Tuesday, January 18, 2011

Poor kids are dumb. There's nothing we can do about it

I just came across this article by Joan Barkan in the left leaning Dissent Magazine, about reforms in our education system, and I was, quite frankly, appalled.

The article's core premise is that Bill and Melinda Gates and the Broad Foundation have a disproportionate impact on the education agenda. I don't really have much of an opinion on that. My wife is an education professor and researcher and so I do see the education research funding process up close. But while Bill and Melinda fund what I think are some good initiatives I would not suggest that I know enough to opine on the overall effectiveness or subjective "goodness" of their work.

But the core of the article seems to be that none of the reforms that they have tried to effect have worked. As I was reading the article, I expected her to lay out some strategies that she thought *would* work. She did not.

Her argument seems to be that education in America, relative to other countries, works fine for families in the top 25% of income, but then gets less good relative to other countries as we include the lower 75%. And she sees this as proof that in fact there is nothing wrong with our educational system.

here is the key quote:

To justify their campaign, ed reformers repeat, mantra-like, that U.S. students are trailing far behind their peers in other nations, that U.S. public schools are failing. The claims are specious. Two of the three major international tests—the Progress in International Reading Literacy Study and the Trends in International Math and Science Study—break down student scores according to the poverty rate in each school. The tests are given every five years. The most recent results (2006) showed the following: students in U.S. schools where the poverty rate was less than 10 percent ranked first in reading, first in science, and third in math. When the poverty rate was 10 percent to 25 percent, U.S. students still ranked first in reading and science. But as the poverty rate rose still higher, students ranked lower and lower. Twenty percent of all U.S. schools have poverty rates over 75 percent. The average ranking of American students reflects this. The problem is not public schools; it is poverty. And as dozens of studies have shown, the gap in cognitive, physical, and social development between children in poverty and middle-class children is set by age three.

Drilling students on sample questions for weeks before a state test will not improve their education. The truly excellent charter schools depend on foundation money and their prerogative to send low-performing students back to traditional public schools. They cannot be replicated to serve millions of low-income children. Yet the reform movement, led by Gates, Broad, and Walton, has convinced most Americans who have an opinion about education (including most liberals) that their agenda deserves support.
 In other words, regarding public schools, there's nothing to see here. Move along. All this money is being wasted (or worse) and there's nothing that can be done. And in fact all of these education reforms are "messing up" what it appears she thinks are schools that are running as well as is possible, given their students.

I find her argument disgusting. It is a horrific defense of the status quo wrapped in a pandering argument designed to curry favor with teachers unions that hate the idea of reform in any way shape or form.

I am not here to argue that all of the reform ideas floating around are good ones. But the idea that no reform ideas or experiments or research can be good because these poor dumb kids are hopeless by age 3 is really a modern day perhaps more politically palatable form of eugenics.

That this piece appears in "Dissent" which frames itself as "a magazine of the left" on its about page is even more shocking. It is also, I think, a reflection of the fact that the historical alignment of the policial left with the poor and lower middle class has given way to, among other things, powerful union lobbies that have no alignment of interests with "the people", much less poor people of color that probably come out in smaller numbers at the polls and are, for the most part, unfortunately, politically invisible.

Thursday, January 6, 2011

Goldman Sachs: is the fundamental concept flawed?

Today in the New York Times, Simon Johnson writes a piece entitled "Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?". The central thesis of the piece is whether it is appropriate for an institution like Goldman that is "too big to fail" and therefore effectively has a government guarantee that it will not default on its debt, be an equity investor in Facebook.

It is one thing to invest money on behalf of your clients. Thats the core of what an investment bank does. No problem there. But we heard today that the division of Goldman that does just that, passed on the $450 million dollar investment in Facebook. As a result, Goldman itself did the investment, putting the deal directly on the company's balance sheet.

Simon argues that this is problematic because the Goldman balance sheet is effectively guaranteed by the government, and because Goldman is an actual bank (as opposed to an investment bank) it gets to borrow from the fed freely at essentially no cost. So, in essence the government is backing what one must admit is a risky investment in a private internet company.

I fundamentally agree with Johnson's assessment, but it seems to me the problem is much bigger than this Facebook investment. One really interesting question is whether an investment bank can reasonably also be a bank holding company. Allowing a firm like Goldman to become a bank creates all sorts of problems and I suspect this is just the tip of the iceberg. Banks should operate in a fundamentally risk averse manner. Investment banks can't. It seems to me that not only is the current structure of Goldman a problem, but the *concept* of Goldman is a problem.

We cannot allow any institution to be both secured by the government, and in the business of taking large risks. Of course defining "large risk" is problematic in that no one would have thought mortgages could, in any context, be defined as high risk. But while there may be gray areas where valuable collateral turns out to be not so valuable, an investment in Facebook ain't gray. And obviously much of Goldman's other investment banking related endeavors couldn't be defined as low risk either.

My point here is that I think Goldman needs to be clearly free to fail. That means we need to regulate them in such a way that we can guarantee that failure *is* an acceptable option. Regulators suck (see Bernie Maddoff) but in this case the not so free market sucks even more.