Teaching/examining economics

The NCEA level 2 economics exam took place yesterday afternoon.  I’d been helping my son with his revision and preparation, in the course of which he’d shown me various exams papers from recent years, and some guidance they’d been given on how to answer some of those (past) questions: what might get Achieved, what Merit, and what Excellence.

I wasn’t exactly reassured by what I saw.

As one example, consider this question from last year’s paper 91222 “Analyse inflation using economic concepts and models”.

The first questions were introduced with this statement

The Quantity Theory of Money states that the quantity of money circulating in the economy is equal to the monetary value of the goods and services available in the economy.

The quantity theory of money starts from the identity –  for thus it is –  MV=PT, where

M = some measure of the money supply,

P = some measure of the price level,

T= some measure of real economic activity (you could think of real GDP, but it generalises –  think volume of transactions), and

V =  the velocity of money (or how frequently the stock of money –  as defined –  turns over (“is spent”) in the period in question.   It is generally derived residually.

All that identity is saying is that the amount of money that is spent (stock multiplied by times it is used) equals value of transactions in the money economy.   The amount of money that is spent = the value of what it is spent on.  Necessarily.  By definition.  Change your definition of money –  the Reserve Bank publishes several, and there are others –  and your V will change too.

As a New Zealand example, nominal GDP in the year to March 2019 was \$300.994 billion. The Reserve Bank’s broad money measure averaged \$304.193 billion over that year and its narrow money measure was \$68.375 billion.   So, on this measure of nominal activity, V(b)  (“broad money velocity”) was 0.99  and V(n) (“narrow money velocity”) was 4.4.

MV=PT is really known as the equation of exchange, and it only turns into a theory (about behaviour) when expressed in the idea that if you change the quantity of money most of the effect will typically be seen in the price level (or that most changes in the price level stem from changes in “the money supply”).  In the extreme, it is a simple enough idea –  in massive hyperinflations there is lots more “money” around (on any measure) and much higher prices/inflation rates (on any measure.  But the theory was mostly used in simpler stabler times (since in the midst of hyperinflations, not only does the velocity typically accelerate –  no one wants to hold money longer than they have to –  but real economic activity is also typically shrinking, perhaps rather a lot).

So what disconcerted me about the NZQA efforts?

Well, go back and look at that definition of the quantity theory of money.   Does it mention the idea of velocity?  No, not at all.

And then it talks of the “monetary value of the goods and services available”which has a fairly strong sense of stocks, not flows.   Any serious description of this equation/identity would stress that it is about transactions/turnover, not stuff that just happens to be around (whether sitting unsold on shop shelves, in factory inventories, or in the cupboards at home).

Now, in fairness to NZQA the very first question asks the students to label each of M, V, P, and T, so probably people wouldn’t be too misled by the omission of any sense of velocity in the introductory description.  But shouldn’t our teachers/examiners be taking care to be as precise and careful as possible, both to set a good example, and so as not to risk confusing or distracting kids who have read/thought a bit deeper?

Using the Quantity Theory of Money equation, fully explain how a 4% increase in the money supply could affect the price level, assuming other variables are constant.

As I pointed out earlier that MV=PT is an identity, I hope you can see why this question isn’t written anywhere near as carefully as it should (and quite easily could) have been.  In an identity with four variables, if one of those variables changes and two are held constant by assumptions, there is no “could” about what happens, but a “must”.  If V and T are held constant and M increses by 4 per cent then. by definition, P increases by 4 per cent.  Of necessity.

I checked the NZQA marking guide and it is clear that the examiners know this: they talk explicitly about how prices “will” rise by 4 per cent.   But then why muddy the waters for the students?   It isn’t even as if the marking guide says something like “students will get extra credit for pointing out that the 4 per cent price increase is a necessary implication, and there is no “could” about it.

The questions continue, with the third question designed to better winnow out the Excellence and Merit students from the Achieved ones.  The third question starts with a quote from a Treasury document

You’ll notice that the Treasury projections quoted are for an average annual growth rate over the next five years.  By contrast, the assumed exogenous increase in the money supply is a one-off levels increase.

The examiners don’t appear to have noticed the difference.   It is clear what they are trying to get at (P will increase less if T is also rising than if it isn’t).     That’s the answer to the third bullet above. But the marking schedule  makes it clear that they expect the students to answer that in that growth scenario the price level will rise by (about) 1.1 per cent.  But that isn’t the case at all: instead in the first year the price level would rise by about 1.1 per cent and then it each subsequent year it would fall by (about) 2.9 per cent (since T is changing and M no longer is).    But, again, there is no hint that markers should give additional credit to students who point this out.  (Although they do give extra credit to students who point out the V might change –  perhaps rise –  in a recovery.)

Again, there is really no excuse for questions this badly worded (for 16 year olds).  They could easily have posed the questions as “if the money suppply increases by 4 per cent per annum, what will happen to the inflation rate if (a) all else (V) is constant and (b) if real economic growth (in T) happens per the Treasury projections”.

It is sloppy and loose, and suggests that the examiners (and those reviewing their drafts) just haven’t thought carefully enough.  And that is even without posing questions about whether introducing year 12 kids to inflation using models that rely on exogenous money supply increases (when most increases in the money supply these days are actually endogonous –  arise simultaneously with economic activity and the credit creation process) is that most helpful way to structure the curriculum.

The other one that disconcerted was from the 2016 exam for the same level 2 NCEA standard (I didn’t go through them all systematically – these were just ones my son asked about).   This was a question about deflation.

Here what disconcerted me (a lot) was the answers NZQA was looking for in its guidelines for markers.  But the question wasn’t great either.

The key starting point for thinking about the effects of inflation/deflation is that, broadly speaking, there is long-run neutrality (most real variables won’t be much affected by trend inflation/deflation), but that distributional effects can be quite powerful in respect of unexpected inflation/deflation.    Broadly speaking, (unexpected) deflation is great for people with fixed-term/rate bank deposits (the real purchasing power of their money rises) and dreadful for people with fixed-term/rate nominal debt (the real value of what they owe rises).   Otherwise, all else equal, prices, wage, interest rates etc should all adjust to whatever the inflation/deflation rate is, and to much the same extent.

The questions don’t distinguish between expected and unexpected deflation.  Perhaps that isn’t unreasonable for most year 12 students, (but what about those who had read on, or thought more deeply, perhaps even read an MPS?) but it does make quite a bit of difference, and it isn’t obvious that even the markers recognise the difference.

This is the sort of thing I mean.   In answering the first part of the question, the markers are looking for this to get Achieved

Explains the effects of deflation in New Zealand on younger people saving for their first home (e.g. Deflation will mean that people saving to buy their first home will have a lower cost of living and be able to save more).

But this is simply nonsense since one would normally expect that wage inflation would be similarly lower and the real incomes of those young savers wouldn’t be affected, and nor (generally) would the real cost of the house they were saving for.  But to the extent they already had saved some money –  and especially if it was on a long-term fixed rate deposit –  the real purchasing power of what they’ve saved will rise.

Explains the effects of deflation on older people in retirement who use their savings to provide them with income (e.g. Older people may find that they receive lower interest income if interest rates fall to offset deflation).

Indeed they may, but…..the cost of living will be lower too.  And, in fact, the real value of those bank deposits will actually increase in this scenario.

The marking guide goes on to elaborate points students would need to make to get Merit or Excellence.  But it doesn’t really improve

Fully explains the effects of deflation on younger people saving for their first home (e.g. Younger people saving for their first home may benefit from deflation because it might increase the purchasing power of their income. This may mean that they can save more of their income to put towards the purchase of their home. It may also mean that the home may become cheaper. Deflation may also lead to lower interest rates and, therefore, make loan repayments more affordable).

That final point is fair (since mortgages are nominal the upfront servicing burden is a little easier), but it is something of a distraction because it doesn’t alter the servicing burden over the full life of the loan.  And these guidance notes suggest the examiners have no sense that wage inflation will also typically be lower if there is price deflation.

Fully explains the effects of deflation on older people in retirement who use their savings to provide them with income (e.g. Older people in retirement who use their savings to provide them with income may find that the value of their assets falls, which means that selling those assets will result in less earnings. Also, if interest rates fall even though prices may have dropped, the people will receive less income and, therefore, may have falling purchasing power).

And this is worse. There is no hint that people with fixed nominal assets are those who gain from unexpected periods of deflation.  And if the value of other assets (eg houses) they are selling falls, those falls will generally (all else equal) just be in line with the fall in the price level.  That fall does not make old people (or any other seller) worse off.   And, yes, nominal interest may fall, but there is no particular reason to expect real interest rates to fall (or thus for real purchasing power to fall).

The NZQA guidance answers to the second half of the question are only a little less bad.    In fact for the “firms producing for the local market” I’m more or less okay with the required answer (as a year 12 simplification).

Fully explains the effects of deflation on NZ businesses producing for the local market (e.g. NZ businesses producing for the local market will find that the prices that they receive for their product may fall. They may also find that their costs of production fall and, therefore, the outcome may be either slightly worse off or neutral).

All else equal-  and on a simple model – you would expect both costs and selling prices to be commensurately lower and such firms to be no better or worse off on this count.  A really smart student might point out that if these firms had material debt outstanding, the real value of that debt would rise, but that is probably a complication too far for year 12 and this bit of the question didn’t mention debt.

But the exporting firms answer is more troubling

Fully explains the effects of deflation on NZ businesses producing for export (e.g. NZ businesses producing for export may also face falling costs of production; but if their markets do not have (or have less) deflation, then they may find that their profit margin rises and, therefore, they may be relatively better off).

But…….our exchange rate has been floating for 35+ years now, and I know year 12 kids get introduced to the exchange rate, and yet this suggested answer implies that the competitive position of our exporters can be improved by a period of deflation.  Over any sustained period deflation here –  not matched in other countries –  would be expected, on simple models, to see an appreciation of our exchange rate, leaving New Zealand producers neither better nor worse off as a result.   (These adjustments do actually tend to happen – you can see it in the trend appreciation of the NZD/AUD consistent with the slightly lower inflation target here than in Australia.)

You’d have to hope that a smart kid  – or just moderately well-read or alert one (they do get exercises that involve looking at real world documents like MPSs –  who made these points would get considerable credit from the markers, but if even the examiners don’t seem to be aware of the point, how many of the markers could be counted on to exercise some independent judgement.

Not one of the points I’ve made here is any sort of highly subtle or technical points.  These are just the simple implications of pretty simple models – ie the sort of standard one might be looking for year 12 kids to be taught, and to be able to understand and repeat in examinations.  But it isn’t clear, that on these questions at least, even the examiners quite understand what they are saying or asking, or how even a simple model works.

I haven’t engaged in a systematic study of all the recent economics exam papers (let alone those in other subjects, most of which I know less well).  I’d really like to think that these two sets of questions I’ve highlighted in this post are exceptions and everything else is just fine.    But, as we used to say in PNG when we saw a dead snake on the road, the real issue wasn’t so much welcoming the dead snake as wondering at all those still lurking in the same neighbourhood.

The New Zealand Initiative was out earlier this week calling for more emphasis on teaching specific bodies of knowledge in the various academic disciplines.  I don’t really disagree with them, but when exams for upper-level kids have the sorts of weaknesses highlighted here it suggests there is quite a long way to go in even getting teachers equipped to offer a systematically better offering.  As things stand, NZQA should be upping its game.  Clear questions and correct answers (to guide markers) would be a good start.

Facts

The New Zealand Initiative last night released the results of the general knowledge quiz conducted for them by a polling company.     It is a good way to get media coverage –  and I’m as much a data junkie as anyone.

The real point of the exercise was as a prop in making the case for a greater emphasis on a knowledge-based education system rather than the current skills-based focus.  I’ve told the story before about going to a meeting for parents of new entrants at the local school a decade or so ago, where the Principal –  a fairly vocal figure in the world of educational politics –  told us that they weren’t going to teach our children facts, because they would soon be outdated.  Fortunately, when I tried the NZI quiz on my now 16 year old he got 12/13, despite the New Zealand education system.

The headline, of course, was that this sample of New Zealand resident adults wasn’t particularly good at answering the NZI’s questions, many of which look pretty simple or basic (at least to the sort of people who read either NZI material or blogs like this).  Across 13 questions –  of which five were either yes/no or limited multi-choice questions –  the median proportion of respondents answering correctly was 53 per cent (that was the question about how long it took earth to orbit the sun).   And although much of this post will be a sceptical take on the significance of the survey, even I will concede to being surprised that only 32 per cent of respondents could correctly name the year the Treaty of Waitangi was first signed.  I doubt the Treaty was ever mentioned in my whole schooling, but it is (repeatedly) today, and yet the worst results were for the 18-30 age group (where only 23 per cent got the answer right).

The NZI released the detailed breakdown of the responses: we have all the answers by age, sex, metro/provincial/rural, by “deprivation decile”, and by whether schooling had taken place in New Zealand or abroad.  Curiously, there was no ethnic breakdown.

One thing I haven’t seen covered elsewhere – or, of course, in the NZI write-up – is the systematic male/female differences.   For quite a few questions there is almost no difference between male and female responses, but for seven of the questions the differences looked to be material and in only one of them did women outperform men.

 Per cent correct Female Male How long does it take for earth to go round sun 44 62 What year was the Treaty first signed 29 35 Native Land Court purpose 32 36 Correct use of “their/there” 83 77 Derive distance travelled from speed and time 41 56 Name seven continents 39 50 Compound interest question 1 49 66 (Harder) compound interest question 23 46

I’m not sure what to make of those differences, but since I work on the assumption that women are just as intelligent as men, perhaps it suggests something about how the questions are framed, or…..? (Note that the NZI person responsible for this project is a woman.)

There were some differences between those schooled here and those schooled abroad.  Knowledge of when the Treaty was signed and about the Native Land Court was less good among those schooled abroad, while the migrants were more likely to be able to name all seven continents and to be able to answer correctly the harder compound interest question.

People from poorer areas typically knew (or could work out) fewer correct answers, but by age the answers were a bit mixed. The only one surprised me was (see above) the Treaty response where the older people were the more likely they were to know the correct answer.    Of the other questions, there were quite a few where younger people now knew more the older people now but where you would have to wonder whether those same young people will know as much 50 years hence.  There are plenty of details I learned at school that I’ve either forgotten or are now rather hazy –  while other, mostly unused, things stay locked in the brain and are never asked about in surveys or quizzes (here I’m thinking of the quadratic formula as an example).

In general, I am sympathetic to the Initiative’s cause, for a greater and more systematic emphasis on knowledge in our schools.  But I am left quite sceptical about the value of surveys like this, except as a way of getting media coverage, and perhaps feeding the self-esteem of a certain class of well-educated and knowledgeable adults.  Most people actually do manage to get through life tolerably well and the world is richer and more materially prosperous than ever (as the Initiative would often rightly point out, in pushing back against other nanny-state proposals) and I’m left wondering why, if at all, I should be bothered if people can’t answer particularly well over the phone –  perhaps caught while they are cooking dinner or doing the ironing – compound interest questions (green are the correct answers).

Most people don’t leave a fixed amount in an account for five years and reinvest all the proceeds, there are fees and taxes, interest rates change over time, and actually if you invest for five years at 2 per cent interest per annum and spend none of it and pay not fees/taxes, you’ll end up with with \$110.41 which most people would round to \$110.

But this isn’t enough for the Initiative

Our poor grasp of maths is also concerning. Basic arithmetic is critical for personal financial literacy. It is difficult to understand mortgages, savings and investments without the mathematical keys. But knowledge of maths goes beyond finance to everyday life. Try renovating your house, baking a cake or calculating medicine doses without basic maths. It is true that the 20th century provided us with calculators, but if you do not understand maths you are poorly placed to check your electronic answer.

And yet people do get on.  We don’t have some mortgage default crisis, we have pretty low rates of elderly poverty, nothing about finance (at a personal or national level) seems to be spinning out of control.  And while the main thing for which I now use the formula for the area of a circle is to adjust recipes to the desired size of cake tin, somehow I expect most homemakers get on just fine without it.  (I raised some doubts about the value of “financial literacy” programmes in a post here.)

And is it particularly useful to know the antibiotics are about bacteria not viruses?  I did know that, but it isn’t particularly useful to me.  Instead, when I go to the doctor I typically take his advice, and when he prescribes something I try to follow the prescribed instructions.  It probably matters rather more –  in term of keeping antibiotics useful – that (a) doctors don’t over-prescribe and (b) patients follow instructions.  Or so I’ve been told, and I’ll operate of those rules of thumbs (especially the latter) for now.

Which brings me to the paper Briar Lipson has written using the quiz results as a prop for calls for reform of the education system.    It is a curious piece in many ways, perhaps especially coming from a think-tank which is generally regarded as fairly libertarian in its inclinations.   Their chief economist Eric Crampton often cites approvingly the stimulating work of GMU economist Bryan Caplan, one of whose books was devoted to casting considerably doubt on the value of much of education (facts-based or not) in building skills –  as distinct from certifying a work ethic, conformity, and basic intelligence.  A screening and sorting mechanism more than anything (as I’m sure knowledgeable parents recognise when they hold conversations with smart teenagers and have to distinguish between richer and deeper answers and those that will jump through the right hoops to secure NCEA credits).

I was a little amused to note her claim that

As a bicultural nation with a colonial past whose ongoing legacy is playing out in our troubling national statistics, it will never be easy to answer these questions.

It could have been written by the Maori Party, but it was actually written by someone who isn’t a New Zealander and who appears to have been in the country for not much more than two years.  It doesn’t invalidate her expertise on education itself, but that ‘our’ is surely just a bit of a stretch?

There is a quite of this black armband approach.  For example, we are told that “inequality…threatens wellbeing and prosperity”, which is a rather different (questionable) tone than we typically get from the Initiative.   I presume the audience for this is the Labour Party, but even so……facts, knowledge etc.  It carries over to the caricature of history.

For most of history, only the wealthiest had the time and resources to pursue disciplinary knowledge. For the rest of society, knowledge beyond daily experience was an unaffordable luxury. Accordingly, the ability to read and write was limited to the elite: noblemen (yes, only men) and clergymen (again, men). If you toiled for a living, your horizons were narrow.

Yes, poverty was quite limiting, but all that “only men” stuff would surely have come as quite a surprise to Hildegard of Bingen, Catherine of Siena, Anna Comnena, Teresa of Avila as just four fairly prominent examples.   Lipson’s treatment of history here is the sort of thing that makes people like me –  who fairly strong support, in principle, the idea of more systematic history in our schools –  rather nervous of what it will turn into in practice.

There is more dodgy –  or at least highly arguable – history: thus on her telling it is the Enlightenment that brought us literacy. Pretty sure it had almost nothing to do with the first New Zealand schools.

I totally agree with Lipson here

Whether you are building a house, playing the violin or deciding to immunise your child, knowledge is essential, because there is not a generic skill of problem-solving or critical thinking. As anyone who has lifted the bonnet of a broken-down car knows, problem-solving skills do not exist in the abstract.

And yet she starts her note with the observation that

For most of history, only the wealthiest in society had the time and resources to pursue disciplinary knowledge. For everyone else, knowledge beyond daily experience was an unaffordable luxury.

And yet I don’t need to know how the engine in my car works.  Most knowledge most people actually use day to day is really rather specific.

A few other questionable snippets

To converse meaningfully with each other, and evaluate the performance of our political leaders, we need to have knowledge that takes us beyond our daily lives.

Set aside the evaluation of political leaders, but does Lipson really suppose that the vast mass of people –  who couldn’t answer her quiz questions correctly –  somehow don’t manage meaningful interactions and conversations?  The revealed evidence seems to be against her on this count.  It won’t be Wellington elite dinner table conversations, but are the relations and interactions –  the thick web of connections that makes up most individuals’ place in society – any less effective or profound?

We get another of those “Wellington elite” type of perspectives in this comment

To grow into active, engaged citizens who can think critically about the wider world, children need to know about language, science, maths and culture (including but not only their own). However, only 44% of New Zealand adults can name the seven continents, let alone locate Afghanistan or South Korea on a map – countries where our defence force has personnel in the field. Issues like national defence, along with migration and trade, are all critical to New Zealand’s role in the world. But how can we expect voting-age adults to engage with New Zealand’s geopolitical challenges – and how our nation should respond to them – if they do not even know where in the world the challenges lie?

I’m simply not bothered if people can’t find Afghanistan on a map. One could mount a –  slightly flippant perhaps – argument that it would be better if fewer people could, because it would probably have meant fewer western armies and associated headlines there, and from there, over the last 18 years.  More importantly, it is delusional to suppose that a school education –  no matter how good –  is going to equip people for debates about the nature, and source, of geopolitical challenge or (to take another topic close to this blog’s heart) the pros and cons of a large scale immigration programme to a remote corner of the earth.

Lipson goes on

We might debate whether these skills are any more important this century than they were in the past; either way, we must agree it would be difficult to think critically about the Hong Kong riots without knowing something about Hong Kong’s history and geography. It would be equally difficult to evaluate policies on use of plastic without a basic knowledge of biochemistry and economics.

I think I am safe in saying that, for better or worse, most New Zealanders have little interest in the Hong Kong riots and although, in some sense, I personally might wish it were otherwise, it isn’t really clear why that is a bad thing.   (As it is our government tries to pretend to having little interest).  And –  while perhaps I’m missing something crucial –  I’m not clear quite what Hong Kong’s geography (does she mean a tight city-state, or located next to China?) really has to do with it.  Personally, when I think about Hong Kong I worry most about the fate –  persecution and repression –  that awaits my fellow Christians under mainland rule, but I wouldn’t really expect that concern to be universal.

(As for plastics, personally I found the values of choices, self-responsibility, and ensuring I  – and my kids –  don’t litter, more relevant to my views on plastics policy than my knowledge of biochemistry –  next to none –  or economics.)

You can read Lipson’s piece for yourself (and it is an important issue). I guess my bottom-line concern is that she has grossly over-reached.    Across her scattergun range of examples, she encompasses a range of topics/knowledge that few (if any) are likely to master, or have much interest in doing so –  even building on decades of adult acquisition of knowledge, not 11 or 12 years of schooling.    I’m all for getting a better balance between on the one hand concrete fact-based knowledge and sketch narratives of things like our history and that of societies to which we are heirs (the narratives, if pushed, matter more than the dates) and on the other the research, reasoning and problem solving skills the current New Zealand system tends to emphasise.

But the modern world relies on a considerable degree of specialisation –  indeed it is integral to our prosperity –  and that is as true of public life, political and social choices, as anywhere else.  I’m not promoting, let alone defending, any sort of “rule of experts” (and I’m pleased to see that here the Initiative is not heading off after things like epistocracy) but hardly anyone votes based on a comprehensive review of in-depth party policies across the board.  Even on a specific issue like climate change, few of us (really can) vote that way – I might claim some expertise in the economics, but not in the science, and there are very few people who combine both.  And values count a great deal, and yet nothing in the NZI quiz –  and almost nothing in Lipson’s note –  was about forming people in the values that make for a successful, stable, and prosperous society.

In truth, we take our lead from others –  rules, precedents, examples, people who enunciate values that relate to our own –  and leave much of the detail to others.  It is unavoidably so –  and I say this as someone who has more time, and probably more capacity, to dig into lots of issues at a fairly technical level.  We rely on others in almost all areas of life, and one could at least mount an argument that learning how to think about who and what one might trust is much more important than, say, learning the details of the Danzig question, Hong Kong’s geography, the biochemistry of plastics, or the precise reason for the establishment of the Native Land Court.   As Lipson puts it in her title, ignorance is not (generally) bliss and yet –  on the other hand – a little learning can, in Alexander Pope’s words, be a dangerous thing.

I could go on, but won’t.    But I’ll end where Lipson starts. In the entire body of her seven page text there is nothing about forming people in the values that a society should live by.  I suspect she is probably an adherent of some fact/value distinction (Winston Churchill was a real person, regardless of you views of the nature of good), and clearly there is something to that split, and yet if her goal is a functioning cohesive effective society and polity values formation is likely to be at least as important as specific factual knowledge.  It isn’t enough to say that home is the place for that, since we all know that nature abhors a vacuum and that what our schools teach is heavily value-laden, by default if not always by design.  Lipson begins with a quote, which appears to be from an Australian teacher

It is not the natural state of humans to live in relatively free, democratic societies that tolerate difference. Because of this, we need education to protect and preserve these societies; to transmit important cultural knowledge from one generation to the next, and value our civilisation.

I’m not sure those two sentences really relate to each other, but if you take seriously the second sentence –  as I do –  you’d find it bearing almost no relation to either the facts quiz that got NZI its media coverage, or to the thrust of Lipson’s appeal to teach facts.  It is about a cohesive narrative that recognises what is good and what is not, what is great (eg art, music, literature, ideas) and what is not, and takes pride in what has been built.  And that requires an ethos, a mindset, that has made sense of life and the world.   You might call it a worldview or a religion.   But it is very different from knowing the names and dates of the kings and queens, the names and dates of all our Prime Ministers (useful as, in some sense, those latter might be).    The (narrow) facts just don’t get you far.  I’d rather people “knew” that Communism has been, and is, a great evil than that, say, they knew the geography of Hong Kong or the biochemistry of plastic

Speech, schools, and data

Not many things bother me (get inside me and really churn me up) that much.  But an email yesterday did, and in truth still is.  It demanded \$1000 of so in Bitcoin within 48 hours or our “secret” would be revealed, in lurid video detail, to everyone (all contacts from all media, all accounts), sent from our very own family email account.  Our “secret” apparently was some pretty sick pornography that we had allegedly been watching, and had (so it claimed) been recorded watching.   When I consulted some tech people the advice was that it was (probably) pure scam –  demanding money with menace, but with nothing actually (creatively concocted of course) to back it up.   I certainly hope so, but in the unlikely event that people receive such icky emails tomorrow……..well, there are some sick people, capable of evil acts, out there.   Some “speech” should be illegal, and is –  not that I expect the Police to be able to do anything about this extortion attempt.    (Meanwhile, the economist in me couldn’t help reflecting on the pricing strategy –  surely almost anyone who actually had this stuff to hide would be willing to pay a lot more than \$1000 to prevent exposure?)

Today I wanted to write about a short piece the New Zealand Initiative published 10 days or so ago as a contribution to the debate around the proposals the government is considering for reform of the governance of our schools.  Their short research note got a lot of media coverage, although to me it posed more questions than it really answered, and I wasn’t entirely sure why the reported results had any particular implications for how best to govern (state) schools.  I’d had the report sitting on my pile of possible things to write about for a few days, but I noticed yesterday that the Initiative’s chief economist, Eric Crampton, had devoted a blog post to the report (mostly pushing back against some criticisms from Brian Easton).   That post provided a bit more detail.

I’m not heavily invested in the debate about school governance.  As I noted to one reader who encouraged me to write about it directly, my kids are now far enough through the system that whatever changes the government finally makes and implements aren’t likely to materially worsen the education system for them.    And if I’ve found little to praise in the schools we’ve had kids at (one has been mediocre –  on good days –  since friends were first “forced” to send their kids there 30+ years ago), nothing persuades me that more centralised control would be for the good (of kids, and of society, as distinct from the officials and politicians who might get to exercise more power).  And my predisposition is to be suspicious of anything Bali Haque is involved in, and that predisposition was provided with some considerable support when I read a commentary on the report of the Tomorrow’s Schools Taskforce, by the economist (with long experience in matters around education policy) Gary Hawke.

But I was still left not entirely persuaded that what the Initiative had published really shed much light where they claimed it did.   Perhaps things will be clearer when the fuller results are published later in the year, but for now we can only work with what we have.

The centrepiece of the Initiative’s research note is this set of charts

They’ve taken various measures of NCEA academic outcomes (one per chart) and shown how school outcomes vary by decile with (red dots) and without (blue dots) correction for the “family background” of the student.     “Family background” is the fruit of the highly-intrusive Statistics New Zealand Integrated Data Infrastructure (IDI) –  which researchers love, but citizens should be very wary of –  and in Eric Crampton’s less formal note this quote captured what they got

For the population of students who completed NCEA from 2008 through 2017, there’s a link through to their parents. From their parents, to their parents’ income. And their education. And their benefit histories. And criminal and prison records. And Child, Youth, and Family notifications. And a pile more. Everything we could think of that might mean one school has a tougher job than another, we threw all of that over onto the right hand side of the regressions.

The results are interesting, of course.  They summarise the result this way

But this does seem to be something of a straw man.   Should we be surprised that kids from tough family backgrounds achieve worse academic results than those that have more favourable family backgrounds?  I doubt anyone is.  And I have no problem with the idea that a decile 1 school might do as good a job “adding value” as a decile 10 school, but these charts don’t show what I would have thought would be the rather more interesting difference (at least if governance is in focus): what is the range of outcomes within each decile.  Quite probably there are excellent decile 6 schools and really rather poor ones, and which school fits which category is likely to change over time (leaders and leadership make a difference).

Take, for example, the school my son now attends, and where I also had the last couple of years of my schooling.  60 years ago it was mediocre at best, then a long-serving  headmaster dramatically lifted the performance on a sustained basis, only for the school under yet new leadership to slip back so badly that when our son was born we were contemplating exceedingly-expensive private school options (an option for us, but not for many).  Fortunately, there has been another revitalisation over the last decade and my impression now is that the school does as well as any in adding value.   But, as far I can see, what was reported so far of the Initiative’s work sheds no light on this divergences within deciles at all.     And yet surely questions of governance are at least potentially relevant here: could a plausible and credible different governance model have prevented some of that across-time variance in outcomes for Rongotai College?  If it could have, it would surely have to be seriously considered.

Having noted that it is hardly surprising that kids from homes with more favourable factors emerge from school with better results than those from less favourable backgrounds, I was intrigued by just how flat those red dots are across deciles in each of the charts above.  The message was simple –  adjust for family background and there is no systematic difference across school deciles in the average academic results the students achieve.  And yet, doesn’t the government put in much more money (per student) to low decile schools than to high decile schools?   Is it all for naught?   It would be uncomfortable if true, but that is what the results appear to say.   Perhaps in the end the answer is that the funding differences, although appearing large when translated to the “donations” higher decile schools expect, really aren’t that large (or large enough?) after all?  Perhaps there is something in the possibility that lower-decile schools struggle to get enough capable parents in governance roles (I know both my father and my father-in-law, both Baptist pastors, ended up serving as coopted board of trustee members in low decile schools) or even to attract the best teachers.  Whatever the answer, I hope the Initiative looks into the question as they write about their fuller results.

The other question I was left wondering about was whether what the New Zealand Initiative has produced is really adding much value over and above the less-intrusive, more rough and ready, approaches to assessing school quality that people have used for years.  Here, I don’t mean that straw man suggestion that people think higher decile schools are better academically –  perhaps there are a few who believe that, but I doubt they are many.  My approach to schools for years has been to take the NCEA results, and compare how an individual school has done relative to others (total, and distinguished by sex) of the same decile.  Plot all the schools in Wellington, and I could get a reasonable sense of which had students achieving better results than one might have expected for their decile.   Add in things like ERO reports, and talking to people who’ve had personal exposure to a school, and one gets quite a bit of information.   And people will, rightly and reasonably, want to consider things other than just academic value-added in making the (rather limited) choices they have about schooling for their children (be it sports, arts, behavioural standards, uniform, single-sex vs coed, ethos or whatever).

In the end, however, my biggest concern remains the IDI itself.  It is curious to see the New Zealand Initiative championing its use in evaluating schools (and they are researchers, and researchers are drawn to data as bees to honey) when the Initiative has historically tended to emphasise the merits of genuine school choice.  It is something I strongly agree with them on.    But decentralised markets, with parents deploying purchasing power, wouldn’t have (at least naturally) the sort of highly-intrusive joined up information that IDI provides.

And nor should government-provided school systems.    I’m not sure how Statistics New Zealand matches my son, enrolled at a local school where we provide only our names, phone numbers, and street addresses, to the education levels of my wife and I, let alone our marital status, (non-existent) benefit histories or criminal records or the like.  It is none of the school’s business, and it is none of the government’s business.  As citizens, we should be free to keep bits of our lives compartmentalised, even if all this joined-up data might be a blessing to researchers.

I touched on some of these issues in a post late last year.

Statistics New Zealand sings the praises of the IDI (as does Treasury –  and any other agency that uses the database).  I gather it is regarded as world-leading, offering more linked data than is available in most (or all) other advanced democracies –  and that that is regarded as a plus.   SNZ (and Treasury) make much of the anonymised nature of the data, and here I take them at their word.  A Treasury researcher (say) cannot use the database to piece together the life of some named individual (and nor would I imagine Treasury would want to).   The system protections seem to be quite robust –  some argue too much so – and if I don’t have much confidence in Statistics New Zealand generally (people who can’t even conduct the latest Census competently), this isn’t one of the areas I have concerns about at present.

But who really wants government agencies to have all this data about them, and for them to be able link it all up?   Perhaps privacy doesn’t count as a value in the Treasury/government Living Standards Framework, but while I don’t mind providing a limited amount of data to the local school when I enrol my child (although even they seem to collect more than they need) but I don’t see why anyone should be free to connect that up to my use of the Auckland City Mission (nil), my parking ticket from the Dunedin City Council (one), or (say) my tiny handful of lifetime claims on ACC.  And I have those objections even if no individual bureaucrat can get to the full details of the Michael Reddell story.

The IDI would not be feasible, at least on anything like its current scale, if the role of central government in our lives were smaller.   Thus, the database doesn’t have life insurance data (private), but it does have ACC data.  It has data on schooling, and medical conditions, but not on (say) food purchases, since supermarkets aren’t a government agency.   I’m not opposed to ACC, or even to state schools (although I would favour full effective choice), but just because in some sense there is a common ultimate “owner”, the state, is no reason to allow this sort of extensive data-sharing and data-linking (even when, for research purposes, the resulting data are anonymised).   There is a mentality being created in which our lives (and the information about our lives) is not our own, and can’t even be stored in carefully segregated silos, but is the joined-up property of the state (and enthusiastic, often idealistic, researchers working for it).   We see it even in things like the Census where we are now required by law to tell the state if we have trouble “washing all over or dressing” or, in the General Social Survey, whether we take reusable bags with us when we go shopping.    And the whole point of the IDI is that it allows all this information to be joined up and used by governments –  they would argue “for us”, but governments’ view of what is in our good and our own are not necessarily or inevitably well-aligned.

In truth my unease is less about where the project has got to so far, but as to the future possibilities it opens up.  What can be done is likely, eventually, to be done.   As I noted, Auckland City Mission is providing detailed data for the IDI.  We had a controversy a couple of years ago in which the then government was putting pressure on NGOs (receiving government funding) to provide detailed personal data on those they were helping –  data which, in time, would presumably have found its way into the IDI.   There was a strong pushback then, but it is not hard to imagine the bureaucrats getting their way in a few years’ time.  After all, evaluation is (in many respects rightly) an important element in what governments are looking for when public money is being spent.

Precisely because the data are anonymised at present, to the extent that policy is based on IDI research results it reflects analysis of population groups (rather than specific individuals).  But that analysis can get quite fine-grained, in ways that represent a double-edged sword: opening the way to more effective targeting, and yet opening the way to more effective targeting.  The repetition is deliberate: governments won’t (and don’t) always target for the good.  It can be a tool for facilitation, and a tool for control, and there doesn’t seem to be much serious discussion about the risks, amid the breathless enunciation of the opportunities.

Where, after all, will it end?   If NGO data can be acquired, semi-voluntarily or by standover tactics (your data or no contract), perhaps it is only a matter of time before the pressure mounts to use statutory powers to compel the inclusion of private sector data? Surely the public health zealots would love to be able to get individualised data on supermarket purchases (eg New World Club Card data), others might want Kiwisaver data, Netflix (or similar) viewing data, library borrowing (and overdue) data, or domestic air travel data, (or road travel data, if and when automated tolling systems are implemented), CCTV camera footage, or even banking data.  All with (initial) promises of anonymisation –  and public benefit – of course.  And all, no doubt, with individually plausible cases about the real “public” benefits that might flow from having such data.  And supported by a “those who’ve done nothing wrong, have nothing to fear” mantra.

After all, here the Treasury author’s concluding vision

Innovative use of a combination of survey and administrative data in the IDI will be a critical contributor to realising the current Government’s wellbeing vision, and to successfully applying the Treasury’s Living Standards Framework to practical investment decisions. Vive la révolution!

Count me rather more nervous and sceptical.  Our lives aren’t, or shouldn’t be, data for government researchers, instruments on which officials –  often with the best of intentions –  can play.

And all this is before one starts to worry about the potential for convergence with the sort of “social credit” monitoring and control system being rolled out in the People’s Republic of China.    Defenders of the PRC system sometimes argue –  probably sometimes even with a straight face –  that the broad direction of their system isn’t so different from where the West is heading (credit scores, travel watchlists and so).   That is still, mostly, rubbish, but the bigger question is whether our societies will be able to (or will even choose to) resist the same trends.  The technological challenge was about collecting and linking all this data,  and in principle that isn’t a great deal different whether at SNZ or party-central in Beijing.   The difference –  and it is a really important difference –  is what is done with the data, but there is a relentless logic that will push erstwhile free societies in a similar direction  –  if perhaps less overtly – to China.  When something can be done, it will be hard to resist eventually being done.    And how will people compellingly object when it is shown –  by robust research –  that those households who feed their kids Cocopops and let them watch two hours of daytime TV, while never ever recycling do all sort of (government defined –  perhaps even real) harm, and thus specialist targeted compulsory state interventions are made, for their sake, for the sake of the kids, and the sake of the nation?

Not everything that can be done ends up being done.  But it is hard to maintain those boundaries, and doing so requires hard conversation, solid shared values etc, not just breathless enthusiasm for the merits of more and more linked data.

As I said earlier in the post, I’m torn.  There is some genuinely useful research emerging, which probably poses no threat to anyone individually, or freedom more generally.   And those of you who are Facebook users might tell me you have already given away all this data (for joining up) anyway –  which, even if true, should be little comfort if we think about the potential uses and abuses down the track.   Others might reasonably note that in old traditional societies (peasant villages) there was little effective privacy anyway –  which might be true, but at least those to whom your life was pretty much an open book were those who shared your experience and destiny (those who lived in the same village).   But when powerful and distant governments get hold of so much data, and can link it up so readily, I’m more uneasy than many researchers (government or private, whose interests are well-aligned with citizens) about the possibilities and risks it opens up.

So while Treasury is cheering the “revolution” on, I hope somewhere people are thinking harder about where all this risks taking us and our societies.

Some thoughts anyway.  Not all that can be done should be done, and the advance of technology (itself largely value-neutral) opens up many more things that can be done that shouldn’t be done.

Yes, but….

Yesterday – no doubt with Waitangi Day in view –  the history teachers’ association was out with a call (even a petition) for the compulsory teaching of New Zealand history in schools.   You might suppose this was a job creation scheme for history teachers, but I’m happy to grant that that won’t be the only motivation behind the association’s call.

You might suppose that history teachers –  in particular –  might be interested in the entire story of our country, ancient and modern.  And yet, oddly, the “Petition Reason” seems only interested in one brief period.

Too few New Zealanders have a sound understanding of what brought the Crown and Māori together in the 1840 Treaty, or of how the relationship played out over the following decades. We believe it is a basic right of all to learn this at school

As it happens, in principle I strongly favour the teaching of New Zealand history in our schools.  I find it utterly astonishing how little  of the story of our country –  and what little there is (ANZAC Day, Waitangi Day) typically wrenched from context –  and of our people and cultures is taught in our schools.  As I recall, I got through the whole of school with no New Zealand history, other than one School Certificate history unit on the New Zealand and US welfare system.   From what three children wending their way through the school system tell me, it doesn’t seem much different now, unless one chooses to do history in years 11-13 (a pretty small minority), but where apparently it is now only permitted to study history with “implications for New Zealand”.  No man an island and all that, so I’m happy to argue all human history (and certainly western history) has implications for who we are today, but I don’t think that is quite what the history teachers or the Ministry of Education have in mind.  I don’t know much about how it is done in other countries, but I’m struck by my daughter’s English penfriends who tell about studying specific history courses at around ages 10 to 12.  There is so much about New Zealand, New Zealanders, and our interaction with the rest of western history, that could –  and ideally should –  be taught.

Of course, the whole philosophy of many of our “educators” is opposed to learning facts, let alone placing them in a coherent narrative.  How vividly I recall the activist principal of our local primary school telling a group of parents of new entrants that the school tried not to teach facts, as nothing specific they taught now would be any use fifteen or twenty years hence.  Any serious teaching of history –  not isolated tiny NCEA standards –  would fly in the face of that sort of mentality.

I’d almost go as far as the history teachers in calling it a “basic right” for children to be educated in where our country today has come from.  We don’t invent ourselves anew with each new generation, but as individuals and societies we are formed –  and informed –  by what came before us.  That is so even when many want to turn their backs on much of their origins.  Origins they still are.  And choices made yesterday affect institutions (broadly defined) today.

And what counts as history doesn’t simply begin at Paihia in 1840 (or even the few years just prior to that).   So, in principle, I would strongly favour teaching (say) 1000 years of history, introduced from new entrants and expanded as the capacity of the children to make sense of the material grows.    Look back to the first human settlement of New Zealand, and to (say, and inevitably arbitrarily) the Norman Conquest and subsequent British (and European) history.  Tell the stories, establish a sense of the flow, cover (inevitably a bit lightly for most) the politics, the religion, the key figures, the way in which governments developed.   For New Zealand, I’d tell the more recent story partly in a cross-country comparative sense –  New Zealand vs (say) Australia, Ireland, Canada, Newfoundland, or even Fiji and South Africa.  As it is, smart historically-oriented children probably know more about British Prime Ministers and US Presidents than they do about those who’ve directly led and shaped our own country.        One can, of course, mount an argument that those big countries were “more important”, and I wouldn’t really disagree, but New Zealand history is our history.  Depriving our kids of serious exposure to New Zealand history is akin to depriving them of any knowledge of their great-grandparents.

My son’s year 12 history teacher told the class yesterday that he didn’t support the history teachers’ association call, because kids typically weren’t interested in New Zealand history and there was no point teaching stuff kids weren’t interested in.  Frankly, that seems like an abdication of responsibility –  most kids aren’t that interested in maths and yet we give them no choice about learning it.  And it is also something of a vote of no-confidence in teachers: sure, most kids probably won’t be that interested in New Zealand history at 15 if they’ve never learned any previously (I wasn’t then), but if you start early and introduce key figures, key stories, in age-appropriate ways I’m reluctant to believe that kids will have no interest.  But even if they still claimed no interest, they need to know where we’ve come from.  After all, in a very few years each of them will be eligible voters.

What I found most interesting in the articles yesterday was where the pushback from teaching history was coming from.

But the associate minister of education and minister of Crown Māori relations, Kelvin Davis, was quick to quash any impression the government might make the topic compulsory.

Davis was formerly a teacher, so one might have thought he’d favour making New Zealand history, including New Zealand’s place in the world, an integral part of what schools teach.   It is the sort of subject that probably matters even more for those from disadvantaged backgrounds, who aren’t as likely to go digging themselves, or to be introduced to some structured narrative of New Zealand from home.

But supportive as I am in principle of a much more central role for history –  New Zealand history –  in what is taught in schools, what leaves me rather more ambivalent (“yes, but….”)  is the sort of people who would be teaching our history, and/or designing any curriculum.      Few of them seem to see New Zealand history as something to celebrate (I’m going to be fascinated to see how our Prime Minister treats the 250th anniversary of Captain Cook’s first visit), and there is a strong theme of shame –  the “black armband” approach to history –  combined with some agenda for how these people think society should be organised now or what role (say) the Treaty of Waitangi should play.  There is little sense of handing down the traditions and insights that made us who we are –  the sense that any society stands on the shoulders of those who went before –  and little interest in the past for its own sake (understanding, for example, why people believed and acted as they did), only as subject for judgement or grist to the mill in current political contests.   And I guess that is why the government resists the idea of making the teaching of history compulsory: they sense that many parents probably really aren’t keen on ill-educated indoctrination.

Give parents effective choice over schools –  proper and full funding for independent schools –  and I’d be a lot keener on translating support in principle for some serious structured teaching of New Zealand history (ups and down, successes and failures, and so on) into something worth implementing, in ways that might usefully amount to more than (often unwitting –  most teachers know no better) indoctrination.

There was a quote from G K Chesterton in an article I was reading yesterday (in the Australian periodical Quadrant)

The trouble with too many of our modern schools is that the State, being controlled so specially by the few, allows cranks and experiments to go straight to the schoolroom when they never have passed through the parliament, the public house, the private house, the church, or the marketplace. Obviously it ought to be the oldest things that are taught to the youngest people; the assured and experienced truths that are put first to the baby. But in a school today the baby has to submit to a system that is younger than himself.  the flopping infant of four actually has more experience and has weathered the world longer than the dogma to which he is made to submit.  Many a school boasts of having the latest ideas in education, when it has not even the first idea; for the first idea is that even innocence, divine as it is, may learn something from experience.

Dated as the wording may be, the ideas seem apt nonetheless.

And there is an interesting new article in Foreign Affairs by Harvard historian Jill Lepore on “Why a Nation Needs a National Story”.   I’m ambivalent about, or even unsympathetic to, where she gets to –  she wouldn’t quite put it like this, but it amounts to history as indoctrination/shaping –   but I was quite taken with this line

“Writing national history creates plenty of problems. But not writing national history creates more problems, and those problems are worse.”

We owe it to our kids to form them in where we (they) have come from.   Only when given a decent base of knowledge can they intelligently challenge interpretations and reach useful views as to what from history should be taken forward and what left behind.  Whether agents of the state, imbibing radical agendas often upending that heritage, can be trusted to do that job is quite another question altogether.

School days and years

Sitting reading the Herald this morning as my oldest child headed out the door for his first day of the new school year –  two more still on holiday – I noticed that National MP Nicola Willis was making a bid for the state to do more child-minding for her and her husband   She has an op-ed trailing a private member’s bill she will seek to introduce to reduce the summer holidays for school children by a week or two.

That had me wondering how our school year compared to those in other advanced countries.  For some reason, the OECD doesn’t have data on New Zealand in their tables showing the number of hours per year of instruction at primary school.  But the Ministry of Education website says that our primary school have to be open for 390 half days a year (195 days).    The standard primary school day seems to be from 9am to 3pm, and if we subtract an hour for lunch and fifteen minutes for another break, that leaves 4.75 hours per day of instruction time, for a total of 926 hours per year.   Here is how that estimate compares with the other OECD countries for which there is data reported.

In other words, we already have one of the higher primary school hours requirements among the OECD countries.  (Accordingly to one website I looked at, Australia has slightly shorter school years, but slightly longer school days.)  And recall that these aren’t voluntary hours, but coerced ones.   Finland is sometimes touted as having an excellent education system, so I was particularly interested in the hours numbers reported there.  There are some odd looking numbers –  South Korea has a reputation for long hours and very intense schooling, which doesn’t seem to square with these numbers – but I can’t see any credible way in which New Zealand is not already in the upper half of the OECD for schooling requirements.    And everyone recognises that schooling has a considerable element of (compulsory) child-minding about it: home-schoolers rarely spend 900 hours a year on the equivalent learning.

Perhaps also not entirely irrelevant when an MP wants to reduce holidays for kids is to look at minimum annual leave requirements for adults.  It wasn’t until 1944 there were any.  When I was the age Nicola Willis’s kids are now –  and the school year seemed the same length as it is now – that minimum was two weeks.  In 1974, the minimum was increased to three weeks, and in 2007 it was further increased to four weeks.   These weren’t changes proposed by the National Party, but there is no sign Nicola Willis or her leader wants to undo them, so why does she think our kids should be conscripted to the state’s service for even more weeks of the year, even as (most) adults appreciate the greater leisure?

Willis claims a high-minded motive

Most importantly, Kiwi kids feel the impact. Research shows the “summer slide” in student achievement is real. Kids’ literacy abilities can decline over the six-week break, with one study showing students losing months of progress over summer. Much of term one can be spent getting kids back to where they left off the following year. This is a real barrier to achievement.

Count me a sceptic on that one.  “One study” can be found to support almost any argument.  But even if it were true (a) plenty of workers come back to their desks after the summer holiday at a bit of a loose end, less focused than they might be for a few weeks, (b) formal literacy abilities are not the only capability we want our kids to develop, and (c) it would surely depend a great deal on the specific child  (my wife and I both recall going to library almost every day in our school holidays, and one of mine tells me she has read 33 books this month so far).   And if New Zealand’s PISA scores have been dropping –  under Nicola Willis’s party’s term of government –  that isn’t because we shortened the school year.   And if the holidays sometimes drag a little (a) boredom is often good for children (as they find ways to amuse themselves), and (b) so do terms and school years. I presume I’m not the only parent to have noticed children getting tired towards the end of terms, especially towards the end of the year.  They are children, and primary schools ones in particular don’t have the stamina of heathy adults.

But National Party MP Nicola Willis –  a party that once claim to stand for freedom, family etc –  now wants to compel kids into state-run schooling for more weeks of the year.

And why?   That alleged summer time literacy drop isn’t the real reason –  despite that “most importantly” the argument is only introduced late in her article.  What she wants is the state to force kids into school –  away from beaches, climbing trees, picking blackberries, reading, trying out cooking, hanging out with friends, siblings, parents, or whatever –  for longer to make it easier for parents to work long hours (over the course of a year).    It is really as simple as that.

I do have some sympathy for some parents –  not high income ones like Nicola Willis and her husband, for whom these things are purely choices.  Thanks to successive National and Labour governments, good housing in our major urban areas has been rendered ridiculously and totally unnecessarily financially out of reach of many people.  I have no idea how young couples manage to buy a house in this neighbourhood (I bought my first house here at 26 for the equivalent of \$300000 in today’s dollar –  the median price in the suburb is now \$900000), but part of it is both parents working full-time, not really from “choice”, but from something closer to “necessity”.   But how then do you manage school holidays?

I’m fortunate. Not only did I get into the housing market before the absurdity took hold, but in the five years we both worked fulltime we had a nanny, and I (enjoyed) taking all January off to be around with the kids.  And now we are comfortably a one income family and I (most of the time) really enjoy the holidays and the time with the kids (grown up before you know it anyway).

Not everyone has those options –  although I’m sure Nicola Willis and her husband could, despite her claims of how tough it is for them –  but that doesn’t make the appropriate answer to have the state coerce your kids into school for even more weeks (at the hottest time of the year).  Before you know it, people like her will pop up wanting to have kids in school to (say) 5pm each day as well –  much more convenient for workers I’m sure.

For a National Party MP to fail to recognise that substantial distinction between compulsory attendance (school) and voluntary childcare arrangements tells you again how statist the National Party itself has become.  Perhaps there are regulatory barriers to more after-school or holiday programmes –  one imagines the National government’s OSH rules might be part of that –  and it might be sensible to identify any of those and advocate removing them.  It would certainly make sense to deregulate the land market and make decent housing affordable again, in ways that would give many more families options around part-time work, longer holidays, or one parent or other not engaging in market employment at all for a time.  It might even make sense to explicitly encourage strong two-parent families.   Those are the sort of measures a National Party might once have proposed.   But these days they seem to be mostly statist me-tooers, proposing to deal with one egregious state stuff-up (the housing market) with yet more state coercion.   And this from a party that barely even supports effective school choice, so that more coerced time in schools also typically means not forming our children in the academic heritage of our civilisation, but quite a bit more (mostly unthinking) indoctrination in the values and political beliefs of the teachers.

And now, when the wind drops a bit, I’m off to the beach with my daughter.

Skimming through the tweets of the chairman of the Productivity Commission –  who often includes interesting charts –  I spotted this picture.

It is an interesting chart on a number of counts.  First, in every country shown, except the UK, the earnings advantage to tertiary educated workers is higher –  often materially so –  for older workers than for younger ones.  Second, all the countries at the far left of the chart are among the poorest of all those shown (the sample is OECD countries and “partner countries”).  And thirdly, of course, that New Zealand is over towards the far right of the chart, where the earnings advantage to tertiary educated workers is pretty low (and especially so for older workers).   The chart is drawn from this short OECD note.

Making sense of the numbers isn’t straightforward.    First, note that the chart isn’t claiming to illustrate returns to tertiary education, but the earnings margin of people who have had a tertiary education over those who haven’t.  The difference matters –  people who undertake tertiary education are different, in various dimensions, to people who don’t.    I’m in that older age group, and if I think back to my Auckland high school, only about 10 per cent of those who started in the third form made it to the seventh form.  Most of them probably did go on to university, and perhaps a few others did tertiary study later, but it was a cohort that was much more intellectually capable, on average, than the other group.   Since university was all but free to attend in those days, there weren’t even obvious financial barriers excluding capable people from poorer families.

These days, of course, a much larger share of young people undertake tertiary education.  But that probably means that the intellectual capability of the median tertiary qualifed person today is lower relative to that of the population as a whole than was the case 40 years ago.  It isn’t clear that is true if we compare the median of those with tertiary education and those without it (since the median of those without it is now likely to be quite a bit lower relative to that of the population as a whole).

Productivity performance in New Zealand has been poor for a long time, and we now start a long way behind the better-performing OECD countries.  If there were a lot of really good opportunities here then all else equal, and given how far behind we start, I might have expected the returns to enchanced skills (not, of course, the same as having a tertiary education) to be higher here than in many other countries.  The greater international mobility of people with better educational qualifications might have tended to work in the same direction.

But instead, those with tertiary educations aren’t doing well absolutely (low productivity country) or relative to those without.     And so you are left wondering quite why immigration policy is oriented towards recruiting lots of “skilled”  migrants –  particularly those with New Zealand tertiary education –  and why “education” policy is oriented towards encouraging yet larger proportions of people to undertake tertiary education.  None of which prevent’s Treasury’s living standards dashboard  – which we are told is going to help shape next year’s Budget – including the share of the population with a university degree of one of their “wellbeing indicators”.

(As far as I can tell, this particular chart also doesn’t taken of the fact that getting a tertiary education costs a lot of money –  directly (fees and living costs) and indirectly (foregone time in the labour force) and thus, if anything, probably overstates the advantage held by the tertiary educated.  There are other estimates of overall lifetime earnings advantages (or otherwise)).

More kids means more education spending

I’m tied up with other commitments today, but I happened to notice this chart from the OECD.

Since today is also the day the primary/intermediate teachers’ strike hits Wellington, it seemed timely.

In some ways, it is quite a striking chart.  New Zealand devotes the second largest share of GDP to education of any OECD country, exceeded only by super-rich Norway (as far as I can see this is an estimate of total public and private spending).

And yet, once one looks even a bit more closer it is less interesting than it might have seen.  For example, at the other end of the chart both Ireland and Luxembourg have GDPs that are flattered by unusual effects –  in Ireland’s case, the impact of their corporate tax system (which ends up exaggerating the true economic value occurring in Ireland, and does not reflect value accruing to the Irish), and in Luxembourg’s case, the fact that a lot of the GDP arises from people who work in tiny (financial centre) Luxembourg but live across the border in various neighbouring countries (their kids won’t be using Luxembourg’s schools).

And in our case, who uses schools and universities?  Mostly children and young people, and if you don’t have many children you’ll need to spend less (as a share of GDP) on education.   As this chart shows, of the OECD countries only Turkey, Mexico and Israel have a higher total fertility rate at present than New Zealand does.   Our TFR this particular year was 1.9 (births per woman) while that for, say, Japan was about 1.4.  That makes a big difference to how much needs to be spent on schools (all else equal about a third more).  Iceland spends as much on schools as we do, but with quite a bit smaller a birth rate.

Total fertility rate (2016)

And the other thing that marks us out relative to most OECD countries, although not all, is a high rate of immigration.  Not all migrants, by any means, have children with them when they move here (temporarily or permanently) but some do.  It all adds to the amount (share of GDP) needing to be spent on education.

Both birth rates and migration rates are just one of those things that people doing education budgets just have to take as given.    The other thing that you’d expect to influence education spending quite substantially is class sizes –  even at tertiary level the old Oxford/Cambridge tutorial system is a lot more resource intensive than, say, stage 1 lectures with 350 young people with largish tutorials run by honours students. But there tends to be more of a focus on school class sizes.  Unfortunately, the charts in the OECD Education at a Glance publications don’t have New Zealand data for pupil/teacher ratios, but here is the chart.

 Average class size in primary education, by type of institutions (2016)

What I found striking is how wide the range of practices is.  It isn’t just that richer countries have smaller class sizes –  Chile is at one end and Costa Ricas at the other –  even though my understanding of the educational research is that smaller class sizes is mostly just a luxury item, with little or no impact on educational outcomes.   Shifting from one end to the other is likely to have significant implications for the cost of primary school education.  I have no idea where New Zealand would sit on the chart: I’m always a bit surprised how small my children’s class sizes have been, but that probably just marks me out as an old fogey, recalling classes in the mid-high 30s back in the early 1970s.

I don’t have any particular conclusion to this post, other than the caution that a high share of GDP devoted to schooling sheds –  on its own – precisely no light on the reasonableness, or otherwise, of the teachers’ claims, and their strike.  Having said that, I’d have preferred my daughter’s Principal not to have been using public resources to email us all urging parents to support the industrial action, join the protest rally etc.

In (reluctant) support of teachers

I’m no great fan of school teachers (at least as found in contemporary New Zealand –  a re-read last week of Goodbye Mr Chips was another matter altogether).  Over ten years now we’ve encountered a handful of very good teachers, quite a few duds, and lots who seemed no better than mediocre.  There was the Principal who, when my oldest child started school, told a gathering of parents of new entrants that it was really quite inappropriate to teach content as almost all of it would be out of date before long.   And when this particular Principal (together with the NZEI) was using the pages of the Dominion-Post to promote my daughter’s teacher –  apparently genuinely excellent –  as an illustration of the case for more pay, I made myself unpopular by noting that in the same school there were less than outstanding teachers, and that most people knew who they were.   Then there was the science teacher at the local intermediate school teaching conspiracy theories around 9/11.      Teachers who want to tell students off for discussing the previous day’s playground incident in which a deeply troubled student was on the loose with a knife and the school was in lockdown.   And then there is the endless “indoctrination”, mostly probably by teachers not quite smart enough to realise there really is an alternative view to their particular right-on views on colonialism, capitalism, homosexuality or whatever, and not apparently trained to the view (common in my youth) that a teacher’s personal political views (let alone sexual preferences) weren’t something to obtrude into the classroom.   If there are any teachers in Wellington sympathetic to a market economy, they must keep rather quiet about it.

So I’m not normally overly sympathetic to teachers.  And mostly we are stuck with them –  the teachers’ unions being among those most strongly opposed to effective school choice.   That said, as a stay-at-home parent, their stopwork meetings and strikes don’t inconvenience, or greatly bother, me.  It can be nice to have a bonus day at home together.

Of course, like any occupation there can at times be difficulty filling particular teaching positions.  When I was young we moved from Christchurch to Kawerau, and either on the day we arrived, or possibly the next day, the Principal of the local high school was on the door step.  He’d heard that the new Baptist minister’s wife had science qualifications and teaching experience (10 years previously) and he was desperate for staff.

Perhaps not all such specific vacancy stories tell anything meaningful about salaries and/or working conditions.  But when the stories multiply, and there is evidence of a material gap between demand and supply (demand exceeding supply) at the current price is usually a sign that the price should be rising, perhaps quite a bit.

How confident can we be that there is a shortage of teachers at current salaries?  Principals tell us so, but they –  members of same unions –  aren’t entirely disinterested observers (it was only a few weeks ago that a newsletter came home from one local school in which the Principal urged us parents to get along and support the teacher protest).    And almost every day, at least in the schools I have exposure to (three at present), there is a warm body in front of each class.

But then in this morning’s newspaper we read that the government itself –  the ultimate employer/funder of most school teachers –  recognises the problem.  The Minister of Education “is pledging to find at least 400 overseas teachers for the 2019 academic year”.

Which is rather convenient for the government surely?  As the near-monopsonist purchaser of school teaching services, it deals with shortages by using its power as  controller of the immigration and work visa regime to attempt to meet its staffing problems.

As I’ve written previously, there can be a place for work visas where, for example, there is a sudden and unexpected increase in a demand for a particular skill, or even where a particular skill is very rare (the market for some speciality skills can be very thin indeed).   But there are no real surprises as to how many teachers are needed nationwide –  at bare minimum for people born here there is a five year lead time, and that for new entrant teachers.  And decent teaching skills aren’t, or shouldn’t be, that hard to come by –  the PPTA apparently claims 17000 members.    These should be jobs that can be perfectly adequately filled by local residents –  who will have the added bonus of understanding the local culture –  at least if the labour market was allowed to work.

A few months ago I wrote here (and here) about how the work visa system appeared to be enabling local authorities to keep down bus driver wages and (thus) fares and ratepayer funding by substituting foreign workers in place of locals.    The bus driver case looked particularly egregious –  it being a quite modestly-skilled role into which someone could be trained in 6-8 weeks.   But it isn’t clear to me that the school teacher case is really so different, even granting that the skill levels are higher, and thus the inevitable local training and recruitment lags would be a bit longer.

Of course, like all work visa applications the case for importing teachers will be supported by evidence that locals couldn’t be recruited. But if you keep the wage level down it isn’t overly surprising that New Zealanders with other options will pursue them, and you will be left with an apparent shortage.

And the market in teachers is a pretty dysfunctional one.  We have national pay scales even though it must be a great deal harder to get teachers in Auckland than in Timaru (and that private sector jobs typically pay a bit more, for the same job, in Auckland than in Timaru), the pay scales for secondary teachers don’t differentiate by subject (even though the alternative options for a good science teacher and a good history teacher may be quite different, and we still have something like pay parity between kindergarten teachers and secondary school teachers.   For that we can blame both the teacher unions and successive governments (National-led and Labour-led).

Nonetheless,  there does seem to be a shortage of (good) teachers, and it isn’t obvious that the government should be able to use the immigration system to avoid meeting the market (while no doubt claiming in other fora that heavy use of work visas in particular sectors doesn’t hold down wages in those sectors).

When writing about bus drivers, I suggested adopting this sort of policy

To that end, I’ve argued previously for a system in which Essential Skills visas are granted on these terms:

a. Capped in length of time (a single maximum term of three years, with at least a year overseas before any return on a subsequent work visa, with this provision to apply regardless of skill level).

b. Subject to a fee, of perhaps \$20000 per annum.

If an employer really can’t find a local hire for a modestly-skilled (or unskilled) position, they’d be able to get someone from overseas, but only by paying (to the Crown) a minimum annual fee of \$20000.  It is pretty powerful incentive then to train someone local, or increase the salary on offer to attract someone local who can already do the job. If you can’t get a local to do a job for \$40000 per annum, there might well be plenty of people to do it for \$50000 (and still cheaper than paying the ongoing annual fee for a work visa employee).

Even in the context of teacher salaries –  where starting salaries are well above \$40000 –  per annum – this looks like the starting basis for a workable model.

More generally, I have argued that

If we are going to have government officials administering something like a mass market Essential Skills visa scheme, and deciding who does and doesn’t get approval, surely a key aspect of any labour market test should be something along these lines?

“has the effective wage or salary rate for this occupation risen materially faster than wages and salaries more generally in New Zealand over the past couple of years?”

If not, how can you seriously use the term “skill shortage”?    Even if wages in a particular occupation have risen faster than the norm, it takes time for locals to respond and shift occupations, so one wouldn’t necessarily want to jump at the first sign of a bit of real wage inflation in a particular occupation, but if after a couple of years the pressures were persistent then some sort of Approval in Principle for temporary migrant labour –  at wages at or above those now prevailing in the domestic market – might make some sense as a shock absorber.  But MBIE seems perennially averse to markets adjusting in ways the generate higher real wages, even though that outcome is one core part of what we look for from a successful economy.

I’m not a fan of the teachers’ union propaganda arguing that some decades ago senior teachers earned as much as MPs, and that they should be again –  MPs seem to have been quite badly underpaid in that earlier period.  But I’d be surprised if the government could show that teacher salaries (and overall working condition-adjusted remuneration) have increased more rapidly than the market generally in recent years.  If not, surely higher salaries –  perhaps regionally differentiated – should be the first part of any adjustment, and if there is any resort permitted to offshore labour markets it should be explicitly temporary, backed by financial incentives/penalties of the sort I outlined above.

It sticks in the craw to stick up for teachers and their unions, but the market indications would appear to be on their side in this particular dispute.   Of course, the fact that there is a shortage doesn’t –  in an administered market like this –  tell one how much salaries should be adjusted (or the onerous paperwork burden eased), or the appropriate balance (starting salaries vs later progresssion) but the direction looks pretty clear.  And the proposal to resort to substantial offshore recruitment looks as if the government has indirectly conceded the case –  even as, again, it continues to preference the interests of offshore people over those of New Zealand workers.  Teachers might be less sympathetic than bus drivers, rest home workers, or shop assistants, but they are New Zealanders too.  Even, as it happens, substantial funders of the Labour Party.

A generous subsidy championed by the beneficiaries

Reading the Herald over lunch, I chanced upon a story under the headline \$50m PhD subsidy pays off.   That is the \$50 million per annum subsidy put in place more than a decade ago that allows foreign PhD students to study at domestic fees (apparently a saving for them for more than \$30000 per annum each), allows full domestic work rights for them and their partner, and free access for their children to New Zealand public schools.

The story says it is based on a new report from Education New Zealand.  Education New Zealand, of course, is not exactly a disinterested party.  It is the government agency that champions the export education industry.  In their own words

ENZ is New Zealand’s government agency for building international education. We promote New Zealand as a study destination and support the delivery of education services offshore.

But I went looking anyway and found the new report.  They got a research firm to produce it for them, not (as far as I could see) involving any new research themselves.

There didn’t seem to be a great deal in the ENZ report on the PhD subsidy scheme, but there was this

Since the introduction of the PhD policy in 2005, the number of international PhD students has increased, and now makes up 45% of all PhD students. Berquist (2017) finds indicators that suggest this policy has been effective, such as an increase in New Zealand’s research output, with the rate of citation of New Zealand research rising from 0.96% of the world average before the strategy, to 1.26 times the world average for 2010-2014. The academic impact of research from New Zealand is also rising; and at a rate faster than Australia. In addition, all eight New Zealand universities are now in the top 450 of the QS world university rankings, compared to three in 2005.

That sounded quite good –  to be perfectly honest I didn’t have any strong priors on the merits of this programme –  but it did leave me wondering why, if it was such a good deal for the universities, they didn’t just price PhD products this way themselves, rather than turn to the taxpayer for more subsidies?

Here was what the Herald article reported the university lobby as saying

Universities NZ director Chris Whelan said the subsidy gave NZ universities an advantage over their overseas counterparts.

“We don’t know of any other jurisdiction that does it,” he said.

“Lifting rankings has a flow through to our ability to recruit students, and our ability to recruit world-class academics, and our ability to collaborate with researchers overseas.

“It’s this that is really strongly contributing to the rankings of a university like Auckland and feeding that virtuous cycle which works to attract more international students.”

The fact that no one else runs a programme like this should probably be a red flag –  the more so, as it is now 13 years since New Zealand introduced the subsidy.  Call it marketing spending, or whatever other label you like, but if the university lobby is right surely there is no reason for them not to fund it from within their own resources: their own argument is that it generates a virtuous circle for them?

But I was still curious about the evidence in support of the claims.  In that ENZ quote there was after all a reference to “Berquist (2017)”.  So I tracked that paper down.

It turned out not to be journal article or anything of that sort, but a paper that had been given at a conference in Australia a year or two ago.  Which might be fine, except that as I flicked to the end of the paper it showed the author

Brett  Berquist,   Director  International,   The  University  of  Auckland

In fact, his entire career seems to have spent in doing/promoting/facilitating international education.

I’m not here to criticise Mr Berquist. He has a job to do, and a business to promote, and may well do it very effectively.  He just wrote a conference paper; it was ENZ that chose to use it as the evidence for the effectiveness of this (really quite large) subsidy scheme.  All that said, Mr Berquist didn’t exactly bring a detached “academic” tone to his conference paper.

In  our  international  education  industry,  where  many  people  have  chosen  this  line  of  work  from  a   deep  personal  conviction  or  experience,  we  sometimes  seem  to  assume  that  the  general  public   shares  our  logical  views,  even  if  they’ve  not  had  our  personal  experiences  of  what  a  powerful   and  beneficial  force  international  education  can  be.

Subsidised industry =  logical views.  Anyone sceptical, presumably not so much.

I suspect there are plausible arguments to be made on both sides of this particular issue.  It is plausible that by means of this subsidy we end up attracting to stay some highly-skilled and innovative migrants who otherwise wouldn’t have considered New Zealand.  But even if so, we really need a proper cost-benefit analysis, because the upfront cost per person isn’t small and (according to the paper) the typical person finishing their PhD on this programme is already in their 30s.  On the other hand, there is the selection bias problem.  Really able people don’t pay fees to do PhDs at top overseas universities –  in fact, the top universities compete to get these people.  And since New Zealand universities aren’t top tier (even in many individual subjects), and we are offering a cheap programme, with attached work/residence points rights, it might be reasonable to wonder quite what quality the median foreign PhD student we are subsidising is.   I don’t know the answer.  And there might be some foreign students who really prefer Auckland or Victoria to Harvard, Chicago, NYU, Stanford (places young Reserve Bank economists have gone off to do PhDs at) or Oxford or Cambridge.     But, for now, we don’t seem to have the evidence.   It would benefit everyone –  well, perhaps not the universities –  for such in-depth research to be done by independent rsearchers.

I’m also a little puzzled about the reported cost of the programme.  The Herald article says

Numbers have leapt from less than 700 in 2005 to 4475.

The subsidy means doctor of philosophy (PhD) students at the University of Auckland pay only \$6970 a year, the same as domestic students, compared with \$39,529 for international doctoral students in education, fine arts, music and clinical psychology.

Nationally, the subsidy is budgeted to cost \$50m in this financial year.

But if we now have 4475 foreign students doing PhDs, and are subsidising them each \$32559 (on these Auckland numbers), that seems to multiply up to about \$145 million per annum.  (And some of them would have been here anyway even without the subsidy –  arguably the better ones, for whom it was worth meeting the cost or who could earn the university’s own scholarships?)  And any domestic school fees, for those with kids, is on top of that.

Whatever the answer to that particular issue, for now one would have to say of the subsidy programme “case not proved”,  and take the Herald article with a considerable pinch of salt.  ENZ is probably always just going to produce as much propaganda as it can get away with, but I wonder if The Treasury has attempted a proper evaluation of the programme?

Poor returns to tertiary education

Tertiary education was quite a theme in the recent election campaign. In my household – with three kids likely to go to university in the next decade – promises to reduce the direct costs of tertiary education were tempting.  But resisting temptation remains a virtue.

A few days ago I noticed (thanks to Jim Rose) this chart

It isn’t a new result. These OECD data have shown for some time that the economic returns in New Zealand to getting a degree are pretty low relative to those in other advanced countries.   Such results even prompted Treasury to commission some external research on the gap in private returns.

In the chart – from a few years ago – whoever put it together has highlighted two groups of countries: the Nordic and Benelux countries on the one hand, where there are already lots of skilled people, and high income taxes, and former eastern-bloc countries which are now catching up to the rest of the advanced world, and where skills are in high demand, and able to command high returns. I’m, of course, more interested in the contrast between New Zealand and those central European countries.  As I’ve written recently, 25 years ago both we and they were looking to reverse decades of poor performance and catch-up with the other advanced countries. They’ve made progress in that direction. We haven’t.

Since the net benefits are shown in dollar terms (rather than, say, as a per cent of GDP per capita or of lifetime earnings), it is probably reasonable to expect that poorer countries will be bunched towards the left of the chart. And there one finds Turkey, Greece, New Zealand and Italy. But that clearly isn’t the bulk of the story. After all, even though they are now catching up, all six of the former eastern bloc countries shown still have levels of GDP per hour worked and/or GDP per capita similar to or (generally) below, those of New Zealand.

I had a look at a few background documents from the OECD. If anything, as we shall see, the New Zealand numbers may be even worse than what is shown in this chart.

It is important to recognise the distinction the OECD draws between private and public costs and benefits. Some of these things can be easily measured (eg upfront private fees, or direct public grants to institutions or individuals). Others are more approximate. (The other aspect, which I’m not sure any of these particular indicators attempts to account for is the selection bias, in which the typical person who undertakes tertiary study has other traits – eg intelligence – that mean that they would probably earn more in the labour force than the average person who does not undertake tertiary study.)

This chart is from a few years ago, and tries to break down the costs of tertiary education (in this case for a man). In New Zealand, as in most countries, the largest private cost by a considerable margin, is the foregone earnings of the student themselves.

These OECD indicators assume that students do not work while studying.  In the latest OECD Education at a Glance they show estimates for 15 countries as to how much difference it would make to include reasonable estimates of actual student earnings. For New Zealand, doing so would lift the estimated returns to tertiary education by around 15 per cent, more than for most of the other countries shown. However, as you can see from the first chart above, a 15 per cent lift in returns to tertiary study in New Zealand would not alter our relative position on the chart.

The other aspect of the calculations which often doesn’t get much attention is the appropriate discount rate to use in making these calculations. It matters a lot – the costs are mostly incurred between, say, ages 18 and 22, and the economic benefits accrue over decades. A decision by an individual is a very long-lasting investment project, with significant irreversibilities (the years spent on education can’t be reclaimed).

The OECD at present adopts a very low discount rate.

The NPV results presented in the tables and figures of this indicator are calculated using a discount rate of 2%, based on the average real interest on government bonds across OECD countries. However, it can be argued that education is not a risk-free investment, and that therefore a higher discount rate should be used.

I’d say there was no ‘it can be argued” about it. No sensible government would do a cost-benefit analysis of building more schools or universities using a discount rate of 2 per cent. The New Zealand Treasury, for example, uses a default discount rate of 6 per cent real. And as an economic proposition, an individual’s tertiary education is a pretty risky proposition, with few effective diversification options for most people.

As it happens, in the latest Education at a Glance the OECD presents a table illustrating, to some extent, what difference it makes to use a higher discount rate.

Using a discount rate of 5 per cent (real) reduces the estimated benefits by around 60 per cent (relative to the 2 per cent baseline) – and these numbers are for a man, and in most countries the net benefits to tertiary education for a woman are (on average) lower than for a man.

This issue matters particularly for New Zealand which has a higher risk-free interest rate on average than any of the other countries in the table. The gap is large. On Friday, the real interest rate on the New Zealand government’s longest (23 year) inflation-indexed bond was 2.39 per cent, while that for the US government’s 20 year indexed bond was 0.77 per cent (and US yields are far from the lowest in the world). A margin of 1.5 percentage points above “world” rates hasn’t been a bad guide for New Zealand interest rates over recent decades.

Even a 5 per cent real discount rate appears too low to evaluate a personal decision to invest in a tertiary education in New Zealand. But if one takes the results for New Zealand in the table above when evaluated at a 5 per cent discount rate, and then compares them against the results evaluated at 3.5 per cent for other countries (to capture that persistent difference in real interest rates), only Latvia would offer lower returns to tertiary education than New Zealand does.

And bump up the discount rate a little more and the estimated net returns to tertiary study will soon be approaching zero or going negative.  And, remember, those estimates are for a man. The average female returns are even lower.

People will have a range of reactions to these sorts of numbers. Some will take them as supporting proposals to reduce tertiary fees or increase student allowances. Such changes might increase the net private returns to tertiary education, but they won’t (of course) change the all-up net returns (someone still has to pay).  Others seem to see tertiary education as some sort of “merit good” that people should have the opportunity to undertake, at moderate expense, whether there is an economic return – to them, or the public more generally – or not.  And, of course, for some people and some courses, a tertiary education is more akin to consumption than investment (which is not intended as a criticism).

For me, I see them as yet another marker of the failure of the economic strategy pursued by successive governments over recent decades.  Our remoteness means it is very difficult to generate consistently high returns to anything much in New Zealand for very many people. The determination of our governments to quite rapidly increase the population here, despite those apparently limited opportunities, just compounds the problem. It does so directly – the limited natural resources (our one distinctive advantage) are spread over ever more people – and indirectly, through a persistently overvalued real exchange rate and high real interest rates.

Returns to tertiary education in New Zealand are probably quite reasonable for those New Zealanders who get an education here, and then leave (but that is probably a poor investment for the taxpayer). For many of those who stay, it looks like a distinctly marginal proposition. Attempting to bring in lots more skilled people from abroad – most of whom aren’t that skilled anyway – just compounds the economic problem, even if the New Zealand taxpayer doesn’t have to pay anything for their tertiary education. There just aren’t the good economic opportunities here for a rapidly growing population, and increasing subsidies to tertiary education would seem likely to further exaggerate the evident imbalances.

In an economy that was making progress towards reversing decades of relative economic decline, there is good reason to expect that returns to investment in tertiary education (like other prospective investment returns) should be consistently high relative to those in other countries. Sadly, those returns appear to be consistently low in New Zealand – especially when evaluated at an appropriate discount rate. And, of course, we are making no progress at all in closing those productivity gaps.