David Broder, in an opinion piece in today's Washington Post, quotes Jim Hunt, the former governor of North Carolina, who says that to bring education costs down. "We have to look at productivity measures for college faculties," he said. "The course load may have to increase for some professors" (Hunt, quoted by Broder).
There are lots of reasons why simply increasing the course load won't solve the problem. See the articles in the Chronicle of Higher Education, here, here, and here. (Sorry, these are by subscription.)
But I want to address the unspoken implication in David Broder's column: That faculty aren't working very hard and that we have lots of free time so that we can, without much inconvenience, simply take on more students. If I could reply to Mr. Broder, I would say . . .
Good evening, Mr. Broder,
Well, if you have your way and I end up teaching more students while still keeping up with my obligations of scholarship (not to mention those other obligations of "service" that are expected of faculty), perhaps you could help.
You could start now. It's 11:20 pm. I still have 9 more papers to grade by tomorrow so that the students will have feedback before they start working on the take-home final. (I have spent my weekend grading the first 20. A good paper can take 10 minutes. A bad paper can take an hour or more.) I'll give you the reading list and the paper requirements. I'm sure that you could help me by grading. (Throwing the papers down the stairs to see where they land is NOT an approved method.) Just remember that it is not OK just to put the grade on the paper. You must write comments on them, showing them where they have made conceptual errors, grammatical errors, and stylistic errors. Also, it is really empowering to tell them where they have made excellent points. Final comments should always be constructive, never cutting. Use this as a guide:
"Suzie, I see that you read some of the scholarly literature on the global political economy of basket weaving. Unfortunately, you have confused Adam Smith with Karl Marx. Instead of conducting a literature review, you have simply summarized some articles. Misunderstanding what those articles said was a definite negative. Also, you need to work on proofreading skills. Perhaps you should go to the Writing Center and ask for help on commas, as well. Grade: D."
OK? Should I send you the papers? Surely you don't have anything better to do tonight! When you're done with these, we can go over the grading of the doctoral students' seminar papers. They are more interesting, but still take a lot of time to go through.
The bloat in universities is not at the level of the professor. Our salaries do not go up as quickly as student tuition -- not nearly as quickly. I don't know enough about university finances to say where the money is going, but I suspect it's in health care costs, beautiful dormitories and gym facilities, and other non-teaching, non-research areas.
I think, though, that you have fallen into the trap of thinking that teaching two courses a semester is a breeze. That's two courses a semester plus preparation time plus grading time plus keeping up with the field time plus advising students, writing letters of recommendation, serving on University committees, and -- oh, yeah! -- fitting in time for our own research. (And a few million other tasks, as well.)
If you want faculty at major research universities to teach more, research will suffer. If the purpose of a research university is the production of "knowledge for the world," as my University's fund raising campaign claimed, then your plan will further exacerbate the weakening of American intellectual capital. Shouldn't our engineers and scientists be taught by people who know the cutting edge research because they are doing the cutting edge research?
But what about other fields that are less directly tied to practical things like R&D? At least the profs on the softer side of the university, you might suggest, should teach more. Perhaps you don't think that research into literature, ethnomusicology, or my own field of global political economy is particularly important. That these areas of study are fundamentally important to how we are an educated people, how we see ourselves in the world, and how we preserve and enhance our culture is, I'm afraid, something of an article of faith for me.
I'll say one thing for my own area of study, though. For the past 22 years, all students in my global political economy course should have learned one thing that Alan Greenspan didn't: Markets work efficiently and fairly only when government provides an appropriate regulatory structure that governs the market. Extreme deregulation and governments' abdication of their responsibility to govern markets brought us to what Susan Strange referred to in 1986 as "Casino Capitalism" -- with disastrous results.
Scholarship is worth producing, whether the result is something practical like a better software algorithm; possibly useful, like a more nuanced way of looking at world events; or just enriching, like the life lessons we learn from great literature. That's what research universities are supposed to do.
Dumbing the university down by making it a glorified high school will, in the end, have a negative effect on our collective store of knowledge.
Sunday, December 7, 2008
Thursday, December 4, 2008
Susan Strange was right
Susan Strange had a crusty personality, and she liked to tell truth to, well, if not power, then at least to the self-satisfied. And with her gravelly voice, she did it oh-so-well. And I liked her very, very much. Even though Susan passed away in 1998 -- 10 years ago -- she is much on my mind nowadays.
I have been rereading some of her work, Casino Capitalism (1986) and Mad Money (1998). She warned that we were heading for financial collapse for the very reasons that the financial system did collapse: "a monetary system cannot work efficiently unless there is political authority to say what money must be used or may be used; to enforce the execution of agreed monetary transactions; and to license, and if necessary support, major operators in the system" (1986, p. 25). She argued that through a series of decisions and non-decisions, the leading states of the international monetary system (particularly the US) have failed to govern the system.
The result is madness: wild volatility that makes everyone, even those people who never wanted to engage in risky behavior, gamblers in a global casino. Here, again, Susan speaks in 1986:
"For the great difference between an ordinary casino which you can go into or stay way from, and the global casino of high finance, is that we are all involuntarily engaged in the day's play. A currency change can halve the value of a farmer's crop before he harvests it, or drive an exporter out of buisnes. A rise in interest rates can fatally inflate the costs of holding stocks for the shop-keeper. A takeover dictated by financial considerations can rob the factory worker of his job. From school-leavers to pensioners, what goes on in the casino in the office blocks of the big financial centres is apt to have sudden, unpredictable and unavoidable consequences for individual lives. The financial casino has everyone playing the game of Snakes and Ladders" (p. 2).
We, the willing and the unwilling gamblers alike, have been living in a world in which the speed of "innovation" in financial instruments has outpaced the ability of governments to regulate, the ability of firms to realize what, exactly they are buying and selling, and the ability of anybody to figure how risky a transaction is. Moreover, Alan Greenspan's "incorrect ideology," Milton Friedman's one-dimensional thinking, and the seductiveness of the libertarian myth of perfect markets resulted in governments, particularly the US government, abdicating responsibility for governing. It wasn't just Reagan and Bush who failed to regulated. Clinton was quite guilty of this, too.
Now I do believe that overregulation is a bad thing. It decreases efficiency and leads to suboptimal outcomes. But under-regualtion or -- worse! -- failure to regulate at all leads to the mess we have right now.
So, what's the answer? Do we bail out Detroit or let them go bankrupt and try to restructure? What do we do with mortgages? What do we do with retirement, pensions, etc.? I teach my students that the economy functions on liquidity, stability, and confidence. Government has a role in each of these. The Fed, in particular, can help with monetary stability and liquidity. Liquidity can also be helped by infusions of cash by Congress to cash-strapped industries, but only if that cash ends up being used correctly. Overly high compensation for executives is a big negative. Confidence, though, is a psychological state. Confidence might come back if people believe that the government really is taking on the responsibility of governance. Leaders help change psychological states, and that's the promise of an Obama administration. I hope it works.
I really hope it works.
One more word about Susan Strange. (This is, after all, my blog.) Years ago, as a fairly junior scholar, I was sitting in a business meeting of the International Political Economy section of the International Studies Association. The section chair was asking for volunteers for various section offices (executive board or whatever). Susan was sitting behind me. She certainly didn't know me well. But she leaned for and shoved me in the shoulder and said, "You should volunteer." And I did. And that mattered in my career. Thank you, Susan.
I have been rereading some of her work, Casino Capitalism (1986) and Mad Money (1998). She warned that we were heading for financial collapse for the very reasons that the financial system did collapse: "a monetary system cannot work efficiently unless there is political authority to say what money must be used or may be used; to enforce the execution of agreed monetary transactions; and to license, and if necessary support, major operators in the system" (1986, p. 25). She argued that through a series of decisions and non-decisions, the leading states of the international monetary system (particularly the US) have failed to govern the system.
The result is madness: wild volatility that makes everyone, even those people who never wanted to engage in risky behavior, gamblers in a global casino. Here, again, Susan speaks in 1986:
"For the great difference between an ordinary casino which you can go into or stay way from, and the global casino of high finance, is that we are all involuntarily engaged in the day's play. A currency change can halve the value of a farmer's crop before he harvests it, or drive an exporter out of buisnes. A rise in interest rates can fatally inflate the costs of holding stocks for the shop-keeper. A takeover dictated by financial considerations can rob the factory worker of his job. From school-leavers to pensioners, what goes on in the casino in the office blocks of the big financial centres is apt to have sudden, unpredictable and unavoidable consequences for individual lives. The financial casino has everyone playing the game of Snakes and Ladders" (p. 2).
We, the willing and the unwilling gamblers alike, have been living in a world in which the speed of "innovation" in financial instruments has outpaced the ability of governments to regulate, the ability of firms to realize what, exactly they are buying and selling, and the ability of anybody to figure how risky a transaction is. Moreover, Alan Greenspan's "incorrect ideology," Milton Friedman's one-dimensional thinking, and the seductiveness of the libertarian myth of perfect markets resulted in governments, particularly the US government, abdicating responsibility for governing. It wasn't just Reagan and Bush who failed to regulated. Clinton was quite guilty of this, too.
Now I do believe that overregulation is a bad thing. It decreases efficiency and leads to suboptimal outcomes. But under-regualtion or -- worse! -- failure to regulate at all leads to the mess we have right now.
So, what's the answer? Do we bail out Detroit or let them go bankrupt and try to restructure? What do we do with mortgages? What do we do with retirement, pensions, etc.? I teach my students that the economy functions on liquidity, stability, and confidence. Government has a role in each of these. The Fed, in particular, can help with monetary stability and liquidity. Liquidity can also be helped by infusions of cash by Congress to cash-strapped industries, but only if that cash ends up being used correctly. Overly high compensation for executives is a big negative. Confidence, though, is a psychological state. Confidence might come back if people believe that the government really is taking on the responsibility of governance. Leaders help change psychological states, and that's the promise of an Obama administration. I hope it works.
I really hope it works.
One more word about Susan Strange. (This is, after all, my blog.) Years ago, as a fairly junior scholar, I was sitting in a business meeting of the International Political Economy section of the International Studies Association. The section chair was asking for volunteers for various section offices (executive board or whatever). Susan was sitting behind me. She certainly didn't know me well. But she leaned for and shoved me in the shoulder and said, "You should volunteer." And I did. And that mattered in my career. Thank you, Susan.
Friday, October 24, 2008
Greenspan & Ideology
So, Alan Greenspan admits a flaw in his ideology, that financial institutions really can't be relied upon to regulate themselves because it's in their own interest to do so. What's amazing is that he, a True Believer in the Gospel of St. Milton, admitted this. What's also amazing is how strongly he maintained that belief in a theory that -- his assertion of 40 years of empirical support notwithstanding -- never really held together.
I do feel sorry for Greenspan (though I feel more sorry for myself and all of us peons who are hoping that some day in the future we will be able to recoup at least some of our losses). I feel sorry for him because it must really come as a shock to find that the theoretical explanations you really believed were true simply aren't. And it's doubly hard to do that when it seems that this one flaw in your ideology has wiped out all recollection of your skillful balancing of inflationary pressures in order to allow growth over a lot of years.
Greenspan forgot that two major assumptions in his causal theory were just that -- assumptions.
Assumption 1: In a free market buyers and sellers don't coerce each other.
The truth is that coercion happens all the time, generally through fraudulent behavior, or business practices that are "legal" but are so misleading that they really, truly are fraudulent.
XM Radio just coerced me into paying $106.30 that I didn't want to pay. How? When I called to cancel my subscription, the "customer service" (Hah!) representative told me that he could not shut off my service right away so I could enjoy the radio until it shut off. (I told him I didn't want to listen to it. I don't like XM Radio. It's a waste of money.) He offered me 3 free months if I was willing not to cancel. I told him that no, I wanted to cancel. "Well," he said, "we'll give you the free months anyway."
Without my approval this person then recorded on my account a notation that I had agreed to continue my subscription after receiving a 3 month free promotion. THIS WAS A LIE.
I didn't know that this fraud had been perpetrated. So, I followed closely for a couple of months to make sure that XM was cancelled and that I wasn't charged for it any more on my credit card. Indeed, it seemed to me that the cancellation had happened as I had demanded.
Four months later (when I was no longer watching carefully), XM started charging me again for this service that I had cancelled. I didn't notice it at first -- I know, I should have looked at those credit card statements more closely, but I am (this will suprise you) human. It did not occur to me that a large cooperation would engage in fraud so I was not on "high alert." Eight months later I noticed the charges. XM refused to refund the fraudulent charges. Now I'm fighting with the credit card company.
It's government that is supposed to create the conditions in which these kinds of practices don't happen or when they do happen, our grievances can be redressed. It's government that we look to in order to prevent this type of cooercion, especially the kind of fraudulent business practices that even the emptor who pays the most attention to the caveats is likely to miss.
The mortgage crisis began with fraudulent behaviors like lying to customers and telling them they can afford mortgages they can't afford. Since the mortgage lender is seen by the mortgage supplicant as someone who is knowledgeable, the mortgage supplicant does not recognize when the mortgage lender is intentionally feeding him or her misleading information. Then somehow mortgage brokers dealing in subprime mortgages mislead others into buying those mortgages. Then rating agencies -- paid by the businesses they are evaluating! -- came up with ratings that were much higher for securitized mortgages than they should have been. Why? Could any of this have something to do with the coercion implicit in the rated paying for the ratings?
Assumption 2: In a free market, buyers and sellers have pretty good (if not perfect) information.
Intentional failure to disclose information, complexity of the information and the specialized knowledge that one would need to understand it, and false information are all prevalent in markets. The truth is, things are so complicated today that it's impossible for the buyers and sellers to really have good information. Oh yeah: There's plain old lying, too.
Look at the history of suppressed information about the health effects of cigarettes, and the more recent suppression of adverse effect information concerning Vioxx and Celebrex. How would some person entering the market (in other words, a patient who gets a prescrition for a drug) even know what questions to ask? How well can the average person decipher the medical journal articles that one might want to look at to see whether taking the drug is a good idea? And what's true for the complexity of medical information is also true of the complexity of insurance plans, derivatives, loans of all kinds, and more.
We need government to create conditions to make information flow more freely and truthfully. That's another kind of regulation.
Because assumptions about free exchange and pretty good information are wrong, free markets don't function unless government steps in to correct these problems (call them market failures).
Until there are perfect people, there will be no perfect markets. Unless governments create the conditions for fair commerce, we will not have free trade.
I do feel sorry for Greenspan (though I feel more sorry for myself and all of us peons who are hoping that some day in the future we will be able to recoup at least some of our losses). I feel sorry for him because it must really come as a shock to find that the theoretical explanations you really believed were true simply aren't. And it's doubly hard to do that when it seems that this one flaw in your ideology has wiped out all recollection of your skillful balancing of inflationary pressures in order to allow growth over a lot of years.
Greenspan forgot that two major assumptions in his causal theory were just that -- assumptions.
Assumption 1: In a free market buyers and sellers don't coerce each other.
The truth is that coercion happens all the time, generally through fraudulent behavior, or business practices that are "legal" but are so misleading that they really, truly are fraudulent.
XM Radio just coerced me into paying $106.30 that I didn't want to pay. How? When I called to cancel my subscription, the "customer service" (Hah!) representative told me that he could not shut off my service right away so I could enjoy the radio until it shut off. (I told him I didn't want to listen to it. I don't like XM Radio. It's a waste of money.) He offered me 3 free months if I was willing not to cancel. I told him that no, I wanted to cancel. "Well," he said, "we'll give you the free months anyway."
Without my approval this person then recorded on my account a notation that I had agreed to continue my subscription after receiving a 3 month free promotion. THIS WAS A LIE.
I didn't know that this fraud had been perpetrated. So, I followed closely for a couple of months to make sure that XM was cancelled and that I wasn't charged for it any more on my credit card. Indeed, it seemed to me that the cancellation had happened as I had demanded.
Four months later (when I was no longer watching carefully), XM started charging me again for this service that I had cancelled. I didn't notice it at first -- I know, I should have looked at those credit card statements more closely, but I am (this will suprise you) human. It did not occur to me that a large cooperation would engage in fraud so I was not on "high alert." Eight months later I noticed the charges. XM refused to refund the fraudulent charges. Now I'm fighting with the credit card company.
It's government that is supposed to create the conditions in which these kinds of practices don't happen or when they do happen, our grievances can be redressed. It's government that we look to in order to prevent this type of cooercion, especially the kind of fraudulent business practices that even the emptor who pays the most attention to the caveats is likely to miss.
The mortgage crisis began with fraudulent behaviors like lying to customers and telling them they can afford mortgages they can't afford. Since the mortgage lender is seen by the mortgage supplicant as someone who is knowledgeable, the mortgage supplicant does not recognize when the mortgage lender is intentionally feeding him or her misleading information. Then somehow mortgage brokers dealing in subprime mortgages mislead others into buying those mortgages. Then rating agencies -- paid by the businesses they are evaluating! -- came up with ratings that were much higher for securitized mortgages than they should have been. Why? Could any of this have something to do with the coercion implicit in the rated paying for the ratings?
Assumption 2: In a free market, buyers and sellers have pretty good (if not perfect) information.
Intentional failure to disclose information, complexity of the information and the specialized knowledge that one would need to understand it, and false information are all prevalent in markets. The truth is, things are so complicated today that it's impossible for the buyers and sellers to really have good information. Oh yeah: There's plain old lying, too.
Look at the history of suppressed information about the health effects of cigarettes, and the more recent suppression of adverse effect information concerning Vioxx and Celebrex. How would some person entering the market (in other words, a patient who gets a prescrition for a drug) even know what questions to ask? How well can the average person decipher the medical journal articles that one might want to look at to see whether taking the drug is a good idea? And what's true for the complexity of medical information is also true of the complexity of insurance plans, derivatives, loans of all kinds, and more.
We need government to create conditions to make information flow more freely and truthfully. That's another kind of regulation.
Because assumptions about free exchange and pretty good information are wrong, free markets don't function unless government steps in to correct these problems (call them market failures).
Until there are perfect people, there will be no perfect markets. Unless governments create the conditions for fair commerce, we will not have free trade.
Thursday, September 25, 2008
Sometimes Chicken Little is Right
To be honest, I like to read the news as a citizen and not as a political scientist. Old news (read: history) becomes evidence for research. New news -- well, I just like to let things mellow a bit before I think they are ready for in-depth, theory-based analysis. Yes, as a citizen, I like to know what's going on, but I generally think there's too much noise in the daily news to make much sense of it.
But the current financial crisis cries out for real time analysis because Congress is being pushed to make real time decisions about incredibly large sums of money.
This crisis has been allowed to happen because people forgot or never learned a fundamental fact about the way markets work -- or not. Markets need the rule of law and they need regulation in order to function properly. The self-regulating market is a myth. Consider the simple example of how markets would simply cease to function if property rights were not enforced by government. I can't sell you anything unless I have a state-guaranteed property right that says it's mine to sell. Caveat emptor only works when there are fraud statutes on the books that make it illegal to fool me. Moreover, the state needs to force certain disclosures because markets can only function when people have the information they need to make rational decisions.
Yes, over-regulation can slow down an economy, but the lack of appropriate regulation, as we all too obviously see right now, brings a market down.
A key factor in determining how well-functioning a government is to look at "state capacity," which is generally understood as the ability of the government to maintain the rule of law, to collect taxes, and to do the things that government needs to do.
Too many years of deregulation mania and privatization dogma have eroded the state capacity of the United States. We're left with a bureaucracy that is inefficient, lacking in necessary funds, and failing to attract young, energetic workers -- and retain older ones. According to an April 2008 GAO report, "Governmentwide, about one-third of federal career employees on board at the end of fiscal year 2007 are eligible to retire between now and 2012" (http://www.gao.gov/new.items/d08630t.pdf, cited September 25, 2008). According to this report, 26% of employees of the Department of Commerce and 27% of employees of the Department of the Treasury are age 55 or older.
Now that our leaders seem to realize that we really do need to regulate, we have to ask whether the agencies in which you would expect to find the regulators are up to the task.
I knew nothing about mortgage-backed securities or credit debt swaps until the recent crisis hit the news, but I did know that markets were unstable, that privatization and deregulation meant that core government functions were being passed off to firms in the private sector that -- by their very nature -- were interested in maximizing profits rather than optimizing service to the customer/citizen, and that it's too easy to borrow. (Just use your credit card and pay only the minimum: Presto! You're a borrower. And you're a borrower at usorious rates)
For several years my students have heard me rant about how I think the fundamentals of the political economy have been rotting. The sky is falling!
And now it fell.
But it galls me to think that the big investment firms are going to be bailed out while people suffer. We ought to require that lenders renegotiate borrowers' debt so that payments can be made. (We have in the past gotten lenders to renegotiate sovereign debt; why not now make lenders rengotiate mortgage debt?)
We ought to increase capital gains tax as a penalty on misbehaving companies. Let them pay the American taxpayer back!
And we ought to demand that executive compensation be reined in. Shareholders and taxpapers are the losers which executive compensation is outrageously high. And I don't believe that the millions of dollars in annual pay buys better executives! I lived through the Ben Ladner years at AU where the cronies of the CEO (the University president) overpaid him because he was their friend, not because he was at all good at his job.
But the current financial crisis cries out for real time analysis because Congress is being pushed to make real time decisions about incredibly large sums of money.
This crisis has been allowed to happen because people forgot or never learned a fundamental fact about the way markets work -- or not. Markets need the rule of law and they need regulation in order to function properly. The self-regulating market is a myth. Consider the simple example of how markets would simply cease to function if property rights were not enforced by government. I can't sell you anything unless I have a state-guaranteed property right that says it's mine to sell. Caveat emptor only works when there are fraud statutes on the books that make it illegal to fool me. Moreover, the state needs to force certain disclosures because markets can only function when people have the information they need to make rational decisions.
Yes, over-regulation can slow down an economy, but the lack of appropriate regulation, as we all too obviously see right now, brings a market down.
A key factor in determining how well-functioning a government is to look at "state capacity," which is generally understood as the ability of the government to maintain the rule of law, to collect taxes, and to do the things that government needs to do.
Too many years of deregulation mania and privatization dogma have eroded the state capacity of the United States. We're left with a bureaucracy that is inefficient, lacking in necessary funds, and failing to attract young, energetic workers -- and retain older ones. According to an April 2008 GAO report, "Governmentwide, about one-third of federal career employees on board at the end of fiscal year 2007 are eligible to retire between now and 2012" (http://www.gao.gov/new.items/d08630t.pdf, cited September 25, 2008). According to this report, 26% of employees of the Department of Commerce and 27% of employees of the Department of the Treasury are age 55 or older.
Now that our leaders seem to realize that we really do need to regulate, we have to ask whether the agencies in which you would expect to find the regulators are up to the task.
I knew nothing about mortgage-backed securities or credit debt swaps until the recent crisis hit the news, but I did know that markets were unstable, that privatization and deregulation meant that core government functions were being passed off to firms in the private sector that -- by their very nature -- were interested in maximizing profits rather than optimizing service to the customer/citizen, and that it's too easy to borrow. (Just use your credit card and pay only the minimum: Presto! You're a borrower. And you're a borrower at usorious rates)
For several years my students have heard me rant about how I think the fundamentals of the political economy have been rotting. The sky is falling!
And now it fell.
But it galls me to think that the big investment firms are going to be bailed out while people suffer. We ought to require that lenders renegotiate borrowers' debt so that payments can be made. (We have in the past gotten lenders to renegotiate sovereign debt; why not now make lenders rengotiate mortgage debt?)
We ought to increase capital gains tax as a penalty on misbehaving companies. Let them pay the American taxpayer back!
And we ought to demand that executive compensation be reined in. Shareholders and taxpapers are the losers which executive compensation is outrageously high. And I don't believe that the millions of dollars in annual pay buys better executives! I lived through the Ben Ladner years at AU where the cronies of the CEO (the University president) overpaid him because he was their friend, not because he was at all good at his job.
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