mises by claiming that firms can use survey data to equate economic marginal cost and revenue, so duplicating free markets. However, Lange's claim that perfect competition can be duplicated with managerial survey techniques begs von Mises's original question.
First, the burden of performing such surveys and coordinating them around the economy is too big and causes decision making to be too slow to be of any use. Second, even if such surveys are performed, a socialist economy--characterized by centralized planning, regulation, or control--violates a key premise of competition: ease of entry. Since there is no quality competition, closed socialist economies are doomed to produce low-quality merchandise. Moreover, because the central planning agency (Gosplan in the former USSR) cannot digest all of the information needed to coordinate a large economy, there will be inefficiencies.
In "The Use of Knowledge in Society" Hayek provides an additional reason why socialism cannot work. The most important knowledge in running a business is not theory. It is knowledge of specific time and place, practical coordination. In order to coordinate economic decisions, an economic communication system is necessary. Although great advances have been made with respect to information technology since Hayek's article was published in the 1940s, the Internet, smart phones, and similar information technologies don't come close to being able to coordinate the massive, rapid fluctuations in information that must be communicated to entrepreneurs. Only a free market PRICE system is capable of communicating such information rapidly. Since socialism squashes, eliminates, or at a minimum distorts PRICES, information becomes garbled or disappears, and inefficiencies, shortages, and distortions occur.
Von Mises and Hayek's ideas were transferred to smaller organization units by James March and Herbert Simon in their classic book on organization theory, Organizations. March and Simon show that bounded rationality,--limits on the ability to plan--characterize business corporations, which are much smaller units than total states. The information requirements to manage a state are orders of magnitude greater than the information requirements to manage a large corporation.
Hence, the increasing trend toward socialism over the past sixty years in the United States has caused the real hourly wage to stagnate and has eliminated economic opportunities for millennials. Astonishingly, millennials now mostly support socialism, essentially favoring the system that has restricted their opportunities and likely reduced their lifetime incomes.
The empirical evidence for the ideas of von Mises and Hayek, written in the 1920s to 1940s, supports their theories. First, the Soviet Union fell in the 1980s for the reasons von Mises predicted in the 1920s. Second, large socialist countries like India and pre-reform China performed dismally. Third, countries that were largely democratic socialist in the 1960s, such as Denmark and Sweden, reformed their economies to eliminate much socialism because socialism performed badly there, even in smaller countries with smaller information demands than in large countries like the US or the USSR. Denmark is now roughly as free market as the United States, and Sweden is almost as free market.
Although scientific evidence overwhelmingly favors the failure of socialism, you probably have not been exposed to the ideas of von Mises and Hayek in your education or in the media. The economic forces that favor socialism are the same that favored the large-scale bailouts of 2008-9. To understand how special interests work (and make no mistake, your education has been the product of special interests), you need to understand public choice theory. A good place to start is with Mancur Olson's Rise and Decline of Nations. However, for this assignment you will need to focus on Hayek's essay.
Sincerely,
Dear Class:
At the beginning of the term, I said that you can raise your exam grade by five points by doing an optional extra credit assignment. The assignment requires that you read Friedrich von Hayek's article "The Use of Knowledge in Society" (available here) and write a one- to two- page paper that develops a thesis about the article. Your thesis can be pro or con. You will need to read the paper thoroughly. Adding additional readings is fine but not required.
The paper needs to be one to two pages, double spaced, with 12-inch font, and with one-inch margins. Your name and class section should be in the heading. It needs to be emailed to me by December 16 because I will be submitting the final grades soon thereafter.
The background for Hayek's article is as follows: In the 1920s Ludwig von Mises showed that socialist economic planning is necessarily inefficient because its information requirements are too great. Later, Oskar Lange attempted to refute von Mises by claiming that firms can use survey data to equate economic marginal cost and revenue, so duplicating free markets. However, Lange's claim that perfect competition can be duplicated with managerial survey techniques begs von Mises's original question.
First, the burden of performing such surveys and coordinating them around the economy is too big and causes decision making to be too slow to be of any use. Second, even if such surveys are performed, a socialist economy--characterized by centralized planning, regulation, or control--violates a key premise of competition: ease of entry. Since there is no quality competition, closed socialist economies are doomed to produce low-quality merchandise. Moreover, because the central planning agency (Gosplan in the former USSR) cannot digest all of the information needed to coordinate a large economy, there will be inefficiencies.
In "The Use of Knowledge in Society" Hayek provides an additional reason why socialism cannot work. The most important knowledge in running a business is not theory. It is knowledge of specific time and place, practical coordination. In order to coordinate economic decisions, an economic communication system is necessary. Although great advances have been made with respect to information technology since Hayek's article was published in the 1940s, the Internet, smart phones, and similar information technologies don't come close to being able to coordinate the massive, rapid fluctuations in information that must be communicated to entrepreneurs. Only a free market PRICE system is capable of communicating such information rapidly. Since socialism squashes, eliminates, or at a minimum distorts PRICES, information becomes garbled or disappears, and inefficiencies, shortages, and distortions occur.
Von Mises and Hayek's ideas were transferred to smaller organization units by James March and Herbert Simon in their classic book on organization theory, Organizations. March and Simon show that bounded rationality,--limits on the ability to plan--characterize business corporations, which are much smaller units than total states. The information requirements to manage a state are orders of magnitude greater than the information requirements to manage a large corporation.
Hence, the increasing trend toward socialism over the past sixty years in the United States has caused the real hourly wage to stagnate and has eliminated economic opportunities for millennials. Astonishingly, millennials now mostly support socialism, essentially favoring the system that has restricted their opportunities and likely reduced their lifetime incomes.
The empirical evidence for the ideas of von Mises and Hayek, written in the 1920s to 1940s, supports their theories. First, the Soviet Union fell in the 1980s for the reasons von Mises predicted in the 1920s. Second, large socialist countries like India and pre-reform China performed dismally. Third, countries that were largely democratic socialist in the 1960s, such as Denmark and Sweden, reformed their economies to eliminate much socialism because socialism performed badly there, even in smaller countries with smaller information demands than in large countries like the US or the USSR. Denmark is now roughly as free market as the United States, and Sweden is almost as free market.
Although scientific evidence overwhelmingly favors the failure of socialism, you probably have not been exposed to the ideas of von Mises and Hayek in your education or in the media. The economic forces that favor socialism are the same that favored the large-scale bailouts of 2008-9. To understand how special interests work (and make no mistake, your education has been the product of special interests), you need to understand public choice theory. A good place to start is with Mancur Olson's Rise and Decline of Nations. However, for this assignment you will need to focus on Hayek's essay.
Sincerely,
Monday, December 3, 2018
Friday, November 30, 2018
Mike Judge's Idiocracy and American Progress
A student in one of my classes commented recently on Mike Judge's Idiocracy. The student wrote:
If you recall in Idiocracy, there's no great resurgence of intellectual enlightenment at the end... only the exponential success of the few educated time-travelers over the rest of the happily stupid. This success doesn't come from educating people or instigating growth but from keeping to themselves and turning their (historical) knowledge into power. So, is that what we're in for? People that bother to read an uncensored history book or a hard-science technical manual when curious about an idea are becoming more and more rare, and their existence is being actively stigmatized. Is the reality to shut up and keep knowledge to oneself and get rich from it? The bulk of society are getting their degrees and entering the workforce having never had to fix a crisis in their lives, neurologically underdeveloped, missing critical-thinking skills that were absolutely normal even just 10 years ago. This is our workforce of tomorrow?
How do you work in this environment? It's like going to work in construction and finding out that the Dept of Labor suddenly designated that shadow-acting construction work should be treated as equivalent payable labor as actual labor. Now all the construction workers are 100 lbs and don't know how to use their tools, pantomiming construction behaviors and getting full pay for it. If you ask one of them to spot you when lifting something heavy, you're on your own. That's how I've felt at most of my jobs for almost five years now.
My student indeed. A century ago Ludwig von Mises wrote about how depressed interest rates stimulate malinvestment. Malinvestment occurs when projects that are not feasible at market interest rates are funded at below-market rates. The rates will generally have been depressed by stimulative Fed policies.
The Fed has pursued stimulative policies for many decades. At present, for instance, student-loan debt is about $1.5 trillion. The same period has seen the politicization of higher education. In today's universities, ideology and advocacy in the guise of social justice education substitute for learning about culture and science. Much of this dumbed-down advocacy lacks any legitimate educational content. It is funded by paper money, artificially created by the Federal Reserve Bank. Much of the paper money loans will never be repaid because the dumbed-down social activists will not find jobs, and the unpaid loans will be a deadweight loss to society.
The Fed has pursued stimulative policies for many decades. At present, for instance, student-loan debt is about $1.5 trillion. The same period has seen the politicization of higher education. In today's universities, ideology and advocacy in the guise of social justice education substitute for learning about culture and science. Much of this dumbed-down advocacy lacks any legitimate educational content. It is funded by paper money, artificially created by the Federal Reserve Bank. Much of the paper money loans will never be repaid because the dumbed-down social activists will not find jobs, and the unpaid loans will be a deadweight loss to society.
Students educated in the politicized soft social sciences, the humanities, and the studies fields will not produce value beyond the value that high school graduates are capable of producing. They are not literate or numerate; they lack understanding of basic American institutions; their training teaches them to exclaim their oppressed status, making them difficult to employ in all but menial jobs. A few months ago Ben Shapiro noticed, with respect to research that I did earlier this year, that the extent of politicization of academic disciplines is inversely related to the earnings of the graduates. Effete graduates of the studies fields and left-ideological fields like sociology do dismally in the job market.
There is no doubt of the importance of scientific and mathematical education. When the humanities involved education about the basis for American history and culture, it too was important. The hard social sciences may at times help business decision making, but it is unclear whether the soft social sciences in their current state contribute to the social good. However, most college students funded by the paper-money-based education bubble do not take science, math, languages, or the hard social sciences. Dumbed-down studies like gender studies are increasingly influential in fields like history.
Hence, as the number of college students has expanded and as the sciences have been downplayed in favor of politicized fields like gender studies, the value contributed by American universities has declined. It may now be in negative territory: The net costs of higher education may exceed its social benefits.
Hence, as the number of college students has expanded and as the sciences have been downplayed in favor of politicized fields like gender studies, the value contributed by American universities has declined. It may now be in negative territory: The net costs of higher education may exceed its social benefits.
The malinvestment in education is linked to the flexible paper money system. Inefficiencies are hidden by an artificially depressed cost of capital. American corporations were already inefficient by the 1970s: Books like Patrick J. Wright's On a Clear Day You Can See General Motors
depict an already-inefficient industrial system. Major firms like GM and GE have been on monetary life support for years. In turn, the paper-money bubble receives global life support because the dollar is the international reserve currency. That double-subsidization of inefficiency has continued since the end of World War II.
One outcome has been plant relocation to Mexico and China. With near-zero capital costs, relocation costs were eliminated, and the cost efficiency of relocation to low-wage countries was increased. Waste is in thousands of fields, including the military, health care, and finance. When the waste, especially with respect to federal government debt, becomes so extreme that inflation is the only way out, the dollar's reserve currency status will end. There may be a switch to an international basket of currencies such as the IMF's special drawing rights. This may be accompanied by sharp reductions in government spending, public pensions, welfare, and subsidized health care, much as occurred in Greece.
One outcome has been plant relocation to Mexico and China. With near-zero capital costs, relocation costs were eliminated, and the cost efficiency of relocation to low-wage countries was increased. Waste is in thousands of fields, including the military, health care, and finance. When the waste, especially with respect to federal government debt, becomes so extreme that inflation is the only way out, the dollar's reserve currency status will end. There may be a switch to an international basket of currencies such as the IMF's special drawing rights. This may be accompanied by sharp reductions in government spending, public pensions, welfare, and subsidized health care, much as occurred in Greece.
One of the effects of malinvestment is a workforce increasingly effete and obsessed with supposed injustices. Such shadow workers, as my student calls them, will be ill equipped to handle an economic depression. Of course, it is always possible that technology will evolve that will solve these problems, but even during periods of much more rapid technological advance than today's, such as during the laissez-faire period of the late nineteenth century, depressions and wars that posed greater challenges than the recent generations of Americans have experienced required better problem solvers than the current American system of higher education is producing.
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