Monday, September 19, 2011

Consolidation and "Hollowing Out the Middle"

The logic of rural school consolidation is pretty simple, I think:

  • Conventionally-structured public schools don't work well at small sizes (e.g., my daughter's in Latin 3, with fifteen students. Will there be at least ten for Latin 4? If not, it won't be offered. Advanced science courses, same deal...etc.)
  • Rural small towns are getting smaller, so what used to be big enough isn't any more, or won't be soon -- I've already talked about demographic projections for my own area.
There are good reasons for the shrinkage: as Ryan Avent of the Economist notes in a Kindle book (location 618) "doubling county-level employment density raises productivity 6%...over half of the variation in output per worker across US states can be explained by density." Other economists find higher figures, especially for "skilled cities", i.e. places that high achievers tend to go. But take the 6% as a conservative estimate -- Madison County, NY is more than 500 times less dense than Manhattan. That's nine doublings, and 9*6% is more than a 50% increase in productivity, as if you'd added a couple of decades to a career. Quite an incentive, usually expressed in the simple form of job opportunities found mainly in the cities. It's a fundamentally intractable problem -- or is it? There are several responses possible:
  • Go with the flow: consolidate, at least for high schools where the advanced-course shortage is an issue.
  • Tinker around the edges: merge some administrative functions, some transportation costs, maybe kill the art class, hope that we can last a few more years (until my daughter graduates, perhaps -- she's my youngest, and my elder granddaughter just started preschool in NYC.)
  • Look at unconventional structures; after all, the limiting case of smallest size is home schooling, and it doesn't seem that home schooling needs to be academically harmful, e.g. this week's research word from Canada is that "Structured homeschooling may offer opportunities for academic performance beyond those typically experienced in public schools". I doubt that home schooling would work outside a self-selected group, but it indicates that small size in itself need not kill academics, and I've noted before that in various states recently, consolidations and (mostly smaller) charters have seemed to go together. I like the charter idea; somewhat looser rules enabling a number of things like Khansolidation. Or maybe
  • Push back against the demographic trends: figure out why these towns are shrinking, and get them to grow again -- that's the path suggested by Carr and Kefalas' Hollowing Out the Middle: The Rural Brain Drain and What It Means for America. That's what this post is mostly about: Carr and Kefalas have various suggestions, and Carr will be in town this week.

On August 31, our school superintendent, Dr. Bowers, blogged that New York State Releases Money for the Merger Study; in a meeting that same day she spoke about the Hollowing-Out book, so I promptly downloaded the Kindle edition to read on my cell phone (I've really started to like having a few books always with me.)

I don't think that there's much resemblance between the really-truly-rural community of "Ellis" in the book, and the semi-rural village I live in where the major employer is Colgate University, followed by the hospital where my daughter was born -- a lot of our kids are the children of professors, doctors, administrators of various kinds, and so on. There's some resemblance between Ellis and us, though, and it's crucial to the consolidation issue: both are shrinking and aging as young people, especially the "Achievers" and "Seekers", go away at the end of high school and mostly don't become "Returners", i.e. they don't come back except on holidays. How to fix this?

Carr and Kefalas note as they close that "The policies and programs for saving small towns run the gamut" but are not sufficient...

  • they want small towns "to equalize their investment across different groups of young people and to tie education and training for Stayers more closely to...technical computer-based skills."
  • They want small-town high schools to "avail themselves" of community college programs, which should reduce their focus "on those students who are likely to pursue an academic track" and do more about wind energy and welding.
  • There's an important note in the middle of this, which I want to emphasize:
    graduates...mostly flock to metropolitan areas because of the higher returns on education found there, and because this is rational behavior, we should not try to stop them.
  • Instead, they want to emphasize the human capital represented by those who are not Achievers. Specifically,
  • education should be transformed to funnel young people into vocational and preprofessional training that will fill the holes in the countryside's labor force.
    (These holes are in "accounting, business, nursing and medical technology...and computer science."
  • They want to encourage immigration, but with "tighter oversight by state and federal regulatory bodies" along with advertising campaigns to reduce bias and segregation.
  • Finally, they want federal money for infrastructure/clean energy/organic farming.

Well, that's the plan -- there are parts of it that I could partly get behind, I guess. One problem is that the first items sound like they're describing the BOCES service, which we already use:

An example of programs that BOCES might offer are Academics Support, Auto Body Repair, Auto Technology, Building Maintenance, Business Computer Technology, Carpentry, Computer Repair and Networking, Cosmetology, Criminal Justice, Culinary Arts, Early Childhood Education, Electrical Wiring Technology, Forestry & Conservation, Gas/Diesel Mechanics, Life Skills, Medical Careers, New Vision Health, Nursing Assistant, Practical Nursing, Small Animal Care and Visual Communications.
The school we might merge with does it more the way Carr and Kefalas recommend, with BOCES supplemented by dual-credit community college coursework which can indeed be very "practical." One of my sons took BOCES courses. Another took Colgate courses, but those were in ancient Greek -- not a Carr&Kefalas recommendation. Both now live in NYC. I have no objection to these recommendations, but this is what we're already doing. I don't see the evidence that it works to prevent "Hollowing Out." I do favor substantially increased immigration on various grounds, and I'm disturbed by its recent shrinkage, but that's not something a small community can do a lot about. Infrastructure, ditto. I think I'll skip the clean energy and organic farming issues. Overall, I don't see much help here.

Well, maybe there's not much help to be had. I do think there's some reason to expect that telepresence (in medicine as I've written before, in education, in manufacturing, in getting things done generally) will reduce the difference between Here and There for employment purposes, and that will make cheaper locations with better scenery more attractive. But not for some years -- an unpredictable number of years. Meanwhile, I'm thinking about possible ways to restructure schools, and I suspect that this would require reformulation as a public charter.

Update: Well, I've heard Carr speak (as did my daughter's class, earlier in the day.) He commented that this village is more "robust" than the ones he's worrying about; he commented on the central role of the school in small-town existence, and what a disaster a school's disappearance can be. I was surprised by the extent to which it turned into an anti-college talk, arguing that college graduates are overqualified for a large fraction of near-future jobs and that pushing everyone towards college is doing them a disservice. He said that average college debt was $50,000 (and he gave the same figure to my daughter's class, so I don't think I misheard.). This really startled me so I looked it up and find that Consumer Reports says

The average total of debt per student in the class of 2011 will be $22,900.
There is some confusion here; CR agrees that it's rising (but still a good investment), but earlier figures from the NYT say Average College Debt Rose 6 Percent to $24,000 in 2009 - I think the difference is that CR is reporting actual average debt per student (for all students) whereas the NYT had been reporting average debt per student-with-debt (a majority of all students, but by no means all.) I'm not sure of that, though. I am, however, reasonably sure that Carr's figure is quite drastically wrong, which doesn't help his credibility. (My credibility is absolute; I never make mistakes, which is why this blog does not exist.) I do think some of what he said is good: if a region-based training program with certification can connect new high-school graduates with employers, or even encourage employers to move in, that's great. BOCES is a good thing. Welding is a good thing. But robotic welding is growing fast, and I don't think that a career as a welder is a good bet any more. Robotic health care is not as far along, and Carr also talked about certification in health care. Mostly, though, I expect that these certified workers are going to find jobs in higher-density many certified health-care workers is a small town going to absorb? Overall, when it comes to disappearing schools, I don't think that "Hollowing Out the Middle" has much help to offer. A little, especially for states that don't already have something like BOCES, but not much. Too bad. Some of my daughter's classmates apparently summarized his talk to them as "don't go to college, stay at home until you're thirty, work at McDonald's" -- they simply didn't believe in the jobs he spoke of. That's a little unfair, but I'm not sure that it's a lot unfair. I don't believe in those jobs (as local jobs) either.

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Monday, September 05, 2011

Health Care and the Experts: Financial Analogy?

Some co-author or other saw the Myers (fragment-of-a-) Health Care Plan which I put up last Easter, which started with

1. Allow unlicensed health care, wherever it's clearly labeled as such; it won't get public support but people can choose to spend their money on it. The argument against this is apparently that people will make bad choices. Yeah, some will, probably including me and you. So? I've never understood the way some people believe that they (or those they select) can make good choices for others; in fact I'm moderately cynical about licensure requirements as they are now structured, whether for medics or morticians or cosmetologists.
His comment says
I came to look at Chelyuskin but chanced upon healthcare. Your item 1 is the only time I can remember when I totally disagree with you. You say: Some people will make bad choices including you and me. This equates mistakes by poor slobs who lost their houses and livelihoods in 2008 with "mistakes by TJM," that same TJM who, I suspect, belongs to that tiny minority who made money in 2008, because he has both sharp analytical mind and enough money to hire a top-notch money manager. Besides, this just won't work politically: as soon as a poor slob somewhere takes her child to an unlicensed healer, and the child ends up with an amputated limb, the outcry for regulation will be irresistible and, IMHO, justified.
I wasn't sure how to respond to this money-management analogy, and I let it go; I'll give it a try now...

I'm astonished -- and encouraged, because I would not have expected item 1 to be the only total disagreement even in this post, much less in general. And of course it's possible that I'm totally wrong...but I haven't changed my mind yet. Let's take it one step at a time.

The first point of disagreement, a very big one: No, I didn't make money in 2008. In fact in September 2009 I said

I haven't posted for a long time, but it's not that I haven't made any mistakes. Indeed, I've participated to some extent in one of the biggest mistakes of my lifetime -- the market crash of 2008.

Personally, I did see the bubble as such, earlier than some...
In fact I lost much less than I might have because (like my "top-notch money manager" -- I must remember to tell him about that description) I was expecting a downturn at some unpredictable point Real Soon, a small-to-middling wealth-effect recession whenever the bubble popped, and also of course because I avoided real estate. But I did lose, because we weren't expecting what happened. Was this an issue of expertise, in any useful sense of that term? People with far greater expertise than mine, including both the then-current and currently current heads of the Federal Reserve, were denying the problem -- even denying the limited problem that I saw then. (Indeed, since a big part of the problem was excessive risk-taking -- i.e. excessive confidence -- I think those public statements contributed to our still-continuing doldrums in addition to the policy errors I believe they made.) There were indeed a very few people who actually made money by understanding a part of what was going on: a short-seller named Eisman was quoted in late 2008 in The End Of Wall Streets Boom
“We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says.
S&P denies that; I haven't heard any coherent excuses for the way they performed as the Supreme Appointed Financial Experts of the American economy (co-equal with Fitch and Moody's, of course). I dunno. Still it's my understanding that Eisman made money whereas on the average, people with more to lose (them with money managers) lost more, disproportionately more, than those with less. That's a Good Thing, as far as it goes -- it didn't go as far as it should because of Too-Big-To-Fail, i.e. some high-income people had their losses made good at the average guy's expense -- but it doesn't fit well with a belief that experts protect us from making disastrous mistakes. As I said in that Sept 2009 post, "To a disturbing extent, I think expertise in (macro)economics has been discredited. I don't believe this is adequately answered by Greg Mankiw's [remarks about economics being non-predictive]". I agree with parts of Brad DeLong's remarks a few days ago in What To Do About Jobs? that
given that most of what we macroeconomists were saying in 2007 was wrong, what, if anything, do we have to say today? Bear in mind that what turns out to have been wrong was pretty much everything that had been done since 1950....
Well, with part of it. As the the Economist (Ryan Avent) said last week,
The narrow point to focus on, however, is that the story in which the housing bust gave us the recession, because America suddenly had lots of houses and workers it couldn't use doesn't appear to fit the data. The economy muddled on despite the housing bust for two years, at which point, for some reason, all sectors suddenly decided that the outlook for growth was much worse than they'd previously believed.
As he says, that fits the Scott Sumner story I've blogged about before, which can be read as very conventional textbook macro and which blames most of the recession on the experts of the Federal Reserve, who simply did the wrong thing in a big way. (There's still room for other blames, of course.) On a more micro-economic level, I'd say that expert stock-picking advice is also of dubious value: I'm a moderate believer in a very weak form of the efficient-market hypothesis, and if this country were to adopt a deduction-free progressive consumption tax system (which it should do on grounds of efficiency/fairness/sanity) I would almost certainly stop using a money manager -- the money-manager's value is rather strongly dependent on his understanding of a complex system that really shouldn't exist. (Also dependent on the fact that his services are mostly deductible, i.e. you're helping to pay. Thanks!) What would I do then? I would switch to a passive management pattern, which in pure investment terms is at least as good and likely better:
In the United States, indexed funds have outperformed the majority of active managers, especially as the fees they charge are very much lower than active managers. They are also able to have significantly greater after-tax returns.
Most of my decisions would then have to do with asset allocation:
The conclusion of the study was that replacing active choices with simple asset classes worked just as well as, if not even better than, professional pension managers. Also, a small number of asset classes was sufficient for financial planning.
Hooray for Malkiel! And for Samuelson and Bogle!. This doesn't prove that financial expertise is worthless, but I don't think it has the kind of value you're suggesting.

Let me put it this way:

  • Failure to consult such an expert now and then is really stupid. There are a lot of things a financial specialist knows that are not intuitive; important things.
  • Many of these are routine things, how to file this-and-that.
  • Many of these are simple things you really ought to learn yourself (why it probably makes sense to own more bonds and fewer stocks as you get older, etc. etc. etc.)
  • Some of the others are simply not true, and we don't know which until it's too late (why the top tranche of a pile of mortgage-backed securities deserves its AAA rating, etc. etc.)
  • Unlimited trust for your expert is not wise.
  • Compulsory obedience to your expert is a really really bad idea, which fortunately is not employed except for the way that S&P and the other experts are embedded in the laws about risk ratings, which effectively required banks to invest in disastrous mortgage-backed securities...
  • Perhaps the most important financial skill you can have is that by which you evaluate an expert; nobody else can do this for you, but certification and track-record-checking and recommendations are all important.

Your analogy between medical and financial services is not one that would have occurred to me, but it may have merit. Failure to consult an actual medical expert now and then is really stupid. Medical specialists do indeed know a lot of unintuitive things. Many of these are routine. Many are things you should learn for yourself. Many are false. Trust is a good thing, unlimited trust is a bad thing, compulsory obedience is a really bad thing. Certification and track-record and recommendations...yup. Okay, I'll take the analogy. :-)

Seriously, I think you're saying, effectively, that

If there's one seriously bad (but non-fatal) outcome from an unlicensed healer, public outcry will correctly push us back to requiring licensure
It seems to me you're forgetting something: the licensed doctors we have now are responsible for some 100,000 fatal errors per year (perhaps a little less, perhaps a lot more; see Wikipedia.) Those deaths are on top of a death-toll which I believe to be very much larger: deaths caused by the FDA's prevention of innovation. I'd suggest reading one article, Theory, Evidence and Examples of FDA Harm by Tabarrok and Klein:
Three bodies of evidence indicate that the costs of FDA requirements exceed the benefits. In other words, three bodies of evidence suggest that the FDA kills and harms, on net...
Or you might prefer The FDA: Neither Safe nor Effective ending with a Friedman quote:
“‘The FDA has already done enormous harm to the health of the American public by greatly increasing the costs of pharmaceutical research, thereby reducing the supply of new and effective drugs, and by delaying the approval of such drugs as survive the tortuous FDA process.’ When asked, if you could do anything to improve health in America, what would you do? Friedman replied: ‘No more licensing of doctors. No more regulation of drugs. Not of any kind. Period.’”
Actually, I don't quite agree, but my position is a whole lot closer to Friedman's than to anything that's likely to happen, and I'd accept his as being substantially better than what we have now. (And if we magically went to his, I like you and most others would go right on consulting a conventional MD -- but the MD I consulted might not be in the US. It might depend on what happened to the insurance industry, which would now be free to sell the sort of insurance policy that I'd want to buy.)

Or then again, maybe not.

Update:Stiglitz, Nobel Prize-Winning Economist, Says Federal Reserve System 'Corrupt' according to the Puffington Host:

To Stiglitz, the core issue is that regional Fed banks, such as the New York Fed, have clear conflicts of interest -- a result of the banks being partly governed by a board of directors that includes officers of the very banks they're supposed to be overseeing.

The New York Fed, which was led by current Treasury Secretary Timothy Geithner during the time leading Wall Street firms like Citigroup, JPMorgan Chase, AIG, and Goldman Sachs were given hundreds of billions of dollars in taxpayer bailouts, presently has on its board of directors Jamie Dimon, the head of JPMorgan Chase. He's been there for three years. He replaced former Citigroup chairman Sanford "Sandy" Weill.

"So, these are the guys who appointed the guy who bailed them out," Stiglitz said. "Is that a conflict of interest?" he asked rhetorically.
That really might explain the Fed's behavior... in finance as in medicine, the incentives of regulatory capture and crony capitalism apply. People who exert government's influence are always going to be pushed towards exerting it in favor of those who can exert influence on their behalf, and regulation -- especially licensure, as the power to say who can't compete with you -- is always going to be a Very Good Thing from the point of view of those who have a seat at the table. They may even sincerely believe that they are the only true experts, and that those who do things differently are simply not good for the public. (Or then again, maybe not.)

Update, June 13: In the end, the wealthiest did lose proportionately less from the recession: CONVERSABLE ECONOMIST: Wealth by Distribution, Region, and Age says:

Those in the 90-100th percentiles of the wealth distribution have median wealth of $1,864,000, and mean wealth of $3,716,000 in 2010. That's also the part of the wealth distribution that had the smallest percentage decline in the median and the mean from 2007 to 2010.
I believe that, and I suppose it might have something to do with financial advice, but my current reaction is simply that housing was the most overvalued part of the economy, and those below the top 90% had more of their wealth in housing--and were more likely to have to use up their savings due to job losses in the family. I don't think it has any implications for the health-care analogy.

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