Prisoner’s Dilemmas-XXIII- Quiet Quitting

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By now, most of you are aware of the new workplace phenomenon known as Quiet Quitting. Forbes defines Quite Quitting as “..unsatisfied employees put forth the least amount of effort possible to keep their paychecks…”. Most employees might think they are clever for only doing the bare minimum, but managers have their strategy for handling underperforming employees; Dehiring. Instead of outright firing the troublesome employee, management directly acknowledges their dissatisfaction with the job role. The hope is that this might prompt them to find another job.

Dehiring has been described as a win-win scenario because it acknowledges the mutual frustration of the worker and the firm. Side-stepping the legal and psychological hurdles of navigating the labor laws governing terminating a subpar employee. However, what if either employee isn’t getting the hint? Managers tend to be ineffective due to poor communication skills, which could muddle the succinct message of “Please find a new job!”. If there is any breakdown in the messaging, both worker and their boss; will result in a Prisoner’s Dilemma. The ineffectual expression of shared frustration will make this process protracted and end in an actual firing.

The reward for Mutual Cooperation: R= .5

Either the employee or manager could hope; if they play hardball, the other will eventually fold. The manager ultimately hopes the employee will change their ways, it is always easier and cheaper to have a current employee change their attitude than find a new hire. Concurrently, worker wishes that rules will loosen up, higher pay, or lighter workload, banking on the fact that their boss “needs” them.

Both parties holding these zero-sum strategies are being obtuse; neither outcome is realistic. The best approach would be for each coalition in this game (company/management vs. unhappy worker) to directly and honestly express their concerns. Not only would this path be more efficient, but if the manager is faithful to the etiquette of dehiring, the problematic employee should have time to find a new job. 

·     Punishment for Defecting: P=0

It would be improbable to have a central authority that can definitively prove and punish either the manager or the worker for using passive-aggressive or unclear communication. Since this is a game-theoretical model, for the sake of simplicity, let us assign the punishment value at zero.

·     Temptation to Defect: T=1

As mentioned previously, it is tempting to adopt the longshot strategy; after all, either coalition gets all their preferred conditions met; with exerting the least effort possible. It is easy to view ambiguity as an excuse to hold out for a no-compromise solution. 

·     Sucker’s Payoff: S=-1

In a no-compromise strategy, it has win-take-all dynamics. The costs of buckling for either coalition are high. Arguably, the monetary costs are much higher for the firm, but the subjective evaluation of the worker’s disutility of conforming to their boss’s parameters would be difficult to measure. 

Condition 1:

· T>R>P>S

· 1> .5> 0 > -1

Condition 2:

· (T+S)/2<R

· (1+-1)/2 <.5

· (0)/2 <.5

· 0 < .5

Overall, it appears as if the Quiet Quitting controversy, sloppy communication combined with employees and employers giving into their desire to be lazy and have all their preferences met engenders a Prisoner’s Dilemma. 

Contra-Populism- Part II

The best explanation for the recent tide of populist sentiment is the self-propelling dynamics of the social desirability bias and irrational rationality. The social desirability bias in psychology is when survey participants shape their responses to make themselves look better. Elected leaders portraying themselves as champions of the people can conform their campaign promises to what makes them more appealing to voters. As candidates that consistently miss the mark on the opinions of their voters don’t stay in office long(p.21)! Even middle-of-the-road elected officials drift away from the median to keep their heads above water in political waves of populism (p.4). The unmoored and amorphous qualities of populism; make it flexible to the changing tastes of the public. The malleable nature of populism makes a “thin ideology” (p.171) that political opportunists can easily manipulate. By definition, a populist candidate must pander to the interests of regular people, regardless of how detrimental the consequences are. Hence, populist candidates typically support raising the minimum wage and import tariffs; superficially, these policies sound beneficial. There is ample evidence that both suggestions do more harm than good. Most of the “majoritarian” solutions to economic issues are predicated on emotional appeals rather than solid facts.

Professor Bryan Caplan’s Rational Irrationality not only dovetails today the social desirability bias in populist politics but forms a symbiotic mechanism for perpetuating these policies. Rational Irrationality is when voters have intense biases and disregard evidence contrary to their strong beliefs. The reason for illogical rationalization is that as long as the individual costs are low (per Alex Tabarrok political decision-making lowers the individual costs of policy). Caplan surmises that there is a demand for irrationality in the political process (p.7), as the voter will barely notice the costs of the policies they favor, providing clarity on why we people support bad policies. However, this can cause voters to adopt disastrous policies (p.152). Through tailoring attractive policies that lean into the concerns and biases of the typical voter, populist candidates can win the approval of their prospective constituents, generating a synergistic feedback loop of detrimental interventionism in the economy and other spheres of life. 

Prisoner’s Dilemmas: XXII- Anti-Discrimination Laws

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Professor Bryan Caplan makes some impressive observations in his 2020 essay The Anti-Jerk Law. Caplan uses the hypothetical example of an Anti-Jerk law to emphasize the fallacies of anti-discrimination laws. At their core, both the fabricated example of the Anti-Jerk law and current discrimination laws suffer from numerous flaws. Instances of discrimination are not clear-cut, much like how your boss is a jerk is subject to interpretation. But if juries are predisposed to sympathize with instances of discrimination or the censure of a mean boss, this may “… lower the de facto burden of proof…” in ligation cases. More importantly, firms might be less apt to hire individuals that can make discrimination claims. Resulting in more indirect discrimination, creating a cobra effect. Laws and policies; designed to reduce discrimination, increasing discrimination.

Effectively, anti-discrimination laws are prone to create Prisoner’s Dilemmas. Why? Employers and Employees(ethnic minorities, religious minorities, transgender people, homosexuals, women) are predisposed to work against one another. Firms are ligation adverse and seek to avoid lawsuits costs and bad publicity. On the other hand, minority employees (emboldened by anti-discrimination regulations) have laws incentivizing them to pursue maximum damages for any perceived incident of discrimination. It is evident that both incentive structures are at odds and will cause both parties to choose to defect (using the vernacular of game theory) rather than cooperate.

The Calculations:

The above scenario is a zero-sum game; due to neither party wanting to compromise and the perception of winner-take-all dynamics. To numerically determine that this scenario is a Prisoner’s Dilemma, we must validate that the situation satisfies the two conditions expressed by Nordstrom; 1.) T>R>P>S and 2.) (T+S)/2<R.

Defining The Variable:

· Reward For Mutual Cooperation: R =.5

The value of .5 has been assigned for the gains of cooperation because the values expressed are predicated on a significant potential stance of discrimination ligation. The firm could take a chance on a risky employee and an employee could tolerate mild forms of discrimination (insensitive jokes, run-of-the-mill micro-aggressions) and not sue. Functioning as an archetypal compromise, neither party is pleased with the arrangement but still better than non-cooperation. 

· Punishment for Defection: P =0

There is little to no proper punishment for defection. For the hiring company, it is difficult/ nearly impossible to prove that they choose the 20-something, recent college graduate, male over a riskier job application (from an anti-discrimination standpoint). There is virtually no actual punishment despite the formal parameters of discrimination laws. For the employee, since the social norms are aligned with anti-discrimination legislation, the social costs for suing are low (but there might be monetary costs associated with legal action which are difficult to quantify. 

· Temptation to Defection: T=1

The firm has a lot to lose by hiring an employee with a high probability of suing them; the employee has a lot to gain in situations of discrimination.

· Sucker’s Payoff: S=-1

Both parties can lose a lot if the other does not compromise. 

Condition 1:

· T>R>P>S

· 1> .5> 0 > -1

Condition 2:

· (T+S)/2<R

· (1+-1)/2 <.5

· (0)/2 <.5

· 0 < .5

Prima facie, it does seem as if numerically and qualitatively that anti-discrimination laws are inclined to create Prisoner’s Dilemmas.

The Third Condition For Log-Rolling to Occur

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In a recent blog post, professor Bryan Caplan suggests that bipartisan log-rolling (vote trading) is frequently untenable on wedge issues. Since there is a high degree of polarization in the climate of American politics, winning on contentious political topics that have clear ideological divisions (e.g. abortion and gun control is a zero-sum exchange. Not towing the party line of these policies is tantamount to political suicide for elected officials. Dr. Caplan does provide two conditions under which log-rolling is likely to occur:

“….First, when the two sides, protestations notwithstanding, share similar principles and don’t disagree very much. Like the budget. Or any ultra-boring issue, like fisheries or snow removal. This is what most democratic log-rolling comes down to.

Second, to avert large, sudden deteriorations. The polity will forgive you for passing up endless opportunities to make the country richer or safer. But if life quickly gets much worse, even the most silver-tongued demagogues struggle to keep holding the reins of state…”

Professor Caplan is a very astute and innovative Public Choice scholar, but he ignores a potential third condition under which vote trading may transpire; intrapersonal vote exchange. This example of vote trading is a form of implicit log-rolling (p.101), where policies are entrenched in a specific political party’s platform. By voting for a candidate affiliated with a coalition, the voter must accept all of the planks in the campaign platform, as we cannot cherry-pick the policies an individual candidate or party advocates.

 Because of this, we must engage in some degree of policy preference ranking. Potentially, engendering an intrapersonal collective action problem, if a voter favors gun rights ( a conservative position) and open-borders immigration ( a liberal policy), odds are they effectively choose one over the other when voting for the president or another variety of political representatives ( a tradeoff). The policy or sets of policies the voter prefers more; will be the deciding factor. If Jim is a proponent of lax gun laws and lenient immigration laws; but votes for a conservative candidate, we can only surmise he values gun rights more than free immigration. In this scenario, Jim engaged in log-rolling with himself.

The most common form of intrapersonal vote trading is when people contour all of their policy preferences to the platform of a political party. The likelihood that every diehard Republic sincerely agrees with the party on every issue is exceedingly small, but most partisan political participants don’t even allow themselves to question their political beliefs. These individuals exchange any disagreements with their party of choice for the designated status as a loyal member of the political faction. An excellent example of this is former Reaganites supporting the presidency and 2020 candidacy of Donald Trump. Regan was the American king of Neoliberal trade policy; Trump echoes the paleoconservative concerns for globalization. We could provide a convoluted explanation for this discrepancy, but such gymnastics would be superfluous. It is much more probable that these individuals tailored their policy preferences to fit an evolving Republican party than they had a sincere paradigm shift. 

Degree Transfer Markets

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In most cases, college degrees act as a mechanism for credentialing; rather than necessary for obtaining occupational knowledge, why not establish degree transfer markets? Under our current institutional regimes, this suggestion may have some legal hurdles to clear, but this is nevertheless an intriguing proposal. Most degrees serve no other function than a sorting mechanism. Their utility in acquiring job skills is low. Coupled with the fact that ownership of credentials; implies that the individual holding this documentation has the right to transfer it to another person. It appears as if there may be some superficial veracity to this suggestion. The individual selling the rights to their degree would effectively be surrendering all rights and claims to it; they would not be able to list it on their resume. If a former student holding the degree is getting little use from it on the job market, they might be better off selling it to someone who would yield more benefit from the credentials. 

A hypothetical example of such a scenario would be, that Joe holds a bachelor’s degree in economics. Joe currently works as a customer service representative (a vocation that does not require a college degree). He is happy with his job; there is no advantage for him continuing to hold a degree in an unrelated field. Cindy is friends with Joe; she has a four-year degree in Sociology, but she has her eye on pursuing a graduate degree in economics. The degree may not necessarily be required depending upon the program Cindy is looking to enroll in, but it could give her an edge in the admissions process. Joe needed some extra cash and sold the rights and claims to his degree to Cindy for a mutually agreed upon price. Effectively, both Joe and Cindy are better at making the exchange. 

There are certainly some instances where the sales of credentials could be potentially problematic. Occupations requiring large amounts of prerequisite knowledge such as a doctor, buying your degree versus earning one can present some issues. Ideally, legally sanctioned occupational requirements would be eliminated, resulting in a stratified service market. Where the option of soliciting the services of uncredentialed service providers is feasible, consumers can still pay top dollar for the services of credentialed experts. In such a model, the ability to purchase your credentials could distort the value of paying more for a credentialed healthcare professional. This is a valid concern, although the market does punish businesses for providing a poor product or service. There is a potential for the market mechanism of consumer sovereignty to flesh out the truly unqualified professionals.  

Other considerations possess issues in a degree transfer market. Some people have likened a college degree to receipt, implying that the value of the degree comes from the knowledge and skills procured in the process of pursuing the degree. The facts are most college graduates are milking the signaling function of their diplomas. In effect, making the skills and information in college somewhat inconsequential, as most of their true learning occurs on the job. The lectures of a sociology professor may be engaging but bring little to the table in the realm of usable job skills. For most participants in the labor market, the receipt is what matters, not the skills or knowledge obtained from a college education. The old saying that was once a tired platitude has now become a guiding axiom of all beer-guzzling and frat house-dwelling students: “C’s get degrees”.It may be wise to adjust this informal rule to reflect current academic standards as “D’s get degrees”.

Beyond where a college degree derives its value from, there is a potential that selling degrees could further erode their purchasing power on the job market. It would not do so quantitively, compromising the value from a qualitative standpoint. Why? Because the one trusty sorting mechanism utilized by most corporate employers will be compromised. Hiring managers will dedicate much time and effort to determining whether the candidate earned or bought their education. 

The Paradox of Implicit Logrolling

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The Paradox of Implicit Logrolling

The process of implicit logrolling (p.101) is a form of indirect vote-trading that heavily relies on the bundling of wedge issues. By way of tying specific groupings of policies and candidates to attract target demographics of voters. Per Buchanan and Tullock (1962), such arrangements encompassing political platforms can be manipulated by “…political entrepreneurs…”. Simultaneously considering the zealous nature of many single-issue voters, it is easy to see why implicit logrolling is such an effective mechanism in shaping the American political landscape. If the American voters continue to support controversial political positions, implicit logrolling will be effective.

Most analysts ignore how voters reconcile selecting programs and political candidates that hold logically inconsistent views. For example, an individual that defends abortion rights on the grounds of a bodily integrity argument concurrently favoring vaccine mandates. Whatever happened to “my body, my choice”? Although, if this individual held both positions on the grounds of an externalities argument, perhaps there might not be any logical discrepancies. However, few voters delve that deep into the logic of their political philosophies. Here lies the Paradox of Implicit Logrolling; political platforms drive voters to support policies they would not otherwise choose. We have most saliently observed this phenomenon in the demographic shifts within the Republican Party. The GOP was once favoring free trade, now advocates for tariffs.

Editorial Graveyard- Part II: Credential Debasement.- Published December 2021.

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Update: This essay was published as of December 2021.

Submitted to the Foundation for Economic Education

What is Inflation?

The concept of inflation (the depreciation of purchasing power of a specific currency) applies to other goods besides money. Inflation is related to the Law of Supply and Demand. As the supply of a commodity increases, the value decreases. Conversely, as the good becomes more scarce, the value of the commodity increases. This same concept is also applicable to tangible items such as vintage baseball cards and rare art. These are rare commodities that cannot be authentically replicated and command a high value on the market. On the other hand, mass-produced rookie cards and replications of Monet’s work are plentiful. Yield little value on the market.

Inflation and the opposite principle of deflation can also apply to intangible goods. When looking at the job market, this becomes quite evident. Jobs that require skills that are rare or exceptional tend to pay higher wages. There is a notable caveat to this observation, which is compensating differentials. Such a form of compensation accounts for the risky or unattractive nature of undesirable jobs. The higher wages are due to a lack of workers willing to accept the position rather than possessing skills that are in demand.

The Signaling Function of College Degrees.

Over the past couple of decades, credentialing of intangible employment value has become more prevalent. Credentials can range from college degrees to professional certifications. One of the most common forms of credentialing has become a 4-year college degree. This category of human capital documentation has evolved to take on an alternate function. Outside of a few notable exceptions, a bachelor’s degree serves a signaling function. George Mason economics professor, Bryan Caplan, argues that this function of a college degree is a signal to potential employers that a job applicant has desirable characteristics. Earning a college degree is more of a validation process than skill-building. Employers desire workers that are not only intelligent but also compliant and punctual. The premise of the signaling model is valid because many graduates are not using their degrees. In 2013, that only 27 % of graduates had a job related to their major.

Due to the signaling function of a bachelor’s degree over the year, there have substantial increases in the number of job seekers possessing a 4-year degree. Retention rates for 4-year institutions reached an all-time high of 81 percent in 2017. In 1900 only 27,410 students earned a bachelor’s degree. This number ballooned to 4.2 million by 1940. That number has increased to 99.5 million. These numbers demonstrate the sharp increase in the number of Americans earning college degrees. Today, nearly 40 % of all Americans hold a 4-year degree. Considering the vast increase in college attendance and completion, it fair to question if a college degree retains its “purchasing power” on the job market? Much of the evidence seems to suggest that it has not.

What is Credential Inflation?

The signaling function of college degrees may have distorted by the phenomenon known as credential inflation. Credential inflation is nothing more than “… an increase in the education credentials required for a job..”. Many jobs that previously required no more than a high school diploma now are only accepting applicants with bachelor’s degrees. This shift in credential preferences among employers has now made the 4-year degree the unofficial minimum standard for educational requirements. This fact is embodied in gov the high rates of underemployment among college graduates. Approximately 41% of all recent graduates are working jobs that do not require a college degree. It is shocking when you consider that 17 % of hotel clerks and 23.5 % of amusement park attendants hold 4-year degrees. None of these jobs have traditionally required a college degree. Due to a competitive job market where most applicants have degrees, many recent graduates have no means of distinguishing themselves from other potential employees. Many recent graduates have no other option but to accept low-paying jobs. 

The Two-Pronged Debasement.

The value of the college degree has decreased in value in two ways. First, its value has depreciated due to the vast increase in workers possessing degrees. This form of debasement mimics the effect of printing more money. Following the Law of Supply and Demand, the greater the quantity of a commodity, the lesser the value. The hordes of guidance counselors and parents urging kids to attend college certainly have helped this matter. However, public policy has served to amplify this issue. Various kinds of loan programsgovernment scholarships, and other programs incentivized more students to pursue college degrees. These policies that make college more accessible are what are devaluing college degrees. The current proposal for “free college” would be more expansive than our current policies. More people attending college makes degrees even more common and further depreciated.

The second form of credential debasement is a qualitative form of depreciation. Proving that the quality of a college education has decreased over the years is difficult to validate. Similar to how the Ancient Romans debased their currency by diluting the silver content of their coins, we have done the same to the college curriculum. College students are rarely studying but are attaining higher GPAs than previous generations. The average full-time student spends less than 30 hours a week focusing on coursework. Amounting to approximately 900 hours a year (average full-time worker devotes 1,800-2,000 annual to their job). Yet, the average GPA has climbed from 2.5 in 1940 to 3.1. A potential sign that college is not as academically rigorous as it once was.

Conclusion.

It is not to say that brilliant students with aspirations of a career in STEM fields should avoid college. For the average student, it may be a malinvestment in their future. Incurring large amounts of debt to work for minimum wage is not a wise decision. When faced with policies and social pressure that have made college the norm, the signaling function of a degree becomes distorted. If students focused more on obtaining skills than credentials, they might find a way to stand out in a job market flooded with degrees.

Credential Debasement

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What is Inflation?

The concept of inflation (the depreciation of purchasing power of a specific currency) can be applied to other goods besides money. Inflation is directly connected to the Law of Supply and Demand. As the supply of a commodity increases the intrinsic value decreases, as the good becomes more scarce the value of the good increases. This same concept is also applicable to tangible items such as vintage baseball cards and rare art. These are incredibly scarce commodities that cannot be authentically replicated therefore they command a high value on the market. On the other hand, mass-produced rookie cards and replications of Monet’s work are plentiful. Yield little value on the market.

If inflation and the opposite principle of deflation applies to money and other physical goods, could it also be applied to intangible goods? When looking at the labor market this becomes quite evident. Jobs that require skills that are rare or exceptional tend to pay higher wages. There is a notable caveat to this observation, that is compensating differentials. Which is a higher rate of compensation for a job that is risky or otherwise unattractive. The higher wages are due to a paucity of workers willing to accept the job, rather than possessing skills that are in demand.

The Signaling Function of College Degrees.

Over the past couple of decades, credentialing of intangible employment value has become more prevalent. Credentials can range from college degrees to professional certification. One of the the most common form of credentialing has become a 4-year college degree. This category of human capital documentation has evolved to take on an alternate function. Outside of a few notable exceptions, bachelor’s degrees no longer operate as a form of job training, but rather serve a signaling function. George Mason economics professor, Bryan Caplan, argues that this function of a college degree is a signal to potential employers that a job applicant has desirable characteristics. Meaning that obtaining a college degree is more of a validation process than about skill-building. An individual may be intelligent, but if they lack other complementary attributes such as conformity odds are they will not complete college. Dr. Caplan’s signaling model for higher education seems to be substantiated by the fact that the vast majority of college graduates are not using their degrees. It was estimated in 2013, that only 27 % of graduates had a job related to their major.

Due to the signaling function of a bachelor’s degree over the year, there have substantial increases in the number of job seekers possessing a 4-year degree. Retention rates for 4-year institutions reached an all-time high of 81 percent in 2017. In 1900 only 27,410 students earned a bachelor’s degree. This number ballooned to 4.2 million by 1940. That number has increased to 99.5 million. Demonstrating the vast proliferation of Americans with college degrees over the past century. Today, just shy of 40 % of all Americans hold a 4-year degree. Considering the vast increase in college attendance and completion, it fair to question if a college degree retains its “purchasing power” on the job market? Much of the evidence seems to suggest that it has not.

What is Credential Inflation?

The signaling function of college degrees may have distorted by the phenomenon known as credential inflation. Credential inflation is nothing more than “… an increase in the education credentials required for a job..”. Many jobs that previously required no more than a high school diploma now are only accepting applicants with bachelor’s degrees. This shift in credential preferences among employers has now made the 4-year degree the unofficial minimum standard for educational requirements. This fact is embodied in gov the high rates of underemployment among college graduates. It is estimated that 41% of all recent graduates are working jobs that do not require any amount of time in a college classroom. It is quite shocking when you consider that 17 % of hotel clerks and 23.5 % of amusement park attendants hold 4-year degrees. None of these jobs have traditionally required a college degree nor is it a prerequisite currently. Due to a competitive job market where most applicants have degrees, many recent graduates have no means of distinguishing themselves from other potential employees. Leaving them with no other option than to accept lower-paying jobs.

The Two-Pronged Debasement.

The value of the college degree has been debased in ways. First, its value has depreciated due to the vast increase in workers possessing degrees. This form of devaluation mimics the effect of introducing more money into the economy has on the value of a currency. Following the Law of Supply and Demand, the greater the quantity of a good the lesser the value. The hordes of guidance counselors and parents urging kids to attend college certainly have helped this matter. However, public policy has served to amplify this issue. Through various forms of loan programsgovernment scholarships, and other programs all have incentivized more students to pursue college degrees. These policies that make college more accessible are precisely what is devaluing college degrees. The current proposal for “free college” would be more expansive than our current policies. Encouraging more people to attend college making degrees even more common and further depreciated.

The second form of credential debasement is a qualitative form of depreciation. Proving that the quality of a college education has decreased over the years is more difficult to definitively validate. Similar to how the Ancient Romans debased their currency by diluting the silver content of their coins, we have done the same to the college curriculum. College students are rarely studying, but are attaining higher GPAs than previous generations. The average full-time student spends less than 30 hours a week focusing on course work. Amounting to approximately 900 hours a year (average full-time worker devotes 1,800-2,000 annual to their job). Yet, the average GPA has climbed from 2.5 in 1940 to 3.1. A potential sign that college is not as academically rigorous as it once was.

Conclusion.

This is not to say that brilliant students with aspirations of a career in STEM fields should avoid college. For the average student, it may be a malinvestment in their future. Incurring large amounts of debt to work for minimum wage is not a wise decision. When faced with policies and social pressure that have made college the norm, the signaling function of a degree becomes distorted. If students focused more on obtaining skills than credentials, they might find a way to stand out in a job market flooded with degrees.

Bryan Caplan on Time Preference

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In a 2005 blog entry from economist and George Mason professor, Bryan Caplan disputes the veracity of time preference proving why interest rates tend to be positive. Time preference asserts that people prefer present consumption over future consumption. Providing some insight into why people would be willing to receive money now and later pay it back with interest. From the standpoint of an individual’s assessment of value, $1000.00 today is worth more than $1000.00 three months from now. Dr. Caplan launches a two-pronged attack against the assumption that time preference explains why interest rates are positive. Caplan suggests that dimmishing marginal utlity, not time preference demonstrates the proclivity of interest rates being positive.

Professor Caplan’s first point regarding the failure of time preference to adequately explain positive interest rates relates to the allocation of nonmonetary resources. He details a scenario where an individual is marooned on a desert island with only two bananas. Per a loose application of time preference, in theory, the person stuck on the island would eat both bananas today. Since we prefer present consumption to future consumption. A “perfectly patient” person would be willing to eat only one banana a day to more effectively curb their hunger. This is because we disvalue hunger today equally as much as we do tomorrow. Making dividing consumption between the two days a more effective use of resources.

Caplan goes further elucidates this point by demonstrating the fact that often in barter interest rates are negative. Per the blog entry:

“Suppose we knew the price of food would double next year. Then a pound of food now trades for half a pound of food one year from now. Translation: a negative 50% interest rate!

If this seems crazy to you, suppose the food was the only commodity, and you expect a famine next year. Wouldn’t you happily trade 2 pounds of current food in exchange for a promissory note good for 1 pound of food next year?”

This example explicates depending on the context we may forgo present consumption for future consumption. Even when we are expected to take a loss on the value of that commodity. This foils the main tenants of time preference. If we were to delay current consumption for future consumption we tend to do so for future gain. To quote the Austrian economist Roger Garrison “ We save up for something”. We hang on to stocks, gold, annuities, bonds, or cash holdings with the anticipation they will increase in value. It is important to note that inflation does take its toll on cash holdings. In the mind of the average person, it is more about amassing large quantities of money than an expected increase in value. Per time preference, if we did anticipate no gain from delaying consumption, we would be more apt to consume now than take the loss. However, in the situation presented by Dr. Caplan, it may be reasonable that a logical person may do the opposite. The rationale why loans for money tend to be positive is the fact that money does not spoil and is of little cost to store.

The second prong of Professor Caplan’s argument is the most compelling. In modern society, people have the ex-ante perception that they will be richer in the future. Anticipating being wealthier at a later date will drive a person’s demand for consumption up for the present. As the individual exhausts their desire to consume, the hope is that they have more money to pay back the sum that was loaned with interest.  That is certainly a point that the Austrian perspective on interest rates ignores. Is it possible that if we excepted to get a raise in our compensation next year, we are more apt to spend more now and around the time we start to experience the disutility of consumption we experience a bump in pay?   This is a very likely scenario.  Presents arguably the biggest blind spot in the theory of time preference.

However, there is one looming question that Dr. Caplan does sidestep in his arguments. Few sane economists would ever argue that the law of diminishing marginal utility doesn’t apply to consumer behavior. But are we truly measuring the utility of the same commodities if we delay present consumption?  Our Christmas decorations three weeks before December 25th the same commodity as these same decorations on the clearance rack the first week of January?  It could be reasonable to argue no. While diminishing marginal utility could explain this decrease in demand, but it fails to consider the full scope of the customer’s subjective evaluation of the goods. The marginal utility can only explain the assessment of the value of a commodity. It cannot explain if the customer perceives the good as being categorically different. The variable of time could very well influence whether Christmas decorations now or a month ago are truly the same product. Applying this reasoning to interest rates, this point becomes quite clear. Is $1000.00 today plus avoiding a late payment on a credit card the same as $1,000.00 next week? Especially when we consider late fees, damage to our credit score, etc. On top of it, you still owe the credit card company $1,000.00.  It is difficult to quantify the intrinsic value of having a clear credit score. $1,000.00 plus interest may be worth more to the individual than taking a hit on their credit score.

Credential Inflation: Is College Worth It?

 

accomplishment ceremony education graduation
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As a society, we invest in many things. We invested in promising startups. We invest time in our community through charity. We even invest in ourselves. Which explains the plethora of fad diets and gym members we have to choose from in America. Americans also invest in human capital. Mainly through acquiring college degrees. Does a bachelor’s degree look impressive when nearly half of all Millennials have one? [1].

 

Investing in a college degree is certainly a costly endeavor. The typical college student who graduated in 2017 owed on average $28,650 in loans [2]. The assumption being that the student is going into debt to purchase a degree that will be the golden ticket to a good salary. Unfortunately, this is a somewhat faulty assumption. The significant numbers of college graduates are underemployed [3]. In 2008, it was estimated that 17 million college graduates employed in jobs that did not require a college degree (Vedder, 2012, P. 8) [4]. Notably, examples of underemployment being 29 % of flight attendants, 17 % of hotel clerks, and 23.5 % of amusement park attendants hold 4-year degrees (Vedder, 2012, P. 8) [5]. There is nothing wrong with any of the listed occupations. Is it wise to go into debt to take a job that requires no more than a high school diploma?

 

Underemployment is a key fixture of what has been credential inflation. Similar to monetary inflation is the depreciation of requisite education for a specific job. In a fiat system of currency when we print more money the purchasing power of our currency decreases. Likewise, flooding the job market with applicants possessing  4-year degrees diminishes the “purchasing power” of this previously advantageous form of human capital. The law of diminishing returns applies to education and the underemployment of college graduates being symptomatic of over-investment (Vedder, 2016, P.3) [6]. That’s why expanding college education universally will only compound the issue. The prevalence of college degrees has deduced this level of educational attainment to a bare-bones requirement. Putting into question the value of investing in a bachelor’s degree.

 

To really illustrate the dramatic increase in college obtainment it is important note when World War II started less than 5 % of adults had a degree (Bankston, 2011, P.3) [7]. Truly making a college degree a prestigious achievement. Part of what has driven the dramatic influx in college attendance has been government subsidies. For example, the Pell Grant established in 1972 to provide funding for low income students to attend college. Which ended up providing assistance to 5,428,000 students in the 2007-2008 academic year (Bankston, 2011, P.11) [8]. Outside of grants loans and other forms of financial aide have also contributed to the sizable increase in college attendance. It should also be noted that societal pressure also come into play. Your parents, teachers, society, and even politicians urging you to go to college.

 

Some would argue that there is  a two-sided debasement of the college degree. Not only is there any increased quantity, but a decrease in the quality. Some experts believe that the college curriculum has been “dumbed down” (Bankston, 2011, P.20) [9]. Which I personally find to be difficult to empirically determine. We are making a qualitative statement that can be swayed by perception. Standardize testing results perhaps? SAT scores for math have improved since 1966-67 school year, however, reading scores have been on the decline (Bankston, 2011, P.20) [10]. Is college admissions testing specific enough of a criterion to assess curriculum quality? I believe that is an open question. It is fair to question the conviction of current college students. The typical college student spends 900-400 hours a year on school related activities (studying, class attendance, etc.). In contrast the average full-time employee spends 1,800 to 2,000 hours annually (Vedder, 2012, P. 5)[11]. This may not necessarily measure the same variable. However, it does put into question strongly encouraging young people to attend college. If their priorities are video games, beer-pong, and dating then maybe it might not be the strongest option.

 

It is it really wise to be pushing recent High School graduates towards college? Considering odds are even with a college degree they will be underemployed. While away at college will spend more time hitting the beer-pong table than the library. Not too mention the cost. There was a 32.4% increase in the cost of college from 2001-2011 (Lemke & Shughart II, 2016, P.1) [12].The costs are only going to continue to rise. I would suggest that perspective students judicially choose their majors for what will have the biggest return in the job market.  Otherwise your decision will be a prime example of malinvestment. You will end up with massive student loans making 13.00/hr at a call center. However, computer science, applied mathematics, healthcare, and engineering  (P. 12) are “safer” bets than a philosophy degree.

 

Fortunately companies such as Google are not weight college degrees as heavily in the process of job candidate selection. Which is a shrewd move considering the number of programming certificates that exist. In all honest maybe more beneficial than a degree.  Even some grants now are predicated on the contingency that the recipient does not attend college. Example being the Thiel Fellowship. Shifting away from the college degree signaling model discussed by economists such as Bryan Caplan [13].

 

I have been personally impacted by credential inflation and have been lucky enough to rebound from underemployment. I was urged by my mother to attend college. I wasn’t too keen on it , so I decided to get my core requirements satisfied at a Community College. Due to my academic achievement at Community College I received a break on my tuition when I transferred to a 4-year institution. Luckily, I got my partying days out of the way in High School. Graduated Summa Cum Laude from University and was then in the massive expanse known as the job market. Armed with a mere Bachelor’s of Science in Psychology, needless to say I didn’t fare too well. Ended up working as a janitor at a casino. Thankfully, due to my strategic planning I graduated with virtually no debt. Then ended up working several office jobs. Typically, corporate offices prefer candidates with college degrees. Which is gratuitous because there is nothing about the job that makes inherently necessary to hold a college degree.