2012 June 25 Monday
Islam For The Nostalgic?

Gavin McInnes says Islam is so far behind us that news out of Islamic countries makes him feel nostalgic.

Every time Islam pokes its head out of its towel, I get nostalgic. Oh, women in Egypt were sexually assaulted for protesting sexual assault last week? Ahh, that takes me back to the halcyon days of the Wild West. Pardon? Did you say a Muslim man screamed, “God is great!” before throwing his wife’s head out the window in Berlin earlier this month? Ho ho, that takes me back hundreds of years to the old witch hunts in that fun little college party town called Salem. What’s that? Homosexuality is still a capital offense in Saudi Arabia, Iran, Mauritania, northern Nigeria, North Sudan, and Yemen? Ah, sweet old 16th-century England. When I was told yet another woman was stoned to death in the Sudan a fortnight ago, I was catapulted back to the way we were in the 4th century.

I think we need to keep Muslims in the 50+ Muslim countries in order to keep the past physically distant from us today. They can then decide at their leisure whether go through enough social and political development that they cease to embrace ideas for societal organization that are obviously anathema to most Westerners. Such is the poverty of multiculturalist discourse that even though I'm stating the obvious you will find few leftist intellectuals willing to face the fact that a non-Western religion is incompatible with Western societies.

By Randall Parker 2012 June 25 10:45 PM  Civilizations Clash Of
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2012 June 24 Sunday
Parental Human Capital Endowments Key To Son's Success

The standard leftist interpretation of enduring intergenerational differences in educational achievement, career success, and income is that upper class people give their offspring big advantages in the form of better educations and connections into the business world. A study with Swedish subjects found the income of dads was less important than the skills of dads.

Sons of fathers with high incomes tend to end up with higher than average incomes themselves, but new research shows that it's not just dad's money that helps a son on his way.

According to a study recently published in the Journal of Political Economy, human capital endowments passed from father to son—perhaps in the form of smarts, advice, work ethic, or some other intangible—could be more important to a son's success than the size of dad's paycheck.

Skills are tied to intellectual ability. You can't develop, say, the skills of an electrician if your IQ is 80. You can't develop the skills of an electric power plant manager or a large construction site manager if your IQ is 90. You can't develop the skills of a medical doctor or a civil engineer if your IQ is 100.

To separate the effects of the fathers' skills from fathers' incomes they looked for fathers who, due to local labor market conditions, made less than their skills would predict.

"We know there's a correlation between fathers' income and sons'." said David Sims, an economics professor at Brigham Young University and one of the study's authors. "What's gotten less attention is the mechanism. We wanted to see if the intergenerational income correlation is due to money—what we can buy for our kids—or if human capital attributes passed from father to son play a role as well."

The problem is that separating the two inputs is tricky. On average, fathers with higher human capital endowments also tend to have higher incomes, so it's hard to tell which factor is doing what. Sims and his colleagues used a statistical model and a rich dataset to try to disentangle the two.

The authors' methodology builds on the following thought experiment. Take two smart, similarly skilled and educated fathers. Say one lived in a town with a robust labor market and he had a big salary. The other father wasn't so lucky. He lived in a town with a depressed labor market, and had much lower earnings despite his comparable human capital. If money is the only thing that matters in the intergenerational transfer of income, then we'd expect that the son of the lucky father would end up with a higher income than the son of the unlucky father. However, if human capital matters, the two sons may end up with more similar incomes.

Note the study didn't account for maternal (genetic or nurture) influence on child development.

"We can conclude that, for the men in our dataset, differing human capital endowments passed from father to son account for about two-thirds of the overall intergenerational income relationship," Sims said. "We don't offer a final answer here, but we do offer some boundary conditions and present a methodology that could help unravel the question."

I am reminded of an adoption study of Korean babies in the United States found no economic benefit to being raised in upper class households. Also see the follow-up post by Alex Tabarrok on misconceptions in some reactions to that report. Note that this study found that for the range of economic classes examined there is not some marginal lasting nurture benefit from being raised in higher income families. This strongly argues that genes are far more important than environment over a large range of environments found in families in America. This isn't going to hold true in, say, India or China. But it does hold true in the United States.

In an industrialized country the advantages of having higher income parents are not that great. Whereas the advantages of having a high IQ are huge. I'd rather have a 130 IQ and poor parents than a 120 IQ and wealthy parents. Years after leaving home the extra 10 IQ points will help with decision-making and learning all day and every day. The effects of childhood experiences will fade in comparison to one's on-going intellectual development and daily mental work product.

By Randall Parker 2012 June 24 10:22 AM  Human Nature Cognitive Ability
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2012 June 17 Sunday
Heartiste On Zero Marginal Productivity Worker Trap

How to avoid a rising number of unemployed who can't make enough useful products and services to be worth the trouble to hire and manage?

1. How is the present automation and productivity conundrum qualitatively different than ones from the past (for example, the classic case of the auto replacing the horse and carriage)? If you do not believe it is qualitatively different, explain how we escape the “zero marginal productivity” worker trap, especially in an era when human capital is shrinking due to a combination of dysgenic birth rate differentials and mass migration of unskilled poor? Note: “Humans are fungible” is not an acceptable cop-out.

2. If, say, most of the profits go to the top 10% in society, while the bottom 90% are unemployed or marginally employed, how is it exactly that those top 10% will be able to extract profits from a customer base that doesn’t have the income stream to afford more than the basic necessities?

I do not think trickle down economics will work to solve this problem because people will end up preferring robots to people. Why have a human maid clean your house if your robot can do it any hour of the day or night, the robot won't steal, the robot won't take vacations, and the robot won't cost as much? I do not see how the menial laborers will be of much use. The convenience of automation will surpass the convenience of lower class servant workers.

Once the upper classes start to look at the lower classes as worthless to them what happens next? What will the upper classes decide to do with the lower classes?

I've written about this previously. See Gregory Clark Expects Unemployable Lower Class, The Rise Of Zero Marginal Product Workers, and Zero Marginal Product Workers A Growing Problem? Also see a Technology Review article about how technological advances are wiping out classes of jobs faster than other classes of jobs are arising to replace them.

By Randall Parker 2012 June 17 09:37 PM  Economics Labor
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Huge Higher Education Shake-Out Coming?

Sebastian Thrun showed in a computer science course at Stanford that providing education online can be vastly cheaper.

In the end, there were 160,000 people signed up, from every country in the world, he says, except North Korea. Rather than tape boring lectures, the professors asked students to solve problems and then the next course video would discuss solutions. Mr. Thrun broke the rules again. Twenty-three thousand people finished the course. Of his 200 Stanford students, 30 attended lectures and the other 170 took it online. The top 410 performers on exams were online students. The first Stanford student was No. 411.

Mr. Thrun's cost was basically $1 per student per class. That's on the order of 1,000 times less per pupil than for a K-12 or a college education—way more than the rule of thumb in Silicon Valley that you need a 10 times cost advantage to drive change.

This will take off because the stories of crushing college debts and poor job prospects keep spreading around. Why learn useless junk at high expensive? Better to learn useless junk at low expense or really valuable stuff at low expense. Once people get out into the workforce and discover their first attempt at college education was a waste of time that left them deeply in debt they are going to be really open to learning valuable stuff at much lower cost.

Why not watch online courses and take online tests? Granted, you won't be able to do question and answer sessions. But if Q&A sessions get recorded and properly indexed you'll be able to search thru and find questions asked that are similar to your own questions. Odds are your questions won't be unique.

Another thing to note here: Smart people with technical skills will face more competition. In the past if you didn't figure out you ought to take a more technical educational track then by age 22 you were often left without the opportunity to wise up and change course. But with online courses someone who hits their late 20s and finally clues in on what's valuable in the job market will have a much easier time going after skills that matter.

By Randall Parker 2012 June 17 09:00 PM  Education Online
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College Grads In Menial Jobs And Deeply In Debt

Higher education is perpetuating a great evil. Check out these pictures.

College admissions officers are con artists. They are selling a fantasy. If they were selling a physical device that purported to provide benefits of the sort that colleges claim then they'd be locked up for fraud.

A US federal agency, the Consumer Financial Protection Bureau, solicited comments from the public about their experiences with student loans. The student loan debt stories are tragic. The CFPB put this feedback into batches in PDF documents. Here is the main list of feedback documents. Look for ones where the writer's name is not specified. Each such PDF has many individual feedbacks. For example, this one. Then click on PDF attachments. Then you get the horror stories:

$122,268.70: The amount I owe in student loans I began my freshman year at Northeastern University in September 1999. Excited to have been accepted to my "reach," I begged, borrowed, and (practically) stole to pay the steep tuition. I received little federal money, did not have the fairy-tale college fund, and my struggling single-parent mother was unable to provide much assistance. To cover the tuition, I sought the help of private lenders (Sallie Mae, Citibank) and at the ripe age of 17, signed my life away. At the time, borrowing more than $100,000 seemed like a good idea. I could pay little, if nothing at all while in school, and had the rest of my life to pay off the balance. They weren't kidding--THE REST OF MY LIFE, for sure. I had one second of clarity when a loan counselor at NU asked, "Why would you borrow this much money if you plan to become a teacher?! How do you plan to repay your loans?" But quickly pushed the idea of NOT attending NU out of my mind. I'd manage, I thought...

Well, here I am, at the ripe age of 30. I've since attended graduate school (Columbia University--another steep tuition and more loans), have secured a great teaching position, and have been faithfully paying my minimum payments (approximately $1150) each month. I've looked into every loan forgiveness program available but unfortunately, since I: 1. have privately held loans and 2. do not teach in a "needy" school district, I do not qualify for such forgiveness. Regardless of the fact that I'm a teacher whom, with seven years of experience has taught both regular and special education students, I'm deemed undeserving of loan forgiveness since my students are not living at or below poverty level. I have contacted the Department of Education for help, have submitted loan forgiveness applications, and have researched programs on my own, but have been unsuccessful. Private lenders, in my opinion, do not need (another) bail out. I, on the other hand, do. Please help.

This teacher's story illustrates one of the hidden costs of making class size smaller: More teachers mean more college students going for a teaching degree that won't earn enough to pay down the debt incurred in getting trained to be a teacher.

People who go to any law school aside from the top ones are making a big mistake. They'll never make enough to pay back their loans.

I am a graduate of a private university's school of law. I currently owe approximately $130,000 in graduate school loans. I make approximatley $55,000 a year as a county government employee. While my salary is decent, my student loan payments total $1045 a month. I have no other form of debt. I live in a one bedroom apartment and my utilities include: electricity, gas, a cell phone with no data, and a limited internet plan. I do not have any additional extras such as cable, monthly subscriptions, etc. After I pay my rent and utillities I am left with a small amount of disposable income, but not enough to begin saving. My fiance, who also has student debt and a graduate degree, and I saved for four years prior to getting engaged and since our engagement in 2010 have again been trying to save up enough to have a small wedding, which we are yet to start planning based on our finances. We live an area that has an abundant surplus of houses on the market, and while we would be able to handle monthly mortgage payments that would be similar to our rent, we lack the ability to come up with a down payment. We also share one vehicle, a 2003 Civic, that is holding up relatively well, but will need to be replaced in a few years. Family planning is no where in our near future, based on the lack of flexibility in our budget. I graduated 3rd in my high school class, in the top 10% of my undergraduate class (1st in my major), and did relatively well in law school. I do not feel as if I am entitled anything...however, I did not expect to struggle so much as I move into my 30 somethings. I question whether my education will be worth it in the end, as I struggle to stay afloat. I am forced to search for higher paying employment outside of the career path I hoped to follow. Until I do find higher paying employment my life will continue to be in a holding pattern where I live paycheck to paycheck so that I can pay off my educational debt.

Private loans set you up for loan hell.

I borrowed two small private student loans because I had run out of Federal Student loan options. I had about 6 months left to finish my degree and my Mother co-signed on these loans through Chela and Great Lakes to assist me in finishing. Once I graduated I moved to another state for a job opportunity that fell through. One month after I moved I received a call from Chela and Great Lakes telling me I was already late on my loan repayment. I said that I "thought I had a 6 month grace period -- the same as the FSA Loans..." I was told that was not the case and I had to start paying immediately. And I did for FIVE years through unemployment and terrible times and economic issues. But these private companies (then called FirstMark Services) refused to give me ANY forebearance time or any kind of assistance. My Mom was ill and these companies were sending notices to her bedside (which the nurses and my family were reading) to exact repayment, even though I was less than 30 days late! After my Mom passed away and the loan situation was worse as it was tied up with her estate and I could get no help from my brother/Executor.

Once I got my small inheritance I could no longer FIND the loans despite spending 3 weeks calling every place I could think of, including the loan locator with the Government. Then I got a call from a collection agency called CONSERVE who I settled with for $8,000 (as I had already paid for 5 plus years on both loans and the balance was still HIGHER than the originated amount). I paid ConServe and they still ding my credit bureaus today! I hired an attorney who advised me NOT to pay the final $250 to ConServe as they kept dinging my Credit and refused to report my payment of $7750! I rue the day I ever borrowed private loans and this situation has been a nightmare for me since the day I graduated, especially since my loans are PAID off except for $250!

Even medical doctors go into loan hell.

I am an MD , I have had private loans through, AES, one and horrible services, they keep their students in dark, does not disclose information of their payments, their policy are very strict and students are mislead and yet their fees are notorious, they charged me 25 thousand dollars additional fees on my student loans, as there was delay in change of my address. they had threatened me during my training, they harrassed me over and over with phone calls, with collection, with my appropriate response and courtesy for request of foreberance until my graduation, was not granted, rather they thretened me and asked me to enter rehabilatation program, and I paid over 12 thousand dollars over a course of year, making my living very diffiucult, yet non of that money was applied toward my principle and rather increased my principle balance by 25 thousand dollars by penalties and fees, when asked about explanation of where my money went, every time I had contacted them, the representative said he or she does not have the information, i have requested it to be mailed to me in detail where the money went, never received any response. my loans ended up over 180 thousands with AES. they up to this date never told me where my money went. and how it was applied, and what were the charges. i am not the only victim of their cunning policy. they have very strict policy without any room for negotiation or any understanding and assistance for student. They should be definitely scrutinized thoroughly, as they are no more than money making agency from student like my self, they are not transparent. I had called many government agency at the time of my hardship, and no one looked into this matter, from that day I spoke to other students, and all of them were facing one or the other type of charges from this AES. please I urge someone to take action and look into this matter. after my perioriod of rehabilitiation I had immediately contacted direct loans, and requested government take over.

Do not rack up debt getting a degree in psychology.

I got private student loans as I entered studies for fashion & footwear design. I had been out of college for 5 years, after receiving my Bachelor's degree in Psychology, and had been able to pay for that with federal student loans, grants, and Pell and Plus (Parent) loans. I wanted to specialize in a field, to make more $ than a sales job. I figured I would be able to pay for my education using similar means, except without the help of my parents this time. I was able to get some federal loans but needed a greater amount to cover my expenses and my school presented me with a spreadsheet of different types of loan options, the only ones I qualified for were private. I expected to be able to pay off my private loans easily as I'd be earning more money in a few years. Unfortunately, my plans to go up in the corporate ladder didn't pan out as I'd planned. I worked in the industry for 2 years and found myself in a limited job market in shoe design,so ended up taking a sales job that paid me less than I needed to live. I also work 2, sometimes 3 part-time jobs and still it isn't enough to cover my high private loan payments. My grace period with private loans is gone, I have gone through periods of unemployment and notified my private lenders that I cannot make the monthly payments. Unfortunately, I've had no recourses for lowering my monthly payments or increasing the loan repayment period to lower my payments. My monthly payments are the highest monthly expense I have had for years, $630. I live a very frugal lifestyle and have cut down substantially on my expenses but unfortunately this is one I have no control over. My lenders have simply told me I have no other options: somehow find the way to pay each month or not pay and suffer the consequences with creditors. I have looked into bankruptcy because of this and found that it isn't an answer either as these loans would not qualify. It's unfortunate that there is no one policing this kind of unscrupulous lending.

The PDF goes on for many pages full of stories of people who should not have borrowed money to attend college. The value they got from their college degree was minimal to non-existent. For most degrees loans should not be available. Unless the degree opens the door to a high paying job right after college the degree program should not qualify one for a student loan.

By Randall Parker 2012 June 17 09:17 AM  Education Returns On Investment
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2012 June 11 Monday
Skilled Immigrants Drive Out Skilled But Not Unskilled Natives

This makes perfect sense.

In the first study to measure the temporary impact of highly skilled immigrants on native populations, University of Notre Dame Economist Abigail Wozniak and Fairfield University's Thomas J. Murray — a former Notre Dame graduate student — found that when highly skilled immigrants move to a city or town, the U.S. natives in that area who are also highly skilled tend to move away. However, the study found that the same immigrant group's presence decreases the chances that low-skilled natives would leave.

"High skill" refers to those having some post-secondary education or above, while "low skill" are those with a high school diploma or less education. "Natives" refer to U.S. citizens by birth.

The correlation between skills and intelligence is pretty strong. So is the correlation between education and income. Smarter and more skilled people tend to work in different occupations than the less intelligent and less skilled. So smart immigrants and smart natives tend to compete more for similar jobs. The less bright work in simpler occupations where they serve the brighter and each other. So, for example, much less bright people do trash collection. Increase the supply of engineers, whether native or imported, and the net effect is to increase the demand for less bright people to serve them.

According to the study, which will appear in the July issue of the Journal of Urban Economics, smaller and more geographically isolated cities show the biggest impacts. There was little difference in results between growing versus declining cities.

This result is not surprising. The cause seems obvious. But these economists entirely miss the cause:

"We conclude that natives with less education take longer to adjust to the arrival of immigrants in their local labor market than do natives with more education," Wozniak says. "These effects are more pronounced in smaller, more isolated communities, from where it would be more difficult and expensive for less skilled natives to relocate."

If immigrants with more education arrive in a labor market then those immigrants work in occupations where they directly compete with the more educated. Those more educated are much smarter on average than the less educated. The immigrants do not compete with the less bright and less educated. Rather, the immigrants use their earnings from higher paying jobs to pay for services from less educated natives.

Since the added buying power of more skilled immigrants increases the demand for less skilled natives (more demand for construction workers, plumbers, auto repair technicians, grocery store clerks, etc) it is not surprising that less skilled natives stay when the highly skilled immigrants arrive. This result is not surprising.

By Randall Parker 2012 June 11 09:45 PM  Immigration Labor Market
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2012 June 10 Sunday
Foreign Workers Not Very Welcome In China

Western countries are anomalies in so many ways, both good and bad. A Bloomberg Businessweek article lays out the poor and worsening outlook for foreign workers in China.

As in any gold rush, few strike gold. “There’s this perception that China is a land of opportunity where any foreigner can succeed, which is not really true,” says Michael Thorneman, partner and head of China operations for Bain & Co., which advises numerous multinationals on hiring decisions. “They don’t necessarily want us here,” says Mathew Alderson, a Beijing-based lawyer for international law firm Harris & Moure. “America is a nation built on migrants, but China can’t say the same.”

If you are a skilled and motivated worker in a Western country with poor job prospects where to go? The answer is not obvious. Silicon Valley comes to mind. Where else?

What demand still exists is confined to higher levels of management.

Multinationals still need foreigners, Thorneman says, but the available jobs are mostly mid- to senior-level. Even the top ones are becoming more local, with only 6 percent of multinational executive positions in Asia going to candidates from outside Asia, according to the Wall Street Journal.

With automation destroying jobs faster than new jobs are being created I wonder about the best long term strategy for maximizing one's value on the labor market. Which skills will become useless next? In 5 years? In 10 years?

I foresee a shortening list of safe jobs. Even higher education has become less of a safe place to work. More positions go to low paid adjuncts who work on short term contracts. Online learning is going to cut into the demand for adjuncts and tenure track positions. In the 10 year time scale I expect professorships at medium and lower ranked colleges to head for the chopping block as people who can't afford or get accepted to top ranked schools increasingly gravitate toward online learning in order to save money and increase convenience. Even the big brand name schools will feel the pressure eventually. They'll become even more dependent on research grants.

By Randall Parker 2012 June 10 05:57 PM  China Labor Market
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2012 June 07 Thursday
How Objective Are Economists?

Just came across this 2009 piece in the Huffington Post: Priceless: How The Federal Reserve Bought The Economics Profession. It gets at a question I wonder about more broadly: Who can be trusted to have motives that cause them to be objective, competent, uncorrupted, and honest? Who to listen to?

We need better ways to know who to listen to. Look at, say, prominent financial reporters. They've got huge incentives to be captured by the industries they report on. They need contacts. The contacts do not want negative stories about their firms or their industry. That cuts the value of a large number of financial reporters. Ditto reporters who cover government agencies, academia, and other areas. Plus, competence is a problem. Is the reporter who covers Goldman Sachs as smart as the investment banker who works for Goldman Sachs? Unlikely. If you are smart enough to get into Dartmouth and get a job offer from Goldman Sachs why become a much lower paid financial reporter?

We need better ways to find who to listen to. Got any ideas for how to do this?

By Randall Parker 2012 June 07 09:06 PM  Elites Versus Masses
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2012 June 02 Saturday
Euro Current Unsustainable, Disintegration Looms

Having a nice day? Me too. Think everything is looking peachy? Yep. Just leave aside a looming financial disaster, Peak Oil, and a rising ratio of parasites to the productive. No reason to let these things get you down. Things look great. But the old Chinese curse (or so I've been told) of "may you live in interesting times" seems appropo. Mario Draghi, the top guy in Europe's Central Bank, thinks the current course of the euro zone can't be sustained.

FRANKFURT, Germany—The head of the European Central Bank warned Thursday that the euro currency union is "unsustainable" without stronger political and financial ties, and called for a new course to save it from a crippling debt crisis.

What I can't figure out: Is the Euro elite just stumbling along driven more by the internal politics of each state? Or are they intentionally letting this crisis build up to such a scary looming financial disaster that they can push thru an effective United States of Europe? Stumbling to disaster? Or Machiavellian scheming toward closer union?

The euro zone is in danger of disintegration.

Mario Draghi said the central bank could not "fill the vacuum" left by member states' lack of action as it was claimed the zone is on the point of "disintegration".

Italian Prime Minister Mario Monti says Europ needs to try harder to limit the contagion. That means closer fiscal integration with the various member states getting veto power over each other's fiscal policies.

"I think Europe should accelerate its efforts in order to limit the contagion, not simply because a huge financial contagion and crisis would be a frightful event, but even more because this would dismantle support for sustainable fiscal discipline," he said.

How is this going to resolve? Are a bunch of schemers thinking "We've got this in the bag. The crisis is big enough to let us gut the remaining sovereignty in the Euro states"? Or are they stockpiling food and moving money to safer havens?

By Randall Parker 2012 June 02 10:50 AM  Economics Sovereign Crises
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