Monday, July 10, 2017

High Standards and Low Expectations

I have some core underlying beliefs that drive much of thinking and writing.  One of those is on the necessity of producing a coherent narrative that explains both how things currently are and where we'd like to see things go BEFORE recommending potential solutions that might be implemented.  My strength is in doing an analysis so having this particular bias is playing to my strength.  I will note that others looking at the same situation may very well come up with a different analysis, one that contradicts mine in some fundamental ways.  Very good.  Then we can argue about those.  Such an argument should bring out hidden assumptions, which ultimately must be what explains the difference in the analyses, assuming that logical error has been ruled out as an explanation.

I want to illustrate with two examples.  One is about our national politics.  The other is about undergraduate education.  These are two of my passions at present.  I will note that my economics training makes me produce a narrative in a certain way.   Others might not frame things in the same manner.  On the one hand, this give some novelty to my perspective and may make it interesting for others to consider.  On the other hand, if that perspective is too alien others won't readily embrace it.  It is far easier to stick with the familiar.

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Let's consider national politics.  It is said that many voters have lost faith in the system, which doesn't work for them, and which is rigged in favor of the rich and powerful.  You read about this over and over again. Taking that as a starting point, one might proceed by making a list of requirements for a system that did work.  Getting that far others might do as well, but usually this is done piecemeal rather than taking all the requirements together as a whole.  The next step would occur to economists but likely not others.  We need to ask, re the requirements as a whole feasible, meaning they can all be satisfied by a functional system, or are they infeasible, meaning taken together it is not possible to satisfy them all?

As I said, we often don't ask this question.  If we did and we found that the answer is that the system is infeasible, the next step in the process entails going back to the requirements and looking for candidates that can be deleted from the list, while still maintaining that the remainder are sufficient for making the system work.  With fewer requirements, it is easier to get feasibility.  One can then envision an iterative process that looks for the best possible feasible solution.  Let me illustrate with what I hope is a simple example.

Whether Democrat or Republican, people would agree that one important goal is for anyone willing and able to work is that they can find a decent paying job.  The Democrats argue for raising the minimum wage as part of the solution.  A substantial minimum wage ensures that the pay is adequate for the work done.  If the person can find work at the minimum wage, then clearly it will be effective in providing a decent job.  But what if the person can't find work?  One possible retort, one I have never heard anyone argue for but on one level makes sense, is to have the minimum wage indexed to the unemployment rate - a low unemployment rate means a high minimum wage and vice versa.   Another possible retort, and again I have never heard anyone argue for this, is that the minimum wage stays fixed but wage subsidies are available to employers and those subsidies are indexed by the unemployment rate, so the taxpayer pays some of the wage when the labor market is soft, but not otherwise.  The way the argument normally goes, the minimum wage looks like a free lunch.  It raises worker incomes and doesn't cost the taxpayer a dime.  Once you realize that the free lunch is often not feasible, you are probably willing to entertain other policies that ask for taxpayer assistance to make the economy work better, such as a major increase in public works.  But if you do that, do you still need to raise the minimum wage?

I don't want to argue for the preferred alternative here.  My point is that we almost never have a discussion of this sort.  Instead, we're off to the races with our solution and spend essentially no time in considering whether it is a solution and, if so, why that is the case.

I want to raise a different point here. As a rhetorical matter, it is much harder for Democrats to produce a coherent narrative than for Republicans, especially those Republicans who are fundamentally libertarian in their views.  For these Republicans, the best government is no government, with the exception of an agreed upon need to provide for the national defense. Beyond that, cutting government spending and cutting taxes are all they need talk about.  Even if their argument is wrong, because it would produce pernicious results if enacted, it still is easy for them to make the case.

I bring this up because if the Republicans only need soundbites to get their point across, Democrats may be stuck with bullet points that have a list of policies, rather than a coherent narrative, just so they don't try the patience of undecided voters.  A coherent narrative is slower to articulate and demands that the listener pays attention.   There is some upside to this.  The narrative, if it get through the voter's information filters, has the potential to educate the voter.  But if it doesn't get through, of course it does no good.

A coherent narrative is difficult to construct.  It requires bringing assumptions out into the open so they can be examined.  Consider the use of tax dollars to shore up the labor market, as mentioned above.  At present, nobody is talking about this.  Attention is elsewhere, on healthcare.  Evidently that takes additional tax dollars as well.  Many don't worry about this at all, because it is about taxing the wealthy.   But, as I have argued elsewhere, we really should look at all the policies that need new taxes to support them and consider the demand for new tax revenues in aggregate, when these are taken together.  Coherence in the narrative requires doing that.  Otherwise, it is possible to spend the same tax dollar more than once, to achieve the requisite spending via a sleight of hand, or go to the well too often, even when taxing the rich.  At a minimum, there needs to be an articulation of how much tax the rich should bear and the philosophy that informs that view.

Our discourse almost never does this.  It focuses on the beneficiaries of the policy only.  That may be human nature.  But by doing so, it fails to address whether the program is actually feasible or not.  The matter of feasibility needs to be brought out into the open. We are nowhere near doing this.

In Illinois, where the legislature has overridden the Governor's veto, so we have the first state budget in three years, there will be an income tax increase.  The state income tax is based on tax income reported on the IRS 1040 form, and then adjusted (for example, my pension is not subject to Illinois tax, but it is subject to Federal income tax).  Once the adjustments have been made, a flat rate is applied to the taxable income.  The flat rate had been 3.75%.  It is being raised to 4.95%.   So, one might think this is a 1.2% increase.   But for those who were against this tax increase, they are saying it is a 32% increase (divide 1.2 by 3.75).  In other words, they are in attack ad mode.  Attack ads don't help with understanding coherent narratives.  They prevent us from ever producing such an understanding.

I'm afraid in Illinois, we haven't gotten much beyond this.  There is a near term/immediate problem that requires attention. The state has a backlog of unpaid bills from not having budgets the previous two years. Unless those get paid, and soon, the state will get a credit rating of junk bond status.  That would be devastating as the state needs to borrow to do business, and those rates would be usurious if the credit rating is downgraded in this way.  At present it is unclear, at least to me, whether the bills will get paid in a timely fashion and the credit rating downgrade will be avoided.  But it is a sure thing that the bills would not be paid and the credit rating downgrade would happen if we didn't have a budget.  So in that sense, passing this budget is an improvement.

There is a larger, long term structural problem.  That state carries much debt, primarily owing to pension obligations.  What would a feasible solution to this structural problem look like?  The state needs to be running substantial budget surpluses that can be used to retire the debt.  Two pretty obvious ways of getting this are: (1) having even higher income taxes than described above and (2) reducing pension benefits so the estimated obligation comes down.  On (2) there is the further issues that this can only happen by amending the state Constitution.  So it would be arduous to do this.  But that is not impossible.  However, it would requires political goodwill that simply doesn't exist now.

For instance, there could be a threshold pension amount, say $40,000, below which it is not subject to Illinois tax, but all pension income in excess of the threshold should be treated as ordinary income subject to tax.  And the COLA (cost of living adjustment) that applies to the pension, currently 3%, could instead be determined by the increase in the CPI.  Inflation has been running under 3% since I retired.  As a result, my real pension income has risen.  That sort of windfall is nice for me, but it makes no sense as public policy.

Likewise on (1) there probably should be some progressivity in the tax rates.  If that is not possible politically, then that marginal rate, now 4.95%, should be higher.  It was set, artfully, to be less than 5%, which was the temporary rate under our previous governor.  If we're serious about addressing the long term problem, what alternative is there?  Yet it is political suicide to propose this sensible solution.  So we get a budget, but as near as I can tell little if anything done to address the long term problem.  And we have recrimination from all quarters.

The same sort of thing is happening at the national level.  The entire discussion on healthcare is unreal.  Population growth, which can be forecast, is not accounted for in the discussion.  Likewise, future increases in health care costs are not factored in.   So total spending on Medicaid will not drop, as the Republicans claim, but real per capita spending on Medicaid will drop substantially.   Feasibility is critical in this discussion.  But feasibility gets a back seat to wild or irrelevant claims that seemingly allows the politicians to talk straight to the interviewer while not illuminating the issues for the audience at all.

I originally started to write this piece wondering about the following questions.  Are our problems really so intractable now? Or is it just that our leadership is mediocre to poor?  Or is it that the the leadership is good at some things but bad at others.  For example, Republicans evidently have a good capacity for obtaining a majority, but seem far less functional as the governing party.  My presumption is that the system was once functional, even if it had flaws, and that it became dysfunctional over time.  So I wondered, even if we could somehow make the system functional in the here and now, would it nonetheless drift back to dysfunction after that, in the not too far off future?  To steal a line from the movie, A Beautiful Mind, we need to understand the underlying dynamics. These days who thinks about things this way?

With that in mind, here's a list of factors that one should consider.

1.  Private sector unions are on life support.  A once powerful force in society, one that defended the interests of labor, is now too anemic to do much if anything, politically or economically.  For example, are the drivers for the United Parcel Service, Federal Express, and the U.S. Post Office part of some union?  I'm guessing the answer to that is no, they aren't.  What would happen if they all became part of a latter day version of teamsters?  Undoubtedly that would raise shipping costs to the workplace and to residences with a significant impact to online shopping, which has just about destroyed face-to-face retail.   Now trace through the indirect consequences of that increase in cost for the entire economy.  Might those be good for the economy overall?

2.  September 11 did a number on the national psyche.  We've never overcome that and never thought it through collectively.  When candidate Obama was in the throes of the campaign in 2008, he gave an adult speech on race.  It was what many of us wanted and needed.  I, for one, wish he had done more in this domain while in office.  For example, here are some remarks he gave at a press conference the week after the verdict on George Zimmerman in the Trayvon Martin case.  Reading those remarks just now, they seem balanced yet not inspiring to me.  And they were kind of overwhelmed by subsequent events that led to Black Lives Matter.  So it seems to be that one telling on such an important issue is not nearly enough.  But on September 11,  we didn't even have that one great speech, to frame how we should think about the issues.  Instead, we had WMD and getting rid of Saddam.  I wonder if after all this time it might still be possible to have a great speech that looks at September 11 in historical perspective and considers what an adult view of the issues looks like.  There is so much phobia and hyperbole here.  It will be very hard to counter that.  But counter it is what we need.

3.  The Great Recession was worse than you think and we still haven't recovered fully.  Part of this was about predatory finance, which continues to be a feature of the economy and for which big powerful people were not punished.  This you read about on occasion.  The system was brought to its knees, many of the little guys took it in the shorts as a consequence, but none of wizards of Wall Street went to trial.  This particular outcome contributes the most to the view that the system is rigged.  But it is something else that we should really think more about and that has gotten far less attention.  In the 1980s, the miracle economy was Japan.  It was going gangbusters.  The Japanese auto industry was cleaning the clock of American car companies.  Japan was also the world leader in electronics, where Sony was The Company.  Fast forward to a decade later and the world is entirely different.  Japan is in slow growth mode and being overtaken by other Asian miracle countries, first South Korea, then China.  Fast forward again to the present.  Now the entire planet of first world countries is in slow growth mode.   Look at the interest rates that the national banks are charging.  We don't do monetary and fiscal policy in a coordinated way across these countries.  But what is clear is that fiscal policy has been weak.  (And think of all the rhetoric about government spending being bad, which encourages that.)  Let me note, in addition, that in a high growth environment finance will look for profitable investments, but in a low growth environment, predatory finance might be the profitable play, so more of it will likely happen.   This is a lead weight on the overall economy, dragging it down.

Now two items that are directly about politics.

4.  Voter participation rates are very low.  Extreme voters turn out in high number while there is low overall participation, particularly during the primaries.  The primary system is producing non-optimal outcomes as a consequence.  This is playing out more on the Republican side than the Democratic side, but consider the furor about Super Delegates, who favored Hillary Clinton.  The Economic Theory of Democracy that I was taught in college in the mid 1970s, from a right leaning professor - University of Chicago PhD - produces outcomes in the middle, where the middle is determined by voter preferences.  This is called the median voter model.   The middle of the Republicans surely doesn't coincide with the middle of the Democrats, so in actual governing there is still room for negotiation.  That's the way the system is supposed to work.  Instead what we have now is that the majority party tries to do it alone.  There is very little bipartisan cooperation.  Given the low voter turnout, if legislation can get through this is tyranny of a plurality over the rest of the country.  Mainly we've seen something else, gridlock.  The extremism encourages that.

5.  There is too much money in politics.  The winning candidate is usually the one with the bigger war chest.  Most of the money comes from a small set of donors, who act like puppeteers.  The candidates are the puppets.  This is a particular form of regulatory capture.  the special interests are winning the day.  Much has been made of Citizen's United.  It was a bad decision.  Money is not speech.  Nevertheless, we're kidding ourselves if we think the problem didn't exist before Citizen's United or if we think that writing a law that limits campaign contributions will solve things by itself.  An alternative is needed, a low cost way to get out the vote on a consistent basis, and a low cost way to counter negative attack ads.  One might envision in this era of social networking that there are realistic possibilities to this effect.  But retail politics is traditionally door-to-door and that is needed here.  Keeping it low cost means much of it would be volunteer work.  The issue is whether that can be organized at scale in a way that produces meaningful results.

One could easily make this list longer, but it suffices for describing the situation.  We need an approach that addresses all of these points simultaneously.

Now I want to turn to the title of my piece.  The high standards part is recognition of this need.  The low expectations part is that we don't seem to have political leaders who will step up on this.   Instead there is a piecemeal approach.  Viewed from the perspective of the Democrats, this isn't so much about centrist versus left policies.  It's about obtaining coherence in a way that many people would support.  Potential voters won't support left or centrist approaches if they feel that the promises are empty and can't be delivered.  They won't vote, a rational choice under the circumstances.  At present, those expectations are self-fulfilling.  Changing those views requires a coherent game plan that is then adhered to.

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This piece is very long already, so I will try to keep this section on higher education brief.   Last week I was chatting with a friend, a former Dean on campus.  We were talking about the state of funding for Higher Ed in Illinois.  He raised some questions about whether institutions like Eastern Illinois University and Southern Illinois University should be publicly supported, because they have mediocre placement rates.  I didn't want to admit during the conversation that I didn't know what a placement rate is but I gather it somehow measures whether graduates get a job after graduation.  (What sort of job, how long after graduation, and whether the student already had the job before graduation or if that matters are a few of things I didn't know.)  I did note to him in a subsequent email that the U of I almost surely has students who have greater qualifications upon entry to college as measured by: (a) standardized test scores and (b) parental income.  That more qualified students have higher placement rates is not surprising.  Education is supposed to be the great leveler.  But it seems to be serving, instead, as a way to let the rich get richer.

There is also the matter whether landing a job is the right measure of college.  What about how much students learn?  Even as there is some movement on this front, via application of well examined rubrics for the evaluation of student work, there surely is subjectivity at play here as the instructor must apply the rubrics to the assignment and to the work that the student does in completing the assignment. And we are nowhere close to universal acceptance of this sort of evaluation by rubric.  The upshot is that course grades are still the best indicator of learning that we have and we know those frequently depend on, for example, whether the instructor teaches to the test or not.  Research tells us that he right measure of learning is whether students can transfer the ideas being taught into novel contexts.  If students can't transfer in this way, but can spit back the instructor's lecture verbatim, it is possible for there to be high grades but very little learning.  The opposite is also possible, though I believe that occurs with much less frequency. 

I have written on these matters many times before, most recently in a piece entitled, What should we be teaching? What can we be teaching?  It argues that we are falling far short of what we should be doing.  One reasons is that the students are far too instrumental about their education.  They care a great deal about their grades but seemingly care not much at all about whether they are learning in a deep way or not.  Another reason is that many of the instructors depend on creating student satisfaction to ensure they keep their jobs.  Taken together they provide the underlying conditions that encourage a teach-to-the-test approach.  The tough economic times we find ourselves in only exacerbate the issues.

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In both our national politics and in higher education, the challenges are formidable, though I don't believe they are insurmountable.  However, the challenges rarely get fully identified, so we end up not facing the challenges squarely.  In the small we might do things that offer promise and make it seem we can do better.  For example, recently the Newshour has been airing segments about successful projects in poor urban areas.  These include this segment about nutrition in Chicago's South Side, this segment on policing in Camden New Jersey, and this one on a housing project in Denver aimed to foster health.   Can such approaches scale up?  Can we do likewise for our national politics and for higher education?

I don't know.  I hope we can.

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