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Your inefficient grandmother was onto something

This is the third post of  a series of posts highlighting parts of the paper by David Zetland Wageningen UR – Environmental Economics and Natural Resources Group; PERC – Property and Environment Research Center
Economists Owe Ecology an Apology
March 9, 2013

Part 2 from the series Economists owe ecology an apology

Part 3 below:

Your inefficient grandmother was onto something

The Folk Theorem of behavioral economics is not named after Professor Folk. It refers to the “obvious” fact that people are more cooperative when they interact over time—negotiating, trading, rewarding and punishing—instead of just once. This theorem is not, unfortunately, taught to most economics students; even worse, it is ignored in economic research that relies on simple models to “prove” how people will interact. The Prisoner’s Dilemma and Tragedy of the Commons, for example, are related in their dire predictions of how self-interested people who should cooperate will defect, leaving prisoners and the environment worse off. These models are often used to justify policies, actions or inactions that make the common man shake his head in wonder. Cooperation on climate change?  Nope. Regulation of high-seas fishing?  No. Sustainable groundwater management?  No sir. Starving the poor by sending corn into gas tanks. Sure—they’d do it to us if they could!

I could fill a book with examples of failures to coordinate and address actions and problems that have pushed us closer to brutish, nasty and short. These examples cannot be blamed on economists or their theories—humans have suffered from similar problems for ages—but we can blame economists for promoting the idea that miserable outcomes are logical or inevitable. It was Keynes, after all, who spoke of our potentially misleading power:
 
The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. —Keynes (1936, p. 383)

Economists’ focus on single transactions over repeated relations means that we design systems and incentives that emphasize short-term advantage over long-term cooperation, whether it be with other humans, beasts or ecosystems. The irony of these misplaced theories is that humans lacking the wisdom of clever economists often have better relations with each other and their surroundings (Polanyi, 1944; Lansing, 1991). They may have fights and they may be superstitious or poor, but they usually find ways to cooperate in building robust institutions for managing their natural, social and environmental resources (Axelrod and Hamilton, 1981; Lansing, 1991; Ostrom et al., 1994; Henrich et al., 2001; Dietz et al., 2003).

But they were as not as rich as we were, right?  Didn’t that mean that their cultures and systems were inferior and simple?  Perhaps, if we compare discrete purchases, disposal and recycling of products but not if we pay attention to the streams of continuous value provided by natural processes and social relations. Should we quantify and monetize ecosystem services and social networks?  That cure may be worse than the disease.
That statement brings us to a difficult junction. A few people think that humans should do the planet a favor by turning our entire population and civilization into an elaborate compost pile (others think we’re on the way), but most people agree that we should use resources and the environment to improve our lives. The question the majority wants answered, then, is “how much can we take without harming ourselves? ” Economists—as specialists in getting the most benefit out of scarce resources—have certainly spent a lot of time trying to answer that question. But our tendency to push for efficiency using faith-based numbers and models has led us to use concepts like “maximum sustainable yield,” “optimal exploitation” and “the economics of extinction.” These phrases should make us all pause.

What if optimal exploitation turns into an unexpected extinction?  Should we allow private profits from exploiting a resource that belongs to us all?  Will people be smart enough to include a safety margin?  If the financial crisis has taught us anything, it’s that we should not bet on forbearance over greed. Economists, unfortunately, have sometimes invited greed to join us.

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Demand for skills falling?

Re-posted from Economist’s View, Mark Thoma points to Arnold Kling ‘Is the Demand for Skill Falling?’ who points to this this NBER paper:

Is the Demand for Skill Falling?, by Arnold Kling: Paul Beaudry, David A. Green, and Benjamin M. Sand have a paper with an intriguing abstract, which says in part,

Many researchers have documented a strong, ongoing increase in the demand for skills in the decades leading up to 2000. In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow. We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together.

If true, this would upset nearly everyone’s narrative apple cart, including mine.

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Tuition remission…okay, now what?

Tuition is only $1747 a year.  But then comes the other part…austerity budgets and as state support dwindles, one aspect is that creative cost shifting flourishes.  The tripling of student debt since 2004 are discussed here. And graduation rates remain flat.

From the chart provided at Umass Amherst bursar’s office per semester costs are shown, excluding room and board, which is worth a different post as to how that impacts which colleges are chosen.

Pro Publica Hidden charges and tuition for college

This week, anxious high school seniors will be opening letters and emails of acceptance or rejection. For them, there will be a mix of joy and disappointment. But for those students and their parents, there will also be an initial reckoning with the expensive, often opaque issue of college fees.
Lauren Vaughn, a senior at UMass Amherst, is also an organizer for the UMass Students Against Debt coalition. She said appreciating the collective cost of additional school fees is often critical to determining whether any particular school is, in fact, affordable.

“It does seem as though we are not informed about these fees often until it is too late,” Vaughn said, noting that such fees “can be the thing that puts some students who are financially strained over the edge.”

The federal government has made efforts in recent years to make true college costs more transparent. U.S. Department of Education data shows that in more than half the states across the country, degree-granting institutions reported that fees comprised a greater portion of combined tuition and fees in the 2010-2011 school year than they had in 2008-2009.

But fees for specific programs and courses typically get left out of that data. The same goes for fees that apply to specific pockets of students, such as honors students or international students.

Many school officials say they do their best to make sure the necessary information about tuition and fees is clear to students and their parents. But there’s no one definition that schools stick to when deciding what’s covered by tuition and what falls under fees, and the very structuring of tuition and fees can vary wildly between different schools.

“It’s all smoke and mirrors in some ways, the issue of tuition and fees,” said Terry Meyers, a professor of English at the College of William and Mary. “It seems to be one area of the academic world where no one is looking and no one wants to look too closely.”

To best appreciate how confusing — even upside-down — the world of college costs can get, consider this: At state schools in Massachusetts, where the state board of higher education has held tuition flat for more than a decade, “mandatory fees” wind up far outstripping the price of tuition. At the University of Massachusetts Amherst, the flagship of the UMass system, mandatory fees are more than six times the cost of in-state tuition.

And that isn’t the end of it: Students are then hit with still more charges — the $300 “freshman counseling fee,” the $185 “undergraduate entering” fee, and several hundred dollars more if your parents or siblings attend freshman orientation. Honors college and engineering students face still more fees.
A number of forces are driving fees upward. For public institutions, declining state support has left many schools scrambling to find other types of revenue. As well, since the notion of straightforward tuition hikes is often politically toxic, there is considerable appeal to using fees to make up shortfalls.

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