Who cares?. As Bryan points out, this sort of study confounds ability with learning, which makes it uninteresting. What would be more compelling would be a finding that students whose CLA scores rose the most during college had the best employment experience. That would come closer to saying that the students learned something, and that what they learned affected employment outcomes.

What adds to the frustration is that the authors had the data. That is, they had the data on growth in CLA. However, they stuffed it into another variable:

Academic engagement/growth is a summary measure including taking courses with reading and writing requirements, hours studying and demonstrated growth on the CLA.

I should add that, in general, creating an index out of variables instead of entering the variables separately is bad practice. You are starting from a situation in which the dependent variable, Y, might be determined by X and Z (assuming linearity) as

Y = aX + bZ

where a and b are unknown coefficients. When you create a "summary measure" that combines X and Z, you are imposing a ratio a/b that is based not on the data but instead on your arbitrary assumptions. Unless you have some strong theoretical or empirical reason to impose a specific ratio (which is very unlikely to be the case here), doing so produces statistically biased results.

too elementary for most MR readers but it is well executed and would make a good gift for anyone needing an introduction to economic reasoning.

1. The price is very attractive. I saw it on Amazon in paperback for under $11.

2. I have a specific purpose in mind for the book. I want something that students who sign up for my AP economics class can read over the summer to give them background in economics terminology. I believe that it suits this purpose, although I will recommend only selected chapters. That was not the purpose for which the book was designed, but considering point (1) I think it will do.

3. I think that Timothy Taylor's comparative advantage is blogging. That is, I am more impressed by his blog than by the book. I mean that as praise for his blog, not criticism of the book.

4. Taylor is a hard-core two-handed economist. He makes the case for government intervention and the case for skepticism about government intervention. His case against government rests on the principal-agent problem. That is, government as agent may not serve the public as principal. Thus, he brings in Public Choice.

5. However, to my taste, he does not make the case for skepticism as well as he might. In his earlier chapter on markets, he invokes "I, pencil" and the ability of markets to process information. In the chapters on government, he does not circle back and talk about the knowledge problem or the socialist calculation problem.

6. More importantly, Taylor does not stress two factors that are important in shaping my skepticism. One factor is the sheer power of exit as compared to voice. The other factor is dynamic learning. Markets, by rewarding success and punishing failure, are relatively effective learning mechanisms. Government, with its much weaker accountability, is a relatively ineffective learning mechanism.

7. Finally, if I were writing this sort of book, I would make very clear the failure of the "intention heuristic" in describing government. When proponents of government intervention make their case, it is nearly always in terms of intent. "X is bad, Y would be better, and we need government intervention to get Y." The fact that government intervention often yields Z, and Z is worse than X, is forever being overlooked.

8. Taylor's attempt to explain mainstream macroeconomics is sincere and competent. However, as you know, I have come to view mainstream macro as a crock. Still, I would include several of the macro chapters in my summer reading assignment, because the AP macro exam is based on this crock.

The format consisted of 4-minute opening statements followed by one-minute responses to questions. It makes for lively entertainment, but not so much for serious discussion. Welch and Goldberg mostly played it mostly for laughs, which is all that the silly format really allowed.

1. Welch was optimistic that Republicans were willing to compromise with libertarians (he cited Jim DeMint's recent outreach efforts, not all of which are on the record.)

2. Both assumed that Mitt Romney will be the Republican nominee, thereby ducking the question of how libertarians might respond to a Santorum candidacy. Is there daylight between Santorum's brand of conservatism and W's? I would like to have gotten an informed answer, but no one asked the question.

3. Welch said that the demographics of Republican primary voters and caucus-goers is skewing very old. I am wondering if 2012 will be the swan song for voters born before 1960. I still think that the future of the Republican Party looks very dim. The last time a Republican establishment candidate suffered a meltdown during the nomination campaign, it did not turn out well for the GOP.

4. Welch and Goldberg took the view that the cascading U.S. debt will drive libertarians and conservatives into one another's arms, just as the Cold War battle with Communism did. I wonder how they would react to the conversation with Garett Jones, who believes that the debt problem will only be solved by a Democratic victory.

5. Both agreed that immigration is an issue where some libertarians (e.g., Ron Paul) and many conservatives take a stance that is more hostile to immigration than is morally or politically wise overall. But I would say they are overlooking the stridency of the Republican base on the issue. They make it sound as though it is an accident that the Republican candidates are not playing up the benefits of immigration. But I would say that this is where the influence of the Tea Party is decidedly not libertarian.

6. Welch tried to say that the Occupy movement has a healthy opposition to bailouts, but Goldberg was having none of it. His line was that the Occupiers are not opposed to bailouts; they just want to get their own bailouts, rather than have the money go to Wall Street. I tend to agree with Goldberg--I think you are kidding yourself as a libertarian if you think that shared opposition to bailing out Wall Street is the basis for some sort of alliance.

7. Goldberg made at least two other points that I appreciated. The first one is that "the libertarian in the room asks the right question: Why is this a job for government?" Without the libertarian in the room, I would say that the question does not get asked.* The second one is that politicians always are a disappointment to their supporters. If nothing else, the pressure to win votes limits their ability to stick to principles.

*What I would say (Goldberg put it differently) is that without the libertarian in the room to question the role of government, the conversation proceeds more along the lines of the joke, "Something must be done. This is something. Therefore, it must be done."

[update: Glenn Reynolds has two related links.]

It is a good discussion, but quite depressing. A naive view of federalism is that it encourages robust competition at the state and local level. Unfortunately, the reality is that competition gets suppressed, and the incentives are rigged in favor of government expansion.

Reihan has some post-interview thoughts, including:

At the very least, colleges and universities should be required to release data on whether or not students demonstrate a significant improvement in learning between enrollment and graduation -- and if they don't, they should be barred from receiving federal student loan money.

[UPDATE: podcast version.]

Whether politicians ignore the poor and pander to the middle class or scare the middle class into thinking they are as bad off as the poor, the result is likely to be the same. Most of our policies will continue to be mis-targeted, as analyses by the Pew Economic Mobility Project and CFED have demonstrated. In turn, they will explode the deficit, leaving less money to promote upward mobility among the poor. And those policies that take the form of tax breaks for investing in savings or education will further price the poor out of markets for mobility-promoting assets--whether higher education or homes--by subsidizing investment the non-poor would have made even without tax incentives. Think "mortgage interest deduction".

Timothy Taylor has more on the politics of tax reform. We could make our tax system more progressive and more efficient at raising revenue. But it is always in the interest of political entrepreneurs to claim that the affluent are threatened as it is, so we cannot take away their precious mortgage interest deduction or make the tax breaks for education expenses and health insurance less regressive.

We can't seriously think that people are narrowly and permanently self-interested, because the costs of enforcing agreements and constantly guarding against fraud or theft would be overwhelming.

We might grant the alternative simple view as describing the intentions of most political actors. Still, representative democracy may do a poor job of arriving at good results, because intentions do not necessarily map well to consequences.

Suppose we are looking at Energy Secretary Steven Chu's granting of government-guaranteed loans to energy companies. As Robert Murphy explains, such loans are bad economic policy even if there are no defaults, and even if there was no political favoritism involved.

When political actors are motivated by the public interest to allocate resources, we should not jump for joy. Instead, we should shout in protest.

when you make signaling cheaper, agents' natural response is to signal more intensely or on another dimension.

With that in mind, I do not see how lowering the cost of signaling for people with the trait does anything other than cause people with the trait to choose the low-cost signal. The problem with a low-cost substitute for a diamond is that it lowers the cost of signaling for people without the desired trait (which is a willingness to buy an expensive gift).

If I come up with a low-cost way to earn a badge that signals intelligence, conscientiousness, and conformity, and that badge can only be earned by people with those traits, then my badge should find a market. One challenge is that when few people use the badge, it seems to signal non-conformity. Thus, the early adopters of my cheaper badge do not do as well as they should. But over time, there are two possibilities. One is that the conformity hurdle cannot be overcome, so that the incumbent signaling mechanism remains dominant forever. The other possibility is that eventually a tipping point is reached, and enough people use the new badge so that it no longer signals nonconformity. At that point, the market position of the old badge rapidly deteriorates.

I think that we will arrive at the second equilibrium at some point. However, predicting when it will occur is difficult.

Suppose that you want people to have more high-quality education and health care. You regulate the supply to ensure quality, and you subsidize demand to ensure that people can buy it. What happens?

If you make the supply inelastic and you increase demand, then the quantity stays the same and the price goes up. When this predictable result occurs, the politicians then complain about greed or some other flaw in the market.

I ran across a fascinating article, "A Post-Mortem on Transition Predictions of National Product," in the 1946 Journal of Political Economy, by Lawrence Klein. Klein, who would go on to create the main macroeconomic forecasting models and a Nobel Prize, was confronting one of the first great failures of Keynesian economics:

We all recall clearly the headlines in last Autumn's press, declaring that "Government economists predict 8 million unemployed by 1946." ...We now find ourselves in the first half of 1946 with about three million unemployed and facing one of the greatest inflationary pressures that we have ever experienced. The economists who were warning us of a deflationary danger during the early months of the postwar transition period should have been stressing precisely opposite economic policy

[UPDATE: Russ Roberts unearths an even more damning article, from the 1947 JPE, by W.S. Woytinksy.]

"Uncertainty is when you've defined the variable but don't know its value. Like when you roll a die and you don't know if it will be a 1, 2, 3, 4, 5, or 6. But ambiguity is when you're not even sure what the variables are. You don't know how many dice are even being rolled or how many sides they have or which dice actually count for anything." Businesses that focus on uncertainty, says Patnaik, "actually delude themselves into thinking that they have a handle on things.

1. Where Bryan sees college as a useful signaling device for those who are cognitively gifted, I see it as a useful segregation device for the Vickies.

2. The segregation model predicts that as the society gets wealthier, the dollar cost of college will get higher. The signaling model would not necessarily predict that. In fact, it would predict that the market would try to find less expensive signals.

3. The segregation model predicts the emergence of institutions like Boston University and George Washington University, which require much more money than brains to attend, and yet which have fairly high prestige, considering.

4. I think that if either the utilitarian model or the signaling model of higher education were correct, I would be sure to collect on any bet I make with Bryan about the demise of colleges. If college as we know it manages to persist for another two decades, it will be thanks to the segregation model.

5. Vickies historically have needed thetes in order to have military power. Drone warfare might change that, which could make segregation even more viable.

6. Segregation sounds bad, but both Vickies and thetes may find it preferable. Maybe instead of "the American project" we will have the Vicky project and the thete project and, contra Murray, we will be none the worse for it. Integration would be more stressful.

7. In the world as a whole (but not necessarily in America), there will be plenty of upward mobility. There will be plenty of global Vickies with whom America's Vickies can affiliate.

8. Perhaps Mitt Romney's gaffe is actually an omen for the future.

This shift of power from owners and innovators to state officials is the antithesis of capitalism. Yet this system's apologists and beneficiaries have the temerity to blame all these failures on "reckless capitalism" and "lack of regulation," which they argue necessitates more oversight and regulation, which in reality means more corporatism and state favoritism.

In my view, Japan is the future of the global economy. Not the deflation (I think the Fed will be able to keep inflation close to 2%) but the low real interest rates. In retrospect the 2001 recession (when rates fell to 1%) was the canary in the coal mine. Nominal rates will probably be unusually low from this point forward. Global saving will increase dramatically as Asian countries get richer (remember that most people are Asians) and slowing population growth outside of Africa will dramatically reduce the demand for investment funds.

Man is a social being, and his desire for community will not be denied. ... And if he can't find that community on a human scale, then he'll look for it on an inhuman scale--in the total community of the totalizing state.