Business vs. Creativity

I've got yer business model right here!

[W]hen I wrote comics, I lived in the moment, letting my stories tell me what to write about, riffing off the zeitgeist month by month.

This is the main thrust of a short post by Steve Englehart regarding the creative freedom that comic book writers had back before all the blockbuster movies were based on comic book superheroes. Englehart remembers the good ol' days fondly, as we all tend to do when waxing nostalgic: "Once we creators were Marvel or DC." He is less impressed with the modern comics industry:

Today, the comics companies are top-heavy with editorial interference.[...] They expect writers to give them synopses for the next twelve issues in their series, so that when the writer finally gets to that twelfth issue, the material is so old and stale that he might as well just blow his brains out, for all the satisfaction he can derive from it.

I find it pretty common that creative-types bristle when their activity is governed by business-types. Is this because they have different ideas about what customers really want? Or is it because they want their products to satisfy different people with fundamentally different tastes? Tyler Cowen and Alex Tabarrok have a paper on the topic (which I've mentioned before) that takes this latter view. This "different targets" view seems to imply that, as we develop technology that lets us mass produce goods that used to be produced by artisans, we should see see the influence of creative-types fall and the influence of business-types rise.

On the other hand, I know of many who would support the idea that the goal may be the same, but there are multiple ways of trying to satisfy a given target audience, and creative-types will have very different ideas on this than business-types. Sir Ken Robinson would say that we live in a world where we neglect and ignore creativity to our detriment. This "different techniques" view leaves open why one group would gain more influence than the other, but it also suggests that it's possible to reverse the trend if enough people are willing to try. No such reversal seems possible in the "different targets" view.

So which is it? Was Steve Englehart driven out of comics by the inexorable market forces acting on a good that is easy to mass produce? Or is his lament a rally cry to take the power from the suits and give it back to the creators? Or is there a consistent view in between with its own set of important implications?

Friday Video Extravaganza

I know I've done fake trailers before, but I couldn't help bringing it out again. Below the jump break, trailers for movies that don't exist.

What Schooling Is For

Today is the start of another semester, and that means the ever popular Opening Lecture. I sorted out several semesters back that I'm not the only one bored to tears when the first thing a professor does in a class is pass around a syllabus and then read it. Instead of doing that, now I open by explaining to students why they're in my class; not why they're taking microeconomics, but why they are in college in the first place. It allows me to bring up a lot of topics we'll cover over the semester, and I think it's pretty eye-opening to those who are likely to pay attention to the course.

Now, I don't really go into the historical sources of the university system, although that certainly would be suggestive. Matt Yglesias puts it this way:

[...]as Brad DeLong likes to point out the “get a bunch of people in a room to listen to some guy talk” model of education was an organizational response to the high price of books. In principle, it would seem to have been made obsolete by the printing press and the public library. Yet obviously that didn’t happen. Colleges and universities managed to make themselves indispensable sources of credentials and social prestige. And though they’ve of course incorporated information technology innovations into their work, they still engage in an incredible quantity of pre-Gutenberg educating.

So advancing our knowledge was once the primary purpose of schooling, but it hasn't been for a long, long time. This is why when I see questions like Arnold Kling's ("Yes, our kids do graduate, but could they have learned just as much on their own on the Web?"), I can't help but feel he's missing the main point.

As a teacher, I want how I teach to be shaped by the goals the students have when they sign up. As an economist, I know that these goals really fall into three broad categories: consumption, productivity, and signaling.

'Consumption' means some students go to school because they like it. Maybe the enjoy the social environment, or maybe they think the subjects are interesting. Perhaps, as one keen observer of the human condition has said, people go to college to become better conversationalists. In any case, all these reasons are just different ways of saying they derive satisfaction from the experience of school itself, and in economics, when people derive satisfaction from the thing itself, we call it consumption.

The problem with this is that formal schooling is usually only fun for those who are naturally good at formal schooling (i.e., people like me). For many others, it's a torturous, life-sucking experience that drains the creativity right out of them. Sure, college parties are fun, but why borrow money so your four years of partying can be interrupted by memorizing facts about price controls? Why don't we send everyone to Europe for two years, then send 'em to the workforce?

'Productivity' is what most traditional views of education focus on, and what all political posturing focuses on. Productivity means students go to school to make them better at whatever they are going to do when they stop going to school; sometimes schooling is viewed as a requirement to gain necessary skills, without which many people simply could never figure out how to do some jobs. Within this class is the idea that workers with higher productivity are more valuable to employers, and generally this will be reflected in higher wages / salaries and better benefits offered.

Productivity is what everyone worries about when it comes to education, but in reality it's probably the least important reason to go to school. Part of the reason is precisely Arnold Kling's point: intelligent individuals can learn most of the same things on their own. Formal education doesn't make kids smart, and it doesn't make them dedicated or hard-working. In some cases it can help by imposing a degree of discipline on students who aren't very good at self-discipline, but it's probably as likely to have the opposite effect. So what is formal education really good at?

'Signaling' is the primary purpose of education. It's all about credentials. The thing is, employers need to be able to distinguish people who are talented in the areas that matter to them most from those who are not very good in those areas. One of the best ways to do this (for technical reasons that I won't go into here) is to see who is willing and able to endure the most hardship in the name of the areas that matter to the employer. Hence, college majors. Of course, colleges need to be able to sort students into those most likely to succeed in a given area, too, so they look to those who dealt with the most (semi-relevant) pain in high school. High schools do the same, and so on.

In the end, most of what formal education is about is enduring hardship as proof that you have passion and talent for something. It sounds ridiculous, but it's actually quite important for employers to be able to make good decisions. Of course, this presents a problem the earlier you get in someone's life, because children usually don't know their talents yet, and if they are locked into a course early they never get the chance to explore and find what their real passions are. That doesn't mean formal education is bad. But it does mean we should use education for what it can do, and avoid using it for what it can't.

Friday Video Extravaganza

We're auto-tuning after the break (language warning on all videos, btw).

Truth Claim of the Day

We are at the beginning of the Death of Credentials. The ROI [Return On Investment] for 95% of college educations will be negative.

Please, discuss. The context is here. I'm particularly interested in the thoughts of those who are currently or plan to eventually be teaching at the post-secondary level.

High Tax, Low Tax

There has been a lot of talk among economics bloggers about Ezra Klein's informal poll regarding the Laffer Curve. The key is that how high we set our highest income tax rates (called "top marginal rates" by those who like using economic-y words like "marginal") matters a lot for how much money the government actually brings in, especially from the wealthiest citizens. Klein summarizes this favorite tool of conservative political discourse:

The idea, popularized by economist Arthur Laffer and writer Jude Wanninski in the 1970s and '80s, is simple. Tax rates of zero percent produce no revenue, for obvious reasons. Rates of 100 percent should produce no revenue either, as no one would bother making the money that falls into that bracket knowing it would all be taken away. Thus, presumably, there is some rate in between the two that maximizes revenue. Go above it and revenue would fall because people would avoid taxes or stop working; go below it and revenue would fall because less money would be taxed.

That is, as we raise taxes we increase government revenue, but at some point this has to stop being the case. The reasons put forward for this are many, among them the following:
(A) if taxes are too high people have a very strong incentive to lie about their income levels;
(B) if taxes are too high people have very little incentive to work more / harder (they won't see most of the benefits anyway);
(C) if taxes are too high the highest income earners have a strong incentive to take their business somewhere else more wealth-friendly, like Singapore or Hong Kong;
(D) if taxes are too high government will be too big a part of the economy, and since government is not as good at promoting long run growth as the private market, long run growth and overall income will suffer, and tax revenues will suffer along with them.

Some of these are much stronger arguments than others. (A) is a big one on a practical, year-in-year-out level. (C) probably plays an important role in the long run, on the order of several decades, and becomes more of an issue the more globalized the world becomes and the more high income earners get paid for their skill with information (which means its easy to do what they do from anywhere). (B) and (D) are tempting philosophically, but there's just not much empirical evidence to support them.

Still, one thing is certain: we definitely don't want to be on the wrong side of that peak, so knowing where it is could be very important. Thus, Klein decided to ask some experts where the peak is.

There were a lot of bad answers to his question. To be sure, figuring out where precisely government revenues can't go up anymore is hard, but a lot of the people Klein asked gave numbers based almost purely on ideology---as opposed to, I don't know, data, or even theory---but acted like it was based on research. Others gave a single number as if they'd seen the number written on stone tablets somewhere. But there were some pretty good answers among the bizarre ones.

Probably the best numerical answers were given by Emmanuel Saez and Bruce Bartlett, both of whom offer a way of getting a range, and both of whom put the number somewhere around 60% to 80%; in other words, the US was probably close to the edge at the beginning of Reagan's presidency (top rates were around 70%), but we're nowhere close right now.

Greg Mankiw pointed out that in a longer term situation people will probably respond more to the tax rates they face, although he does seem to put a lot of stock in the economic growth argument that, as I mentioned, isn't great empirically. Bruce Bartlett adds a pretty important insight:

I think 50 percent is an important threshold and I would be very reluctant to go higher even if it raised net revenue.

This is key, in my view. Yes, we might be able to raise revenue up to a certain point without crossing the threshold, but there are good reasons to not just stay on the left side, but stay significantly on the left side. If we reach the peak, we've already gone too far. For this reason, my favorite response is Marty Feldstein:

Why look for the rate that maximizes revenue? As the tax rate rises, the "deadweight loss" (real loss to the economy) rises so as the rate gets close to maximizing revenue the loss to the economy exceeds the gain in revenue.

If only my micro principles students could think like this.  Yes, it might bring in revenue. It might not even be hurting long term growth. There are still important economic reasons---distortions to the economy---not to go that far.

There's a moral dimension here, too, but that is, I suppose, a post for another time.