How to Admit Students to College

Colleges base their admission decisions on a variety of different criteria. One of them is how well the student can write. At present they have two ways of measuring that, neither of which is worth much.

One way is by the SAT writing exam. The problem is that consistent grading across a large number of students requires something close to machine grading, human graders checking the essay against a simple and objective set of criteria. That might tell you how well the student has trained for the test but it is not very good evidence of how well the student can write.

The other way is by having a prospective student send in an essay for the admission people at the college to evaluate. However good a job they do of evaluating the essay, they have no way of knowing who wrote it. The applicant may have written it entirely himself, he may have written it himself and had it gone over by someone more expert in writing, he may have hired someone to write it for him. I have no inside knowledge, but given how important college admissions have become I would be astonished if no such market exists.

There is a simple solution. Many applicants visit a college before applying. As part of the process, put the applicant in a room with a computer and a list of topics and give him an hour to write an essay. If the applicant is not going to visit the college, perhaps there is an alumnus living near him who would be willing to provide the computer and monitor the writing. If multiple colleges want applicants to write essays under controlled conditions, it should be in the interest of someone, perhaps the organization that now administers SAT exams, to arrange suitable facilities in cities scattered across the country.

It seems like an obvious idea and I do not know why, so far as I can tell, it has not yet happened.

How to Buy a House

If you go to a real estate agent in search of a house, there are two questions you are likely to be asked. One is how much you want to spend. The other is what sort of house you are looking for—how large, how many rooms of what sort, in what location. 

It is in the agent's interest to ask the first question; since his commission is a percentage of the sales price, he would like to sell you the most expensive house you are willing to buy. It is not clear that it is in your interest to answer it. Even if you can afford a two hundred thousand dollar house, you might prefer one that fits your requirements a little less well and costs substantially less. If you tell the agent that you are willing to spend two hundred thousand dollars, he may decide not to show you any house that will sell for much less than that.

The second question raises another problem—what you want to buy depends on what it costs. You would prefer a house with a bedroom for you and your wife, a bedroom for each child, and an extra room for a home office—but if an extra bedroom increases the price of the house by too much, you could put your desk at one end of your bedroom or persuade two children to share a room. In order to give a sensible answer to the question, you need a price list, a description of how much more you can expect to pay for a larger house, one with more bedrooms, one in a better location. If you had such a list, you could figure out about what sort of house you wanted to buy and what it should cost and ask the agent to select houses to show you accordingly.

So far as I know, no such price lists are currently available—but there is no good reason why they shouldn't be. Realtors have access to extensive information on houses that have sold. In any area with a sufficiently lively real estate market, it should be possible to use conventional statistics to work out from that data about how much more a house costs with one more bedroom, all else held constant, or with an additional hundred square feet of area, or with a larger yard, or in a better school district. My proposal is that somebody, perhaps the existing multi-lister service that provides the data to the realtors, should do so. The realtor could then provide his customer with a price list, the customer could decide about what sort of house he wanted, and the realtor could proceed to find the houses that came closest to fitting what his customer wanted.

I should  add that it is almost twenty years since I was last in the market for a house. If what I have just proposed is, at this point, common practice in the industry, perhaps one of my readers with more up to date information can tell me.

How Bar Passage Rates Should Be Reported

I have decided, for no particular reason, to post some modest suggestions for improving the world. This is the first.

Law schools compete for students, even more fiercely than usual in the current environment of declining enrollments. Most prospective students plan to be lawyers, being a lawyer requires, in most states, that you pass the bar exam, so an important metric of a law school's quality, arguably the most important, is the fraction of its graduates who pass the bar.

Whether a student passes the bar depends in part on the education he got from his law school, in part on how smart and hard working he is—characteristics for which LSAT score and undergraduate grade point average provide at least an approximate measure. Thus a law school can increase its bar passage rate, quality of education held constant, by admitting students with higher LSAT's and GPA's. Since increasing that rate will result in more students applying to the school, there is an obvious incentive to do so. 

One way of getting better qualified students to go to your school is by offering them scholarships. The result is a system where the ablest students, the ones most likely to end up as high paid partners in elite law firms, get an education subsidized by the tuition payments of the least able students, the ones most likely to end up with a large debt and no job. It is a bizarre result by almost any standard, and particularly anomalous given that the culture of most law schools is predominantly left of center and egalitarian.

It is also the result of a logical mistake, a fallacy of composition. Getting a student who is almost certain to pass the bar to come to my law school raises the school's bar passage rate, but not by raising the odds that other students will pass the bar. The information relevant to a prospective student is not what the average bar passage rate at a school is but what the bar passage rate is for students like him.

I  see no reason why that information cannot be generated and made available. Let each law school run a regression fitting bar passage rate for, say, the past three graduating classes to LSAT, showing how likely a student with any given LSAT is to pass the bar. Do the same thing with GPA. Publish the results. It might turn out that the student who is readily accepted at SCU but can barely get into Stanford will have a better chance of passing the bar if he goes to the former school, even though the latter has a higher average bar passage rate. The question is not which school is better but which school is better for which student.

If that information is made available and students choose to base their decisions on it, the perverse incentive currently faced by law schools largely disappears. They can still increase applications by doing a better job of educating their students to pass the bar. But stacking the deck by competing to get better qualified students to come will no longer work.

There is a second advantage to this change from the standpoint of those law professors, probably a sizable majority, who are in favor of affirmative action—meaning, in practice, lower admission standards for black students. There are two arguments against the practice that ought to concern them. One, from the standpoint of the school's selfish interest, is that lower standards will mean a lower bar passage rate, making it harder to get students to apply. Another, from the standpoint of the people the policy is supposed to help, is that admitting underqualified students may mean setting them up for failure. The same student who would get a good education at SCU, where he is about as well qualified as his fellow students, might have a much harder time at Stanford, where he is near the bottom of the distribution, and similarly all along the line. It is at least arguable, may well be true, that the real effect of affirmative action by law schools is to reduce, not increase, the number of black lawyers. 

My proposal solves both problems. Law schools that choose to admit less qualified students no longer lose reputation and applications as a result, provided they can do a good job of educating the students they admit. And students, black and white, will be in a position to decide for themselves which school will give them the best chance of passing the bar.

Did Rand Get Obama Right?

Not Rand Paul, Ayn Rand.

The current Obamacare mess reminds me of part of Rand's picture of the bad guys in her novels—that they thought that if only they gave sufficiently forceful orders, what they commanded would have to happen, that objective reality was subject to human will. The Obamacare exchanges had to work, Obama told his people to make them work, so it would happen. They didn't work. Obama ordered his people to fix them by the end of November, so that will happen.

My guess is that it won't. 

More important, whether the exchange works or not, I don't think it is possible for the program to work in the way Obama and his supporters predicted, to make better insurance available at lower cost to more people. If I am correct, there are two possible explanations for how the program got passed. 

One is that Obama and his supporters were engaged in a deliberate fraud along lines such as those I described (and rejected) in my previous post. The other is that Rand had it right, that they believed that if only they had sufficient will reality would bend and things would turn out the way they wanted, that all arguments to the contrary were produced by people with either bad motives or insufficient determination. 

What I gather that Thomas Sowell, in a book I haven't read but have read about, referred to as the unconstrained vision.

Consequences of the Failure of Obamacare

In reading critics of Obamacare, I occasionally come across an interesting, if mildly paranoid, theory—that it was designed to fail in order to bring in the single payer system that its supporters really wanted. I would not be surprised if there were supporters who saw it that way, but I doubt that they represented a significant fraction of those that initially supported the program. It is, however, worth thinking about whether that strategy, deliberate or not, will work. If Obamacare turns out, as now seems likely, to be a clear and massive failure, what will come out of its collapse?

The theory I described makes most sense from the standpoint of people on the left who were strong supporters of a single payer system. Many of them saw Obamacare as a compromise with the Devil, a kludge that retained an unnecessary and inefficient system of private insurance. Some even said so. From their standpoint, the obvious implication of its failure would be that it did not go far enough.

Whether or not they are correct in their view of what should happen, I do not think their view works in terms of what will happen. Obamacare, having been fiercely opposed by Republicans and especially conservatives, is widely perceived as a form of socialized medicine. After observing that the glittery promises offered to pass it were wildly false, I do not think voters are likely to conclude that it went in the right direction, just not far enough.

What I would like to see come out of its collapse is a shift in the other direction, away from the extensive government involvement in medicine and medical insurance that already existed before Obama. While people often talk as though the pre-Obamacare system was private, about half of all medical expenditure was by governments and the rest  in various ways regulated. I have seen it claimed, whether correctly I do not know, that the anomalously high cost of American medicine, the one part of the standard criticism that is clearly true, only dates from the introduction of medicare. Perhaps one of my readers can offer data to support or refute that claim.

Two obvious reforms in the direction of something closer to a free market would be to permit interstate selling of insurance and to eliminate the regulations, I think largely at the state level, that, like Obamacare, constrained what insurance companies had to offer their customers. It makes sense that suppliers of mental health services would lobby governments to force insurance companies to cover what they sold—whether or not most purchasers of insurance thought such coverage was worth its cost. Similarly for  other services.

Readers interested in discussions of these issues by someone who knows much more about them than I do may want to look at the website of the NCPA, John Goodman's organization.

Defining Austrian Economics

Yesterday I spoke at a Students for Liberty Conference. Before the talk I had a conversation with several students who identified themselves as supporters of the Austrian school of economics. I asked them if they could explain what that meant by identifying a proposition in economics that almost all Austrian economists and almost no non-Austrian economists would agree with. 

One response was along the lines of "Austrians believe that one can derive economic conclusions from convincing axioms without adding any empirical facts." So I asked them to give me an example of such a conclusion, of a statement that one could  test, observe the truth or falsity of in reality, that could be derived in that way.

I now put the same two questions to any readers of this blog who consider themselves believers in Austrian economics. Can you state such a proposition? For the particular proposition that was proposed, can you give an example, a prediction about the real world that can be made with certainty from economic theory alone with no input of real world information? 

My talk was on National Defense in a Stateless Society; I  have now webbed

a recording of it.

Iran's Nuclear Program and the Political Time Horizon

Supporters of an expansive role for government often argue that we need government to make us take account of the long run consequences of our actions. As best I can tell, this is precisely backwards. One way of seeing why is to think about the incentive, in a private market, to make investments that pay off in the far future, possibly after the investor is no longer alive—for someone sixty years old to plant hardwoods that will take forty or fifty years to mature. The reason doing so is in his direct self interest is that he can sell the land with the trees on it to someone else in ten or twenty years, when he is still around to spend the money; the price he can sell it for will reflect the fact that the trees are that much closer to mature. Working through the logic of the situation, it is straightforward to see that the investment is worth making as long as the expected return is at least as high as any alternative investment.

For this to work,  the investor has to be reasonably sure that when he wants to sell the trees they will still be his. If he believes that, each year, there is a ten percent chance that someone will steal his trees or that the government will decide they are an essential national resource and confiscate them, the investment will only pay if the return is at least ten percent per year more than the return on a safe investment. To put it differently, long run planning in the private market depends on secure property rights.

Politicians have insecure property rights in their political assets. If Obama does something that is politically costly now but that produces highly desirable results twenty years from now, it will be the president in office then who will get the credit. One way of interpreting Obama's repeated claim that anyone who liked his insurance could keep it, a claim he surely knew was false and knew the voters would eventually discover was false, is that he steeply discounted a political cost that would only come due after his final election. Long term effects matter to politicians only to the extent that voters can predict them and care about them—and a voter, knowing that his vote is very unlikely to change the outcome of an election, has no incentive to be well informed about such things. A politician in office can claim that whatever the voters do not like about the present is  the price for getting something they will like in the future, but there is little incentive for the politician to care whether it is true. Josef Stalin could not plausibly tell the people he ruled that they were living well, but he could and did tell them that their current hardship was the price of catching up with and surpassing the capitalist West. It was only long after his death that that particular lie finally caught up with his successors.

Which brings me back to the subject of this post. Doing anything substantial about the Iranian nuclear program—for instance making war on Iran—would be politically very costly for this administration or previous administrations. It makes sense instead to do whatever relatively easy things they can to slow the development of an Iranian atomic bomb in the hope of postponing its appearance until someone else is in the White House. And when someone else is in the White House, the same logic applies.

I suspect the Iranians are smart enough to have figured that out.

I should probably add two further points. The first is that I think the Iranians are trying to develop nuclear weapons because it seems to me an obviously sensible thing, from their point of view, for them to do. Further, I can see no other reason why they would have put large resources into developing a nuclear industry. The second is that I am not arguing that the U.S. should have attacked Iran. My own view is that U.S. foreign policy throughout my lifetime has been too aggressive, rather than not aggressive enough. My point is merely that even if we should have done it, we probably wouldn't have, and that current negotiations are much more likely to produce an illusion of progress that Obama can use to bolster his ratings than real progress.

I hope, however, that I am wrong.