Lisa:
Where does a man get inspiration to write a song like that?Jeff:
He gets it from the landlady once a month.
The above answer from Jeff (Jimmy Stewart) to Lisa (Grace Kelly) in Rear Window, which I rewatched on Thanksgiving weekend, is one of my favorite lines from a great movie. I think it’s self-explanatory.
I thought of it when I read the following:
While President-elect Biden’s choice to chair his Council of Economic Advisors [it’s actually spelled “Advisers,” as I was told regularly when I worked there], Cecilia Rouse, didn’t call for canceling student debt, she expressed awareness of the impact debt has on borrowers in a 2007 research paper.
Rouse, in a paper co-authored with Jesse Rothstein, now a public policy and economics professor at the University of California, Berkeley, found that holding student debt made it more likely for students to choose high-paying careers and eschew lower-paying ones like teaching.
In the study, Rothstein and Rouse, who is now dean of Princeton University’s School of Public and International Affairs, examined students at an anonymous university that had stopped giving out loans and only gave students financial aid through grants.
They found that every $10,000 in debt reduces by 5 to 6 percent the chances that a student at the university would take a job at a nonprofit, in the government or in education.
This quote is from Kery Murakami, “Biden’s Pick to Head Economic Advisors Seen as Sympathetic to Loan Borrowers,” Inside Higher Ed, December 1, 2020. Murakami’s tone suggests that he thinks it’s bad that students in debt would focus more than otherwise on getting a high-paying job. He also seems to think, possibly correctly, that Rouse and co-author Rothstein think it’s bad.
But is it? If graduates are choosing higher-paying jobs rather than working in nonprofits, government, or education, there’s a higher probability that they are serving people.
Huh? Isn’t it the opposite? Haven’t we been told incessantly that those in government are public servants and that people in nonprofits are pursuing noble goals? Yes, we have. But repetition doesn’t make those claims more likely to be correct.
How do we know when people are serving others? There’s one main test: are those others willing to pay for the service? Because the vast majority of government workers are paid by taxes, we don’t have a good market test. Postal workers are the rare exception: most of their pay comes from stamp and shipping revenue, not from taxes. And people who work for nonprofits, while they are serving the donors, are not necessarily serving others.
Education is more mixed. In private non-subsidized schools, there is a market test. For the vast majority of schools, K-12 and college, a large percent of salaries is paid for by taxes.
By the way, Murakami’s news story is nicely balanced, something you can’t always expect nowadays. (Maybe you never could.)
He writes:
The idea of canceling student debt, however, remains controversial. In a working paper released Sunday, researchers at the University of Chicago’s Becker Friedman Institute for Economics argued that widespread debt cancellation would primarily help higher-income borrowers, because those on income-driven repayment plans will have their remaining balances forgiven anyway after about 25 years, depending on the plans. Expanding income-driven repayment plans to more people, they wrote, would be more likely to help lower-income borrowers than widespread debt cancellation.
When that’s taken into account, researchers Sylvain Catherine and Constantine Yannelis said, the top-earning borrowers would receive $5,944 in forgiveness, while those with the lowest incomes would receive $1,070 in forgiveness.
READER COMMENTS
James
Dec 1 2020 at 5:03pm
If my first choice is to be a poet but I take a high paying job as a programmer to deal with my student loan, I may or not be serving others more. It depends on buyers’ willingness to pay for my poetry and my computer programs as well as the prices and wages that I would make in those fields. There is really no way to know which is better for the rest of society.
What is more certain is my own well being. If I would prefer to be a poet at a poet’s wage but instead become a programmer at a programmer’s wage because of my own budget constraint, then I’m worse off. That’s true even if I had a false expectation about what my budget constraint would be.
MarkW
Dec 1 2020 at 5:37pm
If my first choice is to be a poet but I take a high paying job as a programmer to deal with my student loan, I may or not be serving others more. It depends on buyers’ willingness to pay for my poetry
Yes, but a prospective poet has excellent information that general willingness to pay for new poetry is very low.
Doing something for a living that others are willing to pay for is pro-social — taking the wants and needs of fellow human beings into account. Doing something where there is little willingness to pay is anti-social — putting your own desires at the forefront and ignoring those of others, and this is particularly true if the penniless poet is relying on subsidies (student loan forgiveness, various safety net programs). To live that way is not admirable. It’s not even respectable.
Mark Z
Dec 1 2020 at 7:48pm
Indeed, I would speculate that there’s probably a positive correlation between market compensation and social surplus. The average programmer certainly produce more of a surplus for society than the average poet. It’s not just better financially, but more pro-social to become a surgeon or a software engineer than to pursue most other jobs, including many that are given high moral status.
Robert EV
Dec 6 2020 at 2:00pm
Freely available webcomics and Youtube videos definitely improve my quality of life. Would I pay for them? I do donate occasionally, but wouldn’t pay much, as there are requirements for living that have first priority on my money.
Do these requirements give me joy as well? Yes, but marginally typically not as much as the webcomics, etc….
So the calculus here cannot fully be based on the flow of money.
Matthias
Dec 8 2020 at 11:16am
People are partly paid in prestige as well.
Jon Murphy
Dec 2 2020 at 11:18am
Well, no. Not necessarily. Nothing says you can’t be the poet. We all make choices given constraints. And choice has consequences and costs.
In the scenario above, the choice is “work as a poet and face financial hardship” or “work as a programmer and be financially secure.”
In a world free of constraints, you might prefer poet to programmer. But that’s not the world we live in. Given the constraints and the action taken, we can infer you prefer being a financially stable programmer over a financially struggling poet (otherwise, you’d have taken the other choice). You are, indeed, better off being a programmer and society is better off, too, given the salary.
Remember: nothing about equilibrium prices means it’s the best outcome of all possible outcomes. Merely that it’s the “best” outcome given the constraints. The salary you receive is sufficient to compensate for the fact you’re not a poet but rather a programmer (thus why supply curves slope upward).
Robert EV
Dec 6 2020 at 2:06pm
People make bad decisions all the time. Just because a person has made a decision doesn’t make them better off than the alternative.
Andre
Dec 2 2020 at 11:23am
Are you assuming the loan was necessary to become a poet? This is probably the popular assumption, but it makes little sense to me.
If anything, instead of a 4-year college degree, spending four years dedicated to self study in English and poetry on one’s own would put one way ahead of your typical English major on the poetry front and perhaps position one better to succeed as a poet.
The true constraint the poet faces is that there is way more supply of poets than demand for them. As with any art form.
The reason for this is that art skills are a genetic advertisement. Jobs that double as genetic advertisements are oversupplied – that’s the cost of trying to double-dip. Most people can’t easily display the quality of their genes to the world at large through their prowess in accounting or microbiology. However, poets, musicians, sports figures, etc., can. Which is why those who make it get paid huge, and the teeming hordes that don’t make it can only reliably make a living off it by teaching.
Robert EV
Dec 6 2020 at 2:10pm
This definitely works for some people. But for others, where do they get the resources to dedicate 4 years to this pursuit, if they can’t get students loans to cover living expenses?
John Hall
Dec 1 2020 at 7:04pm
Saw the same article. Thought exactly the same thing. I’m in the bubble!
BC
Dec 1 2020 at 7:18pm
I’m not sure if Murakami, Rothstein, and Rouse realize it, but the findings appear to show that there is a significant component of “choice” in borrowers’ indebtedness. Apparently, there are a significant fraction of borrowers that have the capability to repay student loans by taking high paying jobs. (Isn’t that the way student loans are supposed to work? Students borrow money to pay for college to become eligible for higher paying jobs. Then, they use those higher earnings to repay the loans.) I’m not sure that it’s such a good idea to use taxpayer dollars to forgive loans of people that are quite capable of earning the money to repay those loans but, if given the choice, would prefer not to.
If we want more people to give up high paying private sector jobs to become teachers, then targeting taxpayer dollars towards paying new teachers more would seem to be more direct than forgiving loans and relying on some statistical prediction. If there seems to be insufficient political will to pay teachers more, then that tells also tells us something about taxpayers’ wishes.
Matthias
Dec 8 2020 at 11:20am
For some reasons political solutions are almost never direct solutions for the problems they are claiming to solve.
We saw similar issues during the pandemic: instead of giving hospitals (or people I’m general) money to afford essential supplies, we saw large scale price controls.
Alan Goldhammer
Dec 1 2020 at 7:26pm
If you run the numbers based on a high salary and regular increases, it is cheaper to do student loan forgiveness in the long run if it is attached to a minimum term of employment as a teacher. I’m not saying this is the best policy but it is a better bang for the buck.
MarkW
Dec 2 2020 at 6:28am
I don’t believe there’s more of a surplus than shortage of teachers, but to the extent there were such such a shortage, surely the best route would be to use government funds to increase salaries than to use government funds to pay off the student loans of countless millions (most of whom are wealthier than average and won’t become teachers under any circumstances but will certainly be happy to pocket the cash). And this would be just so, hypothetically, some small fraction of that group might be marginally more likely to choose a teaching career. That’s insane (even by government standards).
Let’s be serious — some politicians are interested in forgiving loans to buy votes/reward supporters. The ‘more likely to be teachers or work for non-profits’ argument is a fig leaf.
Alan Goldhammer
Dec 2 2020 at 9:19am
I’m sure someone has the number of outstanding student loans. I don’t know how these are distributed in terms of the loan recipient’s wealth/income. In some cases it makes sense to take out a student loan from a cash flow perspective. My daughter took out a partial loan to get her graduate degree in music therapy to help defer tuition payments. She is working in a job right now that is eligible for loan forgiveness but the time horizon for that is two long and it’s likely the loan will be paid off before the forgiveness period kicks in.
Until we have some good data about who are getting the loans and the state of their wealth/income, it is all just conjecture.
MarkW
Dec 2 2020 at 12:47pm
The latest Federal Reserve data suggests that student loan debt is most concentrated among higher income earners who hold graduate degrees.
https://www.forbes.com/sites/zackfriedman/2020/10/25/who-really-owes-16-trillion-of-student-loans/?sh=46ff746f7b5b
Rob Rawlings
Dec 1 2020 at 9:00pm
I agree that question ‘How do we know when people are serving others?’ is a hard one to answer and one could make a decent case for saying that the relative salaries on offer(as long as they are chosen by the market) are as good a guide as any when trying to answer that question.
However I think that answer may undervalue altruism. Suppose a doctor could make $300,000 a year performing heart surgery to people with good health insurance. But instead he chooses to work in a charitable foundation for $100,000 a year performing heart surgery on those who otherwise would not receive it because they could not afford it. Suppose also that there are way more doctors working in the for-profit sector compared to the charitable sector relative the the rate of heart disease in those sectors.
I think it would be quite hard to argue that the altruistic doctor was not ‘serving others’ to a greater degree than those who choose to earn more money for carrying out the same task.
Perhaps a generalization of this would be to say that when people are prepared to do a job for below the market rate they are ‘serving others’ more than those who choose to take the market rate?
Mark Bahner
Dec 1 2020 at 11:18pm
I think reality is often even more stark than that. I think the hypothetical surgeon might often go into fields like cosmetic surgery (e.g. face lifts, tummy tucks), since the really wealthy people are the ones who pay big bucks for such elective surgeries.
P.S. Aha! I wasn’t just imagining:
Plastic surgery is the most lucrative type
Mark Bahner
Dec 1 2020 at 11:21pm
P.P.S. Not that I think forgiving student loans is a good idea. I don’t.
MarkW
Dec 2 2020 at 7:24am
I think medicine in the U.S. is bad example, because it is SO badly distorted. The training is needlessly long, onerous, and expensive. Supply is tightly restricted (mostly by limited residency slots), and rules preventing other professionals from encroaching on physicians ‘scope of practice’ are jealously guarded by the guild. And poor Americans really do not go without quality care due to ability to pay. I have a relative in his 50s who’s had such string of health problems that he’s been unable to work for quite some time, but he’s received the same world-class treatment at a major university medical center as anyone else. And his being on Medicaid has meant absolutely no deductibles or co-pays.
If you really wanted to be an altruistic doctor dedicating your life to treating the poor who would not receive care otherwise, you should train and practice outside the U.S. And that would truly show a commitment, because it’s unlikely you’d ever be able to practice here (given that foreign-trained physicians are largely blocked from doing so).
Airman Spry Shark
Dec 1 2020 at 11:23pm
Not at all. To the extent that those who contribute more earn more, they can also pay more for scarce services. For instance, performing life saving surgery on a software engineer will benefit society more than doing so on a subsistence farmer.
Rob Rawlings
Dec 2 2020 at 9:57am
I am also attracted by arguments along those lines and it is very tempting to conclude that in a free market the degree that one is serving others can be measured by the market rate one can command (after all, that is what people are prepared to pay for ‘being served’!).
Turning ‘serving others’ into something quantifiable in other than monetary terms is difficult but I would still find it hard to say that a person who chose to work in a charity hospital in a third-world country is not ‘serving others’ to a greater extent than if he had instead chosen to take 10 times the salary to practice plastic surgery (to use Mark B’s example) on geriatrics Beverly Hills residents. But perhaps there are some non-economic value judgement in this view ?
robc
Dec 2 2020 at 10:04am
Using your example from below as a template:
If he earns 10x and donates 2x, then the 3rd world country can hire two doctors at x, which has to be better than just working for x.
Rob Rawlings
Dec 2 2020 at 11:53am
Except they would not be able to hire two similarly qualified but non-altruistic doctors for one tenth of the salary they could earn as plastic surgeons.
robc
Dec 2 2020 at 1:37pm
No, they may have to go down one tier in quality. Find two altruistic doctors who aren’t quite as good as that one. Probably still equal to 1.8 of him.
Of course, if they can make 9x, then they should do that and donate 1.8x each, so now the charity has 5.6x to work with instead. At some point the equilibrium would settle in and they should have a team of decent, but not great, altruistic doctors.
Rob Rawlings
Dec 2 2020 at 2:53pm
Yes, I guess you can tweek the assumptions and get any answer you want !
I take your point to be however that an altruistic person is generally better off working in their highest paid occupation and then giving to the charity of their choice rather than working directly for that charity at a lower wage rate. I think that in most cases this will probably be true.
Anonymous
Dec 3 2020 at 10:39am
In effective altruism circles, “work to give” was once widely believed to give the most impact for high earners. But I understand in recent years that they have backed away from that conclusion, towards a higher value for high-ability individuals to work in specific high-impact areas.
TMC
Dec 2 2020 at 8:38am
In effect, the heart surgeon is giving away $200k to charity. He could also take the $300k job and donate the $200k, possibly with even better effect. Either way, he’s creating $300k of value and donating 2/3 of it. (ignoring that heart surgery might be more valuable on some people rather than others).
Rob Rawlings
Dec 2 2020 at 9:44am
Tha’ts a good point. The doctor could indeed continue to earn $300K and donate $200K to the charity hospital who could then (if they chose) hire a different doctor and the effect would be the same.
However I still think it remains a reasonable claim that people who act altruistically either by doing charity work or donating some of their earnings to charity are ‘serving others’ more than if they did not make those charitable contributions.
nobody.really
Dec 2 2020 at 2:17pm
Adam Smith thought so. All else being equal, “the wages of labour vary with the ease or hardship, the cleanliness or dirtiness, the honourableness or dishonourableness of the employment.” An Inquiry into the Nature and Causes of the
Wealth of Nations (1776), Chap. 1, Part 1 “Inequalities arising from the Nature of the Employments themselves.”
AMT
Dec 2 2020 at 6:48pm
You don’t understand what David meant by “worse.” In this context it means worse for society, not undesirable to the worker:
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