Peter Orszag wants more people to get college degrees so that the incomes of people with college degrees will be reduced:
If the increase had continued at the same rate as before 1985, about half the adult population today would have at least a college degree. More graduates would mean lower inequality, because the wage premium for a college degree would be reduced by the additional supply.
I’m sure the people who’ve rung up large debts getting their degrees will find that encouraging.
I continue to think “Stupid or Evil” is the main question when discussing the motivations of the nations leaders. Seriously, how can Orszag want lower wages AND more debt? Is he stupid? That seems unlikely. Which leaves….
I think there’s another explanation: he’s completely dedicated to the idea of college education for all as a solution to our economic woes and he knows economics but not business or finance.
You don’t judge return solely by revenue. You’ve got to take into account increased costs as well. Opportunity costs. Operating costs. And so on.
You know as I think about it, the words “all other things being equal” are implicitly added to everything an economist says if they’re not already there explicitly. That’s one of the reasons the policy pronouncements of economists are so problematic. They’re trained to think in terms of “all else equal”.
Orszag emphasizes the difficulty of the financial aid process, while skirting around the actual problem. There should be no kid going to college that cannot read and understand the FAFSA. I say this because my eldest (11 yr old) at some point posted a reading skill level that indicated ability to read the FAFSA forms. (I thought this was hilarious. The numeric test resorts are typically reported with examplesof the types of books the child should be able to read and enjoy. My kid could not yet enjoy Kafka, but could enjoy a meaty application)
No, the problem is some parents cannot comprehend or be brought to care about the process and the kids are dependent on the parents to report their income and savings. If you simplify the process, the wealthier parents are likely to take advantage of it — the ones thinking about the financial aid consequences of decisions ten or more years out.
What if we instead focused on making college more affordable?
No. I know economics. I don’t know much about business or finance. I’ve never run a business and frankly, don’t want too. And not really interested in finance….
But I know that what Orszag is saying is just daft…assuming the best of intentions. I know that Orszag’s grasp of economics is extremely good.
So, I can’t accept your explanation. I can’t accept stupid either.
Not just economists. Suppose you have a problem where you have 2-3 variables and several parameters. If you start allowing all the variables to move at the same time you have a Hell of a time figuring out what is doing what. So the solution at that point is to try and model it so you can change each variable individually and look at those individual effects. You can run simulations where you make changes to via policy and allow all variables to change, but even there there are limitations in terms of how you selected parameters and calibrated your model and even still you still assume that some things are static which over certain time spans are not (e.g. tastes).
So you really can’t get away from the all else being equal assumption. But one should always keep it in mind, and state it as well. And I’d even go so far as to say that when discussing policy, you should likely reiterate that absent that assumption the implications of any policy are much more ambiguous. Especially at the macro level which rarely takes into account that people’s behaviors can change as policy changes.
Where I work it is done to an even more extreme extent. When they want to figure out how a rate change will impact revenues, they don’t do the following:
Estimate statistical models of customer KWH consumption, then change the rates, use the new rates to see the impact on consumption, then calculate the new revenues (assuming normal weather, and no new technologies, etc.).
Instead, they take the last years KWH numbers, assume usage at different times of the day, and tier levels (i.e. for some customers the more you use the higher the rate), and everything else and use the new rates. That is ceteris paribus on steroids.
The first is how and economist would do it. The second is how a business would do it.
I was going to touch on endogenous factors vs. exogenous factors but decided to scrap it on the grounds that it would just confuse things.
@Steve Verdon
So, I can’t accept your explanation. I can’t accept stupid either.
What do you think is the explanation? My choice would be “Stupid or Intentional”, but “Intentional” does not explain what the intent is.
I’ll take a stab at “Intentional”. Anybody who’s spent more than 18 years on his or her education is clearly highly personally invested in education. They’re justifying their own decisions.
In a similar vein, individuals who are highly successful and have put a considerable investment into their educations are predisposed to attribute some level of causality between the two. The possibility that they might have been just as successful without an education doesn’t seem to occur to them.
Here’s another explanation: ++good duckspeak.