Growthology

Economics Blogger Survey (coming tomorrow, no joke)

We will be releasing the results of our survey of economics bloggers tomorrow morning, I can now confirm. Bob Litan and I wrote up a short summary, which should be available in PDF. I'll make sure we have a link here.  Here's a teaser:

This paper reports the results of a survey of individuals who were invited to attend the Kauffman Foundation’s first ever conference for economics bloggers, which was held on February 27, 2009 at the Foundation headquarters in Kansas City, Missouri. Participants included well-known independent bloggers such as Matt Yglesias, Tyler Cowen, Mike “Mish” Shedlock, Robert X. Cringely, and Mark Thoma as well as distinguished economics journalists such as Amity Shlaes, Steve Malanga, Michael Mandel, Brian Carney, and keynote speaker David Warsh.

The respondents were selected by the authors and others at the Kauffman Foundation. Roughly sixty individuals were invited to participate in the survey, and a total of 39 respondents completed the online survey during the week prior to February 27, 2009. Over two-thirds of respondents are well-known economics bloggers, including professional and academic Ph.D. economists as well as others who write and blog about economic issues. It should be noted that not all respondents to the survey attended the forum, and not all attendees completed the survey, although the overlap was strong.... When asking about their highest level of education, we learned that fourteen respondents have a PhD in economics, four have a PhD in another field , seven have a Master’s degree, eleven have a Bachelor’s degree, and one has a JD (although the question allowed only one selection).

Before you see the results, would you take the survey?  I'm curious to see how our readers' opinions stack up to the so-called experts. We'll keep the survey open for a few days (thanks to Keith Mays for setting it up), and publish the results soon (pre-thanks to Cristina Fernandez).

Voices from the Present and Past

"The problem may be that we've used only economists to try to solve our economic predicaments."

--Mark Buchanan, The Crash-Test Solution

"Like theology and unlike mathematics, economics deals with matters which men consider very close to their lives. . . . Accordingly, one of the most important and difficult of the responsibilities of the economist is to resist the authority of the accepted."

--John Kenneth Galbraith, American Capitalism

The President's budget presents an "impossible burden" and will "ultimately destroy the American business system." As a result, business is now in an "unremitting battle against totalitarianism."

The U.S. might be on the "back road to socialism."

These last two statements could, of course, have been uttered at any point in the last several months, and in fact many pundits have come quite close to their tenor if not the exact language. Actually, the first dates from 1948, from the National Association of Manufacturers; the second, from the Chamber of Commerce in 1950.

Hacker Space

If you think the only way to stimulate the economy flows from a benevolent social plan to restructure the economy, don't miss this commentary by David Brooks. Everyone from WaPo to Leno is buzzing about the new car dealership at 1600 Pennsylvania Avenue.

But for those who think innovation is more of a grass-roots, garage, dorm room, perspiration and inspiration kind of thing, you will enjoy this heartwarmingly geeky blog post at WIRED about hacker spaces. Something tells me that Ewing Kauffman, the young enlisted Navy prodigy, would have been thrilled to visit one of these places.

Government to Recruit New Regulators from Planet Krypton

The latest buzzword in the ongoing debates over how to overhaul financial regulation is "systemic risk." The Obama administration and Fed chairman Ben Bernanke have floated the idea of a regulator to monitor institutions that are so densely interwoven or so ginormous that their failure puts the entire financial system at risk of collapse.

At one level, this is a needed recognition that the world of finance functions much like any other network, real or artificial--large hubs often dominate and are connected to millions of smaller nodes, the system can often be seen to act as a cohesive whole, etc.

The obvious question, however, is what, exactly, a systemic risk regulator would do differently from the current regulatory apparatus. Surely our myriad regulators knew about the breathtaking leverage ratios at investment banks? Of course they did: the S.E.C. authorized lifting the cap on leverage amounts. And it seemed like every other week over the past several years a newspaper published a chart showing the explosion of credit default swaps and collateralized debt obligations. Part of the reason the Fed helped rescue Bear Stearns was the firm's interconnectedness: it had at least 5,000 institutional counterparties to its CDSs. Wasn't the rescue's rationale the stanching of systemic risk?

In his highly interesting if dense 2003 book, Why Stock Markets Crash (was this book required reading for everyone, bankers, traders, regulators, academics? if not, why not?), Didier Sornette noted that in complex financial systems, the critical points of collapse are brought about by those essential elements at the heart of the system: "the dynamics of confidence and of contagion and decision making based on imperfect information."

In other words, financial systems soar and collapse for rather mundane and unsurprising reasons: after all, human beings comprise them. When confidence shifts, when contagion spreads, when imperfect information is mistaken for perfect information (something many economists still do), the system moves quickly from resiliency to vulnerability.

Government regulation unquestionably plays a crucial role in the health of any economy and any financial system (although those now blaming the crisis entirely on government are often the same people who a few years ago were lionizing the wonders of liberated finance). The idea of monitoring systemic risk is not inherently bad. But it takes a leap of the imagination to think anyone, even a super-regulator, can gather enough information and have adequate foresight to forestall crises, large or small. And this crisis has keenly demonstrated the shortcomings of everyone involved.

In a commentary on Marketplace yesterday, Susan Lee pointedly observed that a super-regulator requires "super-people." Given the apparent requirement of a systemic risk regulator to supervise confidence, contagion, and imperfect decision making, that sounds about right. So don't be surprised if in their next public statements, Secretary Geithner and Chairman Bernanke send out an all points bulletin to Krypton, beseeching their financial experts to immigrate here.

Bank of America Rescinds Offers to Foreign Students

From the email pile of Growthology:

I've been keeping an eye out for your immigration posts recently; I've appreciated your comments.  As a prospective MBA, I've been following some news recently related to the immigration issue in the b-school world, and I thought you might find the articles below of interest.  You may have seen BofA rescinded 61 offers to international students citing provisions of the TARP concerning foreign employees.  Since then, there's been some buzz of prospective, international MBA students turning down offers from U.S. b-schools over these concerns.

 

http://www.businessweek.com/bschools/blogs/mba_admissions/archives/2009/03/job_offers_resc.html

 

http://www.businessweek.com/bschools/content/mar2009/bs20090319_113428.htm?chan=bschools_bschool+index+page_top+stories

 

Not sure if this is of much interest to you (it's a minor detail for sure), but I thought it might be a unique and timely phenomenon; perhaps associated with your "U.S. Scientists: Get Out."  Whether scientists, engineers or business-people, it's certainly not good news for entrepreneurship!

 

Hope all's well.

 

Ian

 

 

The Mark Twain of our time, Part XXVI

Joel Achenbach writes my favorite sentence of the month so far (bolding added),

Blogworld is overrun with people who have never learned the beauty of the unpublished thought. I get tired of the gut reactions, the knee-jerk responses, the instantaneous neurological twitches, and what I believe are technically known among scientists as the mind-farts.

And of course, this would on the day that I finally sign up for Twitter, being the anti-Luddite-but-very-late-adopter (who still has no Mac by the way).  Honestly, I'm not sure how I can let other people sign up for my Tweets, but you are welcome to listen in before all of my insto-brilliance burns out (I've already tweeted twice, and can feel the energy fading).

Seriously, I signed up like 60 minutes ago. Curse you, Achenbach. Stop stalking me!

Newspapers in Decline Story of the Day

In a CNN story chock full of bad news factoids, this one tells you why

The industry's advertising revenue in 2008 was $38 billion, a staggering 23 percent drop from $49.5 billion the year before. Print media companies are failing to achieve market expectations each quarter, scaring away investors, venture capitalists and potential buyers in droves.

Then Again, No Thanks

Interesting developments in New York City today: teachers at the KIPP Infinity and Academy schools have asked that they be dissociated from the United Federation of Teachers, the union. From the press release:

We, the undersigned teaching staffs of KIPP Academy and KIPP: Infinity, feel the success we have attained to this point in our schools is largely because of the close relationship between all those interested in our students' well-being, from students to families to school staff.  While we have nominally been unionized, the collective bargaining agreement has never been a prominent factor in deciding what is best for our students, our team, and our family.  Rather, we solve problems using communication among staff members and working collaboratively with administration to best serve the needs of our students and families.  We have found that this method of problem solving has fit our situations well, and we plan to continue following this model of open, positive communication among students, families, and staff in the future. 

KIPP schools are on the cutting edge of education all over the country, and these two schools have been among the best-performing schools in New York City. Given that one hundred percent of the teachers signed this petition, this could get very interesting. As I said the other day, we seem to be either on the cusp of or in the midst of a vast education transformation. The thing about such shifts, however, is that they rarely occur along the conventional avenues of power and activity.

Best Bug-Killing App Ever (and it's from Microsoft!)

The Laser That Kills Mosquitos ...

The laser, which has been dubbed a "weapon of mosquito destruction" fires at mosquitoes once it detects the audio frequency created by the beating of its wings.

The laser beam then destroys the mosquito, burning it on the spot.

Developed by some of the astrophysicists involved in what was known as the "Star Wars" anti-missile programs during the Cold War, the project is meant to prevent the spread of malaria.

Lead scientist on the project, Dr. Jordin Kare, told CNN that the laser would be able to sweep an area and "toast millions of mosquitoes in a few minutes."

Malaria is a life-threatening disease caused by parasites that are transmitted to people from the bites of female mosquitoes.

... read about it here.

Entrepreneurship as a Series of Well-Orchestrated Accidents

Evan Williams, the CEO of Twitter, talks about his entrepreneurial life in The New York Times. It just goes to show that you can't centrally plan a career. The title of the article is "well-orchestrated accidents." 

Short-term Backstop, Long-term Transformation

Out here in suburban Kansas, enrollment at the local community college has been increasing: Johnson County Community College (a fantastic institution, by the way) is experiencing its highest totals ever for a spring semester. The most popular fields of study? Health and entrepreneurship.

That, in and of itself, is unsurprising: higher education often sees a spike in times of recession. Yet in a larger sense, JCCC and other similar institutions around the country may augur a broader shift in the higher education landscape. At least, I hope they do. Enrollment at JCCC is now around 20,000, comparable to some of the country's best state universities--include continuing education, and the number rises. The school expects to benefit, too, from the Johnson County Education and Research Triangle.

In the early decades of the twentieth century, the "high school movement" transformed the relationship between the citizenry, the education system, and the emerging industrial economy. Undoubtedly, a similar transformation is taking place today--community colleges like JCCC, the increasing use of technology in education, completely new ways of teaching, etc etc.

The nature of these transformations is such that, while the federal government will play an unavoidably large role (just given its size and sway in education these days), we won't even be able to coherently outline the future of education until it's already upon us. The only things we can say for sure is that it will be a far more structurally diverse system than today, and it will be much more substantive than simple calls for more money.

This Sounds Familiar . . .

"When you go to the United States or Europe, there isn't much opportunity. You are going to get a menial job, with barely enough to send home. But here we don't have jobs. We set ourselves up."

That's one of the thousands of African immigrants generating massive amounts of entrepreneurial energy in Guangzhou, China.

There's been a lot of noise about the U.S. losing (and turning away) high-skilled immigrants, a highly unfortunate turn of events. Just as important, however, are the thousands of migrants who probably wouldn't qualify as high-skilled but who have been no less important to the American tradition of entrepreneurship. 

U.S. to Scientists: Get Out!

During the closing decades of the 20th century, roughly 80% of the Chinese and Indians who earned U.S. Ph.D.s in science, technology, engineering, and mathematics (STEM) fields have stayed in the United States and provided a critical boost to the nation’s economy. Perversely, now that China and India are becoming formidable economic competitors, the United States seems inclined to enhance their economic productivity by supplying them with an army of U.S.-trained scientists and engineers. These returnees are spurring a technology boom in their home countries, expanding their capacity to provide outsourcing services for U.S. companies, and adding increasingly sophisticated primary R&D capability in knowledge industries such as aerospace, medical devices, pharmaceutical research, and software design.

One obvious sign of U.S. complacency about these developments is the absence of data to confirm the anecdotal evidence. In spite of all the controversy surrounding immigration policy, the government has not bothered to determine how much immigrants contribute to the economy or to assess the likelihood and consequences of a major shift in their desire to work in the United States in the future. To fill this gap, the Global Engineering and Entrepreneurship project at Duke University has attempted to quantify the role of immigrants in founding entrepreneurial companies and developing new technologies, to understand how federal policies affect decisions about working in the United States, and to assess the competing opportunities in India and China and the other factors that influence life decisions.

With financial support from the Kauffman Foundation, a research team including Gary Gereffi of Duke University, AnnaLee Saxenian of University of California at Berkeley, Richard Freeman of Harvard University, Ben Rissing of the Massachusetts Institute of Technology, and Guillermina Jasso of New York University spent three years conducting multiple surveys of thousands of technology and engineering startup companies, interviewed hundreds of company founders, surveyed more than 1,000 foreign students and more than 1,000 returnees, and made several trips to India and China to understand the on-the-ground realities in those countries.

U.S. immigration policy has been made in an information void. Although our research is far from conclusive, we believe it is fair to say that current immigration policy significantly undervalues the contributions these skilled immigrants make to high-growth segments of the U.S. economy. It appears that immigrants spur innovation in the United States and even help foment innovation by non-immigrants. At present, U.S. technological preeminence is not in question. Furthermore, some degree of intellectual dispersion and circulation is inevitable and valuable to the global economy. The United States cannot expect to maintain its previously overwhelming technological superiority in an increasingly globalized economy. But it takes a rare blend of short-sightedness and hubris to fail to investigate trends in the movement of global talent or to reconsider immigration policies that are not only economically counterproductive but also potentially damaging to U.S. national security.

That's from the excellent essay by Vivek Wadwha in ISSUES.

The Future of Macro = Jobs of the Future

Arnold Kling writes about the future of macro, and this passage merits close reading:

I believe that confidence in generic fiscal policy is also misplaced. Superficially, it makes sense that government spending can replace private spending when the latter breaks down due to a crisis in the financial sector. However, the fiscal-stimulus theory fails to take into account the fact that what is going on in the real economy, particularly after a financial shock, is a reallocation of resources out of dying sectors and into emerging sectors. (emphasis added)

Instead of looking at fiscal stimulus, I think that economists should focus directly on the adjustment process, particularly in labor markets. How do new industries emerge to absorb the resources that are released from industries that collapse during a financial crisis? What sorts of policies can make this transition take place more quickly and with less difficulty? What labor market institutions are most conducive to economic recovery? Should government try to create policies that mitigate the cyclical behavior of income shares, so that profits rise less during a boom and fall less during a recession?

Innovation by Inches and Decades

A handful of interesting points on innovation this morning. First up is a link (via Tyler Cowen) that describes the Depression years of the 1930s as the most innovative in recorded history, a conclusion from Alexander Field's September 2003 paper in the AER:

The hypothesis does not imply that all of the effects of the advances registered in the decade were immediately felt in the productivity data .... Rather, it draws our attention to the probability that progress in invention and innovation in the 1930’s was significant, in ways not well appreciated ....

This is not as surprising as it seems, given that progress is defined as the growth rate of MFP (multi-factor productivity). One should expect that a severe reduction in output would cut the least productive capacity (labor and capital) first. A more severe downturn yields a more severe MFP increase. Likewise, you might think that the most booming of years would reflect low MFP growth. The paper includes data tables on compound MFP growth rates which indeed show this:

The weakness of growth in 1972-79 is well known, and explanations for it range from critical (new regulatory burdens hampered GDP growth) to apologetic (quality improvements in safety and the environment resulting from 1970s regulations are unmeasured output).

Measuring Innovation

A new line of research is exploring if GDP has been correctly including intangible value in a broader sense. Fields comments on this, but the "innovaion metric" movement is bigger still. Ed Prescott, for example, believes the intangible value of things like brands deserve much more attention. A commission created by the Commerce Department and headed by Kauffman's Carl Schramm explored the measurement of innovation with recommendations for improving such, published in this 20-page report in January 2008.

It must be said that the economists and staffers at the Bureau of Economic Analysis are constantly improving the measurement of GDP. Our thanks to them. In fact, I discovered today this study: "Toward Better Measurement of Innovation and Intangibles" of measuring innovation, published in January 2009 by BEA and published on its main page:

Expenditures on software, for example, have been treated as investment in the core accounts since 1999. And in 2006, BEA launched a research and development (R&D) satellite account, to explore investment in R&D and its larger economic effects.

My prediction: the measure of R&D will be extremely helpful, but will also reveal that the bulk of growth is still mysterious. Growth by innovation may itself be intangible and far deeper in human creativity than can be captured by research budgets.

So does all this mean the depression of 2007-2017 will be perversely good for the long-term economy. It would be nice to think so, wouldn't it?

Fix Housing, Not Homeowning

Steve Malanga thinks Americans haven't learned from the housing bust:

Even now, in the midst of our current woes, members of the Congressional Hispanic Caucus caution against reining in affordable housing lending because, “We need to keep credit easily accessible to our minority communities,” as Congressman Joe Baca has put it. And both Republicans and Democrats in Congress continue to put forward new programs to subsidize home ownership and kick start the housing market, without wondering whether further subsidies might just spark new foreclosure problems.

Until Congress shifts gears from promoting homeownership into simplifying and/or accelerating foreclosures (e.g. by converting weak mortgage holders into renters), the bottom will be elusive.

Cartoon Keynesiansim = Slamming Amity Shlaes

The Economist (magazine) blog is schizophrenic this week.  On the one hand, it does a drive-by ad hominem attack on Amity Shlaes, calling her "empirically challenged" without actually mentioning any facts she got wrong in her book, The Forgotten Man. On the other hand, the blog has a post today that points out the fallacy in the idea of Keynesian growth. The fallacy of Keynesian growth is the basic idea of The Forgotten Man, by the way, a much bigger story than spending multipliers.

Clearly, the global economy is in a deep recession, and the Democratic monopoly in power in DC is moving boldly to address it. Indeed, the moves have been so bold that Republicans are essentially united in opposition. This isn't just partisanship, as there were many centrist Democrats voting against the recent stimulus bill, and already vocal Democratic defections from other economic plans coming from the White House (witness the quiet multi-month delay in consideration of the Orwellian "Employee Free Choice Act"). These are simple facts. Unfortunately, the heated politics of the worsening recession have boiled over to the economics, and made for some nasty exchanges.

One of the core concepts being debated is whether fiscal stimulus is an effective remedy for recessions. As Harvard economist Greg Mankiw has recently and repeatedly observed, this idea was out of favor among mainstream academic economists in recent years. Unfortunately, the very word "Keynes" has become, in political conversation, an invitation to draw battle lines and simplify discourse entirely. Naturally, we all struggle to make technical economics accessible to the lay reader (i.e. the policymaker), but discussions of Keynesianism are particularly cartoonish. It is unhelpful enough when politicians want to believe that everything Keynes did, said, wrote, researched was somehow socialist. It's even worse when academics (Brad DeLong, are you listening?) play on those same cartoonish sentiments.

Defenders of the stimulus want to confuse Shlaes history book into some kind of wild-eyed hostility to all things wise and wonderful written by Keynes and every great economist since. She's no economist, they thunder! Consider BigPicture which ridiculed Shlaes last November as "economically clueless" and a "no-nothing" (know kidding) for describing a recession as two quarters of GDP decline, which is exactly what Ph.D. economists do all the time as a non-technical rule of thumb. 

Advocates of activist policy are really guilty not just of a war against apostates, but distorting their own prophet's words. They are turning Keynes into a caricature: all spending is good spending! Cartoon Keynesianism sees all politics as a struggle over the size of G, government. This cartoon is offensive and seems like a willful distortion with ulterior motives.

In truth, Keynesian stimulus need not be government spending, it can also be tax cuts. Shocker! I, for one, support the basic Keynesian idea of automatic stabilizers in place and wish we had more built into the tax system. Yet too many voices in the punditry space lump all tax cuts in the capitalism/Republican side and all spending in the socialism/Democratic side. It's insulting to both sides, and worse it marginalizes the more important conversation about growth policy. Here's the honest way economists should be talking about any short-term Keynesian spending plan: "Recovery? Maybe. Growth? No." 

That conclusion, in fact, is from the Economist blog. Quote: "Stimulus can help with recovery, but it can't do much to aid reformation—indeed, it could retard structural transitions."  Keep in mind that not all economists are even that kind to stimulus policies. Research by UCLA economists Harold L. Cole and Lee E. Ohanian in 2004 conclude FDR's policies extended the Great Depression, saying: "We found that a relapse [into another long Depression] isn't likely unless lawmakers gum up a recovery with ill-conceived stimulus policies." A 1999 paper by the economists for the Minneapolis Fed reviewing the Great Depression opens:

[T]heory predicts an extremely rapid recovery that returns output to trend around 1936. In sharp contrast, real output remained between 25 and 30 percent below trend through the late 1930s.We conclude that a new shock is needed to account for the Depression’s weak recovery. A likely culprit is New Deal policies toward monopoly and the distribution of income.

Validation

A lot of good theory works on paper, but is humbled by reality. This is what happened to Old Keynesianism, and is why modern teaching in grad schools is now done under the banner of Neo- or New Keynesianism. The identity Y = C + I + G + NX is simply too crude to tell us anything about how an economy grows. The crudest interpretation, and dumbest, was followed by Washington policymakers for decades and imagines the national income identity can be managed by fiscal policy. Whether such policy is sustainable is irrelevant. And yet, history tells us that constantly pushing G to manage Y causes an uncontrollable price inflation. Uncontrollable in the Keynesian paradigm, that is. The whole framework was superseded by expectations macro and validated by Volcker when he stopped Keynesian inflation of the 1970s with the 1980-82 monetarily induced recession.

The defenders of Cartoon Keynesianism want to believe their framework had a similar validating experience, which was the New Deal's curative power over the Great Depression. The simple history taught in most high schools today (and non-economics college courses) is that FDR's expansion of government saved the national economy. That's just not true.

There are four presidential names being bandied about: Hoover, Roosevelt, Bush, and Obama. The cartoon story says that Bush like Hoover wrecked the economy with laissez-faire extremism and that Obama like Roosevelt will tame capitalism's failure with strong government action. The reality is that government spending and budget deficits under President Bush were massive, while Hoover is infamous for raising tariffs in 1930 as well as the top income tax rate from 25 to 63 percent in 1932. So Hoover wasn't really laissez-faire in his policies, and Bush wasn't either. Every president - especially Obama - offers a mixed bag of tricks that defy labels, especially old ones.

So why did Free exchange go after Amity Shlaes?  For starters, it was echoing a long and current piece by Jonathan Chait in the New Republic, whose purpose is to paint modern Republicans as little Hoovers. Except for the little things like tax rates and free trade, which he ignores, choosing to selectively make a case about somebody else making a selective case. My theory is that this is part of a larger reckoning.

Chait wants his readers to think the Amity Shlaes is an outlier (and not the smart kind). But Chait -- perhaps because he also has no economics degree -- makes false claims about consensus in the profession, such as "the essential framework constructed by Keynes--that recessions are caused by a failure of demand, and that at the very least government should not respond to an economic slowdown by paring back its largesse--is no longer in dispute." This is just wrong. It may comes as some surprise that a 1995 survey of economic historians published in the Journal of Economic History said this:

On top of the profession's lack of agreement about the genesis of the Great Depression, there is a disagreement about the effect of the New Deal. In fact, the economists in the sample are almost evenly divided on the question of whether or not when taken "as a whole, government policies of the New Deal served to lengthen and deepen the Great Depression."

The Reckoning

This is important not just to make the point that partisans on the Left (and Right) are mean, dishonest jerks. The global recession is very real, so when even the Economist (magazine) falls into this shallow smear game, I get worried that we are collectively taking our eye off the ball. If your goal is rip-roaring growth, fixing banking, fixing mortgages, or a real cure for poverty, a debate about stimulating the short-run economy is irrelevant. At best, another trillion in G arrests a couple points of GDP decline for a couple years if you believe the macro sim models. Add up all the new plans, and you get annual trillion-dollar deficits for the next decade, according to the Brookings Instituion.

Rather than take on half of the economics profession, or Brookings, or just engage in a serious discussion of growth policy, the partisans have instead decided to target Amity Shlaes for writing a history book two years ago about the New Deal and FDR. Ironically, if you understand her title, The Forgotten Man is not about macro stabilization theory, but about the unprecedented scope of powers that were centralized in 1930s America, running roughshod over the Constitution and the middle class Americans who pay for grand plans. This, too, is fact even for fans of big G. But I guess describing facts makes you an enemy of the state and its toadies.

What is really at stake is a year of budgetary reckoning, which I now believe will become a decade of reckoning. The crisis of big entitlement promises is about to clash with the limits of taxation. Shouting down Amity Shlaes is just a warm-up.

How about Teacher Choice?

President Obama's education speech today has been well received. Jay Matthews, the great WaPO education columnist raves,

President Obama’s education speech this morning was, in my memory, the largest assemblage of smart ideas about schools ever issued by one president at one time. Everyone will have a different favorite part — performance pay models for teachers, better student data tracking systems, longer school days and years, eliminating weak state testing standards, more money for schools that improve, more grants for fresh ideas, better teacher training, more charter school growth, faster closing of bad charters and many more.

Federalists will admire the fact that Obama said nice things about strict standards, such as those in Massachusetts, but did not call for national standards. Bottom line: the President is going in the right direction on education reform. His support of charter schools is the kind of breakthrough that may change everything.

Matt Yglesias' observes the challenge reality faces in meeting the President's serious rhetoric about removing bad teachers (Great!):

He made a call for performance pay programs of some sort to be implemented in 150 school districts, and paired that with an extremely tough statement on firing bad teachers—”Let me be clear: if a teacher is given a chance but still does not improve, there is no excuse for that person to continue teaching.” This comes after a commitment to making more funds available for programs to recruit people into the teaching profession. And underlying this commitment to quality teaching is the not-so-exciting issue of getting better data on student performance. Obama rightly lamented the fact that relatively few states have state-of-the-art data and tracking programs in place even though at the end of the day it’s very hard to improve if you don’t have a mechanism for telling how kids are doing. One thing he left out was that some states have already started adopting laws that prevent the data they have from actually being used in a variety of circumstances. This is, obviously, a big problem for anyone interested in data-based school administration. The clear implication of everything Obama said was that states shouldn’t do this, but nobody was called out specifically.

Let's back up. Why this catch - firing bad can't be done until an elaborate system of data exists on student performance? What's the logic here?

1. Principals are allowed no discretion or judgment.
2. The only objective way to evaluate teaching is some overlord data system (as if those can ever have perfect knowledge).

There's a better way to evaluate teacher performance.  Let students and parents choose. Good teachers will have full classrooms, bad teachers will have smaller classrooms, and principals will have all the information they need.

You don't need an elaborate data system, or funding, or a marketing campaign for recruiting, or nor even a charter school. Every public elementary school could - if it wanted - let parents have a voice in who teaches their children. At our local elementary, there are four teachers for each grade level, and some kind of lottery system assigns my children their teacher each August. Every parent in America knows who the good and bad teachers are, and you here constant conversations in our communities where one mom says to another at the grocery store, "Gee, I heard your Susie got Ms. Killjoy for 1st grade. Sorry to hear that. But hey, next year all the 2nd grade teachers are great." Everybody knows this. But it begs a deeper question: why are we not allowed to choose our children's teachers?

I can promise you that teacher choice would rapidly reveal who the worst relative teacher is in every grade level in every school. There is no need for standards or state-of-the-art data from central planning. Use the old fashion thing called a market that worked sorting out the good fish from the bad fish in medeival times. A Teacher Choice system would be easy to design, too. Imagine 100 sudents need to be allotted among 4 classrooms/teachers,simply allow each parent to submit a request designating 1st, 2nd, and 3rd choices for teacher. Miss Honey would get 33, Mister Bill would get 30, Mrs. Aniston would get 25, and Ms. Killjoy would get 8. Honestly, this isn't rocket science.Within 24 hours, principals would have all the information they desire to identify weak teachers. 

I'm sure we economists could design an even more alborate system of auction voting where parents could spend points that would reveal preferences. But there are two other things that teacher choice isn't.  It isn't expensive to implement. And it isn't politically correct.

Innovation, yes, but a Culture Receptive to it?

Michael Martin over at Broken Symmetry has a very good post on the requisite elements for a culture of innovation. His ideas are far better than the usual ideas floating around the political world.

In One Fell Swoop, Two Redwoods Fall

From The New York Times, December 2004:

"Southeast from [Socks City] is Shenzhou, which is the world's necktie capital. To the west is Sweater City and Kid's Clothing City. To the south, in the low-rent district, is Underwear City. . . . The niche cities reflect China's ability to form 'lump' economies, where clusters or networks of businesses feed off each other."

From The Economist, February 2009:

"Over the past decade it has become one of the world's fastest-whirring economic engines--a global hub in the manufacture of clothing, shoes and electronics--serviced by tens of millions of migrant workers. Now the region is undergoing an equally remarkable contraction. In the past year, thousands of factories, perhaps one-third to one-half of the total, have closed."

From The Economist, February 2009:

"In the past ten years, obedient to the findings of urban sociologists, American cities have tripped over themselves vying for young, creative people. They have revitalised downtowns and sponsored gay-pride parades. They might have been better off building retirement homes."

Urban and regional development have been dominated for the past decade by two gigantically seductive ideas: the cluster concept as developed by Michael Porter, and the creative class concept as developed by Richard Florida. Porter told mayors that clusters were the "new" way of approaching economic growth; Florida dazzled city councils with tales of the "creative class" and their uniquely instigative role in restoring vibrancy to downtowns.

Now, just because areas that exemplified these ideas--the manufacturing clusters of China and many American municipalities--have run aground during this recession doesn't mean Porter and Florida's theories are prima facie wrong. But the difficulties facing cluster regions and creative cities should prompt reflection on their merit.

It has never really made sense to me how the notion of clusters is particularly "new" to theories of urban economic growth. As James Vance, among others, has long pointed out, clusters are a hallmark of commercially successful cities going back to at least the medieval urban revolution. And as I have noted before, since the beginning of human civilization, cities have been coterminous with creativity. In short, clustered economic activity and creative occupations are actually reasons why cities exist, not necessarily new theories for how cities can grow. Can it make sense--aside from dubious empirical evidence and, now, economic decline--for us to tell cities to be more city-like in their quests for growth?

Finally, the real problem with the cluster and creative class ideas isn't in their descriptive validity, but their prescriptive methods for cultivating clusters and attracting the creative class. Cities are the paragon of messy capitalism--they appear orderly, to be sure, and urban planning does in fact take some measure of order as its objective. But the economic development of cities does not spring from decreed clusters or appointed "creatives"--it happens because of messiness. That is, the unanticipated interactions among many different factors. Delft, an economic jewel in seventeen-century Netherlands, became a creative cluster of science, art, and various industries not through any sort of industrial planning, but through unforeseen overlaps (synergies, I suppose) and connections. It was "development" in the truest sense (a subject for another day).