China: Learning to Love Inefficiency

“If you are in China for a week, you think you can write a book about it. If you are in China for a month, you think you can write an article about it. If you are in China for a year, you don’t think you can write anything at all.” — folk saying, date unknown

“What about blogging? Where does that fit in? Hello?” — me, June 2014, about to write a blog post

The reason I chose to come to China is precisely because it is big, complicated, and confusing. In other words, it is a place where I can, and will, learn more than I can imagine. (And also because I love Chinese food, but I assure you that’s secondary.) If you ask people what the most interesting thing happening in China is right now — which I do to every person who is willing to talk to me and/or speaks English — you will get a different answer.

From pollution (a poster standing in the large shopping district of Wangfujing showed a guy wearing a hazmat suit, “If we don’t clean up the environment, soon we will have to dress like astronauts”) to urbanization to corruption (it is not uncommon to find Bentleys parked between Hyundais and rickshaws on the street) to the rapid rise of religion (from Christianity to Islam to Ba’hai) to new territorial disputes to international FDI to internal ethnic tensions, everyone can give a different answer. There are probably even more, but I haven’t spoken to those people yet and/or they don’t speak English. What’s more, it is impossible to isolate any of these fundamental issues as the economic, political, international, and social pictures are all tied together.

When you ask me what I think after five days in China, I’d probably say it’s the Chinese food. But I swear that’s secondary, right?

Yet even if there is still much to digest on the grand scale and humility is the order of the day, from just a short time here it is easy to pick up on a few very micro patterns that give me sufficient reason to write a blog post. One in particular: the incredible inefficiency that pervades everything.

I don’t mean this pejoratively; in fact, if anything it’s the opposite. Chinese people take their time: even for a bustling and crowded metropolis like Beijing, very few people seem to be in a rush. Beijing’s downtown makes Times Square or Wall Street look like a breeding ground of Energizer bunnies and wind-up toys.

Case in point: When we went to go set up our phones and get new Chinese SIM cards, we walked into the store and were handed a menu of options. We quickly identified which one we wanted and how much it cost. And since we were accompanied to by two fluent Chinese speakers, there was no language barrier — all we had to do was buy the phone.

In more efficient places, the whole process would have taken 15-30 minutes at most. We would go to the salesman, he would plug in our information, and give us the SIM card. But not in China. First, we sat down with the salesman and bantered for a few minutes. Then he offered us every possible other option on the menu. Then another salesman came over to talk to him, and then to us, and there was a long back-and-forth three-way conversation between all parties. Then the salesman decided to try to practice English with us. “Thank you, sir.” “Passport, please.” Then both salespeople together started to challenge the language ability of one of our colleagues who speaks Chinese but does not look Chinese, and they began quizzing her with Chinese slang to see if she knew what they were talking about. Then they spent ten minutes trying to figure out how to say “pre-paid phone card” in English. Then he took our information and started to process it, all while bantering with us in broken English, making jokes, and explaining the phone plan in the most roundabout manner possible. Then he started trying to converse with us more in English and pretty much forgetting about actually entering our information. Finally, he finished one of the two SIM cards — and we had to start the process all over again. One and a half hours later, we exited the store with phones and SIM cards in hand.

If I were in a rush, I would have gone insane. If you don’t learn to love inefficiency, it seems, you will face a world of unrelenting frustration. But inefficiency is not the right word in many ways — it’s not a lack of efficiency as much as it the presence of an different, more time-consuming process. Simple things are not merely transactions that can be done as quickly as possible, but are instead processes between people that occupy a different notion of how relationships between people play out. You have to build a structure around the simple transaction for it to work. It should be noted that this has been a huge boon for my ordering of Chinese food: never has indecisiveness between 8 different types of tofu been so warmly tolerated.

The inefficiency extends beyond small interactions. There are also very few schedules of when things need to get done. Buildings will sit half-finished for days, months, or years until all of a sudden they need to be finished and then they are magically taken care of. (Don’t ask me about the structural integrity; I don’t do science.) People walk incredibly slowly on the streets, and I’ve seen fewer than two people walk up an escalator rather than stand. As a friend described it to me, everything occurs on China time — if it’s not meant to happen yet, it won’t happen until the time is right.

Luckily, I’m in no rush — they serve the food so fast anyways, might as well take forever to order it.

Capital in the 21st Century: A Review

Thomas Piketty has written a truly incredible work, a masterpiece, a tour de force that melds historical data, policy analysis, and meditations on the biggest economic problems of our time. The French economist’s new tome, Capital in the 21st Century, will change the entire way we think about economics – or so I think, from what I have gathered from the various reviews I have read that are not stuck behind paywalls. (If anyone has a subscription to Foreign Affairs, can you email me the review that’s in there?)

Let me quickly apologize here and offer a confession: I have not yet had a chance to read the book myself. It’s sold out on Amazon and at all local bookstores, and my requests to the publisher have so far gone unheeded. Even if I did receive a copy, though, I already have a large queue of items I intend to read, and it probably wouldn’t be fair for me to put this one above the other ones that are waiting patiently in line. I am 140 pages into Infinite Jest, and I don’t want to start another book until I finish it.

It seems like everyone else has had their say on the matter, however, so I just can’t wait to weigh in on the book. The news cycle, like the changing relationship between capital and labor, moves fast – and I won’t be left behind as the headlines churn endlessly forward like the gears of the industrial workplace.

Even from just the front cover, you can tell that this book is important. (Although I have not read the book, I have indeed seen the front of it.) The title evokes Marx’s ruminations on the divide between workers and owners that spawned the very basis of how we think about economics in the modern day. (Although I have not read Marx’s Das Kapital, I have been notified that the title is a nod to the original.) The red outline on the front cover also carries deep symbolism: it evokes the years of bloodshed and antipathy that have defined the relationship between labor and capital since the first factories sprung up amid the lush fields of 18th century England.

There is a touch of punnery on the cover, which should not go unheeded. The word “Capital” appears in capital letters. A deft touch to match the work of a deft economist, who, through charts, data, and an austere but striking book cover has created a sensation unlike anything to hit American shores since a mop-top crew called The Beatles landed in New York in 1964. (I was not alive during at the time, but I’ve seen pictures.)

The back cover is less noteworthy.

I have also spent a fair amount of time reading reviews of the book; after all, three to five pages of double spaced text seemed far less intimidating than an entire tome. Many critics have aggregated previous criticisms, which made my life even easier. Overall, I have read at least three paragraphs of reviews but feel like I understand at least twice that amount.

Some critics have claimed that Piketty’s work is repetitive. But what I found was that many of the reviews themselves were repetitive, displaying very similar summaries of what was in Piketty’s text. I found this grating, since I had to read so many of them in lieu of the book.

Another review I skimmed claimed that Piketty confuses the concepts of capital and wealth, which, in the opinion of Piketty’s critics, should be distinct concepts. I cannot comment on whether Piketty in fact mixes these two comments together, because of the fact that I have not read the book. But I can say that wealth and capital, while a similar number of letters, are not the same word. (However, Piketty wrote the original in French; since I do not speak French, I do not know the terms for wealth and capital in his native tongue. It is possible that they are the same number of letters and/or the same word.)

Overall, I thought most of the reviews captured the spirit of what I believe to be Piketty’s worldview. However, I cannot say for certain what that worldview is, only what other people have told me what other people have told me what other people have told me what that worldview is. It is, in a way, like a game of telephone – not just any game of telephone, but a game of telephone that dials straight to the soul of economics.

In sum, Capital in the 21st Century has fundamentally upended the economics profession, if not our world. It has changed my life forever. Someday, I hope to read it. Once I finish Infinite Jest, of course.

Passover, Internet Style

For those who are unfamiliar with Passover, it’s the Jewish holiday in which we take all of the least appealing foods we can find, put them together on one plate, and talk about how that reminds us of our heritage.

Here are my thoughts on Passover this year:

Although the story of Passover is centered on the escape from slavery in Egypt about 3,000 years ago, which was before Al Gore and therefore before the Internet, the story of Passover is actually well-suited for the Internet era. Here’s how the Passover story might look in today’s headlines:

Upworthy: Pharaoh Refused To Let God’s People Go. You Won’t Believe What Happened Next.

Slate: Actually, The Killing Of The First Born Was A Great Idea

Buzzfeed: 21 Pieces of Horseradish That Look Like Cats

 

Those are my thoughts on Passover this year.

Fast Food, Slow Read

Fast foodies: I wrote a piece for the March/April/May issue of the Washington Monthly about the fast food industry, wages, and imbalances of economic power. I know it’s potentially misleading that a magazine with the word monthly in it has an issue that covers three months, but it is important to keep you on your toes. Although nobody claims to have read it, the New York Times wrote about it and quoted from it, so at least one person skimmed it and copy-pasted some text.

Thanks for reading.

[Also, here’s my latest Forbes piece about higher education, to fill space on this blog: http://www.forbes.com/sites/joshfreedman/2014/03/19/the-hidden-college-problem-when-universities-like-students-take-on-debt/]

Making You Think, One Article At a Time

Rather than do what normal people do, which is post things on their blog, I will just give you links to places where I have written pieces so that these places can generate ad revenue. In this way, everyone wins, except, as per usual, the poor and the middle class.

Are Universities Charities? Why The ‘Nonprofit Sector’ Needs To Go

-I argue that everything we thought to be true isn’t really true. In 2,000 words!

The Farce of Meritocracy: Why Legacy Admissions Might Actually Be A Good Thing

-I make a case that many people have made before (legacy admissions are bad), but then I turn it on its head and add jokes.

The Past and Future of the American Social Contract

-My colleague and I explain that the proliferation of low wage work is part of a larger socio-historical context. NO JOKES.

In Defense of Free Public Higher Education

I’m late to the party. Last week, Matt Bruenig offered 3 counterintuitive theses about the price of higher education and whether public college should be free. Bruenig’s major concern is that the price of higher education is really a rich person’s issue because most people who attend college and who are feeling the brunt of the price hikes are at least moderately wealthy, if not very wealthy. His follow-up is that progressives who argue for free public higher education are, to put it kindly, missing the boat.

A spirited back-and-forth ensued, a number of critiques were put forth, and Bruenig responded to some of those. Meanwhile, I made a really nice dish of roasted Brussels sprouts and learned how to brew beer.

Luckily, I’ve always liked to be fashionably late. Now I will make my entrance to the party. Nobody get too excited, please.

As an outspoken progressive, I agree with Bruenig on most issues. (Disclaimer: we have met a few times in “real” life and are in a philosophy discussion group together). However, we tend do disagree on some of the specifics about higher ed. Allow me to put my own few cents into the ring where I think I can add value to the discussion that has already occurred.

Matt writes, “So my main point, if it can be drilled down, is that poor people are under-represented in four-year public colleges and will continue to be under-represented in four-year public colleges even if you increase subsidies. I am therefore moved to rail against those who think that such a move would actually make these colleges more universally accessible. They weren’t universally acceptable in the past when they [were] more affordable, and I don’t see that being the case in the future. The fact remains that removing the “pay toll” does not remove the “credential toll,” and we know that the credential toll disproportionately screens out poor people and people of color.”

This is a great summary, and offers a good starting board for discussing some of these issues.

Poor Vs. Working Class Vs. Middle Class Vs. Rich Vs. Uber-Rich Vs. Uber-Uber-Rich Vs…

Students at big or elite 4-year colleges, both public and private, are skewed toward the wealthy. This is true. (Private schools are more skewed, and elite private schools are even more skewed, but some publics are not as far behind as one might think). Poor students are particularly under-represented. This is also true.

But the distributional question is not quite that simple. Bruenig writes, “Recent grumblings about tuition [are] driven by the concerns of the richest half.” This is a very strange way of dividing different categories of people. In my frame, the richest half is not a grouping that makes any sense whatsoever. It includes everyone above $50,000 of income. A family with $50,000 of income facing a $15,000-$20,000 tuition bill cannot be grouped with a family making $200,000-$500,000. To talk about this issue, we need to talk about the middle class.

The term “middle class” has been bludgeoned so hard by every politician in existence that it has all but lost its meaning much of the time. Ignoring the meaninglessness of the term for one moment, if we use a very generous but standard definition of the middle class – the 20th to 80th percentiles of income – we see that about 60% of dependent public 4-year students fit this definition. (Dependent students are those that have to visit their parents during the holidays and pretend that they are enjoying school, while independent students are those who often are either married, have children themselves, or are older than the 18-22 cohort and may or may not have to visit their parents during the holidays). Including independent students in this analysis is difficult, but it is likely that it would make this number significantly higher. This is not to say that the distribution is totally fine; the poor are under-represented and even the distribution of those in the 20th to 80th percentiles tilts toward the higher earners. But it does mean that we are not simply looking at a rich vs. poor issue as Bruenig describes.

Therefore, there is absolutely no way we can consider this simply a “rich” person’s issue; it is much more a middle class issue (and increasingly so as the price hikes edge down to all but the poorest students). Looking at Matt’s original charts on price increases, it is clear that there has been a huge price jump for lower-middle class students on par with that of the rich.

This is not just semantics. The middle class serves an important function both socially and politically, and free public higher education with the correct progressive funding mechanism and the right accountability standards is one possible reform to make college a better program first and foremost for the middle class.

While writing this piece, or perhaps when I was making the Brussels sprouts, I had one of those fundamental epiphanies that we dream about but rarely ever have. In this case, my realization was about how we bifurcate people into categories. Bruenig, I think, separates the world into the poor and everyone else. There are policies that help the poor, and there are policies that help everyone else. We ought to focus on the policies that help the poor. Sometimes, but rarely, there might be overlap.

I separate the world a little differently. I separate the world into the very rich and everyone else. There are policies that help the poor, and there are policies that help everyone else. We ought to focus on the policies that help everyone else. Public college predominantly serves a significant portion of the “everyone else,” particularly non-elite public college, even if the poor are under-represented. And this under-representation is in part due to the cost and incentive structures that are in place, which could be alleviated by policies like free public higher education.

Because I have limited sympathy for the truly rich, I am aggressively against policies that subsidize wealthy private universities. I view public higher education differently, however, even if the difference in socioeconomic distribution at the upper-middle end is not quite as stark as one might expect.

Questions of Socio-economic Distribution in College Are A Big Giant Circle, and Other Endogenous Reasons for The Wealth Skew

Under the current structure of higher education, Bruenig is probably correct when he writes that poor will be under-represented in higher ed if you increase subsidies. But this statement does not necessarily hold true if the underlying fundamental payment structures are disrupted.

Bruenig implies that there is some “natural” (or unnatural but fixed) rate of college attendance. College will always be a rich kids’ game. There is indeed a credentials issue that won’t go away unless we get rid of poverty and improve the K-12 situation for millions of students. (I agree that we should get rid of poverty and improve the K-12 situation for millions of students – sign me up!) But I think that is only part of the issue. The other part of the issue is still a significant pay issue related to the way the higher education system operates. As long as this is true, the way our higher education system is designed endogenously affects the distribution of students, rather than simply being a function of a bunch of exogenous “other” factors.

For example: One of the more interesting reasons that poor students have been mostly shielded from the rapid rise of 4-year college prices is because there are so few of them at 4-year schools. The system works if there’s a small share of these students, but the system cannot work if there’s a much larger share.

What is happening at many selective universities, including public ones, is a continual move away from access and toward inequality. It is impossible to tell at what point access becomes a function of inequality and at what point inequality becomes a function of access. This is evident at public flagships like the University of Virginia, which cut back on its financial aid program for its (already very small) share of low-income students. It is even more evident at the 35% of all 4-year schools – including 51% of 4-year doctorate-granting public schools – that reported increased recruiting efforts toward students who could pay full tuition. It is even even more evident with the prevalence of “gapping” or “admit-deny” practices, in which insufficient financial aid is knowingly offered so that a student can be nominally admitted but practically denied.

At the same time, whether students actually can afford a final net price is clearly not the be all and end all of price barriers. If students believe that college is too expensive, it will limit access. Most data suggests that people believe that the price of college is a barrier; therefore it is a barrier.

One of the most promising arguments in favor of free or cheap public higher education is that it would allow the entire higher education system to jump out of its vicious circle of baked-in inequality. As it currently stands, we might be able to keep the price low for a few poor students here and there – but only so long as few poor students have access.

Other factors suggest endogeneity in the college socioeconomic distribution. (My Microsoft Word does not think endogeneity is a word, but I will use it anyways.) Over time, the class breakdown is not fixed. In the 1960s, college attendance skyrocketed among previous groups of low-income and minority students that did not previously even think of attending college. This was spurred on by the notion that college could be affordable under the Higher Education Act. Their numbers still paled in comparison to white, upper class students, but they grew rapidly. Since then, attendance has slowly moving closer to balance at 4-year public schools. There are many factors holding back this process, but even so it has trudged forward. Bruenig uses data for about 15 years ago; I would be curious to see what the breakdown of socioeconomic and racial distribution is today.

Next, the complexity of the financial aid system serves as a way of keeping the poor at the gates. If students do not have the time, effort, or knowledge to fill out an application, they also don’t have the time, effort, or know-how to fill out financial aid paperwork. If the problem is barriers to entry, as Matt insinuates, the roundabout and often perverse financial aid system that apparently helps the poor also works against them. A free or low-cost system would eliminate the need for this complexity and eliminate one of the biggest barriers to higher education:

As shown in work by Susan Dynarski and Judy Scott-Clayton, the FAFSA is four times longer than the simplest tax return (i.e., IRS Form 1040EZ), and longer than IRS Form 1040. Not surprisingly, students and their families are often confused and even deterred by the form.

Of course, as with any discussion of higher education, we need to remind ourselves that “higher education” varies widely across the board and even within categories of institutions. Most four-year universities — even schools that have doctorate programs — are not selective institutions. Take Long Island University, for example — they offered an “Express Decision Week” in which admissions officers took students’ information and gave them an admissions decision on the spot. It’s a walk-in admissions process, like at a barbershop. While LIU is private, the same types of problems exist at plenty of mid-tier public schools. If the demand is there (and the colleges can be held accountable for providing a good education, which is another issue), it is clear that the current system of higher education itself stands as a barrier.

As is, if we accept the logic as long as college is treated as a good for the rich that allows a couple of poor students to come along for the ride, of course it will always be skewed upward.

Free public higher education puts everyone on the same footing and encourages a shared base of understanding. It minimizes the possibility of gaming the system by locking people out or allowing those in charge to extract excessive rents. There is more to this debate, but making it free with the necessary caveats certainly addresses some of the major problems of higher education qua higher education.

And now that I’ve arrived to the party, I’ve probably just made it way less fun. This is very much like real life.

Recent Forbes Posts, Consolidated Into One Easy-To-Click Post

To highlight some of the recent work I’ve done over at Forbes, I could do three individual posts. Or I could just put three links in one post.

Here are three links. I am a paragon of efficiency.

The “Typical” College Student Is Not A Typical College Student (And Other Fun College Demographics Data)

-I use the word “fun” loosely, but not in this case. The pie charts in this piece are fun.

Why Don’t Americans Have Enough Skills? The Answer Is Inequality

-On the plus side, it turns out that our broken higher education system is not primarily at fault for many of our societal injustices. On the not-so-plus side, our societal injustices run way deeper than we thought. Somewhere in the middle, I start yet another post with a question word.

When Students Are Rejected For Being Poor: The George Washington University And The Roots Of A Troubled System

-One of my biggest pet peeves is when schools put an unnecessary and awkward “the” at the beginning of their name (The George Washington University, The Johns Hopkins University). One of my other biggest pet peeves is when people think that higher education is a meritocracy when it is nothing of the sort (The George Washington University, The Johns Hopkins University, every elite school ever).

Why Price Controls Are The Best Way to Keep College Affordable

This post originally appeared in Forbes. You can read it there. It is a follow up to the last post. Ideally, you will read them together.

Every time a person uses the phrase “price controls,” I’m fairly certain the fire alarm goes off at the Cato Institute and the soundtrack to “Requiem for a Dream” starts playing in the lobby. A bunch of policy interns saddle up horses and ride through Washington holding lanterns to alert all of the members of Congress and the news media that someone has proposed the idea.

Yet the best plans for actual higher education reform are centered on exactly that: a system of regulations to control prices. Last week, President Obama proposed to tie federal financial aid to colleges’ performance based on a new college ratings system that takes into account the number of low-income students in attendance, tuition prices, and even outcomes like graduation rates and future earnings of students. Yet the President stopped short of more overt price controls, instead preferring to use the college ratings system only to provide incentives to schools that perform well.

The response from many policymakers and college officials has been to cry foul at the government going too far to intervene in the economy. The President’s plan, however, doesn’t go far enough: if we want to tackle the skyrocketing cost of higher education, price controls are the best option we have for keeping college affordable. [Cue fire alarms at Cato].

This idea might sound radical, but it’s not new at all. Rather, it looks eerily similar to a 2003 proposal by Republican House Members – including John Boehner – that called for a “College Affordability Index” and threatened to eliminate federal subsidies for schools that failed to improve their status. It can’t be that radical of an idea if House Republicans were the ones that were pushing the idea a decade ago. Nor are these types of regulations a new idea in the economy at large: prices for public utilities like electricity and water are set by the public sector, as are the fee schedules for Medicare.

Neither President Obama nor John Boehner will ever use the phrases “price controls” or “price regulation.” The phrases elicit a rather unpleasant visceral reaction, akin to the smell of a well-aged stilton. But they are crucial. Tying federal subsidies to something and using public leverage to stop the upward pressure on prices would finally get at the root causes of price increases in higher education. Continue reading →

Why We Need The Government To Play An Active Role in Higher Ed

This post first appeared at Forbes, where I am now a contributor. You can read it there. Or here.

These days, everyone knows that college is expensive. And everyone has their own idea of how to fix it. When it comes to higher education finance, we’ve become a nation of backseat drivers.

Allow me to drive in the backseat here. College is expensive, and the government’s attempts to help make college more affordable for students has likely driven up prices even more. But there is a solution: Rather than remove itself from higher education, as many libertarian economists have suggested, we actually need — and want — the government to play a larger and more prominent role.

Higher education prices have risen far faster than other prices in the economy: across all institutions, undergraduate tuition, fees, and living expenses more than doubled in inflation-adjusted dollars. At private nonprofit four year schools, tuition and fees have nearly tripled compared to 40 years ago, while at four year public schools costs have almost quadrupled over the same time frame. Public two-year schools, which experienced a huge drop-off in state funding in the wake of the recession (and where most of the higher education in this country takes place), have seen tuition and fees grow nearly 50% in the last decade. Bloomberg estimates that the price of college has increased twice as much as that of medical care since 1978. In short, college has become more expensive – and the price continues to increase.

The reasons for the unstoppable growth in price are many. These include increasing demand for college among students, systemic incentives that encourage colleges to spend money and raise tuition, declining state subsidies in the last few years, increases in “merit aid”, financialization, and the college costs arms race that encourages schools to try to use resources in socially unproductive ways. Continue reading →