Tim Harford The Undercover Economist

Articles published in April, 2006

Multiple choices

The Undercover Economist – FT Magazine, 8 April

Anguish in Hackney. Our neighbours’ daughter – let’s call her Georgina – just missed out on a place at the local comprehensive school, a brand-new “academy”, well-funded, staffed by uber-teachers, designed by Sir Richard Rogers, with meals by the River Cafe and an organic kitchen garden laid out by Jamie Oliver.
The school is a five-minute walk away and Georgina is the brightest girl in her class, but she was unlucky. With eight applicants for every place, her name simply didn’t emerge from a carefully stratified lottery designed to draw children from every ability range and from near and far.
Now what? If her parents do nothing, Georgina will have to commute across London to a school with places going begging. No prizes for guessing whether it will be a good school. But her parents won’t leave it like that. They may head for commuterland, but more likely will remortgage the house to put her through private school. Neither option is appealing to both parents who work for modest wages at an inner-city charity, but the alternative is worse.
It’s a familiar tale of middle-class woe, but we should look again at what it tells us about the state’s attempt to force mixed-ability schooling. The careful lottery seems to have made the swanky academy inclusive, but failed to prevent segregation in other schools. The lesson: provide a good enough school for free and you can select whatever mix of children you like, but provide a bad school and you will not prevent parents from finding an escape route.
Enthusiasts of mixed-ability education might insist that we should try harder to prevent this stratification. They are determined that bright kids go to school with dim kids, rich kids go to school with poor kids. It is apparently perfectly acceptable to use people as sacrificial pawns in a utopian game, as long as they are under the age of 16.
Why not abandon the oppressive and counterproductive attempt at social engineering and let parents send their children to whichever school they prefer? The easiest way to do that would be to sell all the state schools to Tesco or Virgin and give parents the money to pay for their children’s education. Schools with pupils would get cash. Schools without, would not. The local centre of excellence would need to expand and open new branches; the dreadful schools nearby would have to close because of good old-fashioned bankruptcy.
A big objection to letting parents choose the school is that poor parents aren’t able to choose wisely, or do not care enough to do so. Recent US research suggests that this is a particularly insidious prejudice.
Parents in the US are allowed to request specific elementary school teachers for their children, and almost always get their requests granted. So economists Brian Jacob and Lars Lefgren compared the requests with the evaluations of school principals. The results will surprise some: wealthier parents requested teachers who were good at keeping their pupils happy, while poorer parents demanded teachers who had a gift for boosting test scores. Far from not caring about scholarly achievement, poorer families crave it.
A fully private system of schools is likely to horrify even the enlightened readers of the FT, but economists always like to ask, “compared with what?”. Georgina’s parents will make choices and they will spend money; it’s just a shame neither the money nor Georgina will go to a local school.

In loo of economic analysis

Dear Economist,

Should I leave the lavatory seat down, as my wife demands? Or, with gravity on her side, should she be lowering it herself?

Michael Govind, Cirencester

Dear Michael,

Jay Pil Choi, a (male) economist at Michigan State University, has demonstrated what men find obvious and women seem unable to grasp: that the “status quo” rule (leave it how it was when you finished) is more efficient than the “down” rule (put it down afterwards) under most plausible assumptions. The reasoning is that the seat should be moved only when necessary – just before someone uses the lavatory.

If a man visits the lavatory twice in a row, the “status quo” rule saves the cost of lowering the seat when leaving only to raise it when returning. Choi also shows, using some fancy maths, that the “status quo” rule is still superior even if the inconvenience cost to your wife of moving the seat is nearly three times the inconvenience cost to you.

Why then, the continued controversy? Richard Harter, a (male) mathematician, has calculated the incremental costs of moving from bachelorhood or spinsterhood to connubial bliss. Since men sometimes need the seat down, they are used to bearing the cost of moving it. Women who live alone or with other women need never move the seat at all; therefore the incremental costs of moving to a mixed household are obvious.

Yet I feel that these thinkers have missed the bigger picture. Assume two types of man: the considerate gentleman and the selfish pig. It is famously difficult for women to distinguish them at first sight…

Continued at ft.com.

1st of April, 2006Dear EconomistComments off

Cheap Tricks

The Undercover Economist – FT Magazine, April 1

The Labour party is accused of taking loans of £4.5m and rewarding lenders with life peerages. In the US, where everything is bigger, lobbyists spend at least that per congressman; annual spending is more than $2bn a year. Only an economist, then, would ask why there is so little money in politics.

We have seen countless hand-wringing books arguing that democracy is for sale, and, given the plentiful supply of scandal, this is easy to believe. But something doesn’t add up. Assume for a moment that the most pessimistic hand-wringers are right and the government really is for sale. How much would you pay for it? In the UK, government spending is nearly half a trillion pounds a year. If anything, this is an underestimate of how much it would be worth to control the government, since if I was an industrialist with the government in my pocket, I could order that foreigners be fended off with tariffs, and domestic competitors be bound fast with red tape.

So how much would I pay to control the government for a year? In an auction, I would be willing to pay at least half a trillion pounds. And I would have to, since other people would be willing to spend the same. Lobbying is a more chaotic process than a simple auction, but fancy economic theorems suggest that the total spending by lobbyists shouldn’t be influenced by whether it runs through an auction or not; it should simply be influenced by the size of the prize.

The reality could hardly be more different. The Labour party spent just £18m winning the last general election, but the government will spend at least £1.8 trillion across a four-year period in office. That’s like spending a tenner to get control of a million pounds: not a bad return. Even taking into account the money the losing parties spent in vain (less than £25m, according to the Electoral Commission), it appears the government is going for a song.

Political markets seem more competitive in the US, where a single senate seat attracts tens of millions of dollars in campaign contributions. According to the Center for Responsive Politics, Bush and Kerry each raised $300m to $400m for their presidential election campaigns. Yet, compared with the $2.5 trillion the federal government controls, these are still tiny sums.

What can we conclude from this? One possibility is that the people who have bought our governments have got a fantastic bargain. The economist Thomas Stratmann has estimated that just $192,000 of contributions from the American sugar industry in 1985 made the difference between winning and losing a crucial House vote that delivered more than $5bn of subsidies in five years. I’m not convinced. Think of Starbucks, McDonald’s, Coca-Cola or The Hershey Company. There is no shortage of candidates who would pay more than $192,000 to get lower sugar prices in America. That would mean a bidding war between sugar producers and sugar users to buy the right to rewrite sugar laws. Surely the price would be nearer to $5bn than $192,000?

The alternative view is the one you have been thinking since the second paragraph: thanks to checks and balances, our government is not really for sale at all, or at least only marginally. Some £1.8 trillion of government spending is controlled by a party that collected and spent just £18m – and that means that even if every penny is donated with the hope of buying political influence, the British system of government is, roughly, 0.001 per cent corrupt. I can live with that.

A US edition of this piece is available at Slate without subscription.
Some readers have requested footnotes. The economist who originally asked why there was so little money in politics was Gordon Tullock, in a 1972 article, “The Purchase of Politicians”. Stephen Ansolabehere, John de Figueiredo, and James Snyder revisited Tullock’s theory and the evidence thirty years later. Thomas Stratmann’s papers are here, or check the numbers yourself at the Center for Responsive Politics.