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    The Law of Diminishing Marginal Utility

    Dan Klein has published a retraction of his earlier claim that progressives are more susceptible to economic ignorance than conservatives and libertarians. Along the way, he makes a mistake that is one of my pet peeves.

    More than 30 percent of my libertarian compatriots (and more than 40 percent of conservatives), for instance, disagreed with the statement “A dollar means more to a poor person than it does to a rich person”—c’mon, people!—versus just 4 percent among progressives.

    “A dollar means more to a poor person than it does to a rich person” is Klein’s misstatement of the law of diminishing marginal utility. A proper statement might be “a dollar would be worth more to a man if he were poor than if he were rich, other things equal.” The law of diminishing marginal utility does not give you the ability to make interpersonal comparisons of utility.

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    President Obama’s Student Loans Op-Ed

    My sister forwards me the President’s rather tepid call to action on student loans, in the Harvard Crimson. My reactions:

    One subtext seems to be that he wants to continue putting pressure on the small minority of student loans that are still made by private lenders. (“We’re also going to take steps to help you consolidate your loans so that instead of making multiple payments to multiple lenders every month, you only have to make one payment a month at a better interest rate.”) But it’s a little unclear.

    He also wants to “give about 1.6 million students the ability to cap their loan payments at 10 percent of their income starting next year.” These numbers could mean a lot of different things. Likely it works out as a subsidized loan to people with low incomes, and an implicit tax on loan repayments of people with high incomes. Or just an explicit tax, to subsidize student loans in general.

    The only other proposal I see is to give more information (“we want to start giving students a simple fact sheet called ‘Know Before You Owe’ so you can have all the information you need to make your own decision about paying for college.”). This is a pretty typical feature of garden variety progressive initiatives. If you give people more information, people will supposedly make more rational decisions.

    Of course people don’t actually act like rational economic calculators. At best, most people just imitate what other successful people around them seem to be doing. Students will stop taking out such large student loans only if they believe taking out loans tends to lead to bad consequences. To that extent, the pain of repaying student loans is not the problem – it is the solution. Taking away that pain by artificially lowering interest rates or passing the costs to taxpayers only encourages people to make the lousy educational investments that they may be making today.

    Mostly Obama just wants you to know how much he (and Michelle) cares about students. I wish he cared less. Nobody made students take out those loans.

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    Leo Katz is Guest-Blogging on Volokh

    I may want to read his book. Snip:

    But perhaps you in fact think the parliamentarian ought to feel bad about using a killer amendment? Once you think about the matter a bit more, it is hard to see that what the parliamentarian did as the least bit objectionable. To be sure, he did derail a bill that had majority support. But did the bill he derailed in fact deserve to pass? To be sure, a majority supports it as against the status quo. But there is another bill, the amended bill, that yet another majority would prefer, and then there is another majority that would prefer the status quo over that one. Given that, what makes the proposed bill anymore expressive of the legislature’s “true” wishes than these other alternatives?