It’s Not Camelot, ‘It’s Only a Model’
In Monty Python’s Quest for the Holy Grail, the assembled knights look in awe upon the imposing walls of “Camelot”… until someone points out that “it’s only a model.”
I feel I’m watching a remake of Quest every time I read another blog post about the economics paper “Anti-Lemons” by MacLeod and Urquiola.
Matt Yglesias reproduced its abstract last month, saying “I would have to pay $5 to read the whole paper, but the abstract conveniently supports political positions I like, so I’ll talk about it some more.” That, needless to say, isn’t the sort of talk that calls for a thoughtful response.
But now that Megan McArdle has picked up the thread from a second Yglesias post, read the paper, and it given it a favorable verdict, it’s time to point out that “it’s only a model” — and not a very good one at that.
“Anti Lemons” is not an empirical study. Instead it presents a series of abstract mathematical models with arbitrary assumptions. The final model purports to demonstrate the authors’ conclusion that “For-profit entry turns out to be feasible, despite these assumptions, as long as private schools can cream skim the highest ability students from the public system.”
What are the authors’ assumptions?
i) individuals differ only with respect to innate ability
ii) all schools are equally productive
iii) for-profit schools must operate unsubsidized
The first two of these assumptions are nonsense and the third contravenes the whole point of a school choice program (whether tax credits or vouchers), which is to subsidize access to private schooling for those who could not otherwise afford it.
As if these problems were not enough, the model also incorrectly assumes that when academic selectivity is permitted, every private school will not only select students based on academic entrance tests, but that they will all use the same test. Like the others, this assumption is out of touch with reality. When I analyzed survey data for Arizona private schools in 2006, I found that nearly half of all private schools were not academically selective. Only a third actually administered an academic admissions test of any kind. The only admissions criteria applied by a majority of schools were measures of student and parent desire to attend the school and students’ and parents’ willingness to abide by its code of conduct.
So the MacLeod and Urquiola model has precious little to do with reality. It tells us nothing about the real world or about tax credit or voucher programs or proposals. In fact, it seems to serve no productive purpose whatsoever, unless one considers it productive to give left-wing bloggers a study abstract to talk about that “conveniently supports political positions [they] like.”
Though MacLeod and Urquiola briefly discuss a modified model that relaxes the proscription against subsidization of private schools, its other erroneous assumptions remain and so it produces a result that is, not surprisingly, completely at odds with the reality established by the large body of empirical findings in this field.
Last year, I reviewed the worldwide literature comparing public and private schools (65 studies reporting 156 different statistical findings) and found that the statistically significant findings favor private schools by a margin of roughly 8 to 1. More importantly, when we focus more precisely and compare truly market-like school systems to monopolies such as U.S. public schooling, the statistically significant results favor markets by a margin of nearly 15 to 1 (and they greatly outnumber the insignificant findings as well). It is thus the least regulated private schools that show the most consistent advantage.
MacLeod and Urquiola mischaracterize that research literature as follows: “there is no consistent evidence that introducing choice substantially improves learning, or that private schools have higher value added than public ones.” The sources they cite to back up their mischaracterization are both incomplete and imprecise, failing to look at a large swath of the research and failing to distinguish among various forms of “choice” with fundamentally different features.
So, no, the “Anti-Lemons” study is not the Camelot it is cracked up to be by recent rhapsodic blog posts. It’s not even a good model.
[Should anyone want to interject Hsieh and Urquiola's 2006 empirical study of the highly regulated Chilean voucher system at this point, I've already offered my thoughts on it here.]
Average vs. Marginal Effects of Health Insurance
I have to thank Ezra Klein. I have for some time been trying, without success, to spark a debate about whether expanding health insurance coverage would actually save any lives. Even my bet with Karen Davenport seemed to go nowhere. But when Klein accused Sen. Joe Lieberman (I-CT) of being “willing to cause the deaths of hundreds of thousands of people” because Lieberman was jeopardizing passage of legislation that would expand health insurance to 30 million people, Klein made a debate possible.
Following on my first response to Klein that the evidence supporting his claim is remarkably thin, others have joined the discussion. Matt Yglesias of the Center for American Progress rose to Klein’s defense. Megan McArdle (in The Atlantic magazine and her blog) and Tyler Cowen (at Marginal Revolution) both argue that we don’t really know if Klein’s claim is true.
Today, Yglesias poses the following question on his Twitter page:
Do rightwingers really believe that US health insurance has no mortality-curbing impact?
I see two problems. First, there are no right-wingers in this debate. McArdle, Cowen, and I all support gay marriage, for example.
Second, Yglesias sets up a straw man. He asks whether health insurance on average has a positive impact on mortality, when the debate is actually over the effect of health insurance at the margin. In other words, would covering the uninsured save lives?
I don’t know anyone who thinks health insurance has zero effect on mortality overall. Yet it is entirely possible for the average effect to be positive and the marginal effect to be zero. One reason may be that the uninsured do benefit from the human and physical capital that health insurance makes possible. It may also be the case that when the uninsured do obtain health insurance, the additional medical care they receive is more likely to harm them than to help them. The researchers behind the RAND Health Insurance Experiment make essentially the same point.
If the marginal effect of health insurance on health is zero, it raises other interesting questions. Would it also have zero effect on health outcomes if we were to reduce the number of people with health insurance? What is the size of the margin over which health insurance has zero impact? (Robin Hanson suggests it may be very, very large.)
Klein recently declined an invitation to debate these issues at Cato. Too bad. This is worth pursuing.
Filed under: Cato Publications; Health, Welfare & Entitlements
Credit Card Dementia and Boundary Cases
The most interesting libertarian-related conversation I’ve read today comes from Rortybomb, by way of Andrew Sullivan, with commentary by Megan McArdle. Here’s a challenge to libertarians from Rortybomb, aka Mike Konczal:
I want to pitch to the credit card and financial industry a new innovative online survey. It is targeted for older, more mature long-time users of our services. We’ll give a $10 credit for anyone who completes it. Here is a sense of what the questions will look like:
- 1) What is your age?
- 2) What day of the week are you taking this survey?
- 3) Many rewards offered are for people with more active lifestyles: vacations, flights, hotels, rental cars. Do you find that your rewards programs aren’t well suited for your lifestyle?
- 4) What is the current season where you live? Are any seasons harder for you in getting to a branch or ATM machine?
- 5) Would rewards that could be given as gifts to others, especially younger people, be helpful for what you’d like to do with your benefits?
- 6) Would replacing your rewards program with a savings account redeemable for education for your grandchildren be something you’d be interested in?
- 7) Write a sentence you’d like us to hear about anything, good or bad!
- 8 ) How worried are you you’ll leave legal and financial problems for your next-of-kin after your passing?Did you catch it? Questions 1,2,4,7 are taken from the ‘Mini-mental State Examination’ which is a quick test given by medical professionals to see if a patient is suffering from dementia. (It’s a little blunt, but we can always hire some psychologist and marketers for the final version. They’re cheap to hire.) We can use this test to subtly increase limits, and break out the best automated tricks and traps mechanisms, on those whose dementia lights up in our surveys. Anyone who flags all four can get a giant increase in balance and get their due dates moved to holidays where the Post Office is slowest! We’d have to be very subtle about it, because there are many nanny-staters out there who’d want to coddle citizens here. . .
I smell money — it’s like walking down a sidewalk and turning a corner and then there is suddenly money all over the sidewalk. One problem with hitting up sick people, single mothers, college kids who didn’t plan well and the cash-constrained poor with fees and traps is that they’re poor. Hitting up people with a lifetime of savings suffering from dementia is some real, serious money we can tap as a revenue source.
Clearly, only an evil person (or a libertarian!) would allow a scam like this one. Megan responds, I think rightly:
I’m not sure why this is supposed to be a hard question for libertarians. I mean, I might argue that preventing people from ripping off the marginally mentally impaired would, in practice, be too difficult. Crafting a rule that prevented companies from identifying people who are marginally impaired might well be impossible — I’m pretty sure that if I wanted to, I could devise subtler tests than “What day of the week is it?” And while the seniors lobby is probably in favor of not ripping off seniors, they’re resolutely against making it harder for seniors to do things like drive or get credit, which is the result that any sufficiently strong rule would probably have.
But it’s pretty much standard libertarian theory that you shouldn’t take advantage of people who do not have the cognitive ability to make contracts. Marginal cases are hard not because we think it’s okay, but because there is disagreement over what constitutes impairment, and the more forcefully you act to protect marginal cases, the more you start treating perfectly able-minded adults like children.
The elderly are a challenge precisely because there’s no obvious point at which you can say: now this previously able adult should be treated like a child. Either you let some people get ripped off, or you infringe the liberty, and the dignity, of people who are still capable of making their own decisions.
I’d add two responses of my own.
First, I can’t believe there’s all that much money to be had here. Anyone who wanders into Tiffany’s and back out again without remembering what they bought is, generally speaking, a bad credit risk. Mildly irresponsible people — those who slightly overspend, then have to make it up later — those are probably great for creditors. Lesson learned: If you’re not demented, don’t be irresponsible. (If you are demented, you’re not going to follow my advice anyway.)
Second, I am always amazed at how border cases are dragged out, again and again, as if they proved something against libertarianism. Border cases — How old before you can vote? How demented before a contract doesn’t bind? — are a problem in all political systems, because all systems start with a presumed community of citizens and/or subjects. We always have to draw boundaries between the in-group and the outliers before we have a polity in the first place.
What makes the classical liberal/libertarian approach so valuable is in fact that it draws so few boundaries. Where other systems depend on class boundaries, race boundaries, religious boundaries, and so forth — with annoying boundary issues at every stop along the way — libertarians make it as simple as I think it can be. We presume that all mentally competent adults are worthy of liberty until they prove themselves otherwise.
The boundary cases are still there, but they are fewer and more tractable. Konczal just wandered into one of them. It proves much less than he thinks.
Filed under: Finance, Banking & Monetary Policy; Political Philosophy; Regulatory Studies
David Frum Analyzes Why ‘The Crazies’ Are Running the GOP
In a discussion on Bloggingheads, David Frum offers his thoughts on the sad state of the GOP these days:
He blames the predicament, in part, on the “conservative entertainment-industrial complex,” a term coined by Andrew Sullivan. In Frum’s telling, this complex has “distorted conservative dialogue to suit the wishes of the Fox audience.” He says that drawing on such a group, “you can get seriously rich out of that, but you can’t govern a country with that kind of voter base, it’s a tiny minority-within-a-minority.”
This is an interesting thesis. Frum was the coauthor of a seemingly successful, widely discussed foreign-policy book titled An End to Evil, which posited that terrorism posed a “threat to the survival of our nation,” and in foreign policy, “there is no middle way for Americans. It is victory or Holocaust.” Are these the sorts of carefully considered judgments on which the GOP is going to ride back into office?
It’s probably true that pushing the American nationalist button over and over from 2002 forward contributed to getting Bush reelected in 2004, but the results after then have been rather less encouraging. John Boehner colorfully remarked recently that the GOP “took it in the shorts with Bush-Cheney, the Iraq War, and by sacrificing fiscal responsibility to hold power.” I’m not sure that my preferred foreign policy is the key to political success, but I’m pretty sure that the zany world view that Frum has traded on isn’t the way forward either.
Filed under: Foreign Policy and National Security; Government and Politics
Economics Bloggers Weigh in on Income Inequality
The economics blogosphere has been buzzing about Will Wilkinson’s new paper on income inequality.
George Mason University economist Tyler Cowen discusses why social inequality has been falling for some time in the United States:
I agree with Will Wilkinson’s point that real social inequality has (mostly) been falling for some time in the United States. Today many an upper middle class person is plausibly happier than many a billionaire. Yet most self-made billionaires work very hard to get to that position, which creates a possible tension between cardinal and “observed choice” or “ordinal” metrics of welfare. Why work so hard for so little? Presumably many of these billionaires really want to “be there,” even if they are only marginally better off or in some cases worse off.
The Atlantic’s Megan McArdle offers her initial thoughts, and promises more analysis soon:
I broadly agree with Will that consumption inequality, not income inequality, is what matters. If the rich have access to broad classes of goods that the poor can’t have, I find this worrying. On the other hand, if the problem is that Bill Gates has a really awesome 80 inch flat panel television, while the poor have to be content with a 32 inch CRT, well, I can’t say my heartstrings are plucked very tight by this injustice. So it’s important to know what the real differences are.
Ezra Klein parses some of Wilkinson’s arguments at WashingtonPost.com:
One of Will’s first arguments is that income inequality is not a good way to think about the issue. The real key is consumption inequality. It’s not, in other words, how much money people make, but how much stuff they buy. And “the weight of the evidence shows that the run-up in consumption inequality has been considerably less dramatic than the rise in income inequality.”
The Economist Free Exchange blog has mixed reactions to the study:
Inequality, in and of itself, is no bad thing, and inequality in America has co-existed right alongside significant improvements in welfare across the income spectrum—and contributed directly to them, in many cases. Redistribution for its own sake is bad policy, and as Mr Wilkinson notes, it’s often bad policy pursued to cover up for still more bad policy elsewhere. But America’s society is a very unequal one, by developed nation standards, and it’s not always clear that that inequality is justified or advantageous. And any good student of human behaviour can tell you that wealth will seek to protect wealth, and will often succeed.
Matt Yglesias from Think Progress has posted twice on Wilkinson’s study:
I’m not in agreement with the overall thrust of Will Wilkinson’s paper on inequality for the Cato Institute, but one point that I think is in the spirit of what he’s saying was brought to mind by a question at last night’s event. The way I would put the point is that it’s a mistake to think of the world as composed of, on the one hand, “economic issues” in which we worry about wealth or income inequality and then on the other hand, “social issues” in which we worry about racism or sexism. Progressives ought to be concerned with a general issue of justice and social inequality, of which gaps in money income or wealth may be part.
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