Academia: A Handshake Culture?

Gone are the days where the choice of the correct tweed jacket was all you needed to signal membership in the fraternity of academic teaching, speaking, and publishing. However, it seems that for every student who overestimates the depth of insight and limitless pool of expertise that their professors have, there is at least one student whose contempt is palatable.

Perhaps this is best described by misunderstanding the portion of the job that is spent outside of the classroom. It is hardly surprising that when academics present the same paper at conferences year after year without making any progress the average student sees a very low bar. However, this should not really be the case in the modern university since people willing to take the job are numerous and the typical person able to qualify for tenure craves the attention that a new publication affords them. So where does this idea of intellectual laziness come from?

Perhaps the non-tenure track lecturers are responsible? The contempt for the system might be very real among these instructors who value teaching without research (if such a thing actually exists). Perhaps students simply haven't understood the complex reward mechanism associated with tenure. Perhaps the student's immaturity makes them look at the world as who you know and not what you know.

I certainly can relate to the idea that professors are parroting warmed over insights from a instructor's manual. The incentives are such that the less time you spend on prep the more time you have for research. So even very competent researchers would have an incentive to use the teaching materials available from the publisher. An interaction between this lack of prep and lack of pedagogical instruction for the research faculty can breed the type of contempt I see among students.

But this still leaves the idea that all research grants, publications, research appointments, and other gigs on campus come from some club which is anything but transparent. As a economist and big fan of the market mechanism for revealing information, this is perhaps a fault of a system that is protected from competitive forces. However, the longer I spend in academia, the more convinced I am that there is a meaningful division of labor. Some people do very detailed work and are bad at promoting (much less explaining) the significance to the wider public. Some are very good at expressing themselves, but find the underlying research element challenging. Some are highly mathematical, good at expressing themselves, but can't publish. Still more are very adept at understanding the politics of the university and add value as administrators. Others are very effective managers over research projects and create synergies from otherwise frustrated researchers.

All of these categories are needed, but each comes with a weakness. As a student it might be easy to look at this collection of weaknesses (taking attention away from the classroom) rather than at the collection of strengths. I wish the advantages of these different personalities were more clearly defended, perhaps in something like a price mechanism. Good teachers should be compensated according to the the value they create among the tuition paying students. This might be the biggest source of the critique for students. Good researchers should be rewarded in proportion to their ability to publish. People who are able to act as good managers and increase the productivity of their research team should also be compensated. There is no one model, nor should we ever pretend that there is.

For everyone who relies on a firm handshake to get things done in academia, there need to be several others that are nose-down researchers who can rely on these people to do their job consistently and without penalty. To be an academic with no sense of politics, we need some people to manage effectively. There also need to be good teachers who can communicate effectively. Rather than denying the division of labor, let us embrace it.

Internet Retribalization and Politics

In a TED-talk I watched a couple of weeks ago, Seth Godin argues that the internet has retribalized society by allowing people at the fringes with similar interests to find each other. Basically, the Zappos family blog has brought together shoe lovers, if you like coffee you will follow the Coffee Sage, and if you are an Austrian economist, you will read Coordination Problem. By finding others with similar interests in this way, people who used to be at the fringe of society have moved to the center of their specific social network.

As I was listening to Godin talk, I started thinking about the implications of this retribalization on politics. My first instinct is to think that a larger number of better-organized small groups make for even more rent seeking and redistribution a la Olson (1965), Tullock (1967), and Stigler (1971). On second thought, however, it does not seem like such interest-sharing groups are really involved in political activism or even designed for this purpose. So far, they seem to exist only for informational and socializing purposes. This might be an artifact of their recent emergence. Maybe they just haven’t figured out yet that they can profitably lobby government for redistribution in their favor. It would after all take an act of political entrepreneurship to make that leap from being organized as a social network to finding a politically profitable niche (See my paper with Randy Simmons and Ryan Yonk on Bootleggers, Baptists, and Political Entrepreneurs in the Winter 2011 Issue of the Independent Review). If such groups were to start spreading into the political arena, what would be different about the type of lobbying they might do as compared to the traditional K-Street-type lobbying we have mostly observed so far, and what would be the implications of their different lobbying activities?

First, and most obviously, internet-based groups would most likely make greater use of informational campaigns than existing groups. Rather than contributing to campaigns by giving money, they might use their existing social network to spread information about a candidate or a specific issue. The trend towards internet-based retribalization, which Godin describes, seems to come with an amount of information sharing across group boundaries that is much greater than what is common for non-internet based groups. Everyone is familiar with the importance of social media in many of the recent revolutions in the Arab world. Similarly, you-tube stars have made it into the world of advertising and at least one homeless person has found a job. Such a shift towards more informational campaigns would also be in line with the most recent Supreme Court decision on the issue of campaign finance legislation (Citizens United v. FEC), which effectively removed restrictions on electioneering communications.

A related second point of comparison to existing lobbying groups would be the ability of the new internet-based groups to operate on a higher level of public opinion rather than through direct congressional influence (pre-constitutional rather than constitutional or post-constitutional, see my working paper with Adam Martin on Two Tiered Political Entrepreneurship). Rather than going through the established channels of forming a PAC for representation in Washington DC, internet-based groups could conceivably influence policy making by organizing internet-based protest. While popular opinion might only be a weak constraint on congressional decision making, it does seem to be a proximate cause of policy.

Third, such groups could most likely organize previously unseen fundraising campaigns. Just remember Ron Paul’s 2007 Money Bomb, which generated $4.2 million in one day, making it the largest one-day fundraiser ever at the time. The significance of this point might be limited for fringe issues, for which support remains low. However, if a small group is well connected, it can conceivably overcome the disadvantage of a small member base.

These three potential changes to traditional influence suggest that if more internet-based groups should indeed become politically active, they would make public discourse more competitive (because they would be able to generate greater amounts of funding), less congress-centric and instead driven more by public opinion (because they would affect public opinion to change legislation), and more information based rather than influence based (because their campaigns would be informational campaigns rather than influence or money campaigns). Overall, such a trend towards more competition, more information, and more active public opinion sounds like something that could actually make the world a better place.

Leontieff function as it applies to Professorship

The above function suggests that you are only evaluated by the measure in which you do the least well. For economists this is simple, it is a perfect compliment arrangement. It is an extreme case. But when you are preparing to appear in a formal setting, you don't want to know how many shoes you have to chose from to wear with your tux, you want to know if you have one right shoe and a left shoe that matches. Having 5 right shoes does not solve the problem.

The opposite case is a perfect substitute. In professorship many people assume you can either teach well and then not do research or research well and not really excel at teaching. This is not the case. I should point out that teaching well is hard to measure, so we proxy with teaching evaluations.

To some extent the idea of perfect compliments can only occur if the supply of people with moderate ratings on both margins is high. As labor is scarce, quality is sacrificed. However, there seem to be many people that would like the job. It is easy to see that someone needs to be a good researcher in order to be effective in the classroom. Who wants to hear a lecture from someone that is still teaching something they were forced to learn in grad school, good teachers update (good researchers update).

Why might it be the case that you need to be a good teacher to be a good researcher? What about the division of labor? Communicating clearly is very helpful in research. Too often people get rewarded for tweaking a tiny aspect of a model or having the only access to a data set. Just like judging students based on one GRE test, judging an article based on access to data or a particular methodological tool fails a robustness check. I can't exactly explain why a good researcher has to be a good teacher, but it seems to make sense to me. Maybe enjoying the classroom means that a good researcher will stay productive over a long period? I am open to thoughts on this.

Selfish Reasons to have more Kids: Chapter One

Diana and I read the introduction and chapter one of this new book by Bryan Caplan last night. It was very entertaining and very well written. I enjoyed reading it out loud and it was easy to listen to as well. This to me is the mark of excellent writing.

The case is made that parenting can be much less of a chore. It is interesting to read things like: if you are considering hiring a babysitter, do. The logic is economic. The last hour you spend with your kids is the hour you are going to be the least attentive, the hour you least enjoy, and the hour that you most need rest. So hire a babysitter if you have the means. Comparing the use of those dollars with almost anything else you can do with the money you would be doing your kid and yourself a very large favor.

I didn't quite understand the comment that the rich already know this lesson. Perhaps it is because the marginal utility of each dollar is lower and they have experimented more? The book wasn't too clear on this point.

The first chapter is framed by the question: Are people happier with or without kids. The couple with kids is happier than the single person without, but Caplan gives reasons why this might be so. Even if it is true, it is far less important than people make it out. Chapter one: If you thinking about having kids, maybe you won't be exactly as happy as you are now, but you will be close. The real action is in having the second kid, even less of an impact on your happiness.

I am looking forward to reading the rest of the book. I assume there will be more reasons that single childless people are not as truly happy as they seem. So far, we know that there are a bundle of things that correlate with happiness. I wonder if they are all independently caused or caused by the same thing. Right now I suspect that there will be significant joint causes for happiness that also predict having kids.

Regulation or Market Process

The current CAFE standards regulating fuel efficiency expire in 2016. The president's administration is currently working on proposals which will extend these over the next horizon and make them even stricter.

However, for you and me, the real reason that we are conserving on fuel and looking for more efficient cars is because the price of gas is rising. The quick knee-jerk market reaction here is to claim that the market is the side that binds and drives progress.

My first reaction is one of public choice: Politicians are just taking credit for something that is occurring anyway. But then, I think a bit more about the problem. Oil prices would not be so low if there were not so many subsidies for fossil fuel, and so many other programs which allow the industry to sell oil at prices below cost. The President seems to understand the need to deregulate, but why am I sure that this will never happen?

Instead of subsidies for alternative energy, we can remove the subsidies for oil which counteract the incentive for supply side research by keeping quantity demanded of oil higher. By allowing oil prices to rise, the search for alternatives follows the market path of substitution given movements along the demand curve consistent with higher prices and lower quantities demanded of the good in shorter supply and higher quantities demanded of the alternative good.

What the government policy is doing is not only taking credit for what is occurring, raising CAFE standards as oil prices rise, but it is also interfering with the market for alternatives. I think that were the government to take a neutral position on transportation energy we would see far more change in how we drive than we are currently seeing. I argue then, that they are both taking credit where credit is not due as well as not taking blame for mucking up the signals between alternative goods so that the evolution of technology in transportation is slowed.

Predictably, I have faith in a market process approach. Rather than love the market when it makes you look good and muck it up behind the scenes to justify continued intervention, maybe we should simply remove the "quasi-" part of the quasi-market solution and reap the rewards of private incentives before we burn another decade's worth of petroleum at ever increasing prices.

We didn't learn anything - Subprime is Back

Friday’s Wallstreet Journal front-page headline reads “Subprime Bonds Are Back.” The article explains that prices in the subprime bond market have recently doubled from 30 cents on the dollar, which was the lowest point during the crisis, back to 60 cents on the dollar. And not only that, non-agency bonds, i.e. bonds that are not backed by Fannie Mae or Freddie Mac, are also experiencing higher yields. Oh and WSJ is happy to suggest that ordinary borrowers are benefiting from this renewed interest in the subprime market because banks are now willing to lend again; they even give out jumbo loans for as little as 5.5% for 30-year loans. The article further reports that several regulatory changes “that have taken place over the past two years are encouraging traditional investors to take a second look at the [extremely risky] assets.” Specifically, state insurance regulators have reduced the requirements for how much capital insurers have to hold against residential mortgage securities, if the securities are bought at a discount.

My head is spinning as I am reading this. This blatantly obvious return to pre-crisis risk taking seems insane, especially when it is reported as if it were ‘good news.’ Isn’t one of the potential explanations for the crisis related to excessively leveraged households and banks? How did state regulators decide that responding to excess leverage by reducing capital requirements for investments in mortgage securities, which effectively makes it possible to take on even more leverage, was the right thing to do?

Now you might say, well maybe the housing market is recovering and this is just the return to normal. Homeowners that are still around, even if they are part of the subprime market, will eventually repay 100 cents on the dollar they borrowed. Another argument that might make this new trend seem more reasonable is that the probability that homeowners will not default on their mortgages is probably greater, if they made it through the last crisis. However, the economist reports this weekend that the U.S. housing market is still in recession, in fact “the S&P/Case-Shiller home-price index for 20 cities fell by 3.1% in the three months to January from the same period in 2010,” that sounds to me like foreclosures aren’t over yet.

Don’t get me wrong, my private learning curve is not very steep either, but it is still sloped positively. This looks to me like a negative learning curve for financial markets. Ridiculous regulation (like those lower capital requirements that the WSJ reports) has destroyed knowledge and reason has completely gone out the window. I guess I should not be surprised. We know (from Mises, Hayek, & Kirzner) that learning in a market context requires both profit and loss. You only know that you have discovered, developed, or produced something valuable, if you can sell it profitably to other people. Similarly, you know that you are doing something wrong with your scarce resources, if you are making a loss. This means that losses are just as important as profits for a market to function correctly and to create useful things. When either of the two signals is distorted, markets don’t do us any good; in fact, they can destroy value. This is what happened in the Soviet Union and it seems to be happening in financial markets currently.

When the federal government intervened to soften the crisis, the treasury and the Fed bought insolvent banks, which should have realized losses. Those banks and financial institutions would have foreclosed without the intervention, instead they were rescued and continued to operate. That means they did not learn anything about excessive leverage and risk taking. They did learn one thing, however; they learned that no matter how much risk they take or how much money they lose, their executives will go home with a lot of money at the end of the night. Looked at from this perspective, it makes sense that they would go right back to making the same mistakes again. Almost no one in the banking industry had to suffer any losses, because fiscal + monetary policy disabled the profit and loss system, so no one learned a lesson. Are you ready for the next financial crisis? Looks like it is just around the corner!

Learning through Adversity

Economics, as a science, can only advance if it takes on the hard questions.

Learning is a theme on this blog as I started the conversation here talking about how to best improve as a writer. Knowing very precisely how bad one is as a writer helps to outline what needs to be done in order to progress. The more potential for progress the more inadequate one feels. This even translates to mind-numbing feelings of inadequacy, at times. It was for this reason that I chose the title, "off-the-cuff" and the German word unvorbereitet for unprepared or extemporaneous. Acknowledgement of short-comings removes one of the biggest obstacles to learning.

Economics has developed a fetish as a hand-maiden to political power. There is always an economist that can back your basic story and conveniently we, as a profession, have access to statistics that can remove criticism beyond the ability of a casual observer. Being certain pays in the marketplace of ideas and quantity supply increases. At GMU we questioned methodological barriers to entry because, like all barriers, it prevents true competition. It has remained my instinct to avoid the assertion of expertise or those that think they are done learning. Rather, I am careful to see knowledge from a particular angle with almost debilitating numbers of caveats.

The longer that I spend in the academy, the more I understand that time is scarce. Energy is scarce. Who can both succeed as a professional and be clear about the limitations of science? It makes me appreciate the value of folks like Matt Ridley and Richard Dawkins who are privately funded as advocates of popularizing science. I am now familiar a few books by both authors and am impressed with the energy they bring to their sciences and the crusader's will to discover what it takes to teach their subjects. After all, what impact does science have on society if its central tenets are misunderstood and the consumers have no avenue to decode them?

I can't help but be frustrated, however, with what I see as a willingness on the part of the standard professor to assert expertise over a whole variety of topics, but to not admit to their students the real deficiencies in their own depth in these subjects. Professors that pull it off well, that is distinguishing where they are experts and where they lack expertise, are loved by their students. The student humanizes the pursuit of knowledge only when you tell them that, like you, they are beginning a search or a journey of the mind.

The academy rewards self-confidence, but the search for truth only rewards humility. How can we teach this lesson to our students? More importantly, what are we doing to remember this lesson?