Information theory proves that multiple-choice is stupid

Mar 19, JDN 2457832

This post is a bit of a departure from my usual topics, but it’s something that has bothered me for a long time, and I think it fits broadly into the scope of uniting economics with the broader realm of human knowledge.

Multiple-choice questions are inherently and objectively poor methods of assessing learning.

Consider the following question, which is adapted from actual tests I have been required to administer and grade as a teaching assistant (that is, the style of question is the same; I’ve changed the details so that it wouldn’t be possible to just memorize the response—though in a moment I’ll get to why all this paranoia about students seeing test questions beforehand would also be defused if we stopped using multiple-choice):

The demand for apples follows the equation Q = 100 – 5 P.
The supply of apples follows the equation Q = 10 P.
If a tax of $2 per apple is imposed, what is the equilibrium price, quantity, tax revenue, consumer surplus, and producer surplus?

A. Price = $5, Quantity = 10, Tax revenue = $50, Consumer Surplus = $360, Producer Surplus = $100

B. Price = $6, Quantity = 20, Tax revenue = $40, Consumer Surplus = $200, Producer Surplus = $300

C. Price = $6, Quantity = 60, Tax revenue = $120, Consumer Surplus = $360, Producer Surplus = $300

D. Price = $5, Quantity = 60, Tax revenue = $120, Consumer Surplus = $280, Producer Surplus = $500

You could try solving this properly, setting supply equal to demand, adjusting for the tax, finding the equilibrium, and calculating the surplus, but don’t bother. If I were tutoring a student in preparing for this test, I’d tell them not to bother. You can get the right answer in only two steps, because of the multiple-choice format.

Step 1: Does tax revenue equal $2 times quantity? We said the tax was $2 per apple.
So that rules out everything except C and D. Welp, quantity must be 60 then.

Step 2: Is quantity 10 times price as the supply curve says? For C they are, for D they aren’t; guess it must be C then.

Now, to do that, you need to have at least a basic understanding of the economics underlying the question (How is tax revenue calculated? What does the supply curve equation mean?). But there’s an even easier technique you can use that doesn’t even require that; it’s called Answer Splicing.

Here’s how it works: You look for repeated values in the answer choices, and you choose the one that has the most repeated values. Prices $5 and $6 are repeated equally, so that’s not helpful (maybe the test designer planned at least that far). Quantity 60 is repeated, other quantities aren’t, so it’s probably that. Likewise with tax revenue $120. Consumer surplus $360 and Producer Surplus $300 are both repeated, so those are probably it. Oh, look, we’ve selected a unique answer choice C, the correct answer!

You could have done answer splicing even if the question were about 18th century German philosophy, or even if the question were written in Arabic or Japanese. In fact you even do it if it were written in a cipher, as long as the cipher was a consistent substitution cipher.

Could the question have been designed to better avoid answer splicing? Probably. But this is actually quite difficult to do, because there is a fundamental tradeoff between two types of “distractors” (as they are known in the test design industry). You want the answer choices to contain correct pieces and resemble the true answer, so that students who basically understand the question but make a mistake in the process still get it wrong. But you also want the answer choices to be distinct enough in a random enough pattern that answer splicing is unreliable. These two goals are inherently contradictory, and the result will always be a compromise between them. Professional test-designers usually lean pretty heavily against answer-splicing, which I think is probably optimal so far as it goes; but I’ve seen many a professor err too far on the side of similar choices and end up making answer splicing quite effective.

But of course, all of this could be completely avoided if I had just presented the question as an open-ended free-response. Then you’d actually have to write down the equations, show me some algebra solving them, and then interpret your results in a coherent way to answer the question I asked. What’s more, if you made a minor mistake somewhere (carried a minus sign over wrong, forgot to divide by 2 when calculating the area of the consumer surplus triangle), I can take off a few points for that error, rather than all the points just because you didn’t get the right answer. At the other extreme, if you just randomly guess, your odds of getting the right answer are miniscule, but even if you did—or copied from someone else—if you don’t show me the algebra you won’t get credit.

So the free-response question is telling me a lot more about what the student actually knows, in a much more reliable way, that is much harder to cheat or strategize against.

Moreover, this isn’t a matter of opinion. This is a theorem of information theory.

The information that is carried over a message channel can be quantitatively measured as its Shannon entropy. It is usually measured in bits, which you may already be familiar with as a unit of data storage and transmission rate in computers—and yes, those are all fundamentally the same thing. A proper formal treatment of information theory would be way too complicated for this blog, but the basic concepts are fairly straightforward: think in terms of how long a sequence of 1s and 0s it would take to convey the message. That is, roughly speaking, the Shannon entropy of that message.

How many bits are conveyed by a multiple-choice response with four choices? 2. Always. At maximum. No exceptions. It is fundamentally, provably, mathematically impossible to convey more than 2 bits of information via a channel that only has 4 possible states. Any multiple-choice response—any multiple-choice response—of four choices can be reduced to the sequence 00, 01, 10, 11.

True-false questions are a bit worse—literally, they convey 1 bit instead of 2. It’s possible to fully encode the entire response to a true-false question as simply 0 or 1.

For comparison, how many bits can I get from the free-response question? Well, in principle the answer to any mathematical question has the cardinality of the real numbers, which is infinite (in some sense beyond infinite, in fact—more infinite than mere “ordinary” infinity); but in reality you can only write down a small number of possible symbols on a page. I can’t actually write down the infinite diversity of numbers between 3.14159 and the true value of pi; in 10 digits or less, I can only (“only”) write down a few billion of them. So let’s suppose that handwritten text has about the same information density as typing, which in ASCII or Unicode has 8 bits—one byte—per character. If the response to this free-response question is 300 characters (note that this paragraph itself is over 800 characters), then the total number of bits conveyed is about 2400.

That is to say, one free-response question conveys six hundred times as much information as a multiple-choice question. Of course, a lot of that information is redundant; there are many possible correct ways to write the answer to a problem (if the answer is 1.5 you could say 3/2 or 6/4 or 1.500, etc.), and many problems have multiple valid approaches to them, and it’s often safe to skip certain steps of algebra when they are very basic, and so on. But it’s really not at all unrealistic to say that I am getting between 10 and 100 times as much useful information about a student from reading one free response than I would from one multiple-choice question.

Indeed, it’s actually a bigger difference than it appears, because when evaluating a student’s performance I’m not actually interested in the information density of the message itself; I’m interested in the product of that information density and its correlation with the true latent variable I’m trying to measure, namely the student’s actual understanding of the content. (A sequence of 500 random symbols would have a very high information density, but would be quite useless in evaluating a student!) Free-response questions aren’t just more information, they are also better information, because they are closer to the real-world problems we are training for, harder to cheat, harder to strategize, nearly impossible to guess, and provided detailed feedback about exactly what the student is struggling with (for instance, maybe they could solve the equilibrium just fine, but got hung up on calculating the consumer surplus).

As I alluded to earlier, free-response questions would also remove most of the danger of students seeing your tests beforehand. If they saw it beforehand, learned how to solve it, memorized the steps, and then were able to carry them out on the test… well, that’s actually pretty close to what you were trying to teach them. It would be better for them to learn a whole class of related problems and then be able to solve any problem from that broader class—but the first step in learning to solve a whole class of problems is in fact learning to solve one problem from that class. Just change a few details each year so that the questions aren’t identical, and you will find that any student who tried to “cheat” by seeing last year’s exam would inadvertently be studying properly for this year’s exam. And then perhaps we could stop making students literally sign nondisclosure agreements when they take college entrance exams. Listen to this Orwellian line from the SAT nondisclosure agreement:

Misconduct includes,but is not limited to:

Taking any test questions or essay topics from the testing room, including through memorization, giving them to anyone else, or discussing them with anyone else through anymeans, including, but not limited to, email, text messages or the Internet

Including through memorization. You are not allowed to memorize SAT questions, because God forbid you actually learn something when we are here to make money off evaluating you.

Multiple-choice tests fail in another way as well; by definition they cannot possibly test generation or recall of knowledge, they can only test recognition. You don’t need to come up with an answer; you know for a fact that the correct answer must be in front of you, and all you need to do is recognize it. Recall and recognition are fundamentally different memory processes, and recall is both more difficult and more important.

Indeed, the real mystery here is why we use multiple-choice exams at all.
There are a few types of very basic questions where multiple-choice is forgivable, because there are just aren’t that many possible valid answers. If I ask whether demand for apples has increased, you can pretty much say “it increased”, “it decreased”, “it stayed the same”, or “it’s impossible to determine”. So a multiple-choice format isn’t losing too much in such a case. But most really interesting and meaningful questions aren’t going to work in this format.

I don’t think it’s even particularly controversial among educators that multiple-choice questions are awful. (Though I do recall an “educational training” seminar a few weeks back that was basically an apologia for multiple choice, claiming that it is totally possible to test “higher-order cognitive skills” using multiple-choice, for reals, believe me.) So why do we still keep using them?

Well, the obvious reason is grading time. The one thing multiple-choice does have over a true free response is that it can be graded efficiently and reliably by machines, which really does make a big difference when you have 300 students in a class. But there are a couple reasons why even this isn’t a sufficient argument.

First of all, why do we have classes that big? It’s absurd. At that point you should just email the students video lectures. You’ve already foreclosed any possibility of genuine student-teacher interaction, so why are you bothering with having an actual teacher? It seems to be that universities have tried to work out what is the absolute maximum rent they can extract by structuring a class so that it is just good enough that students won’t revolt against the tuition, but they can still spend as little as possible by hiring only one adjunct or lecturer when they should have been paying 10 professors.

And don’t tell me they can’t afford to spend more on faculty—first of all, supporting faculty is why you exist. If you can’t afford to spend enough providing the primary service that you exist as an institution to provide, then you don’t deserve to exist as an institution. Moreover, they clearly can afford it—they simply prefer to spend on hiring more and more administrators and raising the pay of athletic coaches. PhD comics visualized it quite well; the average pay for administrators is three times that of even tenured faculty, and athletic coaches make ten times as much as faculty. (And here I think the mean is the relevant figure, as the mean income is what can be redistributed. Firing one administrator making $300,000 does actually free up enough to hire three faculty making $100,000 or ten grad students making $30,000.)

But even supposing that the institutional incentives here are just too strong, and we will continue to have ludicrously-huge lecture classes into the foreseeable future, there are still alternatives to multiple-choice testing.

Ironically, the College Board appears to have stumbled upon one themselves! About half the SAT math exam is organized into a format where instead of bubbling in one circle to give your 2 bits of answer, you bubble in numbers and symbols corresponding to a more complicated mathematical answer, such as entering “3/4” as “0”, “3”, “/”, “4” or “1.28” as “1”, “.”, “2”, “8”. This could easily be generalized to things like “e^2” as “e”, “^”, “2” and “sin(3pi/2)” as “sin”, “3” “pi”, “/”, “2”. There are 12 possible symbols currently allowed by the SAT, and each response is up to 4 characters, so we have already increased our possible responses from 4 to over 20,000—which is to say from 2 bits to 14. If we generalize it to include symbols like “pi” and “e” and “sin”, and allow a few more characters per response, we could easily get it over 20 bits—10 times as much information as a multiple-choice question.

But we can do better still! Even if we insist upon automation, high-end text-recognition software (of the sort any university could surely afford) is now getting to the point where it could realistically recognize a properly-formatted algebraic formula, so you’d at least know if the student remembered the formula correctly. Sentences could be transcribed into typed text, checked for grammar, and sorted for keywords—which is not nearly as good as a proper reading by an expert professor, but is still orders of magnitude better than filling circle “C”. Eventually AI will make even more detailed grading possible, though at that point we may have AIs just taking over the whole process of teaching. (Leaving professors entirely for research, presumably. Not sure if this would be good or bad.)

Automation isn’t the only answer either. You could hire more graders and teaching assistants—say one for every 30 or 40 students instead of one for every 100 students. (And then the TAs might actually be able to get to know their students! What a concept!) You could give fewer tests, or shorter ones—because a small, reliable sample is actually better than a large, unreliable one. A bonus there would be reducing students’ feelings of test anxiety. You could give project-based assignments, which would still take a long time to grade, but would also be a lot more interesting and fulfilling for both the students and the graders.

Or, and perhaps this is the most radical answer of all: You could stop worrying so much about evaluating student performance.

I get it, you want to know whether students are doing well, both so that you can improve your teaching and so that you can rank the students and decide who deserves various awards and merits. But do you really need to be constantly evaluating everything that students do? Did it ever occur to you that perhaps that is why so many students suffer from anxiety—because they are literally being formally evaluated with long-term consequences every single day they go to school?

If we eased up on all this evaluation, I think the fear is that students would just detach entirely; all teachers know students who only seem to show up in class because they’re being graded on attendance. But there are a couple of reasons to think that maybe this fear isn’t so well-founded after all.

If you give up on constant evaluation, you can open up opportunities to make your classes a lot more creative and interesting—and even fun. You can make students want to come to class, because they get to engage in creative exploration and collaboration instead of memorizing what you drone on at them for hours on end. Most of the reason we don’t do creative, exploratory activities is simply that we don’t know how to evaluate them reliably—so what if we just stopped worrying about that?

Moreover, are those students who only show up for the grade really getting anything out of it anyway? Maybe it would be better if they didn’t show up—indeed, if they just dropped out of college entirely and did something else with their lives until they get their heads on straight. Maybe all this effort that we are currently expending trying to force students to learn who clearly don’t appreciate the value of learning could instead be spent enriching the students who do appreciate learning and came here to do as much of it as possible. Because, ultimately, you can lead a student to algebra, but you can’t make them think. (Let me be clear, I do not mean students with less innate ability or prior preparation; I mean students who aren’t interested in learning and are only showing up because they feel compelled to. I admire students with less innate ability who nonetheless succeed because they work their butts off, and wish I were quite so motivated myself.)
There’s a downside to that, of course. Compulsory education does actually seem to have significant benefits in making people into better citizens. Maybe if we let those students just leave college, they’d never come back, and they would squander their potential. Maybe we need to force them to show up until something clicks in their brains and they finally realize why we’re doing it. In fact, we’re really not forcing them; they could drop out in most cases and simply don’t, probably because their parents are forcing them. Maybe the signaling problem is too fundamental, and the only way we can get unmotivated students to accept not getting prestigious degrees is by going through this whole process of forcing them to show up for years and evaluating everything they do until we can formally justify ultimately failing them. (Of course, almost by construction, a student who does the absolute bare minimum to pass will pass.) But college admission is competitive, and I can’t shake this feeling there are thousands of students out there who got rejected from the school they most wanted to go to, the school they were really passionate about and willing to commit their lives to, because some other student got in ahead of them—and that other student is now sitting in the back of the room playing with an iPhone, grumbling about having to show up for class every day. What about that squandered potential? Perhaps competitive admission and compulsory attendance just don’t mix, and we should stop compelling students once they get their high school diploma.

Games as economic simulations—and education tools

Mar 5, JDN 2457818 [Sun]

Moore’s Law is a truly astonishing phenomenon. Now as we are well into the 21st century (I’ve lived more of my life in the 21st century than the 20th now!) it may finally be slowing down a little bit, but it has had quite a run, and even this could be a temporary slowdown due to economic conditions or the lull before a new paradigm (quantum computing?) matures. Since at least 1975, the computing power of an individual processor has doubled approximately every year and a half; that means it has doubled over 25 times—or in other words that it has increased by a factor of over 30 million. I now have in my pocket a smartphone with several thousand times the processing speed of the guidance computer of the Saturn V that landed on the Moon.

This meteoric increase in computing power has had an enormous impact on the way science is done, including economics. Simple theoretical models that could be solved by hand are now being replaced by enormous simulation models that have to be processed by computers. It is now commonplace to devise models with systems of dozens of nonlinear equations that are literally impossible to solve analytically, and just solve them iteratively with computer software.

But one application of this technology that I believe is currently underutilized is video games.

As a culture, we still have the impression that video games are for children; even games like Dragon Age and Grand Theft Auto that are explicitly for adults (and really quite inappropriate for children!) are viewed as in some sense “childish”—that no serious adult would be involved with such frivolities. The same cultural critics who treat Shakespeare’s vagina jokes as the highest form of art are liable to dismiss the poignant critique of war in Call of Duty: Black Ops or the reflections on cultural diversity in Skyrim as mere puerility.

But video games are an art form with a fundamentally greater potential than any other. Now that graphics are almost photorealistic, there is really nothing you can do in a play or a film that you can’t do in a video game—and there is so, so much more that you can only do in a game.
In what other medium can we witness the spontaneous emergence and costly aftermath of a war? Yet EVE Online has this sort of event every year or so—just today there was a surprise attack involving hundreds of players that destroyed thousands of hours’—and dollars’—worth of starships, something that has more or less become an annual tradition. A few years ago there was a massive three-faction war that destroyed over $300,000 in ships and has now been commemorated as “the Bloodbath of B-R5RB”.
Indeed, the immersion and interactivity of games present an opportunity to do nothing less than experimental macroeconomics. For generations it has been impossible, or at least absurdly unethical, to ever experimentally manipulate an entire macroeconomy. But in a video game like EVE Online or Second Life, we can now do so easily, cheaply, and with little or no long-term harm to the participants—and we can literally control everything in the experiment. Forget the natural resource constraints and currency exchange rates—we can change the laws of physics if we want. (Indeed, EVE‘s whole trade network is built around FTL jump points, and in Second Life it’s a basic part of the interface that everyone can fly like Superman.)

This provides untold potential for economic research. With sufficient funding, we could build a game that would allow us to directly test hypotheses about the most fundamental questions of economics: How do governments emerge and maintain security? How is the rule of law sustained, and when can it be broken? What controls the value of money and the rate of inflation? What is the fundamental cause of unemployment, and how can it be corrected? What influences the rate of technological development? How can we maximize the rate of economic growth? What effect does redistribution of wealth have on employment and output? I envision a future where we can directly simulate these questions with thousands of eager participants, varying the subtlest of parameters and carrying out events over any timescale we like from seconds to centuries.

Nor is the potential of games in economics limited to research; it also has enormous untapped potential in education. I’ve already seen in my classes how tabletop-style games with poker chips can teach a concept better in a few minutes than hours of writing algebra derivations on the board; but custom-built video games could be made that would teach economics far better still, and to a much wider audience. In a well-designed game, people could really feel the effects of free trade or protectionism, not just on themselves as individuals but on entire nations that they control—watch their GDP numbers go down as they scramble to produce in autarky what they could have bought for half the price if not for the tariffs. They could see, in real time, how in the absence of environmental regulations and Pigovian taxes the actions of millions of individuals could despoil our planet for everyone.

Of course, games are fundamentally works of fiction, subject to the Fictional Evidence Fallacy and only as reliable as their authors make them. But so it is with all forms of art. I have no illusions about the fact that we will never get the majority of the population to regularly read peer-reviewed empirical papers. But perhaps if we are clever enough in the games we offer them to play, we can still convey some of the knowledge that those papers contain. We could also update and expand the games as new information comes in. Instead of complaining that our students are spending time playing games on their phones and tablets, we could actually make education into games that are as interesting and entertaining as the ones they would have been playing. We could work with the technology instead of against it. And in a world where more people have access to a smartphone than to a toilet, we could finally bring high-quality education to the underdeveloped world quickly and cheaply.

Rapid growth in computing power has given us a gift of great potential. But soon our capacity will widen even further. Even if Moore’s Law slows down, computing power will continue to increase for awhile yet. Soon enough, virtual reality will finally take off and we’ll have even greater depth of immersion available. The future is bright—if we can avoid this corporatist cyberpunk dystopia we seem to be hurtling toward, of course.

Caught between nepotism and credentialism

Feb 19, JDN 2457804

One of the more legitimate criticisms out there of we “urban elites” is our credentialismour tendency to decide a person’s value as an employee or even as a human being based solely upon their formal credentials. Randall Collins, an American sociologist, wrote a book called The Credential Society arguing that much of the class stratification in the United States is traceable to this credentialism—upper-middle-class White Anglo-Saxon Protestants go to the good high schools to get into the good colleges to get the good careers, and all along the way maintain subtle but significant barriers to keep everyone else out.

A related concern is that of credential inflation, where more and more people get a given credential (such as a high school diploma or a college degree), and it begins to lose value as a signal of status. It is often noted that a bachelor’s degree today “gets” you the same jobs that a high school diploma did two generations ago, and two generations hence you may need a master’s or even a PhD.

I consider this concern wildly overblown, however. First of all, they’re not actually the same jobs at all. Even our “menial” jobs of today require skills that most people didn’t have two generations ago—not simply those involving electronics and computers, but even quite basic literacy and numeracy. Yes, you could be a banker in the 1920s with a high school diploma, but plenty of bankers in the 1920s didn’t know algebra. What, you think they were arbitraging derivatives based on the Black-Scholes model?

The primary purpose of education should be to actually improve students’ abilities, not to signal their superior status. More people getting educated is good, not bad. If we really do need signals, we can devise better ones than making people pay tens of thousands of dollars in tuition and spending years taking classes. An expenditure of that magnitude should be accomplishing something, not just signaling. (And given the overwhelming positive correlation between a country’s educational attainment and its economic development, clearly education is actually accomplishing something.) Our higher educational standards have directly tied to higher technology and higher productivity. If indeed you need a PhD to be a janitor in 2050, it will be because in 2050 a “janitor” is actually the expert artificial intelligence engineer who commands an army of cleaning robots, not because credentials have “inflated”. Thinking that credentials “inflate” requires thinking that business managers must be very stupid, that they would exclude whole swaths of qualified candidates that they could pay less to do the same work. Only a complete moron would require a PhD to hire you for wielding a mop.

No, what concerns me is an over-emphasis on prestigious credentials over genuine competence. This is definitely a real issue in our society: Almost every US President went to an Ivy League university, yet several of them (George W. Bush, anyone?) clearly would not actually have been selected by such a university if their families had not been wealthy and well-connected. (Harvard’s application literally contains a question asking whether you are a “lineal or collateral descendant” of one of a handful of super-wealthy families.) Papers that contain errors so basic that I would probably get a failing grade as a grad student for them become internationally influential because they were written by famous economists with fancy degrees.

Ironically, it may be precisely because elite universities try not to give grades or special honors that so many of their students try so desperately to latch onto any bits of social status they can get their hands on. In this blog post, a former Yale law student comments on how, without grades or cum laude to define themselves, Yale students became fiercely competitive in the pettiest ways imaginable. Or it might just be a selection effect; to get into Yale you’ve probably got to be pretty competitive, so even if they don’t give out grades once you get there, you can take the student out of the honors track, but you can’t take the honors track out of the student.

But perhaps the biggest problem with credentialism is… I don’t see any viable alternatives!

We have to decide who is going to be hired for technical and professional positions somehow. It almost certainly can’t be everyone. And the most sensible way to do it would be to have a process people go through to get trained and evaluated on their skills in that profession—that is, a credential.

What else would we do? We could decide randomly, I suppose; well, good luck with that. Or we could try to pick people who don’t have qualifications (“anti-credentialism” I suppose), which would be systematically wrong. Or individual employers could hire individuals they know and trust on a personal level, which doesn’t seem quite so ridiculous—but we have a name for that too, and it’s nepotism.

Even anti-credentialism does exist, bafflingly enough. Many people voted for George W. Bush because they said he was “the kind of guy you can have a beer with”. That wasn’t true, of course; he was the spoiled child of a billionaire, a man who had never really worked a day in his life. But even if it had been true, so what? How is that a qualification to be the leader of the free world? And how many people voted for Trump precisely because he had no experience in government? This made sense to them somehow. (And, shockingly, he has no idea what he’s doing. Actually what is shocking is that he admits that.)

Nepotism of course happens all the time. In fact, nepotism is probably the default state for humans. The continual re-emergence of hereditary monarchy and feudalism around the world suggests that this is some sort of attractor state for human societies, that in the absence of strong institutional pressures toward some other system this is what people will generally settle into. And feudalism is nothing if not nepotistic; your position in life is almost entirely determined by your father’s position, and his father’s before that.

Formal credentials can put a stop to that. Of course, your ability to obtain the credential often depends upon your income and social status. But if you can get past those barriers and actually get the credential, you now have a way of pushing past at least some of the competitors who would have otherwise been hired on their family connections alone. The rise in college enrollments—and women actually now exceeding men in college enrollment rates—is one of the biggest reasons why the gender pay gap is rapidly closing among young workers. Nepotism and sexism that would otherwise have hired unqualified men is now overtaken by the superior credentials of qualified women.

Credentialism does still seem suboptimal… but from where I’m sitting, it seems like a second-best solution. We can’t actually observe people’s competence and ability directly, so we need credentials to provide an approximate measurement. We can certainly work to improve credentials—and for example, I am fiercely opposed to multiple-choice testing because it produces such meaningless credentials—but ultimately I don’t see any alternative to credentials.

The urban-rural divide runs deep

Feb 5, JDN 2457790

Are urban people worth less than rural people?

That probably sounds like a ridiculous thing to ask; of course not, all people are worth the same (other things equal of course—philanthropists are worth more than serial murderers). But then, if you agree with that, you’re probably an urban person, as I’m sure most of my readers are (and as indeed most people in highly-developed countries are).

A disturbing number of rural people, however, honestly do seem to believe this. They think that our urban lifestyles (whatever they imagine those to be) devalue us as citizens and human beings.

That is the key subtext to understand in the terrifying phenomenon that is Donald Trump. Most of the people who voted for him can’t possibly have thought he was actually trustworthy, and many probably didn’t actually support his policies of bigotry and authoritarianism (though he was very popular among bigots and authoritarians). From speaking with family members and acquaintances who proudly voted for Trump, one thing came through very clearly: This was a gigantic middle finger pointed at cities. They didn’t even really want Trump; they just knew we didn’t, and so they voted for him out of spite as much as anything else. They also have really confused views about free trade, so some of them voted for him because he promised to bring back jobs lost to trade (that weren’t lost to trade, can’t be brought back, and shouldn’t be even if they could). Talk with a Trump voter for a few minutes, and sneers of “latte-sipping liberal” (I don’t even like coffee) and “coastal elite” (I moved here to get educated; I wasn’t born here) are sure to follow.

There has always been some conflict between rural and urban cultures, for as long as there have been urban cultures for rural cultures to be in conflict with. It is found not just in the US, but in most if not all countries around the world. It was relatively calm during the postwar boom in the 20th century, as incomes everywhere (or at least everywhere within highly-developed countries) were improving more or less in lockstep. But the 21st century has brought us much more unequal growth, concentrated on particular groups of people and particular industries. This has brought more resentment. And that divide, above all else, is what brought us Trump; the correlation between population density and voting behavior is enormous.

Of course, “urban” is sometimes a dog-whistle for “Black”; but sometimes I think it actually really means “urban”—and yet there’s still a lot of hatred embedded in it. Indeed, perhaps that’s why the dog-whistle works; a White man from a rural town can sneer at “urban” people and it’s not entirely clear whether he’s being racist or just being anti-urban.

The assumption that rural lifestyles are superior runs so deep in our culture that even in articles by urban people (like this one from the LA Times) supposedly reflecting about how to resolve this divide, there are long paeans to the world of “hard work” and “sacrifice” and “autonomy” of rural life, and mocking “urban elites” for their “disproportionate” (by which you can only mean almost proportionate) power over government.

Well, guess what? If you want to live in a rural area, go live in a rural area. Don’t pine for it. Don’t tell me how great farm life is. If you want to live on a farm, go live on a farm. I have nothing against it; we need farmers, after all. I just want you to shut up about how great it is, especially if you’re not going to actually do it. Pining for someone else’s lifestyle when you could easily take on that lifestyle if you really wanted it just shows that you think the grass is greener on the other side.

Because the truth is, farm living isn’t so great for most people. The world’s poorest people are almost all farmers. 70% of people below the UN poverty line live in rural areas, even as more and more of the world’s population moves into cities. If you use a broader poverty measure, as many as 85% of the world’s poor live in rural areas.

The kind of “autonomy” that means defending your home with a shotgun is normally what we would call anarchy—it’s a society that has no governance, no security. (Of course, in the US that’s pure illusion; crime rates in general are low and falling, and lower in rural areas than urban areas. But in some parts of the world, that anarchy is very real.) One of the central goals of global economic development is to get people away from subsistence farming into far more efficient manufacturing and service jobs.

At least in the US, farm life is a lot better than it used to be, now that agricultural technology has improved so that one farmer can now do the work of hundreds. Despite increased population and increased food consumption per person, the number of farmers in the US is now the smallest it has been since before the Civil War. The share of employment devoted to agriculture has fallen from over 80% in 1800 to under 2% today. Even just since the 1960s labor productivity of US farms has more than tripled.

But the reason that some 80% of Americans have chosen to live in cities—and yes, I can clearly say “chosen”, because cities are more expensive and therefore urban living is a voluntary activity. Most people who live in the city right now could move to the country if we really wanted to. We choose not to, because we know our life would be worse if we did.

Indeed, I dare say that a lot of the hatred of city-dwellers has got to be envy. Our (median) incomes are higher and our (mean) lifespans are longer. Fewer of our children are in poverty. Life is better here—we know it, and deep down, they know it too.

We also have better Internet access, unsurprisingly—though rural areas are only a few years behind, and the technology improves so rapidly that twice as many rural homes in the US have Internet access than urban homes did in 1998.

Now, a rational solution to this problem would be either to improve the lives of people in rural areas or else move everyone to urban areas—and both of those things have been happening, not only in the US but around the world. But in order to do that, you need to be willing to change things. You have to give up the illusion that farm life is some wonderful thing we should all be emulating, rather than the necessary toil that humanity was forced to go through for centuries until civilization could advance beyond it. You have to be willing to replace farmers with robots, so that people who would have been farmers can go do something better with their lives. You need to give up the illusion that there is something noble or honorable about hard labor on a farm—indeed, you need to give up the illusion that there is anything noble or honorable about hard work in general. Work is not a benefit; work is a cost. Work is what we do because we have to—and when we no longer have to do it, we should stop. Wanting to escape toil and suffering doesn’t make you lazy or selfish—it makes you rational.

We could surely be more welcoming—but cities are obviously more welcoming to newcomers than rural areas are. Our housing is too expensive, but that’s in part because so many people want to live here—supply hasn’t been able to keep up with demand.

I may seem to be presenting this issue as one-sided; don’t urban people devalue rural people too? Sometimes. Insults like “hick” and “yokel” and “redneck” do of course exist. But I’ve never heard anyone from a city seriously argue that people who live in rural areas should have votes that systematically count for less than those of people who live in cities—yet the reverse is literally what people are saying when they defend the Electoral College. If you honestly think that the Electoral College deserves to exist in anything like its present form, you must believe that some Americans are worth more than others, and the people who are worth more are almost all in rural areas while the people who are worth less are almost all in urban areas.

No, National Review, the Electoral College doesn’t “save” America from California’s imperial power; it gives imperial power to a handful of swing states. The only reason California would be more important than any other state is that more Americans live here. Indeed, a lot of Republicans in California are disenfranchised, because they know that their votes will never overcome the overwhelming Democratic majority for the state as a whole and the system is winner-takes-all. Indeed, about 30% of California votes Republican (well, not in the last election, because that was Trump—Orange County went Democrat for the first time in decades), so the number of disenfranchised Republicans alone in California is larger than the population of Michigan, which in turn is larger than the population of Wyoming, North Dakota, South Dakota, Montana, Nebraska, West Virginia, and Kansas combined. Indeed, there are more people in California than there are in Canada. So yeah, I’m thinking maybe we should get a lot of votes?

But it’s easy for you to drum up fear over “imperial rule” by California in particular, because we’re so liberal—and so urban, indeed an astonishing 95% urban, the most of any US state (or frankly probably any major regional entity on the planet Earth! To beat that you have to be something like Singapore, which literally just is a single city).

In fact, while insults thrown at urban people get thrown at basically all of us regardless of what we do, most of the insults that are thrown at rural people are mainly thrown at uneducated rural people. (And statistically, while many people in rural areas are educated and many people in urban areas are not, there’s definitely a positive correlation between urbanization and education.) It’s still unfair in many ways, not least because education isn’t entirely a choice, not in a society where tuition at an average private university costs more than the median individual income. Many of the people we mock as being stupid were really just born poor. It may not be their fault, but they can’t believe that the Earth is only 10,000 years old and not have some substantial failings in their education. I still don’t think mockery is the right answer; it’s really kicking them while they’re down. But clearly there is something wrong with our society when 40% of people believe something so obviously ludicrous—and those beliefs are very much concentrated in the same Southern states that have the most rural populations. “They think we’re ignorant just because we believe that God made the Earth 6,000 years ago!” I mean… yes? I’m gonna have to own up to that one, I guess. I do in fact think that people who believe things that were disproven centuries ago are ignorant.

So really this issue is one-sided. We who live in cities are being systematically degraded and disenfranchised, and when we challenge that system we are accused of being selfish or elitist or worse. We are told that our lifestyles are inferior and shameful, and when we speak out about the positive qualities of our lives—our education, our acceptance of diversity, our flexibility in the face of change—we are again accused of elitism and condescension.

We could simply stew in that resentment. But we can do better. We can reach out to people in rural areas, show them not just that our lives are better—as I said, they already know this—but that they can have these lives too. And we can make policy so that this really can happen for people. Envy doesn’t automatically lead to resentment; that only happens when combined with a lack of mobility. The way urban people pine for the countryside is baffling, since we could go there any time; but the way that country people long for the city is perfectly understandable, as our lives really are better but our rent is too high for them to afford. We need to bring that rent down, not just for the people already living in cities, but also for the people who want to but can’t.

And of course we don’t want to move everyone to cities, either. Many people won’t want to live in cities, and we need a certain population of farmers to make our food after all. We can work to improve infrastructure in rural areas—particularly when it comes to hospitals, which are a basic necessity that is increasingly underfunded. We shouldn’t stop using cost-effectiveness calculations, but we need to compare against the right things. If that hospital isn’t worth building, it should be because there’s another, better hospital we could make for the same amount or cheaper—not because we think that this town doesn’t deserve to have a hospital. We can expand our public transit systems over a wider area, and improve their transit speeds so that people can more easily travel to the city from further away.

We should seriously face up to the costs that free trade has imposed upon many rural areas. We can’t give up on free trade—but that doesn’t mean we need to keep our trade policy exactly as it is. We can do more to ensure that multinational corporations don’t have overwhelming bargaining power against workers and small businesses. We can establish a tax system that would redistribute more of the gains from free trade to the people and places most hurt by the transition. Right now, poor people in the US are often the most fiercely opposed to redistribution of wealth, because somehow they perceive that wealth will be redistributed from them when it would in fact be redistributed to them. They are in a scarcity mindset, their whole worldview shaped by the fact that they struggle to get by. They see every change as a threat, every stranger as an enemy.

Somehow we need to fight that mindset, get them to see that there are many positive changes that can be made, many things that we can achieve together that none of us could achieve along.

The real crisis in education is access, not debt

Jan 8, JDN 2457762

A few weeks ago I tried to provide assurances that the “student debt crisis” is really not much of a crisis; there is a lot of debt, but it is being spent on a very good investment both for individuals and for society. Student debt is not that large in the scheme of things, and it more than pays for itself in the long run.

But this does not mean we are not in the midst of an education crisis. It’s simply not about debt.

The crisis I’m worried about involves access.

As you may recall, there are a substantial number of people with very small amounts of student debt, and they tend to be the most likely to default. The highest default rates are among the group of people with student debt greater than $0 but less than $5000.

So how is it that there are people with only $5,000 in student debt anyway? You can’t buy much college for $5,000 these days, as tuition prices have risen at an enormous rate: From 1983 to 2013, in inflation-adjusted dollars, average annual tuition rose from $7,286 at public institutions and $17,333 at private institutions to $15,640 at public institutions and $35,987 at private institutions—more than doubling in each case.

Enrollments are much higher, but this by itself should not raise tuition per student. So where is all the extra money going? Some of it is due to increases in public funding that have failed to keep up with higher enrollments; but a lot of it just seems to be going to higher pay for administrators and athletic coaches. This is definitely a problem; students should not be forced to subsidize the millions of dollars most universities lose on funding athletics—the NCAA, who if anything are surely biased in favor of athletics, found that the total net loss due to athletics spending at FBS universities was $17 million per year. Only a handful of schools actually turn a profit on athletics, all of them Division I. So it might be fair to speak of an “irresponsible college administration crisis”, administrators who heap wealth upon themselves and their beloved athletic programs while students struggle to pay their bills, or even a “college tuition crisis” where tuition keeps rising far beyond what is sustainable. But that’s not the same thing as a “student debt crisis”—just as the mortgage crisis we had in 2008 is distinct from the slow-burning housing price crisis we’ve been in since the 1980s. Making restrictions on mortgages tighter might prevent banks from being as predatory as they have been lately, but it won’t suddenly allow people to better afford houses.

And likewise, I’m much more worried about students who don’t go to college because they are afraid of this so-called “debt crisis”; they’re going to end up much worse off. As Eduardo Porter put it in the New York Times:

And yet Mr. Beltrán says he probably wouldn’t have gone to college full time if he hadn’t received a Pell grant and financial aid from New York State to defray the costs. He has also heard too many stories about people struggling under an unbearable burden of student loans to even consider going into debt. “Honestly, I don’t think I would have gone,” he said. “I couldn’t have done four years.”

And that would have been the wrong decision.

His reasoning is not unusual. The rising cost of college looms like an insurmountable obstacle for many low-income Americans hoping to get a higher education. The notion of a college education becoming a financial albatross around the neck of the nation’s youth is a growing meme across the culture. Some education experts now advise high school graduates that a college education may not be such a good investment after all. “Sticker price matters a lot,” said Lawrence Katz, a professor of Harvard University. “It is a deterrent.”

 

[…]

 

And the most perplexing part of this accounting is that regardless of cost, getting a degree is the best financial decision a young American can make.

According to the O.E.C.D.’s report, a college degree is worth $365,000 for the average American man after subtracting all its direct and indirect costs over a lifetime. For women — who still tend to earn less than men — it’s worth $185,000.

College graduates have higher employment rates and make more money. According to the O.E.C.D., a typical graduate from a four-year college earns 84 percent more than a high school graduate. A graduate from a community college makes 16 percent more.

A college education is more profitable in the United States than in pretty much every other advanced nation. Only Irish women get more for the investment: $185,960 net.

So, these students who have $5,000 or less in student debt; what does that mean? That amount couldn’t even pay for a single year at most universities, so how did that happen?

Well, they almost certainly went to community college; only a community college could provide you with a nontrivial amount of education for less than $5,000. But community colleges vary tremendously in their quality, and some have truly terrible matriculation rates. While most students who start at a four-year school do eventually get a bachelor’s degree (57% at public schools, 78% at private schools), only 17% of students who start at community college do. And once students drop out, they very rarely actually return to complete a degree.

Indeed, the only way to really have that little student debt is to drop out quickly. Most students who drop out do so chiefly for reasons that really aren’t all that surprising: Mostly, they can’t afford to pay their bills. “Unable to balance school and work” is the number 1 reported reason why students drop out of college.

In the American system, student loans are only designed to pay the direct expenses of education; they often don’t cover the real costs of housing, food, transportation and healthcare, and even when they do, they basically never cover the opportunity cost of education—the money you could be making if you were working full-time instead of going to college. For many poor students, simply breaking even on their own expenses isn’t good enough; they have families that need to be taken care of, and that means working full-time. Many of them even need to provide for their parents or grandparents who may be poor or disabled. Yet in the US system it is tacitly assumed that your parents will help you—so when you need to help them, what are you supposed to do? You give up on college and you get a job.

The most successful reforms for solving this problem have been comprehensive; they involved working to support students directly and intensively in all aspects of their lives, not just the direct financial costs of school itself.

Another option would be to do something more like what they do in Sweden, where there is also a lot of student debt, but for a very different reason. The direct cost of college is paid automatically by the government. Yet essentially all Swedish students have student debt, and total student debt in Sweden is much larger than other European countries and comparable to the United States; why? Because Sweden understands that you should also provide for the opportunity cost. In Sweden, students live fully self-sufficient on student loans, just as if they were working full-time. They are not expected to be supported by their parents.

The problem with American student loans, then, is not that they are too large—but that they are too small. They don’t provide for what students actually need, and thus don’t allow them to make the large investment in their education that would have paid off in the long run. Panic over student loans being too large could make the problem worse, if it causes us to reduce the amount of loanable funds available for students.

The lack of support for poor students isn’t the only problem. There are also huge barriers to education in the US based upon race. While Asian students do as well (if not better) than White students, Black and Latino students have substantially lower levels of educational attainment. Affirmative action programs can reduce these disparities, but they are unpopular and widely regarded as unfair, and not entirely without reason.

A better option—indeed one that should be a no-brainer in my opinion—is not to create counter-biases in favor of Black and Latino students (which is what affirmative action is), but to eliminate biases in favor of White students that we know exist. Chief among these are so-called “legacy admissions”, in which elite universities attract wealthy alumni donors by granting their children admission and funding regardless of whether they even remotely deserve it or would contribute anything academically to the university.

These “legacy admissions” are frankly un-American. They go against everything our nation supposedly stands for; in fact, they reek of feudalism. And unsurprisingly, they bias heavily in favor of White students—indeed, over 90 percent of legacy admits are White and Protestant. Athletic admissions are also contrary to the stated mission of the university, though their racial biases are more complicated (Black students are highly overrepresented in football and basketball admits, for example) and it is at least not inherently un-American to select students based upon their athletic talent as opposed to their academic talent.

But this by itself would not be enough; the gaps are clearly too large to close that way. Getting into college is only the start, and graduation rates are much worse for Black students than White students. Moreover, the education gap begins well before college—high school dropout rates are much higher among Black and Latino studentsas well.

In fact, even closing the education gap by itself would not be enough; racial biases permeate our whole society. Black individuals with college degrees are substantially more likely to be unemployed and have substantially lower wages on average than White individuals with college degrees—indeed, a bachelor’s degree gets a Black man a lower mean wage than a White man would get with only an associate’s degree.

Fortunately, the barriers against women in college education have largely been conquered. In fact, there are now more women in US undergraduate institutions than men. This is not to say that there are not barriers against women in society at large; women still make about 75% as much income as men on average, and even once you adjust for factors such as education and career choice they still only make about 95% as much. Moreover, these factors we’re controlling for are endogenous. Women don’t choose their careers in a vacuum, they choose them based upon a variety of social and cultural pressures. The fact that 93% of auto mechanics are men and 79% of clerical workers are women might reflect innate differences in preferences—but it could just as well reflect a variety of cultural biases or even outright discrimination. Quite likely, it’s some combination of these. So it is not obvious to me that the “adjusted” wage gap is actually a more accurate reflection of the treatment of women in our society than the “unadjusted” wage gap; the true level of bias is most likely somewhere in between the two figures.

Gender wage gaps vary substantially across age groups and between even quite similar countries: Middle-aged women in Germany make 28% less than middle-aged men, while in France that gap is only 19%. Young women in Latvia make 14% less than young men, but in Romania they make 1.1% more. This variation clearly shows that this is not purely the effect of some innate genetic difference in skills or preferences; it must be at least in large part the product of cultural pressures or policy choices.

Even within academia, women are less likely to be hired full-time instead of part-time, awarded tenure, or promoted to administrative positions. Moreover, this must be active discrimination in some form, because gaps in hiring and wage offers between men and women persist in randomized controlled experiments. You can literally present the exact same resume and get a different result depending on whether you attached a male name or a female name.

But at least when it comes to the particular question of getting bachelor’s degrees, we have achieved something approaching equality across gender, and that is no minor accomplishment. Most countries in the world still have more men than women graduating from college, and in some countries the difference is terrifyingly large. I found from World Bank data that in the Democratic Republic of Congo, only 3% of men go to college—and less than 1% of women do. Even in Germany, 29% of men graduate from college but only 19% of women do. Getting both of these figures over 30% and actually having women higher than men is a substantial achievement for which the United States should be proud.

Yet it still remains the case that Americans who are poor, Black, Native American, or Latino are substantially less likely to ever make it through college. Panic about student debt might well be making this problem worse, as someone whose family makes $15,000 per year is bound to hear $50,000 in debt as an overwhelming burden, even as you try to explain that it will eventually pay for itself seven times over.

We need to instead be talking about the barriers that are keeping people from attending college, and pressuring them to drop out once they do. Debt is not the problem. Even tuition is not really the problem. Access is the problem. College is an astonishingly good investment—but most people never get the chance to make it. That is what we need to change.

Student debt crisis? What student debt crisis?

Dec 18, JDN 2457741
As of this writing, I have over $99,000 in student loans. This is a good thing. It means that I was able to pay for my four years of college, and two years of a master’s program, in order to be able to start this coming five years of a PhD. When I have concluded these eleven years of postgraduate education and incurred six times the world per-capita income in debt, what then will become of me? Will I be left to live on the streets, destitute and overwhelmed by debt?

No. I’ll have a PhD. The average lifetime income of individuals with PhDs in the United States is $3.4 million. Indeed, the median annual income for economists in the US is almost exactly what I currently owe in debt—so if I save well, I could very well pay it off in just a few years. With an advanced degree in economics like mine, or similarly high-paying fields such as physics, medicine, and law one can expect the higher end of that scale, $4 million or more; with a degree in a less-lucrative field such as art, literature, history, or philosophy, one would have to settle for “only” say $3 million. The average lifetime income in the US for someone without any college education is only $1.2 million. So even in literature or history, a PhD is worth about $2 million in future income.

On average, an additional year of college results in a gain in lifetime future earnings of about 15% to 20%. Even when you adjust for interest rates and temporal discounting, this is a rate of return that would make any stock trader envious.

Fitting the law of diminishing returns, the rates of return on education in poor countries are even larger, often mind-bogglingly huge; the increase in lifetime income from a year of college education in Botswana was estimated at 38%. This implies that someone who graduates from college in Botswana earns four times as much money as someone who only finished high school.

We who pay $100,000 to receive an additional $2 to $3 million can hardly be called unfortunate.

Indeed, we are mind-bogglingly fortunate; we have been given an opportunity to better ourselves and the society we live in that is all but unprecedented in human history granted only to a privileged few even today. Right now, only about half of adults in the most educated countries in the world (Canada, Russia, Israel, Japan, Luxembourg, South Korea, and the United States) ever go to college. Only 30% of Americans ever earn a bachelor’s degree, and as recently as 1975 that figure was only 20%. Worldwide, the majority of people never graduate from high school. The average length of schooling in developing countries today is six yearsthat is, sixth grade—and this is an enormous improvement from the two years of average schooling found in developing countries in 1950.

If we look a bit further back in history, the improvements in education are even more staggering. In the United States in 1910, only 13.5% of people graduated high school, and only 2.7% completed a bachelor’s degree. There was no student debt crisis then, to be sure—because there were no college students.

Indeed, I have been underestimating the benefits of education thus far, because education is both a public and private good. The figures I’ve just given have been only the private financial return on education—the additional income received by an individual because they went to college. But there is also a non-financial return, such as the benefits of working in a more appealing or exciting career and the benefits of learning for its own sake. The reason so many people do go into history and literature instead of economics and physics very likely has to do with valuing these other aspects of education as highly as or even more highly than financial income, and it is entirely rational for people to do so. (An interesting survey question I’ve alas never seen asked: “How much money would we have to give you right now to convince you to quit working in philosophy for the rest of your life?”)

Yet even more important is the public return on education, the increased productivity and prosperity of our society as a result of greater education—and these returns are enormous. For every $1 spent on education in the US, the economy grows by an estimated $1.50. Public returns on college education worldwide are on the order of 10%-20% per year of education. This is over and above the 15-20% return already being made by the individuals going to school. This means that raising the average level of education in a country by just one year raises that country’s income by between 25% and 40%.

Indeed, perhaps the simplest way to understand the enormous social benefits of education is to note the strong correlation between education level and income level. This graph comes from the UN Human Development Report Data Explorer; it plots the HDI education index (which ranges from 0, least educated, to 1, most educated) and the per-capita GDP at purchasing power parity (on a log scale, so that each increment corresponds to a proportional increase in GDP); as you can see, educated countries tend to be rich countries, and vice-versa.

hdi_education_income_labeled

Of course, income drives education just as education drives income. But more detailed econometric studies generally (though not without some controversy) show the same basic result: The more educated a country’s people become, the richer that country becomes.

And indeed, the United States is a spectacularly rich country. The figure of “$1 trillion in college debt” sounds alarming (and has been used to such effect in many a news article, ranging from the New York Daily News, Slate, and POLITICO to USA Today and CNN all the way to Bloomberg, MarketWatch, and Business Insider, and even getting support from the Consumer Financial Protection Bureau and The Federal Reserve Bank of New York).

But the United States has a total GDP of over $18.6 trillion, and total net wealth somewhere around $84 trillion. Is it really so alarming that our nation’s most important investment would result in debt of less than two percent of our total nation’s wealth? Democracy Now asks who is getting rich off of $1.3 trillion in student debt? All of us—the students especially.

In fact, the probability of defaulting on student loans is inversely proportional to the amount of loans a student has. Students with over $100,000 in student debt default only 18% of the time, while students with less than $5,000 in student debt default 34% of the time. This should be shocking to those who think that we have a crisis of too much student debt; if student debt were an excess burden that is imposed upon us for little gain, default rates should rise as borrowing amounts increase, as we observe, for example, with credit cards: there is a positive correlation between carrying higher balances and being more likely to default. (This also raises doubts about the argument that higher debt loads should carry higher interest rates—why, if the default rate doesn’t go up?) But it makes perfect sense if you realize that college is an investment—indeed, almost certainly both the most profitable and the most socially responsible investment most people will ever have the opportunity to make. More debt means you had access to more credit to make a larger investment—and therefore your payoff was greater and you were more likely to be able to repay the debt.

Yes, job prospects were bad for college graduates right after the Great Recession—because it was right after the Great Recession, and job prospects were bad for everyone. Indeed, the unemployment rate for people with college degrees was substantially lower than for those without college degrees, all the way through the Second Depression. The New York Times has a nice little gadget where you can estimate the unemployment rate for college graduates; my hint for you is that I just said it’s lower, and I still guessed too high. There was variation across fields, of course; unsurprisingly computer science majors did extremely well and humanities majors did rather poorly. Underemployment was a big problem, but again, clearly because of the recession, not because going to college was a mistake. In fact, unemployment for college graduates (about 9%) has always been so much lower than unemployment for high school dropouts that the maximum unemployment rate for young college graduates is less than the minimum unemployment rate for young high school graduates (10%) over the entire period since the year 2000. Young high school dropouts have fared even worse; their minimum unemployment rate since 2000 was 18%, while their maximum was a terrifying Great Depression-level of 32%. Education isn’t just a good investment—it’s an astonishingly good investment.

There are a lot of things worth panicking about, now that Trump has been elected President. But student debt isn’t one of them. This is a very smart investment, made with a reasonable portion of our nation’s wealth. If you have student debt like I do, make sure you have enough—or otherwise you might not be able to pay it back.

Sometimes people have to lose their jobs. This isn’t a bad thing.

Oct 8, JDN 2457670

Eleizer Yudkowsky (founder of the excellent blog forum Less Wrong) has a term he likes to use to distinguish his economic policy views from either liberal, conservative, or even libertarian: “econoliterate”, meaning the sort of economic policy ideas one comes up with when one actually knows a good deal about economics.

In general I think Yudkowsky overestimates this effect; I’ve known some very knowledgeable economists who disagree quite strongly over economic policy, and often following the conventional political lines of liberal versus conservative: Liberal economists want more progressive taxation and more Keynesian monetary and fiscal policy, while conservative economists want to reduce taxes on capital and remove regulations. Theoretically you can want all these things—as Miles Kimball does—but it’s rare. Conservative economists hate minimum wage, and lean on the theory that says it should be harmful to employment; liberal economists are ambivalent about minimum wage, and lean on the empirical data that shows it has almost no effect on employment. Which is more reliable? The empirical data, obviously—and until more economists start thinking that way, economics is never truly going to be a science as it should be.

But there are a few issues where Yudkowsky’s “econoliterate” concept really does seem to make sense, where there is one view held by most people, and another held by economists, regardless of who is liberal or conservative. One such example is free trade, which almost all economists believe in. A recent poll of prominent economists by the University of Chicago found literally zero who agreed with protectionist tariffs.

Another example is my topic for today: People losing their jobs.

Not unemployment, which both economists and almost everyone else agree is bad; but people losing their jobs. The general consensus among the public seems to be that people losing jobs is always bad, while economists generally consider it a sign of an economy that is run smoothly and efficiently.

To be clear, of course losing your job is bad for you; I don’t mean to imply that if you lose your job you shouldn’t be sad or frustrated or anxious about that, particularly not in our current system. Rather, I mean to say that policy which tries to keep people in their jobs is almost always a bad idea.

I think the problem is that most people don’t quite grasp that losing your job and not having a job are not the same thing. People not having jobs who want to have jobs—unemployment—is a bad thing. But losing your job doesn’t mean you have to stay unemployed; it could simply mean you get a new job. And indeed, that is what it should mean, if the economy is running properly.

Check out this graph, from FRED:

hires_separations

The red line shows hires—people getting jobs. The blue line shows separations—people losing jobs or leaving jobs. During a recession (the most recent two are shown on this graph), people don’t actually leave their jobs faster than usual; if anything, slightly less. Instead what happens is that hiring rates drop dramatically. When the economy is doing well (as it is right now, more or less), both hires and separations are at very high rates.

Why is this? Well, think about what a job is, really: It’s something that needs done, that no one wants to do for free, so someone pays someone else to do it. Once that thing gets done, what should happen? The job should end. It’s done. The purpose of the job was not to provide for your standard of living; it was to achieve the task at hand. Once it doesn’t need done, why keep doing it?

We tend to lose sight of this, for a couple of reasons. First, we don’t have a basic income, and our social welfare system is very minimal; so a job usually is the only way people have to provide for their standard of living, and they come to think of this as the purpose of the job. Second, many jobs don’t really “get done” in any clear sense; individual tasks are completed, but new ones always arise. After every email sent is another received; after every patient treated is another who falls ill.

But even that is really only true in the short run. In the long run, almost all jobs do actually get done, in the sense that no one has to do them anymore. The job of cleaning up after horses is done (with rare exceptions). The job of manufacturing vacuum tubes for computers is done. Indeed, the job of being a computer—that used to be a profession, young women toiling away with slide rules—is very much done. There are no court jesters anymore, no town criers, and very few artisans (and even then, they’re really more like hobbyists). There are more writers now than ever, and occasional stenographers, but there are no scribes—no one powerful but illiterate pays others just to write things down, because no one powerful is illiterate (and even few who are not powerful, and fewer all the time).

When a job “gets done” in this long-run sense, we usually say that it is obsolete, and again think of this as somehow a bad thing, like we are somehow losing the ability to do something. No, we are gaining the ability to do something better. Jobs don’t become obsolete because we can’t do them anymore; they become obsolete because we don’t need to do them anymore. Instead of computers being a profession that toils with slide rules, they are thinking machines that fit in our pockets; and there are plenty of jobs now for software engineers, web developers, network administrators, hardware designers, and so on as a result.

Soon, there will be no coal miners, and very few oil drillers—or at least I hope so, for the sake of our planet’s climate. There will be far fewer auto workers (robots have already done most of that already), but far more construction workers who install rail lines. There will be more nuclear engineers, more photovoltaic researchers, even more miners and roofers, because we need to mine uranium and install solar panels on rooftops.

Yet even by saying that I am falling into the trap: I am making it sound like the benefit of new technology is that it opens up more new jobs. Typically it does do that, but that isn’t what it’s for. The purpose of technology is to get things done.

Remember my parable of the dishwasher. The goal of our economy is not to make people work; it is to provide people with goods and services. If we could invent a machine today that would do the job of everyone in the world and thereby put us all out of work, most people think that would be terrible—but in fact it would be wonderful.

Or at least it could be, if we did it right. See, the problem right now is that while poor people think that the purpose of a job is to provide for their needs, rich people think that the purpose of poor people is to do jobs. If there are no jobs to be done, why bother with them? At that point, they’re just in the way! (Think I’m exaggerating? Why else would anyone put a work requirement on TANF and SNAP? To do that, you must literally think that poor people do not deserve to eat or have homes if they aren’t, right now, working for an employer. You can couch that in cold economic jargon as “maximizing work incentives”, but that’s what you’re doing—you’re threatening people with starvation if they can’t or won’t find jobs.)

What would happen if we tried to stop people from losing their jobs? Typically, inefficiency. When you aren’t allowed to lay people off when they are no longer doing useful work, we end up in a situation where a large segment of the population is being paid but isn’t doing useful work—and unlike the situation with a basic income, those people would lose their income, at least temporarily, if they quit and tried to do something more useful. There is still considerable uncertainty within the empirical literature on just how much “employment protection” (laws that make it hard to lay people off) actually creates inefficiency and reduces productivity and employment, so it could be that this effect is small—but even so, likewise it does not seem to have the desired effect of reducing unemployment either. It may be like minimum wage, where the effect just isn’t all that large. But it’s probably not saving people from being unemployed; it may simply be shifting the distribution of unemployment so that people with protected jobs are almost never unemployed and people without it are unemployed much more frequently. (This doesn’t have to be based in law, either; while it is made by custom rather than law, it’s quite clear that tenure for university professors makes tenured professors vastly more secure, but at the cost of making employment tenuous and underpaid for adjuncts.)

There are other policies we could make that are better than employment protection, active labor market policies like those in Denmark that would make it easier to find a good job. Yet even then, we’re assuming that everyone needs jobs–and increasingly, that just isn’t true.

So, when we invent a new technology that replaces workers, workers are laid off from their jobs—and that is as it should be. What happens next is what we do wrong, and it’s not even anybody in particular; this is something our whole society does wrong: All those displaced workers get nothing. The extra profit from the more efficient production goes entirely to the shareholders of the corporation—and those shareholders are almost entirely members of the top 0.01%. So the poor get poorer and the rich get richer.

The real problem here is not that people lose their jobs; it’s that capital ownership is distributed so unequally. And boy, is it ever! Here are some graphs I made of the distribution of net wealth in the US, using from the US Census.

Here are the quintiles of the population as a whole:

net_wealth_us

And here are the medians by race:

net_wealth_race

Medians by age:

net_wealth_age

Medians by education:

net_wealth_education

And, perhaps most instructively, here are the quintiles of people who own their homes versus renting (The rent is too damn high!)

net_wealth_rent

All that is just within the US, and already they are ranging from the mean net wealth of the lowest quintile of people under 35 (-$45,000, yes negative—student loans) to the mean net wealth of the highest quintile of people with graduate degrees ($3.8 million). All but the top quintile of renters are poorer than all but the bottom quintile of homeowners. And the median Black or Hispanic person has less than one-tenth the wealth of the median White or Asian person.

If we look worldwide, wealth inequality is even starker. Based on UN University figures, 40% of world wealth is owned by the top 1%; 70% by the top 5%; and 80% by the top 10%. There is less total wealth in the bottom 80% than in the 80-90% decile alone. According to Oxfam, the richest 85 individuals own as much net wealth as the poorest 3.7 billion. They are the 0.000,001%.

If we had an equal distribution of capital ownership, people would be happy when their jobs became obsolete, because it would free them up to do other things (either new jobs, or simply leisure time), while not decreasing their income—because they would be the shareholders receiving those extra profits from higher efficiency. People would be excited to hear about new technologies that might displace their work, especially if those technologies would displace the tedious and difficult parts and leave the creative and fun parts. Losing your job could be the best thing that ever happened to you.

The business cycle would still be a problem; we have good reason not to let recessions happen. But stopping the churn of hiring and firing wouldn’t actually make our society better off; it would keep people in jobs where they don’t belong and prevent us from using our time and labor for its best use.

Perhaps the reason most people don’t even think of this solution is precisely because of the extreme inequality of capital distribution—and the fact that it has more or less always been this way since the dawn of civilization. It doesn’t seem to even occur to most people that capital income is a thing that exists, because they are so far removed from actually having any amount of capital sufficient to generate meaningful income. Perhaps when a robot takes their job, on some level they imagine that the robot is getting paid, when of course it’s the shareholders of the corporations that made the robot and the corporations that are using the robot in place of workers. Or perhaps they imagine that those shareholders actually did so much hard work they deserve to get paid that money for all the hours they spent.

Because pay is for work, isn’t it? The reason you get money is because you’ve earned it by your hard work?

No. This is a lie, told to you by the rich and powerful in order to control you. They know full well that income doesn’t just come from wages—most of their income doesn’t come from wages! Yet this is even built into our language; we say “net worth” and “earnings” rather than “net wealth” and “income”. (Parade magazine has a regular segment called “What People Earn”; it should be called “What People Receive”.) Money is not your just reward for your hard work—at least, not always.

The reason you get money is that this is a useful means of allocating resources in our society. (Remember, money was created by governments for the purpose of facilitating economic transactions. It is not something that occurs in nature.) Wages are one way to do that, but they are far from the only way; they are not even the only way currently in use. As technology advances, we should expect a larger proportion of our income to go to capital—but what we’ve been doing wrong is setting it up so that only a handful of people actually own any capital.

Fix that, and maybe people will finally be able to see that losing your job isn’t such a bad thing; it could even be satisfying, the fulfillment of finally getting something done.