Some things in life are free: Learn economics from one of the best

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This summer Stanford will be offering an open online version of John Taylor’s on-campus course Principles of Economics.  Professor is considered one of the most influential economists today and is likely in line for a Nobel prize.

People can find out more and register for the course, Economics 1, on Stanford’s free open on-line platform. The course starts on Monday (June 22). The  first week’s lecture and study materials are now posted.

Basic economics

The course covers all of economics at a basic level. It stresses the key idea that economics is about making purposeful choice with limited resources and about people interacting with other people as they make these choices. Most of those interactions occur in markets, and this course is mainly about markets, including the market for bikes on campus, or labor markets, or capital markets.  The course will show why free competitive markets work well to improve people’s lives and how they have removed millions from people from poverty around the world, with many more, we hope, still to come.

For more information, visit John Taylor’s blog.

Sesame Street vs. Spongebob: A war over the preschool brain

Boob tube. Idiot box. The vast wasteland. Television has long had a bad reputation for dulling the minds of young and old alike.

Scientists, parents, and politicians have been debating the effects of television for more than half a century. Yet, after fifty-plus years of research, the science still is not settled.

Is some TV good for kids? Is some TV bad?

Research published by the National Bureau of Economic Research calls the PBS children’s TV show Sesame Street, “one of the largest early childhood interventions ever to take place.” The researchers claim that Sesame Street has had positive impacts on childhood development.

The researchers call their results significant. They note that in areas with “weak” TV reception for Sesame Street, about 79.7 percent of children were at the grade level that was appropriate for their age. They estimate that a move to “strong” TV reception for Sesame Street would increase the percent of children at a grade level that is appropriate for their age by 2.9 percentage points to 82.6 percent.

The researchers note that a move from “weak” reception to “strong” represents a 30 percentage point increase in TV coverage. That’s a huge increase. For example, the paper notes that in 1970, the average coverage rate was 69.4 percent (meaning a little more than two-thirds of households could receive a TV signal). So, a 30 point increase would be a huge jump from two-thirds coverage to 100 percent coverage.

While the results may be statistically significant, they do not appear to be economically significant. Even huge increases in Sesame Street coverage are associated with relatively small bumps in kids performing at-grade-level.

Sesame-Street-Education

Education researchers seem to have a tendency to spin their results to generate the buzz that makes up the 24 hour (or less) news cycle. Spongebob Squarepants, of all guys, highlights this tendency.

A few years ago, the well-respected journal Pediatrics published a study claiming that watching only 9 minutes of Spongebob Squarepants will turn pre-school brains into squishy goo.

The Spongebob warriors had group of 60 4-year-olds who were randomly divided into one of three experimental groups.

  • One group watched 9 minutes of the SpongeBob SquarePants,
  • A second group watched 9 minutes of Caillou, a slow-paced cartoon on PBS,
  • The third group sat drawing.

(Curiously, the researchers didn’t allow the kids to watch the full episodes of the shows, so the kids didn’t know how the stories ended. Weird, huh?)

After watching the shows, the children completed four tasks, three of which are designed to measure executive brain function—such as attention, working memory and problem solving—and one which measured the kids ability to delay gratification.

Here’s what the researchers found:

The fast-paced television group did significantly worse on the executive function composite than the drawing group.

The difference between the fast-paced and the educational television groups approached significance, and there was no difference between educational television and drawing.

Compared to the drawing kids, the SpongeBob kids did worse when the researchers measured the executive function results (attention, working memory, and problem solving).

But compared to the Caillou kids, there was no statistical difference between the two groups of kids. There is a difference between “approached significance” and statistical significance. “Approached significance” is how researchers say, “It’s not significant, but I would sure like it to be.”

But, it get’s worse. The Spongebob vigilantes contradict themselves (or at least mischaracterize their findings) only two paragraphs later:

Children in the fast-paced television group scored significantly worse than the others despite being equal in attention at the outset, as indicated by parent report.

Umm. No. They only scored “significantly worse” than the drawing group in three out of four areas. There was no significant difference between the Spongebob kids and the Caillou kids.

Despite the flaws, the Pediatrics editors gave the go ahead and all Hell broke loose. Heck, even the New York Times jumped on it.

In a world where the sciences is never settled, let’s make today’s Word of the Day skepticism.

How bad are Oregon’s public schools? Digging into the Oregonian’s data

Just how bad are Oregon’s public schools? And, if they really are that bad, is more spending the only solution?

The Oregonian has dug deep into data on state spending on schools and student performance. The Oregonian researchers conclude that the state’s schools produce results that rank in the bottom third nationally, partly because Oregon lags far behind the national average in classroom spending.

In an act of total classiness, the Oregonian researchers have made their data easily available as an Excel file for anyone to use.

We at Econ Minute took way more than a minute to dig into the Oregonian’s analysis. We found some things that may radically change what you thought you knew about school spending and performance in Oregon. (And we don’t even talk about PERS.) All the graphs are available for download as PDF.

  • Oregon’s spending on education is dampened by the state’s relatively low income;
  • Oregon’s performance on reading and math are close to what would be expected for the state’s level of spending;
  • Oregon’s failure to graduate students out of high school is a big mystery to just about everyone; and
  • More spending provides little bang for the buck—huge increases in spending are associated with relatively modest improvements in performance.

First things first … State rankings can be misleading for two reasons:

  1. State rankings do not account for size differences among states. With state rankings, a small state like Delaware is given the same weight as a huge state like California. Oregon may be ranked toward the bottom of states in spending per student, but with respect to the number of students enrolled, Oregon is right in the middle.
  2. Rankings tend to distort small differences between states. For example, Washington spends $345 more per student than Georgia—a difference of only 3.5 percent—but Washington is ranked 7 places higher than Georgia in state spending per student. The difference in spending between Oregon and Washington is tiny, but Washington is ranked four places higher than Oregon.

Let’s adjust this …

The first thing that pops out of the Oregonian’s analysis is that per-student spending is “adjusted” for differences in cost of living across states. The concept of a state level cost of living is a bit odd. Even areas within the Portland metropolitan area have widely different cost of living indexes. The adjustment for state cost of living seems a bit bogus, but that’s a fight for another day. So let’s see what the data say …

The figure below shows the relationship between the state cost of living index and spending per student. There’s a pretty clear trend: A higher cost of living is associated with greater spending per student. Three observations:

  1. The trend line has a pretty good fit with the data. The R-squared of 0.63 says that variations in cost of living index explain 63 percent of the variation in spending per student. Enjoy that 0.63, you won’t see it again …
  2. The trend line suggests an elasticity of a little more than 2. In other words, a 10 percent higher cost of living is associated with 20 percent more spending per student, if cost of living was the sole determinant of spending per student. (Note to self: Put this on the econometrics exam on potential specification error.)
  3. Oregon (the red square) is below the trend line. In other words, Oregon spends less than expected if cost of living was the sole determinant of spending per student. That’s what the Oregonian researchers concluded also.

 

01-Cost-Spending-Oregonian-Education-EconMinute

 

Oregon is a funny state. Oregon has a higher cost of living: 6.4 percent higher than the U.S. as a whole. But, we also have lower per capita personal income: 11.2 percent lower than the U.S. average.

The figure below shows that Oregon’s cost of living is substantially greater than other states with similar incomes. If per capita personal income was the sole determinant of cost of living, Oregon’s cost of living would be 10 percent lower. More generally, Oregonians earn less and pay more.

 

03-Income-Cost-Oregonian-Education-EconMinute

 

On the one hand, Oregon’s higher cost of living would point to more spending per student. But, Oregon’s lower income would point to less spending per student, because the money simply isn’t there. For people who like big words, countervailing factors is the word.

The figure below shows the relationship between  state per capita personal income and spending per student. There’s a pretty clear trend: Lower income are associated with less spending per student and higher incomes are associated with more spending. Three observations:

  1. As with cost of living, the trend line has a pretty good fit with the data. The R-squared of 0.54 says that variations in per capita personal income explain 54 percent of the variation in spending per student.
  2. The trendline suggests an elasticity of a 1.5 to 1.7. In other words, a 10 percent more in per capita personal income is associated with 15-17 percent more spending per student.
  3. Oregon (the red square) is right on the trendline. In other words, Oregon spends exactly what would be expected if per capita personal income was the sole determinant of spending per student.

Bottom line: Oregon’s ability to spend on education is limited by its relatively weak incomes.

 

02-Income-Spending-Oregonian-Education-EconMinute

 

We said that that fight over cost of living adjustments is a fight for another day. Today’s not that day, so let’s dig into the data using the cost of living adjusted spending that the Oregonian researchers used.

Graduation rates

The figure below shows that there is virtually no relationship between current expenditures per student and graduation rates.

Remember when we said to enjoy that R-squared of 0.63. Yeah. Those days are gone. The R-squared on the trend line for the spending-graduation relationship is 0.03. You’d do better trying to throw a dart at the chart.

Even so, Oregon is distinctively bad. That big red box sticks out like a big sore thumb.

Here’s some trivia: The Oregonian data reports that Oregon’s current graduation rate is 72 percent (along with Georgia), or 9 points lower than the U.S. graduation rate of 81 percent. In 1986, Oregon’s graduation rate was 74.1 percent, slightly higher than the U.S. rate of 71.5 percent. Over time, while the national graduation rate improved, Oregon’s rate got worse. Go figure.

 

04-Graduation-Rate-Oregonian-Education-EconMinute

 

Math

The figures below show that there is a slight positive relationship between current expenditures per student and math performance, measured by percent of students who are “proficient” and  eighth grade math test scores.

Check out Oregon’s big red box. For both fourth grade and eighth grade, Oregon is right on the trendline. In other words, Oregon is performing almost exactly as expected in math for the state’s level of spending per student.

Also, check out how flat those trendlines are. That means that even huge increases in spending are associated with relatively modest increases in math performance. There’s just not that much bang for the buck on math.

 

05-4th-Grade-Math-Oregonian-Education-EconMinute

 

 

06-8th-Grade-Math-Oregonian-Education-EconMinute

 

Reading

The figures below shows that there’s virtually no relationship between current expenditures per student and fourth grade reading “proficiency,” but a small positive relationship with respect to eighth grade reading test scores.

Check out Oregon’s big red box. In fourth grade, Oregon is performing as expected (or ever-so-slightly better) given the state’s level of spending per student. Eighth grade test scores are noticeably higher than expected.

The scaling in the charts distort how flat the trendlines are. As with math, even huge increases in spending are associated with relatively modest increases in reading performance. Again, there’s just not that much bang for the buck.

 

07-4th-Grade-Reading-Oregonian-Education-EconMinute

 

 

08-8th-Grade-Reading-Oregonian-Education-EconMinute

 

Composite

The Oregonian researchers have a measure that combines graduation rates, math, and reading into a single number. Then, they calculate that score in to a percent over or under the U.S. average. It’s very clunky and mostly bogus, but that won’t stop us from using it.

The figure below plots relationship between this measure and spending per student as a share of the U.S. average spending per student.

In a perfect would, one would expect a 1-to-1 relationship: Bigger spending, better performance. That is, one could argue a state that spends 20 percent more than the U.S. average should perform 20 percent better than the U.S. average on the combined performance measure.

Not so. The figure shows that the there really is no significant variation. Part of this because of the the way the measure is calculated.

One note on Oregon: The state seems to be dragged down on this measure by its abysmal graduate rate.

 

09-Composite-Oregonian-Education-EconMinute

 

We have also run these graphs using spending as a share of state personal income. The qualitative results are roughly the same. All the graphs are available for download as PDF.

Can education pass the economic development smell test?

Economic growth is probably the single most studied topic in economics, dating back at least as far as Adam Smith’s 1776 book, An Inquiry into the Nature and Causes of the Wealth of Nations.

After almost 250 years of study, you’d think we have the answer to what causes the wealth of nations.

But, alas, science is never settled, so economists keep coming up with new answers.

For example, the idea of microlending has been all the rage lately. Especially after Muhammad Yunus was awarded the Nobel Peace Prize for his work in microcredit.

But, does it really matter?

Harvard development professor Lant Pritchett describes a “Eureka!” moment when he realized that maybe micro efforts produce only micro results.

Pritchett was in West Bengal with a World Bank team researching a program that built and financed women’s self-help groups as a means of increasing women’s productivity and incomes. At one point, one of the women asked: “You all are from countries that are much richer and doing much better than our country so your country’s women’s self-help groups must also be much better, tell us how women’s self-help groups work in your country.”

That’s when it hit him:

We all looked at each other blankly as none of us had any idea whether there even were at any time in our countries’ history such a thing as “women’s self-help groups” in our countries (much less government program for promoting them). We also had no idea how to explain that, yes, all of our countries are now developed but no, all of our countries did this without a major role from women’s self-help groups at any time (or if there were a role we development experts were collectively ignorant of it), but yes, women’s self-help groups promote development.

Think about that for a second.

A bunch of First World experts are telling a bunch of women in a Third World country that microlending is a path to economic development. But, the “experts” don’t know of any such lending in their own countries. If the US, UK, Germany, New Zealand, and other “developed” countries advanced so far without microlending, why would anyone expect microlending to be the path to economic growth for developing countries?

Pritchett’s “Ah Hah!” moment led him to develop a four-fold “smell test” for determining what is important to development:

  1. More developed countries must have more X (e.g., natural resources, access to warm water ports, educational attainment) than less developed countries.
  2. The developed countries must have more X than when they were less developed; in other words, they unlocked some potential.
  3. Recent development successes must have more X than development failures.
  4. Countries that are developing rapidly must have more rapid growth of X than those that are developing slowly.

Economist Paul Romer jumped on this observation and applied the “smell test” to urbanization. He concludes that urbanization passes the smell test, meaning that urbanization is important to economic development.

Can education pass the smell test?

Here at Econ Minute, we decided to perform our own “smell test” on education and economic development. We chose education because there is very little debate that greater educational achievement is associated with better economic growth. Because it is relatively uncontroversial, it’s a good test of Pritchett’s Smell Test.

We used data from the World Bank on education and per person gross national income see the relationship between lower secondary education completion and per capita GDP. (Details of the data—including why education completion rates can be greater than 100 percent—are available from the World Bank.)

The first figure (below) shows the education completion rate and gross national income per capita. The figure shows the strong correlation of education completion with GNI per capita.

 

EconMinute-Pritchett-Education-Figure1

 

The second figure (below) is the same as the first, only GNI is on a natural logarithm scale because economists love natural logs. As with the first figure, the figure below shows the strong correlation of education completion with GNI per capita.

 

EconMinute-Pritchett-Education-Figure1-ln

 

The third figure (below) shows one simple way to get at the cross-sectional variation, by looking at only a single year, 2012. That year was chosen because it was the most recent year with many observations. The data suggest that in 2012, more development countries had higher education completion rates than lesser developed countries.

 

EconMinute-Pritchett-Education-Figure2-ln

 

The fourth figure (below) looks at the changes over time. For each country, over the interval 1970 to 2013, it shows the 10-year percentage point change in educational completion and the 10-year percent change in GNI per capita.

As noted in Romer’s post, this kind of relationship measuring changes is less tight than the relationship in levels, but the simple correlation is still positive, and a fitted curve that allows for constant plus a nonlinear relationship suggests that the association between the two is particularly strong for countries that experience a rapid growth in the secondary education completion.

In other words, the figure suggests that countries that have a bigger increase in GNI per capita also tend to have a bigger increase in secondary education completion.

 

EconMinute-Pritchett-Education-Figure4

 

The fifth figure (below) provides an overlay of China’s experience. In contrast to Romer’s analysis, the World Bank data begins in 1990 for China, so we do not have the clear before- and after-reform break. Also note that what appears to be a big jump simply reflects missing data between 1997 and 2007, so what appears to be a big jump is actually a 10 year jump. Nevertheless, increases in China’s GNI per capita have been accompanied by increases in educational completion.

 

EconMinute-Pritchett-Education-China-Figure5

 

At this point, you begin to hear a chorus of voices turn to shouting, “Correlation is not causation!”

And, the chorus is correct. Indeed, one could make a very good argument that improving incomes cause greater educational attainment. As incomes improve, family can afford the time and money it takes to better educate their children. As a country’s national income improves, greater resources can be devoted toward public education.

Nevertheless, this exercise was not meant to end the debate, but really to start a conversation about what matters in economic development and how to measure it.