Competing Views of Education

Tom Friedman:

My fellow Americans, we can’t continue in this mode of “Dumb as we wanna be.” We’ve indulged ourselves for too long with tax cuts that we can’t afford, bailouts of auto companies that have become giant wealth-destruction machines, energy prices that do not encourage investment in 21st-century renewable power systems or efficient cars, public schools with no national standards to prevent illiterates from graduating and immigration policies that have our colleges educating the world’s best scientists and engineers and then, when these foreigners graduate, instead of stapling green cards to their diplomas, we order them to go home and start companies to compete against ours.

To top it off, we’ve fallen into a trend of diverting and rewarding the best of our collective I.Q. to people doing financial engineering rather than real engineering. These rocket scientists and engineers were designing complex financial instruments to make money out of money — rather than designing cars, phones, computers, teaching tools, Internet programs and medical equipment that could improve the lives and productivity of millions.

Tom Barnett:

1) obsessing over PhD stats is useless, because “even if China spends a fortune to train more scientists, it cannot prevent America from capitalizing on their inventions with better business models.”

2) the commercialization, diffusion and use of inventions is more valuable to companies and economies than the original act of invention (hmm, I believe we call that the “Microsoft effect”), so more MBAs than PhDs

I prefer T.F. to T.B. here, though as I am a PhD student married to an engineer, I may be biased!

Razib’s take was written before the Toms’, but I think it a good coda here:

First, scientifically trained people are very common in quantitative finance. Second, history would probably have helped us see what was going to go down; the idea that property values were always going to go up was the latest tulip mania, though the idea was buttressed by “rigorous models.”

The way scientists can help the economy is simple: keep doing science & engineering and increase economic productivity through the generation of new techniques and technologies. That’s the real engine of growth & wealth. I think we’ve really hit the era of diminishing marginal returns when it comes to increasing efficiency through more intelligent capital allocation. Perhaps the lost luster of hedge funds and the financial sector more generally will mean that those trained in the mathematical sciences will remain in those fields. The argument in Knowledge and Wealth of Nations the modern affluence is the product of spillover effects from technological innovation should make it clear what the most optimal allocation of cognitive power is, at least when it comes to aggregate social utility.

So should our education system concentrate on a ‘next generation’ of scientists and engineers, lawyers and MBAs, critical theorists and community activists, or something else?

Did Geographic Ignorance Accelerate Detroit’s Decline?

Obviously, geography matters. A recent post on Catholicgauze, and also at gnxp and Strange Maps, shows how the geographic borders of Imperial Russia and Imperial Germany still predict election outcomes in Poland, nearly a century later:


Yet incredibly, at least one form of geographical analysis actually illegal in the United States. “Redlining,” for instance, is an application of discriminant function analysis or logistic regression (or a pen-and-paper approximation of this) whereby information on geographical location is used to calculate a set of categorical dependent variables, one of which is “Do Not Offer Mortgage.” In a previous career Barack Obama scored political points by suing those who use geographic indicators of credit-worthiness.

The city of Detroit is in terminal decline, and conversation swirls around simply abandoning the city or turning it into a woodland. Certainly Detroit is on track to be Houghton, Michigan of our lifetimes (if you’ve never heard of Houghton, you will understand the reaction of those in a century who are confused when some town is compared to ‘Detroit.’) Yet the tragedy is compounded by the fact that laws designed to prevent the use of geography probably put Detroit in its current death spiral.

The Detroit News special series on the death of a city, block by block sheds some light on how geographic knowledge could have been used to stave off the decline of Detroit. As it is, it is a tragedy for both geographers and the citizens of Detroit that political ignorance of the study of how place matters helped destroy an American city.

Boris Yeltsin was the Deng Xiaoping of Russia

Russia has lost her “Deng Xiaoping.” She lost her chance at a “Jiang Zemin.” Instead, she got Putin.

No Jiang Zemin for Russia
No Jiang Zemin for Russia

Boris Yeltsin was China’s Deng Xiaoping. Like Deng, he introduced dramatic free-market reforms that opened up investment with the west. Yeltsin, like Deng, initailly worked but eventually eclipsed the party-line communists of a previous era (Liu Shaoqi and Mikheil Gorbechev). Yeltsin, like Deng, cleverly managed political reforms, at some times leaning towards democracy (to put pressure on unpopular political opponents) and at other times leaning towards authoritarianism (to prevent radicals from changing course).

Unfortunately for Russia, Yeltsin proved as physically frail as Deng was physically dynamic. Yeltsin’s alcoholism (an inherited condition) and a back injury (an environmental one) compounded each other, and led to a shift in political power a generation early. In China, Deng realized that change was a generational affair, and so an entire generation of successors was bypassed (such as Hu Yaobang) until a new one that had politically matured under the reform period was ready to assume power (such as Jiang Zemin). In Russia, by contrast, Yeltsin was too physically weak to hold on, and Russia got Putin instead.

It has been clear for years that Putin is dismantling Yeltsin’s diplomatic legacy. The Moscow Times has a good piece on how Putin is dismantling Yeltsin’s economic legacy, too:

Russia’s nationalistic energy policy after 2003 has stalled the development of major new energy investments (apart from the Sakhalin projects, which date back to the Boris Yeltsin era). Gazprom and Rosneft have financed themselves with foreign debt rather than with equity capital, accounting for almost one-fifth of Russia’s corporate foreign debt of $490 billion. Gazprom’s aggressive pricing and delivery disruptions have scared away customers, reducing the demand for its gas.

Huge public funds are being diverted to state corporations, which either hoard the money or siphon it off. In their new book “Putin and Gazprom,” Boris Nemtsov and Vladimir Milov have offered a staggering and credible account of how Putin and his friends pilfered assets of $80 billion from Gazprom during his second term as president. Investors have taken notice, slashing Gazprom’s market capitalization from $350 billion last spring to $70 billion at its nadir. Although Russia is the 46th-richest country in the world in per capita terms, it is ranked 147 out of 180 countries on Transparency International’s corruption perception index for 2008. Only Equatorial Guinea is both richer and more corrupt than Russia.

Under Putin, transparency has systematically been reduced, and we no longer dare to trust the government’s public statements on its currency reserves. Officially, they have declined by $163 billion, or 28 percent, from $598 billion in early August to $435 billion in early December. But when Vneshekonombank was given $50 billion of state reserves to help Russian oligarchs with refinancing, nothing was deducted from the official reserves as it should have been. In an article on on Oct. 24, Alexei Mikhailov plausibly claimed that another $100 billion or $110 billion of “other reserves” had been transferred to the banking system and were nothing but rubles. To my knowledge, no official denial has been issued. If that were correct, the reserves have fallen by more than half to less than $300 billion, but the government sheds no light on this.

Russia’s largest corporations have turned out to be much more leveraged than anybody had thought. The government has made clear that it will refinance their foreign loans to secure “strategic” ownership. So far, $13 billion has been paid, out of which United Company RusAl has received $4.5 billion and Altima $2 billion, but such private pledges are huge. Vneshekonombank has $37 billion left to spend, but it has already asked for $30 billion more from the government, and more is likely. Thus, Russia can swiftly lose more than $100 billion of reserves.

Instead, Vladimir Putin
Instead, Vladimir Putin

Putin has persistently denied that anything is wrong with the country’s economic policy, while everything but its fiscal policy has been wrong. Domestic and foreign businesspeople realize that he does not talk about reality, which undermines confidence in the Russian market. Without free public debate, rational policy decisions are unlikely.

Incredibly, the government is repeating its mistake from 1998 to maintain a pegged exchange rate in the face of falling commodity prices. Until this summer, this policy provoked speculative capital inflows that boosted the money supply excessively and propelled inflation to 15 percent. Now, the pegged exchange rate, which is probably overvalued by up to 25 percent, promotes speculative capital outflows, quickly reducing the currency reserves. Devaluations in very small steps only convince the market that a major depreciation is inevitable. The coming combination of loose fiscal policy, negative real interest rates, current and capital account deficits and an overvalued ruble is unsustainable. The incentives for capital flight are overwhelming.

The global economic crisis is testing Putin’s system. He has undermined the ground under the house Yeltsin built, transforming the country into a house of cards ready to tumble. He has wasted the oil wealth rather than investing it in infrastructure, health care, education and law enforcement reform. Russia needs fundamental change; above all, it needs to uproot — or at the very least contain — the country’s pervasive corruption, which has gotten markedly worse under Putin. Nothing would serve the country better than the retirement of the failed prime minister, but that is evidently not in the cards.

When Boris Yeltsin gave way to Vladimir Putin, Russia lost her chance to continue opening up to the world. Instead, she faded into the gap of the global economy, and is once again a country that produces nothing war, death, and vodka.