On Choosing a College

A student asks me about how to choose a college:

Hi Dr. Mankiw,

I'm a high school senior from Montclair, NJ, an avid reader of your blog (and textbook), and generally, a big fan of economics. I'm right in the middle of the college application process, and I was wondering whether you might be able to speak to the importance of getting an undergraduate degree in economics from a school with a top-notch economics program. Does the prestige of the program really filter down into the undergraduate education? Obviously, it matters a great deal for PhD programs,but would I be missing out, for example, if I chose Yale or Amherst, schools with strong but not fantastic economics programs, over a place like Harvard, MIT or Chicago? I mean,from a strictly "undergraduate economics education" standpoint, all other factors aside.

Thank you so much for all the help--I really consider you one of my most important intellectual influences.

[name withheld]

Economics departments are ranked based mostly on their research output, and teaching quality is not very correlated with research. Indeed, it is not even clear to me whether the correlation across economists in teaching ability and research output is positive or negative. On the one hand, productive researchers are more talented overall than nonproductive researchers, and that talent spills over to other activities, including teaching. On the other hand, to the extent that professors are focused on research, that can take time away from teaching. So don't expect to get much better teaching at higher-ranked schools than lower-ranked one.

The most important choice a high-school senior faces when choosing where to be an undergrad is between research-oriented universities and teaching-oriented colleges. If you go to a place like Harvard or Princeton, you get a famous faculty. But the first priority of that faculty is their own research and writing, and they are more likely to shower attention on grad students than undergrads. If you go to a place like Amherst, Swarthmore, or Williams, you get a faculty whose first priority is undergraduate teaching. But you do not have a menu of graduate courses to sample from, and you do not have as vibrant a research atmosphere to experience.

Having attended a small high school, I enjoyed being at a relatively large research university (Princeton) as an undergraduate. Given the career path I followed, that was the right choice. For someone who wants to consider a research career, being at a top research school conveys significant benefits: You get to know more active researchers early on, and you can attend a large array of research seminars. But those opportunities are not relevant for 90 percent of students at these schools, who will not go on to become PhD econonerds but will instead become doctors, lawyers, corporate executives, and so on. For those students, the choice of research university over teaching college is a closer call. I would still vote for the larger places like Harvard and Princeton, because they offer a more diverse range of activities and courses, but I would not argue too vehemently against smaller, more student-friendly colleges.

Larry Summers in the Pigou Club

I ran into Larry Summers at a party recently, and he asked to be inducted into the Pigou Club.

Larry reminded me of an article of his in the November 30, 1987 issue of The New Republic, called "A Few Good Taxes," in which he wrote:

Raising gasoline taxes would encourage energy conservation....It would also force motorists to pay more of the congestion, maintainance, and accident costs they impose by driving.

Welcome to the Club, Larry. Your secret decoder ring is in the mail.

On a related matter, membership in our facebook chapter is now up to 369.

Philanthropy and the Rich

The Bank of America reports on charitable giving among high-wealth individuals.

When asked how their giving would respond to a repeal of the estate tax, 5.5 percent say it would decrease, and 29.5 percent say it would increase. (See Figure 21.) This result is inconsistent with the conventional wisdom (as expressed in this CBO study, for instance) that estate-tax repeal would discourage philanthropy.

Either the conventional wisdom is wrong, or it is a bad idea to ask people how they would respond to hypothetical situations, or maybe both.

PARIS - phillip toledano exhibition opening and 13th anniversary of emily the strange at colette, colette, 10/30/06

Face Hunter in the Tribune de Gen�ve (Switzerland), 10/31/06

Better than a Nobel

The Independent reports:

The Governor of the Bank of England, Mervyn King, has announced that a portrait of Adam Smith will feature on a redesigned �20 banknote, to come into circulation next year.

The news comes under this headline:

The Big Question: Who was Adam Smith, and does he deserve to be on our banknotes?

Thanks to rgemonitor for the image.

2006 = 1958?

Harvard historian Niall Ferguson says this year's politics looks a lot like the politics of 1958, when the Republicans lost 48 House seats during Dwight Eisenhower's second term:

The parallel is especially intriguing because it was a combination of security concerns and economic woes that did the damage then. There had been a severe recession in the winter of 1957-58. But it was foreign policy that was on many people's minds. The previous year, the Soviets had successfully launched their Sputnik satellite, causing consternation among Americans, who had assumed their country had a built-in technological advantage in both the Cold War and the space race. Civil war was raging in Cuba; Fidel Castro was just a few months from victory. And in July, a coup d'etat had overthrown King Faisal II of � guess where? � Iraq, the prelude to the Baathist takeover of power in that country in 1963. American troops had been dispatched to Lebanon in response.

Ring any bells?

What's more, as happened in 1958, the combination of foreign policy setbacks and economic disappointments could set the stage not merely for Democratic gains at the midterms but for a Democratic victory in the presidential election two years down the line. Intriguingly, there is already a John F. Kennedy figure on the scene who, he recently admitted, has "thought about the possibility" of a bid for the White House. Youthful, charismatic and the personification of the American dream, Barack Obama, the junior senator from Illinois, has been this autumn's media sensation, his face on every talk show, his name in every column, his book rivaling Woodward's in the charts.

You think the U.S. is not ready for a black president? Well, back in 1958 you'd probably have said the same about an Irish Catholic.

Motherhood and Labor Supply

A new CBO study reports:

having a first child younger than one year old reduces female employment by 26.3 percentage points.

The study appears to do a good job of identifying exogenous fertility differences by comparing women who tried to conceive and succeeded with those who tried to conceive and failed.

A Freak Success

David Warsh tries to figure out why so many people are reading Steve Levitt.

Good Teachers

New research by Florian Hoffmann and Philip Oreopoulos (free link) tells us how to judge teaching ability:

subjective teacher evaluations perform well in reflecting an instructor's influence on students while objective characteristics such as rank and salary do not. Whether an instructor teaches full-time or part-time, does research, has tenure, or is highly paid has no influence on a college student's grade, likelihood of dropping a course or taking more subsequent courses in the same subject. However, replacing one instructor with another ranked one standard deviation higher in perceived effectiveness increases average grades by 0.5 percentage points, decreases the likelihood of dropping a class by 1.3 percentage points and increases in the number of same-subject courses taken in second and third year by about 4 percent.

If universities like Harvard take this research seriously when making promotion decisions, they will give less weight to research and more to student evaluations than they have historically.

Face Hunter in Edelweiss (Switzerland) November 06

The membership drive continues

The Princeton Alumni Weekly reports that George Schultz and Tony Lake have joined the Pigou Club:

While the initiative � which was co-chaired by former secretary of state George Shultz �42 and former national Security Adviser Anthony Lake � is explicitly bipartisan, it challenges many aspects of the Bush administration�s national security approach....To promote energy independence, they call for a national gas tax that would start at 50 cents per gallon and increase by 20 cents each year for the next 10 years.

Here is the full report.

Today's Washington Post reports that economist Nicholas Stern is likely to join as well, but for somewhat different reasons:

Unchecked global warming will devastate the world economy on the scale of the world wars and the Great Depression, a major British report said Monday....

The author of the British report, Sir Nicholas Stern, a senior government economist, said that acting now to cut greenhouse gas emissions would cost about 1 percent of global GDP each year.

"The evidence shows that ignoring climate change will eventually damage economic growth," said Stern's 700-page report, an effort to quantify the economic cost of climate change.

Here is the Stern report.

Meanwhile, I am pleased to note that the Club's facebook chapter has jumped in membership from 73 yesterday to 219 today. We are still taking new members.

Government is too big, says the public

CNN reports:

Queried about their views on the role of government, 54 percent of the 1,013 adults polled said they thought it was trying to do too many things that should be left to individuals and businesses. Only 37 percent said they thought the government should do more to solve the country's problems.

And that's why Speaker Pelosi's first priority will be to shrink the size and scope of government.

Thanks to Arnold Kling for the pointer.

Larry Summers, Columnist

Larry Summers has published his first piece as a columnist for the Financial Times.

How to join the Pigou Club

Kevin Burke, a student at the University of Pennsylvania, has opened a facebook arm of the Pigou Club. The group now has 73 members. Anyone registered in facebook is free to join.

One member posted a link to the above graphic from Foreign Policy. For previous Pigou Club posts, click here and here.

PARIS - eyes wide shut party, secret location, 10/28/06

Women are catching up

The graph is from today's NY Times.

It's odd how the progress stalled from 1993 to 2001. The Clinton folk, who are usually eager to take credit for the economic developments of this period, will probably take a pass on this one.

Landes on Family Businesses

Today's NY Times reviews the new book by Harvard economic historian David Landes, titled Dynasties: Fortunes and Misfortunes of the World�s Great Family Businesses. A tidbit from the review:

Landes also wants to make a larger point, which is that the business-school mythos of the �professional manager� has led to a persistent underestimation of the importance of family firms. Fully a third of Fortune 500 companies can properly be characterized as family businesses, and on average they outperform the �professionally managed� firm by a surprisingly large margin.

I wonder how this affects David's view of the estate tax.

So what else is new?

The Washington Post reports:

GAO Chief Warns Economic Disaster Looms

Click here for the solution.

PARIS - le bal jaune (ricard), centre georges pompidou, 10/27/06

My Politics

A comment on a previous post asks me whether I am a libertarian. I am, according to the world's smallest political quiz. See the red dot above--that's me.

Romer on Prop 87

Paul Romer has a nice ec10-level discussion of California's Prop 87.

Crook on Libertarians

Clive Crook explains why libertarians are lonely:

Today's main political battle is between those who want to run the economy from Washington and those who want to dictate the country's morals from Washington. (George Bush's Republican Party apparently wants to do both.) And we libertarians should not delude ourselves: If this is true, it is not because politics is letting people down but because most Americans feel comfortable in one or the other of those camps.

Crook is right that we get the kind of government we want. If libertarians want to win the battle of Washington, rather than simply airing their ideas to one another at Ayn Rand conventions, they have to make their point of view more palatable to the median voter. A politically successful libertarianism would have to be moderate and pragmatic.

PARIS - slick opening, la bellevilloise, 10/26/06

Making Life More Fair

Reported by ScrappleFace:

Dem Bill Would Force Obama to Share Charisma

Sen. Barack Obama, the presumptive 2008 Democrat presidential nominee, came under attack today from his own party when Democrats in the Senate introduced a bill that would force him to share his abundant charisma with his colleagues.

�Democrats never like to see an uneven distribution of the good things of life,� said one senate aide who helped to write the legislation. � Sen. Obama has more than his fair share of charisma, while so many senate Democrats go without. It�s not right for so much charm and personality to be in the hands of so few.�

Under the terms of the measure, Sen. Obama�s charisma would be redistributed �to each Democrat senator according to his need.�

Reminds me of the classic Kurt Vonnegut story Harrison Bergeron.

The Return to Human Capital

Today's Washington Post reports:

How much is a bachelor's degree worth? About $23,000 a year, the government said in a report released Thursday.

That is the average gap in earnings between adults with bachelor's degrees and those with high school diplomas, according to data from the Census Bureau. College graduates made an average of $51,554 in 2004, the most recent figures available, compared with $28,645 for adults with a high school diploma....

The income gap narrowed slightly from five years earlier, when college graduates made nearly twice as much as high school graduates.

The last sentence caught my eye. It appears that the return to human capital, which increased so much over the past three decades, is now leveling off.

Alternatives to the Pigou Club

Today�s Wall Street Journal prints various letters in response to my oped on gas taxes. Rather than responding to to the specific points, or to all the comments posted on this blog, let me try to spell out more generally the alternatives from which we must choose.

Members of the Pigou Club favor higher Pigovian taxes in order to remedy externalities such as pollution and congestion while raising government revenue. If you aren�t a member of the Pigou Club, you most likely fit into one of these four categories.

1. You deny the existence of these externalities as a type of market failure. Perhaps you think you live in a Coasian fantasy world where people bargain without transaction costs to reach efficient allocations. (Note: I am not suggesting that Coase himself thought we lived in such a world�he considered it only a useful thought experiment.)

2. You recognize the externalities but you don�t think the government should try to respond to them. You are such a believer in small government that you are willing to live with inferior economic outcomes, such as pollution and congestion.

3. You recognize the externalities, think the government should try to correct them, but think the current low taxes we put on gasoline are sufficient. In this case, you have weighed and rejected the evidence, such as that of Parry and Small, that higher Pigovian would be optimal. (Parry and Small calculate an optimal tax of $1.01 for the United States in today's dollars. After my proposed phase-in of a $1 hike, the U.S. tax would be $1.40. Assuming 10 years of 3 percent inflation, the tax in real terms would approach almost exactly what Parry and Small recommend. By the way, the published version of Parry and Small was in the American Economic Review, September 2005.)

4. You recognize the externalities but think the government should try to correct the market failure through regulations (such as CAFE standards) or through market-based solutions that do not raise government revenue (such as cap-and-trade systems). Perhaps you are concerned that government would waste the extra revenue on useless government programs.

Let me respond to group 4, because my guess is that this is the largest group of antipigovians.

The reason I am less concerned that the extra revenue will be spent is that it already has been spent. The federal government has promised benefits to the elderly far in excess of what it can pay. At some point the nation will have to reckon with the looming fiscal gap. The most likely political compromise will involve higher tax revenue. We should, therefore, be ready to increase revenue in a way that does the least damage�or, better yet, the most good. If not Pigovian taxes, then other taxes will be increased.

An optimistic libertarian might hope that we can deal with the looming fiscal gap without raising the ratio of taxes to GDP above its current level. I wish I could believe that this were possible. In a previous oped, I advocated increasing, slowly but substantially, the age of eligibility for Social Security and Medicare. But even if we could scale back government spending in such a radical way, Pigovian taxes would not lose their appeal. Let�s use the extra revenue from Pigovian taxes to reduce distortionary taxes, such as income taxes. Politically unrealistic, you say? Surely, if a future government were so libertarian as to manage a radical reduction in entitlement promises to the elderly, it would have no trouble delivering equally radical cuts in income taxes. In fact, the tax cuts would be the easy part of the package.

Update: Some comments suggested new categories of nonpigovians, and some suggested the categories I described were strawmen. To be clear, my goal was to categorize, as logically as possible, the various points of view. Let me try to put the issue in terms of a flow chart.

Question: Do you believe consumption of gasoline is free of negative externalities leading to market inefficiency?

If YES, you are part of group 1.
If NO, continue.

Question: Do you believe that public policy should ignore these externalities?

If YES, you are part of group 2.
If NO, continue.

Question: Do you believe the current tax on gasoline sufficiently internalizes the negative externalities?

If YES, you are part of group 3.
If NO, continue.

Question: Do you believe the best remedy for the remaining externalities is a regulatory system rather than a higher tax?

If YES, you are part of group 4.
If NO, you are a member of the Pigou Club.

PARIS - galerie emmanuel perrotin and le baron party (with gonzales, feist and jamie lidell), showcase, 10/25/06

PARIS - fiac (the international fair for contemporary art) opening, grand palais, 10/25/06

Rich vs Very Rich

Matt Miller has a hypothesis that might explain why so many professors I know are miffed about widening income inequality:

Here's my outlandish theory: that economic resentment at the bottom of the top 1 percent of America's income distribution is the new wild card in public life....

Lower uppers are professionals who by dint of schooling, hard work and luck are living better than 99 percent of the humans who have ever walked the planet. They're also people who can't help but notice how many folks with credentials like theirs are living in Gatsby-esque splendor they'll never enjoy.

This stings. If people no smarter or better than you are making ten or 50 or 100 million dollars in a single year while you're working yourself ragged to earn a million or two - or, God forbid, $400,000 - then something must be wrong.

Libel from Harvey Mansfield

A reader emails me:

Harvey Mansfield, your Harvard colleague in Poli Sci, wrote the following paragraph in a recent piece for the New Criterion:

"In the brand new building where I work, the lights go on and off, the shades go up and down, and the toilets flush, automatically, without your having to turn a switch or push a handle. Rational control has replaced individual virtue, which is subject to vagaries and may not be active or awake. The building where I used to work was shared with economists, who, living the sort of life they describe, had no incentive to flush and sometimes failed to do so."

Looks like another "ouch" for your blog.

As a long-time resident of Littauer, the building to which Harvey alludes, I can attest that this is not a problem.

This is my last scatological post for a while. I promise.

The UN Security Council

There is a current ongoing battle over who gets a seat at the UN Security Council. Here is some related economic research from Harvard's Ilyana Kuziemko and Eric Werker:

How Much Is a Seat on the Security Council Worth? Foreign Aid and Bribery at the United Nations

Ten of the fifteen seats on the U.N. Security Council are held by rotating members serving two-year terms. We find that a country�s U.S. aid increases by 59 percent and its U.N. aid by 8 percent when it rotates onto the council. This effect increases during years in which key diplomatic events take place (when members� votes should be especially valuable) and the timing of the effect closely tracks a country�s election to, and exit from, the council. Finally, the U.N. results appear to be driven by UNICEF, an organization over which the United States has historically exerted great control.

Ouch!

What chemists think of economists

Stephen Colbert interviews 2003 Nobel Laureate in chemistry Peter Agre:

Colbert: "You said 'anyone who grew up on a farm knows that evolution exists'. Ok, are you saying a monkey can milk a cow?"

Agre: "Well, if I can milk a cow I suspect a monkey as smart as I am can milk a cow."

Colbert: "Are there monkeys as smart as you?"

Agre: "I'm sure there are quite a few, quite a few.

Colbert: "Oh really? mmhum. Do they give a Nobel prize for thowing your own faeces?"

Agre: "........That's the Economics prize, I think."

From Steve Sailer.

PARIS - show off opening, espace pierre cardin, 10/24/06