Value of Professors

In Saturday's WSJ, there is a lengthy piece about measuring the value added of professors at public schools. The author focused on Texas schools, especially Texas A&M. Apparently, A&M developed an income statement approach based on tuition generated by the individual prof less costs incurred by the prof, and then the difference was value added. Since the school is public, I don't see any problem with this. Tax payers, present and future, have a right to know how their confiscated funds are being deployed.

While there appears to be quite a lot of problems with the approach taken here, which I'll get to shortly, I must say that the concept of calculating individual value added is a good one. This is something every person should do when engaged in work for others: ask "what is my value-added here?" For professors, this is something that revolves around the primary tasks of teaching and research, along with "service."

Value added for teaching, for me, means this: whatever the students could get from reading/working on their own is my baseline. My teaching has to go beyond that level for me to be considered to be "teaching" at all. The further beyond you go, the better you are doing. Good teaching, like good anything, is hard work. Same goes for research, but by and large, students at the undergraduate level don't care about our research and their the ones paying the bulk of the tab, in gross. So on a day-to-day, I mostly think about value added in teaching.

So, an exercise to focus on profs value added I think is important. Now to the technical problems with the method of A&M. I'm sure they counted and added up the numbers correctly, so I don't mean technical in that sense. Rather, I mean technical in the sense that I don't think they have the measurements conceptually straight to begin with. Specifically, the don't seem to be able to differentiate between investment and consumption - one builds stock, the other is just flow.

For example, they find that a senior science prof has value added of near $250,000 per year, whereas a rookie prof has value added of around -$50,000. The senior prof has established, the rookie spent most of the year building a lab, applying for grants, and so forth. His negative value added constitutes investments, whereas the senior prof is earning the net profit from earlier investments. I didn't see anything in the paper that suggested this conceptual differentiation was occurring. I hope that, since this is apparently A&M's first stab at this issue, they'll get better with time. Probably there is some worthwhile reading there, if I can get my hands on the full report, too. You never get all the details in a newspaper article.

The upside I see here, that I mentioned before but will close with, is that such exercises cause us to focus on the value added potential that exists. So will I lament the fact that such-and-so professor can't teach "Medieval Folk Literature of Romania" to three people every year? Without question I will not. Such rarefied material is fine at a private university. But if folks want to insist on public universities and that an education is a public good then the education itself has to result in productive skills.

By the way, I don't buy into the whole public good b.s. I don't think we should have public universities. But that's another post for another day.

Ferguson Lecture

Anyone stopping in should go see this lecture from Niall Ferguson. He is a top-notch economic historian, especially of financial topics. It is very unsettling, especially for those living in the U.S. and UK.

Rights

Where do rights come from? The Declaration of Independence, with the line regarding truths that are self-evident, suggests that the right to life, liberty and the pursuit (key word, by the way) of happiness are natural rights. To the framers, the natural rights are granted to humans by the Creator. Or creator, depending on how you view these things.

I'm not versed in the philosophy of rights and whatnot, but it seems that the above (natural rights) position has as its opposite the position that rights are granted by the state to its populace. The sticking point, as I see it, is that natural rights can be violated by the state. This makes it akin, in practice, to the rejection that rights exist outside of the state. So because the rights can be violated, and this looks like the rights are being rejected, then they must be granted by the state in the first place. This does appear to have some logic to it.

But note the conundrum one arrives at after a reductio ad absurdum. If the state grants rights and therefore can revoke those rights at any time then anything the state does is acceptable. I'm sure you can see how this leads one have to accept certain completely unacceptable historical events.

It seems that only a natural rights position in tenable at this point.

Renminbi Revaluation

Officials in the White House are pushing hard to get China to revalue the Renminbi, and congress passed some sort of resolution suggesting a tariff on Chinese goods if China doesn't revalue the currency.

The story, I guess, is that Chinese goods are artificially undervalued and thus unfairly competing with U.S. produced goods. Many economists and other bloggers have pointed out that, if this hurts anyone, it is actually the Chinese since U.S. consumers are able to purchase artificially cheap goods.

But the story goes that if the currency was revalued upwards, then U.S. goods would be more competitive. Unfortunately (and I don't know who else has pointed this out), this assumes facts not in evidence. Specifically, I think the probability is high that goods produced in China are not also produced in the U.S. That means that the revaluation would have to be pronounced and permanent so as to encourage U.S. producers to start manufacturing (say) tennis shoes in the U.S. again. How long would that take, if this happened at all?

Moreover, to the extent that Chinese goods are actually inputs into U.S. goods (say steel), this will raise the costs for U.S. producers, the bulk of which will be passed on to consumers. Those that aren't will cost shareholders.

Now, this kind of interventionism will hurt anyone who buys stuff from China, and help those who don't. Who is being helped by this operation? Anyone who sources from non-Chinese manufacturers.

This is just another intervention to favor one small group of producers at the expense of a large swath of people (consumers and other producers).

Set-up for ongoing discussions

While I wait for my new friend to show up, I figured I'd take the opportunity to define a few terms that I think were causing hangups in our discussion.

The one that drove me nuts (maybe because of my background) was savings. Typically, we define savings as the residual of income after paying all expenses. This seems consistent with Keynes (Y=C+S or something) and Friedman, who had the "lifetime wealth" formulation. This makes sense to me, but then I'm trained to think in a certain way. I'm open(ish) to debate on this issue.

The other thing is aggregate demand. This is my bad. I always think AD means consumer spending. But it does include investment and government spending and net exports (I imagine). So I promise to keep that in mind.

Any suggestions as to what else to include?

Statistical Insights in Movies

I am watching "Death Wish" with Charles Bronson right now. About halfway through, Bronson's character is at a party, and he walks by a man and woman talking about the recent vigilantism. The man says something like: "Is it any question he's a racist? He's killing more blacks than whites!" and the woman responds: "Or for Heaven's sake! More muggers are black than white! What do you want us to do, increase the proportion of white muggers?"

This is some cleverness I don't expect you'd see in PC movie-land we have today. The killings reflect the underlying distribution of muggers. The result, while skewed in a certain direction, isn't because the agent is discriminatory. It's because the underlying distribution is composed in a certain way. Selection bias. Brilliant.

Middle-Skilled Employment Gap

In the WSJ today there's a very interesting article detailing a gap between work available in middle-skill industries and people with the appropriate skills for the job. The excess of work has grown during the recession but since 2000 middle-skill employment has been on a downward trend while high- and low-skill employment has been on an upward trend. A couple of reasons for this gap are extensions of unemployment benefits, which keep people looking for jobs similar to what they had in the past, and high personal debt, which makes it much more difficult to move for work. But these reasons only explain part of the story, and aren't particular to the middle-skill jobs market.

I've been hearing for years now from manufacturing firms that they can't find skilled laborers to work in factories. It's hard, for example, to find people who can do mathematics and can run various wood-cutting devices. This is a long-run trend, and it's now gotten worse. I think that I know one of the key factors behind this long-run trend. Actually, the factor can be divided into two issues, but they are sides of one coin, and that coin is education, or rather the education industry.

It boils down to this: too many people are going to university/college instead of trade schools; and the value of high school education is very low. The first factor drives up the demand for "high-skilled" jobs even while driving down the salaries since supply doesn't necessarily keep pace. That leads people with some college education to take "low-skilled" jobs, pushing down salaries for people with only high school education. The problem here is that college education, generally, doesn't prepare people for the "middle-skilled" jobs, which often combine technical knowledge with "hands-on" skills. Ability to dissect a Jane Austen novel not desired. The second factor, poor high school education, leaves those youngsters who do not go on to some post-secondary with a very uncompetitive battery of skills. That spells a lifetime of low-skilled, and low-pay, jobs.

There are many incentives in place to encourage youngsters to go on to college, including grants, scholarships and cheap loans. Combine the monetary incentives with the rhetoric about college (go to college! you're nothing without a degree! it's the path to a good-paying job!) and teenagers face very skewed and somewhat bewildering incentives. Furthermore, their teachers and guidance counselors and principals are all college graduates and therefore have a personal incentive to push college as the default. Okay, so the upshot is too many people going to college/university, and a lack of people getting technical education (like welding, carpentry, etc.).

Now, the failure of secondary education is the other problem. I'm certain many of us have seen those old exams (from the 1930s, say) that crop up now and again. In the midwest, a lot of those exams have to do with agriculture, as might be expected. But while the specific knowledge tested in those exams is now irrelevant, the skills tested on those exams is not. The mathematical demands on students was much higher in years gone by than it is now.

High school even changed while I was in it. My cohort was the last one to be required to take algebra in every grade, and at least two sciences in each grade. We were offered calculus in 12th grade, but it wasn't required. But the cohort immediately following mine had the math requirements gutted. Now, they had to take math every year, but they could substitute elementary math for algebra.

The dumbing down of elementary and high school education is not news, though. Public high school failures make charter school and other program successes very important, but still most youngsters are educated at public schools.

So take these factors all together, and I think that's producing the skill gap that results in a shortage of middle-skill workers on the long-term.