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Category: public policy

Published on Leave a comment on The Right Way to Do Unpaid Internships

I'm going to guess if college students shunned unpaid summer internships, somebody who wrote this book would take them to task for imitating the Baby Boomers' alleged self-centeredness. I cannot but shake my head in disbelief at (and naturally blog about) yesterday's op-ed about unpaid internships by Anya Kamenetz in The New York Times.

Her thesis is to question whether the encouragement of unpaid internships is a good thing for the interns and for society at large. In her own words:

Let's look at the risks to the lowly intern. First there are opportunity costs. Lost wages and living expenses are significant considerations for the two-thirds of students who need loans to get through college. Since many internships are done for credit and some even cost money for the privilege of placement overseas or on Capitol Hill, those students who must borrow to pay tuition are going further into debt for internships.

Second, though their duties range from the menial to quasi-professional, unpaid internships are not jobs, only simulations. And fake jobs are not the best preparation for real jobs.

It is true that there are opportunity costs. (Shall I ask her to identify the activity for which ther are no opportunity costs, or should I just refer her to a discussion of revealed preference?) At Dartmouth, students may apply to the Rockefeller Center for a stipend to cover living expenses when they take an unpaid internship in the public or non-profit sectors. Several of the roughly 40 internships awarded each year are supported financially by alumni or alumni classes who specifically value the opportunities gained through working in an unpaid capacity in the public or non-profit sector.

Just as importantly, when students receiving financial aid apply for a grant, the Center contributes to or covers the financial aid contribution expected from the students' summer work activities, enabling them to focus on their internships without necessarily picking up a part-time job. So Ms. Kamanetz is overstating her case, at least where institutions like Dartmouth are concerned. If her younger sister at Yale, whose internship in New Orleans motivated her op-ed, did not have this opportunity, then her sister (like many others) should have tried to come to Dartmouth rather than Yale.

No one would deny the simple fact that students who come from well off families have more opportunities than those who come from less well off families. That point is irrelevant here, as long as we make sure that the internship is not relatively more expensive for the students from less well off families.

Her second point is sheer lunacy. I supervised a few interns while at CEA. I wouldn't call their experiences "simulations" or "fake." They were assigned projects commensurate with their abilities and academic preparation. Their contributions were generally quite good, and some were downright impressive. One of my regrets after my year at CEA was that I did not go work there as an intern or research assistant 15 years earlier while I was in college. It would have made me a better economist. I think the 10 students being sponsored by the Rockefeller Center this spring (on the page linked above) all have interesting opportunities ahead of them as well. Take a look at the full list from last year, along with a few in-depth profiles, in the Center's annual report.

At the Center, we have taken our support of internships further with the advent of our Civic Skills Training program, in which the Center's staff spends 5 days in Washington with a group of students before their internships to educate them about the public and non-profit sectors and to train them in the skills they will need to succeed in their internships. The Rockefeller Center picks up the entire cost of the training.

I would never presume to disparage a student's choice to work to earn money over the summer rather than work in an unpaid public or non-profit internship. But the suggestion that unpaid internships are not contributing substantially to students' development as young adults is preposterous and flies in the face of what thoughtful colleges are doing to support those internships.

UPDATE: Tony Vallencourt comments below and posts to his blog about the other parts of the Kamenetz op-ed, dealing with societal issues of a perceived lack of access to internships. I actually thought those were the weak points of the op-ed and so left them out of my post. Will Wilkinson takes Kamenetz to task for them on his blog in "The Baffling Mind of Anya Kamenetz."

Published on Leave a comment on That’s a Feature, Not a Bug

Yesterday's New York Times ran a front-page story with the headline, "Schools Cut Back Subjects to Push Reading and Math." Like many discussions of the impact of the No Child Left Behind Act, it seems to miss the central element that this was the inevitable consequence of the legislation. Here's an excerpt of interest:

The historian David McCullough told a Senate Committee last June that because of the law, "history is being put on the back burner or taken off the stove altogether in many or most schools, in favor of math and reading."

Some may disagree with this as an objective, but one should not be surprised at the result. The logic runs as follows:

  • Reading and math are deemed to be more fundamental skills than other subjects to which class time is devoted in public schools; and
  • Some schools can be demonstrated to be inadequate in the outcomes they generate in reading and math; and
  • Schools that are so demonstrated are unlikely to have additional financial capacity to expand their programs; so
  • Those schools should be devoting more time to reading and math, with other subjects crowded out in whole or in part.

I think we should have been surprised if the law were not having the effect of narrowing the curriculum, but I was surprised that the law was having as pronounced an effect as it is. In general, my view is well summarized by this quote:

"When you only have so many hours per day and you're behind in some area that's being hammered on, you have to work on that," said Henry Lind, the schools superintendent. "It's like basketball. If you can't make layups, then you've got to work on layups."

I'd like to be able to say that every school district should offer a broad curriculum of liberal arts courses including history and music and languages and lab sciences, but some school districts aren't able to do all of that successfully. So given that they won't be at the ideal, where should they be? I think of reading and math as foundational. There's very little use in trying to build on a weak foundation. That doesn't mean I support this sort of federal involvement in primary and secondary education, but it does mean that I don't think the consequences of the law, as they are described in this article, are a source of concern.

The article is well written and of interest. I recommend the whole thing.

Published on Leave a comment on Representative Artur Davis (D-AL)

Yesterday, the Rockefeller Center closed out its winter term public programs with a lecture by Artur Davis (D-AL). It was the second installment of our New Voices in Washington series, in which we bring emerging leaders from the Capitol to campus to interact with Dartmouth students. He spoke about the lack of progress that's been made on big issues over the last two decades and admonished the students to play an active role in overcoming that stalemate.

Congressman Davis represents the 7th District in Alabama, which includes Birmingham, Tuscaloosa, Selma, and much of the rest of central western Alabama. It will be interesting to see whether he can eventually win a statewide election, whether for governor or senator, from his home state.

Read the coverage in The Dartmouth here.

Published on Leave a comment on Katrina Federalism

This week begins the Winter term of programming at the Rockefeller Center. We are pleased to feature Nan Aron, President of the Alliance for Justice, and Congressman Artur Davis (D-AL) among our public events. The Winter Newsletter is also online. Here is my Direct Line column, with links where appropriate:

Like many people safely removed from the events, I watched the images of the aftermath of Hurricane Katrina and wondered how every layer of government could appear to have failed so resoundingly in serving the residents of New Orleans and the Gulf Coast. Many answers to the question of "What went wrong?" have suggested that an important part of the explanation is, in fact, that we have a layered government—our federalist system in which sovereignty is shared among the national, state, and local levels. As of this writing, a Google search for "Katrina federalism" generates over 250,000 results.

We should not take such charges lightly. Along with the separation of powers among the three branches of government and explicit protections for civil rights, federalism is one of the key elements of our constitutional republic. The presence of a multi-layered government is a strong impediment to abuses of freedom by any one of those layers. If breakdowns like the one we witnessed in September are symptomatic of federalist systems, then the greater centralization—less federalism—needed to protect the welfare of citizens would come at the high price of weaker protection of individual liberties.

I do not believe that federalism is an important explanation for the failures of government in the preparation for and response to Hurricane Katrina. The underlying problem is a bloated government generally disdainful of both entrepreneurship and accountability at every level. In this case, the presence of multiple layers of government compounded the critical lack of communication and coordination that was also present in each separate layer of government.

In February 1962, then-Governor Nelson Rockefeller delivered the Godkin lectures at Harvard on "The Future of Federalism," which were subsequently published in a book of the same name. He identified three pervasive attitudes that were damaging to the process of government in his era: political aloofness, in which the need to engage in active and aggressive political debate is evaded by a condescension and contempt for political life; an obsession with political labels, which substitute slogan for thought and the false label for the serious goal; and a timidity in the exercise of political leadership, particularly at the state level of government.

He could have been describing equally well the obstacles to effective government today, and until those obstacles are overcome, our society is susceptible to continued breakdown of government in the most critical times. The policy response to Hurricane Katrina should not be less federalism, but better federalism—more reliance on elected rather than appointed officials to make decisions and implement policy and greater citizen participation in the political process. Elections and the people who stand for them matter. They bring with them the accountability and entrepreneurship that are required to provide the solutions to deal better with the challenges we face, both natural and man-made.

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Published on Leave a comment on Federal Brain Drain

From the Partnership for Public Service:

The loss of experienced personnel is one of the surest ways to undercut an organization's effectiveness. When this loss occurs rapidly and is concentrated in critical positions, the results can be devastating. The departure of top-level employees at the Federal Emergency Management Agency is often cited as a key reason it struggled to respond effectively to Hurricane Katrina. Similar brain drains are likely to occur across government as 44 percent of all federal workers become eligible to retire over the next five years, with 61 percent reaching eligibility four years later.

Large-scale turnover. The federal government is particularly vulnerable to the coming baby boomer retirements. While the average age of the American worker has increased over the past decade, the federal civil service has twice as many workers over age 45 (60 percent) as the private sector (31 percent). According to U.S. Office of Personnel Management (OPM) estimates, among all full-time permanent employees in the federal workforce as of October 2004, 58 percent of supervisory and 42 percent of non-supervisory workers will be eligible to retire by the end of FY 2010. In addition to these retirements, well over 200,000 federal employees are expected to resign over the next five years, resulting in a potential loss of nearly 900,000 workers.

Loss of key employees. The impact on government effectiveness will be compounded by the concentration of turnover in high-level and hard-to-staff positions with specialized skills:

  • 40 percent of Department of Homeland Security managers and program analysts will reach retirement eligibility by 2009.

  • 42 percent of the Senior Executive Service is projected to retire by 2010.

  • 87 percent of claims assistants and examiners in the Social Security Administration and 94 percent of their administrative law judges will reach retirement eligibility by 2010.

  • The Federal Aviation Administration's air traffic controller attrition rates are estimated to triple by 2012.

The references to FEMA and the Department of Homeland Security are particularly worrisome.

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Published on Leave a comment on Dartmouth Divests, Sort Of

From this morning's press release, in the wake of a Board of Trustees meeting over the weekend (with my emphasis) added:

Based on recommendations by the board's Investment Committee and the College's Advisory Committee on Investor Responsibility (ACIR), the trustees voted to direct the College's Investment Office to avoid investments in six companies deemed to be directly complicit in what the U.S. Congress and Department of State have determined to be genocide in the Darfur region of Sudan. As a result, Dartmouth will avoid investing in ABB Ltd.; Greater Nile Petroleum Operating Company, Ltd.; PetroChina Company, Ltd.; Sudanese White Nile Petroleum Company; Petroliam Nasional Bhd (Petronas); and Sinopec Corp., all of which are involved in oil drilling or oilfield services in Sudan. The College does not currently hold stock in any of these companies.

"Divestment and screening are steps that should be taken infrequently and only in the most compelling circumstances," President James Wright said. "This decision reflects Dartmouth's concern about the Sudanese government's campaign of atrocities against civilians, which Congress and the State Department have described as genocide. This campaign has created a humanitarian crisis of major proportions in Darfur and Chad."

Board Chair William H. Neukom thanked the ACIR and the students involved in the Darfur Action Group for bringing the issue to the board's attention, and for their work in researching and analyzing the Darfur crisis and the activities of companies doing business in Sudan. Neukom said the board encouraged the administration to support additional educational programs concerning the Darfur situation.

So divestment apparently didn't require the College to actually sell a stock. That may be a first, but it does abide by the claim I made in an earlier post: for divestment to have any impact through the capital markets, it has to focus on new rather than old capital. In that post, I also suggested that the critical element in using markets to punish the offenders is to work through the product markets--to boycott the products rather than merely ownership of the assets.

It will be interesting to see where the divestment movement on campus goes from here.

See also the article in today's Dartmouth and some comments over at Joe's Dartblog.

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Published on Leave a comment on Some Economics of Divestment

Much has been made about divestment of Dartmouth's endowment from companies that do business in the Sudan. I applaud the sentiment, but I think the arguments overstate the case for what divestment by itself is likely to accomplish.

Here's an example from The Dartmouth's editorial board from last spring:

Dartmouth's investments in Siemens and Alcatel, both of which hold government contracts and are categorized by the Darfur Action Group as being tacitly complicit with the genocide, present a cause for concern. Though the Advisory Committee on Investor Responsibility is not prepared to recommend divestment in these companies for lack of information, we recommend that it obtain the needed information as quickly as possible. This issue should be a pressing concern for every human being. In particular, ACIR needs to consult the Conflict Securities Advisory Group, which specializes in these situations. Should CSAG provide evidence that Dartmouth's endowment in any way facilitates the genocide, Dartmouth must divest immediately.

The last sentence makes the ethical point quite well, and I couldn't agree more with the recommended course of action. Two paragraphs later, the editorial continues:

Dartmouth's divestment, moreover, could have a ripple effect upon the financial decisions made by similar institutions. A wave of divestment would put pressure on the Sudanese government to take action to end the genocide and would deprive the Janjaweed rebels of much-needed funds. Moreover, according to the report submitted by the DAG to ACIR, the companies in which the College invests restrict most of their activities to Khartoum and provide non-essential services, thus ensuring that divestment would not harm those it is meant to help.

This paragraph confuses old and new capital, to the detriment of its argument. Once a share of stock is issued, then who collects the cash flows due to ownership is largely irrelevant to the operations of the company. I don't believe that the sentence that I highlighted in red, particularly the part about depriving the rebels of funds, is true. Consider the following simple example:

Suppose that, based on the projected cash flows from selling its products, the company in question is worth $100 per share. Now imagine that a large group of current shareholders decide that they are going to divest the stock. What happens to the stock price? Let's say they are very successful, and it goes down to $80. Since the business operations of the company have not changed, the future cash flows of the company still have a present value of $100 per share. All that the divestment has done is to open up a $20 per share profit opportunity for a new investor in the company. The most natural candidates to see the opportunity and take advantage of it are the existing management or the remaining (less ethical?) shareholders.

Continuing to focus on the capital markets, the way to damage the company is to deny it access to new capital, not to spend a lot of time debating who should own the shares on the existing capital. The $80 share price would matter, for example, if the company intended to issue new equity and had to take a 20% capital loss on all new shares. But very few companies issue new shares in a given year, and for well capitalized multinationals, there are other financing options that don't even require the equity market. So I am very doubtful that the capital market can be used productively in this endeavor, contrary to the conjectures of the editorial. (Similar conjectures are made in a well intentioned op-ed yesterday.)

Moving beyond the capital market, the way to get the company's attention is to boycott its products, which does change its business model because it lowers the future cash flows that support the $100 per share price. That's real pain to existing capital owners. And it would involve real sacrifice to those advocating for reform--doing without some products that they would otherwise consume, rather than engaging in fair-market value transactions and excluding a few companies out of several thousand from their portfolios. But that is to be expected if you intend to be an activist for positive change.

So whenever I hear of calls to divest, I think that the emphasis has been misplaced, and what is really needed is a boycott. But, of course, if you are planning to launch a boycott, the prudent investment strategy is to divest first.

Hat tip to Joe's Dartblog for bringing this issue to my attention.

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Published on Leave a comment on Congress Shall Make No Law

Last evening, as part of first-year orientation week at Dartmouth, I gave a public lecture on the Constitution with the title, "Congress Shall Make No Law." I am not an expert on the Constitution per se, but I enjoyed the opportunity to meet some new students and discuss the ways that Constitutional principles are relevant to their time at Dartmouth. Slides from the presentation are here.

Some teasers:

  1. You could be forgiven if you thought that “Congress Shall Make No Law” was a mission statement.
  2. There are 297 million Americans and there are 435 Representatives, or 680,000 Americans per Representative. How is that anything but an anonymous relationship with the typical citizen?
  3. (Virtually) nothing gets done when your voice, no matter how divinely inspired, is in the distance or isolated. Turn Vox into Voces if you want to restore the civic health in your society.

The students had two interesting reactions to my remarks. First, they were deeply suspicious of conventional media outlets, reacting to what they perceive as consolidation and corporate interests in the industry. Second, they showed a great unease with institutions that are part of the executive branch but that may function as policeman, prosecutor, and jury--the SEC, the FCC, and the IRS, for example.

The lecture was Dartmouth's formal observance of Constitution Day, a reference explained in more detail in the presentation and in the coverage of the event in The Dartmouth.

It was a good event, but it wasn't even close to being the best speech on campus yesterday.

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Published on Leave a comment on The Homeland Security Industrial Complex

I took a trip to Washington on Thursday and kept feeling like everywhere I looked, there was some new encroachment of Homeland Security enterprise into a new sphere. Advertisements on Metro platforms are a good example. I go to DC maybe a half dozen times a year, and I have never picked up that vibe before.

In his farewell address to the nation, President Eisenhower spoke of an emerging military-industrial complex and the threat it posed to liberty:

Until the latest of our world conflicts, the United States had no armaments industry. American makers of plowshares could, with time and as required, make swords as well. But now we can no longer risk emergency improvisation of national defense; we have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment. We annually spend on military security more than the net income of all United State corporations.

This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence-economic, political, even spiritual-is felt in every city, every state house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.

Today, the buzzwords are homeland security rather than military, but the admonition should remain the same. As we have watched the problems unfold in the Gulf Coast this month, we have seen a large element of this bureaucracy failing in critical ways to do what it was intended to do. The usual response in Washington will be to make that bureaucracy larger, without necessarily making it smarter.

Maybe not this time. On my trip, I also had the chance to meet with some recent alumni of Dartmouth. It was encouraging to see some of these bright young people finding their way in this new field. But, in a broader sense, their choices illustrate another way to understand the costs of our current struggles--against natural and manmade threats--bright young people are being siphoned off into a field that protects existing assets, rather than building new ones.

Published on Leave a comment on Limited Government

I confess, I was this naive, too:

Brad DeLong's Semi-Daily Journal: I guess I was naive.

I thought that in the wake of Katrina's passing we'd see flotillas of helicopters, fleets of boats, and public health and public safety professionals from all over the country giving booster shots and restoring order within hours. I expected to see rapid, active, and aggressive disaster-recovery response from rescue assets prepositioned nearby but out of the reach of the hurricane.

After all, having a hurricane hit a city is nothing new. New Orleans's vulnerability as a bathtub waiting for the ocean is obvious. Louisiana is crucial to America's oil industry, and New Orleans is--was--an incredibly valuable touristic and cultural jewel.

What does it mean when folks like me aspire to have limited government? We seek maximal freedom for citizens, without the intrustion of government where it is not needed. But we also seek maximal efficiency of the government in those cases where it is essential. On typical days, we argue about where to draw the line between "essential" and "not needed." A Category 5 hurricane making landfall anywhere is so far over that line that we cannot even see it anymore.

Limited should not be misconstrued to mean ineffectual.