Friday, January 6, 2012

Economics Professor Gets Schooled

(By every shred of good advice about blogging, this entry is too long. I can't shorten it because I have a fetish about completing my thoughts. If you're short of time and patience, you can spare yourself some agony by skipping the boring preamble and going directly to the creative stuff, which has a big, bold, all-caps heading, THE PARABLES, for your convenience. On the other hand, should you choose to read the entire post, you will know a hell of a lot more about economic reality than you do now...probably.)

Boring, yet Sublimely Captivating, Preamble

        You may have seen the anecdote going around the Internet about the college economics professor who failed his entire class in order to teach them a valuable lesson about the merits of capitalism vs. socialism. He did this after becoming upset that his students had bought into Barack Obama's socialistic economic policies, notwithstanding the fact that the proposed policies are neither socialistic nor exclusively Obama's.
The appeal of the piece hinges largely on the perception held by many that our current economic woes are the result of too much government pandering to the desires of too many citizens who expect to get too much for nothing. For those who believe this, the obvious solution is a song of one note: get a job.
Want to end long term unemployment? Cut benefits, so that all the layabouts have to get a job. Want to reform welfare? Cut benefits so that all the layabouts have to get a job. What to do with the welfare children of single parents who've had to return to work? Child labor laws are burdensome to American businesses and hamper their ability to compete with Asian sweatshops. Repeal the laws and cut benefits so all the juvenile layabouts have to get a job.
Want to put a stop to runaway Medicare spending? Make everyone buy their own insurance. Can't afford insurance? Get a job. Can't get insurance because of a preexisting condition? Well maybe you should have taken better care of yourself when you had the chance. Now it's too late. Best to just suck it up and make peace with your maker. No one likes a whiner, especially one who thinks they are entitled to a handout from the more productive and deserving members of society.
Want to return Social Security to sound financial footing? There's no point. Social Security is a ponzi scheme. People should be responsible for funding their own retirement. Repeal Social Security. Cancel benefits for those already retired. If they don't have enough to live on, they should get a job and support themselves until they are able to retire without having to slurp at the public trough.
The flaw in this logic is the underlying supposition that everyone who is unemployed or impoverished or infirm is a lazy, shiftless, irresponsible wastrel who expects the government to provide for their needs. The corollary belief is that those who are employed, wealthy, and/or privileged are so because they are industrious, motivated, and noble. As such they ought to be able to enjoy the fruits of their labors and not be expected to yield any of that fruit up to the lazy grasshoppers.
That this is a simplistic way of looking at reality ought to go without saying. It's not that there is no truth in it. It's rather that it ignores a whole host of other, less just causes of disparity in income distribution: things like racism, sexism, religious intolerance, fraud, cronyism, elitism, and deliberate manipulation of power and privilege to preserve and enhance power and privilege. These are things that you would think would have been eradicated from society by the great American Experiment, but they continue to exist because they serve so well still to delineate the haves from the have nots.
To illustrate this point I have rewritten the popular anecdote to better reflect the reality of our current economic landscape.

Photo from the original post. No credits given. This poor slob probably isn't even teaching economics. Personally I think he has a liberal haircut so it is ironic that his sincere looking visage is now a spokes-image for conservative thought. 


(The aforementioned creative stuff - possibly even more sublime than the preamble. The original tale is in blue type. My revisions are in black.)

An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama's socialism worked and that no one would be poor and no one would be rich, a great equalizer. 

An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama's socialism worked and that no one would be poor and no one would be rich, a great equalizer. Several of the students had tried to point out that they didn't think Obama's policies could actually be characterized as Socialism, but the professor had insisted that any attempt to fetter the workings of a free market and redistribute wealth according to social principles, no matter how altruistic, was indeed Socialism.

The professor then said, "OK, we will have an experiment in this class on Obama's plan". All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A.... (substituting grades for dollars - something closer to home and more readily understood by all).

The professor then said, “OK, we will have an experiment in this class on Obama's plan. All grades will be averaged, and everyone will receive the same grade whether that be an A, an F or something in between. In this way we will substitute grades for dollars—something more readily understood by students who have little experience with real money.”
Again some of the students tried to point out that, even substituting dollars back for grades, this did not sound very much like anything that President Obama had proposed. The professor told them to shut up—that he was the professor and they were mere ignorant students so he would decide what exactly it was that Obama was trying to do, even if Obama himself did not realize it. He had just as much right to do this as Rush Limbaugh or Glenn Beck because he was, by God, a professor of economics and he knew stuff.

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.. 

After the first test, the grades were averaged and everyone got a B. The students who had done well on the test, whether or not they had applied themselves, were upset. Whether their success was the result of hard work or natural ability, they all felt that they should get the grade they made rather than have to yield up some of it to the lesser students.
The average students who had performed at the average level on the test were indifferent.
The students who had done poorly on the test, even though they had studied hard, were relieved to be getting the average mark. One of them, a music major who found the vague concepts of economics lacking the mathematical symmetry of her beloved music, was so relieved of the anxiety that the required economics course had been causing her, that she returned with renewed enthusiasm and energy to a sonata she had been composing.
Some of the students who had studied little were ecstatic, while some others, privileged students with highly developed senses of entitlement, thought they should be able to use their wealth and influence, or more particularly that of their parents, to obtain marks that were significantly better than those that would be awarded to the mere mortal students. These latter few conspired with their parents to approach the professor and offer him a sizable stipend to fund his research in exchange for an exemption from the grade averaging that would apply to the rest of the class.
At first the professor demurred. That arrangement would be unjust, he argued. Everyone had to play by the same set of rules. When the parents threatened to go to the board of regents, many of whom were close personal friends, and undermine the professor's tenure, he relented. Not only did he agree to exempt the privileged few students from the grade averaging scheme; he also agreed to exempt them from the usual collegiate proscriptions against submitting the work of others as one's own.

The second test average was a D! No one was happy. When the 3rd test rolled around, the average was an F. As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else. To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed. It could not be any simpler than that.

        The second test average was a D! Everyone was awarded a D according to the agreement, except of course for the students who had used their parents' influence to negotiate themselves an exemption. These happy few all got an A, even though they hadn't actually studied or applied themselves at all, but had rather broken into the professor's office and stolen the answer sheet the day before the test. The professor wasn't very happy about this development, but there was little he could do about it under the circumstances. What the students had done may have been immoral and reprehensible, but under the exemption to which he had agreed, it was all perfectly legal.
At this point all the students could see clearly which way the wind was blowing. Those for whom economics was not a required core course promptly dropped the class. Those who remained decided that they needed a plan to raise the average grade. Nobody wanted to fail, after all, and the only way they were going to succeed as individuals was to succeed as a group. “A rising tide lifts all boats,” one of them declared, and the rest agreed that nowhere was this truer than in their economics class.
After several meetings, they agreed among themselves that forming a study group would be the best way to achieve their goal. The students who grasped the concepts of economics easily would explain them to the less adept students and drill them until they grasped the concepts as well. Not only would this help the students who were bringing the class average down; it would also help the students who were doing the tutoring to perform even better than they had been on their own. Organizing their lessons so that they could explain them to the below average students would make the smart students even smarter. In this way both the poor students and the good students would improve their test performances and the class average would become in fact better than average.
The average score on the third test was a B+. The study group students were encouraged, and decided that they could do even better. The privileged students, on the other hand, the ones who had bought themselves the exemption, thought that their status as students of status should warrant them scores that were better than just a fraction of a letter grade above the new average. They hired a lobbyist to go back to the professor on their behalf and get them a better deal.
The lobbyist was very persuasive in his own right, but he also had a robust research organization that could provide him statistics to back up virtually anything he said and a formidable budget to make things easier for the professor to understand. The lobbyist told the professor that it was obvious to all concerned that the experiment he had initiated was going to result in what is know as grade inflation.
If every student in the professor's class got an A, as now seemed possible, then the grade of A would be devalued in the eyes of academia. This would be bad not only for the college, but also for all its students and alumni because the grades they received would forever be assessed at less than their earned value. This was especially true, the lobbyist argued, of the grades being garnered by his clients, the privileged few exempt students, who had after all already provided generously for the professor's research, which would surely, except for the ugly prospect of inflation, elevate the prestige of the college and therefore the real market value of the grades it issued.
What was required, the lobbyist went on, was to change the rules of the grade averaging scheme in order to forestall any inflationary impact and to thus protect the value of the grades that the exempt students were going to receive by virtue of their contributions to the betterment of the college. As a further inducement to making these rule changes, the lobbyist promised to double the professor's stipend and to provide him, in addition, with cogent and attractive arguments to justify changing the rules to the class and to anyone else who might question his motivation.
The lobbyist then laid out the following proposed revisions:
  1. Henceforth, the average letter grade awarded to the non-exempt students would be reduced by one half letter grade for each A grade received by the exempt students.
  2. The exempt students reserved the right to sell additional exemptions to other students on terms that would remain secret, and that these other students need not be actually enrolled in the professor's economics class.
The professor, quite naturally, took exception to this last provision. This rule, all by itself, he pointed out, could prove to be quite inflationary, especially when you considered that the exempt students were using unfair and dishonest tactics to get their A grades. If they were then in effect allowed to sell additional A grades to students not even enrolled in the class, all the grades surely would be de-valued.
The lobbyist pointed out that the market for exemptions would be self-regulating. The exempt students surely would not do anything to put their own achievements at risk. They would monitor their sales closely and change the terms and availability as they saw fit to prevent any erosion of their own value. Furthermore, the lobbyist said, even though his clients had no knowledge, either direct or indirect, of the dishonest practices to which the professor had alluded, they would themselves provide security for the examination answers in the professor's office to ensure that there were no shenanigans of the kind that might provide some students an unfair advantage. They would be happy to provide this security through their own efforts if only the professor would provide them a key to his office to facilitate the regulatory process. It was the least they could do, and it was surely in their own best interest to protect their investment in the system.
The study group students continued to work harder and harder after that to bring their average up. They succeeded in learning an awful lot about economics, but in the end they all failed the course. Every time the group made an improvement in their average grade, the exempt students would sell a few more exemptions. The new exempt students would get additional As for the exempt group, which would serve to further reduce the grades awarded to the study group students. The exempt students' security service was never able to determine who, if anybody, was stealing the professor's tests. After a while they declared that the security was unnecessary and disbanded the service.
The study group students never had a chance, no matter how hard they worked. Some of them were forced to leave school as a result of the grades they received. Some of them were never able to get into another school even though they were quite intelligent and capable.
Meanwhile the exempt students expanded their influence to other classes and other professors and, eventually, to other colleges as well. Today they are all regents at major universities. They still work diligently to preserve the system they created.

Remember, there IS a test coming up. The 2012 elections.

Remember, there IS a test coming up: the 2012 elections. Good luck figuring it out. A lot of people claim to have the answers, but they are either mistaken or lying through their teeth. Look to history for the truth. (I was trying to force myself to stop here, but I've grown too pedantic in my old age to just let it rest. I apologize for that. Doesn't mean I'm actually sorry. I just think it's the polite thing to do. If you're tired of these little tirades of mine, feel free to skip the next three paragraphs.) 

HERE IS WHAT I MEAN BY LOOKING TO HISTORY: in spite of what the GOP keeps telling us, we've already had over thirty years of continuously reducing the tax bite on the rich and continuously emasculating banking and other regulations that were put into place to protect average depositors and investors like you and me. If reducing taxes and regulations worked as advertised, we should have seen a concomitant increase in prosperity. We have not.

We have seen instead a volatile cycle of bubbles and busts and booms and bailouts. Today the rich are richer than they have ever been. They pay less taxes than they have in a long time. Corporations have more cash than they ever have. There is 60 to 80 Trillion dollars of money flowing in and out of totally unregulated markets. Every major bank in the country has either pleaded out or been adjudicated guilty of felonious activity, but no one has gone to jail. In spite of this huge, stinking pile of counter-indicating evidence the Republican candidates, to a man, think we need to further reduce taxes on the wealthy and ease regulations in order to stimulate the economy????

I for one am sick and tired of stimulating the 1% while their deaf, dumb, and blind minions keep telling me to get a job.

These are possibly the 5 best sentences you'll ever read and all applicable to this experiment: (I've modified them to reflect the rather more complicated reality that I outlined above.)
  1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity. Neither can you build a nation's prosperity on the backs of the middle class while you systematically strip them of their ability to better their situation. What you can do is legislate a level playing field that provides opportunities for everyone while denying those with means the ability to use their wealth to rig the game in their favor.
  2. What one person receives without working for, another person must work for without receiving. This is true enough, but it's important to remember that it cuts both ways. When the wealthy get breaks and opportunities and regulatory exemptions that enable them to increase their wealth and influence, they do so at the expense of those who have to work for their money.
  3. The government cannot give to anybody anything that the government does not first take from somebody else. Also true enough. Also cuts both ways. TARP and the AIG bailout, just to name two examples, came out of the taxpayers' pockets. Chances are pretty good that you paid taxes at a higher rate on your income than Mitt Romney did. In other words, the Wall Street bonuses were taken from you and given to the guys who almost tanked the system.
  4. You cannot multiply wealth by dividing it! This sounds logical, but it's just not true. When the Justice Department broke up AT&T, they divided a huge pocket of wealth. The resulting surge in competition resulted in a telecommunications boom of unprecedented scope. Not only was a lot of new wealth creation enabled, but, at the retail end, communications have become cheaper, better, and more sophisticated than ever before.
  5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation. Or...when 1% of the population gets the idea that they can commit fraud with impunity and take monumental risks with borrowed money, reap the profits if they guess right, and get the other 99% to absorb the losses if they guess wrong, and the 99% finds that no matter how hard they work or how carefully they invest they are continually losing ground, that is the beginning of the end of any nation.

By: Ed Will
and: Jonah Gibson 

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