LSAT Tea-Leaf Reading: October 2015 Edition

Halloween happens this weekend and the LSAC is celebrating by giving us yet another increase in LSAT takers. Gaze upon your zombie apocalypse:

No. LSAT Takers, 4-Testing Period Moving Sum

33,229 people took the October LSAT this year, up 7.4 percent from September 2014. The four-period moving sum is up to 105,410 (2.2 percent), just higher than December 2013.

As I hypothesized in June, more people might be taking the LSAT because of the media coverage saying now is the best time ever to go to law school. I happen to think this is a silly position: There really are far more people going to law school than there are indefinite-duration professional jobs available, but at least some lucky people might get strong scholarship opportunities. The catch is that someone has to pay for those scholarships, and that might also be people who borrow hundreds of thousands of dollars believing now is the best time ever to go to law school.

Maybe the recent NYT editorial will have an impact for the future, but regardless, it appears prospective law school applicants are a fickle bunch, easily swayed by mainstream media articles leaning one way or the other.

On the other hand, interest in medical school is at an all-time high. We certainly need doctors more than we need JDs.

Speaking of Grad PLUS Loans…

This weekend, the Times both accepted the Bennett hypothesis and chose not to condescend to us about the “paradox” of how underemployed law grads can refuse to work for people who can’t afford to pay them. That’s really remarkable. What more can I say?

Okay, one point, an emphasis. When I wrote that applying the gainful employment rule to all law schools would cause fifty to close in short order, I was clearly being conservative. $50,000 in discretionary income is a lot of money, even for law school graduates.

And since we’re on the topic of student lending, the Department of Education updated its student loan data through the 2014-2015 academic year. I’ve updated the Student Debt Data page accordingly.

The big findings are that (a) people are borrowing less money from the federal government:

Amount of Federal Loans Disbursed

…But (b), Grad PLUS borrowing hasn’t changed much in the last year.

In the last two years though, the number of Grad PLUS borrowers has grown (+2,540) while the total amount borrowed has fallen (-$140 million). It only amounts to about $500 per borrower, but who knows, maybe it’s due to fewer law students? I wouldn’t be surprised.

Finally, in the same week that I bought my first car I realized after years of listening that Galaxie 500’s “Blue Thunder” is about a man’s love for his car, and the Route 128 reference indicates it’s an homage to the Modern Lovers’ “Roadrunner.” (I’m terrible at discerning lyrics; it’s usually not what I listen for in music.) I really dig how “Blue Thunder” denies the listener the chorus until the very end.

I prefer the album version, but how could I not post an ’80s video?


Henry George 2015: TPP or Free Trade?

Last week, I ran across former Dallas Fed president Bob McTeer’s defense of the Trans-Pacific Partnership (TPP) on Forbes. Interestingly, McTeer opens with quotes by Henry George on international trade. In 1886 George wrote a book on the subject, titled, “Protection or Free Trade,” in which he attacked tariffs and protectionism. More than once I’ve seen trade advocates cite his position on the subject without reference to his analyses of production factors (which ineluctably leads to his advocacy for land-value taxation) or technological unemployment. It’s one of George’s other hats as an economist.

McTeer believes George would probably favor the TPP, which I think misreads George and the times in which he was writing. Throughout the 19th century the U.S. government’s primary source of revenue was tariffs. The persuasiveness of the Hamiltonian bases for them is debatable. I happen to think the U.S. prospered in the 1800s despite the tariffs, not thanks to them. Read an example here.

However, aside from the income tax that was enacted during the Civil War (and which was later found unconstitutional), the only alternatives for funding the federal government were asset sales and direct taxes, which the constitution requires to be apportioned among the states by population. Consequently, although the government wasn’t nearly as expansive as it became in the 20th century, George’s writings on free trade were inextricably connected to his demand for public recovery of land rents. He criticized income taxes as a tax on honesty, which they are.

So, to a large degree, George’s attack on tariffs wasn’t simply Ricardian comparative advantage. Additionally, there’s the problem of McTeer’s characterization of the TPP as the kind of free trade agreement George would probably support. George’s animating virtue was fairness, operationalized against monopoly power. He attacked Western Union for its control over the telegraphs just as he did landowners, for example.

I’m not going to put words in George’s zombified mouth, but there are two weaknesses with the TPP that anti-monopolists should be aware of that McTeer doesn’t specify. One, much of the TPP is concerned with protecting intellectual property rights, e.g., drug patents and Microsoft software copyrights. I forget George’s position on copyrights, patents, and trademarks, but those are monopolies, and these days they’re quite abused. Two, the TPP is not going to increase trade by much. It might reduce tariffs in other countries, but if we believe in free trade then that’s the other countries’ problem, not ours. I’ve heard other criticisms of the TPP as secretive and anti-democratic, which McTeer doesn’t discuss. Nor am I convinced it will somehow contain China as the Obama administration has maintained. Why would it?

McTeer’s argument is weak in other respects. He’s correct when he says that jobs lost to imports are substituted by jobs gained by exports, even though the former is more evident that the latter. What I haven’t seen is a discussion of how easily those who lose jobs find commensurate jobs in other fields. Are former coal miners easily retrained for jobs in coastal cities marketing American products overseas? Labor isn’t infinitely fungible, and I’ve never seen this point addressed.

McTeer then dismisses the trade deficit claiming its only been around for several years and is “fairly stable.” The U.S. has had a net trade deficit for just about my entire life with only a small break in the early 1990s. A lot of it is due to foreign oil imports that are wasted on commuting, which again is a land use problem. (It’s amazing how shortsighted people are about energy.) Another chunk of it is due to chronic currency manipulation by trading partners, notably China in recent years. China “sterilized” dollars flowing into it to keep them away from its people—like the Social Security trust fund without the Social Security part. Free trade for us, not China.

McTeer then waves these concerns away by explaining that the surplus in the U.S. capital account compensates for losses in trade. (Technically, the trade deficit and the current account deficit aren’t identical.) In other words, the paper or electronic money we export comes back as investment. There are reasons to be dubious. As I would hope George would have recognized, foreign investment is just as likely to go to fixed factors as productive ones. If foreigners gobble up real estate, and we don’t tax it, that just transfers our productivity to them. Secondly, if foreign governments buy up our public debt, our interest rates fall, which might contribute to land bubbles. It also doesn’t help our developing trade partners when they’re exporting their capital to us. The flow should go the other way.

[UPDATE: An intriguing article on VoxEU discusses excessive capital inflows that accompany current account deficits, leading to production shifts from manufacturing to non-tradable sectors, i.e. construction. The authors refer to the phenomenon as the “financial resource curse.”]

For these reasons, I doubt the TPP is as much of a test of Americans’ economic literacy as McTeer claims it to be. It isn’t an obvious conflict between domestic monopolies and foreign competition.

Everything I Ever Needed to Know: The Middle School Premium

I recently wrote on the Census Bureau’s awaited annual update to its “Income, Poverty and Health Insurance Coverage” data for 2014. I editorialized on the decline in median earnings for 25-34 year-olds since the turn of the century. Today, I thought that rather than emphasize the negative, as I often do, I would point to the positive: For two decades, things have been getting better for people who don’t even finish the ninth grade. Way better.

Don’t laugh. This is serious social science.

Consider: If you think education increases earnings then you’d look at aggregate earnings of all persons (for the youth bracket, in this case) by education. You’d expect to see the aggregate earnings grow with an increasing proportion of the gains going to educated people. Instead you get this:

Aggregate Personal Earnings by Education (25-34, Both Sexes)

…Increasing proportions of the total going to the educated but no aggregate growth. This means average productivity isn’t improving; maybe the unenlightened are getting dumber or maybe educated workers aren’t really benefiting from more schooling.

How do you separate these factors when productivity and population (by education) are multiplied together and then added up to illustrate the aggregate above? In an unlikely parallel, Paul Krugman leads the way when trashing Jeb! Bush’s economic record as governor of Florida: Just compare the average aggregate growth rate to the average per capita growth rate. If the average per capita growth rate is higher than the average aggregate growth rate, then you’re looking at improving productivity rather than positive population shifts, which is bad.

We can do the same thing with education: average growth in aggregate earnings and average growth in per capita earnings.

Get ready…

Earnings Growth Rates by Education for 25-34 Year Olds (1991-, 2014 $)

Boom. Since 1991, the cumulative per capita growth rate for middle schoolers’ incomes has been 28 percent but for college grads (and above!) it’s been a scant 9 percent. In 42 years, both categories’ earnings will be identical.

Presumably, in about twenty-five years, young people will begin retarding their educations to avoid wasting their time learning ancillary subjects like geometry, science, literature, history, and—ungh—drama.

And if you thought law school scamblogs were bad, wait until you see Third Tier High School. Many a commode will be flushed that day, that’s for sure!

But aside from that massive finding, I direct your attention to the blue bars in the chart. As with Krugman’s argument on Jeb!’s governorship, they show exactly what we’ve feared all along: Any growth in college graduates’ productivity is overwhelmingly swamped by population shifts. In other words, more people are getting degrees, but overall they aren’t earning much more.

I wouldn’t read too much into the fact that dropping out of college is worse than not going in the first place. The stagnation of associate’s degree candidates, by contrast, is disturbing.

In truth, though, much of the growth in per capita earnings is probably attributable to college grads, so I wouldn’t completely discount them. However, most of that occurred in the 1990s. We’re in a very different place today.

Ponder that when your kids start the square-dancing unit in P.E.


Mellow is the Bubble

It’s been a few months since I’ve done one of these, and thanks to some overtime this weekend I haven’t had time to write, so here’s Japandroids’ “Adrenaline Nightshift.”

…And since I’m seeing a performance of Big Star’s Third this week, here’s “For You.”

Finally, here’s the best photo I took of the lunar eclipse last night.

2015-09-27 Lunar Eclipse



GAO Report: RIP High-Income IBR Deadbeats

We are alerted to the U.S. Government Accountability Office’s latest report, “Education [Department] Could Do More to Help Ensure Borrowers Are Aware of Repayment and Forgiveness Options” (here). The report asks one of the questions I’ve always had of income-based repayment plans: How much are people on them earning?

The answer, as of September 2014, is squat—even less than I would’ve guessed.

(I suspect the GAO chose September because it’s the end of the fiscal year.)

GAO Report--Figure 4 (Income)

Out of 11.2 million borrowers in repayment, 13 percent were in IBR and 2 percent were in PAYE (1.46 million plus 0.22 million). If you play with the numbers right that means about 2 percent of all IBR-plus-PAYE borrowers earned more than $80,000 annually. That’s about 30,000 people. By contrast 72 percent (1.2 million) earned $20,000 or less.

Other fun facts: One, about two-thirds of all IBR/PAYE borrowers are women, so we can predict that the REPAYE plan of the future, which will essentially require debtors’ spouses to pay their debts, will be an anti-dowry. Two, within the IBR group, 13 percent were paying the equivalent of a 10-year repayment plan, and for the PAYE people, it was only 5 percent, implying that perhaps some high-income debtors are not going to require loan forgiveness anyway. Three, only one-third of IBR borrowers went to grad school; for PAYE it was only a fifth.

The low-income finding is important because there have been some articles about how IBR and the changes to it confer vastly unfair benefits to high-income deadbeats who could repay their loans if loopholes were closed. For example, earlier in September, The Wall Street Journal shrieked about studies showing how IBR and PAYE are sops to doctors and lawyers (not M.D.s and J.D.s apparently), and my personal favorite occurred last February when The Washington Post ran an op-ed by the New America Foundation’s Jason Delisle and Alexander Holt, who argued against PAYE based on a lopsided hypothetical of a law grad who made $70,000. Thanks to the GAO study, this person was not only lucky as law grads go but also totally unrepresentative of IBR/PAYE borrowers.

So going forward, I fully expect media outlets and the NAF to report on how the changes to IBR broadly favor low-income debtors, and that there aren’t so many high-income debtors taking advantage of the system.

But what did the NAF actually say about the study? It appears to be shifting its focus away from IBR deadbeats to graduate debtors on PSLF specifically. That’s not really a topic I’m interested in exploring today, but those hoping the authors would apologize for wasting so much of our public-policy mental bandwidth up until now will have to wait. The IBR deadbeat might be dead, but I’m sure they’ll resurrect it fairly soon.

In the meantime, the NAF attacks IBR by blaming students for earning too little money. I’m not kidding. Consider their closing line:

Given that borrowers in IBR and PAYE have such low incomes and high debt levels, the plans look much more like very long-term programs for borrowers, not sources of temporary relief.

What does the NAF expect? The economy is still depressed. It won’t really recover without fiscal, trade, and labor reforms. It’s not the borrowers’ faults they don’t have high-paying jobs, nor is it IBR/PAYE’s. So what’s the solution? Making them pay more? It’s unclear where the NAF will go from here, but more debt, more education, and tougher repayment plans aren’t going to work. Given that the NAF took a wide swing and missed over the IBR deadbeats, I discourage optimism.

Speaking of pessimism for college grads, the Census Bureau has updated its “Income, Poverty and Health Insurance Coverage” data for 2014. As with last year, I won’t delve too deeply into the analysis, but here are median earnings by education level for the 25-34 bracket.

Median Earnings by Education (25 - 34)

Okay, the median college grad earned $1,000 more in 2014, but it’s still way below the peak in 2000.

Meanwhile, the percent of college grads who weren’t working is still 3 points higher than in 2008, and 6 points higher than 1997. That amounts to more than half a million college grads who could be working. Moreover, it’s noisier, but there’s been an upward trend since the 1990s in professional-degree holders who don’t work.

Percent of 25-to-34-Year-Olds With Zero Earnings by Education

The best we can say is that things didn’t get worse last year, but it’s much too soon to say things are getting better.