Thoughts on Marx’s Capital

~2400 words, ~10 min reading time

So, today, I finished a 9 year project – I read all three volumes of Marx’s Capital. (And no, I don’t want to hear about “Volume 4”. Using the most motivated of reasoning, I choose to believe that Marx’s “Theories of Surplus Value” in a separate work entirely.)

Below are my thoughts, presented not particularly systematically.

The Good

First, let’s be clear: I like free markets. I probably like capitalism, depending what you mean by the term. I’m also a professional economist trained in the Austrian and neoclassical (largely Chicago) approaches. So, much as Marx spent Capital critiquing capitalism, I will probably spend most of my entry here critiquing Marx’s Capital. But, there are some positives worth mentioning.

(1) Marx was very thorough. That’s why this work is 3 volumes long. In these volumes he incorporates a number of numerical examples, quotations from proceedings at Parliamentary sessions, some data, and naturally a great deal of his own theorizing.

(2) Given that he was writing slightly before the Marginalist Revolution really caught on (Marx wrote Capital from 1867-1883, while Menger’s Principles came out in 1871, so I can’t completely blame Marx for not fully incorporating marginalist insights), he has a surprising number of “almost marginalist” observations. The theory of ground-rent that he details – built largely on Ricardo, admittedly – has some nearly marginalist elements.

(3) Marx has an almost modern conception of “long run” v “short run” (though his terminology doesn’t match modern terminology), which I found interesting.

(4) In Capital, Marx is far more fair than I expected. He clearly is focused on taking a scientific approach.

(5) Marx observes that “surplus labor” (that is, doing work that goes beyond what is necessary for the worker to survive) is a feature common to all societies. The explanation: not everyone works, so workers have to work more to make up for the fact that infants and the elderly can’t. In addition, because of uncertainty, people plan to produce a bit more than necessary as a form of insurance against bad outcomes. I thought this was an interesting observation.

The Bad

(1) I originally set out to read Marx to find out where he went wrong, exactly. The answer: Volume 1, Page 4. It was at that point that Marx points out that if two things are exchanged for each other, they must be equal. While it’s weird to say that $5 is “equal to” a skein of woolen yarn, it must be true for both the buyer and seller to engage in the exchange. This leads to the question: what, exactly, is equal between them? Marx suggests that it’s the labor that is embodied in them. After all, it can’t be the wool – since wool isn’t in $5 (at least, I don’t think it is…). But, the common factor in each is that each requires some amount of labor to produce. So, the value must come from labor. More on this in the next bad point.

(2) Marx’s writing is very hard to follow. Some of it is that terminology has changed, so when Marx says “price of production” and means “cost of production” it’s just confusing. But, some of it is that Marx has a tendency to use somewhat mystical language (if memory serves, he inherits this from Hegel – though it has been over 20 years since I’ve read Hegel). Since the last two volumes were published posthumously, Engels had to put some notes in them, and included his own clarification on a couple points in the edition that I have. This made it clear: Engels was a much better writer than Marx. Consider for example, the argument for the labor theory of value. Marx leaves the explanation almost mystical, and uses weirdly metaphysical language around it. Engels makes the point much more concrete. To understand the labor theory of value, you have to go back to a primitive barter economy. Engels observes that in such an economy, most people produce things for themselves, but end up with certain imbalances – like I had a weirdly good radish harvest, but my cow hasn’t been producing very well – and these imbalances create opportunities for trade. But, because I produce both radishes and milk myself, I know how much work it takes to make them, so I’m not going to trade more than one hour’s work worth of radishes for an hour’s work worth of milk. Nor will the person providing me with milk accept less than one hour’s worth of work of radishes in exchange for milk that took them an hour to procure. When stated this way, the argument, while still incorrect, is at least CLEAR. But, we have Engels, not Marx, to thank for that explanation.

(3) So, let’s tackle the labor theory of value as explained by Engels. The primary problem here is that it ignores the variation in people’s abilities. Interestingly, I use EXACTLY this kind of argument to illustrate terms of trade when we’re discussing comparative advantage and exchange in Principles of Microeconomics. But, one of the fundamental premises is that what I can produce with an hour of work is NOT the same as what you can produce with an hour of work. Therefore, it well may be that I’m willing to trade an hour’s worth of radishes for less than an hour’s worth of milk – because what took you 45 minutes would have taken me more than an hour. (Or, maybe, I just don’t have a cow… Though Engels allows for that possibility). Fundamentally, exchange arises from differences in our preferences and differences in our ability to produce – which then means that there is no clear amount of labor that is embodied in any particular item. Marx acknowledges that not everyone is equally productive, and so suggests that the value comes from the amount of “socially necessary” labor to produce something, but I was never quite clear what the phrase “socially necessary” means.

(4) Now, let’s get to the idea of surplus value. One thing I’ll give Marx – Marx is very devoted to the idea of having a grand unifying principle that ties everything together. His price theory is a great example of this. Exchange indicates that two goods have the same amount of “socially necessary labor” embodied in them. If one of those goods is money, that doesn’t change a thing. Money’s exchange value is based on how much labor went into producing the gold. It also applies to wages. The value of wages is the amount of product that it takes to get that labor produced. It’s the classical “iron law of wages”. This means that a worker will be paid an amount that allows them to subsist, but nothing beyond that. However, in the capitalist system, the means of production – that is, tools and the like – are owned by the capitalist. So, capitalists hire workers and make them work for 12 hours a day, even though they can produce enough to feed themselves in just, say, 6 hours. They are paid for the first 6 hours, but not for the last 6. (Of course, the way this works, in practice, is that they are paid enough to survive DAILY, and that amount is divided by 12 to get the hourly wage.) The first 6 hours are the “necessary” labor. The last 6 hours are the “surplus labor”. And this surplus labor is claimed by the capitalist in exchange for allowing the laborer to use the capitalist’s tools and the like. On the surface, this feels like it’s actually kind of accurate, right? The problem, of course, is that it ignores competition between capitalists for labor. So, even if it is true in a capitalist system that the workers are denied ownership of the means of production, the fact is that the capitalist class will tend to fight over the laborers that produce value – especially if economies of scale are as significant as Marx suggests. (He seems to believe that economies of scale are basically pervasive.) This provides some bargaining power which would allow workers to claim some of the surplus value for themselves. Now, naturally, workers are also competing with each other for jobs – so it’s not so obvious how this all will play out – but it seems far more reasonable to say that the wage will be somewhere between a subsistence wage and the full product of labor, rather than to just claim that it must be at the bottom of this range.

(5) Marx’s view of capital markets is really cool, but ends up undermining his claims about the power of the capitalist class. Suppose that the means of production are all owned by a single capitalist. In this case, holding wages down to subsistence seems very possible. Unless, that is, there is some way for the laborers to acquire some of their own means of production. A lot of Marx’s work assumes this is impossible. After all, if you’re paid a subsistence wage, what are you going to use to acquire the means of production? You’re literally spending your entire income on just barely getting by. It turns out that Marx HIMSELF provides the answer. In his section on credit, he explains how people can join the capitalist class by using credit to acquire the monetary capital they need to start a business (that is, acquire the means of production and hire workers). Practically, then, this means that the capitalist at least has to pay workers enough that they wouldn’t be better off borrowing from creditors to acquire their own means of production to use. But, won’t high interest rates prevent this? Well, no, according to Marx’s framework. Marx uses a profit theory of interest, in which the rate of profit on ownership of capital provides the maximum rate of interest that could be charged. So, borrowing to buy means of production means you will at least break even as long as your productivity level isn’t horrifically bad. As a simple example, suppose that, when you work for a capitalist, they make you work 12 hours a day, during which time you produce $50 of product, and then they pay you $25 for the day. You’ve been exploited out of $25 of your product. Now, let’s say that you could acquire the means of production for $100, but that you’d have to pay $10 per day in interest. The question you face: can you produce at least $35 of product in 12 hours with those tools? If the answer is yes, then you can break free of the capitalist system, if you so choose. If the answer is no, it must be that the capitalist isn’t just providing the means of production – instead, they are providing an organizational framework that allows you to produce an additional $15 if you work for them vs if you worked on your own. Put another way: the capitalist is actually productive. Whether Marx acknowledges this is not clear to me – there are some parts where he acknowledges the productivity of the capitalist system. Yet, he still holds that profit is exploitation of labor, rather than compensation for productivity gains.

(6) Another element that Marx misses is time preference, despite the fact that it’s baked into his explanations at places. He describes how capitalists must first put out their capital to acquire the means of production and pay laborers, and only later sell the product. Yet, he seems to miss that part of the reason that workers don’t do what I said above and take out loans to acquire the means of production themselves is that workers want to be paid now rather than later. That is, by paying wages before the sale of the product, capitalists are providing a service to the worker, and profit is, in part, a compensation for that service. Now, I can’t blame him too much for this – time preference was not very well understood yet, but that is an important point for the modern reader to remember.

(7) Marx’s discussion of the crises of capitalism was very hand-wavy. I was probably most disappointed in this, as Marx is so famous for his explanation of how the capitalist system would undergo periodic crises. However, either I just didn’t understand his argument, or there wasn’t much of one there. He does describe how the process of accumulation leads to a decrease in the rate of profit. I don’t find this claim particularly objectionable, to be honest, though I’d explain it differently than Marx does. But, it’s not at all clear why the profit ever has to turn negative so that a crisis would result. Can’t it just approach zero asymptotically? I couldn’t find an answer.

(8) Marx makes the assumption that capitalism is built on the desire for continuous accumulation. I don’t think this is necessarily true (though maybe this is just part of Marx’s definition – I honestly don’t know if he ever bothered to actually define what capitalism means). While there certainly are some individuals that act this way, there are also heirs of billionaires that, like the prodigal son, just blow their inheritances on wild living. You see the same thing with some first generation millionaires as well (celebrities can be prone to this). In short: the idea that financial capital will first be used to reproduce itself, and only secondarily be used to maintain the lifestyle of the capitalist requires further proof.


Concluding Remarks

I’d say that I’m glad I finished reading it rather than giving up entirely. However, I don’t think I’d recommend it. As I’ve said elsewhere, a great deal of Capital is simply boring. Before his own explanatory notes at the end of Volume 3, Engels says that he saw it as his job to try to publish what Marx wrote without making himself a coauthor by aggressive editing. In the end, I’m a bit sad about that. There was so much chaff in the work, that I very much feel like I missed some major threads while I was bogged down in numerical examples that added little and reading basically mystical explanations about how capitalists are just “personified capital”.

I strongly suspect that a better way to get at Marx’s thought is probably to read a more modern Marxist – someone like Richard Wolff – where the language won’t be as archaic, or to find a well-abridged version. Of course, it all depends on what your goal is. Following the modern/abridged path probably provides fewer bragging rights, but also probably helps you understand modern devotees far better than reading the original.

Thoughts on a $15 Minimum Wage

~ 800 words, ~4 min reading time

The $15 minimum wage is back in the news, thanks to Pres. Biden’s support for this wage. So, let me get some thoughts down on this.

1. Too many people rely on Card & Krueger’s Study

Pretty much any time you see a minimum wage advocate talk about the minimum wage, they’ll bring up Card and Krueger’s 2000 study. In brief: this pair of economists studied the data from fast food restaurants in NJ and PA when there was a minimum wage increase in one of the states, and found no significant employment effects. What effects they found seemed, on average, more positive than negative.

However, Card and Krueger are not the ONLY study about the minimum wage. There are loads – so it is only fair to look at what we term a “meta analysis”. These studies compile the results of other empirical studies. It’s a way of putting any one study in a broader context so that you can make more general statements about results. There are several meta analyses of the minimum wage out there. Here’s one clearly opposed to minimum wage increases and another which is much more favorable to them. Interestingly, the actual statistics aren’t that different between the two. So, this is a better place to look.

2. The data shows “significant, but modest” negative employment effects

The consensus seems to be that MOST minimum wage studies find negative effects on employment, but these effects aren’t very big. Something near a 0.05% drop in employment among low-wage workers for a 1% increase in the minimum wage seems to be about average. So, is this “significant”?

On the “yes” side we have those that like the language of “statistically significant”. What this means: the 0.05 result has a small enough margin of error that we are pretty confident it’s REAL. That is, the effect isn’t actually 0, but happened to look negative as a statistical anomaly. Instead, there is a real negative impact.

On the “no” side we have those that like the language of “economically significant”. What this means: 0.05 isn’t very big. Is this true? Well…

3. Even with a “modest” negative effect, a $15 minimum wage may lead millions of people to have problems with employment.

There are estimates that about 40% of the US workforce earns under $15 an hour. That’s about 64 million people. If each 1% increase in the minimum wage disemploys 0.05% of the impacted workers, then a move from $7.25 an hour to $15 an hour would lead to a drop in employment of about 5%. (I’m rounding a bit here.) That’s 3.2 million people.

Is 3.2 million people “a lot”? For perspective: there are currently about 11 million unemployed workers in the US, by the BLS’s definition. (For the BLS being “unemployed” means you “have no job, but are actively seeking employment” – it has no definitional connection to whether you’re getting unemployment compensation or not.)

I’ll let you decide if adding 3.2 million to a group of 11 million is “a lot”.

Naturally, this is a very rough “back of the envelope” calculation, and might be biased upward a bit – after all, the minimum wage of Washington state is already slated to go to $15/hour, so a federal minimum wage of $15/hr, slowly phased in is unlikely to have much effect there. The CBO’s estimates are that we’d see something close to a loss of 1.3 million jobs, though 3.7 million is a possibility on the high end. So, my back of the envelope calculation is close to the CBO’s worst case scenario.

4. There are better options.

While economists disagree on a lot, I think it’s fair to say that most economists would say that the way to help poor people is to give them money.

For example: economists generally agree that the Earned Income Tax Credit is a pretty efficient way to help those with low incomes, while even most of those that support a minimum wage increase don’t see it as very efficient.

I think it’s fair to say there isn’t a lot of consensus among economists on exactly what should be done about poverty – it’s a complicated issue, and the solutions depend very much on the multitude of causes – but the simple fact that even most of those that support a minimum wage increase don’t think it is very efficient is important. There are better ways.

A couple that might be worth thinking about: a Universal Basic Income or a Job Guarantee. Neither of these is “perfect”. However, they both offer options that could improve the well-being of those with low incomes without the small-but-real negative effects on employment that minimum wages have. They also have the benefit of putting the burden on the taxpayers rather than on employers. But, I confess I have developed a strong aversion to unfunded regulations.

Summary and Response to “Macroeconomics of Epidemics”

~1100 words, ~6 min reading time.

I’ve been reading and thinking about The Macroeconomics of Epidemics by Eichenbaum, Rebelo, and Trabandt. Here’s my summary:

Model

The paper takes the basic SIR model and adds to it a macroeconomic component. The SIR model is a standard way of modeling the spread of an epidemic. In brief: the number of new infections is affected by the number of people who are susceptible to the illness (have no immunity), and the number who are infected. This paper adds a number of economic models to it. See below:

SIR model – the transmission is independent of economic behavior, but the economy is impacted by transmission. Specifically, if people are sick, they’re less productive. If they die, they will never produce again (obviously).

SIR-Macro model (“Baseline”) – transmission from three channels: shopping (proportionate to amount spent by susceptible and infected populations), working (proportionate to hours worked by susceptible and infected populations), and community (same as SIR model). People are aware of how their behavior affects their probability of infection, and take that into account when deciding to work or shop.

Medical Preparedness model – like Baseline, but the mortality rate is impacted by the # infected. This captures the idea of hitting the health care system’s capacity.

Treatment & Vaccine models – these models are like Baseline, but incorporate the expectation that a treatment (which is usable on the infected, and ensures recovery) or vaccine (which is used on the susceptible to ensure they never become infected) will be discovered.

Policy Instrument

All but the straight SIR model includes some kind of policy response. The paper models this as a tax on consumption – which would reduce consumption spending and work. Obviously, that’s not what we’re actually doing – but we can use this as an analogy by looking at the results on GDP from the real policies being enacted and the hypothetical consumption tax.

The paper involves a search for “optimal policy” – that is, policy that maximizes utility for the population. This isn’t just “don’t do anything” because, while people account for how their economic activity affects their own risk of infection, they DON’T account for how their activity affects the risk of infection for others.

Results

SIR Model – In the straight SIR model, 8% become infected at the peak, and 70% are eventually infected, and ~0.7% of the population die. There is also a mild recession – about a 2% drop from trend at the trough, and long-lasting economic effects because of those that died.

SIR Macro Model (baseline) – compared to the SIR model, there is a smaller, later peak (only about 5% at peak), and only about 50% of the population are ever affected. So, only about ~0.5% die. In brief: people being aware that they’re more likely to be infected if they go to work or go shopping will encourage people not to, so infections spread more slowly. But, we also get a much larger recession (9% drop in consumption at trough), and it lasts about 3 months longer. In this model, the optimal policy (based on a utility-based CBA approach) would be to increase restriction measures keeping pace with infection, and slowly back off as the % infected dwindles. Doing this would decrease the peak % infected to 2%, and would decrease total infected to about 35% – with 0.35% of the population dying. On the other hand, this leads to a deep recession – about 20% off trend at the trough and it takes about 3 years instead of a year and a half to get back to normal.

Medical preparedness – compared to Baseline, there is a smaller % infected (only about 3%), though there are more deaths (over 1% of population). So, a relevant health care capacity constraint leads people to be more cautious – decreasing infection rates – but not enough to totally offset the higher mortality rates. Because of this, the recession is very deep (- 20% drop in consmption at the trough). An optimal policy involves measures that aren’t much stronger than in the Baseline optimal policy scenario, but come much earlier, and are removed much more slowly. Interestingly, the optimal policy’s effect on the economy is to lengthen, but not deepen the recession. The trough is about the same depth – but the recession starts sooner (because of faster containment policies), and lasts longer – all because of the approach to containment.

Model with treatments – compared to Baseline, a model with treatments expected with a 2% probability each week (but that doesn’t actually materialize) shows almost no change.

Model with vaccines – compared to Baseline, a model with vaccines expected with a 2% probability each week DOES change the optimal policy significantly. Policy should kick in immediately – though not be quite as severe as in the baseline case, and slowly back off over the next 18 months, as the proportion of those with acquired immunity increases. (Policy doesn’t have to be as severe because of the possibility of a vaccine – so policy doesn’t have to do all of the heavy lifting with saving lives.) Interestingly, you end up with deaths with optimal policy here than in the baseline, unless a vaccine actually arrives. (Not that surprising – less severe policy means fewer lives saved by policy. If vaccines don’t cover the difference, then more people die.) The result of optimal policy is a faster, deeper, and longer recession than in the absence of policy – though the recession isn’t as severe as when optimal policy is applied to the baseline case.

Thoughts and Takeaways

First, I have some doubts about the basic economic model. Specifically, they don’t have capital in the model, so they’re probably overstating our ability to get back on track when policy is relaxed. I suspect that adding capital to the model would mute the optimal policy responses somewhat. Also, I’d not pay too much attention to the specific numbers – the calibration is naturally a bit tentative.

The choice of a consumption tax struck me as weird at first, but isn’t too bad, given that we’re stuck with this baseline model.

Takeaways:

(1) In every single case, there is a tradeoff between saving lives and saving the economy. However, their model doesn’t account for creative solutions that might be able to decrease transmission without creating significant economic costs on basically everyone. (Example: replacing general social distancing with more focused isolation for those infected or at high risk of it. Practically, we can’t do this in the US right now because we don’t have the testing capacity required.)

(2) In every case, there is some argument for a policy response – but this is only true because people don’t take into account their affect on others’ risk of becoming infected. In as far as people took this into account, then fewer restrictive measures would be justified in the model.

(3) An early, seemingly disproportionate response is justified if (A) we’re worried about the health care system’s capacity increasing mortality, or (B) we’re holding out for a vaccine – but even then, we should start to loosen up as people acquire immunity via the infection/recovery channel.

Designing Economics of the Environment – Part 3 – Assessment Strategy

~2000 words, ~10 min reading time

Part 1, Part 2
So, in Part 2, we learned that my students will have lots of ‘splaining to do, as the verb “understand” in my course learning objectives more closely align with the facet of understanding called “explanation”. So, that should play some role in my assessment strategy.

Elements of Assessment

A few elements that I’ve decided need to be part of this, for one reason or another:

(1) “Chapter Assignments” – to convince students to read, they have to, in some way, respond to that reading. So, I’m going to have my students do Chapter Summaries. Based on the course learning objectives, I’ve decided to make these written assignments where students select some combination of economic models, problems, and solutions, and explain them. The main purpose is to get students started thinking about these, and convince them to at least skim the chapter with enough attention paid to write a summary of it. Graded for completion.

(2) “Article Responses” – this is an opportunity for students to go a bit deeper into topics they find interesting. They will read papers from academic journals (or similar sources). Totally their choice. The purpose is to get students to engage with the material a little beyond what we do in class. Graded for completion.

(3) “Case Studies” – the department declares that “problem sets” are part of this course. The professor who has taught this before has provided me with the details for 5 case studies that they assign. These are reasonably advanced assignments (he noted that his students needed help with these), and require some of the more technical skills that we’ll be talking about. This hits the “Applying” aspect of “understanding”. Here, I will want to grade for quality rather than just completion.

(4) “Term Paper” – the department declares that a “research paper” is part of the course. So, here I’m doing that. I’m forcing students to go through a 4 step process – proposal, annotated bibliography, rough draft, and final draft – with a response to comments and a reflection.

(5) Reflections – every assignment has a required “From this assignment, I learned that…” section. This is to encourage reflection. Also, the form of this statement is important. “I learned that” forces a sentence to follow. “I learned…” doesn’t. Example: “From this assignment, I learned about elasticity.” That’s just a word. Only tells me that you saw the title of the chapter. Not nearly as good as “I learned that elasticity is how much quantity responds to a change in price.” In addition, I have built in “Midterm Reflections” every few weeks, to encourage students to keep track of their progress in the course. These, however, are not required.

(6) Final Exam – I’m going to follow Linda Nilson’s advice and give them the final exam early in the course – ideally, on the first day, if I can get my act together. Final exams of some variety are required by the University, and I think they are a good way to see what students actually absorbed. Because this can’t be revised, I do grade this one with partial credit.

(7) Revisions – Students are allowed to revise any unsatisfactory assignment except the final exam, as long as they submit a “Revision Form”. (This is a Word document where the student has to answer four questions: which assignment they’re revising, why they didn’t meet specs originally, what they changed to meet specs, and what they plan to do to ensure they meet all specs in the future.)

Specs Grading – The Core Concept

The core concept of specs grading is grading assignments on a pass/fail, satisfactory/unsatisfactory basis on the basis of clear “specifications”.

What these specifications look like is up to your goals for the assignment. A good rule of thumb: look at the rubric you use now. Write your specs to be somewhere around the top 2 levels of your rubric. Naturally, you don’t want to be too mechanistic about doing it this way – take the opportunity to think about WHY things are in the rubric and what is really acceptable and what would lead you to hand the paper to the student and say “do it again”.

For my purposes, I write up two sets of specs, depending on the assignment: format specs, and content specs. Format specs lay out things like length, file type, work cited pages, numbers of sources. Content specs say what should be in the paper. If I’m grading for quality, the content specs will include descriptors like “correctly” or “reasonable”. Otherwise, they won’t.

Just as a couple examples: for my chapter assignments, students must meet these specs:

A satisfactory submission will:

(1) Be at least 300 words.

(2) Be submitted as a Word document.

(3) Contain a summary that deals with at least one of these elements: (a) economic models, (b) problems in the economics of the environment, or (c) solutions to these problems, and for each of these you must include:

(a) For economic models – describe the economic model, explain its assumptions, uses, and limitations.

(b) For problems – describe the problem, and the conditions that lead to it occurring. Examples are encouraged, as appropriate.

(c) For solutions – describe the problem being solved, the solution, why the solution could alleviate the problem, and any limitations to the solution.

(4) End with a paragraph starting “From reading this chapter I learned that…”

Remember, this is a “completion” grade. For these, I can use “power grading” – or what I like to think of as “grading at a glance”. Import the file to word, check the word count. Check the last paragraph. Skim the middle to make sure it’s relevant. Done. Doesn’t need to take more than a few seconds – but as a written assignment, I can get some “deep” data about what students think is worth including and what they think they are learning.

For the final draft of their term paper, my students will have this set of specs:

To be satisfactory, the final draft must be at least 1,000 words long, be “complete” in terms of its structure (with a clear introduction, body, and conclusion), have a bibliography or works cited page in MLA, APA, or a similar format, use at least 5 sources, be submitted on Blackboard in Word format, and the body must state what the problem is and evaluate two possible solutions for the problem, clearly stating the strengths and weaknesses of each approach. Finally, after the works cited page, the Final draft must have two additional sections. The first is a “response to comments” – in this section, you must respond to any suggestions that were made on the first draft, either stating how you incorporated those suggestions or stating why you decided not to. The second is a paragraph that starts “From writing this term paper I learned that…”

Here, there’s more concern about quality. “Clearly stating the strengths and weaknesses of each approach” implies that they can’t just write nonsense. If they say something is a strength that ISN’T, then the paper isn’t satisfactory. Also, notice the last parts: one of the most annoying things as a professor is when I give students comments on a rough draft telling them how to improve the paper, hand the paper back, and the student proceeds to turn EXACTLY the same paper in for the final copy. Requiring a “response to comments” section prevents that situation. Even if a student doesn’t incorporate my comments, they at least have to say why they didn’t. Both of these require that students do something they often don’t: read my comments and think about them on some level. Another thing this does: it speeds up grading of final drafts by letting me just check the revised parts.

Because pass/fail grading is somewhat high stakes, students should be given SOME chance to revise assignments. There are a number of ways to do this. Some only allow the first assignment to be revised. Some allow a fixed number of revisions for each student. Some employ a “token economy” in which students are given or awarded “tokens” (perhaps for answering questions in class, turning work in early, etc.), which can then be redeemed for various things (like a bump in the final grade, opportunity to turn an assignment in late, an additional “skip day”, etc.). Personally, I find limiting revisions to be too time consuming to track, and question the pedagogy of telling a student not to bother redoing work that wasn’t good enough. I’d rather just leave them unlimited opportunities, but force them to be a little reflective about the situation.

Putting it Together: Getting to Letter Grades

Under Specs Grading, there are two main approaches to turning a set of S&U grades into a course grade: a points-based approach and a “bundle” approach. Personally, I like the “bundle” approach, but I’ll talk a bit about each.

The points-based approach does as is typical in any other point-based system. There are X points in the course, and you need 90% of them for an A, 80% for a B, etc. (adjust as you like). The only “specs” part of it is the satisfactory/unsatisfactory grading with some revision opportunity.

The bundle-based approach ties each grade to a bundle of assignments that must be completed. For example, in my course, here are the C and A bundles:

To earn a C you must: complete 10 chapter assignments satisfactorily, complete 2 article responses satisfactorily, and complete 3 case studies satisfactorily.

To earn an A you must: complete 13 chapter assignments satisfactorily, complete 3 article responses satisfactorily, complete 4 case studies satisfactorily, and complete a term paper satisfactorily.

Notice: there is a combination of “more” and “harder” to move up the grade scale. A student who just wants a C (or a B, for that matter), can forego the term paper entirely. In my opinion, this ability to tailor the TYPES of assignments to specific grade levels is a strong reason to use the bundle-based system.

What about the final exam? I’ve decided to make the final exam determine +/- grading as follows:

>85% on the final adds a “+” to the grade.
50-69% on the final adds a “-” to the grade.
<50% on the final bumps the grade down to the “+” of the next letter down. (So, a B becomes a C+ if the final is really bad.)

For Principles of Microecon, I have the final exam as part of the bundle (so, an A in the course requires at least an 80% on the final exam, plus the other work). There are pluses and minuses to both methods. The Econ of the Environment method increases certainty for the students going into the final (“I’m going to end up with something between a B+ and a C+ in the course!”). But, it leads to interesting gaps. For example: I expect a D+ would be very rare, as would an A-, and if these DID happen under this system, I would suggest it’s a weakness of course design somewhere. (A student can do all the A work otherwise, but still end up with <50% on the final? Either your final is super-hard or your A work isn’t actually encouraging much learning – or something is poorly aligned.) On the other hand the Principles system makes the final more high-stakes, and led a few students to complain to me about how their final dragged down their course grade. (“I’m a bad test taker!”) Though, practically, the final by itself never seemed to make more than a letter grade of difference for any student. Still, high-stakes testing tends to unnecessarily increase student stress, even though I try to include a fairly significant buffer (requiring an 80% for an A, 65% for a B, 50% for a C).

So, how to figure out what I’m actually doing IN class? That’s a subject for another entry (or more!).

Designing Economics of the Environment – Part 2 – The Problem with “Understand”

~700 words, ~ 3 min reading time

Part 1 here.

So, in the previous part, I laid out my course learning objectives for Economics of the Environment, putting the verbs in bold.

1. Students will understand economic concepts, models and tools for analyzing environmental and natural resource issues and problems.

2. Students will understand problems that arise in the efficient use of depletable and renewable resources, and understand potential solutions to these problems.

3. Students will understand problems that arise from the use of environmental resources such as air and water, and understand potential solutions to these problems.

Normally, the verbs in learning objectives provide a great clue for what kinds of assessments are appropriate for the course. If a learning objective says that students should “explain” something, you better ask them to “explain” it!

The verb “understand”, though, leads to…

The Problems with Understanding

There are two main issues with the verb “understand”:

(1) It can have multiple meanings, which vary by context.

(2) “Understanding” is inherently internal, which makes it impossible to observe – let alone assess.

Good news! There is a solution! Thanks to the work of Wiggins and McTighe on “Understanding by Design”, we have a way to translate the internal, unobservable “understanding” into observable activities that we can actually assess – the trick is actually to recognize the different meanings of “understand”, and then to assess based on those.

Wiggins and McTighe suggests there are 6 “facets” of understanding:

(1) Explaining – that is, the ability to connect “cause” and “effect”.

(2) Interpreting – that is, recognizing the meaning or importance of a concept.

(3) Applying – that is, being able to take a concept and use or recognize it in a different context.

(4) Shifting Perspective – that is, the ability to approach an issue from multiple points of view.

(5) Empathy – that is, the ability to imagine being in the place of someone else.

(6) Self-knowledge – that is, being aware of one’s own mastery and limitations.

Now, not every one of these “facets” is present in every learning objective that uses the word “understand”. For example, it would be silly to think that “understand” in “Students will understand economic concepts” means “empathize with”. However, “apply” and “explain” could pretty easily fit in there.

Translating “Understand”

So, a little rewriting, then. I’m going to take out “understand” and put the relevant verbs in…

1. Students will explain and apply economic concepts, models and tools for analyzing environmental and natural resource issues and problems.

2. Students will explain problems that arise in the efficient use of depletable and renewable resources, and explain potential solutions to these problems.

3. Students will explain problems that arise from the use of environmental resources such as air and water, and explain potential solutions to these problems.

Much better! Now, when looking at it this way, it’s clear that my students will have “some ‘splainin’ to do”! Also, I should be asking students to apply the various concepts, models, and tools in a variety of relevant problems. This, naturally, should have an impact on the kinds of assessments I give – specifically, this is not a class where multiple choice questions are going to do well assessing the learning objectives, unless I spend a lot of time crafting very good multiple choice questions (which is possible!). Probably just easier to have the students write – especially since I use Satisfactory/Unsatisfactory grading with revisions, which makes grading writing MUCH easier. Given the nature of the tools we’re using “applying” will require doing some problems, as well.

The Next Task

Now that I know what types of assessments I’m going to be giving (lots of writing), the next step is to figure out the content – in the learning objectives, there are three types of content mentioned:

(1) Concepts, models, and tools – I group these together, because, in this context, there is very little point in distinguishing between them.

(2) Problems

(3) Potential solutions to those problems

So, this provides a framework for me to start putting content into. Now, I have quite a bit of reading to do before I can really complete this… So, I’ll stop here for now.

Designing Economics of the Environment – Part 1 – General Principles, Backward Design, and Course Learning Objectives

~900 words, ~4 min reading time

Part 2 here.

So, next semester I’m going to be teaching Economics of the Environment for the first time. Because I think some people might find it interesting, I think I’m going to post some of my thinking process as I design this course over the break. So, I’m starting here today with some “initial thoughts”

General Principles

(1) I’m going to use Specs grading – I’ve been very happy with this so far. So, I’m going to stick with that.

(2) The Final is going to provide a “grade modifier” – where performance on the final will adjust the course grade based on other assignments by +1/3 of a letter grade to -2/3 of a letter grade. This gives the final a reasonable weight, but also ensures a clear “floor” to a student’s grade going into the final.

(3) The assignments are probably going to be a combination of reading responses, problem sets, and a research paper (for students who aim for an A). Also, need to ask metacognitive questions for all of these. (Even a simple “what did you learn while doing this assignment?” would work.)

(4) Deadlines scattered throughout the semester.

(5) I’m debating about giving the students the Final Exam on Day 1. When I heard Linda Nilson speak this year, she suggested this. For essay-based finals, I think this is pretty brilliant. As she pointed out, if you write a good final, you’re going to have students having the exact discussion that you want them to have over the course of the semester if you do this.

Planning Materials

While I believe very much that each of us needs to make a course “our own” in some fashion, I also believe that there needs to be enough commonality across instructors for a course that it can meaningfully be considered the “same course”. To that end, I have the following…

(1) Our Department has Course Learning Objectives for all courses. These have to be listed in the syllabus, and provide a good way too focus the course.

(2) Our Department also has “Basic Course Sheets”. This includes the Learning Objectives, the description in the catalog, and also a description of what in-class and out-of-class activities are used in the course.

(3) For courses that have been recently created or revised, we have “Course Information Sheets”. These add to the mix an example textbook or two, and a schedule with the amount of time spent on each topic in the course. Unfortunately, this course has not been updated recently, so getting one of these is extremely difficult.

(4) When I start teaching a course that someone else teaches or has taught, I often get whatever they’re willing to share with me – I usually just ask for a syllabus and thoughts on textbook choices, but often get more than that. The professor who teaches this course at the Kent campus was EXTREMELY generous, and provided syllabus, assignments, lecture notes, etc. I have LOADS of material here. Obviously, I’m not going to just use everything I was given – I have to adapt things to my style. But, editing a pre-existing course is much easier than reinventing the course from scratch.

Backward Design

“Backward design” is kind of the “state of the art” in course design. The idea is simple enough. While “forward design” starts with course activities/content, and then tries to figure out how to assess that, “backward design” starts with learning objectives, then moves to consider assessment, and finally designs the course activities with those assessments in mind. Now, the reality is that it’s a recursive process. Sometimes, when you’re teaching you realize that there are hidden learning objectives that you hadn’t thought about. Or, you realize that the assessments don’t *quite* assess what you wanted them to. Or that there are missing or extraneous course activities that don’t reinforce the assessed learning objectives. Alignment is a bit of a dance, and it takes a few iterations to get it right. (Example: when I taught stats this semester it was RADICALLY different than the last time I taught it.)

But, using a backward design, it turns out, works well as a first pass on the more realistic “recursive design” that actually happens. So, let’s take a look at my learning objectives.

Course Learning Objectives

Based on what I got from the Department, these are the three course learning objectives:

1. Students will understand economic concepts, models and tools for analyzing environmental and natural resource issues and problems.

2. Students will understand problems that arise in the efficient use of depletable and renewable resources, and understand potential solutions to these problems.

3. Students will understand problems that arise from the use of environmental resources such as air and water, and understand potential solutions to these problems.

When moving from learning objectives to assessments, the key is to look at the verbs in the learning objectives, as they hint at the kinds of assessments you should do. “Identify” is a different kind of assessment than “explain” which is certainly different than “apply”. (“Identify” often lends itself to a matching/multiple choice assessment strategy – though you can always frame these as short answer. “Explain” often lends itself to short answer or essay – but a well-crafted multiple choice question can do the same thing.)

As you can see, there’s a strong consistency in the learning objectives for this course – students will understand. It turns out that this is a particularly difficult verb to assess – but more on that in the next installment!

Miscellaneous Thoughts on Teaching

~300 words, ~2 min reading time

  • My students need deadlines throughout the semester – too many are just not very good at organizing their work on their own.
  • Satisfactory/Unsatisfactory (with revision) grading is AWESOME.  – Highly recommend.
  • Asking students to ask “FEEDBACK PLEASE” is also a great time-saver. – Highly recommend.
  • Need to clearly label all assignments as “Engagement” or “Mastery” assignments, to make clear what I’m looking for – and to make it clear in my mind, too!
  • I’m not comfortable with late penalties – make a form for requesting late work being allowed, which asks them to explain why and to develop a prevention plan.
  • All revisions should have a reflection attached, too. “Why didn’t I meet specs” and “What I will do to meet specs in the future.”
  • All assignments should have a meta-cognitive “What I learned” component. (A “cognitive wrapper”)
  • For Specs grading, I need to “adjust” the bars in certain ways. For Analytics, I set the bar too low, on the whole – except for the A level. Need to raise it for B and C levels, and reform my project to just being an “A” requirement, but make it more demanding. The bar isn’t way off for Micro, but ends up overweighting the Final in a way that is inconsistent with the Specs grading philosophy (that is, putting grades mostly in the student’s control, so that there’s little uncertainty for them). Shifting the Final to the way I’m treating the Final in Analytics would be an improvement. Need to replace with a more predictable “Mastery” component that happens throughout the semester. Need to think more about what that looks like. (Knewton is an option – but I don’t like making my face-to-face students pay to do homework…)
  • LOVED the Learning Target Quizzes in Analytics – sadly, can’t do it for Micro, because of scheduling issues.

Did Disney Really Underestimate Day 1 Demand for Disney+?

~400 words, ~2 reading time

It’s a common refrain. Before release: “New service/game/etc. coming out!” “Lots of pre-orders!” Day 1: “Site is slow and crashing!” “Underestimated demand”, etc.

The question: is it really reasonable for us to conclude that these companies, which are SO GOOD at estimating demand most of the time suddenly suck at it – ON A REGULAR BASIS, even when they have great data about what demand is going to be?

I submit that the best answer is “no”.

A few assumptions that I’m making here: (1) Day 1 demand is unusually high. (2) Setting up temporary servers that you won’t need in the long term is costly. (3) Companies believe that very few customers are going to punish them for poor performance on Day 1.

Put these all together, and you have an obvious interpretation of the situation. Disney+ estimated how many servers they’d need on an ongoing basis, and has that much capacity ready to go. (This follows from #2 above.) Now, they know this isn’t enough for Day 1 (#1 is something they can predict), so that there will be server problems – poor performance, crashing, etc. – on Day 1. But, that’s okay. The company isn’t really going to be worse off (#3). Yeah, there’s some PR that they’ll have to deal with, but that’s okay. They can always pull an EA, and offer people some free stuff (that’s how I got SimCity 4) – maybe put some movies they “didn’t plan to” on the platform, or offer people a free download of a specific movie through Google Play/Amazon Prime/iTunes, as long as they redeem in the next week. The point is that these are manageable, fairly cheap options compared to preventing the problem in the first place.

Now, there’s another possibility as well: it might be that Disney DOESN’T know how much long-term demand they’ll have. BUT, if it is costly to set servers up and then take them down, it might make sense for them to deliberately work UNDER the needed long-term capacity for the first couple days, so that they can get a better idea of what they should do.

Traditionally, manufacturers overproduce a bit – after all, if you run out of your good, customers will often just buy from a competitor that DIDN’T. (So, assumption #3 wasn’t true.) However, in a world of strong intellectual property protections and strong brand loyalty, that concern fades.

Marx’s Capital Volume III – Chapter 7 – Supplementary Remarks

~300 words, ~2 min reading time

Summary

This short chapter summarizes some of what came before, and also makes clearer the main purpose: Marx was trying to show that the rate of profit is typically not independent of the size of the capital involved. This view (which Marx attributes to the German socialist Rodbertus) claims that capital and profit levels move in lock-step – so a 20% increase in capital and 20% increase in profit would go together, so that the rate of profit would be unaffected. Marx claims that this is true in only two cases: First, if there’s a change in the value of the monetary commodity. In that case, it’s not really that capital and profit are both increasing by 20%, it’s that gold (or the dollar or whatever) is decreasing in value by 20%. So, here, there is actually no “real” (inflation adjusted) change in either capital or profit – only in its nominal (money) value. Second, if variable and constant capital move in lock-step, so that the ratio between the two does not change. (In modern terms, economists would say that the enterprise is changing by “replication”, a simple repeating of the same process an extra time, half a time or whatever.)

Why It Matters

Marx’s view of distribution and cycles are closely tied with the fact that there is a connection between capital accumulation and the rate of profit, I suspect. So, this is going to play a bigger role when we reach that point.

Where Marx Goes Wrong

Here, Marx’s comments are few enough, and mostly in the form of a recap and application against Rodbertus that I don’t have any specific objections that wouldn’t show up elsewhere.

Marx’s Capital Volume III – Chapter 6 – Effect of Price Fluctuations

~420 words, ~3 min reading time

Summary

In this chapter, Marx considers the effects of variations in various prices on the rate of profit. First, raw materials. As one might expect, there is an inverse relationship between raw material prices and the rate of profit. Thus, low material prices are important to capitalists maintaining profit levels. Marx explains that this is true, even though changes in the prices of raw materials tend to be reflected in the price of the product. Because of competition, the change in cost is typically not fully reflected in the price of the final good. In the case of wages, higher wages tend to decrease both the rate of surplus value (which decreases the rate of profit), and also tend to decrease the capitalist’s scope of production – further decreasing profit. One of the more interesting observations Marx makes in this chapter is that there is a tendency in capitalism for the growth of the stock of machinery to run ahead of the ability of nature to produce nature-given factors (like agricultural goods, for example), and this creates imbalances that lead to cyclical fluctuations. Marx specifically considers cotton markets, showing how there was a repeated boom and bust in that industry in England through the mid-1800s.

Why It Matters

In this chapter, Marx hints that a good part of the instability of the capitalist system that he will explain later rests on the relationship between the prices of the factors of production and the rate of profit.

Where Marx Goes Wrong

From a modern mainstream or Austrian perspective, Marx’s analysis here isn’t “wrong” in one sense – but is wrong in another. On the one hand, from an individual firm’s perspective, Marx’s analysis of the effect of prices of factors on the rate of profit is fairly sound. But, from the perspective of the economy as a whole, we have the problem that the prices of factors of production are not exogenous. They depend on the (expected) price of the product. Value is then imputed back from the product to the factors that produce it. In mainstream terms, the demand for the factors of production is “derived” from the demand for the product. So, the causal analysis, if we’re trying to analyze the system as a whole, is backwards – UNLESS we’re considering cases where the price is changing because of a change in availability of the goods under consideration, but Marx isn’t very clear about that (though there are certainly places where he considers these cases).