U.S. falling behind in education

Sad, but true.  Among 55-64 year olds, only Russia, Canada and Israel match the US in terms of the percentage of the population with a college degree.  But a recent WSJ piece notes that the US is just average in college completion compared to most other developed countries today and way behind S. Korea and Japan. 

Here is a different way to slice the data that gives a different perspective on the same problem.  As long as we have been recording data on educational attainment in the US, each generation has completed more schooling than its parents.  Until now. 

This is a concern in a world where human capital plays a much bigger role in prosperity than physical capital or natural resources. 

On student loans

It's an election year.  Both Presidential candidates agree that the interest rate on Stafford loans should not be allowed to double on July 1.  In the meanwhile, one house of Congress passes a bill that cannot pass the other house -- but I bet they find a solution before midnight June 30.

Student loan debt is getting a lot of press attention these days.  One set of concerns is that too many young people are burdened with too much debt and this will hold them back from buying houses or starting families.  On the other end of the spectrum, we see columns complaining about too many future deadbeats who will stick the taxpayer for untold billions. 

With almost 20 years of experience in graduate program administration under my belt, plus twice as much experience as a labor economist and data analyst, a few observations:

1. When you see a newspaper quote that the average student has a debt level of $29k, don't believe it.  Take the student load debt of all graduates and divide it by the number of graduates with debt and you do get the $29k figure.  But one-third of the graduates have zero debt.  If you take the total debt and divide it by the number of graduates (with and without debt) you get $19k. 
2. Students take out loans for a wide range of reasons, not just educational expenses.  Suppose you want to build a new deck and a home improvement loan is 6 percent.  If you can get a student loan at a lower rate, what are you going to do?  Each year we see evening MBA students with great jobs and employers who cover their tuition expenses graduating with significant amounts of student loan indebtedness.  So the $19k figure overstates indebtedness due to educational expenses. 
3. Student loans are available on the same terms to all majors at all qualifying schools (and just about all colleges and universities qualify).  Do we consider providing more generous terms to students in STEM disciplines where talent is in short supply?  Do we consider making the terms less attractive to students in disciplines with low wages and high unemployment rates?  Of course not. 
4. Student loans subsidize the cost of college.  As with any subsidy, it results in more students going to college and a higher cost of education.  I have a hard time seeing student loans as a major driver of rising tuition costs, but they certainly play at least a secondary role.

MIT's Finkelstein wins Clark Award

Other than the Nobel Prize, the most prestigious honor in economics is the John Bates Clark Medal, which annually recognizes an under-40 American economist.  Over a third of all Clark winners go on to receive Nobels.  This year's Clark winner is MIT's Amy Finkelstein.  WSJ's writeup emphasizes her applied work in health economics.  One field study conducted in Oregon was a randomized experiment where some low-income households received an invitation to apply for Medicaid.  A year later those invited "used more health care, had lower out-of-pocket medical expenditures and reported better physical and mental health."

Quoting MIT's press release, the American Economic Association "prominently cited Finkelstein’s research on the complexities of health insurance markets as a key reason for her honor. She has published multiple significant papers about the effects of asymmetric information in health insurance markets — elucidating, among other things, how frequently individuals with information on their high health risks purchase health insurance, and alternately, how frequently lower-risk people purchase insurance because they are risk-averse."  

For more in-depth details, see the AEA's citation here.  

Big data, little talent

That's the abridged headline this online WSJ piece.  Big data seems to be on its way to becoming the next big thing in management.  Companies are swimming in data and do not have the expertise to either manage the data sets themselves or to draw logical inferences from it.

What the industry needs is a new type of person: the data scientist.  According to Pat Gelsinger, president and chief operating officer of EMC Corp., the giant U.S. data company, this isn't an unprecedented problem. "IBM started a generation of Cobol programmers," he said, referring to one of the first dominant programming languages. "Thirty years ago we didn't have computer-science departments; now every quality school on the planet has a CS department. Now nobody has a data-science department; in 30 years every school on the planet will have one."

Hilary Mason, chief scientist for the URL shortening service bit.ly, says a data scientist must have three key skills. "They can take a data set and model it mathematically and understand the math required to build those models; they can actually do that, which means they have the engineering skills…and finally they are someone who can find insights and tell stories from their data. That means asking the right questions, and that is usually the hardest piece."

NC State is already staking out a leadership position in big data.  The MS in Analytics has been a huge success.  The Center for Innovation Management Studies in the Poole College of Management is doing big data research in conjunction with NC State's computer science department.  Stay tuned.

"But my heart cried out for you California"

The lyric in the title is from Joni Mitchell's "California" off the "Blue" album 1971.  However one might argue that the economics profession is singing the same tune.  WSJ featured a great interview with demographer Joel Kotkin over the weekend which really got to the heart of the economic challenges facing the Not-So-Golden State.  The issues are many: high and rising taxes, restrictions on property use that make housing unaffordable to the middle class, a cap-and-trade law that will chase away the few manufacturing jobs that remain, and rising energy costs in a state committed to go green whatever the cost.

Kotkin thinks things will only get worse as out-migration changes the mix of the electorate:

As progressive policies drive out moderate and conservative members of the middle class, California's politics become even more left-wing. It's a classic case of natural selection, and increasingly the only ones fit to survive in California are the very rich and those who rely on government spending. In a nutshell, "the state is run for the very rich, the very poor, and the public employees."

To borrow from another well-known 1970s lyric: Greece is the word.

Argentina strikes again

This time the Peronist government has decided to nationalize YPF, the country's leading oil producer.  Repsol, a Spanish company, had majority control; Spain has retaliated by cutting off imports of Argentine biodiesel.  Spain is also asking other European Union countries to remove preferential trade treatment for Argentina.

Why is Argentina doing this?  It depends on who you ask.  The move is very popular in Argentina, which claims Repsol had cut back investment and was recycling record profits to largely Spanish shareholders and executives.  In the short term the deal may make economic sense for the Argentines as well, especially if they can get away buying YPF at a price well below market value.  The other side of the coin: Repsol was probably wise to avoid new investments, given the state of property rights in Argentina.
 
Longer term we could very well see more nationalizations and will certainly see sharply diminished foreign investment in Argentina.  The Argentine government will use its ownership position to provide patronage jobs to its supporters. 

WSJ's best and worst jobs

The top and bottom 5:

1. Software engineer
2. Actuary
3. Human resources manager
4. Dental hygienist
5. Financial planner

196. Newspaper reporter
197. Oil rig worker
198. Enlisted military soldier
199. Dairy farmer
200. Lumberjack

Where do they get this stuff?  I can see the bottom four: long hours and, in most cases, dangerous working conditions.  But I do not see queues of undergrads and MBAs lining up for positions in HR or financial planning.  And dental hygienists???? 

The labor force is shrinking

Last week's report showed that although the unemployment rate had dropped by 0.1 percent, it was not because more people found jobs.  Instead, fewer people who were without jobs were bothering to look.  WP's Brad Plumer tries to fins out why this was happening.  The data cited in his blog entry indicate that most of those dropping out of the labor force are baby boomers who have decided they no longer want a job. 

This is another classic good/bad news situation.  On the plus side, if this trend continues, the unemployment rate may fall faster than most forecasts indicate.  Most economic forecasts are simple attempts to extrapolate trends from the past to the future and the unique aspects of boomers may very
well be inconsistent with the retirement patterns of older cohorts. 

On the minus side, what are these people going to do?  Longevity is increasing, health care costs are ballooning and the government continues to ignore the fiscal issues we face down the road with Social Security and Medicare.  The old line used to be "Son, get a job."  Now it may need to become "Dad, get a job." 

What? Another minimum wage increase in the works?

So says today's NYT.  Massachusetts legislators are pushing for $10/hour; pols in Conn., Ill., NJ, and NY are also promoting the idea.  Democrats in Congress have their fingers in the wind to see which way it is blowing. 

You do not need rocket-science economics to understand why this is happening: there is an election this fall and after years of wage stagnation, some voters will respond approvingly.  The question I always ask minimum wage proponents is this: why stop at $10/hour?  Why not make the minimum wage $25/hour or higher so that all workers could have a middle class standard of living?  Or at least those workers who still have jobs. 

Feldstein on inflation risk

Great article by Harvard's Marty Feldstein on the pressures facing the Fed to stimulate the economy while keeping inflation in check.  The Fed has flooded the banking system with liquidity.  So far banks have sat on their excess reserves and received 0.25% interest from the Fed.  But at some point, Feldstein argues, banks will start loaning these funds out to households and businesses.  Even though unemployment remains over 8 percent, Feldstein is concerned about capacity constraints. 

Half of the unemployed have been out of work for a year or more; there is a significant risk that the long-term unemployed will not be reabsorbed into the labor market very quickly.  Feldstein's fear: the unemployment rate gets stuck at 7.5 percent, causing Congress to press the Fed to keep the stimulus going at a time when all the excess money in circulation starts leading to higher prices. The Fed has never injected this much liquidity into financial markets before; will the Fed know when and how to remove the excess liquidity?