Thinking at the Margin: It's Revolutionary

http://cafehayek.com/2016/09/thinking-at-the-margin-its-revolutionary.html

by jseliger • 10 years ago

53 62 10 years ago

jstanley2• 10 years ago

A nice idea, and I want to agree with it. Unfortunately, teachers and firefighters are employed by the state, which means they're not going to go out of business if they're out-competed by superior workers. So there's no incentive to pay more to get better workers, they can just pay the minimum necessary to employ almost anyone to do the job.

et1337• 10 years ago

We are extraordinarily fortunate to have so many superb minimum wage fast-food workers. Their lower pay simply reflects the happy reality that we're blessed with a much larger supply of them.

vinceguidry• 10 years ago

Not so for teachers, there are private schools which compete with public schools.

Similarly, there are private firefighting companies.

https://www.wildfirex.com/private-firefighting/

jstanley2• 10 years ago

Yes but the state isn't going to go out of business regardless of how much better the private schools or firefighters are.

seizethecheese• 10 years ago

While factually true, this is disingenuous, at least in the US. Schools and firefighting services are given out for free, which severely limits the market for private alternatives.

peterwoo• 10 years ago

If you have better schools the district's property values go up which increases the tax base. Families can and do move across districts to access better schools, so there is competition in that sense. Same with many city services. Firefighters and teachers in Palo Alto for instance are paid well compared to other districts, the schools are some of the "best" in the nation, and property values are high as hell.

kehrlann• 10 years ago

Such an educated man might go a step further than just answering the question, and rephrasing it... Maybe it's not just about earning more money, but disproportionately higher standard of living. And speaking about those inequalities shifts the debate - since they earn so much money, they could contribute more to society, say through taxes ?

acobster• 10 years ago

Could not agree more. I can't shake the feeling that he's being hand-wavey on purpose, essentially saying that nothing needs to change because, you see, supply and demand...

wfo2• 10 years ago

This is the general libertarian economist's retort to any suggestion that things might be better if they were different in my experience and it is uninteresting as it is evasive and unsatisfactory.

typetypetype• 10 years ago

The main issue is not about pay on its own. It's about what that pay gets you. First responders and teachers deserve pay that allows them to live comfortably (not necessarily luxuriously) in the neighborhoods they serve.

byron_fast• 10 years ago

If you use the word "deserve" you're probably no longer talking about economics.

rfrey2• 10 years ago

That's asinine. Economics is "the branch of knowledge concerned with the production, consumption, and transfer of wealth." (some dictionary favoured by Google). Thinking about what kinds of transfers of wealth and what allocations of resources are the most "fair" or "just" is what economics has always done.

Just because one answer is "there is no discoverable fair or just allocation possible, and avoiding trying will have the best outcome", does not mean that answer gets to claim the entire discipline and any dissent is no longer "economics".

tankenmate• 10 years ago

And yet humans, collectively, pay what they feel they should (or if they don't value it the market disappears). You can't talk about economics without also considering what people want and what they believe and how that affects what they pay.

Otherwise how can you explain that educators in Finland are held in higher regard, paid more, and are required to be more accomplished?

ThrustVectoring• 10 years ago

That's not nearly ambitious enough - everyone deserves to live a comfortable life, and we as an industrialized society have enough physical resources to do so.

Alternative objection: the "in the neighborhoods they serve" sounds like a zoning and housing development issue, not a pay issue. Why are you trying to shovel more money at rent-seeking behavior that pushes up the price of housing?

ssivark• 10 years ago

... so, to summarize: If something is truly important to society, then one should want to ensure that lots of people are doing it, and that supply ensures that they will all not get paid highly.

Am I the only one who finds it perverse that this is regarded a "successfull economy"?

creshal• 10 years ago

I wasn't under the impression that we have an over-supply of nurses, firefighters and teachers. More a supply shortage of skilled personnel in either branch because the pay is too low.

TeMPOraL2• 10 years ago

It's a feedback loop - the better the pay is, the more people are after it, which lowers the pay, and so forth. This loop tends to be more disrupted in highly regulated fields (like healthcare), but there are other factors too. For instance, in my country, an important reason for the shortage of doctors and nurses is simply that they can find a better pay and more humane working conditions abroad, and so they emigrate.

Domenic_S3• 10 years ago

Nurses are a bad example - they make crazy good money and are unionized.

TeMPOraL2• 10 years ago

Another way of phrasing it would be: it ensures that things which are truly important to society are available at low prices.

Either way, the corollary still is that roughly, the more a job is paid, the less value to society it provides. There are exceptions of course, but I find it to be a pretty decent heuristic.

barrkel• 10 years ago

If higher pay generated athletes that were more entertaining to watch competing, there would be more substance here. Trouble is, competition is most of what is entertaining, less so the athleticism. There is something unnecessary about the rewards to the peaks of athletics.

Some people have won a popular lottery where their genetics combined with their determination adds up to a reward - popular because of the demand for the body type in some competition - while the same effort without the same genetics will have a less rewarding result. There's nothing intrinsically fair or even socially desirable in a society / economy that pays a large bonus here.

It's better the athletes get it than get nothing of course, because youth doesn't last forever. But perhaps the degree of power law is too much.

bluesnowmonkey• 10 years ago

There are lots and lots of great actors and football players in the world. We only watch the best of the best, so they get a disproportionate amount of wealth and fame. You can't broadcast an image of the best firefighter and replace the jobs of other firefighters, like you can broadcast a movie and replace acting jobs.

skybrian3• 10 years ago

If the top athletes were never born then there would be still be pro sports using other athletes almost as good, and people would still talk about how skilled they are and how they are the best in the world. Similarly for acting and music. These are winner-take-all professions. Being the best is not about reaching an absolute level of skill; it's relative to the rest of the population.

And that's leaving aside the randomness involved in which songs become a hit. If you have positive feedback (the famous become more famous) then the system is not designed to necessarily pick the best. It's just designed to pick someone. You have a filter where any difference will work and if there isn't a difference a boy band will be chosen at random. So the same structure can happen even if unlike sports, skill is hard to measure.

On the other hand there are skills that are easy to measure (who is the fastest worker in an Amazon warehouse) that don't matter as far as pay is concerned. But if we had televised box-moving competitions and they were popular then there's no reason in principle it couldn't be made to matter.

Retric3• 10 years ago

IMO, it's the gap in still not the absolute skill levels that are most interesting. Michael Jordan was not just the best player of his generation he was dramatically better than other players. Remove the top 100 players and these gaps shrink dramatically. Collage sports is interesting in part because the smaller pool of people and large number of teams makes for even wider skill gaps.

Rule changes have made the NFL more competitive, but overall the sport is less interesting without unusually good teams.

skybrian3• 10 years ago

Yes, agreed. From an entertainment point of view, if the NFL didn't exist people would watch some other sport and find that just as interesting (maybe for different reasons). The skill level isn't essential to the entertainment value.

squozzer• 10 years ago

Most of what athletes and actors make comes from the scale that mass media provides. Not much different than the source of internet titans' wealth.

If teachers and other public workers could achieve the same scale, they could probably earn a similar paycheck.

JDDunn9• 10 years ago

He got the economics all wrong. There's no shortage of people that can play sports well (at a comparable level to the average teacher or firefighter). It's more about the network effect of fans and the marginal value added (think about the value of the Cavs before/after Lebron James).

A better point would have been about how the total dollars spent on teachers and firefighters is many times the total spent on athlete's salaries.

quantumhobbit2• 10 years ago

It is wrong to compare Tom Brady to teachers in general. Instead you should compare athletes in general to teachers in general. Or compare best in class athletes to best in class teachers.

The general comparison would compare minor league baseball or local club soccer players to your kids kindergarten teacher. You might find that the teacher comes out on top.

The best in class comparison is harder. There are only 32? Nfl teams therefore there is enormous competition for the 32 best quarterbacks (maybe more including backups). If you are the #200 quarterback on the planet no one cares. Those selection dynamics don't happen for teachers. There might be some elite tutors who are highly sought out by wealthy parents, but not with the same intensity as quarterbacks.

This is compounded by the fact that sports skill is more easily measured than teaching skill. We might debate if Tom Brady is better than Peyton Manning, but it is obvious both are in the top ten in the world. Not so with teachers. Some are clearly better, but the clarity of ranking you can get with sports performance is impossible is any measure of teaching performance.

platz• 10 years ago

Where are the best in class teachers?

Are they hiding among the teachers in general? If they can't be identified, there is no effective & material differentiation (read: no justification for higher compensation) among them vs the less skilled.

Are you saying that the best teachers, in principle, could be measured, but we haven't developed the methods to do so (to be sure, a real possibility)? Or are they simply 'better' a-priori/intrinsically regardless if we can measure it or not?

The best in class athletes to best in class teachers comparison either fails or finds athletes winning flat out.

quantumhobbit2• 10 years ago

I'm saying that it is harder to measure and that the measurement is inherently noisier for teachers. We measure teachers by how their students perform on standardized tests, which has all sorts of problems.

The more important factor is the value placed on differential performance. A 10% difference in teacher performance is lost in the noise. It likely wouldn't mean more money even if it could be measured easily. Whereas a 10% difference in football might mean being #1 in the draft versus going undrafted.

drostie3• 10 years ago

Probably the most substantial difference is iteration. A footballer gets many games per year with many moments per game to potentially shine or fail publicly, with stats that can be evaluated year after year. Your success as a teacher can somewhat be evaluated via testing, but that seldom tracks something close to what you're really supposed to be doing: making a difference in your kids' lives. At best that's an evaluation that has to be made by the now-grown child themselves, several years after the interactions which occurred.

eanzenberg2• 10 years ago

Private schools, international schools (if multi-lingual), private tutoring.

drostie3• 10 years ago

Yeah, I would have expected that a domain called "Cafe Hayek" and a post title of "Thinking at the Margin: It's Revolutionary" would have noticed that it's not a supply-side surplus that drives down these wages, but a complex interaction of how the demand-side works.

First off, we have the layers of oligopolization, like you've said: carefully marketed and individuated products for sports, film, and music ensure that there's a substantial profit margin there. It's not that there aren't indie films or small sports teams; it's that these companies have convinced people that this is their team and that their identity is mixed in with it, just the way that my girlfriend drinks Diet Coke and not pop.

Teaching is simultaneously much more cutthroat, with tons of schools that are constantly shifting composition and competing for the same slice of some dearth of public funds which first gets siphoned off by the occasionally-corrupt bureaucrats at the top, superintendents and such, who don't have nearly the accountability that the teachers do. Then there is a competition among the teachers, ameliorated somewhat by unions, but there is also a competition between the unions too. All of this ensures that there's money to spare for the pop cultures that's not there for the educational infrastructure. UNTIL... you get to colleges, where there are some colleges which have distinct identities; I still name-drop my undergraduate work at Cornell rather than my Master's at the TU Delft, even though the latter is a much greater achievement. There's a bit more pie around for the professors, and they enjoy much more cushy arrangements like tenure.

If you average over athletes in general, athletes get paid crap. Most of them are teenagers playing in exchange for being taken out for pizza afterwards; then there are adult amateurs and college-level play... You take the typical inner-city basketball player and evaluate his chances of making it to stardom, you're going to be talking about winning the lottery. Even if he has big dreams. Same with actors. But what you're actually seeing in these celebrities is a carefully-played oligopoly causing a great demand for a scarce product, and the scarcity drives these commitments to finding the best-of-the-best that allows stars to leverage that monopoly that all of us have in a free society, our monopoly on our own labor.

Domenic_S3• 10 years ago

Did you just say that teaching is much more cutthroat than professional sports, music, and film? I'm trying to imagine the aspiring teaching doing late-night lectures in smoky bars for free, or teaching at the local teacher's club (again for free) so that one day they might reach their dream of being a professional teacher.

One day teaching might be cutthroat if we can ever figure out how to create some competition, but the only throat cutting that's happening is over internal politics, which is table stakes for any career worth pursuing.

tpeo• 10 years ago

Exactly. It doesn't make sense to compare the top individual of one ability's distribution to the average individual of another. There's a world of difference between a top football player and the average football player. I'd expect ability to be distributed along a power law, just like wages are.

analyst74• 10 years ago

The point the article is trying to refute doesn't stand, teachers and first responders actually make more money than most athletes and actors.

I happen to know lot of ex-pro athletes, who are really good but didn't quite make it big, or just in a less rewarding field (like swimming), and lots of musicians who have trained in their art for their whole lives.

Even the very best violinists, sans a few in the world who happen to be famous, are only making comfortable middle class income. There is a joke in the classical musician world :"Real musicians have day jobs."

And for the athletes, most make nothing, especially in North America where there is no semi-pro clubs and leagues.

rahelzer• 10 years ago

Excellent. Notice also this solves the problem of outragious CEO pay. If we figure the marginal value of the CEO as how much more the company would earn if it added another CEO, its at best zero, because the company only needs 1 CEO. Two CEOs would probably just fight with each other so much it would harm the company.

Therefore, CEOs should be paid at most nothing at all, because their marignal value is at best zero.

Of course, CEOs which have big egos and are therefore more likely to be in conflict with an additional CEO, of course, have negative marginal value, and therefore should actually pay the company for the opportunity to be its CEO.

Free Market Capitalism can solve ANYTHING!!!!!!

cs702• 10 years ago

From the OP: "The lower pay of fire fighters and school teachers simply reflects the happy reality that we’re blessed with a much larger supply of superb first-responders and educators than we are of superb jocks and thespians."

Wait, what? Who says we are blessed with a large supply of "superb" school teachers in the US?

According to McKinsey, nationwide, public school teachers in the US come from the bottom third of college graduates.[1] What's more, compared to the public school systems of other developed countries, the US one is far from the best and one of the worst in math.[2]

That's not exactly "superb."

There are countries blessed with a large supply of superb teachers, for example, Finland, where teachers come from the top 10% of college graduates. However, government intervention has apparently played a large role[3], and income inequality there is among the lowest in the EU.[4]

[1] http://www.mckinseyonsociety.com/downloads/reports/Education...

[2] https://nces.ed.gov/fastfacts/display.asp?id=1

[3] http://www.smithsonianmag.com/innovation/why-are-finlands-sc...

[4] http://www.helsinkitimes.fi/finland/finland-news/domestic/10...

SilasX• 10 years ago

You're equating a ranking with an absolute scale on a dimension that's only loosely correlated. The last-ranked shot-putter on the Olympic awards pedestal (bronze) is still a really good shot-putter.

It would be one level removed, then, to judge someone to be a bad log-bearer because they're only the 5000th-best shot-putter.

IOW: low ranked in school does not imply "bad teacher". I means, among the people rated as having sufficient mastery of the material, they were the lowest; that's not the same as "poor at achieving educational objectives", and it's not the same as "unqualified in absolute terms".

Edit: Though, in fairness, he probably should have said "good-enough" rather than "superb".

Confusion• 10 years ago

Yeah, I think that line is a pretty clear indication of why such arguments and the economic theory that prompts them are out of touch with reality.

I would say that in reality, there certainly is a much larger supply of people that are considered to be suitable for performing these jobs. However, that they are considered to be 'suitable' for performing these jobs does not mean they are actually capable of performing these jobs well, let alone that those selected are the most 'superb' of the candidates.

I can think of at least the following reasons:

* those determining whether someone is suitable for a job take into account how much they are going to (have to) pay someone. If there is a large supply of people that consider themselves suitable, then those selling themselves cheaper have a better change of getting the job, even if they are less capable. Pay is easy to measure, skill is hard to measure, so pay becomes the easy yardstick to use.

* those doing the hiring do not usually have sufficient knowledge of the skills necessary to perform a job. You underestimate work you're not actually doing, used if you used to do the work just a few years ago.

* related to the first: when hiring people, their job-related skills are not as important as how well you like them, the impression they make on you, etc. People are irrational and most interviews are decided based on things entirely separate from someone's capabilities.

So of course teachers are not as good as they could be: many people more capable would only become teachers if teachers earned more, if they would be recognized as capable or if they were better at interviewing.

Corollary: jobs are generally performed by those only just capable of performing them or by those underselling themselves relative to their capabilities. The latter possibly because they have some sort of passion or appreciation for the job independent of monetary reward or because some form of inertia keeps them there. In some sense a version of The Peter principle.

I think such reasoning explains our observations much better than what the OP offers.

Another corollary: if you like your job or are good at it, you can earn more somewhere in a job you don't like and are just capable of performing.

Houshalter• 10 years ago

Well here is a very interesting analysis that concludes better teachers show very little if any statistical differences in the outcomes of their students: http://slatestarcodex.com/2016/05/19/teachers-much-more-than... It really doesn't matter that the teachers in the US are slightly worse, because teachers don't really matter.

What's more, compared to the public school systems of other developed countries, the US one is far from the best and one of the worst in math.

These are based on average scores and don't control for race or income. If I recall correctly, if you do control for other factors, similar looking students tend to do about the same between the US and Europe.

nwah1• 10 years ago

You're right to point this out, although cs702's point still stands that the letter erroneously implies that the prices in the labor market for education indicates something about the quality of the supply.

bbctol• 10 years ago

Terrible understanding of labor economics. Football players and firefighters are not static populations, they are also subject to labor forces; people choose to enter jobs based on the quality of the job and the pay. Heck, Tom Brady would probably make an excellent firefighter, if that's where the money was!

We aren't blessed with a surplus of superb teachers; we pay smart people more to work on Wall Street than teach, and so end up with an army of underqualified teachers. If we needed football players in every city, we'd pay them less, too, and they'd be mediocre. The amount of jobs available for firefighters is always high because you need them, and it's that which leads to their lower salaries, and in turn mediocrity. Hayek economics is terrible with externalities; if this post were accurate, we'd never have a shortage of firefighters.

dmvaldman• 10 years ago

This argument is way too simplistic and not generalizable. For example, doctors get paid very well, and are also very important to society. The answer must be more nuanced than: important jobs have a lot more supply, therefore the demand for them is cheap.

Personally, I believe the pay of a profession has little to do with the profession itself, and more to do with the system that surrounds the profession. There is not just the economics of supply and demand for the profession, but also at every level of the system.

For example, doctors and police offers both save lives. It's unclear to me why doctors would make 8x the salary of a police officer. However, doctors require 10 more years of schooling and long hours of practice in the early years. This is part of the system of early education that surrounds the profession. But the interesting thing is I feel most of these requirements are unnecessary and are more vestiges of an evolution of the market that define them. Doctors don't need to work such long hours in residency if we only accepted more residents. But that would lower the salary of doctors. That's one supply/demand system. Also the ridiculous educational requirements of "pre-med" is mostly a deterrent to stop more people from becoming doctors. The only reason to go through the suffering is to have the opportunity of a high salary. If the salary was low, no one would do it. Another supply demand system.

There are many economic "markets" along the way to a profession, that have little to do with the profession itself, but have a lot to do with computing the salary of the profession. Ultimately you'd think the markets would "equilibrate" to a just one. But is seems there are many "unfair" equilibria.

paulpauper2• 10 years ago

exactly. pediatric neurosurgeons for example make a lot. same for oncologists , and unlike athletes they have long careers

eanzenberg2• 10 years ago

Teaching center: https://www.youtube.com/watch?v=dkHqPFbxmOU

paulpauper2• 10 years ago

There are so many misconceptions about pay

'Altheltes' and 'actors' are not homogeneous. Most actors and pre-pro athletes make significantly less than their pro counterparts.

Pro athlete pay, with the exception of top stars, is not as lucrative as it may seem. Careers tend to be short due to injuries and other factors, so while athlete may earn a lot when they play, they may only play a few years. A solid 6-figure job that pays for many decades will earn more moeny in the end.

The pension for pro athletes is not that great either. And then there are the injuries , which the leagues tend to do a poor job of covering. Many players struggle with expenses due to heath issues but also poor money management and short careers.

Firefighters and teachers may not make much salary (at least compared to a pro athlete) but their careers are much longer and they get very good pensions.

You just have to put things in perceptive.

guelo• 10 years ago

This "thinking" is laughably muddied and just plain wrong. Yet it's delivered by an economics professor. Strange.

rdtsc• 10 years ago

The lower pay of fire fighters and school teachers simply reflects the happy reality that we’re blessed with a much larger supply of superb first-responders and educators

I was joking a while back saying "free market" in US is like a religion. Someone pointed out American Civil Religion as a phenomenon: https://en.wikipedia.org/wiki/American_civil_religion . I guess it mostly overlaps with Libertarian-ism but but I think it can be identified separately.

It basically means we solve problems not thinking about the direct solution: how to fight fires, how to teach children better, how do we not let people go into medical bankruptcy. Instead, we always answer "how will this make the Free Market God happy?" If it doesn't we don't do it.

In this case it is "Teachers are at the bottom of the ladder for desirable jobs after college? That's fine, move along". This is what make free market happy, it is clearly decided for us.

Same with people going bankrupt because they went to a hospital for a night. Nationalizing medical care would incur the wrath of FMG. So to appease it we jump through complicated hoops with Medicare, Medicaid, shuffle money around between insurers, hospitals, doctors in a complicated and hard to track way.

George Mason University, Fairfax, VA

Ok, that makes sense.

antisthenes• 10 years ago

The Mercatus center at GMU is nothing more but a think tank for right wing shills who will do anything to promote the status quo and supply-side economics. These people have no integrity or value as economists.

It is sponsored by the Koch brothers btw.

TheOtherHobbes• 10 years ago

What an astonishingly stupid and self-indulgently ignorant response.

The premise - that talent in sport is rare, and talent in socially useful services is plentiful - is nonsense.

Why don't we have phenomenal super-teachers and super-firemen? Is it because they don't exist? Are there really no incredibly talented individuals who can not only super-teach but also teach others how to super-teach?

Or is it because there's no process to find and reward them?

If it's the latter - why does that process not exist?

The answer isn't "Because there's no social demand for it." Education isn't exactly outstanding in the US, and super-teachers would do a lot to help the country's economic prospects.

But that doesn't happen for a simple reason: there's no easy way to make a short-term profit from them.

Profitability of socially valuable services is diffuse and long-term, and spread over the economy as a whole instead of being owned by a few individuals.

"Talented" sports people and actors follow the opposite pattern. They're selected and valued because they can be farmed for quick profit. This happens to correlate - to some extent - with special talent.

But in fact the number of sports business and movie studios is strictly limited. So it's actually quite likely that for every super-talent, there's a non-trivial number of individuals with similar talents who are never found and selected - precisely because it's more profitable to artificially limit their number to create the illusion of product scarcity.

There's nothing inherently wrong with a profit-driven economy. But when the economy becomes driven by short-term profitability, because its predictive horizon is too narrow to model the future accurately, good things stop happening.

Thinking at the Margin: It's Revolutionary

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