Friday, November 21, 2014

New Politico op-ed: "What happened to Warren the watchdog?"

Jason Delisle and I have an op-ed in Politico's magazine that expands on some of the themes we developed in our National Affairs article back in September. This time we contrast Elizabeth Warren’s former role as government watchdog—in which she pointed out that TARP imposed costly market risk on taxpayers—with her current role as evangelist for federal student loans, in which she ignores the cost of market risk. 


Here's a sample:
...[B]efore joining Congress, Elizabeth Warren was a tenacious government watchdog. She charged that the Troubled Asset Relief Program, created in the wake of the 2008 recession, was exposing taxpayers to risky investments and thereby imposing costs that the feds were low-balling. She wrote letters, published reports, testified before Congress and demanded answers from tight-lipped administration officials. It was an admirable performance.

But then she became a politician, herself. In advocating for enhancing the federal student loan program, the now-senator from Massachusetts has taken the other side of her own argument, completely disregarding the cost of market risk. And she’s not alone in her inconsistency. Government accounting has become a political tool with politicians selectively hiding or exposing costs, depending on whether they support the program in question.
Read the whole thing there. I also referenced the op-ed in a recent blog post for National Review.

A couple of days after our op-ed was posted, Jared Bernstein wrote a response piece titled, "Don't pick on Elizabeth Warren." At first he seems to mount a defense of her inconsistency by saying that she was merely following the law, which requires that TARP receive a different accounting treatment than student loans. But then he concedes that this defense really isn't valid, since Warren has been enthusiastic about her advocacy in both cases. His remaining points are standard critiques of fair-value accounting that we addressed in our National Affairs article.

There is room for some agreement, however. Bernstein writes: "Yes, we fight about some weird stuff in D.C." I'll second that one.

Wednesday, November 19, 2014

The value of a college major... in the American Community Survey

Administrators of the enormously useful Integrated Public Use Microdata Series (IPUMS) web site sent an email this week warning of changes to the American Community Survey (ACS), which is a mini-Census conducted each year. Specifically, the Census Bureau is proposing to eliminate ACS questions dealing with marital history and college majors. IPUMs administrators, who streamline the ACS (and other datasets) for easy use by researchers, are concerned about the loss of those questions.

It's not my place to declare what the Bureau should do with its limited budget. I obviously haven't performed the cost-benefit analyses needed to determine which ACS questions should stay and which should go.

But, cost aside, the ACS question about college majors is valuable to researchers. Labor economists in particular are forever looking for a robust measure of human capital. Knowing whether a person graduated from college is useful, but it's even more useful to know the field the person studied. After all, workers with engineering diplomas are likely to possess more valuable skills (in terms of both knowledge and raw ability) than workers who studied, say, nineteenth-century French poetry.

Without a strong measure of human capital, it's difficult to investigate questions about the returns to education. It's also difficult to match workers with similar skills. When Andrew Biggs and I analyzed the wages of public- versus private-sector workers, we did our best to generate an apples-to-apples comparison by controlling for human capital differences. We discovered that controlling for college major -- as opposed to controlling only for college graduation -- made a significant difference in our results.


The table above comes from our analysis of Gov. Scott Walker's public-sector reforms in Wisconsin. It shows the wage premium (a positive value) or wage penalty (a negative value) associated with working for the Wisconsin state government relative to the private sector. The premium/penalty varies depending on the dataset and the skills controlled for. But notice the difference between the last two rows. The premium is 1.0 percent when using the standard controls along with PUMAs (geographic areas). But the premium goes up to 5.6 percent when degree fields are included.

Apparently, Wisconsin state workers tend to hold college degrees in fields that are less valuable than the degrees held by college grads in the private sector, with obvious implications for a pay comparison. That's the kind of result that we would not be able to observe in future years if the ACS changes go through.

Monday, November 17, 2014

The problem with big tents

John Fund has a piece for NRO (where I’m a contributor) titled, “More Non-White Voters for the GOP.” I’m not as optimistic as he is. The improvement in the Asian vote -- 58-40 for Democrats in the 2010 midterm, but 50-49 for Republicans in 2014 – is dubious given the tiny exit poll samples. And if there was any significant change among Hispanic voters, it was away from the GOP: 60-38 for Democrats in 2010, now 62-36 in 2014.

Let’s also remember that the major challenge of coalition building is adding without subtracting. It would be great if Republicans could add more minority voters, ceteris paribus. But as the perennial debate over whether the GOP should emphasize economic or social issues demonstrates, appealing too much to one group can alienate another.


I’m not saying that ethnic voting blocs must necessarily line up against each other, but elections often seem to shake out that way. The Florida governor’s race might be one such example. Fund writes:
Republicans suffered a disappointment...in Florida, where incumbent GOP governor Rick Scott’s share of the Hispanic vote fell from 50 percent in 2010 to 38 percent this year. Scott won the election in both 2010 and 2014 by a single point, which makes demographic comparisons easy — and troubling for Republicans.
Left unstated, perhaps because it’s mathematically obvious, is that Gov. Scott was still able to win in 2014 because he increased his share of the white vote enough to wash out his losses among Hispanics. This is consistent with Sean Trende's observation that demographic change may not doom the GOP as long as working-class whites respond by abandoning the Democrats. Whether this is a sustainable or desirable strategy for Republicans, I don’t know. But the trade-off is evident.

Wednesday, September 24, 2014

"The case for fair-value accounting" in fall issue of National Affairs

I mentioned back in May that Jason Delisle and I were working on a long article about fair-value accounting. It's done, and you can find it in the fall issue of National Affairs--a periodical so serious, it doesn't even have pictures on its cover! The full text is here, but readers may find it easier to download the pdf and print out the whole thing.

Read pp. 95-111 !
I've written a lot about fair-value accounting--e.g., for Heritage, Forbes, and National Review--but up until now I had not given the issue the detailed treatment that it deserves. This article is our full statement on what fair-value accounting is, why it's needed, and how both parties have been inconsistent in their support for it.

I realize the topic seems dry, but all I can say is give it a shot, and you'll likely find it thought-provoking, and perhaps even entertaining. After putting together example after example of bogus "free lunch" accounting, even I was surprised at the extent of the government's malfeasance. And although most people realize that political advocates are not intellectually consistent, their flip-flopping on fair-value is one of the starkest (yet largely unrecognized) hypocrisies in all of Washington, DC.

Jason D. has a two-minute summary of the piece on New America's EdCentral site, and I'll update this post as we put out additional promotional material.

Update 9/26:

National Review has posted my own preview of the article, this one focusing on the "Understated Costs and Perverse Incentives" section.

Also, in an interesting development, the Center on Budget and Policy Priorities now opposes applying FVA to Social Security in response to our article:
Jason Delisle and Jason Richwine, writing in the latest issue of National Affairs, correctly note that the logic of our argument [against FVA] is inconsistent with a 2005 CBPP analysis of proposals to invest part of the Social Security trust funds in stocks instead of Treasury bonds.  We concur.  We have re-analyzed our assessment of investing a portion of the Social Security trust fund in equities and now come to a different conclusion than we did in 2005.
To understand what that all means, see the section of our article titled "Fair-Value's Fair-Weather Friends." More on this later.

Update 10/1:

Mentions of the National Affairs article by the Washington Post's Wonkblog, RealClearPolicy, Committee for a Responsible Federal Budget, and Arnold Kling.

Andrew Biggs criticizes the free-lunch Social Security accounting now espoused by CBPP.

I preview the "Fair-Value's Fair-Weather Friends" section for National Review.

Wednesday, August 27, 2014

Common Core's remarkably weak evidence base

Must this happen so often? The backers of a broad-based political movement tell you their cause is an evidentiary slam dunk, but then you look at the research yourself and find basically nothing there. The Common Core education standards (de facto national standards) are a great example. As I wrote for National Review earlier this week:
...[T]he Center for Education Policy at George Washington University has put together a compendium summarizing over 60 research papers related to Common Core design and implementation. If there is empirical evidence on the importance of strong standards, this is probably the place to find it. Unfortunately, only two papers in the entire compendium are devoted to measuring the impact of Common Core on test scores. Both papers employ the dubious correlation-across-states methodology, and both give mixed results at best.
Read the whole thing there.

Here's a radio interview I did to promote the piece:



And the Washington Free Beacon did a nice summary as well.

Tuesday, August 5, 2014

"Why we shouldn't raise teacher pay" published in The Federalist

I'd been meaning to write a piece on public school hiring practices, so when the editors of The Federalist offered me a chance to do something for them on education policy, I figured this was the time. Here's the thesis of the article:
Even without the tenure obstacle, putting the best teachers in the classroom is a more challenging problem than many reformers will admit. One of the most common reformist prescriptions is raising teacher pay to attract stronger applicants. The logic seems simple, even obvious. But raising teacher pay will not work. In fact, it could be counter-productive. The reason lies not just with the well-known difficulty in predicting who will be a good teacher, but also with the entrenched hiring system of public schools.
The article focuses on the latter obstacle--the teacher hiring system that often disfavors the brightest applicants--but an entire piece could be written on the difficulty in predicting who will become a good teacher. Yes, smarter teachers tend to be more effective, ceteris paribus, but the correlation is not strong. Even if public schools were eager to take in the best and brightest, doing so would be no panacea.


Here's the conclusion of the piece:
Public school systems need fundamental changes in how they operate to improve teacher quality, and abolishing tenure just scratches the surface. The creeping emphasis on credentials must be reversed. School administrators must be willing to hire promising applicants who never received the standard education-school training. Objective evaluation systems must be adopted and refined. All parties must become comfortable with a process that will increase teacher turnover. And, finally, the public must maintain sober expectations about the value of high-quality teachers, understanding that their effectiveness is naturally limited by the abilities and family situations of the students themselves. To effect all these changes, pundits and policymakers must move beyond their “pay teachers more” mantra. The idea is attractive for its simplicity, but in reality it is no solution at all.
 Read the whole thing here.

Monday, July 28, 2014

Paul Ryan's education plan: Good policy, wrong goal

The education portion of Paul Ryan’s “Expanding Opportunity in America” plan moves federal policy in the right direction, but part of the rationale is troubling.

First, some of the policy proposals. Ryan would turn federal funds for the ineffective Head Start program into a block grant for states to integrate into their early education services. Encouragingly, he would fund multiple randomized experiments to test claims made by preschool advocates. Let’s hope those are multi-site experiments conducted by outside investigators so that the results are most informative. As for K-12 education, Ryan would block-grant Title I-A spending and make it portable, part of a longstanding conservative goal. The block grant would lessen federal involvement in education, and the portability feature would encourage school choice.

These are all steps in the right direction, but I still feel uncomfortable reading through the education section. There is a troubling focus on the desire to “close the achievement gap.” In fact, based on the introduction, much of Ryan’s education plan appears premised on the need for gap-closing.


That’s a misguided and potentially counter-productive goal. Socioeconomic achievement gaps in school are inevitable for a couple of simple reasons: Smarter people tend to attain higher socioeconomic status, and smarter people also tend to have smarter kids. Those are generalities, of course, but in the aggregate it would be shocking if the children of rich kids did not do better in school than the children of poor kids, even if both groups enjoyed the same educational resources.

The gap-closing mindset leads to condemnation of schools serving low-income students as “failing” even when they might actually be doing a decent job. It generates layers of bureaucracy tasked with employing the latest pedagogical fads. It disregards the needs of gifted students looking for creative outlets. And it may ultimately undermine the case for school choice: When education reformers conclude that school choice does little to close test-score gaps, they will move on to alternative reforms that give less power to parents.

The success of an education policy should be measured not by how much it closes gaps, but by the degree to which it tailors instruction to individual student needs. School choice is probably the best way to pursue the latter goal, and I wish the Ryan plan—as positive as it is in most respects—had recognized that.