Friday, September 19, 2008

Vox EU article is wrong and dangerously misleading

Here is the article.

Here is my reply:

I'm going to write up a less rushed response to this article on my blog, but given how quickly with the internet people can move on to the next topic, with dangerous misconceptions fully intact, I think it's important that I immediately enter at least a basic response to this.

The results of this modeling and testing are being grossly and dangerously misinterpreted in the implications made for the real world. And this type of mistake is one that academia has to be careful of. As I've said before, academic social science does immensely more good than bad, and it's the only game in town for the type of highly valuable advanced technical work it does, but it certainly has flaws.

The real world conclusion of this made here is grossly and dangerously wrong. There are massive positive pecuniary (material well being) externalities to education. If there were none, then it logically follows that my pecuniary wealth (material well being) would be the same if (A), everyone in the world for the last 300 years up to today, except for myself, were completely uneducated and illiterate, as it would be if (B), everyone in the world had a bachelors, and a graduate or professional degree.

In the first case, my infrastructure would be dirt roads, and my medical care would be herbs and leaches. My lifespan would be like it was in the 1700s, early 30s, and I'd probably experience the death of at least one of my children. By the time I was 30, I'd lose most of my teeth -- very painfully. I'd freeze in the winter and swelter in the summer in a primitive dwelling. Where would I buy a modern home from? No one else in the world besides me has the education to build anything modern, from a car, to an aspirin, to toilet paper, to soap, to toothpaste, to penicillin.

In the second case, everyone besides myself in the world has had a graduate or professional degree from 1708 right up until today. Could you imagine how much science, technology, and medicine would have advanced by now if that were true. Cancer would very likely be cured, as would many diseases from Parkinson's to Arthritis to Diabetes to Depression. Healthy lifespan would be immensely longer, with, for example, nanobots throughout the body constantly repairing cells. Robots would be extremely advanced, and we might have to a great extent robots building robots, creating immensely more material wealth. We might even have found a way to eat as much as we want without getting fat! I could go on and on.

Yeah, there's no material benefit to me when others get an education. There's no positive material externalities there. I'm exactly as materially well off in case (A), when others have no education, as I am in case (B), when others are highly educated. Think about how ridiculous this conclusion sounds – and is. You need only make the most minor and realistic assumptions about the world (immensely more minor and realistic than the assumptions relied on in most models and econometric techniques) to come up with chains of logic proving the conclusion in your paper to be tremendously far from the truth.

The more other people are educated, the more they create ideas, understanding, and invention, that is to say, the more they create things which have gigantic positive pecuniary externalities (especially for the young and future generations). Ergo, the more they create positive pecuniary externalities.

Now, you may say that you use a definition of pecuniary which is different from quality and quantity based material wealth. If so, then you better make this very clear in your conclusions so as not to mislead in a very dangerous way.

Listen to what top growth economist Paul Romer said in an interview with Reason:

It's so striking. Evolution has not made us any smarter in the last 100,000 years. Why for almost all of that time is there nothing going on, and then in the last 200 years things suddenly just go nuts?

One answer is that the more people you're around, the better off you're going to be. This again traces back to the fundamental difference I described before. If everything were just objects, like trees, then more people means there's less wood per person. But if somebody discovers an idea, everybody gets to use it, so the more people you have who are potentially looking for ideas, the better off we're all going to be.

"the more people you have who are potentially looking for ideas, the better off we're all going to be.". Yes, and the more people are educated, the more and better they are looking for ideas, and the more I will benefit from them.

The more educated a country or the world is, the more wealth it creates. The more wealth it creates, the more it can spend on pharmaceuticals. The more it can spend on pharmaceuticals, the more pharmaceutical companies will spend on R&D, and thus I benefit from others getting more educated in a big material way (and a way that doesn't show up well in the measure of national wealth your studies use, GDP, because GDP little includes increases in the quality of products, for example increased effectiveness of pharmaceuticals).

But it's much more than that. The more educated others are, the smarter they vote. For example, as people become more educated, it has been shown they become less likely to vote Republican. In general, they will vote for far smarter economic policy, including far more government investment in extremely high social return projects of the kind that the free market will underprovide due to free market problems like externalities, etc. These projects include alternative energy, other infrastructure, and basic scientific and medical research, which can have an enormous pecuniary impact. I'm far better off from this materially, and it's due to others becoming more educated.

You mentioned that higher education correlates with lower crime. Much of this won't show up in your GDP statistic because money spent on security, prisons, etc. is added to GDP, when in fact it should be subtracted. Likewise, GDP is flawed because, as I noted earlier, it takes technological and quality advance into account very little. One thousand 2008 dollars of medical care today is far better than one thousand 2008 dollars of it in 1920.

I could go on. Your real world conclusions from your data and tests are wrong and very dangerously misleading.