Category Archives: jobs

Rational Expectations and Jobs and Progressives

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Rational Expectations is the economic theory that people act rationally, by and large and in their aggregate, in their decisions in the market place.  That is, even in the face of incomplete information, people generally form logical predictions about their future, and they act in a logical manner within the framework of their predictions.  Of course, information used in those logical predictions includes government’s actions in the market and people’s own view of what those actions will produce, independently of what government officials might aver.  And of course, in the face of incomplete information, mistakes are inevitable, both individually and across the economy.

The Progressives in government, despite the empirical evidence to the contrary from FDR’s failed Keynesian spending and Obama’s Keynesian Stimulus Act in 2009, instead insist that government spending is stimulative in and of itself, and government taxing is irrelevant to Americans: we will make no predictions from government spending, and we’ll simply accept the taxes as part of our environment; we’ll form no rational expectations of the future from these actions.

Against this backdrop, what are we to make of the Obama Jobs Bill just defeated in the Senate?  Here are the essential components of the Obama proposal:

  • $175 billion in new spending,
  • included in this was $44 billion to cover an extension of unemployment insurance even beyond the present 99 weeks of paying people for not working,
  • a further reduction in the employee’s payroll tax, a parallel reduction in the payroll tax of employers whose payrolls are $5 million per year or less, with this payroll tax reduction set to expire in 15 months, and
  • a permanent surtax of 5.6% on millionaires.

In the Progressive fantasy economics world, employers were to rush right out and hire workers, knowing that just having them on the payroll 15 months from now, their payroll tax cost of these new employees will double.  Never mind that it takes that long in a modern economy for an employer to begin to recoup the hiring and training costs of a new employee and for the employee to become productive.

Also in this world, the new employees in their temporary jobs, and existing employees with their temporary increase in take-home pay, will run right out and spend that money on everything they’ve ever wanted, and the stimulus is carried through.

Finally, in this fantasy world, the millionaires will simply not respond to their new tax: they’ll keep right on doing whatever it is they so nefariously do with their ill-gotten gains.

Here’s what rational expectations says Americans will do, and what we already did, for instance, with Stimulus I in 2009 and with the prior temporary payroll tax reduction (and the one time payments from the Economic Recovery Payment program and the Making Work Pay tax credit).  The fourteen people nationwide who actually got jobs out of Stimulus I did increase their spending, but not by much: they used as much of their windfall as they could to cut into their debts, which had increased sharply as they tried to cover necessary expenses while having no income.  We didn’t spend those payroll tax reductions, knowing they were impermanent—knowing, even, how short-lived they were.  We didn’t spend those one-time payments, either.  Instead, we saved them against future needs, trying to rebuild our savings, or we paid down our debt.  Employers didn’t hire, accurately predicting into the future that those temporary reductions would expire and their costs would expand suddenly and sharply.

The 99 weeks of unemployment payments already have led to a level of extended unemployment duration unmatched in decades: nearly 45% of those currently out of work have been in that state for more than 6 months.  As any freshman Econ student understands, when government subsidizes a thing, government gets more of that thing.  And so it would have been with the proposed extension in unemployment insurance beyond those 99 weeks.

And those millionaires with their shiny, new tax?  They were going to do what any rational human being does: adjust their incomes and investments so as to mitigate the effect of that tax: these job producers, these owners of businesses, were going to reduce their exposures—and not hire more workers in the process.  Those would have been permanent adjustments to their permanent new tax.

These rational responses to temporary government actions were such a complete shock to the Progressives since Stimulus I and those one-time “stimulative” payments that they simply denied the responses occurred.  This is why the Obama jobs bill, thankfully defeated in yesterday’s vote, was proposed in the first place, and why it was structured as nothing more than Stimulus I Reduced.

This Progressive move is part and parcel with their attitude toward the intelligence of the workaday American: we’re just too stupid to think for ourselves.  We’re not capable of behaving rationally.  This is also demonstrated by their mantra that our problem, the reason we don’t just blithely follow them over the cliff, is that we’re too stupid to understand their message.  They must keep adjusting how they communicate with us because we just didn’t get it the first time.  Or the second.  Or the umpteenth.  And so, since we’re too dumb to form rational expectations, their interminable Keynesian spending is perfectly sound economics.

Progressives actually argue, with a straight face, that their programs have saved or created millions of jobs.  Here’s one example of how well that’s actually worked, in the Progressives’ precious “green jobs” milieu, and how honestly their accounting has been done.

Finally, no Progressive (or modern Conservative, come to that) has been able to show that the “recovery” currently in “progress” is due to the “stimulus” bill passed in 2009, or due to the stupendous Federal spending and even more stupendous Federal borrowing, generally, or to some combination of these.  They cannot offer any evidence that whatever anemic recovery might be in progress is due, instead, to an ordinary, normal business cycle recovery.  A recovery that has, in fact, been held back by all of that spending and borrowing, just as the nascent economic recovery in 1937 died shortly after birth from the Federal spending and borrowing and free market interference of FDR.

Why Should Teachers Have Tenure?

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Caution: long post….

Tenure for teachers (for the purposes of exposition, I include teachers in the K-12 grades and professors in colleges and universities under the rubric “teacher”) is job security to the point of having the job for life.  But does tenure serve any useful purpose?  That is, given this security, do we get better quality teaching?

The purpose of the job of teaching is to teach—that is, to produce quality students, students able to move to the next level of learning, and ultimately to leave school and embark on their own lives as self-sufficient, capable, productive adults.  Before receiving tenure, teachers must serve a probationary period that can extend, depending on the particular institution, from one or two years of teaching to as many as seven years before they can be considered for tenure.  Does tenure further this purpose?

The advantages claimed for tenure are these: academic freedom, safety against arbitrary dismissal, preservation of experience and skills accrued over a career of teaching.  We’ll address each in the following paragraphs.

Tenure fosters development of original thinking because the teachers have the safety of their job within which to exercise a large measure of autonomy in exploring new ideas, developing new concepts.

To gain tenure, though, the probationary teacher must conform to the established thinking and performance bounds of the tenured faculty and of the administrators who, together, determine the teacher’s continued employability, even before they consider the teacher’s suitability for tenure.  Further, with this safety of tenure, where is the incentive to innovate, to think things anew, to explore, to run risks with different ideas?  While some few will do these things without incentives, most teachers find it easier simply to stay with the familiar—at the expense of innovation.  With nothing to lose in their safety, tenured teachers see nothing to gain by deviating from the familiar, the safe.

Tenure also makes it easier for tenured teachers, where they have input (which primarily, but not exclusively, occurs in the colleges and universities), to support tenure for colleagues who might challenge these senior teachers, were the latter not safely tenured.  But what does this “advantage” of tenure say about the tenured faculty, really?  Quite plainly, it demonstrates that the tenured are chary of challenge, they are leery of the competition from colleagues who, operating on an equal (untenured) footing, innovate themselves, develop and try new ideas themselves, and so on.  By succeeding at these, those competitive juniors represent the real threat to the tenured faculty: the juniors are doing a better job, and are more creative.

Tenure provides safety against arbitrary dismissal.  One hundred years ago, when the concept of teacher tenure was being developed, teachers often were dismissed because of their politics, because of their race, because the woman teacher stayed out too late at night, because she got pregnant.  These were valid beefs then, and a system of protection against such claptrap was needed.

Today, we have a suite of labor law that achieves this.  Discrimination on the basis of race, gender, politics, and so on is illegal, and there are several metrics in place in case law, and in the laws themselves, that effectively identify such discrimination.  Arbitrary dismissal of teachers is no longer a threat, and it has not been for more than 30 years.

As long ago as the 1890s, major donors could successfully remove some professors or block the hiring of others, and this was viewed as a negative—one of those arbitrary dismissals or hirings.  But why should a major donor not be allowed to specify how his donation must be used?  When we “donate” our money to a businessman in order to receive his product, are we not allowed to demand that the product live up to its promise?  When an investor “donates” his investment to a business, should not that investor be allowed to specify how his investment should best be used?  When we donate our money to a charity, are we not allowed to specify its use?  So it is with donations to educational institutions.  The donors have every right to demand that the institution’s product—its students—be well enough taught to live up to the institutions’ promise of their product.  The investor in an educational institution should be able to specify how his investment is to be used for the greatest efficiency in producing qualified students.  Such specifications clearly include the personnel as well as the physical plant employed.

Tenure preserves for the classroom the experience and skills accumulated over the course of a life of teaching.  But tenured teachers choose the classes with the advanced students, the school districts’ better schools and facilities.  All of this experience and this vaunted skill set thereby becomes unavailable to the disadvantaged students, who are taught by the (no doubt, hardworking and well intentioned) less experienced and the inexperienced new hires.  What is the advantage of tenure for these students who most need that experience and skill?

Following are some additional disadvantages to tenuring teachers.

With tenure, it’s extremely difficult to fire inadequate teachers.  New York City’s only recently suspended “rubber rooms” are a blatant illustration of this shortcoming.  In these rubber rooms, failed teachers—teachers acknowledged to be failures by their schools and their union alike—sit around unproductively and at full pay, often for years, while their cases wend their way through “due process” before they can be removed from the district’s payroll.  A lot of press has been expended on the unions’ role in this travesty, and to be sure, the union plays a part.  But it’s tenure, not union rules, that are most in the way of correcting this.

Indeed, tenure makes seniority the main factor in dismissal decisions, instead of teacher performance and quality.  Tenure requirements create a “last-hired, first-fired” policy; merit receives little to no consideration.  Even in those contracts under development which include students’ test scores as a factor in evaluating individual teacher performance, this actual classroom output remains a minor factor; longevity and teacher education (as opposed to student education) still are the dominant considerations.  This was made plain by the New Jersey teacher’s complaint to Governor Christie a couple of years ago: “You’re not compensating me for my education (her plaint occurs beginning about 0:40 of the clip).  She’s right, but she fails to understand the problem.  She’s being paid for the product she delivers, educated students, not how much self-improvement she undergoes.  Tenure, thus, is little more than an excuse by teachers to be paid for their input, not for their output.

Finally, tenure at colleges and universities tends to depend on research grants and publications and not on actual teaching, much less quality teaching.  Indeed, one of the perks of tenure in the hallowed halls is a lighter teaching load.  In K-12, tenure isn’t even pretended to be earned; it’s granted as a matter of routine. Teachers only need to teach for a short period of time to receive tenure.

Right to work states have higher employment rates than states with “safe,” union jobs.  This is no knock on unions in this context, but it illustrates an important point.  Having a job in an environment where an employer is free to fire employees who are not producing is no threat to a quality employee.  It is no threat to a quality non-tenured teacher’s employability, either.  On the contrary, that teacher’s merit as a teacher, how well that teacher is preparing his students for the next stage of their lives, determines that teacher’s employability, and just as no worker in a right to work state need fear for his job so long as he’s actually doing it, no teacher need fear for his job, so long as he’s teaching effectively.  Tenure provides no more job security than that of actually performing well.  In the end, tenure isn’t needed generally in right to work states, and tenure isn’t needed anywhere in the teaching industry.