Sunday, April 12, 2009

There's lots of bad economic news, so much that not much of it breaks through the clutter for me anymore, but this did:

Tufts accepts 26 percent of pool, suspends need-blind admissions:

The admissions office ... stopped practicing a need-blind admissions policy toward the tail end of the process, a decision that affected five percent of applicants, Dean of Undergraduate Admissions Lee Coffin said.

Admissions officers were able to first read every application in a need-blind manner, during which they did not consider an applicant's ability to pay. But with more families requesting larger amounts of aid due to the recession, officers suspended need-blind practices for the final 850 applications -- of 15,038 total -- when potential financial aid ran out.

"We read every application need-blind, conducted committee need-blind, and then we ran the numbers and realized that we just couldn't do it, that we had gone as deeply as we could go," Coffin said.
I bet this is a problem a lot of colleges and universities are facing this year and may face the next few years. This is where the government funding should be going; investing in education for young people is the best possible use of our economy's surplus.

Read Romer in Post-Scarcity Prophet:
When you're thinking about the future, you never really know what we're going to discover, but I think there's a reason to set for ourselves an ambition of trying to raise the rate of growth by half a percent per year.

... If we can make the choices that increase the rate of growth or real income per person to 2.3 percent per year, in 50 years we can get extra income per person equal to what in 1984 it had taken us all of human history to achieve.

One policy innovation, for example, that would boost the growth rate would be to subsidize universities to train more undergraduate and graduate students in science and engineering.
Subsidizing education is as close to free for our society as anything we know of. I haven't run the numbers, but I suspect that the break even on this investment (in a steady state) is shorter than anything else we can think of.

Two asides.

1. I don't agree with Romer on all of this, especially the idea that only science and engineering should be subsidized. Romer is focused on technological discovery as a driver of growth, but in my observation, ideas are discovered by people from all disciplines. Romer makes this point, although seemingly unintentionally, in his EconTalk podcast:
Research grants to universities are not the best way to develop all different types of ideas. Imagine that all music that we could listen to was produced by academic departments of music on college campuses. If you've ever listened to what music people write when they do research, it's pretty unlistenable stuff. The pure university research path isn't the way I want to get the music I listen to or the books I read. But, on the other hand, if you have the kind of things like open source, there is a kind of democratic element where people in open source have to cater to--or lots of things on the web that are free--they're catering to not just a narrow group of peers, but a wider audience. And that creates incentives for people to create things that are valuable for large numbers not just small elites.
If we want better music, give tuition subsidies to lots of music students rather than grants to a few music professors. This seems rather obvious in the arts, but it's almost certainly more true in other academic departments. The idea that "physics advances funeral by funeral" is a by-product of the current university system.

I also don't think that anyone, government included, know where we should focus our research to create ideas. Romer says "we never really know what we're going to discover..." and this is true not just within science, but within knowledge as a whole.

2. For my friends who conflate economics and finance: growth is not evil. The point of creating more income in a society is not to have more rich folk or to consume more stuff. Growth in income, although measured in dollars, is the ability to create more value, not more money or more things. We create additional value primarily by a better arrangement of materials, not the greater use of materials. So, a laptop today is more valuable than a mainframe computer of thirty years ago even though it uses less resources and costs quite a bit less. (There is a somewhat involved argument about why this creates a more even distribution of income, but that's pretty OT.) That growth often means more use of resources and more inequality is a bad outcome, but--IMHO--is not caused by growth itself but by the inefficient tuning of the institutions that encourage growth.

Growth is society becoming more productive. This additional productivity doesn't just mean that more people have gigantic flat-screen televisions (although certainly many people will use their excess production this way) but that we have better health outcomes, less incentive to fight over resources, more personal freedom and, hopefully, even the ability to increase the percentage of the pie that goes to people who currently have less.

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