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  #1  
Old 05-31-2011, 01:30 AM
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Default Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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  #2  
Old 05-31-2011, 02:53 AM
chiwhisoxx chiwhisoxx is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

figured kevin would get here eventually, but I'm glad to see he made it. looking forward to mark, as always. this should be pretty good.
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  #3  
Old 05-31-2011, 03:47 AM
Hume's Bastard Hume's Bastard is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

I give Mark Schmitt props for dealing with Williamson's libertarian dog whistling. I'm sympathetic to Williamson's criticisms of the banks, etc., etc. But, the problem I have with his schtick and libertarians in general is, that the entire narrative is condescendingly eggheadish without addressing the politics of it all. I don't want to succumb to Mancur Olson's "rise and decline" pessimism, but I would argue, if Williamson is so right, these problems would never have arisen or would have been solved almost immediately - as fast as any society handles a crisis. That the problem continues to exist, tells me there's a deeper problem.
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Old 05-31-2011, 06:19 AM
sugarkang sugarkang is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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Originally Posted by Hume's Bastard View Post
That the problem continues to exist, tells me there's a deeper problem.
Well, this libertarian says the problems always exist. The question is which problem you'd rather have. I prefer the one where things get messed up, but innovation is allowed to flourish. I like that most new restaurants go out of business. Their failure isn't cause for celebration, but the system that weeds out crappy restaurants is.


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Originally Posted by Starwatcher162536 View Post
Are there any just let the losers fail Libertarians that also support regulations capping the size of banks? Supporting just the first but not the second doesn't seem like a coherent position to me. Or am I being to rough on Libertarians here and most in fact do support both?
I consider myself pretty centrist. From my POV, it's not so much that we need to cap the size of banks, but that they are allowed to commingle people's savings accounts, 401Ks along with credit default swaps and derivatives. I don't consider those last two things bad things per se, either. Rather, the problem with the last financial crisis was the inherent conflict of interest that banks were almost legally permitted to engage in. Ironically, Paul Volcker wanted to put better mechanisms in place and from what I hear, the "Volcker Rule" was diluted a bit, but still passed in Dodd-Frank. You know, the same Volcker that got crapped on by the Obama administration and Larry Summers. The same Volcker that was appointed by Jimmy Carter, but saved the American economy in the 1980s by putting in tough measures to end inflation, but then Reagan ended up getting all the credit. Irony is a MF.

So, when you're talking about not letting things get too big, I guess my question is: in what way are we talking? It's a basic fox guarding the henhouse argument. A second point I would make is that you can't let banks get that big because the dollar is the conduit by which all economic transactions take place. Something so fundamental should have fault tolerances within it.

If you want to be the world's biggest tomato grower, I don't think the government should step in. There are other tomato growers around the world. Money is a little different; the US dollar is the world's currency. There is no readily available substitute.

Last edited by sugarkang; 05-31-2011 at 06:38 AM..
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  #5  
Old 05-31-2011, 10:35 AM
badhatharry badhatharry is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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Originally Posted by sugarkang View Post
I consider myself pretty centrist. From my POV, it's not so much that we need to cap the size of banks, but that they are allowed to commingle people's savings accounts, 401Ks along with credit default swaps and derivatives. I don't consider those last two things bad things per se, either. Rather, the problem with the last financial crisis was the inherent conflict of interest that banks were almost legally permitted to engage in. Ironically, Paul Volcker wanted to put better mechanisms in place and from what I hear, the "Volcker Rule" was diluted a bit, but still passed in Dodd-Frank.
Here's a nice article which describes the background of the Volcker Rule.
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Old 06-01-2011, 02:25 PM
sugarkang sugarkang is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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Originally Posted by badhatharry View Post
Here's a nice article which describes the background of the Volcker Rule.
There are simple solutions to these things. Kevin, in his diavlog, mentioned upping capital requirements as being an 80% solution. I agree with that. The other part is reinstating Glass-Steagal. It's the investment banking destroying consumer banking that's the problem. I don't care how big investment banks get if they aren't tied to basic consumer credit. These two things make up most of the too big to fail problem.

I'm familiar with the Volcker Rule, btw. What I'm unclear about is if the particular provisions passed regarding limitations on bank bets was effective. I can't remember exactly, because it was a while back, but I thought there was an article in the Wall Street Journal talking about the Volcker Rule having no actual teeth. In the article (I'm sure I"m getting the specifics wrong), there was something about a provision that disallowed having more than 3% of one asset class used to make bets in another. While it seemed restrictive on the surface, the 3% limit actually exceeded what banks were doing before the mess. Those are nuts and bolts that require a Megan McArdle or similar to flesh out.

But anyway, I just feel a bit unnerved when the liberals on here are quick to point out how markets are imperfect. Well, I don't know any libertarians that say markets are perfect. They just work less bad than intervention as a general policy matter.
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Old 05-31-2011, 04:14 AM
Starwatcher162536 Starwatcher162536 is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

Are there any just let the losers fail Libertarians that also support regulations capping the size of banks? Supporting just the first but not the second doesn't seem like a coherent position to me. Or am I being to rough on Libertarians here and most in fact do support both?
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  #8  
Old 05-31-2011, 09:45 AM
badhatharry badhatharry is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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Originally Posted by Starwatcher162536 View Post
Are there any just let the losers fail Libertarians that also support regulations capping the size of banks? Supporting just the first but not the second doesn't seem like a coherent position to me. Or am I being to rough on Libertarians here and most in fact do support both?
Simon Johnson, not a libertarian, does a nice job of laying out the case for making banks smaller. He's been advocating this since the big, bad crash and claims that Dodd-Frank did not address this issue.

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This may seem like a crude and arbitrary step, but it is the best way to limit the power of individual institutions in a sector that is essential to the economy as a whole. Of course, some people will complain about the “efficiency costs” of a more fragmented banking system, and these costs are real. But so are the costs when a bank that is too big to fail—a financial weapon of mass self-destruction—explodes. Anything that is too big to fail is too big to exist.
However, there are other problems besides 'too big to fail'. One is “regulatory capture — the tendency for regulated firms to get protection from their regulators". This won't go away by making banks smaller. It's hard/impossible to eliminate human corruption. That's why letting losers fail seems so very attractive and efficient. It gets rid of stupidity and serves as a dire warning to others, to stay away from it.
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  #9  
Old 05-31-2011, 10:17 AM
Don Zeko Don Zeko is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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Originally Posted by Starwatcher162536 View Post
Are there any just let the losers fail Libertarians that also support regulations capping the size of banks? Supporting just the first but not the second doesn't seem like a coherent position to me. Or am I being to rough on Libertarians here and most in fact do support both?
Whenever I see the "let them fail" position articulated, it's presented as a solution to the problem of Too Big to Fail (2B2F?); if bankers know they'll be bailed out, then they'll be more conservative and therefore bubbles won't happen. I see two problems with this. The first is that I think it gets the psychology of it wrong. Bankers don't care whether they think they'll be bailed out because they don't think they'll fail in the first place. If the market were made up of people as rational as the Libertarian account describes we wouldn't have bubbles in the first place.

But even if we grant that Libertarians have the psychology right, this still requires the government to make a credible commitment not to bail out firms in the future. Given the way that the government has responded to financial crises in the past and the "give me money or the economy and your re-election both go down in flames" nature of the situation, this is flatly impossible. Bankers will correctly assume that no Congress is going to follow through on such a pledge when the Fed, the Treasury, the businesses that fund their campaigns and the stock market are all screaming at them to do otherwise. So how then is "let them fail" anything but a refusal to deal with the ugly reality of financial panics?
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Old 05-31-2011, 10:34 AM
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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Originally Posted by Don Zeko View Post
Whenever I see the "let them fail" position articulated, it's presented as a solution to the problem of Too Big to Fail (2B2F?); if bankers know they'll be bailed out, then they'll be more conservative and therefore bubbles won't happen. I see two problems with this. The first is that I think it gets the psychology of it wrong. Bankers don't care whether they think they'll be bailed out because they don't think they'll fail in the first place.
yes, exactly so. This is also the reason why punitive measures against teens who (say) get (themselves or someone else) pregnant don't work. No one thinks they'll get caught. Everyone thinks they're special (and banking execs probably have this sense of their own specialness reinforced more often than most people do).

A second problem is that bankers don't fail, banks do. Banking execs, even if they flame out horribly, tend to get pretty generous severance packages. So that's the "punishment" for taking big risks and failing. The "reward" for taking big risks and succeeding is truly obscene bonuses and other pay bumps. Hmm... a high risk proposition where success is rewarded greatly, and failure is still pretty generously rewarded... yeah, *no one* would take risks in that situatino.
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  #11  
Old 05-31-2011, 10:42 AM
badhatharry badhatharry is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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yes, exactly so. This is also the reason why punitive measures against teens who (say) get (themselves or someone else) pregnant don't work. No one thinks they'll get caught. Everyone thinks they're special (and banking execs probably have this sense of their own specialness reinforced more often than most people do).
When you say punitve measures... that is not an accurate description of 'letting losers fail'. Punitive measures are artificially applied to deviant behavior. Letting losers fail is a natural consequence.
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Old 05-31-2011, 11:17 AM
miceelf miceelf is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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When you say punitve measures... that is not an accurate description of 'letting losers fail'. Punitive measures are artificially applied to deviant behavior. Letting losers fail is a natural consequence.
Regardless, the point is that people don't think they will fail, so the natural consequence or punitive measures, either way, don't act very well as deterrents.

There is no rational reason for a lot of health risk behaviors that are very very common.

My point is that people are very bad at accurately assessing the risk of failure or of negative consquences for their own behavior.
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Old 05-31-2011, 11:29 AM
badhatharry badhatharry is offline
 
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My point is that people are very bad at accurately assessing the risk of failure or of negative consquences for their own behavior.
Well yes. However, people do have some semblance of rationality in all of this. My feeling is that if risky behavior doesn't get bailed out if it fails, people will be aware of this and perhaps choose more conservative ways to invest their money. Big risks can net big rewards but they also can net big losses. Caveat emptor. When banks can't get retirement fund managers to buy into their schemes, the schemes will either be relegated to people who are willing to risk big or they will dry up.

Quote:
Regardless, the point is that people don't think they will fail, so the natural consequence or punitive measures, either way, don't act very well as deterrents.
If that is the case, which I don't think it is, then there is no salvation. I think people learn a lot when they fail and aren't bailed out.
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Old 05-31-2011, 11:35 AM
miceelf miceelf is offline
 
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. I think people learn a lot when they fail and aren't bailed out.
Well, see my distinction between banks and bankers failing.

But, yeah, people learn when *they* fail. They typically don't learn when they see *other* people fail.
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Old 05-31-2011, 11:44 AM
badhatharry badhatharry is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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Well, see my distinction between banks and bankers failing.

But, yeah, people learn when *they* fail. They typically don't learn when they see *other* people fail.
So I guess there is nothing to cautionary tales? Funny that they persist. Maybe they're just entertainment.
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Old 05-31-2011, 11:49 AM
miceelf miceelf is offline
 
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So I guess there is nothing to cautionary tales? Funny that they persist. Maybe they're just entertainment.
They are entertainment for many people (check out pretty much any Lifetime movie ever made).

I am not arguing necessarily against letting banks fail. I think it would be improved if there were a way for *bankers* not just banks to feel the impact of their bad gambles as I noted.

I think the strongest argument in its favor is just a justice one- the "why are we rewarding people for bad behavior?" argument. I just think the notion that letting it happen will have a great benefit in terms of changing peoples' behavior is really overstated. (the reason we lock up criminals isn't primarily to get people considering crime to reconsider, it's because we think they deserve to be locked up).

Last edited by miceelf; 05-31-2011 at 11:49 AM.. Reason: missing clause fixed
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Old 05-31-2011, 12:48 PM
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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They are entertainment for many people (check out pretty much any Lifetime movie ever made).

I am not arguing necessarily against letting banks fail. I think it would be improved if there were a way for *bankers* not just banks to feel the impact of their bad gambles as I noted.

I think the strongest argument in its favor is just a justice one- the "why are we rewarding people for bad behavior?" argument. I just think the notion that letting it happen will have a great benefit in terms of changing peoples' behavior is really overstated. (the reason we lock up criminals isn't primarily to get people considering crime to reconsider, it's because we think they deserve to be locked up).
I'd say there's another reason we lock people up: we believe that not locking them up presents a threat to society. Well, that's the case with some people--sometimes the public just wants to punish someone for a bit of schadenfreude (eg Martha Stewart).

I was thinking about this the other day, actually: it's not likely that prison is going to change the payoff matrix for most criminals who are actually dangers to society (not encompassing, for example, the small time pot dealer). There are cases of reform to be sure, but I think that these are more exceptions than the rule, hence the overall fairly high recidivism rate.

I don't think that extends to the executives of major companies, who can control the corporate culture and set guidelines that preclude bad behavior by short-sighted underlings and consumers. If they face professional peril for bad decisions, it will change their behavior, because they're capable of processing long-term consequences.
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Old 05-31-2011, 12:55 PM
miceelf miceelf is offline
 
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I'd say there's another reason we lock people up: we believe that not locking them up presents a threat to society.
Yes, while in prison, they won't be commiting crimes against non-prisoners. But the stated goal in letting them fail isn't just to prevent those particular banks from doing it again. i was addressing the likelihood of disssuading others from engaging in risky behavior.
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Old 05-31-2011, 01:03 PM
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Yes, while in prison, they won't be commiting crimes against non-prisoners. But the stated goal in letting them fail isn't just to prevent those particular banks from doing it again. i was addressing the likelihood of disssuading others from engaging in risky behavior.
I certainly wouldn't make the statement that if we did not have TBTF, there would be no bank failure or other such incidents. Their existence is not limited to countries and eras willing to bail them out. I would say, however, that their nature would be different, and in the long run we'd be a healthier society for setting aside TBTF. There will always be decision makers who make sub-optimal decisions: not everyone has the same information or the same ability to process the same information to derive the best decision. So, there will always be good decision makers and bad decision makers. But I don't think that such severe incidents would happen without government intervention--the Great Depression wouldn't have happened without government tariffs, and wouldn't have been prolonged without the meddling of Hoover and then FDR.

Our latest crisis wouldn't have happened if the government wasn't meddling in the housing market, encouraging and leveraging companies to give bad loans to people who had no business getting them and otherwise wouldn't have done so. Our formerly fairly lax bankruptcy laws also did not help matters.
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Old 05-31-2011, 01:35 PM
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I certainly wouldn't make the statement that if we did not have TBTF, there would be no bank failure or other such incidents. Their existence is not limited to countries and eras willing to bail them out. I would say, however, that their nature would be different, and in the long run we'd be a healthier society for setting aside TBTF. There will always be decision makers who make sub-optimal decisions: not everyone has the same information or the same ability to process the same information to derive the best decision. So, there will always be good decision makers and bad decision makers. But I don't think that such severe incidents would happen without government intervention--the Great Depression wouldn't have happened without government tariffs, and wouldn't have been prolonged without the meddling of Hoover and then FDR.

Our latest crisis wouldn't have happened if the government wasn't meddling in the housing market, encouraging and leveraging companies to give bad loans to people who had no business getting them and otherwise wouldn't have done so. Our formerly fairly lax bankruptcy laws also did not help matters.
Did the government make AIG insure all those bad assets for short term profits and bonuses? Where is the incentive in your idealistic ideology for sustainable investment banking and prevention of absurd risk taking, when the decision making power rests in the hands of those who will become unimaginably rich, no matter what happens to the company or the market?
They have secured the power to manipulate the government. We need smart government regulation, and not less government regulation.
We need a grass roots movement to undo the lobbying situation, and implement COMMON SENSE regulation, that will promote sustainable capitalism, and not the capitalist anarchy that would result from your fantasies, and the fruits of your inexperienced musings.
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Old 05-31-2011, 01:55 PM
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Did the government make AIG insure all those bad assets for short term profits and bonuses? Where is the incentive in your idealistic ideology for sustainable investment banking and prevention of absurd risk taking, when the decision making power rests in the hands of those who will become unimaginably rich, no matter what happens to the company or the market?
They have secured the power to manipulate the government. We need smart government regulation, and not less government regulation.
We need a grass roots movement to undo the lobbying situation, and implement COMMON SENSE regulation, that will promote sustainable capitalism, and not the capitalist anarchy that would result from your fantasies, and the fruits of your inexperienced musings.
Well that gets back to the idea that somehow a group of men (or women) can understand the market better than the organic market can understand itself, a proposition that I reject (yes, I namedrop Hayek quite a lot, but he goes into great detail about this in multiple works).

That being said, you could attempt to make the argument that the dynamics of the organic pricing system do not apply to some decision-makers, as you argue that they will get rich no matter what. If they can not bear the consequence of their action, then you have a Hayekian defense of government regulation, because that would represent a breakdown of the pricing system.

But I'm not so sure I see this. Absent of government incentivizing, I do not think that we would've seen the subprime mortgage mess, because the payoffs of the respective parties would've been adjusted and they wouldn't have had the incentive to engage in behavior that proved to be quite unwise.

Moreover, you seem to discount the ability of a corporation to learn from its past mistakes. The actions of an unwise executive who schemes to maximize short-term benefits at the cost of long-run prosperity and viability can easily be curbed by the owners of the company, and why in the world would they act against the interest of their investment?

Fannie and Freddie have had a terrible impact on housing and finance in general. The sooner we cut them loose, the better. They are only distorting the market, as are other government policies. It's difficult for the price system to properly work in the presence of government meddling. So if we persist in our unwise scheming to achieve the silly notion that everyone should own a home, yes government regulation is necessary--government regulation must beget more regulation by its nature, as the failures of central planning invariably leads to the necessity of more government planning in the absence of letting the market decide.
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Old 05-31-2011, 02:06 PM
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...letting the market decide.
...who controls 90% of everything, because that's where your fantasy leads.

Actually doing things opens one's eyes to the complexity of everything. There is a huge amount to be learned from real world experience. Theorizing is great, but when it is not informed by real history, it's practical usefulness is greatly diminished.
You know what my next question is.
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  #23  
Old 05-31-2011, 02:06 PM
badhatharry badhatharry is offline
 
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I think the strongest argument in its favor is just a justice one- the "why are we rewarding people for bad behavior?" argument. I just think the notion that letting it happen will have a great benefit in terms of changing peoples' behavior is really overstated. (the reason we lock up criminals isn't primarily to get people considering crime to reconsider, it's because we think they deserve to be locked up).
Well, I guess we'll just have to disagree.

And I suppose that the notion that the government should stay out of the housing market because of the havoc it had a part in creating won't change behavior either. With that I would agree.
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Old 05-31-2011, 12:07 PM
stephanie stephanie is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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yes, exactly so. This is also the reason why punitive measures against teens who (say) get (themselves or someone else) pregnant don't work. No one thinks they'll get caught. Everyone thinks they're special (and banking execs probably have this sense of their own specialness reinforced more often than most people do).

A second problem is that bankers don't fail, banks do. Banking execs, even if they flame out horribly, tend to get pretty generous severance packages. So that's the "punishment" for taking big risks and failing. The "reward" for taking big risks and succeeding is truly obscene bonuses and other pay bumps. Hmm... a high risk proposition where success is rewarded greatly, and failure is still pretty generously rewarded... yeah, *no one* would take risks in that situatino.
Good points. I don't have much to add to either at the moment.

I think everyone is in favor, in general, with "let the losers fail," but when it comes to losers who have the capacity to affect the economy more broadly, whoever is in power seems to find a way to justify an exception. The idea that this is an easy problem to take care of given the obvious political problem (and the problem of the harm to bystanders) seems to me one that is not addressed. One way of addressing it would be through plans to prevent 2B2F from existing going forward, but I'm personally quite skeptical about the likelihood of this being successful. Certainly to have credibility on the point, though, you'd have to explain why the feared effect on others wouldn't exist, isn't a real problem we should care about, can be better remedied in some other way, or that we have certain steps that we should be taking to preclude it going forward.
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Old 05-31-2011, 12:43 PM
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Good points. I don't have much to add to either at the moment.

I think everyone is in favor, in general, with "let the losers fail," but when it comes to losers who have the capacity to affect the economy more broadly, whoever is in power seems to find a way to justify an exception. The idea that this is an easy problem to take care of given the obvious political problem (and the problem of the harm to bystanders) seems to me one that is not addressed. One way of addressing it would be through plans to prevent 2B2F from existing going forward, but I'm personally quite skeptical about the likelihood of this being successful. Certainly to have credibility on the point, though, you'd have to explain why the feared effect on others wouldn't exist, isn't a real problem we should care about, can be better remedied in some other way, or that we have certain steps that we should be taking to preclude it going forward.
So basically it's a prisoners dilemma situation: the option to cooperate and receive a mutually better payoff is undermined by the incentive to defect, as the public will reward a corporatist politician who supports policies that promise short-term relief over a politician who mentions anything that involves austerity. I'd say that a clear, definitive legal code could effectively eliminate the temptation to defect, but that requires judges with a more libertarian interpretation of the Constitution.
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Old 05-31-2011, 10:58 AM
chiwhisoxx chiwhisoxx is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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Originally Posted by Don Zeko View Post
Whenever I see the "let them fail" position articulated, it's presented as a solution to the problem of Too Big to Fail (2B2F?); if bankers know they'll be bailed out, then they'll be more conservative and therefore bubbles won't happen. I see two problems with this. The first is that I think it gets the psychology of it wrong. Bankers don't care whether they think they'll be bailed out because they don't think they'll fail in the first place. If the market were made up of people as rational as the Libertarian account describes we wouldn't have bubbles in the first place.

But even if we grant that Libertarians have the psychology right, this still requires the government to make a credible commitment not to bail out firms in the future. Given the way that the government has responded to financial crises in the past and the "give me money or the economy and your re-election both go down in flames" nature of the situation, this is flatly impossible. Bankers will correctly assume that no Congress is going to follow through on such a pledge when the Fed, the Treasury, the businesses that fund their campaigns and the stock market are all screaming at them to do otherwise. So how then is "let them fail" anything but a refusal to deal with the ugly reality of financial panics?
I haven't listened to the diavlog yet, so I don't know the exact context, but the "let them fail" position seems hard to defend in terms of this specific financial crisis. I understand why it's frustrating to see banks lining up, waiting for a handout. And I think your point about psychology slightly misses the mark: it may be true that most banks don't think they're going to fail in the first place, but the expectation of a bailout does clearly effect behavior once a bank starts going in the shithole. But I think in the financial crisis, we saw clear examples of "letting them fail" having terrible consequences. We bailed out Bear Stearns, nothing really happened. Paulson didn't want to be seen as the "bailout man", so he said no to bailing out Lehman brothers. The Lehman deal with the British fell apart, Lehman collapsed, and the market absolutely freaked out. This does not appear to be a coincidence to me. The bailouts are a really tough pill to swallow, but it still seemed like the right move in retrospect.
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Old 05-31-2011, 11:11 AM
badhatharry badhatharry is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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The bailouts are a really tough pill to swallow, but it still seemed like the right move in retrospect.
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Old 05-31-2011, 11:18 AM
Don Zeko Don Zeko is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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And I think your point about psychology slightly misses the mark: it may be true that most banks don't think they're going to fail in the first place, but the expectation of a bailout does clearly effect behavior once a bank starts going in the shithole.
The behavior of banks during the crisis isn't what we're trying to fix, is it? As I understand it this is all a debate about how to prevent the next cycle of bubble, crisis and bailout or collapse. So the relevant psychology is that of investors while the bubble is still being inflated, and in that case I would argue that the likelihood of a bailout is almost entirely absent from the calculations of all of the relevant players.
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Old 05-31-2011, 11:41 AM
badhatharry badhatharry is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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The behavior of banks during the crisis isn't what we're trying to fix, is it? As I understand it this is all a debate about how to prevent the next cycle of bubble, crisis and bailout or collapse. So the relevant psychology is that of investors while the bubble is still being inflated, and in that case I would argue that the likelihood of a bailout is almost entirely absent from the calculations of all of the relevant players.
Right. No one, when they are taking a risk, thinks that much about losing the bet. They practically assume they'll win. But this doesn't preclude a societal decision to let people lose if their risk assessment is faulty or they didn't get out in time to avoid failure.

Also, given the number of wall street types in Washington, I'd imagine goldman, et al were fairly sure their asses would be covered by their friends.
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Old 05-31-2011, 12:11 PM
stephanie stephanie is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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Originally Posted by chiwhisoxx View Post
I haven't listened to the diavlog yet, so I don't know the exact context, but the "let them fail" position seems hard to defend in terms of this specific financial crisis. I understand why it's frustrating to see banks lining up, waiting for a handout. And I think your point about psychology slightly misses the mark: it may be true that most banks don't think they're going to fail in the first place, but the expectation of a bailout does clearly effect behavior once a bank starts going in the shithole. But I think in the financial crisis, we saw clear examples of "letting them fail" having terrible consequences. We bailed out Bear Stearns, nothing really happened. Paulson didn't want to be seen as the "bailout man", so he said no to bailing out Lehman brothers. The Lehman deal with the British fell apart, Lehman collapsed, and the market absolutely freaked out. This does not appear to be a coincidence to me. The bailouts are a really tough pill to swallow, but it still seemed like the right move in retrospect.
I basically agree with all this (although I'd add that we see non-optimal behavior by people desperate to avoid failure too -- I think that's a more common cause for gaming financial statements and the like than personal gain, that there's a belief that you just get past the danger point and everything will be okay). Not saying this is a basis to change anything, but just that I don't see evidence that there's a major issue with people thinking failure doesn't matter even now.
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Old 06-02-2011, 06:42 PM
kwilliamson kwilliamson is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

I think you're probably right on both counts: While government actions are a significant source of market distortions and contribute to bubbles and such, they are not the only source of bad outcomes in those markets. And I do not think that we can accept as credible a commitment from our political class to let them fail. Perfect world, yes; real world, probably not.

I don't think a cap on the size of financial institutions in the right solution, but I do think that stricter capital requirements and leverage limits would go a long way toward getting us where we want to be. I am distrustful of regulators with open-ended powers: The FDIC, in my view, is an example of a pretty good financial regulator (relatively good, I'm saying), because it has a pretty narrowly defined mandate, clear and stable rules, etc. The problem is that financial innovation responds instantly and ruthlessly to regulation, so you are always going to have firms and products that fall outside of whatever well-defined regulatory turf you come up with. So a roaming "resolution authority" probably is inevitable, though it is going to have a lot of problems and impose a lot of costs, and inevitably create some new, problematic incentives we haven't thought of yet.
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Old 05-31-2011, 11:16 AM
bkjazfan bkjazfan is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

Mark's optimistic stance on the success of public education is mystifying. He says the schools are better now than they were in the 50's. I wonder where he got the data to support that?

Being a product of the Los Angeles Unified Pubic School System along with most of my relatives gives one good view of what has occurred there in the last 40 years. There are magnet, charter; learn and the regular that I went to back in the day. The dropout rate has risen substantially since the 50's, the numbers of schools that have problems with testing has increased, and same with disciplinary issues. Things have changed but for the worst - at least in L.A. they have.

To date, it doesn't seem that anyone has an answer for what plagues our increasing under performing schools.

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Old 05-31-2011, 12:34 PM
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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Mark's optimistic stance on the success of public education is mystifying. He says the schools are better now than they were in the 50's. I wonder where he got the data to support that?

Being a product of the Los Angeles Unified Pubic School System along with most of my relatives gives one good view of what has occurred there in the last 40 years. There are magnet, charter; learn and the regular that I went to back in the day. The dropout rate has risen substantially since the 50's, the numbers of schools that have problems with testing has increased, and same with disciplinary issues. Things have changed but for the worst - at least in L.A. they have.

To date, it doesn't seem that anyone has an answer for what plagues our increasing under performing schools.
I think that a combination of Sal Khan and libertarian thinkers have the answer: decentralize the education system, end the state monopoly, and watch as schools implement the Khan model and succeed.
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Old 05-31-2011, 03:23 PM
JonIrenicus JonIrenicus is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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Mark's optimistic stance on the success of public education is mystifying. He says the schools are better now than they were in the 50's. I wonder where he got the data to support that?

Being a product of the Los Angeles Unified Pubic School System along with most of my relatives gives one good view of what has occurred there in the last 40 years. There are magnet, charter; learn and the regular that I went to back in the day. The dropout rate has risen substantially since the 50's, the numbers of schools that have problems with testing has increased, and same with disciplinary issues. Things have changed but for the worst - at least in L.A. they have.

To date, it doesn't seem that anyone has an answer for what plagues our increasing under performing schools.

His optimism was not as bad as the sense from Kevin that the socialistic model for public education could feasibly be replaced by some sort of private system. Even vouchers are a form of targeted income transfer like a condition of aid for a specified purpose.

A pure libertarian model falls to the level of a cartoon when you suggest that there should be no baseline level of education MANDATED for all kids and paid for by the state. Coercive in form, and better for it.



As to the quality of education now relative to decades ago, some of the problems are independent of the teachers or money or school quality. There are more people going to school now, students going to high school are not as rare a sight these days. And like Tyler Cowen pointed out, once you increase the percentage, you get less cream constituting the overall mix. Graduation rates should have been expected to decrease if nothing else factored in.

Add to that I do think there is a discipline gap between the kids now and years ago that does make the numbers worse when other natural depressing factors are accounted for. But that is less a school specific issue than a societal one. Some schools are better adjusted to enforce discipline at a higher rate, some parents go all Amy Chua and refuse to let the kids stray the line away from perfection, and others... are on the opposite end. It matters, but no one has a solution for that aspect of the "problem," even if it is the largest depressing factor in the outcomes of kids lives.

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Old 05-31-2011, 03:42 PM
operative operative is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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His optimism was not as bad as the sense from Kevin that the socialistic model for public education could feasibly be replaced by some sort of private system. Even vouchers are a form of targeted income transfer like a condition of aid for a specified purpose.
You're right, but if we can move beyond a binary interpretation of the issue into a continuum view, then you would concede that ending the state monopoly on education and voucherizing it would be a significant step in the libertarian direction, would you not?


Quote:
As to the quality of education now relative to decades ago, some of the problems are independent of the teachers or money or school quality. There are more people going to school now, students going to high school are not as rare a sight these days. And like Tyler Cowen pointed out, once you increase the percentage, you get less cream constituting the overall mix. Graduation rates should have been expected to decrease if nothing else factored in.
Not sure I agree here. Education rates have risen substantially in China and South Korea over the past 30 years. Quality has not gone down. In fact, it has gone up considerably, and has far surpassed the United States.

What is true is that the economic value of a high school diploma has diminished considerably. The notion, however, that diminished results are a necessary byproduct of an increase in the population of high school graduates is not substantiated by a cross-national evaluation. People who would not have finished high school in China 30 years ago are now doing better than people who would've finished high school in America 30 years ago. This presents a challenge for the American education system.


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Add to that I do think there is a discipline gap between the kids now and years ago that does make the numbers worse when other natural depressing factors are accounted for.
The fact that kids may be less disciplined than they were 30 or 40 years ago (not sure this is true--have anything to back it up or illustrate it?) may help explain the decline, not diminish its significance.

You could also cite that more kids are working jobs in high school today, which I do believe is true and that I do believe is a negative trend for long-term education. I keep in (casual) contact with many people that I went to high school with, and I'm far enough away from high school now that most of their long-term career trajectories are pretty well set. Those who worked more in high school tend to be the ones that are still working at those types of jobs or who have otherwise not progressed very much--less educational attainment, lower wages, etc. Those who worked less have on average achieved more. There's a finite amount of resources a high school student has at his or her disposal; social activities will occupy a certain percentage whether they work or not. Thus working will only cut into the resources they have to spend on school. I have no intention of stressing that my children work; I'd rather subsidize their existence until they get to college.

But that's only part of the explanation. Our current system is rigged to support mediocre teachers at the expense of better teachers and the students. Until we change that, nothing will get better.
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Old 05-31-2011, 04:41 PM
JonIrenicus JonIrenicus is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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You're right, but if we can move beyond a binary interpretation of the issue into a continuum view, then you would concede that ending the state monopoly on education and voucherizing it would be a significant step in the libertarian direction, would you not?

Yes, once the purist position is rejected the issue for the rest of us is to what degree we think the government ought to be controlling and coercive and obnoxious.


Quote:
Not sure I agree here. Education rates have risen substantially in China and South Korea over the past 30 years. Quality has not gone down. In fact, it has gone up considerably, and has far surpassed the United States.

What is true is that the economic value of a high school diploma has diminished considerably. The notion, however, that diminished results are a necessary byproduct of an increase in the population of high school graduates is not substantiated by a cross-national evaluation. People who would not have finished high school in China 30 years ago are now doing better than people who would've finished high school in America 30 years ago. This presents a challenge for the American education system.

Korea was a developing country more recently, and China is still developing and have much more headroom to grow. I would expect a slowing and stabilization of education rates in S Korea now though, because they have already picked the low hanging fruit of millions of people not having an advanced education at all.

China is still growing and has plenty of jobs for non high education people in manufacturing and textiles and a thousand other areas. In the US there is a vast premium placed on some sort of higher degree and highschool graduation (whether that premium is overvalued or not, it is there). Now we could probably get some more headroom by using other screeners than "college" to determine whether someone is employable, but the details of that are probably best left to wonks and businesses.

Quote:
The fact that kids may be less disciplined than they were 30 or 40 years ago (not sure this is true--have anything to back it up or illustrate it?) may help explain the decline, not diminish its significance.

You could also cite that more kids are working jobs in high school today, which I do believe is true and that I do believe is a negative trend for long-term education. I keep in (casual) contact with many people that I went to high school with, and I'm far enough away from high school now that most of their long-term career trajectories are pretty well set. Those who worked more in high school tend to be the ones that are still working at those types of jobs or who have otherwise not progressed very much--less educational attainment, lower wages, etc. Those who worked less have on average achieved more. There's a finite amount of resources a high school student has at his or her disposal; social activities will occupy a certain percentage whether they work or not. Thus working will only cut into the resources they have to spend on school. I have no intention of stressing that my children work; I'd rather subsidize their existence until they get to college.

But that's only part of the explanation. Our current system is rigged to support mediocre teachers at the expense of better teachers and the students. Until we change that, nothing will get better.

No hard data to support what I suspect about a discipline gap aside from personal experience and anecdote. I went to a low performing school and got a front row seat to many of the pathologies that held peoples performance back, and there was a great deal more that I saw than teacher issues (and those were there).

Truancy rates were higher, that was not related to teachers, it was on the students and the parents, People who were consistently late were not doing as well. Attentiveness in classes and doing the work vs chit chatting with friends. Again it's obvious but the less people buckled down and got their shit done, the worse the outcomes. Now this is mixed in with how well a teacher is able to maintain some sort of productive atmosphere in the classroom, but there is still a thing called homework and spending extended time away from the classroom and doing the reading and work to make sure you had some understanding of what was going on and could do better on tests. There were many people who consistently had no homework done. Is that societies failure? The amount of income going to the school? The teacher?

It's not an easy lever for government to twist and pull for an improvement, which is why I suspect the liberals are more loathe to focus on it and address it, but it is there, and attempts to diminish its significance always struck me as complete BS. It matters, it made the difference in so many lives between doing well, or preventing failure, and getting ahead.

Jesus, even in PE, where the ONLY thing you had to do was dress in your PE clothes and you get an A, there were people who consistently could not be bothered to do even that.

I don't have extended data sets on outcomes and discipline levels, and delaying immediate gratification for some greater gain later, but I saw plenty of examples close at hand that made massive differences in peoples outcomes. And those aspects of behavior are not equal between all peoples, and it makes a great deal of difference from what I have seen.
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Old 05-31-2011, 05:06 PM
piscivorous piscivorous is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

And then it becomes the mandate that the productive should support these slackers in there adult life through wealth redistribution. Seems to me that the incentive to not starve, as an adult, would provide some incentive, at least to a percentage of them, to do somewhat better in school. What little incentive the welfare state provides seems geared in the opposite direction. Yes there are people that actually will need government to take care of them, for various reasons, but it should not create, maintain and promote a system that has produced multiple generations of dependence.

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Old 05-31-2011, 05:09 PM
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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And then it becomes the mandate that the productive should support these slackers in there adult life through wealth redistribution. Seems to me that the incentive to not starve, as an adult, would provide some incentive, at least to a percentage of them, to do somewhat better in school. What little incentive the welfare state provides seems geared in the opposite direction. Yes there are people that actually will need government to take care of them, for various reasons, but it should not create and promote a system that has produced multiple generations of dependence.
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Old 06-05-2011, 11:53 AM
eeeeeeeli eeeeeeeli is offline
 
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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And then it becomes the mandate that the productive should support these slackers in there adult life through wealth redistribution. Seems to me that the incentive to not starve, as an adult, would provide some incentive, at least to a percentage of them, to do somewhat better in school. What little incentive the welfare state provides seems geared in the opposite direction. Yes there are people that actually will need government to take care of them, for various reasons, but it should not create, maintain and promote a system that has produced multiple generations of dependence.
I'll jump in here after noting that Jon I hit the nail on the head.

The incentive issue, with regard to government welfare (what little exists), is largely irrelevant. The dysfunction that plagues communities of low-achievers really has nothing to do with the promise of food stamps. I guarantee you that you take away what minimal services are being provided now, and you wouldn't see a practical difference.

You would however see more people falling through the cracks. Most of what is provided are simply programs that are oriented towards emergencies - things that people never would have planned for, such as drug addiction, teen pregnancy, joblessness, etc. (see discussion upthread of the human tendency to assume "it will never happen to me". I work with severely failing students and very few of them make the connection between work done today and 1, 2, 3, etc. years into the future. Yet many will end up in prison, on drugs, etc.)

The real story is about diminished levels of social capital in their lives since birth. How we effectively provide this to children is really hard. But it is the explanation for why they develop so poorly and become almost unreachable by mid-adolescence (when many begin to have babies and the cycle repeats).
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Old 05-31-2011, 05:08 PM
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Default Re: Free Air Conditioning Edition (Mark Schmitt & Kevin D. Williamson)

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Korea was a developing country more recently, and China is still developing and have much more headroom to grow. I would expect a slowing and stabilization of education rates in S Korea now though, because they have already picked the low hanging fruit of millions of people not having an advanced education at all.
Well it's worth noting that while I quite like Cowen I disagree fundamentally with his hypothesis re: the Great Stagnation. That's somewhat related to what this has gotten to but unrelated enough that I'll basically set it aside.

I think that your interpretation of the issue has some fundamental flaws. If I am understanding your argument correctly, there should basically be a laffer curve of average student performance as measured against percentage that completes high school--as more people complete high school, after a certain point, the average is weighed down by the less academically inclined students.

The problem is that this is not represented in the data. 97% of South Korean students complete high school on time, compared to 75% of Americans (http://www.usatoday.com/money/world/...tion-usa_N.htm). In spite of this, South Koreans perform significantly better than US students in mathematics and sciences.

I created a (crudely drawn) graph to illustrate the trend:


Under your hypothesis, the SK average should've taken a nosedive several years ago. But it has not. And there's nothing to suggest that it will. Thus the notion that average student performance is destined to fall with increasing completion is fatally flawed.


Quote:
China is still growing and has plenty of jobs for non high education people in manufacturing and textiles and a thousand other areas. In the US there is a vast premium placed on some sort of higher degree and highschool graduation (whether that premium is overvalued or not, it is there). Now we could probably get some more headroom by using other screeners than "college" to determine whether someone is employable, but the details of that are probably best left to wonks and businesses.
Fair point on China, but we can also look at Singapore and Hong Kong, both of which have students graduating at higher rates than the US and far exceeding the average American student.



Quote:
No hard data to support what I suspect about a discipline gap aside from personal experience and anecdote. I went to a low performing school and got a front row seat to many of the pathologies that held peoples performance back, and there was a great deal more that I saw than teacher issues (and those were there).
Oh, I don't disagree that there are behavioral issues. I'd really question whether there are substantially more today than there were 40 years ago.


Quote:
Truancy rates were higher, that was not related to teachers, it was on the students and the parents, People who were consistently late were not doing as well. Attentiveness in classes and doing the work vs chit chatting with friends. Again it's obvious but the less people buckled down and got their shit done, the worse the outcomes. Now this is mixed in with how well a teacher is able to maintain some sort of productive atmosphere in the classroom, but there is still a thing called homework and spending extended time away from the classroom and doing the reading and work to make sure you had some understanding of what was going on and could do better on tests. There were many people who consistently had no homework done. Is that societies failure? The amount of income going to the school? The teacher?
So, here's a good question then: can a good teacher change this? Jaime Escalante suggests that one can.

There are other issues as well, I will grant you. We have an anti-intellectual culture that's very prevalent in America. But I would absolutely resist the notion that better teachers and a reinvisioned classroom dynamic, which the Khan Academy offers, can't have a hugely positive effect and improve things. I think I'm going to end up mentioning Khan more often than Hayek on here.

Note that I think there's a good argument to make (though not one that I have fleshed out) that the welfare state breeds anti-intellectualism, as does our current income tax, which rewards poor economic performance with a stipend and punishes economic success.


Quote:
I don't have extended data sets on outcomes and discipline levels, and delaying immediate gratification for some greater gain later, but I saw plenty of examples close at hand that made massive differences in peoples outcomes. And those aspects of behavior are not equal between all peoples, and it makes a great deal of difference from what I have seen.
Again though I'd say that certain schools breed certain cultures. Someone may enter a school with apathy toward education. The environment has a multiplier effect on that tendency and creates an even worse student, when it could've potentially made the student better. Ending the state monopoly and the dominance of teachers unions will help with this.
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