CEPR Interview: Miles Kimball—Practical Details of Negative Interest Rates

CEPR Interview of Miles Kimball at the Imperial College-Brevan Howard Centre-CEPR-Swiss National Bank Conference on “Removing the Zero Lower Bound on Interest Rates,” May 18, 2015 in London

The CEPR (Centre for Economic Policy Research) staff did a brilliant job editing this interview. I can’t recommend this enough. If you could only look at one post of mine on eliminating the zero lower bound, this video post is the one to look at. 

You can see the other interviews done at the conference here. 

You can also see links to the many things I have written on this here.

Florida, Cuba and the Bahamas from SpaceThis is a beautiful picture from space, via the canadian-space-agency. It is the harbinger for my newest column–with the working title “Is the value-added tax really regressive?”–which should come …

Florida, Cuba and the Bahamas from Space

This is a beautiful picture from space, via the canadian-space-agency. It is the harbinger for my newest column–with the working title “Is the value-added tax really regressive?”–which should come out sometime this morning. 

South #Florida, #Cuba, #Bahamas. From my view, the most beautiful and colorful waters and reefs in the world. April 27, 2015.

Credit: NASA Astronaut Terry Virts’ Twitter Account

The Message of Jesus for Non-Supernaturalists

This is my latest sermon, to be given today at the Community Unitarian Universalists in Brighton.  Here is the abstract:

Abstract: Many preachers have quoted the New Testament question: “What think ye of Christ?” For a non-supernaturalist, this is not an easy question. Both the historical Jesus and the additional stories that grew up around him seem remarkable. How could all of this have come together without a miracle? And what does it mean for us now if there were no miracles involved? Among the foremost answers to the last question must be the idea of the dignity of every human being–as against both other human beings of high social status, and as against the universe.

After the sermon, I add some links you might be interested in.

Update: You can now see a video of the sermon here.


Introduction

In his book Mere Christianity, C. S. Lewis wrote:

I am trying here to prevent anyone saying the really foolish thing that people often say about Him: I’m ready to accept Jesus as a great moral teacher, but I don’t accept his claim to be God. That is the one thing we must not say. A man who was merely a man and said the sort of things Jesus said would not be a great moral teacher. He would either be a lunatic—on the level with the man who says he is a poached egg—or else he would be the Devil of Hell. You must make your choice. Either this man was, and is, the Son of God, or else a madman or something worse. You can shut him up for a fool, you can spit at him and kill him as a demon or you can fall at his feet and call him Lord and God, but let us not come with any patronizing nonsense about his being a great human teacher. He has not left that open to us. He did not intend to.

I am not willing to accept any of the three choices C. S. Lewis offers. As a non-supernaturalist, the claim that Jesus was God, or the Son of God, in any traditional sense doesn’t work for me. Demons and the Devil too are supernatural. And although some degree of mental illness can be consistent with great creativity, insight and enlightenment, Jesus certainly was not crazy in a way that should cause us to dismiss all of his key messages.

The specific words in the gospels that C. S. Lewis points to in which Jesus is said to claim divinity may or may not have actually been said by Jesus. I think statements that a charismatic individual was divine are particularly likely to be added by followers later on. In the case of Jesus, there is no reason to doubt that his followers genuinely believed he came back from the grave; belief in Jesus’ resurrection would make them especially likely to add claims of divinity. 

Jesus himself seems to have been given to enigmatic sayings that could have been taken as lending credence to those claims. Jesus could have genuinely felt that God was acting through him to such an extent that he could be considered “God with us” without the full weight of the later Christology. Or it is also possible that Jesus, for his own purposes, may have actually been willing to claim godhood, perhaps in an ironic sense.

This does not mean we can dismiss the historical Jesus. Even with the later boost by the efforts of his followers, including the apostle Paul, one cannot explain Christianity without a remarkable individual at the root of it all: Jesus. I think of Jesus and the beginnings of Christianity what I think of Joseph Smith and the beginnings of the Mormonism I grew up in: one way or another, something unusual happened back then. Therefore, judging what happened is a matter of comparing the relative likelihood of various different chains of unlikely events.  

For Christianity itself was remarkable. Even a non-supernaturalist should recognize that the words and deeds of the early Christians changed the world. And it is those words and deeds of early Christians that are the most reliable clue to the non-supernatural part of the message of Jesus.

Justice

In the end, I take the key non-supernatural message of Jesus to be in line with something my college classmate and friend Peter Lake said: that John Rawls’s book A Theory of Justice is a philosophically reworked restatement of what Jesus taught.

In A Theory of Justice, John Rawls asks each of us to imagine how we would decide to arrange society if we were deciding behind a “veil of ignorance,” not knowing who each of us would be and therefore not knowing the station in society that you or I would have.

Not knowing who one would be, one would have to be concerned about the possibility that one might be put in the position of wanting to do something very badly and not being allowed to do it. So John Rawls argues that the first thing we would decide behind the veil of ignorance would be to build guarantees of freedom into the society we would end up in. The essence of freedom—as laid out, for example, by John Stuart Mill in “On Liberty”—is to define a sphere of action for each person that allows us to tend the things that we each are likely to care most about. A good example is the decision of whom to marry. Despite the emotional energy behind many people’s opposition to gay marriage, I still think that those actually getting married to the one they love tend to care more than those trying to stop them from getting married. So this is an issue of freedom.

Once freedom is guaranteed, John Rawls argues that behind the veil of ignorance, we would arrange for the level of material resources available to the worst-off member of society to be as high as possible. Here, I think John Rawls oversimplifies a little. The risk aversion we would apply behind the veil of ignorance would not be infinite. So we might put some weight on how well off higher stations in society were; but as a practical matter, the interaction of even modest levels of risk aversion or inequality aversion with the wide range of inequality in the world we live in puts so much weight on the welfare of the worst off individuals, that John Rawls’s focus on the very worst off is an excellent approximation.

The Problem

In the real world, most of human history has been a story of violence and oppression. Violence came first; oppression requires more organization.

Violence: Hunter-gatherer tribes, like chimpanzees, tend to have extremely high murder rates, as Stephen Pinker discusses in his book The Better Angels of Our Nature: Why Violence Has Declined.

One person who has thought deeply about the psychology of violence is René GirardRené Girard is an Emeritus Professor of French Literature at Stanford University who in his other role as anthropological philosopher puts Jesus at the center of history as the beginning of the end for human violence driven by envy, scapegoating and sacrifice. 

The beginning of René Girard’s account is also the foundation of culture itself: the ability to copy others. In both his literary criticism and anthropological philosophy, René Girard emphasizes a key thing we copy from one another: our notion of what is desirable. This is fine when there are many items of the same type available in the local surroundings. But when certain items are scarce, seeing that others value those items encourages us to see them as valuable and envy those that have them.

Joseph Epstein argues persuasively in his book Envy that envy is all around us:

So endemic did these and other philosophers [Kierkegaard, Kant, Nietzsche, Schopenhauer, etc.] find envy… it becomes clear that one must factor in envy in considering our judgments of our own and of others’ actions. If one’s judgments are to be straight and honorable, one must be certain that they are not infected by envy.

Envy is something people are seldom willing to admit to; so it is dangerous to assume there is only as much envy in the world as people talk about.

Envy is a powerful emotion. Unlike Disney movies that often leave the evil of the villain unmotivated, the Bible gives an excellent motivation for Satan’s evil in envy. (Some say pride, but I think it is easy to detect the envy being papered over by the pride in the stories of Satan.)

When envy leads many to want the same thing without external restraints, violence is a common outcome. René Girard argues that before the development of more elaborate cultural mechanisms to restrain violence, the violence of all against all is often put on pause by scapegoating. If people can copy desires from others, they can also copy hatreds. If everyone copies a hatred toward some individual who is different enough to become a focal point, that individual becomes a scapegoat. In the olden days such a human scapegoat was often murdered. Then, René Girard argues, the people in the local community felt a catharsis great enough that they often felt oddly grateful toward the individual who was killed and began to talk of the scapegoated individual as a demigod, despite the fact that along the way to being murdered, the scapegoat had been thoroughly slandered. Turning the slandered, murdered human scapegoat into a demigod transformed the murder in memory to a human sacrifice.

At one level, Jesus’ sacrifice seems like a reenactment of the primeval pattern of a human scapegoat being slandered, murdered, and then made into a god. But René Girard argues that it is different in a momentous way: the gospels are adamant that Jesus was actually innocent. And the thought that the human scapegoat might be innocent has put sand in the gears of this primeval practice of “piling on” against a human scapegoat ever since Jesus.

Fear and Intolerance: Violence inspires fear. And in addition to violence, the scapegoating mechanism helps to enforce conformity. Though there is some randomness in who is chosen as the scapegoat in any situation, sticking out and being different is a definite risk factor. So it often seems safer to conform rather than risk being made into a scapegoat. And everyone’s fear of the dangers of nonconformity gets expressed as intolerance.

Oppression: When societies become more centralized, chaotic violence is replaced by violence as a fallback tool to enforce oppression. A week ago, I finished reading Daron Acemoglu and James Robinson’s book Why Nations Fail. They argue that most nations throughout history have been either domains of chaotic violence or domains of organized oppression. They use the terms “extractive institutions” and “extractive economics” to mean politics and economics organized to enable the in-group to make themselves as well off as possible at the expense of everyone else. This is still the way half the world is organized, and it is the root cause of poor nations being poor. Those on top in those countries would like their countries to be richer, since that would mean more to steal. Unfortunately, there are not many ways to make a country richer without running into the danger of empowering people in a way that jeopardizes one’s control. In particular, it is hard to allow much innovation, since innovation often brings with it creative destruction of existing structures—especially innovation of the kind most crucial for prosperity.

So what stands in the way of poor countries becoming rich is not ignorance, but evil—evil of the very most human kind. Evil that you and I have in our hearts too, that will cause us trouble too if we don’t restrain it.

The Solution

Violence and oppression are central human problems. Christianity brought tools helpful in the solution.

Tools to Break Down “Us vs. Them” Thinking: Three key characteristics of the early Christians helped to keep in check the human tendency toward seeing things as us versus them. The early Christians were:

1. Proselyting. They tried to win converts. Jesus was said to have given this charge after his resurrection: “Therefore go and make disciples of all nations, baptizing them in the name of the Father and of the Son and of the Holy Spirit.”

2. Inclusive. Seeking converts, they brought into their group outsiders of all ethnicities, gave women high status relative to the standards of the times, and told stories of Jesus having been kind to people in despised groups such as prostitutes and tax collectors. Inclusiveness was not a foregone conclusion for Christianity, even given what Jesus had done and said. The biggest political struggle within Christianity during its early years was over the question of whether to allow people to become Christians without taking on all the ethnic markers of Judaism. But Paul won the victory for greater inclusiveness.

3. Humble.Many of the early Christians were from relatively high social classes. But they remembered Jesus honoring not the high and mighty, but the poor in spirit, those who mourn, the meek, those who hunger and thirst for righteousness, the merciful, the pure in heart, the peacemakers, and those who are persecuted for righteousness’ sake. And they remembered his story of the king who said “Truly I tell you, whatever you did for one of the least of these brothers and sisters of mine, you did for me.”

Tools to Break Down “I vs. We” Thinking: Three more characteristics of the early Christians helped to keep in check the human tendency toward thinking of self first instead of the welfare of the group, and paradoxically helped them to go beyond fear-induced conformity. They were:

4. Bookish. The early Christians and the Christians that followed them later on in history revered a remarkable collection of books containing much of the Jewish tradition as well as their own new tradition. These writings helped individual Christians identify with the Christian movement as a whole. And as Jack Miles’s book “God: A Biography” makes clear, the Jewish tradition, which had to explain everything that happened in terms of one God, already included both sides of many deep debates, and the new Christian additions to scripture only broadened the range with arguments for both sides of such tensions as order vs. revolution, rules vs. forgiveness, mastering nature vs. standing in awe of nature, and even supernatural vs. natural. This helped ensure that although many false and harmful things could be argued from scripture that almost all true and helpful things could also be argued from scripture. And they were.

5. Fearless in the Face of Death. In addition to many facing martyrdom with bravery, early Christians showed fearlessness in the face of death by nursing one another back to health during epidemics, even at the risk of their own health. Fearlessness in the face of death is an area where supernatural beliefs obviously played a role. But the ability to imagine the welfare of others and the welfare of all instead of just one’s own welfare also played a role.

6. Idealistic. The grand sweep of the Christian narrative and the emphasis on faith helped the Christians to think big, including thinking big about the welfare of the whole.

Tools to Break Down “I vs. You” Thinking: At the more intimate, person-to-person level, three beliefs of the early Christians helped to keep in check the human tendency to put self first over a particular other person. They believed in:

7. Forgiveness.

8. Love.

9. Fidelity.

The importance of forgiveness and love in Christianity are so well known I don’t need to add anything there. But on fidelity, it is worth noting how unusual the Christian rejection of a sexual double standard was within the Roman Empire. To insist that husbands be true to their wives as well as wives being true to their husbands was an idea the Christians shared with non-Christian Jews, but otherwise it was quite unusual. And I should mention that along with marital fidelity, Christianity had some basic rules for family life that were missing for the Romans, such as “Don’t kill infant daughters.”

The Result

History is convoluted, and causality is hard to demonstrate beyond a shadow of a doubt. But, influenced in part by the books the sociologist Rodney Stark has written about the influence of Christianity on history, I see the characteristics of Christianity I have laid out as being crucial in getting us to the favorable spot in history that we stand at now.

Restraining Violence: Forgiveness, love and fidelity, plus seeing others as not so different from oneself, constitute a partial antidote to violence. It took many years for such ideas to have much effect on violence, but the trend has been down, as Stephen Pinker so ably documents in The Better Angels of Our Nature.

Restraining Oppression: A week and a day from now is the 800th anniversary of the Magna Carta—a key step toward the Anglosphere escaping from extractive political and economic arrangements. When I read Daniel Hannan’s celebration of the Magna Carta in the May 29th Wall Street Journal, I found myself choking up at reading the words “800 years of the Crown’s acceptance of the rule of law.” The logic of power is strong; it takes a lot to tip the balance towards liberty. I can’t help but think that some ideas within Christianity made a difference:

  • If God came down to earth, maybe the King should also show some humility.

  • If other human beings are brothers and sisters, maybe a few people here and there hesitated at inflicting the tortures needed to shore up the arbitrary rule of the king.

  • Later on, when those who don’t have a vote clamor for one, it is hard to dismiss them as totally different from oneself.

  • If death is far from the worst thing, maybe it is worth it to oppose a tyrant, even if it might lead to death.

  • If one is part of some grand overarching story, then it is worth trying to make the world a better place.

  • Like the revered book, there is hope that opposing forces can all be regulated and corralled into a whole that works.

What Remains Undone

It is obvious that much remains to be done to restrain violence. But I want to end by talking about what remains to be done to restrain oppression. The essence of oppression is to run things for the benefit of an in-group at the expense of an out-group. In my post “‘Keep the Riffraff Out!’” I point out three ways in which we routinely use exclusion to run things for the benefit of an in-group at the expense of an out-group.

The first is to put up fences and guards to keep out immigrants desperate to become part of a well-run liberal democracy. Why do we keep them out? In order to benefit a subset of citizens—of the in-group—even at terrible cost to those being kept out. Or when they get in despite our best efforts, we keep them in constant fear of deportation and thereby keep them at the margins of society. 

We are often moved to compassion when we see pictures of people suffering in other countries, and send money to help. But other than limited areas such as fighting illness, it is very difficult to make things better over there where evil rules. But if we focus on helping people rather than helping nations, it is simplicity itself to help the people in other nations: let them in! It is much easier to bring the people to good systems of governance than it is to bring good systems of governance to people where they are. Where they are, evil systems designed for oppression will fight us tooth and nail. Here at home, we only have to fight the evil in our own hearts, with a fundamentally good system designed to keep our own evil in check backing us up.    

The second way in which we run things for the benefit of an in-group at the expense of an out-group is by making unnecessary licensing requirements to keep those at the bottom of the heap from competing against us with lower quality versions of the professional work that we do. We feel it is OK to deny someone else a livelihood if it keeps our own wages a bit higher. (See my post “When the Government Says ‘You May Not Have a Job.’”)

The third way we run things for the benefit on an in-group at the expense of an out-group is by tightly restricting the building of new housing in the most desirable cities to keep up the scarcity value of our own property. I saw last night an article in the Atlantic by Alana Semuels “Where Should Poor People Live?” with this summary at the top: 

Studies say that lower-income people do better when they live in affluent neighborhoods, but rich people don’t want them there. A few states are seeking ways around that resistance.

All of these impulses can be summarized under the heading of “Keep the Riffraff Out.” But if there is one key message of Jesus, it is that there is no riffraff—only human beings, who deserve to be treated with dignity. The New Testament is witness that when the early Christians invited a wide variety of people into their congregations they had to deal with a variety of behavior problems. But they let them in anyway, and worked with them.

I know I don’t have all the answers, but one thing I know is that human beings are human beings. It is not OK to talk about the pluses and minuses of any policy without talking about the effects of that policy on all human beings. If someone wants to say, “It will hurt those folks over there, but we should do it anyway,” at least that is forthright, and they may win the day. But it is within our power to keep anyone from getting away with not mentioning the welfare of the outsiders at all.

In many ways the human world is an ugly place. But it used to be much uglier. Credit for an important part of the improvement goes to the message of Jesus that all human beings should be treated with dignity—in how we think about them as well as in our direct dealings with them. It is a lesson that we have learned in part. We have further to go.


Mayuram Krishnan, Min-Seok Pang and Ali Tafti: Every $1 of Extra Information Technology Spending by States Predicts $3.49 Less Overall Spending

University of Michigan business professor Mayuram Krishnan and his two coathors Min-Seok Pang and Ali Tafti found what I thought was an interesting correlation in their paper “"Do CIO IT Budgets Explain Bigger or Smaller Governments? – Theory and Evidence from U.S. State Governments” (forthcoming in Management Science) suggesting that goverment investment in information technology is underdone. In particular, $1 more of information technology spending predicts $3.49 less in overall spending. You can find a news article on this by Greta Guest in the University of Michigan’s University Record here: “Do government technology investments pay off?”

Rodney Stark: Historians Ought to Count—But Often Don’t

I found this story about historiography from Rodney Stark’s book Cities of God: The Real Story of How Christianity Became an Urban Movement and Conquered Rome (pp. 209-211) fascinating, and wanted to share it with you. Here is the quotation: 

In 1962, Arthur Schlesinger Jr.–on leave from the Harvard history department to serve as a White House intellectual for John F. Kennedy–told an assembled audience of American scholars that “almost all important [historical] questions are important precisely because they are not susceptible to quantitative answers.” Such arrogance thrilled many of his listeners, as clever nonsense so often does. For others it prompted reflections on how someone so poorly trained had risen so high in the profession of history. In truth, many of the really significant historical questions demand quantitative answers. They do so because they involve statement of proportion: they turn on words such as none, few, some, many, most, all, along with never, rarely, seldom, often, usually, always, and so on.
… let us turn back, to Arthur Schlesinger and the book that made his reputation: The Age of Jackson. For decades before Schlesinger wrote, the central question posed about “Jacksonian democracy” was how Old Hickory had managed to motivate millions more Americans to vote in his presidential elections than ever had done so before. All the stars of American historiography had addressed the matter, including Charles and Mary Beard, Richard Hofstadter, and John Back McMasters. A remarkable jumble of explanations had been offered, but everyone agreed with the Beards that Jackson was swept into office by “the roaring flood of the new democracy.” Thus, Schlesinger launched his career by attempting to explain the “immense popular vote” received by Jackson in 1828 when he was elected by a “mighty democratic uprising.” Notice that Schlesinger was not content simply to assert that Jackson was elected. He stressed the proportion of the victory–it was “immense” and “mighty.” His book was awarded the Pulitzer Prize in 1946 because reviewers found Schlesinger’s explanation of Jackson’s huge appeal to the ‘common man’ so convincing.
But trouble soon arose. In 1960, two years before Schlesinger’s expressions of contempt for quantification, Richard P. McCormick bothered to count the votes. He demonstrated conclusively that what was notable about the Jacksonian elections was low voter turnout! There was no “mighty” or “immense” outpouring. More votes had been cast in many previous elections. What seems to have so misled historians for so long was that these were apparently the first presidential elections in which attention was paid to the total popular vote, as opposed to merely reporting the results of the electoral college. Confronted with large numbers of votes, no one bothered to calculate whether these were many more or fewer than usual. As a result, generations of historical analysis was patent nonsense, having been devoted to explaining something that hadn’t happened!
… although McCormick’s expose was published in the American Historical Review, the most distinguished journal in the field, it was generally ignored, and many textbooks continued for several more decades to discuss Jackson’s immense appeal. To the best of my knowledge, Schlesinger never recanted.
When hiring, leaders need to resist the temptation to bring in high-performing but selfish partners, who might be a toxic influence, and instead seek candidates who have a track record of working across boundaries.

– “When Senior Managers Won’t Collaborate,” by Heidi K. Gardner, Harvard Business Review, March 2015, p. 81.

Jonathan Zimmermann: Making College Rankings More Useful

One way in which my own industry of higher education is corrupt is in resisting the data collection and sharing that would allow full evaluation of how well each college or university is doing its teaching job. A special report by the March 28-April 3 2015 issue of the Economist emphasizes the importance of better data for evaluating colleges and universities in order to put the higher education system on a path for significant improvement in performance. Within the special report, the article “A flagging model” is especially worth reading. Here are three of my favorite passages:

1. In most markets, the combination of technological progress and competition pushes price down and quality up. But the technological revolution that has upended other parts of the information industry (see article) has left most of the higher-education business unmoved. Why?

For one thing, while research impact is easy to gauge, educational impact is not. There are no reliable national measures of what different universities’ graduates have learned, nor data on what they earn, so there is no way of assessing which universities are doing the educational side of their job well.

2. The peculiar way in which universities are managed contributes to their failure to respond to market pressures. “Shared governance”, which gives power to faculty, limits managers’ ability to manage. “It was thought an affront to academic freedom when I suggested all departments should have the same computer vendor,” says Larry Summers, a former Harvard president. Universities “have the characteristics of a workers’ co-op. They expand slowly, they are not especially focused on those they serve, and they are run for the comfort of the faculty.”

3. Better information about the returns to education would make heavy-handed regulation unnecessary. There is a bit more around, these days, but it is patchy. The CLA has been used by around 700 colleges to test what students have learned; some institutions are taking it up because, at a time of grade inflation, it offers employers an externally verified assessment of students’ brainpower. Payscale publishes data on graduates’ average income levels, but they are based on self-reporting and limited samples. Several states have applied to the IRS to get data on earnings, but have been turned down. The government is developing a “scorecard” of universities, but it seems unlikely to include earnings data. “A combined effort by the White House, the Council of Economic Advisers and the Office of Management and Budget is needed,” says Mark Schneider, a former commissioner of the National Centre for Education Statistics. It is unlikely to be forthcoming. Republicans object on privacy grounds (even though no personal information would be published); Democrats, who rely on the educational establishment for support, resist publication of the data because the universities do.

Jonathan Zimmermann, from my “Monetary and Financial Theory” class this past Winter 2015 semester discusses very well the need for different college rankings for different purposes. This is the 20th student guest post from this past semester. You can see the rest here, including two by Jonathan himself. Here is Jonathan’s latest:


For every student who has been through the process of college admission, university rankings is something that should look familiar. But university rankings are not only used by prospective students, they are also consulted by employers to screen job candidates.

Increasingly, it becomes a trend for every well recognized newspaper to publish its own ranking. Currently, universities and colleges are mostly ranked with some positive weight on how good the students are at the end of college and some weight on how good the students are at the beginning of college before they have started any classes. This is not what students need to know. What students need to know is how much they will learn – that is how good they will be at the end of college minus how good they are at the beginning. And if students really learn a lot, i.e. if they are much better at the end of college than they were at the beginning, they really need the college or university to document how good they are at the end in a way that is persuasive to employers.

This is very different from the way things are done now. The cost of the program, for example, is only relevant to the prospective student: the potential employer should not care about how much the student paid but only about the quality of the formation, even if the costs were totally disproportionate (which would, in the other hand, reduce the ranking of the university in a ranking designed for students). In the contrary, a university that is well known to only accept already very clever and experienced students (students with already a good GPA, a previous degree in another top ranked college, etc.) should have a lower ranking on student-oriented rankings since they don’t bring much to the students they admit, but should have a good ranking on employer-oriented rankings because they tend to do a pretty good job at screening candidates. Of course, graduating from a program well ranked in employer-oriented rankings is also an advantage for students since it will ease their job search (like purchasing a “certificate of competence” would), but it is far from as valuable to them as it is to employers, and represents only a small fraction of the advantages of college education, compared notably to the “learning component”.

Rankings such as those of the Financial Times tend to generate that kind of negative incentives for the universities by giving a lot of weight to the salary and the employment rate after graduation: if you know that this is how your program is going to be ranked, as the admission director you might decide to only take students who already have a job secured, or at least strong connections in the professional world, instead of a bit more risky profiles who could really use the knowledge and experience your program would bring them.

In general, everything that increases the predictive value of the degree is important to the recruiters. And this doesn’t only include the binary fact of having the degree or not having the degree, but also the predictive value of the GPA associated with the degree. And this is an extremely important element that is neglected by almost every ranking, but that also hurts some countries much more than others.

The United States for example are very well known for having a very rigorous admission process. But once you made your way into an Ivy League, the GPA you get is of secondary importance (a problem aggravated by the severe trend of grade inflation). This should factor in the employer-oriented rankings, since they cannot efficiently use elements such as the GPA to screen their candidates. On the other hand, countries like Switzerland which are much more generous in admitting students (even the best universities of the country, such as ETH Zurich which is consistently ranked among the top 20 universities in the world, accept almost 100% of their candidates, sometimes even without a high-school degree) and giving degrees (even though the failure rate during the first year is extremely high to compensate for the eased admission) rely much more on the grades that they attribute to indicate to the market who are the good students and who aren’t. This should indeed be reflected negatively in the rankings designed to help students decide where to go once admitted (since being admitted in that kind of university is not even one tenth of the way), but very positively into employer-oriented rankings since they can easily identify good students by looking at their grades.

The problem with current rankings is that they are used indifferently. Some are more prospective students oriented, some are more employers oriented, many are research oriented (which creates other forms of negative incentives), but the distinction is generally not made and, frequently, both criteria are mixed. Each ranking should not only be designed with a clear purpose in mind, but should also clearly communicate that purpose to its readers. Clearly, simply stating the methodology used is insufficient: not only it generally uses complex math that most readers don’t have the time (or the ability) to understand, but it also doesn’t indicate when it is appropriate to use it. Instead, the rankings should be accompanied with qualitative advices to interpret the results as well as a list of contexts in which the ranking is considered relevant or not, their strengths and its limitations, and especially who the target audience is.

The college ranking currently designed by the Obama administration, for example, does an exemplary job in clearly stating the objectives of its methodology from the very beginning: helping prospective students with medium to low income to identify colleges with the best quality-to-price ratio. Nothing more, nothing less; it doesn’t have the ambition to become the next universal university ranking, and therefore doesn’t mix its primary goal with other contradictory considerations.

In general, most rankings designed for students should switch to a “value-added” approach, which measures the causal impact of college on students given their pre-education characteristics. One of the most up-to-date and accurate study using this method is the recently published “Beyond College Rankings” report; the methodology they use could serve as a model for further rankings. However, the problem with “value-added” rankings is that they are of limited use when they are not “dynamic”. Traditional rankings are “static” in the sense that every university in the same ranking will always have the same rank independently from the person reading it. A “static value-added” ranking is useful to governments and charities seeking to allocate their funds to the most efficient institution, but generally not adequate for individuals since the essence of a “value-added” ranking is to provide a list of best colleges given a specific student’s characteristics. A clever value-added ranking designed for students would allow them to input their personal characteristics before providing them with a personalized result; the best choice of college might not be the same for two distinct students with a different profile.

Dylan Matthews: Think the poor don’t pay taxes? This chart proves you very wrong.

This is a very nice chart showing that taxes overall are remarkably close to proportional. One of the things that suggests to me is that a much simpler tax system that had people paying a proportional tax such as a VAT tax, coupled with a lump-sum transfer to the poor, would not be such a big change after all. We probably cause a lot of distortions by pretending to have a progressive tax system instead of admitting that we have a mostly proportional tax system and optimizing it. 

Beacons

At the end of my third year of blogging, and the beginning of my fourth, I am in Oslo, completing my tour of Nordic central banks. That is fitting, because so big a part of my efforts this past year, both on my blog, on Quartz, and in my travels, has been devoted to campaigning for the end of the zero lower bound that stands in the way of good monetary policy.  

On this journey, which also included two high-level conferences in London, I have begun to see the foundations of the paper standard begin to crack. What a few years ago was a fringe idea–eliminating the zero lower bound by using a time-varying paper currency deposit fee at the cash window of the central bank–is now being taken very seriously by powerful central bankers. 

To keep myself going in efforts to end the zero lower bound, I often remind myself of all the people who have suffered from its effects in the last few years–often without realizing what the source of their economic troubles has been. I imagine these people saying to one another “Why doesn’t somebody do something about this?” and combine it with the knowledge that we economists are the somebodies who need to do that something. 

Though I would not trade away my travels and writing in opposition to the zero lower bound for anything I could reasonably have hoped to accomplish with that time and effort instead, those efforts–and in particular, the travels–have not been without opportunity cost. There are many things I would have liked to write about on other topics, but ran out of time. 

So what I have done in the past year besides oppose the zero lower bound? The answer tells what beacons I look toward to guide my actions. I hope I have managed to be a decent human being most of the time–a difficult goal with many facets. I hope I have mostly taken care of myself and my relationships to those closest to me. And I hope I have been a reasonably good colleague, coauthor and teacher.  

On this blog, I have had a few guiding lights I have looked to. I try to answer most of the questions that people pose to me. I try to give honest opinions. I try to have something new on this blog every day, even if it is only a link to an article I found interesting and important. I have been consistent in doing a religion post or a philosophy post (currently on John Stuart Mill’s On Liberty) every Sunday. I try to have at least a couple of other more substantial posts each week. And I try not to let too long a time pass without writing a more polished piece for Quartz that I feature here as well. 

I look for opportunities to double-task, such as teaching my students to write by having them write many blog posts and then using some of the best of those as guest posts here. I post interesting documents here that I have created for other purposes. And I use blog posts to clarify ideas that I can later pursue as research topics.     

Some days it is hard just to keep up with email, tweet a link to the day’s blog post, already stored up in the queue from before, and post the link on Facebook. But other days I feel a fire inside of something that wants to be said. And when I look back through my blog archives, I feel proud of what I have been able to do. To me, this blog is not just a collection of posts, but a single, coherent hypertext object. I hope the whole is greater than the sum of the parts. 

One thing I notice in the blog statistics I get from Google Analytics is how much of my traffic is for posts in my back catalog. I like that: having some posts that seem useful enough to people that there is continuing traffic for them even in the long run.

I feel bad sometimes that I am not able to do more, but I don’t seriously regret the choices I have made, only that the time budget constraint is not more expansive than it is. 

Thanks to all of you–the readers who have made this blog a social act instead of an exercise in solipsism. I appreciate all of your feedback and your words of encouragement.  

You might be interested in my first blog post and my first and second anniversary posts as well as this third anniversary post you just read:

0. What is a Supply-Side Liberal?

1. A Year in the Life of a Supply-Side Liberal

2. Three Revolutions

3. Beacons

John Stuart Mill on Registration of the Tools of Crime

When some kind of regulation is necessary, every effort should be made to make the regulation as consistent with freedom as possible while still doing the job. In On Liberty “Chapter V: Applications,” paragraph 5, John Stuart Mill points out that required disclosure and registration always need to be considered as alternatives to more onerous regulations. He addresses this in an interesting case where one might be tempted by more onerous regulations: the sale of poisons:

One of these examples, that of the sale of poisons, opens a new question; the proper limits of what may be called the functions of police; how far liberty may legitimately be invaded for the prevention of crime, or of accident. It is one of the undisputed functions of government to take precautions against crime before it has been committed, as well as to detect and punish it afterwards. The preventive function of government, however, is far more liable to be abused, to the prejudice of liberty, than the punitory function; for there is hardly any part of the legitimate freedom of action of a human being which would not admit of being represented, and fairly too, as increasing the facilities for some form or other of delinquency. Nevertheless, if a public authority, or even a private person, sees any one evidently preparing to commit a crime, they are not bound to look on inactive until the crime is committed, but may interfere to prevent it. If poisons were never bought or used for any purpose except the commission of murder, it would be right to prohibit their manufacture and sale. They may, however, be wanted not only for innocent but for useful purposes, and restrictions cannot be imposed in the one case without operating in the other. Again, it is a proper office of public authority to guard against accidents. If either a public officer or any one else saw a person attempting to cross a bridge which had been ascertained to be unsafe, and there were no time to warn him of his danger, they might seize him and turn him back, without any real infringement of his liberty; for liberty consists in doing what one desires, and he does not desire to fall into the river. Nevertheless, when there is not a certainty, but only a danger of mischief, no one but the person himself can judge of the sufficiency of the motive which may prompt him to incur the risk: in this case, therefore, (unless he is a child, or delirious, or in some state of excitement or absorption incompatible with the full use of the reflecting faculty) he ought, I conceive, to be only warned of the danger; not forcibly prevented from exposing himself to it. Similar considerations, applied to such a question as the sale of poisons, may enable us to decide which among the possible modes of regulation are or are not contrary to principle. Such a precaution, for example, as that of labelling the drug with some word expressive of its dangerous character, may be enforced without violation of liberty: the buyer cannot wish not to know that the thing he possesses has poisonous qualities. But to require in all cases the certificate of a medical practitioner, would make it sometimes impossible, always expensive, to obtain the article for legitimate uses. The only mode apparent to me, in which difficulties may be thrown in the way of crime committed through this means, without any infringement, worth taking into account, upon the liberty of those who desire the poisonous substance for other purposes, consists in providing what, in the apt language of Bentham, is called “preappointed evidence.” This provision is familiar to every one in the case of contracts. It is usual and right that the law, when a contract is entered into, should require as the condition of its enforcing performance, that certain formalities should be observed, such as signatures, attestation of witnesses, and the like, in order that in case of subsequent dispute, there may be evidence to prove that the contract was really entered into, and that there was nothing in the circumstances to render it legally invalid: the effect being, to throw great obstacles in the way of fictitious contracts, or contracts made in circumstances which, if known, would destroy their validity. Precautions of a similar nature might be enforced in the sale of articles adapted to be instruments of crime. The seller, for example, might be required to enter in a register the exact time of the transaction, the name and address of the buyer, the precise quality and quantity sold; to ask the purpose for which it was wanted, and record the answer he received. When there was no medical prescription, the presence of some third person might be required, to bring home the fact to the purchaser, in case there should afterwards be reason to believe that the article had been applied to criminal purposes. Such regulations would in general be no material impediment to obtaining the article, but a very considerable one to making an improper use of it without detection.