We need more teacher pay inequality

A recent conversation with a relative who I am quite sure is a very good teacher got me thinking about the conventional wisdom regarding teacher pay--specifically, that teachers are underpaid.

While I feel strongly about this particular teacher's abilities, I do not feel as strongly that she is "underpaid" despite being in a position of relative low pay when considering hours and effort that go into her job. Likewise, I don't think she herself necessarily believes she is "underpaid", though that would be a common and understandable instinctive feeling. If I have to guess, I would say she is indeed underpaid, but as you will see that is not a guess I can arrive at lightly nor can I have much confidence in it.

Here are my thoughts:

A status of being low paid is only meaningful in a relative sense. However, a status of underpaid is also a relative status, but the two are not congruent. Underpaid is a deeper sense of relative--kind of a second derivative in a manner of thinking. To be low paid simply means having a lower absolute level of income in some comparison. To make that comparison more meaningful one should seek a good apples-to-apples arrangement. Obviously comparing a $40,000 a year job to a 10,000 Euro per month job doesn't tell us much. We get more information in comparing a $20 per statutory hour job with a $30 per statutory hour job, but we don't get a whole lot more. Most professionals including many teachers put in time beyond the standard work day.

Suppose we could get a standardized denominator of effort hours (we can't just use hours because an hour spent scanning people in at the local gym is not the same as an hour spent fighting a fire). How meaningful would that comparison of pay then be? The answer is "a lot more meaningful but still significantly short of deep economic significance". Certainly that information would help guide a lot of career decisions, but it still doesn't tell us if someone is underpaid. To get that comparison, we need to know if a particular person should make more. The person should make more (technically speaking, command a greater share of society's resources) if the value of her teaching (resource she creates) is worth more than the total pay she receives (resources she uses). Our best bet to know this answer (and this is a loose use of the term know since we actually can only hope to have a really good guess) is through a market process--and you thought I was going to say government omniscience.

Notice that the market answer is usually the standard to judge the righteousness of outcomes not because we define optimal resource allocation as the outcome the market creates but because we believe (with really good reason) that under the right conditions the market will elicit optimal resource allocations. Those right conditions are when markets are deep, cheap, and esteemed (lots of knowledgeable buyers and sellers with low transactions costs where property rights are firm, clear, and respected). We need a substantial degree of all of these to describe a market as a free market. The free market is not God. The free market is our way of discovering how a benevolent, omniscient dictator (a god-like super creature) would allocate resources.

But the education market is not conducted under very favorable conditions to elicit good allocations. Transactions costs are high and knowledge is expensive. Government separates buyer and seller insulating sellers from the discipline the market would otherwise provide*. We can probably expect a few outcomes from this as it relates to teacher pay. Pay differentials will become compressed where bad teachers are overpaid and good teachers are underpaid. Resource allocation communication and decisions will be further polluted pushing good teachers out of the profession or encouraging them to shirk while inducing bad teachers to enter the profession.

Because of this, I am led to believe that my relative is indeed likely underpaid (I have a lot of inside information about how good a teacher she is). However, (and now isn't this ironic?) for the same reason I believe she is underpaid, I cannot have much confidence in this judgment. That is at the heart of the problem with heavily government-influenced markets--they obfuscate knowledge inhibiting the communication process the market wants to provide.


*Nature abhors a vacuum and the market abhors bad resource allocation. In this sense the market naturally works toward being a free market. It is because of this positive feedback loop, a virtuous cycle, that markets are so powerfully good.

Did we really expect Big Bird to be good at running the world's largest health insurer?

In 2009 in the midst of an economic and financial crisis, the President of the United States chose to direct his administration's efforts toward solving the problems of health insurance as he saw them. For some reason he believed massively increasing third-party payment (a condition that we have no evidence and no theory to suggest should work) was the key solution along with price controls, production quotas, and government-provided alternatives. There were lots of reasons to believe this would not work out well, but the generally overlooked one was the world's largest mega-conglomerate has a horrible track record of getting from intentions to effective and efficient execution.

The virtues of Obama's intentions were well disputed. Arguments were also strongly and sufficiently offered against the effect these policy changes would bring about. But few, Megan McArdle the exception, predicted the websites wouldn't work. Yet we shouldn't be surprised. All reasonable philosophies of political economy leave room for the failure of democratic governance. Coming from a libertarian, free-market philosophy, I believe these schemes are destined to fail because government lacks the proper incentives. But others coming from a progressive philosophy should expect that sinister Republicans, conservatives, tea-partiers, et al. will thwart the efforts of the enlightened. It only becomes utopian nonsense when after the supposed thwarting the defense of failure is "It would have worked if it weren't for you meddling kids."

The website failure is a demonstrative microcosm for why Obamacare is doomed. These aren't glitches, this is a canary in the coal mine.

A challenge to Landsburg

Steven Landsburg is an economist I greatly admire. The depth and uniqueness of his mind and viewpoint are quite amazing. So it is with trepidation that I challenge an argument he has made several times before and has touched on in another guise yet again. I expect it is likely that I am not refuting Landsburg. More likely I am misunderstanding the argument and hence not addressing it or I'm making a weak argument--a weakness I cannot see.

The main argument is about wasteful competition. The first appearance I can recall is here. Followed by another here. Then came this very interesting question about taxing novelists for the same reason we may want to tax carbon. He followed the post with another for clarification.

There are multiple arguments being made in these posts, and I agree substantially with many. Where I disagree is in this concept of wasteful competition--that the additional athlete, football team, novelist, etc. is more socially costly than beneficial. If I have it correctly, the argument runs as follows:

1. The resources devoted to a marginal addition in output for good X can be substantial.
2. In many cases the output of good X before the marginal increase was already substantial.
3. The gain from the marginal addition of good X is slight.
4. Therefore, we have wasted resources on the margin since the gain does not justify the cost. There is a market failure.

I think there is more going on here. On the surface he appears to lack an appreciation for quality. It is as if at the extreme (perhaps an unfair reductio ad absurdum) he believes mediocrity is the optimum. Yes, that is an unfair characterization, but it is getting toward my point. Looking deeply I do not think we can be so linear in how we think about marginal improvement. It is multidimensional and part of a larger purpose.

The resources that flow into a given endeavor only look out of proportion to the marginal output when we narrowly define the output. The nth cereal on the aisle may not add much to the quality of my breakfast, but it may be a natural and unavoidable byproduct of the magnificent process that brings me cheap cereals (and so much more) on demand and basically without fail.

Consider also that although cost curves decline as quantity produced increases while economies of scale persist, only usually does quantity produced mirror the progression of time. It doesn't have to be the case that quantity and time are interchangeable as the X-axis. So while it may seem wasteful in isolation to see yet another novel published, that may be part of the cost of the first novel.

Finally, innovation often comes in unexpected surges emerging from dull periods of slight and arguably inefficient activity. The iPod was not just one more MP3 player. ESPN was not just one more way to see the already-watched sports.

As for competition and the fear it may become wasteful, be scared. You can't help that. But don't be afraid. We have to strive on for better and higher possibilities.

PS. Here is how I answered the novelist taxation question.

Highly linkable

As politicians seemingly fiddle as we begin to dance on the ceiling, it is important to realize it is going to be okay. This actually is business as usual--it is just not usually so obviously unproductive. Wasting resources (through an unfettered process of spending money) apparently looks to the media and much of the public as productive progress. It is not. Arguing about the terms under which the money spending process will continue apparently does not look as productive. It is not that different.

Hey, guy who sells ethanol. Is it a good idea to create and foster a monopolistic environment in which you can operate?

Ethanol guy: "Yes!"

Everybody else: "Hell no, are you kidding!?!"

Casey Mulligan makes a strong case about just how high and damaging tax rates are today including as a result of Obamacare. Grumpy says he may be underestimating how bad it is.

Here is the long (and excellent) and the short on why Fama was an excellent choice to share the Noble Memorial Prize in Economics as announced today. Shiller and Hansen are also fine choices in my opinion. It is just that I believe Fama casts a big longer and a bit stronger shadow.

WWCF: Gridless Power or Wireless Power?

Which will come first?

Gridless Power (household power commonly generated on site)

or

Wireless Power (batteries or battery-like power sources that largely self charge)

Both of these would be very big advances as respective cords are cut. For gridless power the aesthetic benefits would be dramatic gains all by themselves. Imagine a world where we are nostalgic for overhead power lines. The telephone pole as romantic as horse-drawn buggies. But don't forget the benefits of blackouts and brownouts being as foreign as breadlines are to us today. Whether the target of terrorists or ice storms (take a guess which one has taken out more power supply in the past 10 years), the centralized power system creates a dependency and hence vulnerability that we would certainly like to avoid.

In wireless power this could include simply batteries with life something like 100x greater than currently available. But imagine your iPhone actually charging from the motion it undergoes while in your pocket. Or perhaps from heat in the air. Or moisture--maybe water isn't the kryptonite of the mobile phone. 

Gridless power doesn't have to be solar; although, that is a big likelihood. You don't have to be a super genius like Tesla to imagine wireless electricity. And yes, these two overlap quite a bit--it seems. Sometimes things similar in concept end up being quite different in practice.

My WAG is wireless beats gridless in terms of large-scale affordability and consumer penetration by at least a decade. The economies of scale at work in the grid are quite powerful forces. The abundance of natural gas strengthens the inertia for the grid considerably. 

Saving football from itself

Football is at a major inflection point. These don't come along often. The first one of this nature was at the beginning of the twentieth century when Teddy Roosevelt "saved" football by urging rule changes. In 1905 there were reportedly 19 fatalities from playing football. Following that season an intercollegiate conference, forerunner to the NCAA, established radical changes for safety's sake. The NCAA would continue in this capacity, in-sport rule-making body, for another 50 years or so before becoming the cartel it is today.

Other inflection points have been the creation of two-platoon football the first time in 1941 ending in 1954 and the second time in 1965 and the widespread racial integration of the sport in the 1970s.

Today the inflection point is again safety related. The sport is getting more physical and more dangerous as society is getting less tolerant of violence and wealthier--meaning the value assigned to safety and health are growing. Just as when the highest scoring offense meets up against the lowest point allowing defense, something's got to give. If not, this could be the end.

Here is a spitball list of some potentially safety enhancing changes to the game. Perhaps changes like these would be enough to save football. To many traditionalists, myself included, these may seem quite unpalatable. But the truth is change of some kind has to come. We can continue to dance around this if we want to, but we might be left behind. Some aspects of football as we know it today probably will someday look totally removed from the real world--the actions of imbeciles with everything out of control.

• Get rid of the intentional grounding rule.
• Outlaw all blocking below the waist.
• Outlaw any tackling or blocking where the one tackling or blocking leaves his feet.
• Extend the automatic ejection rule for "targeting" (one that I applaud except for the poor decision to not allow the 15-yard penalty portion to be reviewed as the ejection decision is reviewed) to horse-collar tackles or facemask infractions to include helmet and head tackles. For facemasks, perhaps bring back the idea of a difference in severity by including the ejection for more severe facemask infractions.
• Outlaw zone defense including perhaps not allowing any defender to start play farther than 10 yards behind the line of scrimmage.
• End kickoffs and punts--force fourth down attempts. 

Let's keep it suboptimal

Last week while visiting the wonderful city of Seattle, I spotted a delivery truck with an unfortunate message painted broadly across its side. The truck was a produce delivery truck and the message was apparently an intentional advertising slogan. It read, "Let's Keep It Local!" I didn't have time to take a picture. Presumably based on the other advertising art this is a local fruit and vegetable company.

I have to admit my first reaction was a little hostile. My thoughts were: Will they sell to me? What if I plan to take it back to Oklahoma? At the Pike Place Market I purchased an extra honey crisp apple and mango with the intention of taking them home. What a shame it would be if those purchases had been prohibited based on my intentions to eat them abroad. But I'm sure the localizers do not care about my consumption venue, or that I can peel an apple in one long, curry strip. It is only the production origin that concerns them; I can imagine them saying. But that just leads to more questions:

• You're okay with exports, but you don't like imports? 
• So, you're saying you'd like to have your apple cake and eat it too? 
• Does it concern you that such a scheme will lead to your own wealth being reduced? 

Did I lose them with that last one? It is the mantra of the local movement that by "keeping it local" we keep both sides of the exchange--notice the "we" here, and remember there is no "we". We is an arbitrary fiction. It implies at some point people stop being one of "us" and start being one of "them". Such xenophobia is not just morally unhealthy. It is economically destructive--itself a moral wrong.

If you eat your own apple cake, you then won't have one left over. If you (import and) eat mine, you still have yours. All I ask is that you give me something you value less than the cake but that I value more than my cake. Like perhaps a Locks tour from Elliott Bay to Lake Washington. This is the essence of gains from trade. These gains expand as the market expands--as more of "them" become "us".