Re: Return to Education and IV
Is there a significant difference in the returns to education for those who get schooling in top ranked programs? I thought I remember a Newsweek a couple years back that had a story about SAT scores of successful people (two profiles were G.W. Bush and Gore so I guess it was around 2000), and the point they were trying to make was that those who make the most money generally have SATs in the 1200 and 1300s- good students, but not top students. In addition, the book "The Millionaire Next Door" describes those that accumulate the most wealth as not necessarily being the top students or having degrees from prestigious universities- and, I believe the authors said that if you make $100,000 per year or more, then years of education is negatively correlated with wealth. Also, the argument that opportunity cost is the largest cost of college, is often used to encourage people to not worry about student loans and and look at more prestigious universities, but is this the case for those who are choosing a top school? With tuitions at $35K + per year, do you make back your investment with a higher expected salary as compared to a school on a lower tier? Jason DeBacker
RE: Return to Education and IV
Data that includes going to college almost certainly includes SAT scores. (I also think they correlate strongly with IQ, but haven't looked for that data). I'm "sure" that the effect of more schooling is higher on those with higher SAT scores. In addition, I'd guess the data includes average, rather than median, income increases, so it is more easily skewed upward by those achieving super-rich status (those overpaid CEOs -- yes, I do think overpaid -- for instance). Tom Grey PS. part of the great benefit of this list is that, often, asking a good question allows somebody else to answer it who has already researched it, or part of it ... so that I don't have to. I'm probably not too much of a free rider. >>> Now I won't argue that some people who get two years of college and then drop out without a degree might not have been better off getting a two year degree of certification, but the first order effect is something like at least a 6.5% increase in income for each year of school completed whether you get a degree or not. - - Bill
Re: Return to Education and IV
The focus of the discussion has been on whether college students do the math of attending college. Perhaps a better question is whether those young people not in college have done the math. Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366
Re: Return to Education and IV
I see Bill already answered my question. >>>Not the way you think. See my response to yours. I should also add that the social costs of tuition are much higher than the private costs for public universities, making it even more likely that the social return is quite low. >>>I happen to believe the public good argument for education, but even if I didn't, >you know as well as I do that you can't attribute the entire cost of the university >to its educational product. A big chunk is paying for research. Take that out and I >doubt the costs would be so high. After all, no reason why a college education would >have to cost that much more than HS unless you want all Profs to be researchers. - - >Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Return to Education and IV
If the decision is literally a "no-brainer," then failing to consider alternatives is rational. >>>??!!! Not if they make the wrong choice! OK, I suppose you are going to argue that >all the people who didn't have a clue what the return to continuing their education >was are the ones for whom it was a no brainer and the ones who were about to drop out >all answered my questions correctly. I can't prove that wrong but do you really >believe that was what was going on? Marginal students frequently weigh continuing vs. dropping out (just like they weigh attending vs. not attending!). >>>Agreed, but it is my contention that they don't deal with the future returns in a >way an economist would judge as rational. Incidentally, most of your arguments (here and later in this discussion) suggest that people over-estimate the return to education. Is that your real view? >>>If you ask people to think about it my guess is that the average person attending a >four year college will give you a response suggesting that they over estimate how >much money they will make either when they graduate or if they drop out. The only >evidence I have on this (my survey of Berkeley undergrads taking intermediate macro) >suggests that they over estimate the percentage return as well. However, I don't >think people act on this information. It is my strong impression that people >tremendously overweight their current feelings of happiness or unhappiness about >being in school so that on net people don't get as much schooling as they should if >they were truly utility maximizes. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Return to Education and IV
>My other side couldn't disagree more strongly. A significant percentage >of undergrads should really be in some kind of 2-year trade school >instead. Ahhh... But then you have to deal with the very empirical evidence that kicked this whole discussion off. If you think that people are making irrational (essentially random) decisions to go to school then the OLS estimates of the rate of return are right and the real returns to education are the best you can get anywhere. You may not think that they are getting much out of college, but the average return to each additional year of education is very high. If you think they are behaving rationally ... Now I won't argue that some people who get two years of college and then drop out without a degree might not have been better off getting a two year degree of certification, but the first order effect is something like at least a 6.5% increase in income for each year of school completed whether you get a degree or not. - - Bill
Fw: America's Second Plutocratic Gilded Age Pt. 2
(Continued from Part 1)IV. The Price of InequalityIt was one of those revealing moments. Responding to an e-mail message from aCanadian viewer, Robert Novak of ''Crossfire'' delivered a little speech:''Marg, like most Canadians, you're ill informed and wrong. The U.S. has thelongest standard of living -- longest life expectancy of any country in theworld, including Canada. That's the truth.''But it was Novak who had his facts wrong. Canadians can expect to live abouttwo years longer than Americans. In fact, life expectancy in the U.S. is wellbelow that in Canada, Japan and every major nation in Western Europe. Onaverage, we can expect lives a bit shorter than those of Greeks, a bit longerthan those of Portuguese. Male life expectancy is lower in the U.S. than it isin Costa Rica.Still, you can understand why Novak assumed that we were No. 1. After all, wereally are the richest major nation, with real G.D.P. per capita about 20percent higher than Canada's. And it has been an article of faith in thiscountry that a rising tide lifts all boats. Doesn't our high and risingnational wealth translate into a high standard of living -- including goodmedical care -- for all Americans?Well, no. Although America has higher per capita income than other advancedcountries, it turns out that that's mainly because our rich are much richer.And here's a radical thought: if the rich get more, that leaves less foreveryone else.That statement -- which is simply a matter of arithmetic -- is guaranteed tobring accusations of ''class warfare.'' If the accuser gets more specific,he'll probably offer two reasons that it's foolish to make a fuss over thehigh incomes of a few people at the top of the income distribution. First,he'll tell you that what the elite get may look like a lot of money, but it'sstill a small share of the total -- that is, when all is said and done therich aren't getting that big a piece of the pie. Second, he'll tell you thattrying to do anything to reduce incomes at the top will hurt, not help, peoplefurther down the distribution, because attempts to redistribute income damageincentives.These arguments for lack of concern are plausible. And they were entirelycorrect, once upon a time -- namely, back when we had a middle-class society.But there's a lot less truth to them now.First, the share of the rich in total income is no longer trivial. These days1 percent of families receive about 16 percent of total pretax income, andhave about 14 percent of after-tax income. That share has roughly doubled overthe past 30 years, and is now about as large as the share of the bottom 40percent of the population. That's a big shift of income to the top; as amatter of pure arithmetic, it must mean that the incomes of less well offfamilies grew considerably more slowly than average income. And they did.Adjusting for inflation, average family income -- total income divided by thenumber of families -- grew 28 percent from 1979 to 1997. But median familyincome -- the income of a family in the middle of the distribution, a betterindicator of how typical American families are doing -- grew only 10 percent.And the incomes of the bottom fifth of families actually fell slightly.Let me belabor this point for a bit. We pride ourselves, with considerablejustification, on our record of economic growth. But over the last few decadesit's remarkable how little of that growth has trickled down to ordinaryfamilies. Median family income has risen only about 0.5 percent per year --and as far as we can tell from somewhat unreliable data, just about all ofthat increase was due to wives working longer hours, with little or no gain inreal wages. Furthermore, numbers about income don't reflect the growingriskiness of life for ordinary workers. In the days when General Motors wasknown in-house as Generous Motors, many workers felt that they hadconsiderable job security -- the company wouldn't fire them except inextremis. Many had contracts that guaranteed health insurance, even if theywere laid off; they had pension benefits that did not depend on the stockmarket. Now mass firings from long-established companies are commonplace;losing your job means losing your insurance; and as millions of people havebeen learning, a 401(k) plan is no guarantee of a comfortable retirement.Still, many people will say that while the U.S. economic system may generate alot of inequality, it also generates much higher incomes than any alternative,so that everyone is better off. That was the moral Business Week tried toconvey in its recent special issue with ''25 Ideas for a Changing World.'' Oneof those ideas was ''the rich get richer, and that's O.K.'' High incomes atthe top, the conventional wisdom declares, are the result of a free-marketsystem that provides huge incentives for performance. And the system deliversthat performance, which means that wealth at the top doesn't come at theexpense of the
Fw: America's Second Plutocratic Gilded Age Pt. 1
Krugman tries so hard to make his case that he ignores some other factors (perhaps even more controversial) that contribute to some of the new social developments that Krugman describes. Unfortunately, I don't have time to comment on them, but they would not in any event cancel out the basic direction of socio-economic evolution that Krugman describes.~ams---http://www.nytimes.com/2002/10/20/magazine/20INEQUALITY.htmlThe New York Times MagazineOctober 20, 2002For RicherBy PAUL KRUGMANI. The Disappearing MiddleWhen I was a teenager growing up on Long Island, one of my favorite excursionswas a trip to see the great Gilded Age mansions of the North Shore. Thosemansions weren't just pieces of architectural history. They were monuments toa bygone social era, one in which the rich could afford the armies of servantsneeded to maintain a house the size of a European palace. By the time I sawthem, of course, that era was long past. Almost none of the Long Islandmansions were still private residences. Those that hadn't been turned intomuseums were occupied by nursing homes or private schools.For the America I grew up in -- the America of the 1950's and 1960's -- was amiddle-class society, both in reality and in feel. The vast income and wealthinequalities of the Gilded Age had disappeared. Yes, of course, there was thepoverty of the underclass -- but the conventional wisdom of the time viewedthat as a social rather than an economic problem. Yes, of course, some wealthybusinessmen and heirs to large fortunes lived far better than the averageAmerican. But they weren't rich the way the robber barons who built themansions had been rich, and there weren't that many of them. The days whenplutocrats were a force to be reckoned with in American society, economicallyor politically, seemed long past.Daily experience confirmed the sense of a fairly equal society. The economicdisparities you were conscious of were quite muted. Highly educatedprofessionals -- middle managers, college teachers, even lawyers -- oftenclaimed that they earned less than unionized blue-collar workers. Thoseconsidered very well off lived in split-levels, had a housecleaner come inonce a week and took summer vacations in Europe. But they sent their kids topublic schools and drove themselves to work, just like everyone else.But that was long ago. The middle-class America of my youth was anothercountry.We are now living in a new Gilded Age, as extravagant as the original.Mansions have made a comeback. Back in 1999 this magazine profiled ThierryDespont, the ''eminence of excess,'' an architect who specializes in designinghouses for the superrich. His creations typically range from 20,000 to 60,000square feet; houses at the upper end of his range are not much smaller thanthe White House. Needless to say, the armies of servants are back, too. So arethe yachts. Still, even J.P. Morgan didn't have a Gulfstream.As the story about Despont suggests, it's not fair to say that the fact ofwidening inequality in America has gone unreported. Yet glimpses of thelifestyles of the rich and tasteless don't necessarily add up in people'sminds to a clear picture of the tectonic shifts that have taken place in thedistribution of income and wealth in this country. My sense is that few peopleare aware of just how much the gap between the very rich and the rest haswidened over a relatively short period of time. In fact, even bringing up thesubject exposes you to charges of ''class warfare,'' the ''politics of envy''and so on. And very few people indeed are willing to talk about the profoundeffects -- economic, social and political -- of that widening gap.Yet you can't understand what's happening in America today withoutunderstanding the extent, causes and consequences of the vast increase ininequality that has taken place over the last three decades, and in particularthe astonishing concentration of income and wealth in just a few hands. Tomake sense of the current wave of corporate scandal, you need to understandhow the man in the gray flannel suit has been replaced by the imperial C.E.O.The concentration of income at the top is a key reason that the United States,for all its economic achievements, has more poverty and lower life expectancythan any other major advanced nation. Above all, the growing concentration ofwealth has reshaped our political system: it is at the root both of a generalshift to the right and of an extreme polarization of our politics.But before we get to all that, let's take a look at who gets what.II. The New Gilded Age[T]he Securities and Exchange Commission hath no fury like a woman scorned.The messy divorce proceedings of Jack Welch, the legendary former C.E.O. ofGeneral Electric, have had one unintended benefit: they have given us a peekat the perks of the corporate elite, which are normally hidden from publicview. For it turns out that when Welch retired, he was granted
EU to Swiss: end banking secrecy or else!
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2002/10/09/wswis09.xml/ EU attacks Swiss over bank reform By Ambrose Evans-Pritchard in Brussels(Filed: 09/10/2002) The European Union moved a step closer to economic warfare against the Swiss yesterday, threatening to throttle Switzerland's financial sector unless it agrees to abandon banking secrecy. Frits Bolkestein, the European tax commissioner, put forward a list of possible sanctions at a meeting of EU finance ministers in Luxembourg, including the "nuclear option" of restrictions on capital movements by Swiss investors and firms. The measures, to be finalised in December, also covered suspension of bilateral agreements. Chancellor Gordon Brown, the driving force behind the push for sanctions, said: "We are determined to move this forward. We are utterly serious about the importance of this issue." EU diplomats warned yesterday that Mr Brown was playing with fire by allowing the EU to threaten exchange controls against third countries, even if the punitive measures don't come into force until 2010. They said he is establishing a precedent that may come back to haunt the City of London, which depends on free flow of capital for its survival. The tactics are aimed at forcing Switzerland to take part in a Brussels plan to crack down on tax evasion by handing over information on all EU citizens investing money in the country. However, Swiss voters would almost certainly oppose the EU demands in a referendum, obligatory under the constitution, even if their government agreed. The Swiss financial sector accounts for 11 percent of the country's GDP. The scheme was proposed by Mr Brown as an alternative to an EU withholding tax that threatened to devastate the City of London's international bond business, and was trumpeted as a triumph of British diplomacy at the EU's Feira summit in June 2000. Without Swiss participation, the arrangement will fall apart. Austria, Luxembourg, and Belgium all refuse to give up their own banking secrecy codes unless other financial centres take part. The fear at the Treasury is that the withholding tax could be resurrected. Switzerland's entire political and business establishment was united in fury yesterday. "This is absolutely outrageous. Switzerland is not Iraq," said James Nason of the Swiss Bankers Association. 8 October 2002[Money]: Swiss fury as commissioner attacks 'lack of help on tax' 29 September 2002: Swiss see red as our man in Berne demands tax details External links Taxation and customs union - European Commission European Union Swiss Banking Organisation Government of Switzerland
Re: Return to Education and IV
Eric Crampton wrote: > > On Fri, 25 Oct 2002, William Dickens wrote: > > > continue schooling largely under weights the future benefits. Nearly > > everyone should get more schooling than they do. This is only one of I see Bill already answered my question. Blunt reaction: Come on! If you really think most students are failing to considering foregone earnings, and these are the big cost of school, then the problem goes in the other direction. I should also add that the social costs of tuition are much higher than the private costs for public universities, making it even more likely that the social return is quite low. -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] "He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it." Leo Tolstoy, *The Cossacks*
Re: Return to Education and IV
A belated reply to Bill. William Dickens wrote: > >>>Note its the _parents_ in your story who are groaning, not the kids. > OK, I'll admit that the "no idea" was based on what I know it was like > when I was going to college in the 70s. However, it is still my > impression after 13 years of teaching college that the vast majority of > college students not only have never done a present value computation > about their decision to go to school, but have never seriously > considered the alternative of not going to school - - what they could > do, how much they could make, what their lives would be like etc. If the decision is literally a "no-brainer," then failing to consider alternatives is rational. Marginal students frequently weigh continuing vs. dropping out (just like they weigh attending vs. not attending!). > >>>Are you thinking only of economics majors? Business and economics > majors (some) think this way. Do you think the average lit major is? > Psych? Pol. Sci? Yes. In fact, right after a lit major tells you his major, he frequently comments on his low expected earnings. "I'm a lit major. Not much money in that, but I like it." > >>>Standard economic model assumes that most of the costs are forgone > earnings. Mom and Dad paying for school should be small potatoes (since > you can always go to a state school at low cost). My impression is that > this factor ways in people's decisions way out of proportion to its > economic value. Maybe back in the '70's. Now in-state tuition is significant. At Mason it's $4400. If you add in housing (as you should if you would have lived at home otherwise), it's up to about $10,000. About the annual pay of a minimum wage job before taxes. > But more > to the point, I doubt that parents are making any sort of intertemporal > comparison in paying for kids school. How many do you think have thought > "Well, if I invest the money I'm paying for the kids school in corporate > AAAs at 6.5% his income from my bequest will be $XX, in 20XX whereas > if I pay for his school it will be..." No way. What they think is > "better to teach a man to fish than to buy him fish..." or something > like that and they fork over the bucks to U. Not the economic model > at all. I grant that few open Excel and punch in the numbers. You could improve their decision-making by teaching them to do so. But if college grads earned only 10% more than non-college grads, parents would be a lot less quick to parrot old cliches about fishing. Incidentally, most of your arguments (here and later in this discussion) suggest that people over-estimate the return to education. Is that your real view? -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] "He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it." Leo Tolstoy, *The Cossacks*
