John Kay and Mary Bonsu on UBI

Paying everyone a basic income is not a realistic or fairer way to tackle poverty by John Kay at johnkay.com.

Frankly I prefer what Yves said. It is brief. It is clear. It presents specific objections that sound right to me. But John Kay tells an interesting tale. Here is part of it:

What goes around comes around, and Atkinson and Meade were themselves reprising a debate which had occurred 30 years before. At that earlier time, the two sides were represented by Lady Juliet Rhys Williams, the architect of social dividend, and Sir William Beveridge. Each had devised their schemes in reaction to the injustices of the 1930s

The Beveridge view was encapsulated in what he called social insurance. The idea was to eliminate poverty by eliminating the causes of poverty. The state should organise insurance against the contingencies of misfortune, such as disability, unemployment, sickness and old age. Beveridge envisaged that these benefits would be supplemented by minimal social support for the few people who fell through the cracks

In the Rhys Williams vision ... poverty was the result of low incomes, and would be eliminated by ensuring that nobody had low incomes.

Beveridge was an economist, and had some idea how the economy works. Rhys Williams was concerned for people's welfare but obviously had no idea how the economy works.

I'm making assumptions here. I don't know anything about either Rhys Williams or Beveridge. But I see how people are, these days. There are a lot of people these days who are concerned for people's welfare but have no idea how the economy works. They seem to think they don't need to know how the economy works because you can just pass a law and that's the end of it. But it doesn't work like that.

Take a familiar example: raising the minimum wage. I can't say I'm against it because I would certainly like to see less disparity between rich and poor than we have today. And because I'm not altogether heartless. And no better solution is ever presented. But I can say raising the minimum wage does not solve the problem.

Raising the minimum wage may temporarily relieve some of the stress that low income creates, but it does not solve the problem that creates low income. See the difference?

Reading the new issue of Discover

In the recent Discover magazine I turn the page and find this:

Improve Medical Research, Scrap Funding Model

For nearly seven decades, federal agencies and many private funders have financed medical research through competitive grants to individual scientists who submit proposals for particular projects. This system is intended to match available funds with the best researchers and ideas.

But today's competition for limited grant money encourages overly safe research, aimed more at producing positive results to bolster future proposals than at breaking new ground. The current system discourages high-risk, high-payoff science...

I don't need to read any more. I already have a response.

The first paragraph sets the stage by describing the how and why of funding for science. The second paragraph describes problems with that system. Between the two is a transition phrase: "But today's competition for limited grant money..."

That's the problem, right there. The money. Problems with money create other problems. And then people write articles proposing to fix those other problems by changing the way things have been done for seventy years or more.

It may be a way to cope, but it does not solve the real problem.

Private Debt 2012 (15): $870B + $693B + $730B + ...

From the CONVERSABLE ECONOMIST:

There are two kinds of news stories about student loans. One group of stories emphasize the huge total of student loans. Calculations from the New York Fed for the end of 2011 find: " The outstanding student loan balance now stands at about $870 billion, surpassing the total credit card balance ($693 billion) and the total auto loan balance ($730 billion)." The Student Debt Loan Clock, which for illustrative purposes continually updates the total student loan debt outstanding, is on the verge of crossing $1 trillion.

The second group of stories emphasize the problems of particular students who have large loans and great difficulties in paying them back...

The outstanding student loan balance now stands at about $870 billion, surpassing the total credit card balance ($693 billion) and the total auto loan balance ($730 billion)

Some things cannot be said often enough. Excessive private debt is the problem.


Timothy Taylor is the Conversable Economist and the Managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul, Minnesota, which can be read free on-line courtesy of the American Economic Association.

In the linked post, he writes

Sometimes student loans pay off; sometimes not. What facts and concerns should the average student thinking about such loans be keeping in mind?  Christopher Avery and Sarah Turner tackle this question in "Student Loans: Do College Students Borrow Too Much—Or Not Enough?" in the Winter 2012 issue of my own Journal of Economic Perspectives.

Taylor considers some of the issues raised in the article:

Most students are borrowing amounts that are within standard loan guidelines

"My own guess," Taylor writes, "is that part of what is happening here is that larger loan burdens are being offset by lower interest rates, so the overall ratio of loan payments to income has risen by less than one might otherwise expect."

The median level of student borrowing isn't excessively high.

He quotes from the article: "Examples of students who complete their undergraduate degree with more than $100,000 in debt are clearly rare: outside of the for-profit sector, less than 0.5 percent of students who received BA degrees within six years had accumulated more than $100,000 in student debt."

Students considering loans should think about the typical employment and pay prospects for that major.

Taylor: "I do think that many students agonize a little too much over their major, while not agonizing enough over the extent to which they are building a skill set."

That struck me as a funny line. I don't know why.

Some students borrow too little...

Taylor: "Sending a message that all students should try a few years of college, even if it requires taking on tens of thousands of dollars in loans, is borderline irresponsible."

Wow!

Timothy Taylor's conclusion:

Given the growing wage gap between those with a college degree and those without, it will make economic sense for lots of students to borrow, especially at today's rock-bottom interest rates. But with student loans, we're talking about young adults often in their late teens and early 20s making financial decisions that could be with them for decades to come. It's a transaction that should be made with caution and consideration.

My conclusion:

I'm not Ann Landers. This is not a personal advice blog. I don't have much interest in "stories [that] emphasize the problems of particular students". What interests me are the big, sweeping forces that arise from aggregate economic activity, which in turn affect the environment in which economic activity occurs. What interests me is the setting that gives rise to (for example) "the problems of particular students" -- particularly when it seems to be that more and more particular students are having such problems.

"Several decades ago," Taylor writes, "it was a low-risk option to spend a few years working part-time and attending a big public university". But the environment has changed.

I'm not into coping. I'm into solving. I will never recommend that you are cautious and considering when you make your personal decisions. Nor will I recommend you throw caution to the wind.

What I do recommend is that you think about why things have been getting generally worse for "several decades" now. Think about the accumulation of private debt and ask yourself whether it plays some role in that decline.

If you don't have an answer, that's fine. Just keep asking the question.


My first visit to Timothy Taylor's site was to his The Price of Nails.

Fascinating.

Judging a Book by its Cover

So the wife signed up for some work-related schooling. One of the books she got is Winning the Cost War by Dale R. Geiger. Cover price $14.95 (between seven and 8 times the price of the Marc Bloch book from yesterday's post).

Even without opening the book, I wanted to base a post on its title.

First, the obvious: Of course it is necessary to pinch pennies and cut corners and otherwise alliterate, doing everything we can to stretch a dollar and make ends meet. It is necessary to cope with the cost problem. Not even I would deny it.

However...

The cost problem is not the problem. The cost problem is a result of the problem. I don't want to cope with the cost problem. I'm tired of coping with the cost problem. I want to fix the underlying problem, and make the cost problem go away.

See where I'm coming from? I was trying to make the same point in my review of professor Mark C. Taylor's ideas here. Coping with a problem is not the same as solving the problem. Coping with a problem is fiddling while Rome burns.

The underlying problem is getting worse. Look: Everybody thinks they know we just have to balance the federal budget and that will solve the problem. And then they go off on a tangent about personalities and corruption and dishonesty and character.

But if the problem is economic, then the solution must also be economic.

The federal debt and deficit are the least of our debt problems. But set that aside, I don't care. Here is the simple fact: Debt is not the result of excessive spending... Debt is the result of credit use.

Now you're gonna say I want to increase government spending. Wrong: I don't care about the level of government spending. That's all politics, far as I'm concerned. If you want to have smaller government, that's fine with me. I don't care. But making the government smaller is not gonna solve the economic problem.

We have to solve the economic problem, the problem that creates all this debt. And separately, we can have whatever size government you want. Actually, the people who want bigger government will have no leg to stand on, after we fix the economy.

Why do we have all this debt? That's the problem, right?

We have all this debt because we use credit for money.

So, why do we use credit for money?

We use credit for money because everybody thinks using credit will help the economy grow. Because using credit, years ago, did help the economy grow. But it doesn't any more. It hasn't for a long time.

Actually using credit used to be great for the economy. But we just accumulated debt instead of paying it off. We kept old credit circulating. But old credit does nothing to stimulate the economy. Old credit is just debt.

We should have been paying down that old debt all along. Doing that, we would have removed money from circulation. Paying down debt destroys money, removing it from circulation.

Paying down debt destroys money, just as borrowing creates new money. We should have been paying down debt all along, completing those credit transactions, destroying the money we created by borrowing. But we didn't.

Instead, we let the Federal Reserve remove money from circulation in order to fight the inflation that was caused by money we created by borrowing.

So, we borrowed, which created new money and also created debt. And the Fed took the new money away, to fight inflation. And we were left with the debt, and no money to pay it off. This is our economic policy. This is our normal economic policy. It's why we use credit for money. Because of policy that encourages the reliance on credit.

Economic policy encourages the reliance on credit, and removes money from circulation without destroying debt in the process. That's why we have all this debt, and why we can no longer afford it. Because of policy.

If you want to win the cost war, fix the policy.

Coping Around the Problem

Bizarre: The magazine is now Readers Digest.com. Anyway, in the August 2010 issue, pages 10 and 11, we find the article Extreme Makeover: College Edition by Dawn Raffel. Subtitle:
With tuition sky-high and the job market bottoming out, one professor suggests major changes

Okay, I'm thinking, This is about the economy. What does the guy have to say?

The professor is Mark C. Taylor of Columbia University. These are the economic problems he identifies:

• the high price and low yield of a college education
• our higher education system fails to prepare people to thrive
• our higher education system is headed for a financial meltdown
• costs are only going up
• second mortgages to pay for college no longer viable
• students are going deeper into debt
• "we're training people for whom there are no jobs"
• "It's incumbent on us to find new ways of financing what we do."

Note that these are economic problems, not strictly educational problems.

These are solutions that Taylor proposes:

• require students to collaborate across majors to improve "creativity"
• schools should specialize and students should take courses at multiple schools
• "wealthier schools... have a moral obligation to share with the have-nots"
• schools should partner with corporations
• kill tenure
• emphasize teaching rather than research and writing
• "Why are all courses the same length?"
• "Why are they worth the same credits?"
• "Why is college four years?"

As Dawn Raffel writes, Taylor wants to "question everything." Taylor's proposals strike at the foundation of the education system because "Schools are built on an old model" that isn't working in this economy.

Mark Taylor surveys the damage and provides a statement of economic problems. The problems he identifies are generally the same in schools and homes and businesses and governments, across the country and around the world: problems of cost, and of jobs, and of debt, and of "financial meltdown." Economic problems.

But Taylor's solutions are not solutions to economic problems. Rather, they are ideas that would undermine the standard educational environment. Given that our higher education system fails to prepare people to thrive, in an economy where no one is thriving, one must ask: Is the problem in the education system, or in the economy?

Taylor's ideas are only a way for colleges to cope with their economic problems. They are not a way to solve those problems, for colleges or for anyone else. If the problems remain unsolved, coping is necessary. But Taylor has no solutions.