Khan Academy’s Free SAT Classes Show How Online Education Could Be Awesome
Last week’s big news about the new SAT redesign included a very important footnote: In the name of fairness to students who can’t afford $999 Princeton Review classes, the College Board now plans to partner with online learning platform Khan Academy to offer free test-prep materials for the exam.
Better yet, they might be really good test prep materials. As Time reports:
Khan Academy is one of the most respected online education platforms in the country, and it will enjoy exclusive early access to the new SAT, something that’s never been done before in the history of the College Board, which makes the test. That edge will make it harder for other companies to sell families an advantage through months of elite—and expensive—prep classes or tutoring.
Research has shown that students who take SAT review classes only improve their scores by small margins. But that’s sort of besides the point here. Test prep is a billion-dollar industry, and presumably some families are stretching themselves financially to pay for courses that may or may not offer much value, out of a vague sense that to do otherwise would shortchange their children. Any quality, low-cost alternative to the Princeton Review or Kaplan (which is owned by Slate’s parent company, Graham Holdings), would be progress.
Which is a reminder of why we should still be excited about the possibilities of free online education, even though in recent years, the most breathless claims we’ve heard about it has turned out to be just hype. The Internet is not going to replace the traditional college experience (not in the near or medium-term future, anyway). But certain, secondary elements of higher education are gradually being digitized for profit. If you talk to executives at textbook companies such as McGraw-Hill or Pearson, they’ll tell you they believe the future of their business lies in selling advanced tools to professors—for example, Web-based texts that help students review and retain key concepts from their reading or math tutorial programs by making real-time adjustments to a student’s level of mastery. Already, they’re generating a large chunk of their revenues from these kinds of products, which, unlike textbooks, students can’t buy used.
It may be too early to tell whether or not these sorts of resources are truly an upgrade over traditional learning resources like ye olde ink-and-paper textbooks. But they’re being created—and being purchased—by faculty who seem to see value in them. So long as that’s the case, we’re better off with nonprofits like Khan Academy or edX out there engineering affordable versions of these courses and technologies.
Google's Eric Schmidt Has Ideas About How to Solve Income Inequality
Eric Schmidt, the inexplicably well-compensated chairman of Google, stopped over at South by Southwest today, where he decided to share some ideas about how the country should grapple with income inequality. His comments—which he made in conversation with Google Ideas director Jared Cohen and Wired’s Steven Levy—didn’t quite have the plutocratic verve of a Tom Perkins interview. But they did nicely encapsulate a more subtly corrosive outlook common among wealthy, vaguely liberal-minded Americans.
Things started off well enough. As The Verge reports, Schmidt explained that he was “very, very worried” about the conflicts over techie-fueled gentrification that have been rocking the Bay Area. San Francisco’s problems, he said, were a manifestation of a problem across the developed world by which technology is replacing traditional jobs, enriching the few while leaving behind the many. "Ninety-nine percent of people have seen no economic improvement over the last decade," he said.
Ten points for empathy. But then…
The solution to this displacement, according to Schmidt, is to foster conditions that encourage the creation of fast-growing startups that generate lots of jobs, or "gazelles." Those conditions include better education, looser immigration laws, and deregulation in strictly-controlled areas like energy and telecommunications.
When Levy noted that fast-growing "gazelles" seem to lead to more inequality, at least in the case of the 50-employee WhatsApp which was acquired by Facebook for a reported $19 billion, Schmidt brushed aside the apparent contradiction. "Let us celebrate capitalism," he said, opening his arms. "$19 billion for 50 people? Good for them."
Oy. There’s a lot to wade through here. “Let us celebrate capitalism” is a gold-medal-worthy feat of dismissive hand-waving. And the bit about gazelles isn’t ridiculous so much as facile: Gazelle is a term of art some economists and think tanks use to describe the fast-growing young companies that provide a disproportionate fraction of all new jobs each year. Some are the kinds of startups that we associate with Silicon Valley. Some are good old-fashioned industrial companies, or retail chains. He just wants to make it easier to start a new business. Great. Join the club.
The problem is that in the end, Schmidt’s solution to the hardships inherent in globalized capitalism is … more capitalism. He senses a problem and conveniently lands on a solution that doesn’t involve any personal sacrifice on his part, or the part of other well-educated, well-paid folks he might run into on the thought-leader circuit. Which is pretty much why nobody learns much at those events, anyway.
Good News: Unemployment Is Up!
Every so often, the economy reaches a point where bad news in the jobs report becomes good news. Right now, we’re at one of those moments. The U.S. added a solid 175,000 jobs in February, despite the nasty spate of winter weather that some thought would put more of a damper on hiring. But the real relief may be that in spite of that growth, the unemployment rate actually ticked up slightly, to 6.7 percent.
Why celebrate a rising jobless rate? Because it gives the Federal Reserve an excuse to lean back and let the economy keep gathering steam without worrying too much about inflation. Back in 2012, the Fed promised not to raise interest rates from zero at least until the jobless rate hit 6.5 percent. We’ve gotten close to that magic number, even though very few people are really feeling great about the state of the jobs landscape.
Well, few regular people. Recently, some economists and writers have started to suggest that the labor market really is getting “tighter,” meaning demand for workers is going up along with wages—which could mean inflation down the line. How can it be so “tight,” if unemployment is still so much higher than we’ve been used to over recent decades? There are really two kinds of unemployment—short-term and long-term. And, as the Federal Reserve Bank of New York has shown, short-term unemployment is approaching normal levels.
It’s the short-term unemployment rate, the Fed’s researchers suggest, that might predict wages, and therefore inflation. Implicit here is the idea that the long-term unemployed aren’t really part of the labor market at all. They are, for all intents and purposes, the permanently jobless.
You can have a long debate about whether that’s true. It might be the case that if the job market gets hot enough, employers will get over their horrible aversion to hiring people who’ve been out of work for a while to keep from paying higher wages. In that case, inflation wouldn’t be as great a concern.
Or one could just argue that we should be willing to tolerate a little bit of inflation in the future for the sake of creating jobs.
But whoever is right, as the unemployment rate falls, pressure is going to build on the Fed to raise interest rates. So in the best of all possible worlds, the economy might keep producing more jobs for the near future, with enough Americans coming back into the labor force to keep unemployment up and our monetary policymakers at bay.
The Matt Yglesias All-Time Slate Top 10
Today is my last day at Slate. I'm excited about the next step in my career but also sad to leave a great team and a great magazine behind.
Most of all, I'm grateful for the opportunity I've had here. I'm enormously indebted to the editors who gave me a shot here; to the copy editors I've tortured with typos; to David Weigel; to Jessica Winter, who edits Moneybox and leads business and technology coverage; and to Emma Roller, who's off to an exciting new job of her own. And of course I'm indebted to Slate's readers—an amazing and growing community whom it's been a pleasure to hear from on a regular basis.
Moneybox is a great legacy. When I started here I was really honored to step into shoes formerly occupied by Dan Gross and Bethany McLean and my good friend Annie Lowrey, and I know that Jordan Weissmann is going to do a great job with it when he takes over on Monday.*
When Gross stepped down, for his final column he promised that he wouldn't "bore you with a list of greatest hits." My last column is about why burritos matter, so for a valedictory blog post I in fact will bore you with a list of greatest hits. Not just because I'm an attention-starved egomaniac, but because I think Omniture's accounting of my most popular columns is an interesting illustration of the wide diversity of content that does well on the modern Web:
- What Does the Fiscal Cliff Mean for You? Unless you're retired and poor, something bad.
- An Ikea Television? Why Not? Ikea’s clever plan to sell you a piece of furniture with a TV attached to it, and how it might upend the TV manufacturing industry.
- Why Should We Stop Online Piracy? A little copyright infringement is good for the economy and society.
- Chipotle is Apple. The burrito chain is revolutionizing food: Why doesn’t it get more respect?
- A Truly Depressing Visit to J.C. Penney: Penney CEO—and former Apple retail czar—Ron Johnson thought he could reinvent the department store. Instead he’s destroying it.
- There Will Be No Bacon Shortage: How a British trade association press release sent the Internet into a senseless panic.
- Against Food Drives: Charities need your money not your random old food.
- I Boldly Went Where Every Star Trek Movie and TV Show Has Gone Before: Now I can tell you exactly why this franchise is great.
- Taco Bell’s Sophisticated Side: The new Cantina Bell menu shows the influence of Chipotle on the industry and the real future of American food.
- Why Are Teen Moms Poor? Surprising new research shows it’s not because they have babies. They have babies because they’re poor.
I think you clearly see Annalee Newitz's "Valley of Ambiguity" at work here but beyond that, it's heartening to know that there isn't some one subject that people will read about. An NBER working paper about the geography-specific statistical correlates of teen motherhood is not obvious clickbait. But it's important research on an important question and it's important for journalists to figure out how to make that stuff compelling to people. I'm sorry to say that I never managed to make the Federal Reserve a hit subject, but it's interesting to see that smuggling a little monetary economics through the back door as a post about Game of Thrones worked pretty well and did much better than the average blog post.
*Correction, Feb. 28, 2014: In true Yglesian fashion, this post originally misspelled the last name of future Slate columnist Jordan Weissmann and the name of the restaurant Chipotle.
Efficient-Markets Hypothesis Says America Is Poised for Better Tacos
Some friends and I were lamenting the sorry state of the D.C. area's taco offerings, and I observed that if Taco Cabana were to expand to the area, it would crush the competition. Not because Taco Cabana is the single greatest taco in the universe or anything, but it's a taco chain that's had to cut its teeth amidst the taco plenty of Texas. It has managed to bring to scale a homogenized chain taco concept that can plausibly go head-to-head with a robust taco culture.
So I've often thought that if and when they ever expand to the people-dense, taco-poor Northeast Corridor, they will clean up.
In fact, I even considered investing in the company on those grounds. But then I remembered the First Rule of Picking Stocks is: Do not pick stocks. The Second Rule of Picking Stocks is: Do not pick stocks. The third rule is look up the current price-to-earnings ratio and see what financial markets are already assuming. In the case of the Fiesta Restaurant Group that means a 129 PE ratio (average would be about 15), which is really high. That means investors are optimistic about FRG's growth opportunities. Like they've noted that this is a regional chain that's very successful in a core taco market and reasonably likely to be a smashing success on a national basis.
Which is to say that if the efficient-market hypothesis is correct, America is poised for a massive expansion of quality tacos. It's an exciting time to be alive.
Dave Camp's Tax Plan Isn't Really Revenue-Neutral
As I wrote yesterday, there are some good, praiseworthy elements in the tax reform plan released by Rep. Dave Camp (R-Mich.) this week. Democrats obviously aren't going to vote for the plan because it doesn't raise any revenue, but Jonathan Chait thinks it's worthy of constructive engagement anyway since obviously no Republican was going to put a tax hike plan on the table.
But it's worth saying that Camp's plan doesn't just fail to raise revenue. It probably reduces government revenue. Because the Committee for a Responsible Federal Budget grades Republicans on a curve for the sake of maintaining its posture of nonpartisanship, their overall write-up of Camp's plan is full of praise, but the analysis wisely notes that the plan "relies on several one-time revenue sources and timing shifts to pay for permanent rate cuts, meaning that it could actually increase deficits in future decades."
One example is that Camp wants to switch our corporate income tax system to what's called a "territorial" system, a change that has some merits but would reduce long-term corporate income tax revenue. But part of the switch would be a one-off transitional period in which earnings that U.S. firms have currently stashed abroad to avoid taxes on would be brought home and lightly taxed. Within a 10-year budget window, you can raise substantial revenue with this kind of thing. But in the second and third decade those fees go away and the permanent costs remain in place.
A genuinely revenue-neutral tax reform is worth contemplating for the potential growth benefits. But a tax reform that's only revenue-neutral in this gimmicky sense while locking in a lower baseline is no good.
Ethnic Groups Overrepresented Among Physicians
From Gregory Clark's new book, The Son Also Rises, here's a chart showing which ethnic groups in the United States are overrepresented in the ranks of American physicians:
On the y-axis, a score of one would mean the ethnic group is represented at an average rate among physicians. So people with Hindu surnames are drastically overrepresented while people with Vietnamese or Haitian surnames are moderately overrepresented.
Despite Heroin Epidemic, Vermont Is Prospering
Katherine Seelye has a remarkable story about the ongoing heroin epidemic in rural Vermont and efforts to combat it. But there's one piece of background that most of the coverage of the Vermont heroin issue leaves out—the overall Vermont economy.
It's easy reading stories of rural drug addiction to assume you're looking at a New England version of a familiar Appalachia-style tale of industrial decline and entrenched poverty. But the unemployment rate in Rutland, Vt., is only 3.9 percent. Vermont as a whole has a 4.2 percent unemployment rate. Vermont has an above-average median income, a below-average poverty rate, and a better-educated population than America as a whole. It's true that the City of Rutland is poor by Vermont standards, but that's just to say that its poverty rate equals the national poverty rate.
Innovation and Interest Rates
Larry Summers, in a speech at the National Association for Business Economics, noted that fancy technology might be depressing interest rates:
Ponder for example that the leading technological companies of this age, I think for example of Apple and Google, find themselves swimming in cash and facing the challenge of what to do with a very large cash hoard. Ponder the fact that WhatsApp has a greater market value than Sony with next to no capital investment required to achieve it. Ponder the fact that it used to require tens of millions of dollars to start a significant new venture. [Significant] new ventures today are seeded with hundreds of thousands of dollars in the information technology era. All of this means reduced demand for investment with consequences for the flow of - with consequences for equilibrium levels of interest rates.
While he’s right that there are secular trends toward cheaper capital, I’m not sure we can attribute much of that to the information technology era. Even granting that the magnitude of technology is substantial, something I’ll get back to in a minute, it’s important to explore the consequences. I would argue that the information era doesn’t reduce the demand for investment, as Summers proposes, as much as the interest rate elasticity of demand – that is to say firms are less sensitive to changes in the cost of capital. The reason isn’t obvious. Interest rates matter a lot for long-term, capacity building investments—like opening a huge new factory. But software is usually rented on a monthly basis from the firm’s own cash—so interest rates matter a lot less. (Reduced demand and reduced need mean the same thing in English, but not economese).
But that’s coming from the same cash pile Summers is talking about—and it’s still investment. In general it’s not that there’s a lot less investment as much as the factors that affect its demand are changing. This is where we get back to magnitudes. Take a look at software’s share of total private investment:
There are two stories here. One, in sheer magnitude, software (the blue line) is still only 15 percent of private investment and not significantly higher than points in the past two decades when interest rates were a lot higher. On the other hand, residential investment as a share of private investment, hasn’t changed much in structure since the mid-'60s and is still very sensitive to changes in the interest rate.
The point here is that while WhatsApp didn’t need any real investment, a lot of the economy does, and as sexy as Silicon Valley is, main street America is not irrelevant. There’s another point here, and I’d file it under, as Scott Sumner might say, “never reason from a price change.” The Silicon Valley story tells us that the returns on very small investments can be huge and, under competitive markets, this would imply that the marginal return on capital is falling rapidly after a certain level. However, that isn’t consistent with the broad increase in capital’s share of income we’ve noticed over the past decade or so. In a simple (but empirically powerful) Cobb-Douglas production function, the exponent on capital is its share of total income, and the higher the exponent, the larger the marginal product at any given point (other things equal).
Of course, other things are never equal, and that’s Sumner’s point.
Summers is right, that to the extent software is significant, there are important implications for the equilibrium interest rate. As the elasticity falls (that is, as the demand curve becomes more vertical) changes in the supply of loanable funds will be felt entirely through interest rate adjustment. So an increase in supply has a lot more potential to keep the economy under a low interest rate environment than before.
Ultimately, this is all pretty speculative. Calculating the importance of interest rates, as an empirical phenomenon, is notoriously difficult (studies disagree, for example, on whether higher interest rates even increase savings)—and observing shifts in the shape of the determining curves is harder still. While interest rates are low for a number of reasons, technology per se may not be one.
The practical point here is that since long-term interest rates are what drive the kind of investment Summers says is dwindling, it’s ever more incumbent that the Fed doesn’t let the term premium on long bonds rise too much. That is, keep quantitative easing hard.
The Nexus Between Insider Trading and Infidelity
Why would a prosperous business executive risk his freedom to engage in a little insider trading? In a fascinating column, Gary Silverman observes that the motive is often not so much money as love—or, rather, a need for money that can be disguised from your wife in order to give it to your mistress:
The government’s allegations portray Mr Hixon – a 56-year-old banker widely known as “Perk” – as a classic case of a married man who needed money that his wife wouldn’t know about. The US Securities and Exchange Commission says he had fathered a daughter – now five years old – during the course of a years-long relationship last decade with a woman about two decades his junior called Destiny Wind Robinson.
To help pay for Destiny’s child, as it were, the government alleges that Mr Hixon trafficked in sensitive corporate secrets – a store of value well suited for a player looking to pay off personal obligations without leaving a paper trail. Relying on material, non-public information that he obtained as a senior Evercore adviser on mining and metals deals, Mr Hixon engineered stock trades in his former lover’s brokerage account that yielded almost $900,000 in profits, according to the SEC.
Handing out money is going to get you caught. Handing out tips can be done covertly. Silverman also cites the case of James McDermott who gave a mistress $80,000 worth of stock tips.