Ask an Economist (Post #1005 and counting)

[Homie]

I think what Homie is saying is that education is more about signaling yourself to employers than about learning skills that will make you productive. Whats interesting, if you buy the signaling argument, is that education should be taxed, not subsidized.

Here's Bryan Caplan's(Econ prof at George Mason University) course outline on the topic. http://www.gmu.edu/departments/economics/bcaplan/e370/IO4.htm

Basically his argument is(copy and pasted from the link:

IV. Signaling as Lobbying: Education

A. Some kinds of education provide job skills; others don't seem to (engineering vs. philosophy). But employers still pay more for more education. Why? Signaling.

B. Employers want people who are smart, hard-working and/or conform to "the rules."

C. People who are smart, hard-working and/or conform to "the rules" find it easier/cheaper to get through school. School doesn't improve them; rather, their ability to finish school shows they were good all along!

D. Similarly, people who are dumb, lazy, and or non-conformist have trouble finishing school. They find it too painful to finish, so they don't.

E. In sum: the class trouble-maker who complains that school has "nothing to do with real life" is often correct. However, this does not mean that there is no economic return to attending school.

F. Does education signaling provide ANY social benefit? Yes: It improves the match between jobs and people.

G. But at the margin, educational signaling has negative externalities, and the deadweight costs you would expect. Why? The matching function of education could be served just as well if everyone signaled 50% less.

H. Intuitively: Assuming you learn nothing and don't like learning, then extra time and other resources spent are education are pure waste.

Good first post Elliot, that sums it up pretty well. Although I wonder how he came to his 50% number.

Kinda weird that a common name like Elliot wasn`t taken yet (as a username)

 

[JerichoHill]

To put it shortly, yes, you can raise interest rates to the point that once chokes off growth. There's a laffer curve there too.

I think your example deals with currency arbitrage.

Higher interest rates will change exchange rates, yes. But its like a rubber band where there's a counter force at the other end, you can only stretch a band so far...

 

[WillJ]

To put it shortly, yes, you can raise interest rates to the point that once chokes off growth. There's a laffer curve there too.

I think your example deals with currency arbitrage.

Higher interest rates will change exchange rates, yes. But its like a rubber band where there's a counter force at the other end, you can only stretch a band so far...

So there are countervailing forces. Makes sense.

But what I don't understand is your implication that one force is stronger than the other at lower rates, while the other force is stronger at higher rates.

Seems like you're saying that, given a normal interest rate, if you raise the interest rate a little bit (ceteris paribus), the currency will appreciate, but if you raise it a lot (ceteris paribus), the currency will depreciate, right?

But it seems to me that if you raise the interest rate a little bit, demand for interest-bearing assets goes up a little bit and demand for everything else goes down a little bit (can't say which force is stronger and what happens to the exchange rate without more information), and if you raise the interest rate a lot, demand for interest-bearing assets goes up a lot and demand for everything else goes down a lot (can't say which force is stronger and what happens to the exchange rate without more information).

What you're saying, I think, is that demand for interest-bearing assets is more elastic to the interest rate at lower rates, while demand for everything else is more elastic at higher rates. Why would that be?

 

[Integral]

So the Doha round has died.

Spoiler :

July 30, 2008
After 7 Years, Talks on Trade Collapse
By STEPHEN CASTLE and MARK LANDLER


GENEVA — World trade talks collapsed here on Tuesday after seven years of on-again, off-again negotiations, in the latest sign of India’s and China’s growing might on the world stage and the decreasing ability of the United States to impose its will globally.

Pascal Lamy, director general of the World Trade Organization, could not bridge differences between a group of newly confident developing nations and established Western economic powers. In the end, too few of the real power brokers proved committed enough to make compromises necessary to deliver a deal.

The failure appeared to end, for the near term at least, any hopes of a global deal to further open markets, cut farm subsidies and strengthen the international trading system.

“It is a massive blow to confidence in the global economy,” said Peter Power, spokesman for the European Commission. “The confidence shot in the arm that we needed badly will not now happen.”

After nine consecutive days of high-level talks, discussions reached an impasse when the United States, India and China refused to compromise over measures to protect farmers in developing countries from greater liberalization of trade.

Supporters of the so-called Doha round of talks, which began in 2001, say a deal would have been a bulwark against protectionist sentiments that are likely to spread as economic growth falters in much of the world.

The failure also delivers a blow to the credibility of the World Trade Organization, which sets and enforces the rules of international commerce. It could set back efforts to work out other multilateral agreements, including those intended to reduce the threat of global warming.

The collapse of the talks will not bring an end to world trade, of course, which will continue under current agreements, many of which are between two or more countries rather than under the W.T.O.

But it is a big setback, particularly to the hopes of smaller and poorer developing countries, which were counting on gaining greater access to consumers in the United States, Europe and Japan.

Economists and trade experts predicted that negotiators, having come this close, might not find the conditions for a broad deal among the 153 members of the trade organization for years, if ever again.

Deep skepticism about the advantages of free trade was on vivid display during the Democratic primaries and it is growing in Europe, particularly as France, Italy and other countries have fallen into an American-style economic malaise.

“It’s important to move forward when the world is in a slowdown and is tempted to think of protectionism rather than opening up,” said Norbert Walter, the chief economist at Deutsche Bank.

He said soaring food prices provided another rare opportunity for a deal, since European and American farmers are prospering. It may never be easier to reduce farm subsidies, one of the most delicate issues in trade talks.

“The feeling went from ‘Who cares?’ to a surge of excitement and sense of breakthrough to ‘Oh, no, not again,’ ” said Rory Macrae, a partner at GPlus Europe, a communications consulting firm in Brussels, who was on the sidelines of the negotiations in Geneva.

He said the sticking point this time was countries like China and India, which have become more aggressive in advancing their interests. “Maybe they’re now thinking, ‘We’re big enough that we don’t even need the process,’ ” Mr. Macrae said.

Like the United States and Europe, he said, China and India might find it more advantageous to negotiate bilateral agreements in which they can apply more pressure on a single trading partner.

On Tuesday night, ministers were still discussing whether any of the agreements reached in principle could be salvaged.

But there seemed little prospect for that any time soon, in part because the presidential campaign in the United States will make it all but impossible for Washington to take part until a new administration takes over.

Talks foundered on the right of India and other developing nations to protect sensitive agricultural products from competition in the event of a surge of imports that would make their own farmers less competitive. The United States argued that such protection, which is not permitted now, would mean moving backward on current world trade commitments.

Mari Elka Pangestu, the Indonesian trade minister, said the failure of the talks reflected the inability of the rich industrial powers to deal with the growing influence of China, India and Brazil in the global economy.

She complained that what she called “a reasonable request” had been blocked because the United States “is not going to show flexibility.”

Susan C. Schwab, the United States trade representative, challenged assertions by some developing countries that the United States had been the chief obstacle to sewing up the deal. She added, “The U.S. commitments remain on the table, awaiting reciprocal responses.”

She said, “It is unconscionable that we could have come out with an outcome that rolled the global trading system back not by one year or 5 years but by 30 years.”

Ms. Schwab said it would be possible to help developing nations address surges in imports in ways that could not “be used as a tool of blatant protectionism.”

One official said that the relatively technical nature of the cause of the breakdown underlined a lack of political will to reach an agreement that would be a tough sell to voters in many countries.

The Indian trade minister, Kamal Nath, in a briefing with reporters, said he was “very disappointed” but that developing countries were “deeply concerned about issues which affected poor and subsistence farmers.”

Washington’s negotiating team was also under pressure from the country’s powerful farm lobby, and the European Union was under pressure from its own.

Lourdes Catrain, a trade partner at the law firm Hogan & Hartson, said the real danger created by failure after getting so close was “that the seven years of hard negotiations will be lost and there will be no guarantees on the starting point of a future round.”

The proliferation of bilateral deals and the continuing expansion of exports from both developing and developed countries have raised doubts among some Doha skeptics about the necessity of a global agreement. But experts said it was important, particularly as a bulwark against rising protectionist sentiments.

“There are people who argue that no Doha outcome is better than a weak Doha outcome, but I don’t agree,” said Katinka Barysch, the deputy director of the Center for European Reform in London.

Talks apparently broke down over the standard intractable issues: agriculture, textiles, investment, and implementation timetables. I'm not overly surprised, but it is disappointing.

Thoughts?

 

[JerichoHill]

So there are countervailing forces. Makes sense.

But what I don't understand is your implication that one force is stronger than the other at lower rates, while the other force is stronger at higher rates.

Seems like you're saying that, given a normal interest rate, if you raise the interest rate a little bit (ceteris paribus), the currency will appreciate, but if you raise it a lot (ceteris paribus), the currency will depreciate, right?

But it seems to me that if you raise the interest rate a little bit, demand for interest-bearing assets goes up a little bit and demand for everything else goes down a little bit (can't say which force is stronger and what happens to the exchange rate without more information), and if you raise the interest rate a lot, demand for interest-bearing assets goes up a lot and demand for everything else goes down a lot (can't say which force is stronger and what happens to the exchange rate without more information).

What you're saying, I think, is that demand for interest-bearing assets is more elastic to the interest rate at lower rates, while demand for everything else is more elastic at higher rates. Why would that be?

Because any action you take for your domestic currency affects valuation of foreign currency, and that tends to be a limiting factor. It would aslo depend on where you're at relative to others.

Think back to the rubber band. At one end, a country has higher interest rates, so it stretches out. Thats foreign buyers buying their currency. But that devalues foreign currency, and domestic buyers, feeling richer, buy foreign goods. That's the other side of the stretch.

 

[Cutlass]

My concern with trade deals that force out subsistence farmers is that in nations with subsistence farming, there are no other job options for these people to go to. So if they should have to compete in trade, at the very least they should not have to compete against subsidized trade.

 

[WillJ]

Because any action you take for your domestic currency affects valuation of foreign currency, and that tends to be a limiting factor. It would aslo depend on where you're at relative to others.

Think back to the rubber band. At one end, a country has higher interest rates, so it stretches out. Thats foreign buyers buying their currency. But that devalues foreign currency, and domestic buyers, feeling richer, buy foreign goods. That's the other side of the stretch.

[emphasis mine]

Isn't that sentence that I bolded just a matter of the quantity of the currency demanded (not the demand) falling and the quantity supplied (not the supply) rising as the price of the currency goes up, until the new equilibrium is reached?

What I'm talking about, and what I originally thought you were talking about as well, is before that. Take your sentence here: "At one end, a country has higher interest rates, so it stretches out. Thats foreign buyers buying their currency." But why does it stretch out in the first place; why are foreign buyers buying more of the currency? Sure, they might want to buy more bonds and such to earn interest, but they also want to buy less of everything that doesn't earn interest, because it's more expensive to borrow money in that country now.

 

[Mise]

Isn't it just because you can buy dollars in a matter of seconds, but it takes a lot longer for companies to shift from buying stuff from country X (that has raised interest rates) to country Y (that has lower interest rates)? And it costs a lot of money to do that. So companies hold off from making the switch, in the hopes that interest rates / exchange rates will eventually come back down; if they don't, or if the central bank raises rates so much that the cost of staying with X is greater than the cost of switching to Y, then companies would switch to Y.

Or am I missing the point entirely...

 

[JerichoHill]

Mise,

I don't think there are hopes involved. Its just cold economic calculations

WillJ,

We might be playing around the court and not seeing each other. Consider the money supply fixed in the short term (which it is), and the effect of interest in buying said money. That increases its value but also sends a signal to increase overall supply (wheras the opposite should occur on the other end). That would help stop the band stretching, so to speak, and at some point, the band would contract back.

 

[Mise]

Mise,

I don't think there are hopes involved. Its just cold economic calculations

Well, yeah, but that's why companies hedge.

 

[WillJ]

Thanks guys for the help, but I'm still not sure I grasp it, so bear with me as I think aloud and perhaps ramble a bit.

WillJ,

We might be playing around the court and not seeing each other. Consider the money supply fixed in the short term (which it is), and the effect of interest in buying said money. That increases its value but also sends a signal to increase overall supply (wheras the opposite should occur on the other end). That would help stop the band stretching, so to speak, and at some point, the band would contract back.

Sorry, you completely lost me there. By "That increases its value," are you referring to the higher interest rate causing the higher exchange rate? If so, that's the very part I'm having almost all the trouble with. By "sends a signal to increase overall supply," do you mean increase the money supply, or the number of dollars on the forex market, or what? If the former, I don't understand why that is, and if the latter, it seems to me that should read quantity supplied, not supply.

Isn't it just because you can buy dollars in a matter of seconds, but it takes a lot longer for companies to shift from buying stuff from country X (that has raised interest rates) to country Y (that has lower interest rates)? And it costs a lot of money to do that. So companies hold off from making the switch, in the hopes that interest rates / exchange rates will eventually come back down; if they don't, or if the central bank raises rates so much that the cost of staying with X is greater than the cost of switching to Y, then companies would switch to Y. Or am I missing the point entirely...

I don't think you're on the wrong track; we can probably extend that logic even further, since now that I think about it, I might have been wrong about the demand lowering for non-interest bearing stuff. Assuming (as an approximation) a completely open world economy, the interest rate within a country doesn't affect the demand for goods/services in that country, since people can always borrow money elsewhere to buy them. For the purpose of answering my question, I think we can safely assume that a change in the interest rate just affects people's attitudes toward borrowing and lending, not buying stuff.

But still, lending and borrowing, not just lending (lending being the only thing my textbook wants us to consider).

A couple things make this confusing. For one, to repeat what I said/asked earlier: Within the US, an increase in the interest rate doesn’t mean a change in the supply of or demand for money, rather the quantity supplied and the quantity demanded (supply and demand for money affect the interest rate, not vice versa). Why’s it different internationally?

Perhaps the reason lies somewhere in the fact that there are two conceptually distinct markets for dollars: one in which people “sell” (loan) dollars and others “buy” (borrow) them by giving the sellers more dollars in the future (the market whose "price" is the interest rate). The other market is one in which people sell dollars and others buy them by giving the sellers other currencies (the market whose "price" is the exchange rate).

Not only is there the division between those two markets, there’s a supposed division between the two countries. To what extent are we supposed to conceptualize them as two different economies versus a single open economy?

If we step back and consider something simpler, the market for cows:

If the US cow supply is halved (due to a huge farming disaster), ceteris paribus, the price of cows in the US goes up and the price of cows in other countries stays the same. Americans buy more cows from abroad. Due to the increase in demand for foreign cows, prices eventually equalize. In this case, Americans needed to exchange dollars for foreign currency, so the dollar depreciated.

Back to the markets for money:

If the US money supply is halved (by the Federal Reserve’s actions), ceteris paribus, the interest rate in the US goes up and the interest rate in other countries stays the same. Now what happens? I’m having a hard time drawing parallels with the cows.

Since it comes down to borrowing and lending, I think my earlier numerical example actually does capture the heart of the issue. An increase in the interest rate leads to an appreciation of the currency simply because of the different sizes of the movements of currencies across the countries when the incentives for borrowing and lending changes. The numerical example kind of makes sense to me, but it also seems kind of silly, and I’m not sure how to fit it into economic theory.

Note that if we change the numerical example to one in which the US interest rate is dramatatically higher than the German rate, the oppostite happens (and I think, empirically, currencies do depreciate when the interest rate goes up too much):

Exchange rate 1:1
interest rate in US: 100%, Germany: 5%

If American, borrow 1000 Euros
buy 1000 dollars with them
have 2000 dollars
buy 50 Euros and pay back

If German, borrow 1000 Euros
buy 1000 dollars with them
have 2000 dollars
buy 2000 Euros with them
pay 50 Euros

total bought on foreign exchange: 2000 dollars, 2050 Euros (again, ratio of Americans’ spending on this to Germans’ spending might not be 1:1)

 

[Cutlass]

WillJ, I think the part that remains unclear to you is that if a nation's central bank is supporting it's currency with higher interest rates, then most likely in the long run that currency will have greater purchasing power. For that reason it is more valuable.

 

[Gainy III]

This is an open question

In the European Union workers can travel and work freely. Is it tangibily more beneficial for a worker of one's nation to be employed by the nation -- for the nation -- than for a foreign EU citizen to be employed in the said nation then to emigrate in accordance with employment?

Would the circumstance of benefit require the nation to value the EU over themselves, assuming these names can be seperated?

Better for the nation, which is why the EU has some very weird labor movement agreements between nations. Assuming that folks can sort themselves freely with little barriers, free movement of labor is a good thing...Sadly, the EU does not have truly free movement of labor

I dont quite get your question.

I'd say you do get the question as your response was ok but the key word is tangibly. The significant barrier in the EU is language, it could be argued that the UK or specifically Scotland suffer as English is the most popular language but this is not my point.

In example: Is it tangibly more beneficial for Scotland to employ a Scottish citizen than an EU citizen who will return to the continent/eire when the job is done? Assuming tangibility would a circumstance of benefit require Scotland to pride itsself as an EU member first and a nation second?

 

[Gainy III]

Willj having read the opening of your first textbook post including the textbook passage the issue is your use of value. Value is a number and what a number is worth depends on its value, ie it doesnt mean anything

 

[Cutlass]

So the Doha round has died.

Spoiler :

July 30, 2008
After 7 Years, Talks on Trade Collapse
By STEPHEN CASTLE and MARK LANDLER


GENEVA — World trade talks collapsed here on Tuesday after seven years of on-again, off-again negotiations, in the latest sign of India’s and China’s growing might on the world stage and the decreasing ability of the United States to impose its will globally.

Pascal Lamy, director general of the World Trade Organization, could not bridge differences between a group of newly confident developing nations and established Western economic powers. In the end, too few of the real power brokers proved committed enough to make compromises necessary to deliver a deal.

The failure appeared to end, for the near term at least, any hopes of a global deal to further open markets, cut farm subsidies and strengthen the international trading system.

“It is a massive blow to confidence in the global economy,” said Peter Power, spokesman for the European Commission. “The confidence shot in the arm that we needed badly will not now happen.”

After nine consecutive days of high-level talks, discussions reached an impasse when the United States, India and China refused to compromise over measures to protect farmers in developing countries from greater liberalization of trade.

Supporters of the so-called Doha round of talks, which began in 2001, say a deal would have been a bulwark against protectionist sentiments that are likely to spread as economic growth falters in much of the world.

The failure also delivers a blow to the credibility of the World Trade Organization, which sets and enforces the rules of international commerce. It could set back efforts to work out other multilateral agreements, including those intended to reduce the threat of global warming.

The collapse of the talks will not bring an end to world trade, of course, which will continue under current agreements, many of which are between two or more countries rather than under the W.T.O.

But it is a big setback, particularly to the hopes of smaller and poorer developing countries, which were counting on gaining greater access to consumers in the United States, Europe and Japan.

Economists and trade experts predicted that negotiators, having come this close, might not find the conditions for a broad deal among the 153 members of the trade organization for years, if ever again.

Deep skepticism about the advantages of free trade was on vivid display during the Democratic primaries and it is growing in Europe, particularly as France, Italy and other countries have fallen into an American-style economic malaise.

“It’s important to move forward when the world is in a slowdown and is tempted to think of protectionism rather than opening up,” said Norbert Walter, the chief economist at Deutsche Bank.

He said soaring food prices provided another rare opportunity for a deal, since European and American farmers are prospering. It may never be easier to reduce farm subsidies, one of the most delicate issues in trade talks.

“The feeling went from ‘Who cares?’ to a surge of excitement and sense of breakthrough to ‘Oh, no, not again,’ ” said Rory Macrae, a partner at GPlus Europe, a communications consulting firm in Brussels, who was on the sidelines of the negotiations in Geneva.

He said the sticking point this time was countries like China and India, which have become more aggressive in advancing their interests. “Maybe they’re now thinking, ‘We’re big enough that we don’t even need the process,’ ” Mr. Macrae said.

Like the United States and Europe, he said, China and India might find it more advantageous to negotiate bilateral agreements in which they can apply more pressure on a single trading partner.

On Tuesday night, ministers were still discussing whether any of the agreements reached in principle could be salvaged.

But there seemed little prospect for that any time soon, in part because the presidential campaign in the United States will make it all but impossible for Washington to take part until a new administration takes over.

Talks foundered on the right of India and other developing nations to protect sensitive agricultural products from competition in the event of a surge of imports that would make their own farmers less competitive. The United States argued that such protection, which is not permitted now, would mean moving backward on current world trade commitments.

Mari Elka Pangestu, the Indonesian trade minister, said the failure of the talks reflected the inability of the rich industrial powers to deal with the growing influence of China, India and Brazil in the global economy.

She complained that what she called “a reasonable request” had been blocked because the United States “is not going to show flexibility.”

Susan C. Schwab, the United States trade representative, challenged assertions by some developing countries that the United States had been the chief obstacle to sewing up the deal. She added, “The U.S. commitments remain on the table, awaiting reciprocal responses.”

She said, “It is unconscionable that we could have come out with an outcome that rolled the global trading system back not by one year or 5 years but by 30 years.”

Ms. Schwab said it would be possible to help developing nations address surges in imports in ways that could not “be used as a tool of blatant protectionism.”

One official said that the relatively technical nature of the cause of the breakdown underlined a lack of political will to reach an agreement that would be a tough sell to voters in many countries.

The Indian trade minister, Kamal Nath, in a briefing with reporters, said he was “very disappointed” but that developing countries were “deeply concerned about issues which affected poor and subsistence farmers.”

Washington’s negotiating team was also under pressure from the country’s powerful farm lobby, and the European Union was under pressure from its own.

Lourdes Catrain, a trade partner at the law firm Hogan & Hartson, said the real danger created by failure after getting so close was “that the seven years of hard negotiations will be lost and there will be no guarantees on the starting point of a future round.”

The proliferation of bilateral deals and the continuing expansion of exports from both developing and developed countries have raised doubts among some Doha skeptics about the necessity of a global agreement. But experts said it was important, particularly as a bulwark against rising protectionist sentiments.

“There are people who argue that no Doha outcome is better than a weak Doha outcome, but I don’t agree,” said Katinka Barysch, the deputy director of the Center for European Reform in London.

Talks apparently broke down over the standard intractable issues: agriculture, textiles, investment, and implementation timetables. I'm not overly surprised, but it is disappointing.

Thoughts?

Having just watched the PBS news team talk about it, I think that agriculture seems to be the biggest sticking point. And agreement in that area doesn't seem feasible in the near term. So from a strategic point of view the developed nations should have been willing to drop that in favor of getting what they want in other areas.

As long as the process remains in the works, you can always go back to try again on details that could not be agreed on at this point in time. But once the process is ended, then you're pretty much starting from scratch.

 

[Elliot]

Good first post Elliot, that sums it up pretty well. Although I wonder how he came to his 50% number.

Kinda weird that a common name like Elliot wasn`t taken yet (as a username)

I'm surprised it wasn't taken too.

RE: 50% thing

He's just making up a number. Any percentage could work as long as *all* education is reduced by the same percent. Say there are 3 applicants applying for a job.

A- Highschool only- 12 years of schooling
B- College only- 16 years of schooling
C- PHD- 20 years of schooling

If everyone's education were cut in half, the information that the signaling provides would be just as strong(candidate C is the best), but the "waste" of schooling can also be cut in half.

I wouldn't say that all education is a waste, but I think a lot of it is. The signaling theory also explains the "arms race" in requiring more and more education to get a job.

 

[WillJ]

WillJ, I think the part that remains unclear to you is that if a nation's central bank is supporting it's currency with higher interest rates, then most likely in the long run that currency will have greater purchasing power. For that reason it is more valuable.

You mean because raising the interest rate keeps inflation down? Yeah, that's a good point, but according to the textbook, if I'm interpreting it right, the relationship between interest rates and exchange rates should hold true even if inflation remains unchanged, and the relationship between inflation and exchange rates is then given separately.

Willj having read the opening of your first textbook post including the textbook passage the issue is your use of value. Value is a number and what a number is worth depends on its value, ie it doesnt mean anything

By the dollar's "value" I meant its price in terms of another currency. Which clearly means something.

 

[Cutlass]

Textbooks can't account for every set of circumstances. Think of chaos theory or the "butterfly effect", there are simply so many variables that it's impossible to know and model that you can't take everything into account.

 

[JerichoHill]

http://biz.yahoo.com/ap/080731/economy.html?.v=19

Economy gained traction in spring, but contracted at the end of 2007

WASHINGTON (AP) -- Economic growth picked up in the second quarter as tax rebates energized consumers and exports boosted businesses. The rebound followed a treacherous patch where the economy jolted into reverse at the end of 2007.

ADVERTISEMENT
The Commerce Department reported Thursday that gross domestic product, or GDP, increased at an annual rate of 1.9 percent in the April-to-June period. That marked an improvement over the feeble 0.9 percent growth logged in the first quarter of this year and an outright contraction in the economy during the final quarter of last year.

Still, the second-quarter rebound wasn't as robust as economists had hoped; they were forecasting growth at a 2.4 percent pace. The rebound, while welcome, isn't likely to be seen as a signal that the fragile economy is healthy again. There are fears that as the bracing tonic of the tax rebates fades, the economy could be in for another rough patch later this year.

 

[JerichoHill]

I'm surprised it wasn't taken too.

RE: 50% thing

He's just making up a number. Any percentage could work as long as *all* education is reduced by the same percent. Say there are 3 applicants applying for a job.

A- Highschool only- 12 years of schooling
B- College only- 16 years of schooling
C- PHD- 20 years of schooling

If everyone's education were cut in half, the information that the signaling provides would be just as strong(candidate C is the best), but the "waste" of schooling can also be cut in half.

I wouldn't say that all education is a waste, but I think a lot of it is. The signaling theory also explains the "arms race" in requiring more and more education to get a job.

I don't think you're accounting for the fact that education is a good that has increasing/constant/and decreasing returns to scale. So you can't just cut in half and expect the same analysis, because that changes where you are along the curve.