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Archive for July 18th, 2010

I want to continue our string of postings on education (here and here) with a discussion on rankings. Rankings are both alluring and dangerous in their simplicity. For U.S. higher education, U.S. News & World Report publishes rankings as a guide for prospective students. And because universities need to attract students, they pursue a higher ranking, sometimes recklessly. At Notre Dame, the reckless and thoughtless pursuit of a higher ranking eliminated pluralism from the economics department. Pursuit of ranking also leads to some bizarre occurrences, such as strictly enforcing 49 person class sizes (to score higher in the “classes under 50” category) and strange accounting measures on who is an alumni (to score higher for “% of alumni who donate”), among others.

Taking actions that seem to waste university resources or decrease the experience of the student may in fact be logical, if it helps the school’s ranking. It is easy for critics of US News and World Report rankings to point out the flaws. The Washington Monthly actually took up the challenge to provide an alternative ranking that better reflected university’s missions to be socially beneficial, as they describe:

Unlike U.S. News and World Report and similar guides, this one asks not what colleges can do for you, but what colleges are doing for the country. Are they educating low-income students, or just catering to the affluent? Are they improving the quality of their teaching, or ducking accountability for it? Are they trying to become more productive—and if so, why is average tuition rising faster than health care costs? Every year we lavish billions of tax dollars and other public benefits on institutions of higher learning. This guide asks: Are we getting the most for our money?

You can read the methodology on how they set out to achieve such a ranking, but it basically involves compiling a Community Service Score (which includes how many students do ROTC and Peace Corps, and what % of federal work-study grants go to community service projects) a Research Score ($ spent on research and PhD’s awarded) and a Social Mobility Score (which compares the proportion of students with Pell Grants and overall graduation rates).

You can see their rankings here. The University of Notre Dame actually improves slightly (from #20 in US News) to #19. Princeton drops (from #1 in US News) to #28th. Check it out. See, rankings are alluring, aren’t they?

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Mark Thoma has the goods on the debate between Jamie Galbraith and Paul Krugman over whether deficits are always ok. Go read his block quoting, and then return here for my thoughts…

OK, in case you don’t want to go over there, here’s the gist of the argument. Krugman is worried that at some point, governments will run into the problem of inflation as a result of the deficits. He makes a small model, and then writes,

To spend, the government must persuade the private sector to release real resources. It can do this by collecting taxes, borrowing, or collecting seignorage by printing money. And there are limits to all three. Even a country with its own fiat currency can go bankrupt, if it tries hard enough…

Since the price level is, by assumption, proportional to M, this tells us that the higher the debt burden, the higher the required rate of inflation — and, crucially, that as D-S heads toward a critical level, this implied inflation heads off to infinity…

So there is a maximum level of debt you can handle.

Galbraith says that Krugman makes a false assumption:

Paul’s logical error here is that of assuming-the-consequent. He assumes the inflation which causes dumping of money. But if there is no dumping of money, the inflation will not generally occur.

Yes, again, it’s technically possible that the banks and others would start dumping dollars and buying up oil, wheat, rubber, and so forth (and leasing storage facilities for the stuff) thereby driving up the price level.

Then Krugman says that at some point, there will be supply-side constraints, as the private sector will step in adequately. Given the last 20 years of economic history, I find this assumption dubious:

Someday the private sector will see enough opportunities to want to invest its savings in plant and equipment, not leave them sitting idle, and the economy will return to more or less full employment without needing deficit spending to keep it there.

The MMTers (at least at the teach-in I went to) believe that we’re nowhere near this constraint- private sector money is in the side lines, and they desire the saving opportunities that only government deficits can provide. Galbraith doesn’t say as much in his second response, but instead challenges Krugman to lay off on the long-term budget issues.

Paul, I challenge you to drop the long-term deficit argument entirely– it will be used in a few months, in a dishonest way by unscrupulous people, to support cuts in Social Security and Medicare that cannot be justified by economic logic. These are cuts which, I am sure, you will oppose when they are proposed.

This debate is a healthy thing for our economic discourse. Krugman (without calling it by name) recognizes the MMT argument in Galbraith for what it is. Galbraith and Krugman ultimately divide on their trust of the private sector’s viability. I side with Galbraith on this one, certainly. While I agree with Krugman when he argues that the current conjecture means that he and Galbraith have no substantive short-term policy differences, I also believe that Galbraith is being more practical in the long-term. I’m simply unconvinced by the debt service arguments, given over a decade of stagnant job growth.

Krugman seems to be limited here by his place in the mainstream, which ultimately believes the capitalist class will apportion money in a way that benefits society, even if it needs a Keynesian nudge. Galbraith, on the other hand, is able to take a more realistic approach because he sits outside the mainstream. Let’s hope this debate catches fire in the discipline at large.

Also, see Galbraith’s testimony for a lengthy argument on the wrong-headedness of the deficit commission.

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