The House recently passed a party line vote to spend more money on education and Medicaid. The $10 billion dollars to the states comes with many strings attached, notably that they do not get the money if they decided to cut spending on education as a share of total revenues. I’ve touched on the irrelevance of medical spending past a certain level before, so let’s look at the effectiveness of education spending.
Source: “Does Spending More on Education Improve Academic Achievement?” by Dan Lips, Shanea Watkins and John Fleming
Of course, the chart is somewhat misleading. Education scores are range bound while spending is not, but it is notable that they often seem to be going in opposite directions*.
Using additional cross country data from NationMaster, we see that government spending on education beyond a certain point doesn’t seem help very much anywhere in the world:
Total education spending as a percent of GDP isn’t any more correlated with scientific literacy, but at least the correlation isn’t negative.
So the government may be wasting money here, which just gives us more evidence that α is very high.
*At younger ages there is some evidence of improved math scores, but these improvements are negligible by age 17. Click through the article for more charts.
Everyone is acting as if in order to maintain the Fed's independence, the Fed must be allowed to be vague about its targets, vague about how it might achieve those targets, secretive about how it thinks its actions influence those targets, and ad hoc in its approach to deciding when to take action. I would suggest re-examining such assumptions.
"My suggestion is that, if you get asked those questions, just say we're examining nontraditional methods and there are many different ways in which we can address the issue. I would be as nonspecific as you know how to be. The major reason is that I don't think we will know until we start to address the issue." - Greenspan in 2003, discussing what the Fed might do as interest rates approach the zero bound
Fantasies about fives
Students are sometimes told to increment the least significant digit by 1 if it is odd, and to leave it unchanged if it is even. One wonders if this reflects some idea that even numbers are somehow “better” than odd ones! (The ancient superstition is just the opposite, that only the odd numbers are "lucky".)
In fact, you could do it equally the other way around, incrementing only the even numbers. If you are only rounding a single number, it doesn’t really matter what you do. However, when you are rounding a series of numbers that will be used in a calculation, if you treated each first-nonsignificant 5 in the same way, you would be over- or underestimating the value of the rounded number, thus accumulating round-off error. Since there are equal numbers of even and odd digits, incrementing only the one kind will keep this kind of error from building up.
You could do just as well, of course, by flipping a coin!
Over at MR, Alex Tabarrok highlighted a chart made by Razib Khan about a Wordsum test (a test given in the GSS survey that correlates with IQ) and those who drink alcohol. In the comments, Razib pointed us towards the GSS browser to test a commenter’s theory that drinking alcohol matters less among those that have completed college.
Didn’t attend college:
After looking at this post, one of my friends wanted to see an actual Wordsum test. Here is one illustrative example that I found in a paper:
When discussing China's economic convergence with the rest of the world, where it will end up is a very important issue. It is a very difficult question; even China's different provinces are converging to different steady states. The parts of the country that still have bad institutions and infrastructure, mainly in inland China, are converging to a lower steady state than the outlying regions in special economic zones. Internal convergence is restricted by rules that discourage capital and labor mobility.
Looking at the G20, China’s PPP GDP per capita is pretty close to where it is expected. This is a somewhat biased sample since countries that are not significant economic players in the world financial system are not included in this sample. Including all of the countries would show that the index’s correlation to economic success is very noisy within the 50’s and 60’s. This is particularly true for China, where the methodology gives China a score that would penalize it for the poor economic institutions in its poorer regions without getting a boost for having areas with significantly better institutions.
2. IQ vs. GDP per capita: One measure of a country’s potential output level is the measured IQ of its current workforce. As previously mentioned, IQ’s correlation with variables other than intelligence makes it particularly significant for economic growth.
Source: IQ and Global Inequality, calculated IQ for 113 countries
A simple linear regression done on countries with IQ measurements and the natural log of GNI per capita suggests that if all other things were equal China would be converging towards a PPP GNI per capita of about 25,000 dollars (the number is closer to 18,000 if the regression includes 79 countries with IQ estimates).
3. China’s large advantage over other countries with similar economic freedom scores lies in its human capital. Human capital can also be measured by years of schooling or life expectancy, both of which China excels at relative to its current level of income. The textbook estimate of Barro and Sala-i-Martin is that the income gap between two countries with the same human capital endowment has traditionally narrowed by about 2 percent a year. Of course, this doesn’t show us where the steady state will be unless the answer is “at the same level as similar countries”, which suggests that the economically free parts of China are converging to an income level comparable to Korea’s.
While trying to track these different factors, keeping tabs on any reverse liberalization is important. To the extent China is copying Korea or Japan instead of the US China is still on a path where its eventual steady state is so much higher than its current value that it is insignificant, but downturns are politically volatile times and that will be where the biggest risk to China’s growth lies. If China starts replacing private businesses with SOEs, it won’t matter that they have good human capital.
Lane Kenworthy has a presentation on The Politics of Helping the Poor. In this PowerPoint, he looks at the differences between countries where households at the 10th income percentile have earnings growth along with GDP growth and in countries where the 10th percentile hasn’t had an income increase despite significant GDP growth.
Countries with income growth in the 10th percentile of households: Denmark, Sweden, Finland, Norway, Austria, Belgium, France, Netherlands, Spain, Ireland, United Kingdom
Countries with no income growth in the 10th percentile of households: Australia, Canada, Germany, Italy, Switzerland, United States (except for the late 1990s)
Afterwards, the sources of income for bottom-income-decile households were analyzed. The explanatory factor of income growth was that in countries where the bottom decile have kept up, it has been due to an increase in government transfers and not an increase in earnings or other market income. The exceptions to this are Norway, where everyone benefited from an oil boom, and the Netherlands which had increased government transfers and an increase in income in the late 1990s.
The PowerPoint concludes that in order to help the bottom decile of households, strong social programs are the only way and that if these social programs are pushed through, the population will come to support them even if they don’t want them right now. It should be noted that focusing on increasing the average income of the bottom decile shouldn’t be confused with the actual goal of humanitarian policies, since a generous immigration policy would help far more people even if it generated a decrease in income for households at the bottom decile in the statistics. The approach of only looking at the income of those in the bottom decile each year also ignores that some of the bottom decile households are households with large amounts of human capital such as graduate students, and many people in the bottom decile in one year won’t be there 10 years from now.
Overall, this is a very bearish perspective on the bottom decile of workers. This presentation highlights that there is almost nowhere in the world where workers in bottom decile are increasing their private sector earnings, so the conclusion takes for granted that the only way to help these people is to encourage them to be economic parasites. It certainly seems like the globalized world is leaving this group behind, but it might be better to not treat them as a group and focus on upwards income mobility than to focus on raising average levels.