Affirmative: Bryan Caplan
Should you need government permission to take a job offer from a willing employer, rent an apartment from a willing landlord, or buy a product from a willing merchant? Most libertarians will rush to say, "No; these are basic human rights." Do all human beings have these rights? Most libertarians will rush to say, "Yes; we hold these truths to be self-evident."
If you snap these two answers together, they imply a policy of free immigration. If an American doesn't need government permission to take a job offer from an American, why should a Mexican need government permission to take such an offer? Yet today, many libertarians oppose free immigration. Plenty favor even stricter regulations than we already have.
What makes libertarians so open to immigration restrictions? Their favorite rationale comes straight from the late, great Milton Friedman. In a 1999 interview, he famously declared, "You cannot simultaneously have free immigration and a welfare state." Libertarians who support immigration restrictions have been quoting him ever since. But was he right?
Friedman plainly overstates. Suppose the welfare state gave everyone in the United States just $1 per year. Even if everyone on Earth moved here, that annual $8 billion would be only a little more than 0.1 percent of the federal budget. No matter how philosophically opposed to this handout you are, it would be foolish to insist that it "cannot" be done. The feasibility of combining free immigration with the welfare state is plainly a matter of degree. It depends on the benefits immigrants receive and the taxes they pay. It depends, in short, on math—math that almost everyone finds too boring to consider.
Fortunately, there are quants who do this boring math for a living, quants like the people who write reports for the National Academy of Sciences (NAS). While quants' answers vary, they don't vary that much. By NAS calculations, the average current immigrant to the U.S. is ultimately a net fiscal positive. When you split the sample up by education and age, high school dropouts and the elderly are net negatives but all other demographics are net positives.
How can the math be so benign? First, because immigrants' home countries often pay for most or all of their education, so U.S. taxpayers don't have to. Second, because immigrants tend to be young and therefore pay taxes for decades before they start collecting retirement benefits. Third, because much government spending (such as defense and debt service) does not depend on population. Immigrants who pay below-average taxes can still improve our fiscal outlook, just as moviegoers who buy discounted tickets can still improve a movie theater's profitability.
What if you tone down Friedman's hyperbole, and just say, "Open borders are probably fiscally feasible, but it's still in our interest to exclude all of the immigrants who are statistically expected to be a net burden"? Pragmatically, the obvious objection is: Why are you focused on excluding burdensome immigrants instead of limiting their access to benefits so they cease to be burdensome? Virtually every country already limits foreigners' access to benefits. The Gulf monarchies, with extremely strict limits, not coincidentally have the world's most open immigration policies. Why not emulate that?
The philosophical objection to excluding burdensome immigrants is even stronger. If government may justifiably forbid the entry of burdensome immigrants, may government also justifiably forbid the birth of burdensome natives? You need not be a math whiz to realize that the child of an unemployed mother and an imprisoned father is likely to be a burden on taxpayers. Should libertarians take this as a compelling reason for government to restrict the right to reproduce?
Libertarians famously oppose fairly mild infringements of personal freedom, such as mask requirements, vaccine mandates, gun bans, and motorcycle helmet laws. Why? Because libertarians hold government to high standards. When a law has bad effects, libertarians push for repeal, not another law to offset those bad effects. When governments restrict immigration, consistency requires libertarians to hold them to the same high standards—much higher, really, because denying someone the right to do business in the labor and housing markets is truly draconian.
But don't nations, like property owners, have the right to exclude outsiders? Since you can't move into my house without my permission, the argument goes, you shouldn't be allowed to move into our country without our permission. The implications here are totalitarian. The reasoning is exactly parallel to: You can't start a church in my house without my permission, therefore you shouldn't be allowed to start a church in our country without our permission. Or: You can't open a store in my house without my permission, therefore you shouldn't be allowed to open a store in our country without our permission.
The core of libertarianism is that a country belongs not to "the people" collectively, but to property owners individually. If and when the welfare state makes an immigrant a net negative, labeling the immigrant a "trespasser" may be convenient. But you have to be a socialist to really believe it.
Negative: Robert VerBruggen
The best way to understand the difficulty of open borders is simply to imagine it happening—not in the distant past when travel was difficult and the West was unsettled, but today.
Open borders wouldn't simply let in the several million people already waiting to come to the country legally, or drop all efforts to control the influx across the southern border. The policy would welcome anyone who wants to come, full stop, even if they would not have found it worthwhile under the current system to deal with the hassle of legal immigration or the hazards of illegal immigration.
Per Gallup's 2021 polling, about 900 million adults across the world would leave their countries if they could; about 160 million of these name the U.S. as their top destination. The desire to leave is strongest in some of the world's poorest nations, such as Sierra Leone and Honduras. A 2011 study by the pollster, based on earlier rounds of the same survey, found that 40 percent of would-be migrants to the U.S. had an elementary education or less.
Adding 160 million people would increase the U.S. population by close to half. To be sure, U.S. immigration policy is not the only obstacle these individuals face (so that estimate might be too high). And the number doesn't include kids, or folks who might come to the U.S. even though it's not their top choice (so it might also be too low). But the true number would, without a doubt, be huge.
Puerto Rico has open borders with the U.S. by virtue of being a U.S. territory. As of 2013, a third of living people born in Puerto Rico resided on the U.S. mainland. Including those born into the mainland Puerto Rican community, there has been a larger Puerto Rican population on the U.S. mainland than in Puerto Rico itself since the 2000s.
So imagine it: Our nation of 330 million finds itself committed to grow by some unpredictable but large fraction (a quarter, half, double, who knows?) over an equally unpredictable amount of time until the pent-up demand is satisfied, and then will accept elevated immigration levels afterward too.
Adding tens to hundreds of millions of immigrants, largely from poor nations, would have any number of effects. The newcomers could contribute great inventions, serve in our military, and introduce delicious cuisines; they could also bring with them the institutions, political beliefs, and cultures that made their home countries worth leaving, stress our housing and labor markets, and ignite ethnic conflict, both with each other and with U.S. natives.
Of all the downsides of open borders, the burden on the welfare state might not be the biggest. In theory it could even be one of the easier problems to address: Just ban immigrants from state support.
In practice, though, it's difficult to welcome millions of poor people without giving them some help. Witness the struggles of New York City to handle just 40,000 asylum seekers, who amount to roughly 0.5 percent of the city's 8.5 million population. Or contemplate millions of seniors without health care while homeless encampments grow in the nation's already-housing-starved cities. Further, thanks to the U.S. rule of "birthright citizenship," all children born to immigrants here are automatically citizens, which complicates any effort to exclude them from welfare programs.
An extensive 2017 study from the National Academies estimated that immigrants with a high school degree or less tend to cost the government more than they pay in taxes over a 75-year period. It also stressed that state and local governments are hardest hit in the near term thanks to the need to provide basic services such as education to a suddenly larger population, with many states losing thousands of dollars per first-generation immigrant on average. Research from the Migration Policy Institute shows that immigrant families are more likely than native ones to use safety-net programs.
An open-borders policy, beyond being unrealistic, represents an insane gamble with the stability of the most powerful nation on the planet. Those who want looser immigration laws should set their sights lower and calibrate their rhetoric to match.
Here's a different approach: Start with the easy cases, such as those with valuable skills and perhaps refugees as well, and try to push those numbers up. If you can show the public that higher numbers in these categories improve the country, they might be tempted to follow you further.
Subscribers have access to Reason's whole May 2023 issue now. These debates and the rest of the issue will be released throughout the month for everyone else. Consider subscribing today!
The post Debate: Despite the Welfare State, the U.S. Should Open Its Borders appeared first on Reason.com.
]]>The Culture Transplant: How Migrants Make the Economies They Move to a Lot Like the Ones They Left, by Garett Jones, Stanford University Press, 228 pages, $25
Almost everyone will take Garett Jones' The Culture Transplant as a forthright defense of not just maintaining existing immigration restrictions but tightening them. Every chapter strongly implies that liberal immigration policies are naive and myopic. Jones, an economist at George Mason University (where I also teach), concludes by warning that admitting millions from the poorest nations will impoverish all humanity: "Innovation would decline overall, and since new innovations eventually spread out across the entire planet, the entire planet would eventually lose out." Even his support for high-skilled immigration is restrained: Jones wants to welcome "immigrants who have substantially more education, more job skills, more pro-market attitudes, than the average citizen" (emphasis mine), and he advocates "instantaneous citizenship" for "one-in-a-thousand minds" such as "Nobel laureates, great writers, and innovative scientists."
Yet Jones' evidence argues for radical liberalization of immigration: if not fully open borders, then at least 50 percent open borders—at a time when borders are somewhere around 2 percent open. Using Jones' hand-picked measure of cultural quality, immigration from all of the following countries to the United States would be, by his argument, a clear-cut cultural improvement: Algeria, Argentina, Australia, Austria, Belarus, Belgium, Brazil, Canada, China, Costa Rica, Croatia, Denmark, Estonia, France, Germany, Greece, Hong Kong, Hungary, Ireland, Italy, Japan, Latvia, Lithuania, Netherlands, New Zealand, Norway, Poland, Portugal, South Korea, Moldova, Russia, Singapore, Slovakia, Spain, Sweden, Switzerland, Thailand, Tunisia, Ukraine, the United Kingdom, Uruguay, and Vietnam. Using a slightly different cultural measure adds the 1.7 billion inhabitants of India and Pakistan to the list. According to the research upon which Jones rests his book, we should expect migration from this long and populous list of countries to (a) substantially increase per-capita U.S. gross domestic product (GDP), (b) drastically increase gross world product, and (c) drastically increase global economic growth.
This research is called the "Deep Roots of Growth," or just "Deep Roots." Its punchline is that countries now inhabited by people whose ancestors were relatively economically advanced in the distant past have a strong tendency to be absolutely advanced today. "Now inhabited" is key; according to Deep Roots research, a major reason the United States is rich today is that modern Americans are mostly descended from people who were rich by the standards of their time. Economically, it doesn't matter that in 1500 A.D., the current area of the United States was largely populated by hunter-gatherers, because the descendants of these hunter-gatherers are now (for horrifying reasons) a tiny sliver of the population.
The initial Deep Roots papers focus on the emergence of agriculture and government. They conclude that the earlier a country's ancestors adopted farming and states, the richer the country is today. Later work, which Jones prefers, focuses on the adoption of key technologies. Above all, if a country's ancestors were technologically advanced in 1500 A.D., their descendants tend to be much richer today. Critically, this isn't merely fortuitous for the descendants. Jones spends a whole chapter on the world's innovation leaders: China, France, Germany, Japan, South Korea, the U.K., and the United States. He calls them the "I-7." Thanks to the product of august ancestry and high population, he argues, these seven countries deliver almost all the innovation that fuels the progress of humanity. If they let migration degrade their cultural quality, he argues, the domestic damage will spill over to the whole world.
Jones concedes that these are long-run results: "In the short run—a couple of decades, say—admitting an extra ten million people each year from the world's poorest countries into the high-innovation I-7 nations would surely improve the lives of almost every immigrant. After all, government and culture rarely change much in the short run." He admits Deep Roots predictions aren't perfect—most notably, China and India, the world's two most populous countries, are far poorer than the models predict. Still, he thinks the smart money should bet on the adage that "the best predictor of a people's success in the long-run future is success in the people's long-run past."
Given this adage, the disconnect between Jones' social science and his recommended immigration policies is vast. The most restrictive immigration policy the research supports is: "Freely admit anyone who improves your country's Deep Roots." This isn't predicted merely to raise living standards in the receiving countries but also to fuel global growth by filling the I-7 with high-potential workers. For most of the world's richest countries, this implies radical deregulation—especially for the United States, because despite our high living standards, our ancestry scores are mediocre.
Throughout The Culture Transplant, Jones talks about researchers "hiding the ball": dazzling readers with technical prowess instead of patiently pondering what they've really shown. I submit that treating Deep Roots as an argument for anything other than radical liberalization of immigration is an egregious case of hiding the ball. And it gets worse: The mathematics of the seminal Deep Roots paper implies that if the entire population of the Earth moved to the United States, gross world product would still multiply. That's even more dramatic than Michael Clemens' famous result that open borders would "double global GDP," which Jones also neglects to cite. If that isn't "hiding the ball," what is?
***
At this point, a reasonable reader will wonder, "How solid is the research upon which Jones relies, really?" While Jones vocally "kicks the tires," he should have kicked harder and longer. I started documenting major doubts about Deep Roots research almost seven years ago, and he replies to virtually none of them.
Jones responds to just one of my objections: that Deep Roots gives deeply false predictions for China and India, the world's two most populous countries. (In fact, it gives deeply false predictions for the three most populous countries, because the United States sharply overperforms.) His reply: Since China and India are growing quickly, the anomaly is shrinking. Fair enough, but the anomaly can only shrink rapidly because the Deep Roots story flopped for both countries for centuries. Furthermore, with the help of the original researchers and the economist Nathaniel Bechhofer, I was able to show that if we statistically weigh countries by their populations and redo the entire analysis, the original Deep Roots results vanish. This doesn't necessarily mean the Deep Roots literature is worthless, but it does raise doubts about Jones' tire-kicking.
The Culture Transplant explores several other related topics, especially the speed of cultural assimilation and the dangers of diversity. Much of this research was new to me, so I'll refrain from criticism until I have had the time to kick the tires to my own satisfaction. But I fear that I'll find that Jones is again hiding the ball. Why? Because when I know a piece well, I often see the ball he's trying to hide. Most strikingly, when he discusses Robert Putnam's famous article on the effects of ethnic diversity on social trust, he neglects to mention that moving the U.S. from its current diversity to the maximum possible diversity would reduce trust by a microscopic 0.04 on a 4-point scale. Much ado about next to nothing.
***
The Culture Transplant is enviably well-written. Jones affirms ugly truths like: "The many lives…that would be dramatically extended over the next half century if Indonesia's 300 million citizens became twice as rich are, in my personal estimation, worth the genuine risk of an ethnic riot every decade that kills two thousand people." We should all have such courage and eloquence.
This book is the most intellectually serious critique of the libertarian open borders position. As such, I expect that intellectually serious critics of the libertarian open borders position will hail it as a decisive refutation of a dangerous conceit. But even if you accept its evidence, those data argue for the radical liberalization of immigration, including from many Third World countries, though arguably with a different mix than we see today.
Jones is not a lifelong opponent of immigration. He signed a 2006 pro-immigration letter—and 10 years later, his book Hive Mind affirmed, "I've always been glad I signed this letter: it sums up the great promise of immigration. It's always worth reminding citizens of high-productivity countries that immigration is still the most reliable way to raise the living standards of people in low-productivity countries." The first sentence of Jones' first chapter is a callback to his pro-immigration past: "This book tells a true story that this economist sincerely, truly does not want to believe."
The good news is Jones can accept all the evidence he presents while renewing his earlier support for much more immigration. The bad news is that much of his evidence is overstated and undervetted, so neither he nor anyone else should use it to dramatically revise their views on immigration one way or the other.
The post The Case for 50 Percent Open Borders appeared first on Reason.com.
]]>The Culture Transplant: How Migrants Make the Economies They Move to a Lot Like the Ones They Left, by Garett Jones, Stanford University Press, 228 pages, $25
Almost everyone will take Garett Jones' The Culture Transplant as a forthright defense of not just maintaining existing immigration restrictions but tightening them. Every chapter strongly implies that liberal immigration policies are naïve and myopic. Jones, an economist at George Mason University (where I also teach), concludes by warning that admitting millions from the poorest nations will impoverish all humanity: "Innovation would decline overall, and since new innovations eventually spread out across the entire planet, the entire planet would eventually lose out." Even his support for high-skilled immigration is restrained: Jones wants to welcome "immigrants who have substantially more education, more job skills, more pro-market attitudes, than the average citizen" (emphasis mine), and he advocates "instantaneous citizenship" for "one-in-a-thousand minds" such as "Nobel laureates, great writers, and innovative scientists."
Yet Jones' evidence argues for radical liberalization of immigration: if not fully open borders, then at least 50 percent open borders—at a time when borders are somewhere around 2 percent open. Using Jones' hand-picked measure of cultural quality, immigration from all of the following countries to the United States would be, by his argument, a clear-cut cultural improvement: Algeria, Argentina, Australia, Austria, Belarus, Belgium, Brazil, Canada, China, Costa Rica, Croatia, Denmark, Estonia, France, Germany, Greece, Hong Kong, Hungary, Ireland, Italy, Japan, Latvia, Lithuania, Netherlands, New Zealand, Norway, Poland, Portugal, South Korea, Moldova, Russia, Singapore, Slovakia, Spain, Sweden, Switzerland, Thailand, Tunisia, Ukraine, the United Kingdom, Uruguay, and Vietnam. Using a slightly different cultural measure adds the 1.7 billion inhabitants of India and Pakistan to the list. According to the research upon which Jones rests his book, we should expect migration from this long and populous list of countries to (a) substantially increase per-capita U.S. gross domestic product (GDP), (b) drastically increase gross world product, and (c) drastically increase global economic growth.
This research is called the "Deep Roots of Growth," or just "Deep Roots." Its punchline is that countries now inhabited by people whose ancestors were relatively economically advanced in the distant past have a strong tendency to be absolutely advanced today. "Now inhabited" is key; according to Deep Roots research, a major reason the United States is rich today is that modern Americans are mostly descended from people who were rich by the standards of their time. Economically, it doesn't matter that in 1500 A.D., the current area of the United States was largely populated by hunter-gatherers, because the descendants of these hunter-gatherers are now (for horrifying reasons) a tiny sliver of the population.
The initial Deep Roots papers focus on the emergence of agriculture and government. They conclude that the earlier a country's ancestors adopted farming and states, the richer the country is today. Later work, which Jones prefers, focuses on the adoption of key technologies. Above all, if a country's ancestors were technologically advanced in 1500 A.D., their descendants tend to be much richer today. Critically, this isn't merely fortuitous for the descendants. Jones spends a whole chapter on the world's innovation leaders: China, France, Germany, Japan, South Korea, the U.K., and the U.S. He calls them the "I-7." Thanks to the product of august ancestry and high population, he argues, these seven countries deliver almost all the innovation that fuels the progress of humanity. If they let migration degrade their cultural quality, he argues, the domestic damage will spill over to the whole world.
Jones concedes that these are long-run results: "In the short run—a couple of decades, say—admitting an extra ten million people each year from the world's poorest countries into the high-innovation I-7 nations would surely improve the lives of almost every immigrant. After all, government and culture rarely change much in the short run." He admits Deep Roots predictions aren't perfect—most notably, China and India, the world's two most populous countries, are far poorer than the models predict. Still, he thinks the smart money should bet on the adage, "The best predictor of a people's success in the long-run future is success in the people's long-run past."
Given this adage, the disconnect between Jones' social science and his recommended immigration policies is vast. The most restrictive immigration policy the research supports is: "Freely admit anyone who improves your country's Deep Roots." This isn't predicted merely to raise living standards in the receiving countries, but also to fuel global growth by filling the I-7 with high-potential workers. For most of the world's richest countries, this implies radical deregulation—especially for the United States, because despite our high living standards, our ancestry scores are mediocre.
Throughout The Culture Transplant, Jones talks about researchers "hiding the ball": dazzling readers with technical prowess instead of patiently pondering what they've really shown. I submit that treating Deep Roots as an argument for anything other than radical liberalization of immigration is an egregious case of hiding the ball. And it gets worse: The mathematics of the seminal Deep Roots paper implies that if the entire population of the Earth moved to the United States, gross world product would still multiply more than fourfold. That's even more dramatic than Michael Clemens' famous result that open borders would "double global GDP," which Jones also neglects to cite. If that isn't "hiding the ball," what is?
At this point, a reasonable reader will wonder, "How solid is the research upon which Jones relies, really?" While Jones vocally "kicks the tires," he should have kicked harder and longer. I started documenting major doubts about Deep Roots research almost seven years ago, and he replies to virtually none of it.
Jones responds to just one of my objections: that Deep Roots gives deeply false predictions for China and India, the world's two most populous countries. (In fact, it gives deeply false predictions for the three most populous countries, because the United States sharply overperforms). His reply: Since China and India are growing quickly, the anomaly is shrinking. Fair enough, but the anomaly can only shrink rapidly because the Deep Roots story flopped for both countries for centuries. Furthermore, with the help of the original researchers and the economist Nathaniel Bechhofer, I was able to show that if we statistically weigh countries by their populations and redo the entire analysis, the original Deep Roots results vanish. This doesn't necessarily mean the Deep Roots literature is worthless, but it does raise doubts about Jones' tire-kicking.
The Culture Transplant explores several other related topics, especially the speed of cultural assimilation and the dangers of diversity. Much of this research was new to me, so I'll refrain from criticism until I have had the time to kick the tires to my own satisfaction. But I fear that I'll find that Jones is again hiding the ball. Why? Because when I know a piece well, I often see the ball he's trying to hide. Most strikingly, when he discusses Robert D. Putnam's famous article on the effects of ethnic diversity on social trust, he neglects to mention that moving the U.S. from its current diversity to the maximum possible diversity would reduce trust by a microscopic 0.04 on a 4-point scale. Much ado about next to nothing.
The Culture Transplant is enviably well-written. Jones affirms ugly truths like: "The many lives…that would be dramatically extended over the next half century if Indonesia's 300 million citizens became twice as rich are, in my personal estimation, worth the genuine risk of an ethnic riot every decade that kills two thousand people." We should all have such courage and eloquence.
This book is the most intellectually serious critique of the libertarian open borders position. As such, I expect that intellectually serious critics of the libertarian open borders position will hail it as a decisive refutation of a dangerous conceit. But even if you accept its evidence, that data argues for the radical liberalization of immigration, including from many Third World countries, though arguably with a different mix than we see today.
Jones is not a lifelong opponent of immigration. He signed a 2006 pro-immigration letter—and 10 years later, his book Hive Mind affirmed, "I've always been glad I signed this letter: it sums up the great promise of immigration. It's always worth reminding citizens of high-productivity countries that immigration is still the most reliable way to raise the living standards of people in low-productivity countries." The first sentence of Jones' first chapter is a callback to his pro-immigration past: "This book tells a true story that this economist sincerely, truly does not want to believe."
The good news is Jones can accept all the evidence he presents while renewing his earlier support for much more immigration. The bad news is that much of his evidence is overstated and undervetted, so neither he nor anyone else should use it to dramatically revise their views on immigration one way or the other.
The post The Case for 50 Percent Open Borders appeared first on Reason.com.
]]>The textbook case for free trade says that if two countries specialize and trade with each other, total production rises—raising living standards for people in both countries. The same logic holds for immigration: If people from two countries specialize and trade, total production rises—raising living standards for people from both countries. When migrants move from places where they produce little to places where they produce much, they don't merely enrich themselves; they enrich their customers. When Afghan immigrants open a new restaurant in Fairfax, Virginia, for example, they are effectively giving me a raise, because my salary suddenly buys more than it used to.
These pages are adapted from Open Borders: The Science and Ethics of Immigration by permission of First Second.
The post Immigration Enriches Migrants and Their New Countries appeared first on Reason.com.
]]>Government at all levels fuels an educational arms race through lavish and indiscriminate funding. Given all we know and suspect about the low social returns on investments in schooling, what practical changes should concerned citizens favor?
Sharply reduce government support not only for higher education, but for high school as well.
The increasingly popular "Too many kids are going to college" slogan suggests that social returns are merely low for the weakest post-secondary students. In fact, social returns to education are low virtually across the board.
The good news is that basic economics provides a simple remedy for wasteful investments: Reduce them. If the car industry earns a low return, automakers should respond by building fewer cars, starting with the biggest money losers. As the supply of new vehicles falls, prices will rise…until automobiles are once again worth producing.
Concerned citizens should view schooling with the same investor's eye. If it has a low return, we need less of it. The supply of highly educated workers will fall, but this is a feature, not a bug. As supply falls, market rewards for education will rise…until schooling is once again worth encouraging. In light of the very poor current social returns on education, however, these rewards would truly have to soar first.
In the U.S., spending on public elementary, secondary, and tertiary schools now amounts to almost $1 trillion a year. Private education also relies on subsidized student loans and other government support. This gives society a nearly foolproof remedy for educational waste: Cut budgets for public education and subsidies for private education. Give schools less taxpayer money. The central question isn't "How?" but "Where do we start?"
Cut high school a lot, college more, and master's programs the most.
Governments overinvest in education across the board, but they do not overinvest evenly. As a rule, the "higher" the education, the greater the waste—and the deeper the desirable cuts. The master's degree is a disaster, earning negative returns as far as the eye can see. (Even Excellent Students don't recoup the costs to society of getting an M.A.) Bachelor's degrees aren't quite as awful: Investing in strong students may yield low but positive returns. High school is the least bad. Making generous assumptions, its social return is reliably mediocre—and for low-ability young men, possibly stellar.
Cautious citizens might want to base education policy on very generous assumptions. Why reform the system when there's an outside chance it's not making us worse off? But we should hew to stricter standards. Instead of stacking the deck in favor of the educational status quo, let's base policy on reasonable estimates of the human capital/signaling split. If just two-thirds of the return on education comes from signaling, the individual often profits, but society does not. Heretical as it is, serious cuts—even to high school—are the wise response.
Do not send average or apathetic high school students to college.
Vast swaths of college students earn ruinous social returns. Luckily, their identity is predictable before they set foot on campus.
Aptitude matters: Average high school students generally become weak college students. And motivation matters: Apathetic high school students generally become disengaged college students.
While neither of these generalizations is infallible, sensible investors insist on good bets, not "bets that sometimes don't fail." Note that low aptitude and low motivation tend to go together, as well, because human beings find failure disheartening.
Why do I say "Don't send average or apathetic high school students to college" rather than "Send fewer average and apathetic high school students to college"? Because the social returns for such students aren't merely low; they're ruinous. To bring their returns up to tolerable levels requires a massive increase in the college premium, and a comparably massive reduction in college attendance. So massive, in fact, that average and apathetic high school students must all but vanish from college campuses.
Some idealistic educators insist better pedagogy can revolutionize how much students learn and enjoy learning. Concerned citizens should treat these claims like any other rosy sales pitch: We'll give you our tax dollars after your miraculous revolution delivers on its promise to turn ordinary teens into teachers' pets.
Don't subsidize low-earning majors.
Steering average and apathetic high school students away from college will prevent an enormous waste of social resources. Once students arrive on campus, however, there is another resource bonfire to avoid: low-earning majors. Selfishly speaking, these majors can be a tolerable deal—especially for lovers of literature, history, and the arts. Socially speaking, however, they're an open wound. Returns are negative across the board—even for strong students who enjoy these unprofitable subjects. Subsidizing their studies isn't so much an "educational investment" as a four-year hobby camp.
Make high school, college, and graduate programs more vocational.
Signaling's share of the benefits from education is not a law of nature. It reflects the choices society makes about what students learn.
Current curricula are studiously otherworldly: High schoolers spend about as much time on arts, foreign languages, history, and social studies as they do on English and math. Few college majors these days even pretend to prepare students for jobs, and vocational programs still force people to burn years on "breadth" requirements and esoteric theory.
Public high schools should drastically reduce requirements and resources for subjects that almost never lead to paying jobs. They should restructure English classes around business writing instead of classic literature and poetry. And they should stop requiring courses in areas—such as the sciences and higher mathematics—that only lead to careers for top students.
What would fill the void? For starters, thousands of extra hours building literacy and numeracy. Those are precious job skills at which a third to half of adult Americans are not proficient, according to tests such as the National Assessment of Adult Literacy. Beyond that, schools should revive and modernize courses that explicitly prepare students for jobs, especially in occupations facing growing demand. Better still, schools should award academic credit for apprenticeships and other forms of practical experience likely to prepare kids to be productive members of society after graduation.
Adapted from The Case Against Education
The post A Heretical Plan for Cutting Spending on Education appeared first on Reason.com.
]]>If you've always been a strong student, spending your time and money on education pays well. The evidence is overwhelming. Even after scrupulously correcting for ability bias—the brains, discipline, and other advantages you'd possess with or without school—formal education provides a big career boost. At an individual level, investing in your own education often compares favorably to not just corporate bonds, but long-run stock market returns.
Since individuals' investment in their own education is personally rewarding, you might infer that government investment in society's education would be socially rewarding. But this is a classic "fallacy of composition." If one person stands up at a concert, he sees better; it does not follow that if everyone stands up at a concert, everyone sees better. The same goes for education. Yes, schooling is selfishly lucrative—at least for strong students. On a societal level, however, it is shockingly wasteful for students weak and strong. Federal, state, and local government spends far too much money educating Americans.
The conventional case for government subsidies assumes that all of education's career gains come from building what economists call "human capital." A worker gets more education; his productivity and income go up. A nation gets more education; its productivity and income go up. If human capital is the truth, the whole truth, and nothing but the truth, education is a path to individual and national prosperity: Education makes the pie bigger, so every worker can enjoy a bigger slice.
Unfortunately, human capital is far from the whole story. Most of the personal benefits of education arise not from improving on-the-job productivity, but from convincing employers that your on-the-job productivity is already good. Economists call this "signaling."
The truth is mixed, of course: Education as it actually exists blends crucial training in literacy and numeracy, which yields real skills, with thousands of hours of hoop-jumping to impress future employers. Selfishly speaking, this hoop-jumping pays. But socially speaking, it's a waste. Only one worker can look like the Best Worker in the Country, and only a quarter of workers can look like the Best 25 Percent.
When education isn't making the pie bigger, bigger slices for some necessarily mean smaller slices for others. As signaling's share of the value of education rises, education becomes an incinerator that burns society's money, time, and brains in a futile attempt to make everyone look better than average.
At first glance, education's selfish financial benefits look enormous. High school grads outearn dropouts by 30 percent, and college grads outearn high school grads by 73 percent. But the true benefits are smaller than they look: High-ability people spend extra years in school, and the labor market independently rewards ability as well as education. As a result, some of what we call the "rewards of education" are disguised "rewards of ability." My best estimate is that just over half of the apparent premium is genuine.
Of course, that's just over half of a big number. But merely enrolling in school is no guarantee you'll capture it. About 25 percent of high school students fail to finish in four years; about 60 percent of full-time college students fail to finish in four years; and about half of advanced degree students never finish at all.
This is a vital caveat, because most of education's payoff comes from graduation—the so-called "sheepskin effect." If you spend three years in high school but then drop out, the labor market treats you only modestly better than someone who never started high school; if you spend three years in college and then drop out, the labor market treats you only slightly better than someone who never started college. Of course, the stronger your academic ability, the more likely you are to cross the finish line and win the prize.
What about education's costs? Despite common complaints about high tuition, it's the foregone earnings—the money students could have been making if they weren't in school—that dominate. Public K–12 is, of course, tuition-free. And while the price tag can be shockingly high at elite schools, the typical student at a public college pays far less than list price.
Investors routinely measure assets' rate of return—how the investment's cost compares to its ultimate reward. What happens if we evaluate education in the same way?
T
he answer, to be brutally honest, hinges on your academic ability. Consider four archetypes. The Excellent Student, by definition, fits the profile of the typical master's degree holder; whether or not he actually has a master's degree, he has the same potential as the average person who earned one. The Good Student, similarly, fits the profile of a typical B.A. holder who does not continue on to graduate or professional school. The Fair Student fits the profile of the typical high school graduate who does not try college. And the Poor Student fits the profile of the typical high school dropout. Ideally, "fits the profile" is all-inclusive, covering cognitive ability, character, background, and every other trait.
Selfishly speaking, how does education measure up? High school provides a very good personal return. It's worthwhile for almost any student who wants a full-time career after graduation, and the decision to drop out is usually a mistake. Even Poor Students can reasonably expect handsome rewards.
College, by contrast, is only a solid deal for the academically inclined. When they start college, Excellent Students should foresee a 6.5 percent inflation-adjusted return—about as good as stocks. Good Students should foresee a return near 5 percent, or about as good as corporate bonds—not a no-brainer, but a sound investment nonetheless. Largely due to their high failure rate, however, Fair Students should expect a low 2.3 percent return on the same investment—and for Poor Students, the return is a paltry 1 percent.
Admittedly, even strong students often end up with subpar returns. Those who want to financially protect themselves should follow three simple rules: First, pick a "real" major. Science, technology, engineering, and math obviously count; so do economics, business, and even political science. Second, go to a respected public school. It probably won't charge list price, and even if it does, you'll get your money's worth. Third, toil full-time after graduation. Working irregularly after finishing college is like failing to harvest half the crops you plant. The same rules naturally boost returns for weaker students, too, but not enough to tip their scales in favor of college. They would still generally be better off investing their time and money elsewhere.
The selfish return to education hinges on compensation: How much pay do you forfeit while you're in school, and how much extra pay do you capture after you finish? The social return to education, in contrast, hinges on productivity: How much stuff does society forfeit while you're in school, and how much extra stuff does society capture after you finish?
Most researchers avoid the latter questions by casually making the extreme assumption that compensation and production are equal. Maybe education raises hard skills, maybe it raises soft skills. But it's all human capital, they say. After all, employers won't want you if you're paid more than you produce and can't get you if you're paid less than you produce.
If signaling is part of the story, in contrast, compensation and production are only equal on average. When your credentials match your ability, your productivity matches your pay. Otherwise, however, pay and productivity diverge. A Good Student with a B.A. earns what he produces. If the same student goes straight to work after high school, however, the market doesn't merely pay him less; it pays him less than he produces. Why? Because his lack of a college degree makes him look worse than he really is. If the Good Student gets an M.A., similarly, the market pays him more than he produces, because his credentials make him look better than he really is.
Thus, to calculate education's social value, you must know why education raises pay. If it's solely by raising worker productivity, society's gain equals the individual's gain. If part of the value of education comes from signaling, though, society gains less than the individual does. True, the economy is more productive—and society richer—when employers can tell which workers are good and which aren't. But once student rankings are out there, the social value ends. The pool of knowledge about worker quality would be essentially identical if everyone had one less credential.
So what's the true breakdown between human capital and signaling? A cautious path is to hand signaling full credit for the sheepskin effect—the benefits from graduating—but no more. This implies a signaling share of 38 percent for completing high school, 59 percent for a bachelor's degree, and 74 percent for a master's degree.
More plausibly, though, part of the ordinary year-to-year return on education (and not just the return from finally earning the diploma) comes from signaling as well. An extra semester in school may not say a lot about you, but it says something. Multiple approaches—curriculum tabulation, studies of credential inflation, and estimates of national returns—suggest that 80 percent is a reasonable estimate of signaling's total share.
At the same time, workers don't receive the full benefits of their education: When someone's income goes up, his taxes do as well—and his draw on government coffers goes down, since he's not eligible for as much assistance. From a social point of view, this tips the scales in education's favor.
But what about costs? Even economists who put no stock in signaling concede that education's social costs exceed its selfish costs, because students don't pay the full price of their education. Taxpayers fully subsidize K–12 schools, heavily subsidize public colleges, and partially subsidize private colleges. Sifting through the messy numbers, a reasonable bottom line is that one year of public education costs society $11,165 per high school student and $8,279 per four-year college student.
All this educational bean counting can admittedly come off as annoyingly narrow. Normal human beings take a more holistic approach, asking, "What kind of society do we want to live in—an educated society or an ignorant one?" If education fosters a dynamic, inclusive, secure, well-governed community, they suggest, shouldn't we do everything in our power to foster educational excellence?
Normal human beings score a solid point: We can and should investigate education's broad social implications. But that is a poor excuse for discarding what we already know. Evidence on education's social effects should supplement, not supplant, evidence on its narrow effects. In any case, looking at the big picture is no excuse for innumeracy. If education curtails murder, that is an argument in its favor. But we still need to ballpark (a) how much the extra education costs, and (b) how many murders it prevents. Instead of scorning bean counters, we should scrupulously count beans of every description.
One leading holistic argument goes like this: Heavy investment in education fertilizes society's creative potential by giving everyone the mental tools to innovate. Selfishly speaking, the quest for new ideas is quixotic; if you ever hit on the idea of a lifetime, copycats will probably gobble up most of your profits. Yet socially speaking, using education to spur innovation is hard-headed realism. If consistently investing 10 percent of national income in education elevates the annual economic growth rate from 1 percent to 2 percent, the social rate of return is itself a hefty 10 percent.
Selfishly speaking, educational hoop-jumping pays. But socially speaking, it's a waste.
Unfortunately, this stirring sermon is wishful thinking. Macroeconomists, to their dismay, have failed to find an unambiguous effect of education on economic growth. It's not clear that education increases countries' living standards at all, much less that education makes them increase at a faster rate. If you can't tell if your machine moves, you may safely assume it's not a perpetual motion machine. Researchers who specifically test whether schooling accelerates progress have little to show for their efforts. Individual benefits are real, of course, but gains for some are mostly offset by losses for others.
The argument that education benefits society by curtailing crime rests on firmer ground. About 65 percent of American inmates never earned a standard high school diploma. Around 15 percent of white male dropouts and 70 percent of black male dropouts spend some time in prison by their mid-30s. These rates are roughly two-thirds lower for men who finished high school and miniscule for college grads.
Still, as usual, there is less to schooling than meets the eye. Correcting for IQ and grades makes education look mildly less effective at preventing crime. The game changer, though, is personality: Future criminals, like future dropouts, are impulsive, aggressive, and defiant. When researchers correct for early antisocial attitudes and behavior, education's measured effect on crime plummets. An extra year of education cuts expected lifetime jail time by less than one week, and reduces the probability of serving any time behind bars by just one-half of one percentage point.
Yet there's a subtler reason to dial down estimates of education's pacifying power: signaling. Education can defuse individual criminality while having little impact on society's criminality. Hand one delinquent a high school diploma and he looks better to employers, relative to his peers. This boosts his legal income, making crime less attractive in comparison. But if you hand every delinquent a high school diploma, the credential loses its worth. It no longer boosts legal income, leaving crime as attractive as ever.
Social returns hinge on the power of signaling. The higher signaling's share of the value of education, the lower education's social return. As you near pure signaling, the social return falls to zero and even goes negative—we're spending time and money on credentials that don't make us any more productive.
Let's explore the two signaling scenarios we touched on earlier. Recall that the cautious approach was to treat all sheepskin effects as signaling, but everything else as human capital.
In this scenario, social returns are mediocre to ruinous. Even Excellent Students should expect to yield society about 4 percent of its investment for high school, 2 percent for college, and –3 percent for a master's. As ability falls, so do returns: The corresponding figures for Fair Students are 3 percent, 0 percent, and –6 percent. (Male Poor Students are the only significant outlier here: The youthful crime rate among this cohort is so high that the marginal reformatory effect of high school remains socially rewarding.) These low returns are the rule even though education provides an array of good things to society as a whole. All the computations grant that education boosts worker productivity and workforce participation and that it cuts unemployment and crime. Nonetheless, the value of the combined benefits is meager.
And there's a problem with this cautious signaling scenario: It's actually too cautious. If we switch to my preferred estimate and assume signaling accounts for 80 percent of schooling's benefits instead of just the sheepskin effects, the results are beyond bleak. Social returns are low for every level of academic difficulty and every level of student ability. Sending Poor Students to high school yields a wretched 0.2 percent return, and every other educational investment is in the red.
To repeat, this does not mean schools don't improve their students. They do. But it's a long walk for a short drink. As a rule, society fails to earn back what it spends putting kids through high school, college, or beyond. At the current margin, education's numerous social benefits pale before its staggering social cost.
How can social returns be so low when selfish returns are often substantial? Because signaling is a redistributive game, serving individuals a larger piece of the pie without enlarging the whole. As a result, schooling is collectively harmful even when individually helpful. You might be tempted to ask, "How can there be too much schooling if schooling is lucrative?" But that's like asking, "How can there be too much air pollution if cars are convenient?" When your choices harm bystanders, what's best for you and what's best for mankind can diverge.
Most listeners are willing to accept that education is largely wasteful signaling. But when I suggest that we should waste less by cutting government spending on education, popular resistance kicks in. You would think conceding the wastefulness of education spending would automatically entail support for austerity, but it doesn't. The typical reaction is to confidently assert that education budgets should be redirected, not reduced.
Such confidence is misplaced. The discovery of wasteful spending does not magically reveal constructive alternatives. Prudence dictates a two-step response.
Step 1: Stop wasting the resources.
Step 2: Save those resources until you discover a good way to spend them.
Not wasting resources is simple and speedy. Don't just stand there; do it. Finding good ways to use resources is complex and slow. Don't just do it; think it through. Fortunately, you can apply saved resources anywhere. Time and money wasted on education could pave roads, cure cancer, subsidize childbearing, cut taxes, or pay down government debt before our fiscal day of reckoning arrives.
Most libertarians dream of a voucher system, where schools are private but funding is public. Yet to my mind, vouchers—and "school choice" more generally—are only a marginal improvement over the status quo. Since education is mostly signaling, the chief problem is high quantity, not low quality.
America's schools, like its sports stadiums, are white elephants. The main drawback of massive government investment isn't that the white elephants are poorly managed or uncompetitive; it's that they're far too numerous and lavish. Government should leave both industries to the free market, viewing mass bankruptcies not as market failures but as market corrections.
The post Going to College Is Selfish appeared first on Reason.com.
]]>Like Obama, Rep. Nancy Pelosi (D-Calif.) blames partisan bickering in Washington for the nation's economic woes and recently accused Republicans of having "passed bills that would destroy up to 2 million jobs—nearly 10,000 jobs per day" in the 200 days since she was booted from her role as House speaker. Pelosi, of course, is an old hand at job pivotry. She prefers her jobs bought and paid for by federal money, and in a pleasing shade of green.
Republicans have their own jobs agenda, but mostly prefer to talk trash about the Democrats. "Spurring jobs and the economy is always next on the Obama Administration's to-do list," sniped Current House Speaker John Boehner (R-Ohio) in an August 3 blog post, "right after more spending, more taxing, and more regulating."
Meanwhile, the American people are raising a collective skeptical eyebrow at both parties on the employment front. A July Pew Research poll showed an even 39-39 split on which party Americans trust more on jobs. But a CNN/ORC poll released Friday finds that only 29 percent of respondents think there will be more jobs in their communities a year from now—and 26 percent think there will be fewer jobs.
In an effort to produce real free-market ideas for boosting employment, Reason asked some of our favorite economists, writers, professors, and entrepreneurs for one concrete policy change they would recommend that would increase job growth. —Lucy Steigerwald
Robert Higgs
Repeal of ObamaCare would probably do wonders to spur hiring, especially for permanent positions. Compensation for such jobs usually includes a benefits package with health care insurance, as well as a money wage or salary. Health care insurance often constitutes a major part of the employer's cost of keeping a permanent worker on the payroll, and anything that makes this cost difficult to forecast makes employers leery to take on new workers.
ObamaCare—the Patient Protection and Affordable Care Act—is a gigantic statute, and it would be a big bite for employers to digest in any event. But as it stands, it serves mainly as an announcement that a large number of legal black boxes must be filled with new regulations that various administrative agencies will eventually promulgate. As Gary Lawson has written recently, "Implementation of the Act will require many years and literally thousands of administrative regulations that will determine its substantive content and coverage."
This situation creates tremendous uncertainty that affects virtually all firms. After all, no matter how firms may differ in other regards, they all hire employees, and in most cases employee compensation amounts to a major part of their total cost of operation. Repeal of ObamaCare would have many benefits, but surely a great benefit would be the removal of an ominous cloud of uncertainty about a critical matter that now hangs over the entire labor market. In the face of this uncertainty, few firms have been, or will be, willing to assume the risk associated with increasing their permanent, full-time workforce.
Robert Higgs is a senior fellow in political economy at the Independent Institute. He is the author of Crisis and Leviathan: Criticial Episodes in the Growth of American Government, and several other books.
Deirdre McCloskey
"Jobs" are deals between workers and employers, and so "creating" them out of unwilling parties is impossible. The state, though, can outlaw deals, and has. So: eliminate the minimum wage for people younger than 25. The resulting boom in jobs for young people will amaze. Maybe it will inspire voters to get the state out of the job-outlawing business. Probably not, so sure are we that the state "protects" by stopping deals between willing parties.
Deirdre McCloskey is a professor of economics, history, English, and communication at the University of Illinois at Chicago, and author of The Bourgeois Virtues: Ethics for an Age of Commerce.
Amity Shlaes
The single thing the U.S. could do to ensure long-term growth, including that of jobs, is to reform our Federal Reserve so that monetary policy is rules-based, not personality-based. Even a return to the gold standard would do, though it is also possible to fashion a monetary regime under which the currency is pegged to a basket of commodities.
Amity Shlaes is a senior fellow in economic history at the Council on Foreign Relations. She is the author of The Forgotten Man: A New History of the Great Depression. Her biography of Calvin Coolidge will be released next spring.
John Stossel
Close the Departments of Labor, Commerce, Agriculture, Energy, and HUD, then eliminate three fourths of all regulations.
John Stossel's show Stossel airs Thursdays at 10 p.m. on Fox Business Network. He contributes a regular column to Reason.com.
Donald Boudreaux
My answer (within the realm of "remotely politically possible") is: Replace all income taxes, including that on capital gains, with a consumption tax. But do this only if the Constitution is amended to prevent government from taxing incomes and capital gains.
A second, less radical, proposal is to eliminate capital gains taxes and amend the Constitution to prevent Uncle Sam from taxing personal and corporate incomes at marginal rates higher than 20 percent.
Donald Boudreaux is a professor of economics at George Mason University, and blogs at Cafe Hayek.
Bryan Caplan
Easy: Cut employers' share of the payroll tax.
Bryan Caplan is a professor of economics at George Mason University. He is the author of The Myth of the Rational Voter: Why Democracies Choose Bad Policies, and most recently, Selfish Reasons to Have More Kids: Why Being a Great Parent is Less Work and More Fun Than You Think.
Bruce Bartlett
I don't believe there is any way to increase employment significantly without raising the rate of economic growth. Therefore, the real question is how to raise economic growth. I continue to believe that the economy's fundamental problem is a lack of aggregate demand.
I think a dose of inflation is just what the economy needs and libertarians should stop being so obsessive about it. Moreover, I think at some point they need to admit that the Fed cannot raise aggregate demand by itself when the economy is in a liquidity trap, which it obviously is based on the level of interest rates being close to zero.
Under these circumstances, I believe that some form of aggressive fiscal policy is necessary to get money circulating, raise the velocity of money, and get the economy out of a liquidity trap. I do not believe, under current circumstances, there is any type of tax cut that would achieve this goal; only direct spending by the government on purchases of goods and services will help. Therefore, the Fed will, somehow or other, have to figure out how to raise aggregate demand by itself.
The only other thing I can think of to raise growth would be a deliberate devaluation of the dollar, which would raise exports. Theoretically, the Fed could buy as much foreign currency as necessary to bring the dollar down. But this is impractical because foreign countries can retaliate by buying dollars with their own currency or impose restrictions on U.S. imports. Any policy of devaluation would be strenuously opposed domestically by those who are obsessed with the idea that the dollar should be strong regardless of the economic conditions.
I realize that everything I have just said is totally contrary to the libertarian worldview. However, I believe that implementation of libertarian policies, such as cutting spending and tightening monetary policy, under current economic conditions will only make it worse. I support any regulatory measure anyone can think of to reduce unemployment, but am disinclined to think there are any that will have more than a trivial effect under current macroeconomic conditions.
Bruce Bartlett was a domestic policy adviser to Ronald Reagan and a treasury official under George H.W. Bush. His most recent book is The New American Economy: The Failure of Reaganomics and a New Way Forward.
Jeffrey Miron
Policymakers should stop worrying about job growth. Instead, they should focus on eliminating economic policies that impede economic efficiency—runaway entitlements, a horrendous tax code, excessive regulation, impediments to free trade, and more—and then let the job situation fix itself.
Jeffrey Miron is the director of undergraduate studies and a professor of economics at Harvard University.
John Berlau
Repeal portions of the Bush-era Sarbanes-Oxley Act to make it easier for smaller companies to raise capital by going public, and thus expand and create thousands more jobs.
Repeal portions of last year's Dodd-Frank Wall Street Reform and Consumer Protection Act, which has created hundreds of pending rules causing uncertainty and a halt in hiring for everyone from banks and credit unions to retailers and manufacturers that extend credit or hedge financial risks with derivatives.
Pass the bipartisan Small Business Lending Enhancement Act—S. 509 by Sen. Mark Udall (D-Colo.), and in HR 1418, by Rep. Ed Royce (R-Calif.)—to lift the aribitrary cap on business lending by credit unions. The Credit Union National Association estimates that easing this barrier would create over 140,000 jobs in the first year and thousands more in the years after that.
John Berlau is director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute.
Allan Meltzer
We have made the mistake of using short-term policy changes to try to cope with a long-term problem. There are several long-term changes called for. There is great uncertainty and lack of confidence in the future. That reduces investment and employment. One change that would reduce uncertainty is a five-year moratorium on new regulation except for national security. Another would be a budget agreement that made the debt sustainable. Not likely. Third; corporate tax rate reduction paid for by closing loopholes. Finally, we need assurance that we won't have inflation. A credible, enforced inflation target would work.
Allan Meltzer is a professor of economics and the political economy at the Carnegie Mellon University Kepper School of Business.
Ira Stoll
Congress should stop extending unemployment benefits, and better yet, restructure the unemployment insurance program or block-grant it to the states to allow them to experiment with ways of doing so. The idea is to change the program so it creates an incentive for recipients to get a job, rather than an incentive for them to remain unemployed.
This could involve altering the unemployment benefit formula so that the amount of the payment gradually decreases over time, reducing the propensity of beneficiaries to stay on unemployment until they frantically search for a job and find it just as the benefits run out.
Or it could involve allowing states "the flexibility to convert their unemployment insurance payments from checks sent to the jobless into vouchers that can be used by companies to hire workers," as Bloomberg News columnist Jonathan Alter suggests, relaying an idea from a Democratic candidate for U.S. Senate from Massachusetts, Alan Khazei.
Or it could involve changing the program so recipients get a hefty share of their benefits up front, as a lump sum. They can then use the money as capital to start small businesses. Or if they find a job quickly, they can save or invest or spend the money. (No repeat passes, though; the idea is to increase incentives for finding or creating a job, not rewards for people who get themselves fired.) Another approach might be to fold unemployment together with health, college, homeownership and retirement as expenses that people can save for in a tax-favored account.
Ira Stoll is the editor and founder of FutureOfCapitalism.com and the author of Samuel Adams: A Life. His weekly column appears at Reason.com.
Walter Olson
If I could press a button and instantly vaporize one sector of employment law, I think I'd pick age discrimination.
Its beneficiaries are among those needing least assistance. The main cash-and-carry effect of age-bias law is to confer legal leverage on older male holders of desirable jobs, such as managers, pilots, and college professors, who by threatening to raise the issue can extract ampler severance packets than might otherwise be offered them. Much legal talent is wasted in the resulting exit negotiations, which seldom seem to rouse the ire of critics of gaudy executive pay, golden parachutes and so forth.
It blatantly backfires on those it tries to help. Once cut loose from the old job, those same buyout recipients find it harder to land the next high-level job because of the perception that older hires are more likely to need buyouts not far down the road.
It generates pointless avoidance mechanisms. Ask your HR director about the costly stage in layoff strategy known as "age-balancing the RIF" or about the many small-talk questions you're not supposed to ask at job interviews for fear of seeming interested in the subject ("I notice you're a veteran. Which war?") or about the brain-cracking legal headaches that arise from the premise that (at least in some situations) the design of pension plans is supposed to take no notice of age.
Its intellectual basis is lighter than helium. Race, sex, sexual orientation and disability each form the basis of a major identity politics movement. But really: "ageism?" It's one thing to abridge liberty to expiate the national guilt of antebellum slavery, but can anyone keep a straight face in proclaiming persons of late middle age a historically oppressed class?
Please, I want to see this law repealed before I'm too old to enjoy it.
Walter Olson is a contributing editor to Reason, senior fellow at the Cato Institute, and proprietor of Overlawyered.com.
Peter Schiff
To make the greatest impact on persistent unemployment, the government should pursue policies that allow the free market to set wages, benefits, and all issues related to employment. Just as employees are allowed to leave jobs for whatever reason, employers should be allowed to hire and fire based on any criteria without fear of litigation. In other words, liability cost for hiring employees should be minimized. Employees become easier to hire once employers know that their downside risks are minimized. In addition, all labor laws protecting employees from employers, including minimum wage laws, should be repealed.
Employment is a voluntary relationship between two parties. Our laws should reflect and support that concept to the highest extent possible. Employees do not qualify for special privileges (inappropriately labeled worker's rights) simply because they accept a job, and employers do not lose their rights and become subjected to special obligations just because they hire. The playing field should be level.
Peter Schiff is the CEO of Euro Pacific Capital and the author of How an Economy Grows and Why it Crashes.
Alex Tabarrok
QE3: Fed should buy lots of long term T-bonds.
Alex Tabarrok is the Bartley J. Madden Professor of Economics at the Mercatus Center at George Mason University.
Fred L. Smith
Approve the Keystone XL Pipeline: 20,000 jobs created. The 1,700 mile Keystone XL Pipeline would link expanding Canadian crude production from tar sands with America's first-class refining hub in the Midwest and along the Gulf. The $7 billion project would roughly double U.S. imports of tar sands oil from western Canada.
Because the Keystone XL pipeline crosses an international border, the primary permitting agency is the State Department. However, oil production from tar sands is more carbon-intensive than traditional production, so environmentalist groups are staunchly opposed to it. As a result, the project has been in a permitting limbo for three years. By approving the project in short order, President Barack Obama would directly create more than 20,000 high-wage manufacturing jobs and construction jobs in 2011-2013, according to an independent analysis by the Perryman Group.
Fred L. Smith Jr. is the president of the Competitive Enterprise Institute.
The post What Would You Do to Improve Job Growth? appeared first on Reason.com.
]]>The evidence—most notably, the results of the 1996 Survey of Americans and Economists on the Economy—shows that the general public's views on economics not only are different from those of professional economists but are less accurate, and in predictable ways. The public really does generally hold, for starters, that prices are not governed by supply and demand, that protectionism helps the economy, that saving labor is a bad idea, and that living standards are falling. Economics journals regularly reject theoretical papers that explicitly recognize these biases. In a well-known piece in the Journal of Political Economy in 1995, the economists Stephen Coate and Stephen Morris worry that some of their colleagues are smuggling in the "unreasonable assumptions" that voters "have biased beliefs about the effects of policies" and "could be persistently fooled." That's the economist's standard view of systematic voter bias: that it doesn't exist.
Or at least, that's what economists say as researchers. As teachers, curiously, most economists adopt a different approach. When the latest batch of freshmen shows up for Econ 1, textbook authors and instructors still try to separate students from their prejudices. In the words of the famed economist Paul Krugman, they try "to vaccinate the minds of our undergraduates against the misconceptions that are so predominant in educated discussion."
Out of all the complaints that economists lodge against laymen, four families of beliefs stand out: the anti-market bias, the anti-foreign bias, the make-work bias, and the pessimistic bias.
Anti-Market Bias
I first learned about farm price supports in the produce section of the grocery store. I was in kindergarten. My mother explained that price supports seemed to make fruits and vegetables more expensive but assured me that this conclusion was simplistic. If the supports went away, so many farms would go out of business that prices would soon be higher than ever. I accepted what she told me and felt a lingering sense that price competition is bad for buyer and seller alike.
This was one of my first memorable encounters with anti-market bias, a tendency to underestimate the economic benefits of the market mechanism. The public has severe doubts about how much it can count on profit-seeking business to produce socially beneficial outcomes. People focus on the motives of business and neglect the discipline imposed by competition. While economists admit that profit maximization plus market imperfections can yield bad results, noneconomists tend to view successful greed as socially harmful per se.
Joseph Schumpeter, arguably the greatest historian of economic thought, matter-of-factly spoke of "the ineradicable prejudice that every action intended to serve the profit interest must be anti-social by this fact alone." Anti-market bias, he implied, is not a temporary, culturally specific aberration. It is a deeply rooted pattern of human thinking that has frustrated economists for generations.
There are too many variations on anti-market bias to list them all. Probably the most common error of this sort is to equate market payments with transfers, ignoring their incentive properties. (A transfer, in economic jargon, is a no-strings-attached movement of wealth from one person to another.) All that matters, then, is how much you empathize with the transfer's recipient compared to the transfer's provider. People tend, for example, to see profits as a gift to the rich. So unless you perversely pity the rich more than the poor, limiting profits seems like common sense.
Yet profits are not a handout but a quid pro quo: If you want to get rich, you have to do something people will pay for. Profits give incentives to reduce production costs, move resources from less-valued to more-valued industries, and dream up new products. This is the central lesson of The Wealth of Nations: The "invisible hand" quietly persuades selfish businessmen to serve the public good. For modern economists, these are truisms, yet teachers of economics keep quoting and requoting this passage. Why? Because Adam Smith's thesis was counterintuitive to his contemporaries, and it remains counterintuitive today.
A prejudice similar to the one against profit has dogged interest, from ancient Athens to modern Islamabad. Like profit, interest is not a gift but a quid pro quo: The lender earns interest in exchange for delaying his consumption. A government that successfully stamped out interest payments would be no friend to those in need of credit, since that policy would crush lending as well.
Anti-market biases lead people to misunderstand and reject even policies they should, given their preferences for end results, support. For example, the Princeton economist Alan Blinder blames opposition to tradable pollution permits on anti-market bias. Why let people "pay to pollute," when we can force them to cease and desist?
The textbook answer is that tradable permits get you more pollution abatement for the same cost. The firms able to cut their emissions cheaply do so, selling their excess pollution quotas to less flexible polluters. End result: more abatement bang for your buck. But noneconomists, including relatively sophisticated policy insiders, disagree. In his 1987 book Hard Heads, Soft Hearts, Blinder discusses a fascinating survey of 63 environmentalists, congressional staffers, and industry lobbyists. Not one could explain economists' standard rationale for tradable permits.
The second most prominent avatar of anti-market bias is monopoly theories of price. Economists acknowledge that monopolies exist. But the public habitually makes monopoly a scapegoat for scarcity. The idea that supply and demand usually control prices is hard to accept. Even in industries with many firms, noneconomists treat prices as a function of CEO intentions and conspiracies.
Historically, it has been especially common for the public to pick out middlemen as uniquely vicious "monopolists." Look at these parasites: They buy products, "mark them up," and then resell us the "exact same thing." Economists have a standard response. Transportation, storage, and distribution are valuable services—a fact that becomes obvious whenever you need a cold drink in the middle of nowhere. Like most valuable services, they are not costless. The most that is reasonable to ask, then, is not that middlemen work for free, but that they face the daily test of competition.
One specific price, the price for labor, is often thought to be the result of conspiracy: capitalists joining forces to keep wages at the subsistence level. More literate defenders of this fallacy point out that Adam Smith himself worried about employer conspiracies, overlooking the fact that in Smith's time high transportation and communication costs left workers with far fewer alternative employers.
In the Third World, of course, the number of employment options is often substantially lower than in developed countries. But if there really were a vast employer conspiracy to hold down wages, the Third World would be an especially profitable place to invest. Query: Does investing your life savings in poor countries seem like a painless way to get rich quick? If not, you at least tacitly accept economists' sad-but-true theory of Third World poverty: Its workers earn low wages because their productivity is low, due partly to lower skill levels and partly to anti-growth public policies.
Collusion aside, the public's implicit model of price determination is that businesses are monopolists of variable altruism. If a CEO feels greedy when he wakes up, he raises his price—or puts low-quality merchandise on the shelves. Nice guys charge fair prices for good products; greedy scoundrels gouge with impunity for junk. It is only a short step for market skeptics to add "…and nice guys finish last."
Where does the public go wrong? For one thing, asking for more can get you less. Giving your boss the ultimatum "Double my pay or I quit" usually ends badly. The same holds in business: Raising prices and cutting quality often lead to lower profits, not higher. Many strategies that work as a one-shot scam backfire as routine policies. It is hard to make a profit if no one sets foot in your store twice. Intelligent greed militates against dishonesty and discourtesy because they damage the seller's reputation.
An outsider who eavesdrops on economists' discussions might get the impression that the benefits of markets remain controversial. But economists who debate certain issues about the perfection of markets are not debating, say, whether prices give incentives. Almost all economists recognize the core benefits of the market mechanism; they disagree only at the margin. Widespread bias against market mechanisms as reasonably efficient means of meeting human needs affects politicians' incentives in almost every decision they make. It is perhaps most relevant today in the debate over whether the American health care system needs more markets and choice or more central control.
Anti-Foreign Bias
A shrewd businessman I know has long thought that everything wrong in the American economy could be solved with two expedients: 1) a naval blockade of Japan, and 2) a Berlin Wall at the Mexican border.
Like most noneconomists, he suffers from anti-foreign bias, a tendency to underestimate the economic benefits of interaction with foreigners. Popular metaphors equate international trade with racing and warfare, so you might say that anti-foreign views are embedded in our language. Perhaps foreigners are sneakier, craftier, or greedier. Whatever the reason, they supposedly have a special power to exploit us.
There is probably no other popular opinion that economists have found so enduringly objectionable. In The Wealth of Nations, Adam Smith admonishes his countrymen: "What is prudence in the conduct of every private family, can scarce be folly in a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry."
As far as his peers were concerned, Smith's arguments won the day. More than a century later, Simon Newcomb could securely observe in the Quarterly Journal of Economics that "one of the most marked points of antagonism between the ideas of the economists since Adam Smith and those which governed the commercial policy of nations before his time is found in the case of foreign trade." There was a little backsliding during the Great Depression, but economists' pro-foreign views abide to this day.
Even theorists, such as Paul Krugman, who specialize in exceptions to the optimality of free trade frequently downplay their findings as abstract curiosities. As Krugman wrote in his 1996 book Pop Internationalism: "This innovative stuff is not a priority for today's undergraduates. In the last decade of the 20th century, the essential things to teach students are still the insights of Hume and Ricardo. That is, we need to teach them that trade deficits are self-correcting and that the benefits of trade do not depend on a country having an absolute advantage over its rivals."
Economics textbooks teach that total output increases if producers specialize and trade. On an individual level, who could deny it? Imagine how much time it would take to grow your own food, while a few hours' wages spent at the grocery store can feed you for weeks. Analogies between individual and social behavior are at times misleading, but this is not one of those times. International trade is, as the economic writer Steven Landsburg explains in his 1993 book The Armchair Economist, a technology: "There are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. Everybody knows about the first technology; let me tell you about the second. First you plant seeds, which are the raw materials from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships westward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them."
How can anyone overlook trade's remarkable benefits? Adam Smith, along with many 18th- and 19th-century economists, identifies the root error as misidentification of money and wealth: "A rich country, in the same manner as a rich man, is supposed to be a country abounding in money; and to heap up gold and silver in any country is supposed to be the best way to enrich it." It follows that trade is zero sum, since the only way for a country to make its balance more favorable is to make another country's balance less favorable.
Even in Smith's day, however, his story was probably too clever by half. The root error behind 18th-century mercantilism was an unreasonable distrust of foreigners. Otherwise, why would people focus on money draining out of "the nation" but not "the region," "the city," "the village," or "the family"? Anyone who consistently equated money with wealth would fear all outflows of precious metals. In practice, human beings then and now commit the balance of trade fallacy only when other countries enter the picture. No one loses sleep about the trade balance between California and Nevada, or me and iTunes. The fallacy is not treating all purchases as a cost but treating foreign purchases as a cost.
Anti-foreign bias is easier to spot nowadays. To take one prominent example, immigration is far more of an issue now than it was in Smith's time. Economists are predictably quick to see the benefits of immigration. Trade in labor is roughly the same as trade in goods. Specialization and exchange raise output—for instance, by letting skilled American moms return to work by hiring Mexican nannies.
In terms of the balance of payments, immigration is a nonissue. If an immigrant moves from Mexico City to New York and spends all his earnings in his new homeland, the balance of trade does not change. Yet the public still looks on immigration as a bald misfortune: jobs lost, wages reduced, public services consumed. Many in the general public see immigration as a distinct danger, independent of, and more frightening than, an unfavorable balance of trade. People feel all the more vulnerable when they reflect that these foreigners are not just selling us their products. They live among us.
It is misleading to think of "foreignness" as a simple either/or. From the viewpoint of the typical American, Canadians are less foreign than the British, who are in turn less foreign than the Japanese. From 1983 to 1987, 28 percent of Americans in the National Opinion Research Center's General Social Survey admitted they disliked Japan, but only 8 percent disliked England, and a scant 3 percent disliked Canada.
Objective measures like the volume of trade or the trade deficit are often secondary to physical, linguistic, and cultural similarity. Trade with Canada or Great Britain generates only mild alarm compared to trade with Mexico or Japan. U.S. imports from and trade deficits with Canada exceeded those with Mexico every year from 1985 to 2004. During the anti-Japan hysteria of the 1980s, British foreign direct investment in the U.S. always exceeded that of the Japanese by at least 50 percent. Foreigners who look like us and speak English are hardly foreign at all.
Calm reflection on the international economy reveals much to be thankful for and little to fear. On this point, economists past and present agree. But an important proviso lurks beneath the surface. Yes, there is little to fear about the international economy itself. But modern researchers rarely mention that attitudes about the international economy are another story. Paul Krugman hits the nail on the head: "The conflict among nations that so many policy intellectuals imagine prevails is an illusion; but it is an illusion that can destroy the reality of mutual gains from trade." We can see this today most vividly in the absurdly overblown political reactions to the immigration issue, from walls to forcing illegal workers currently in America to leave before they can begin an onerous procedure to gain paper legality.
Make-Work Bias
I was an undergraduate when the Cold War ended. I still remember talking about military spending cuts with a conservative student. The whole idea made her nervous; she had no idea how a market economy would absorb the discharged soldiers. In her mind, to lay off 100,000 government employees was virtually equivalent to disemploying 100,000 people for life.
If a well-educated individual ideologically opposed to wasteful government spending thinks like this, it is hardly surprising that she is not alone. The public often literally believes that labor is better to use than conserve. Saving labor, producing more goods with fewer man-hours, is widely perceived not as progress but as a danger. I call this the make-work bias, a tendency to underestimate the economic benefits of conserving labor. Where noneconomists see the destruction of jobs, economists see the essence of economic growth: the production of more with less.
Economists have been at war with the make-work bias for centuries. The 19th-century economist Frederic Bastiat ridiculed the equation of prosperity with jobs as "Sisyphism," after the mythological fully employed Greek who was eternally condemned to roll a boulder up a hill.
In the eyes of the public, he wrote, "effort itself constitutes and measures wealth. To progress is to increase the ratio of effort to result. Its ideal may be represented by the toil of Sisyphus, at once barren and eternal." For the economist, by contrast, wealth "increases proportionately to the increase in the ratio of result to effort. Absolute perfection, whose archetype is God, consists [of] a situation in which no effort at all yields infinite results."
Nineteenth-century economists believed they had diagnosed enduring economic confusions, not intellectual fads, and they were right. The crudest form of make-work bias is the Luddite fear of the machine. Common sense proclaims that machines make life easier for human beings. The public qualifies this "naive" position by noting that machines also throw people out of work. It forgets that technology also creates new jobs. Without the computer, to give one obvious example, there would be no jobs in computer programming or software development. But the fundamental defense of labor-saving technology is deeper than that. Employing more workers than you need wastes valuable labor.
After technology throws people out of work, they have an incentive to find a new use for their talents. The Dallas Fed economist W. Michael Cox and the journalist Richard Alm illustrate this process in their 1999 book Myths of Rich and Poor, citing history's most striking example, the drastic decline in agricultural employment: "In 1800, it took nearly 95 of every 100 Americans to feed the country. In 1900, it took 40. Today, it takes just 3.…The workers no longer needed on farms have been put to use providing new homes, furniture, clothing, computers, pharmaceuticals, appliances, medical assistance, movies, financial advice, video games, gourmet meals, and an almost dizzying array of other goods and services."
Many economists advocate government assistance to cushion the displaced workers' transition to new jobs and to retain public support for a dynamic economy. Other economists disagree. But almost all economists grant that stopping those transitions has a grave cost.
Exasperating as the Luddite mentality is, countries rarely accede to public anxieties and turn back the clock of technology. But you cannot say the same about another controversy infused with make-work bias: hostility to downsizing.
Inside of a household, everyone understands what Cox and Alm call "the upside of downsizing." You do not worry about how to spend the hours you save when you buy a washing machine. Make-work confusion can arise only in an exchange economy. If you receive a washing machine as a gift, the benefit is yours; you have more free time and the same income. If you get downsized, the benefit goes to other people; you have more free time, but your income temporarily falls. In both cases, though, society conserves valuable labor.
The danger of the make-work bias is easiest to see in Europe, where labor market regulation to "save jobs" has produced decades of high unemployment. But we can see it in the U.S. as well, especially in our massive employment lawsuit industry. The hard lesson to learn is that giving people "rights to their jobs" is a drain on productivity—and makes employers think twice about hiring people in the first place.
Pessimistic Bias
I first encountered anti-drug propaganda in second grade. It was called "drug education," but it was mostly scary stories. I was told that kids around me were using drugs and that a pusher would soon offer me some too. Teachers warned that more and more kids would become addicts, and that by the time I was in junior high I would be surrounded by them. Authority figures would occasionally speculate about our adulthood, and wonder how a country could function with such a degenerate work force.
I am still waiting to be offered drugs. The junior high dystopia never materialized. By the time I reached adulthood, it was apparent that most people were not going to their jobs high on PCP. Generation X's entry into the work force accompanied the marvels of the Internet age, not a stupor-induced decline in productivity and innovation.
My teachers' predictions about America's economic future fit nicely into a larger pattern. As a general rule, the public believes economic conditions are not as good as they really are. It sees a world going from bad to worse; the economy faces a long list of grim challenges, leaving little room for hope. We can call this the pessimistic bias, a tendency to overestimate the severity of economic problems and underestimate the economy's performance in the recent past, the present, and the future.
Pessimism about the economy comes in two varieties. You may be pessimistic about symptoms, overblowing the severity of the effects of everything from the deficit to affirmative action. But you can also be pessimistic overall, seeing negative trends in living standards, wages, and inequality. Public opinion is marked by both forms of pessimism. Economists constantly advise the public not to lose sleep over the latest economic threat in the news, pointing out massive gains we've made during the last 100 years and now take for granted.
David Hume—economist, philosopher, and Adam Smith's best friend—blamed popular pessimism on our psychology. "The humour of blaming the present, and admiring the past, is strongly rooted in human nature," he wrote, "and has an influence even on persons endued with the profoundest judgment and most extensive learning."
But 19th-century economists did little to develop the theme of pessimistic bias. Nineteenth-century socialists who predicted "immiseration" of the working class met intellectual resistance from economists. But the root of the socialists' forecast was hostility to markets, not pessimism as such. Economists often ridiculed socialists for their wild optimism about the impending socialist utopia.
Pessimistic bias is widely thought to have grown worse in the modern era. In The Idea of Decline in Western History (1997), the historian Arthur Herman of the Smithsonian Institution maintains that it peaked soon after the end of World War I, when "talking about the end of Western civilization had become as natural as breathing. The only subject left to debate was not whether the modern West was doomed but why."
How can high levels of pessimism coexist with constantly rising standards of living? Although pessimism has abated since World War I, the gap between objective conditions and subjective perceptions is arguably greater than ever. In The Progress Paradox (2003), the journalist Gregg Easterbrook ridicules the "abundance denial" of the developed world: "Our forebears, who worked and sacrificed tirelessly in the hopes their descendants would someday be free, comfortable, healthy, and educated, might be dismayed to observe how acidly we deny we now are these things."
Not all professional economists are utter optimists about tomorrow. There is an ongoing debate among economists about growth slow-down. This is what relatively pessimistic economists like Paul Krugman mean when they say that "the U.S. economy is doing badly." Other economists counter that standard numbers inadequately adjust for the rising quality and variety of the consumption basket and the changing composition of the work force. Either way, the worst-case scenario that GDP statistics permit—a lower speed of progress—is no disaster.
The intelligent pessimist's favorite refuge is to argue that standard statistics such as GDP miss important components of our standard of living. The leading candidate is environmental quality. Pessimists often add that our failure to deal with environmental destruction will soon morph into economic disaster as well. If resources are rapidly vanishing as our numbers multiply, human beings are going to be poor and hungry, not just out of touch with Mother Earth.
A number of economists have met these challenges. The most wide-ranging is the late Julian Simon, who argued that popular "doom-and-gloom" views of resource depletion, overpopulation, and environmental quality are exaggerated and often the opposite of the truth. Past progress does not guarantee future progress, but as Simon explained in his 1995 book The State of Humanity, it does create a strong presumption: "Throughout the long sweep of history, forecasts of resource scarcity have always been heard, and—just as now—the doomsayers have always claimed that the past was no guide to the future because they stood at a turning point in history."
Simon has been a lightning rod for controversy, but his main theses—that natural resources are getting cheaper, population density is not bad for growth, and air quality is improving—are now almost mainstream in environmental economics. Since the Harvard economist Michael Kremer's seminal 1993 paper "Population Growth and Technological Change: One Million B.C. to 1990," even Simon's "extreme" view that population growth raises living standards has gained wide acceptance.
The UCLA geographer Jared Diamond's immensely popular 1997 book Guns, Germs, and Steel links population and innovation in essentially the same way, albeit with little fanfare. The upshot: GDP may not be the best conceivable measurement of our well-being, but refining measures of economic welfare does not revive the case for pessimism. In fact, more inclusive measures cement the case for optimism, because life has also been getting better on the neglected dimensions.
This pessimistic bias is a general-interest prop to political demagoguery of all kinds. It creates a presumption that matters, left uncontrolled, are spiraling to destruction, and that something has to be done, no matter how costly or ultimately counterproductive to wealth or freedom. This mind-set plays a role in almost every modern political controversy, from downsizing to immigration to global warming.
Bias Against Bias
Economists have a love-hate relationship with systematic bias. As theorists, they deny its existence. But when they teach, address the public, or wonder what is wrong with the world, they dip into their own private stash of the stuff. On some level, economists not only recognize that systematically biased beliefs exist; they think they have discovered virulent strains in their own backyard.
You can hardly teach economics without bumping into these biases. Students of economics are not blank slates for their teachers to write on. They arrive with strong prejudices. They underestimate the benefits of markets. They underestimate the benefits of dealing with foreigners. They underestimate the benefits of conserving labor. They underestimate the performance of the economy. And in doing all that underestimating, they overestimate both the need for the government to solve these purported problems and the likely efficacy of its solutions.
Bryan Caplan, a professor of economics at George Mason University, is the author of The Myth of the Rational Voter: Why Democracies Choose Bad Policies (Princeton University Press), from which this article is excerpted. © Copyright 2007 by Princeton University Press.
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