Internships: Financing Human Capital?

My recent post on private/public education generated a fair amount of controversy (rightfully so, as my views definitely are not set on this issue). I'm currently reading Capitalism and Freedom - something light to kick off my summer - and enjoying Friedman's discussion of education. One complaint he levies is that investment in human capital is too low (as of 1962) relative to investment in physical capital. He cites the difficulty of securing a loan as one major reason. Suppose you make a loan to your neighbor for a tractor. If he quits paying, you can take the tractor. But if you make a loan for him to go to college and he quits paying, you cannot take him and enslave him. Nor can you even expect him to work for you, because he may simply not cooperate with whatever tasks you want done.

Friedman's solution, or one possible one, is investment by companies in their future employees. He suggests in a footnote that "training financed by XYZ insurance company could be made into an assurance of quality (like "Approved by Good Housekeeping")". Is the current system of internships a step in this direction? Most college students, at least around greater DC, are strongly advised to get as many internships as possible. I would believe that an internship with a powerful company, such as the Department of State, could function as a quality assurance for a person with an education but little/no work experience. Perhaps this also explains why so many internships are unpaid; the best internships provide non-monetary compensation by opening up future earnings possibilities.

Of course, I'm not convinced this is a good system. Many internships end up involving a lot of filing and fetching of coffee (I attest to this from personal experience). It's also becoming more common for interns to be hired to do work that would otherwise require paying an employee, and to me this is unfair to the intern. How can the internship system be revised to avoid some of these effects?

Starve the Beast: Let's Take a Look at the Data

Mark Thoma links to a very interesting article from Bruce Bartlett. The conclusion: "Starve the Beast" actually does very little to reduce government spending. My favorite quote:

On Aug. 7, 1978, economist Milton Friedman added his powerful voice to the discussion. Writing in Newsweek magazine, he said, "the only effective way to restrain government spending is by limiting government's explicit tax revenue--just as a limited income is the only effective restraint on any individual's or family's spending."

It's pretty obvious where Friedman's metaphor breaks down: a family has no source of spending other than its income. It can get a loan for a house, for example, but if a family isn't credibly repaying its loans it will not be able to get any further loans. Government can fail to repay a whole bunch of loans and continue to get more. This needs to get more attention... it's going to be very relevant for domestic American politics for the next few decades as we try to get our fiscal house in order.

Private vs. Public Education

A friend has been in my ear about why a fully privatized education system is infeasible at this time. I'm just the third party to her debate with another economist, but I'm going to try to organize some thoughts I've had while listening to the debate.

A fully private education system would suffer, I think, from some dynamic inconsistency. It's easy to argue that parents would take all the tax money they saved to buy their children high-quality education, and in fact that quality could go up as price goes down. But it is also very possible, maybe even likely, that parents with lower incomes would prioritize spending money on things other than their children's education. If the parent has no particular incentive to send their kid to the best possible school, and a healthy skepticism of the education system (perhaps because they didn't receive a good education), it's easy to imagine a cycle taking hold for the poor that is difficult to escape.

Suppose, however, that we assume all parents value education as a good and will seek high quality education they can afford for their children. Where will the higher quality schools locate? Probably in wealthier neighborhoods, because more families there will be able to pay for education. Thus students in low-income neighborhoods may be priced out not by tuition costs, but by their location (i.e. they cannot afford to get to the quality school even though they can afford the tuition). Costs like these are often glossed over when "libertopians" consider their ideal world.

Don't misunderstand this post - I'm all for school vouchers and bringing more accountability to the education system. But I think academics often miss the point that not everyone values education the same way they do, and their proposals for reform implicitly assume education is a normal good for everyone all the time. In addition, reforms need to be considered within institutional structures. Major reforms require larger institutional changes and these challenges need to at least be acknowledged by libertopians.

Names and Success

The always-interesting Eric Barker has a post claiming that your name certainly influences your success. I want to throw a bit of anecdotal support behind the claim, dating back to my time in elementary school. With a last name beginning with A-B-B-A, I have literally been alphabetically at the top of every class I have ever taken. Classes in public schools are generally seated alphabetically, at least initially, and teachers would often call on presenters, etc., in alphabetical order. Get chosen first enough times for presentations and eventually you get used to being prepared to go first - by about fourth grade, I found myself expecting to turn things in or present projects at the earliest opportunity.

One other note: I believe there are plenty of studies indicating that an A-B-C name helps you advance in academia, because your name is more likely to be cited in group works. A last name like Wilson will generally come at the end and may end up stuck under an "et al" label. Credit can often be distributed unequally alphabetically, and if/when I end up teaching a class I plan to use reverse alphabetical order as much as possible to give everyone a taste of the opposite situations.

Very Good Sentence-Paragraphs

From John Nye:

In a sense, Western markets are like Western medicine: Just as an outbreak of incurable plague would lead to both a renewed search for sound cures and an atavistic appeal to folk remedies, so the Depression stimulated both productive thinking about the sources of business instability as well as destructive appeals to extreme nationalism, protectionism and military aggression.

The whole article is excellent. I'm still pondering this passage. In a plague, medicine drives people to one extreme or the other out of fear: both those who are thinking progressively and those who are appealing to folk remedies do so because they want to stem the plague. Do markets drive people to similar extremes because of fear, or is there a confounding variable in the comparison?

Global Warming & Evolution on the Same Ticket

Apparently, lawmakers in various Midwestern states, such as Kentucky, Louisiana, Texas, Oklahoma, and South Dakota, are trying to link the issues of evolution and climate change together, according to the New York Times. What could these two issues possibly have in common? In this case, a group of people feels that these theories may or may not have factual evidence, and children need to be taught that in public schools.

My initial reaction was, "whatever brings the science of climate change into the classroom is probably a good thing. Making young people aware of the issue can only help, especially since they are overwhelmingly accepting that humans are changing the Earth's climate." But upon further consideration, maybe the best thing we can do is keep these issues out of the classroom. After all, kids can't remain insulated from these issues forever. Once they become curious, they'll seek out information, and honestly that might be better than learning from a teacher who is legally required to give climate change skepticism and intelligent design theories equal justification.

If these lawmakers want to teach more critical thinking and evaluative skills, I'm all for it. But they are openly admitting that they are trying to get a religious agenda exempt from separation of church and state. Students don't need anti-science to be taught alongside science, and trying to teach critical thinking by sanctioning intelligent design and climate change skepticism in the classroom sounds to me like a proposal that requires some critical analysis of its own.

Why I Am Not a Libertarian

In many ways I am, but I find hard-core libertarianism to be one-dimensional and boring. It has little practical significance because realistically, Galt's Gulch isn't anywhere on the horizon. Advocating libertarianism, in my mind, is useful only if you are trying to shift the center. It doesn't represent a recipe for a long-term successful nation.

Anyway, that all stems from Arnold Kling and Nick Schulz's book From Poverty to Prosperity. I have been enjoying it and wanted to take a quote from their interview with Paul Romer:

One interesting example of a beneficial government action was when the FAA started forcing the airlines to report on-time performance for their flights. This led to really big changes in how the airlines did their scheduling, and on time performance went up dramatically...

Good example of a reform that market participants would likely not have undertaken on their own that has huge benefits for everyone. The book, so far, is full of stories like this, and I have been thoroughly enjoying it. Kudos to Kling and Schulz on a very good story!