Archive for November, 2012

trip to london

From Nov 29 to Dec 3, I will visit England’s capital. Here is a preview:

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scarcity of lifetime

The other day I watched a discussion between people who suffer from terrible diseases and are said to die soon. All of them agreed that knowing they will pass away in the near future reminded them of how precious lifetime actually is. When I watched their discussion, I recalled Steve Job’s famous speech at Stanford.

As an economist one might regard death as similar to a price tag. In a market economy, prices are not chosen randomly. They transmit information about the scarcity of things. If gas prices increase, people are aware of the limited supply. They might buy a more eco-friendly car or drive less than they planned to.

With death it is very much the same. It reminds people of the scarcity of lifetime.


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eu budget

Boris Johnson, Mayor of London, comments on today’s EU budget talks:

Not a single penny more for the EU’s begging bowl

You only have to imagine the ludicrous scene, of Luxembourg officials scrabbling over some dusty Spanish hillside in search of 150 non-existent merinos to see that they have only scratched the surface of the abuse.

There are fields that are forests that are meant to be farmed. There are forests that are meant to be fields, and we are paying subsidy for both.

The EU budget will never be properly policed because the cash doesn’t properly belong to any nation — it belongs to “everybody”.

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One of the things that many people have overlooked when talking about ObamaCare is its effect on free speech, as Thomas Sowell points out in the Jewish World Review:

Waiving Freedom

What does your right of freedom of speech mean if saying something that irritates the Obama administration means that you or your business has to pay huge amounts of money and get hit with all sorts of red tape under ObamaCare that your competitor is exempted from, because your competitor either kept quiet or praised the Obama administration or donated to its reelection campaign?

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I already wrote about Leonard E. Read’s essay “I, Pencil” last year: economics in two minutes. But now the Competitive Enterprise Institute has produced a beautiful video that also tells the story:

Each part of the pencil is the result of the collaboration and cooperation of millions of people.

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Nobel laureate Milton Friedman was asked why we have so many millionaires while others cannot make ends meet. Here is his answer:

Most residual hard cases of poverty today are the result of a failure of government.

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Crowded seminar rooms, lecture halls bursting at the seams, record-high enrollment numbers, and frequent riots among students: all this summarizes observations from various universities across Europe in the past years. In Germany, the total number of students has risen by some 35% in the last ten years alone. The same holds true for Switzerland and other countries. Many universities now have twice as many students enrolled as their capacity would allow.

This gives rise to the question why there are so many young people attending university these days. As far as I can see there are several possible explanations. Let us take a look at each one separately.

First of all, one might argue that structural change has fundamentally changed skill and knowledge requirements in the labor market. Due to technological advancements young people now have to develop more advanced skills. And to acquire them takes several years of studying at the university.

The problem with explanation is that many students nowadays leave the university without being properly prepared for any job in the labor market. In fact, initial salaries after finishing a bachelor’s or master’s program are often lower than after an apprenticeship with some years of work experience. This may be because having a diploma in cultural or media sciences does not increase productivity enough to justify any higher income. Especially when compared with on-the-job training and actual experience in a profession.

A second explanation for record-high enrolment numbers could be the increase in household incomes. Unlike in previous times, today most parents can afford to support their children up to the age of, say, 25. This enables young people to postpone work and spend more time doing what satisfies them. There is no doubt that despite some annoyance due to exams and seminar papers, being a student is far less tedious than having a job in the private economy. This is especially true for all those students in programs of dubious academic quality and challenge. After having fulfilled the duties of school, spending several years dealing with “something interesting” while having a lot of leisure time to meet friends is simply a tempting option. Yes, students live on a small budget but often that budget allows for a decent standard of living which may include iPhones and holidays.

This leads to a third reason for today’s crowded universities: the absence of tuition. While there may be some good arguments to subsidize tertiary education, it ought to be hard to justify a 100 percent subsidy. However, most students in Germany, Austria, or Switzerland hardly pay any tuition or fees. This artificially low price obviously spurs demand. And it does so beyond what would be reasonable. The more university studies are subsidized, the lower the incentive of students to carefully decide whether or not to study, to choose the most suitable program, and to finish studies as successful and early as possible.

An obvious problem with the third argument is that enrolment numbers have increased in countries with high tuition as well. However, it certainly plays some role in those countries with low tuition fees.

A fourth argument that is often put forward is the decline in academic standards. Unless you assume that young people today are way more intelligent than those in previous generations, you will have a hard time to explain why so many teenagers today are able to finish high school, college, and finally get a university degree. In the past, only a small fraction of the population in Germany earned the qualification for university studies. Today that fraction has increased to about fifty percent.

It seems that a simple confusion of correlation and causality might have something to do with that increase. Politicians have long seen the unemployment statistics which show that those with more years of schooling are doing much better in the labor market. The straightforward (and naïve) conclusion has been that more young people must stay in school for 12 or 13 years and ideally acquire a university degree afterwards. But since neither the quality of teaching nor the intelligence of students has increased much, only a lowering of standards could enable more students to accomplish that goal.

It is no wonder that any lowering of standards also lowers the value of academic degrees. As a result employers will ask applicants for ever higher degrees. Today it takes 13 years of schooling to be able to start an apprenticeship at a local savings bank in Germany. In the past, ten years were sufficient. This is not because the job or its requirements have changed. It is just because banks take into account the lower standards in schools.

Going back to the initial question why enrolment numbers have increased so dramatically, I would argue that it is the result of several well-intentioned but ultimately flawed policies. Studying at a university is artificially cheap, universities offer a whole array of programs that meet students’ interests but have dubious value in the labor market, and academic degrees have lost much of their past-time reputation as a result of lowered standards.

Today it takes only a 15-minute walk across almost any campus to see that something is wrong with tertiary education. A university ought to be a place of higher academic work where people focus on learning and doing research. Having a look at posters, leaflets, and students these days, universities more and more seem to be a place where young people gather around to enjoy their time.

I could be totally fine with that. But I cannot since the same people later on complain about dismal job opportunities, because they disturb and distract those students who do want to learn and study, and because of the high subsidies for tertiary education.

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Finally election day has arrived. Good occasion to quote American journalist and satirist Henry Louis Mencken:

Every election is a sort of advance auction of stolen goods.

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The other day I came across a 14-year old article written by the former Harvard professor Robert Nozick for the Cato Policy Report. It attempts to give a simple explanation for why many intellectuals oppose capitalism:

Why Do Intellectuals Oppose Capitalism

Intellectuals feel they are the most valuable people, the ones with the highest merit, and that society should reward people in accordance with their value and merit. But a capitalist society does not satisfy the principle of distribution “to each according to his merit or value.”

The intellectual wants the whole society to be a school writ large, to be like the environment where he did so well and was so well appreciated. By incorporating standards of reward that are different from the wider society, the schools guarantee that some will experience downward mobility later.

Those at the top of the school’s hierarchy will feel entitled to a top position, not only in that micro-society but in the wider one, a society whose system they will resent when it fails to treat them according to their self-prescribed wants and entitlements. The school system thereby produces anti-capitalist feeling among intellectuals.

The article is much in line with some of my previous posts on Thomas Sowell’s discussion of intellectuals or of elitist thinking.

They have every incentive to believe they are brighter than other people, and know more than other people because they have been told that all their lives.

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With only a couple of days until the United States will face its next presidential election, Daniel J. Mitchell from the Cato Institute summarizes President Obama’s (lack of) success with respect to the labor market:

A Four-Picture Indictment: Final Pre-Election Jobs Report Is Not Good News for Obama

Obama should not be blamed for the depth of a recession that began before he took office. But he should be held at least somewhat accountable for an anemic recovery. Particularly since he promised “hope” and “change” and then continued the big-spending, pro-cronyism policies of the Bush years.

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