Monthly Archive for November, 2010

In Defense Of For-Profit Colleges

One of the biggest blind spots of policymakers and pundits is the inability to take target market into account. For example, you can’t just compare the wages of employees at Hilton Hotels vs Motel 6’s and conclude that Hilton Hotels are superior because the employees are paid more. You have to take the companies vastly different target market into account. Motel 6’s target a much poorer and cost sensitive segment of the economy, and so it’s understandable that they pay their employees less. In addition, Motel 6’s also hire from a lower socioeconomic level than does Hilton Hotels, so again you’d expect their pay to be lower (in exchange for lower productivity, ie education, ability to speak English, etc). What seemed like a bad wrap for the poor without taking target market into account, turns out to be an overall net gain when it’s included (who doubts that from the poor’s perspective, Motel 6’s are better than Hilton hotels?).

The same blind spot is apparent in the Wal-Mart vs union run grocery stores debate. Wal-Mart caters to a lower socioeconomic class, by hiring and providing cheaper products to those at the lower end of the income distribution. So it makes sense that their employees are paid less than their union run grocery stores counterparts, who cater to a higher socioeconomic class. Seen in that aspect, Wal-Mart is no different than the Motel 6. And since it’s our ghettos and poor areas that are plagued by unemployment, empty lots and general lack of opportunities, the Wal-Mart model is a superior model for the ghettos and poor areas.

The same blind spot resurfaces when talking about for-profit colleges. When comparing for-profit colleges to non-profits, critics will primarily focus on graduation rates and default rates, taking nothing else into account. But what happens when you take target market into account?

For-profit colleges tend to cater primarily to the marginalized segments of society: working mothers, high school drop outs, older people trying to change careers, and people who are in a rush to graduate. In other words, the riskier segment of society. The very same people that the non-profit education system often ignores.

Seen from this perspective, it’s expected that for-profit schools will be worse than non-profits when it comes to student debt. It’s expected because they cater to riskier students, so they are going to have a larger variance of outcome – whether that is graduation rates, or student loan repayment. But catering to a riskier segment of the population is not something that should be punished, it should be encouraged. Lets remember, for-profits are actually doing what we berate businesses to do – serve those at the bottom, often forgotten by others. They are a lot better at helping students who may have messed up through high school and want to change their lives around.

And this is without even mentioning all of the other benefits that come from for-profit colleges vs traditional colleges. For example, a significantly shorter time to graduation (averaging 3 years, when non-profits are getting closer to 6 years – a huge gain in opportunity cost), more income oriented majors (even the worst of the for-profit colleges will never have such time wasted majors like Chicano Studies, for example) and a clear path towards graduation. All benefits that primarily help the marginalized segments of society.

In the interest of full disclosure, I should mention that I graduated from a for-profit institution. I got my BS in 3 years. Before that I was a high school drop out (in 10th grade) with about a 2.0 GPA. I had only a GED and no community college credits. I was also the child of a poor single mother, living in Compton, Ca. The group of friends I currently run with all have similar stories – all of us grew up poor, are minorities and graduated from the same for-profit college. None of us received any grants (my mom refused to fill out the FAFSA – she always hated anybody knowing how much she made and was convinced I would find out). More importantly, in the for-profit college I went to there were others – not a majority, but certainly a strong minority – in the same situation I grew up in. It’s the privileged kids that were the exception at the for-profit college, not the the poor minorities.

All of us, also, are currently successful engineers. We all make around 6 figures a year or more. All of us with just the bachelors degree from the for-profit college (I have some undergraduate and graduate work at UCSD, but never completed a full degree there). Without a doubt, graduating from that for-profit college was the single best thing I could have done for my life. Without it, my life would have been very different.

Update: Matt Rognlie makes a similar point here.

The WikiLeaks And Iran

I haven’t verified this, but I thought this sequence of tweets from David Frum interesting:

What do we learn from Wikileaks re Iran?

1) Many more govts than you might think back a US military strike.

2) It’s now public knowledge that Iran and North Korea are exchanging deadly military technology.

3) Whole world can see that US has gone every extra mile to reach a negotiated outcome with Iran

4) Nevertheless Iran has pursued nuclear ambitions all-out.

Seems to me the combined effect of this information would be to make US military action more politically acceptable.

Quote Of The Day

“First Thanksgivings aside, these local birds just wouldn’t do, and the English began importing turkeys to America. This preference carries over to the present day, and the bird Americans sit down to eat every Thanksgiving is not the northern wild turkey Meleagris americana but the Aztec land chicken Meleagris mexicana [which the Spanish, in the 16th century, had brought to Spain from Mexico].  And so Ben Franklin’s preferred symbol of America — and the only creature that can annually count on a presidential pardon — is not a native Yank at all but a Mexican bird that immigrated to the United States via two transatlantic crossings.” — Los Angeles Times

Quote Of The Day

“The New York Times invites you to eliminate the federal deficit by picking and choosing among 16 options. I agree with Arnold Kling and David Henderson about the takeaway message: It’s really really easy to cut the deficit to zero without raising taxes. And that’s without even eliminating any agencies. Moreover, the Bowles-Simpson proposals include dozens of additional specific recommendations that are not listed on the Times site. So cutting spending is even easier than the Times makes it appear.”” — Steve Landsburg

A Lesson In Basic Economics

Is Groupon worth it for businesses? It depends. But for a great lesson in how this question would be answered, using basic economics, from a business perspective, read this.

Quote Of The Day

“Joel Kotkin has an excellent column in Forbes about the economic plight of California (thanks, RCP). The notion that the state embodies American enterprise and innovation at their most flourishing is seriously out of date. Broken government and a lagging economy have become mutually reinforcing, and the state seems to lack the capacity, or even the desire, to break the circle. As Kotkin says, California’s poverty and unemployment rates are two and three percentage points worse, respectively, than the national averages. Its income and sales taxes are very high–but not nearly high enough to cover the corresponding state-government outlays. A poll of more more than 600 CEOs ranked its business climate dead last in the US. People are moving out.” — Clive Crook

Quote Of The Day

“But look at the way it cuts spending and raises taxes. It means-tests Social Security benefits for high earners and raises the cap on taxable income, while also adding a larger benefit for the poorest seniors. Its hypothetical discretionary spending reductions don’t come from anti-poverty programs, for the most part: They come from cutting the defense budget, cutting the federal workforce, cutting farm subsidies, etc. It raises tax revenue by reducing tax credits and deductions that almost all overwhelmingly benefit the affluent. (This would be especially true in the scenario I’d prefer, in which the child tax credit and the earned-income tax credit stick around.) It would cap revenue at 21 percent of G.D.P., which would be higher than any point in recent American history, and well above the average for the last thirty years. And it does all of this, as Chait himself notes, while assuming that Obamacare — the capstone of the liberal welfare state — would remain essentially unchanged.” — Ross Douthat on the deficit commision

Why Isn’t Mexico Rich Yet?

An economics professor at UCSD explains:

Over the last three decades, Mexico has aggressively reformed its economy, opening to foreign trade and investment, achieving fiscal discipline, and privatizing state-owned enterprises. Despite these efforts, the country’s economic growth has been lackluster, trailing that of many other developing nations. In this paper, I review arguments for why Mexico hasn’t sustained higher rates of economic growth. The most prominent suggest that some combination of poorly functioning credit markets, distortions in the supply of non-traded inputs, and perverse incentives for informality creates a drag on productivity growth. These are factors internal to Mexico. One possible external factor is that the country has the bad luck of exporting goods that China sells, rather than goods that China buys. I assess evidence from recent literature on these arguments and suggest directions for future research.

Link via Freakonomics blog here.

Update: Steve Sailor has more.

Quote Of The Day

“Are McDonald’s* hamburgers immune to natural processes like rotting? There’s some evidence that they are, but a truly scientific inquiry into the matter has been lacking — until now. J. Kenji Lopez-Alt of Serious Eats tested nine different hamburgers of varying sizes (both homemade and from McDonald’s) to find out. Contrary to popular belief, the non-rotting phenomenon isn’t due to the mysterious chemical composition of the burgers.  ”[T]he burger doesn’t rot because its small size and relatively large surface area help it to lose moisture very fast,” writes Lopez-Alt. “Without moisture, there’s no mold or bacterial growth. Of course, that the meat is pretty much sterile to begin with due to the high cooking temperature helps things along as well. It’s not really surprising. Humans have known about this phenomenon for thousands of years. After all, how do you think beef jerky is made?”” —Freakonomics blog

Quote Of The Day

“One thing we do know is that it was a good year to be a Republican Hispanic candidate,” said Arturo Vargas, head of the National Association of Latino Elected and Appointed Officials. “Hispanic Republican candidates rode the Republican title wave. It was coast to coast. The only place they didn’t seem to win was the Pacific Ocean,” he said, referring to California, where Democrats held strong and Republican Abel Maldonado lost his bid for lieutenant governor. — Associated Press

Quote Of The Day

“The vote- or seat-maximizing incentive for the Republican Party as a whole is to lay low, put forward no “Newt Gingrich” villain figure, and let Obama continue to take the blame for the ailing economy, while avoiding fights they can lose, because of the President’s superior bully pulpit and media presence.” — Tyler Cowen

The Senate Remains Democrat

Which, in the end, may be the doom of President Obama in 2012.

The agenda in Congress is run from the House, which gives Republicans the ability to pass widely sought after legislation (repeal of ObamaCare, tax cuts, etc) knowing that the Senate will block said bills. This will likely force Obama to side with the Senate, giving Republicans a chance to blame all that’s bad on Democrats in 2012. In other words, it gives them just enough power to stop Democrats from getting what they want and just short of enough power from having to take responsibility for what happens therein.

If I was a Democrat tonight, I would have wanted Republicans to control all of congress or none of it. This middle ground only makes their 2012 prospects that much worse.

The Trouble With Public Sector Unions

A great article by Daniel Disalvo in the fall issue of National Affairs. Here are some of my favorite parts:

When it comes to advancing their interests, public-sector unions have significant advantages over traditional unions. For one thing, using the political process, they can exert far greater influence over their members’ employers — that is, government — than private-sector unions can. Through their extensive political activity, these government-workers’ unions help elect the very politicians who will act as “management” in their contract negotiations — in effect handpicking those who will sit across the bargaining table from them, in a way that workers in a private corporation (like, say, American Airlines or the Washington Post Company) cannot. Such power led Victor Gotbaum, the leader of District Council 37 of the AFSCME in New York City, to brag in 1975: “We have the ability, in a sense, to elect our own boss.”

A further important advantage that public-sector unions have over their private-sector counterparts is their relative freedom from market forces. In the private sector, the wage demands of union workers cannot exceed a certain threshold: If they do, they can render their employers uncompetitive, threatening workers’ long-term job security. In the public sector, though, government is the monopoly provider of many services, eliminating any market pressures that might keep unions’ demands in check. Moreover, unlike in the private sector, contract negotiations in the public sector are usually not highly adversarial; most government-agency mangers have little personal stake in such negotiations. Unlike executives accountable to shareholders and corporate boards, government managers generally get paid the same — and have the same likelihood of keeping their jobs — regardless of whether their operations are run efficiently. They therefore rarely play hardball with unions like business owners and managers do; there is little history of “union busting” in government.

Additionally, the rise and fall of businesses in the private sector means that unions must constantly engage in organizing efforts, reaching out to employees of newly created companies. In government agencies, on the other hand, once a union organizes workers, they usually remain organized — because the government doesn’t go out of business. Public-employee unions can thus maintain membership levels with much less effort than can private-sector unions.

The full article could be found here.