Going back to the early childhood education, the Odd Lots podcast recently featured a manager of Montessori schools. He was a bit more optimistic on productivity improvements thanks to innovation. He gave a few examples: being more efficient with “floaters” (extra employees needed to cover emergencies), using off-the-shelf tools to start a new daycare (right now it appears it’s very custom), and have larger class sizes by following a Montessori philosophy.
Thanks for sharing. I think there is quite a bit of merit in rethinking this area as a whole. The last thing we want to do is "lock in" the status quo.
I heard about it before. It was implemented in USA but it never took off because people who were likely good candidates preferred student loans. Has it been implemented at scale? Other than what the government kind of does now by it subsidies college to get higher income taxes? For a scheme like this to work I'd imagine you would need explicit government support since only the government has the ability to collect income data accurately at scale.
Students with no credit history or assets are risky to lend money to. Banks certainly don't want to extent loans to students for tuition, so the govt subsidizes those loans and guarantees them to encourage lending. When this started, economist Milton Friedman foresaw the problem that this would create.
Universities and banks win no matter what. There is no incentive for banks to assess risk, no incentive for universities to provide affordable, quality schooling, all of the risk falls onto the students. We see this today with universities becoming incredibly bloated bureaucracies and being horribly wasteful with tuition dollars.
Friedman suggests that ISA would be better. Instead of loans, sponsors would pay students' tuition in exchange for a percent of their income after they graduate. The sponsor would funnel students toward cost-effective programs and help them gain employment. The risk is on the sponsor not the student, but because it's not a loan, (its equity), the risk can be spread out among investors.
This has been tried in the US, but doesn't work, primarily because the student loan system still exists. There is an adverse selection problem; students who know they are likely not going to be able to pay the loan went for the ISA (because with no income, they didn't have to pay anything, causing the sponsors to lose money. The ISA system cannot work until the government stops subsidizing student loans.
Since they own equity in you does that mean you have a fiduciary duty to them? Can they sue you in getting into a high income profession? Don't you think it will also be somewhat "regressive" people from low income backgrounds will need to give out higher equity?
I think that will all have to be developed. The key is that ISAs, while regulated, would not be a one-size-fits-all proposition, like student loans are. ISAs would probably come in different flavors, terms and conditions.
JK, if you're curious, this opinion post discusses the collapsing productivity of the NHS in the UK. Since 2019, the NHS employs about 20% more medical staff, but the number of medical procedures is basically flat.
Great resource and thank you for sharing. I think it all comes back to the concept that there is no free lunch in economics. Somethings gotta give sometimes.
Very good and illuminating write-up on Baumol's cost disease. I find it such a fascinating phenomenon.
Covered it briefly in an old edition of my newsletter, where I said:
"It's not fundamentally about them being public institutions vs private, or that government bureaucracy is inefficient. But rather that wage increases are not offset by productivity gains in those industries. In addition, the spending habits of very rich people also drive costs up even more, especially for things like art and special services, high-end education, and so on (since they increase the demand of a limited resource)."
But I agree with you that government bueracracy, regulations etc tends to exacerbate the problem rather than make it better.
The expansion is useful because there may be policy "solutions." The pure string quartet problem is in a way not a "problem" at all. In the 18th Century few people could afford to experience a string quartet. Today many more can.
Going back to the early childhood education, the Odd Lots podcast recently featured a manager of Montessori schools. He was a bit more optimistic on productivity improvements thanks to innovation. He gave a few examples: being more efficient with “floaters” (extra employees needed to cover emergencies), using off-the-shelf tools to start a new daycare (right now it appears it’s very custom), and have larger class sizes by following a Montessori philosophy.
https://overcast.fm/+5AWME3OgM
Thanks for sharing. I think there is quite a bit of merit in rethinking this area as a whole. The last thing we want to do is "lock in" the status quo.
Can you do a separate post on the equity model for funding education?
Are you referring to the use of ISAs for higher education?
I heard about it before. It was implemented in USA but it never took off because people who were likely good candidates preferred student loans. Has it been implemented at scale? Other than what the government kind of does now by it subsidies college to get higher income taxes? For a scheme like this to work I'd imagine you would need explicit government support since only the government has the ability to collect income data accurately at scale.
I have you covered! https://www.lianeon.org/p/infographic-a-better-way-to-pay-for
Students with no credit history or assets are risky to lend money to. Banks certainly don't want to extent loans to students for tuition, so the govt subsidizes those loans and guarantees them to encourage lending. When this started, economist Milton Friedman foresaw the problem that this would create.
Universities and banks win no matter what. There is no incentive for banks to assess risk, no incentive for universities to provide affordable, quality schooling, all of the risk falls onto the students. We see this today with universities becoming incredibly bloated bureaucracies and being horribly wasteful with tuition dollars.
Friedman suggests that ISA would be better. Instead of loans, sponsors would pay students' tuition in exchange for a percent of their income after they graduate. The sponsor would funnel students toward cost-effective programs and help them gain employment. The risk is on the sponsor not the student, but because it's not a loan, (its equity), the risk can be spread out among investors.
This has been tried in the US, but doesn't work, primarily because the student loan system still exists. There is an adverse selection problem; students who know they are likely not going to be able to pay the loan went for the ISA (because with no income, they didn't have to pay anything, causing the sponsors to lose money. The ISA system cannot work until the government stops subsidizing student loans.
Since they own equity in you does that mean you have a fiduciary duty to them? Can they sue you in getting into a high income profession? Don't you think it will also be somewhat "regressive" people from low income backgrounds will need to give out higher equity?
I think that will all have to be developed. The key is that ISAs, while regulated, would not be a one-size-fits-all proposition, like student loans are. ISAs would probably come in different flavors, terms and conditions.
What do you think of the income bases repayments schemes that are popular in Australia and UK?
JK, if you're curious, this opinion post discusses the collapsing productivity of the NHS in the UK. Since 2019, the NHS employs about 20% more medical staff, but the number of medical procedures is basically flat.
https://drmalcolmkendrick.org/2023/11/27/what-is-wrong-with-the-nhs-part-3/
Great resource and thank you for sharing. I think it all comes back to the concept that there is no free lunch in economics. Somethings gotta give sometimes.
Systems tend to complexity - until they collapse under their own weight...
Very good and illuminating write-up on Baumol's cost disease. I find it such a fascinating phenomenon.
Covered it briefly in an old edition of my newsletter, where I said:
"It's not fundamentally about them being public institutions vs private, or that government bureaucracy is inefficient. But rather that wage increases are not offset by productivity gains in those industries. In addition, the spending habits of very rich people also drive costs up even more, especially for things like art and special services, high-end education, and so on (since they increase the demand of a limited resource)."
But I agree with you that government bueracracy, regulations etc tends to exacerbate the problem rather than make it better.
Well said. The last thing we need is to lock in an unproductive system and keeping dumping more money into it.
The expansion is useful because there may be policy "solutions." The pure string quartet problem is in a way not a "problem" at all. In the 18th Century few people could afford to experience a string quartet. Today many more can.