The SAT, Test Prep, Income and Race

by on March 11, 2014 at 7:25 am in Economics, Education | Permalink

The announcement of the new, new SAT has created a lot of hand-wringing about SAT scores and their correlations with income and also race. Wonkblog, the New York Times and many others all feature a table or chart showing how SAT scores increase with income. Wonkblog says these charts “show how the SAT knowledgeorincomefavors rich, educated families,” and the NYTimes says about the SAT, “A Test of Knowledge or Income?” The consensus explanation for these “shocking” results is the evil of test prep as summarized by NBCNews:

…there is also mounting criticism as to whether students who can afford expensive SAT test preparation courses have an unfair advantage, especially given a strong correlation between family income level and test results.

Similarly, Chris Hayes blames test prep for inequality:

We’ve had…the growth of this tremendous testing and test prep industry in New York, along with the massive rise in inequality and it has produced a system in which the school is now admitting only three, four, five black and Latino students. The students they are admitting are almost entirely white, affluent kids with tutors or second generation, first generation immigrants from Queens and other places where the parents pay for test prep. You end up with a system where who you are really letting in are the kids with access to test prep, the kids with access to resources.

All of this is almost entirely at variance with three facts, all of which are well known among education researchers.

First, test prep has only a modest effect on test scores, on the order of 20-40 points combined for a commercial test preparation service. More expensive services such as a private tutor are towards the high of this range, cheaper sources such as a high-school course towards the lower. Buchmann et al., for example, estimate that private tutors increase scores by 37 points while a high school course increases scores by 26 points.

The average SAT score among those with a family income of $20,000-$40,000 is 1402 while the average score among those with an income $100,000 higher, $120,000-$140,000, is 1581 for a 179 point difference. Even if every rich family had a private tutor and none of the poor families had any test prep whatsoever, test prep would explain only 20% of the difference 37/179. If rich families rely on tutors and poor families rely on high school courses, the difference in test prep would explain only 6% (11/179) of the difference in score.

The second surprising fact about test prep is that it doesn’t vary nearly as much by income as people imagine. In fact, some studies find no effect of income on test prep use while others find a positive but modest effect. The latter study finding (what I call) a modest effect finds that in their sample a 2-standard deviation increase in income above the mean increases the probability of using a private test prep course less than whether “Parent encouraged student to prep for SAT (yes or no).”

Since test prep differs by income only modestly and since test prep increases scores only modestly, the effect of income on test scores through test prep is small, Modest*Modest=Small. Contrary to the consensus, test prep can in no way account for the large differences in SAT score by income.

The third fact is that test prep varies by race in the opposite way that people imagine. In the quote above, Chris Hayes suggests that whites use test prep much more than blacks. In fact, blacks use test prep more than whites, as is well documented among education researchers (e.g. here, here, here), e.g. from the first link:

…blacks and Hispanics are more likely than whites from comparable backgrounds to utilize test preparation. The black-white gap is especially pronounced in the use of high school courses, private courses and private tutors.

Indeed, since blacks use test prep more than whites and blacks have lower SAT scores than whites the effect of test prep is to reduce not increase the black-white gap in scores. Of course, the net reduction in the gap is small.

62 comments

Summers, Lomborg, Tabarrok, and Cowen on climate change

by on March 11, 2014 at 1:41 am in Economics, Law, Science | Permalink

There was a brief symposium, here are the results:

Larry Summers

President Emeritus of Harvard University, Former Chief Economist of the World Bank

My sense is that cap and trade is not the route to the future. It did not make it politically in the US at a moment of great opportunity in 2009. And European carbon markets have been plagued by constant problems. And globally it’s even harder. My sense is that the right strategy has three major elements. First, as the G20 vowed in 2009, there needs to be a concerted phase out of fossil fuel subsidies. This would help government budgets, drive increases in economic efficiency and substantially reduce global emissions. Second, there needs to be assurance of adequate funding for all areas of basic energy research. As a practical matter my guess is the world will produce non fossil fuel power in the next 25 years at today s fossil fuel prices or it will fail with respect to global climate change. Third, there is a strong case for concerted carbon taxes to further discourage greenhouse gas emissions. But this is a follow-on step for after the elimination of fossil fuel subsidies.

Bjorn Lomborg

Director of the Copenhagen Consensus Center and adjunct professor at Copenhagen Business School

The only way to move towards a long-term reduction in emissions is if green energy becomes much cheaper. If it cost less than fossil fuels, everyone would switch, including the Chinese. This, of course, requires breakthroughs in green technologies and much more innovation.

At the Copenhagen Consensus on Climate (fixtheclimate.com), a panel of economists, including three Nobel laureates, found that the best long-term strategy to tackle global warming was to increase dramatically investment in green research and development. They suggested doing so 10-fold to $100bn a year globally. This would equal 0.2% of global GDP. Compare this to the EU’s climate policies, which cost $280 billion a year but reduce temperatures by a trivial 0.1 degrees Fahrenheit by the end of the century.

Alex Tabarrok

Bartley J. Madden Chair in Economics at the Mercatus Center, George Mason University

Neither the developed nor the developing world will accept large reductions in their standard of living. As a result, the only solution to global climate change is innovations in green technology. A carbon tax will induce innovation as people demand a way to avoid the tax. A carbon tax, however, will be more politically acceptable if technologies to avoid the tax are in existence before the tax is put into place. Prizes for green innovations can blaze a path down a road that must be traveled, making the trip easier. The L-prize successfully induced innovation in LED technologies, the X-Prize put a spacecraft into near space twice within two weeks and Google’s Lunar X prize for putting a robot on the moon is close to being awarded. Prizes have proven their worth. To speed both the creation and diffusion of green technology, green prizes should be awarded at the rate of $100-$200 million annually.

Tyler Cowen

Professor of Economics, George Mason University

This is a problem we are failing to solve. Keep in mind it is not just about getting the wealthy countries to switch to greener technologies, but we also desire that emerging economies will find green technology more profitable than dirty coal. A carbon tax is one way forward but the odds are that will not be enough and besides many countries are unlikely to adopt one anytime soon. Subsidies for technology could occur at a very basic level and we could make a gamble that nuclear fusion will finally pay off. We also need a version of green technology that will fit into existing energy infrastructures and into countries which do not have the most reliable institutions. The most likely scenario is that we will find out just how bad the climate change problem is slated to be.

There are further responses at the link.

Addendum: Ashok Rao adds comments.

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Is the recent economic growth of Texas driven mainly by fracking?

by on March 10, 2014 at 4:12 pm in Current Affairs, Economics | Permalink

Scott Sumner reports:

So the Texas oil boom was quite recent, beginning about 2010.  Now let’s look at the population growth figures before and after the recent boom:

2005-06:  2.55%

2006-07:  2.01%

2007-08:  2.02%

2008-09:  2.02%

2009-10:  1.85%

2010-11:  1.62%

2011-12:  1.52%

2012-13:  1.50%

Where is all the population growth from fracking?

And this:

Texas’s population grew at roughly twice the national rate for decade after decade, even as oil output was declining sharply.

The post makes several other points of interest.  I would stress that Texas has developed at least five highly successful urban clusters, namely Houston, Dallas-Forth Worth, San Antonio, Austin, and to some extent El Paso or I would say El Paso-Juarez.  For standard reasons of economic geography, such clusters are especially like in a larger state.  Furthermore such clusters can be driven, in part, by relatively small differences in underlying state policy.  Maybe Texas policy is only a little bit better than in some other states, but that small underlying difference can translate into a big change in final outcomes.  Fracking is likely a complementary force here, but it is not the center of the story.

30 comments

Assorted links

by on March 10, 2014 at 1:19 pm in Uncategorized | Permalink

1. Is internal devaluation boosting Greek exports much?

2. In praise of the London Review of Books.  And updated economics on the NYT paywall.

3. The NIH is culling the number of labs it supports.

4. Mega-list of links with advice for economists and students of economics, at various stages of their careers.

5. The new Summers version of the secular stagnation argument doesn’t seem to rely on negative natural rates of interest.  That said, it is getting closer to a supply-side version of the view.

6. What’s it like to own a 3-D printer?

33 comments

Is Abenomics working?

by on March 10, 2014 at 12:19 pm in Uncategorized | Permalink

Japan’s economy grew by 0.7% in 2013, down from an initial estimate of 1%.

…Japan’s trade gap also rose to a new record last month, increasing by 71% to 2.79tn yen in January, official figures showed.

There is more here, via R. Lopez.  For background and context, see Edward Hugh’s recent post.

Addendum: Scott Sumner adds comments.

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The Great Divide over Market Efficiency

by on March 10, 2014 at 7:28 am in Economics | Permalink

Clifford Asness and John Liew have an excellent piece in Institutional Investor on Fama, Shiller and The Great Divide over Market Efficiency. Asness and Liew are both students of Fama so you might expect them to come down squarely on the side of market efficiency but they are also co-founders of AQR Capital, an asset management firm ($100 billion under management) with an unusually empirically driven approach to investing. In addition to publishing and using its own research, for example, AQR sponsors the AQR Insight Award which:

…recognizes important, unpublished papers that provide the most significant, new practical insights for tax-exempt institutional or taxable investor portfolios.

The Insight award is worth up to $100,000 so the firm is serious in thinking that research can be profitable.

Asness and Liew argue that just a few anomalies are robust across time, countries, and asset markets, notably momentum and value. On value, they note that a trading strategy of high minus low, that is long a portfolio of cheap stocks (high book value to price) and short a portfolio of expensive stocks (low book value to price) has generated consistently high returns relative to (CAPM) risk over time, albeit not without occasional terrifying episodes.

The efficient market explanation is that book value to price is a stand-in for a non-diversifiable risk factor. The behavioral story is that “a lot of individuals and groups (particularly committees) have a strong tendency to rely on three-to five-year performance evaluation horizons.” As a result, they chase “winners” and flee “losers” over a 3-5 year horizon which generates momentum and the mispricing that makes the value strategy successful. As Asness and Liew put it “investors act like momentum traders over a value time horizon.”

Asness and Liew then follow up with a very astute counter-argument to the risk-factor story:

Also, many practitioners offer value-tilted products and long-short products that go long value stocks and short growth stocks. But if value works because of risk, there should be a market for people who want the opposite. That is, real risk has to hurt. People should want insurance against things like that. Some should desire to give up return to lower their exposure to this risk. However, we know of nobody offering the systematic opposite product (long expensive, short cheap)…the complete lack of such products is  a bit vexing for the pure rational based risk-based story.

Lots of other history and insights.

58 comments

Sweden fact of the day, and the high costs of cash

by on March 10, 2014 at 4:19 am in Uncategorized | Permalink

Stockholm’s homeless population recently began accepting card payments.

The article is more generally about the high costs of cash payments and also storing cash:

 In the US, a study by Tufts University concluded that the cost of using cash amounts to around $200 billion per year – about $637 per person. This is primarily the costs associated with collecting, sorting and transporting all that money, but also includes trivial expenses like ATM fees. Incidentally, the study also found that the average American wastes five and a half hours per year withdrawing cash from ATMs; just one of the many inconvenient aspects of hard currency.

36 comments

Russia and Ukraine facts of the day

by on March 10, 2014 at 2:54 am in Current Affairs, Data Source | Permalink

The World Bank lists Russia at $14,037 per capita income.

That same source lists Ukraine at $3,867.

Russian per capita income is slightly more than 3.6 times higher. I am not suggesting that Crimea will now experience an economic boom, but this differential is worth keeping in mind as the issue unfolds.

Admittedly the Russian incomes are distributed quite inequitably (Gini of 40 compared to 26 for Ukraine), which lowers the attraction of belonging to that country.

27 comments

*Massacre in Malaya*

by on March 10, 2014 at 2:38 am in Books, Economics, History, Uncategorized | Permalink

The author is Christopher Hale and the subtitle is the rather misleading Exposing Britain’s My Lai.

The first fifth of this book is in fact the best short early economic history of Malaysia and Singapore I know, even though the focus of the book as a whole is on one colonial event, namely the 1948 Batang Kali massacre during the post-war Malayan Emergency.  The next section is a superb treatment of the Japanese occupation and the political issues leading up to that occupation.  This book reflects a common principle, namely that often, to learn a topic, you should read a book on an adjacent but related topic, rather than pursue your preferred topic directly.  The book on the adjacent topic often will take less background knowledge for granted and explain the context more clearly for what you actually wish to learn, while getting you interested in other topics along the way.

Just about every page of this book has useful and interesting information, here is one new word I learned:

The history of the ‘Malay World’ in the centuries before the momentous fall of Malacca to the Portuguese in 1511 is predominantly a convoluted narrative of maritime statelets, technically thalassocracies.

This one will make my best non-fiction of the year list.

13 comments

Vox.com

by on March 9, 2014 at 10:49 pm in Current Affairs, Education, History, Web/Tech | Permalink

That is the new Ezra Klein-led news site, and a demo version of the site is at www.vox.com, where you can watch an explanatory video.  You can follow them on Twitter here.  They are on Instagram here.  YouTube here.

You can also think of this as a project in history, or on-line education.

33 comments

Chris House on stimulus spending

by on March 9, 2014 at 3:43 pm in Economics | Permalink

These points have been far too often forgotten:

Even if the multiplier is substantially above 1, it is not obvious that stimulus spending is a good idea. The reason is that we are not trying to maximize output and employment – we are trying to maximize overall social well-being. At a basic level, the idea behind stimulus spending is that the government will spend money on stuff that it wouldn’t have purchased if we weren’t in a recession. The classic caricature of stimulus spending is the idea of paying a worker to dig a hole and then paying another worker to fill the hole in. This type of stimulus spending will increase employment and GDP but it won’t really enhance social welfare. True, we might get the beneficial effects of the stimulus but we could achieve that by simply giving the workers the money without requiring that they dig the holes. If we simply give out the money, GDP increases by less but social well-being goes up by more since the work effort and time wasn’t required.

Even though the Keynesian hole-digging example is silly, the same argument can be applied to any type of government spending. If a project doesn’t meet the basic cost / benefit test, then it shouldn’t be funded, regardless of the need for stimulus.  Of course, one form of fiscal stimulus used in the ARRA was providing funds to state governments so they could maintain services that they would normally provide. This is perfectly sound policy because it is allowing the government to continue to fund projects that (presumably) do pass the cost / benefit calculation. If the social value of a government project exceeds its social cost then we should continue to fund the project whether we are in a recession or not. If the social value falls short of the social cost then, even if the economy is in “dire need” of stimulus we should not fund it. If we really need stimulus but there are no socially viable projects in the queue then the government should use tax cuts. Tax cuts can be adopted quickly and aggressively and, unlike spending initiatives, apply to virtually all Americans.

There are other “legitimate” reasons for the government to expand spending during a recession. The most obvious is that many things are relatively cheap in recessions. Reductions in manufacturing and construction employment may lower the cost for government projects. But again, this decision can be made on a simple cost / benefit basis. If prices fall because of a recession and this makes some projects socially viable as a result, then it’s perfectly correct for the government to fund those projects.

If it makes people feel better we could re-label tax cuts as spending. I could pay people $200 to look around for better paying jobs. This would be counted as $200 of job searching services purchased by the government but in reality, the money would be essentially the same as a tax cut.

The full post is here.

89 comments

Assorted links

by on March 9, 2014 at 11:29 am in Uncategorized | Permalink

1. Are women attracted to fast cyclists?

2. Can you entertain your customers too much?

3. Some new results on offshoring.

4. H&M is making a $99 wedding dress.

5. Using Google Glass in hospitals.  And should Fed minutes be published in “real time”?

6. The growing renown of Knausgaard, “The governing emotion of My Struggle is shame.”

36 comments

The Dutch experiment with an iTunes model for journalism

by on March 9, 2014 at 2:05 am in Economics, Web/Tech | Permalink

The Netherlands’ biggest newspaper and magazine publishers have agreed to start selling individual articles for as little as €0.10 through a start-up called Blendle that aims to be the “iTunes of journalism”.

The Dutch initiative highlights how publishers are searching for new ways to make money from online content as their print businesses face declining readership and advertising revenues.

Blendle was founded in 2012 by Marten Blankesteijn and Alexander Klöpping, both aged 27.

It plans to launch in the Netherlands in April and has signed up the vast majority of publishers that produce newspapers and magazines in the country, including De Persgroep, Sanoma, Hearst and Reed Elsevier.

From the FT there is more here.

18 comments

Markets in everything

by on March 9, 2014 at 12:42 am in Economics, Philosophy, Religion, Uncategorized | Permalink

Horse head squirrel feeder.  Who could possibly want such a thing?  Is that the result of a fixed point theorem?  Aren’t fixed costs God’s way of keeping such nasty stuff away from us?:

You have a Creepy Horse Mask, why not the squirrels in your yard? It turns out it’s even funnier on a squirrel. This hanging vinyl 6-1/2″ x 10″ squirrel feeder makes it appear as if any squirrel that eats from it is wearing a Horse Mask. You’ll laugh every morning as you drink your coffee while staring out the window into your backyard. Now, if only the squirrels would do their own version of the Harlem Shake video. Hole on top for hanging with string (not included).

horse-head-squirrel-feeder-930x709-480x365

For the pointer I thank John De Palma.

22 comments

Drone carries a taser

by on March 8, 2014 at 1:41 pm in Uncategorized | Permalink

A Texas firm has revealed a personal security drone with a stun gun capable of unleashing 80,000 volts.

The firm showed off the drone in a series of shocking demonstrations bringing a volunteer to the ground.

It says the drone uses a smart app to track intruders, and once it had received the go ahead from a human operator, it fires taser darts and unleashes 80,000 volts.

…Called Cupid which stands for Chaotic Unmanned Personal Intercept Drone, the security product was revealed today at the SXSW Festival in Austin as a concept for the future of security.

Furthermore there is an app:

It can find a subject and send live video to the owner’s phone and ask if you want to authorise the subject or detain them.

‘If you detain them, it drops into fully automomous mode to detain them until police arrive, if need be stunning them with 80,000 volts of electricity to render them incapacitated.’

There is more here, with video demonstration.  For the pointer I thank Mark Thorson.

41 comments

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