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Monday, February 28, 2011

Jalopy of economic growth

Governor Sandoval unveiled his recommended budget back in January and made it clear we would need to cut $258 million from higher education in order to balance the state budget (lost state appropriations plus lost Federal ARRA subsidy and amounts to 7.4 percent of higher education spending, excluding capital projects and debt repayment).

Naturally, higher education officials and their defenders in the state legislature have been rolling out a new strategy to prevent or lesson the budget cuts. Now they claim that higher education is the engine of economic development. Through higher eduction we can train a better educated work force, attract high tech companies, create jobs, and diversify and grow the economy.

Education and research in higher-ed hasn't changed much since the 19th century. What has changed are the number of jobs, beyond education and research, higher education thinks it is good at.

Check out some of the recent arguments in favor of education driving our future economic growth: Derby (former regent), Wixom (current regent), Dr. Eliot Parker (UNR economics professor), Parker again (this guy is always hung up on not having enough government employees relative to the rest of the nation), Dr. Rob Lang (UNLV sociology professor and Brookings Institution).

 To make a long story short, these people think higher education can do anything and do it better than anyone.  Need to run a retirement home - call Higher Ed! Need a golf course managed - call Higher Ed! Need a business park built - call Higher Ed! Need a rock concert - call Higher Ed! Need to incubate and develop entrepreneurial businesses - forget those venture capitalists who carefully weigh risks with potential returns to ensure a wise use of scarce resources and CALL HIGHER ED!

Basically, they are trying to do everything but educate and research - the primary function of the university.

Seriously though, if higher education is so good at doing all of this, why have private enterprise at all? Lets just have everything be run by higher education. Maybe you're starting to see how silly their argument really is? If not, keep reading as the facts just don't support their position.

There are fewer farmers per capita today than in the past yet they produce considerably more food and feed millions more people, all thanks to something I call "technological innovation"   Higher-ed, on the other hand, employs more people per student than ever before.

Basically these individuals see Nevada's struggling economy (fact), high unemployment rates (fact), large budget shortfall (fact), gaming dominant economy (fact) and assume this is because we don't have very many college graduates per capita (relative to the rest of the nation we have few college graduates, but it is a logical fallacy to assume our problems are because we don't have enough). Some argue that we don't spend enough on higher education, but relative to the rest of the nation, we actually spend above average already (see page 29).

Chancellor Dan Klaich was so sure about a positive relationship between higher education and economic growth and job creation that when he testified before the Nevada System of Higher Education Regents he claimed the relationship was "indisputable."

Since he's set the bar at "indisputable" all I have to do for now is cast a shadow of a doubt on this theory. This is very, very important because we're talking about the state's future and hundreds of millions of dollars that could be used elsewhere to boost the economy, improve lives, and create jobs. Over the next few decades this translates to billions of dollars so this is a big deal.

To that end I've done a few simple regressions. Yes, this is a simple analysis and a far more complicated and scientifically robust analysis can be done, just remember, I'm only trying to cast doubt on Klaich's "indisputable" claim. Also note, higher education hasn't bothered to do the scientifically robust study to even prove their own claim.

Here is what I find:

These findings, at the very least, suggest there is evidence to dispute the "indisputable" claim that higher education can be the engine of economic development. What is needed is a more robust analysis on higher education and its relationship to the economy - an analysis higher education has yet to perform to prove its own bloated existence. Specifically, lets study the return on investment. Until these studies are done, higher education officials should drop the claim that they can help grow and diversify our state economy or even help create jobs.

Read my column in the RJ about this issue

(I put up the wrong P-score and t-stat, I've made the corrections and added the coefficients on March 1, 2011).

College attainment and unemployment in 2009: R Square:   0.002472 | Adjusted R Square"   -0.01789 |       P-value:   0.728982 | t Stat:: -0.34847 | coefficient: -0.02001 (no relationship)

College attainment and unemployment in 2010: R Square: 0.018938 | Adjusted R Square:  -0.00108 |       P-value:   0.335547 | t Stat:   -0.97256 | coefficient: -0.05136 (no relationship)

College attainment and GDP growth from 2008 to 2009:  R Square: 0.001985 | Adjusted R Square -0.01838 | P-value:   0.756201 | t Stat:   -0.31222 | coefficient: -0.01975 (no relationship)

College attainment and GDP growth from 2007 to the 2009:  R Square 0.001181 | Adjusted R Square:   -0.0192 | P-value:  0.81082 | t Stat: -0.24066 | coefficient: -.0.00026 (no relationship)

College attainment and budget shortfall:  R Square:   0.02046 | Adjusted R Square:    -0.00403 | P-value:  0.36617 |  t Stat:  0.914045 | coefficient: 0.002969 (no relationship)

Yes, college graduates are more likely to be employed than non-college grads, but across states there is NO RELATIONSHIP between college attainment rates and state unemployment rates (a very weak R2 and a negative adjusted R mean there is nothing really going on with the relationship at all). Why is this the case? It may be because so few jobs actually require a college degree. It may also be that we aren't adjusting for the age difference in college graduates. That is, new college graduates have higher unemployment rates than older college graduates. This is a plausible theory considering more and more people (both students and professionals) are watching the value of the college degree plummet (while debt to earn a degree rises).


  1. "There is no relationship between the percentage of college graduates in a state and nunemployment rates." It is interesting that you make that claim, because I have done the mathematics myself, and your claim is absolutely, objectively false. The relationship is not strong, but it definitely exists. There is a somewhat greater correlation between unemployment rates and the percentage of high school graduates in a state than there is between unemployment and college graduates, but both relationships unarguably exist.

    On the other hand, you conveniently failed to measure that there is absolutely NO relationship between unemployment rates and tax burdens, or between unemployment rates and the subjective rankings of favorable business climates that is compiled by the tax foundation. Indeed the relationship is slightly negative, although not enough to be statistically significant. The frequent claim of the right wing that lower tax rates will attract business and investment, or that higher rates will drive them away, is provably false. Once again, I have run the numbers myself, and I'm not parroting someone else's talking points.

    I will be happy to provide you with references and specific numbers, but when you write for a large audience, as you did in today's Las Vegas Review-Journal, you are obligated to tell the truth. And you didn't.

    Stan VerNooy
    CSN math "professor" (I dislike the pretentiousness of the title)

  2. Latest college attainment rates and 2009 unemployment rates:

    R Square 0.002472033
    Adjusted R Square -0.01788568

    College attainment rates and unemployment for 2010:

    R Square 0.018938129
    Adjusted R Square -0.001083542

    That is not a relationship - there is nothing going on there.

    Same comes up for unemployment in 2010.

  3. I came to your blog after reading you Sunday editorial in the RJ. I thought maybe you were a voice of reason within the right-handed editorial policy of the paper. Having read your posts, I see you're just another ranter.

    Does it not bother you that the robber-bankers on wall street will face nothing in terms of consequences. Anything wrong with this picture? Does the income disparity in the US bother you a bit? Yeah right, it's those big bad unions doing all the damage.

    Kevin Wilcoxon

  4. Sorry you feel that way Mr. Wilcoxon. But yes, it bothers me that Wall Street received bailouts freeing them from the consequences of their bad decisions.

    Does income disparity bother me? Well that depends. Is one group gaining more income because people voluntarily hand over their cash or are they growing wealthy because they use force and violence? Are segments seeing their incomes decline? If so, is it because they are working but can't get ahead or is it because they aren't holding down full time jobs.

    When you look at it like this you'll find that the income disparity is mostly the result of voluntary transactions and people working full-time jobs while lower income households, on average, work less. We also see that despite growing income inequality, income is generally growing or flat, not declining while purchasing power is increasing for everyone.

    As for unions, my beef is with government unions, not private sector unions. Even FDR had a beef with government unions. Heck, both my grandfather's were union men. Private sector unions are voluntary associations, nothing wrong with that. Government sector unions are not and they also have the ability to use the government's monopoly on violence to extract excess rents from the public at large.

  5. Well, here's a concrete example about how having an ignorant population adversely affects the economic health of a state: IKEA declined to enter the Las Vegas "market" because the demographic profile suggested there were too few college educated adults to understand and appreciate the merchandise offered by this furniture and lifestyle retailer. And their stuff is not even expensive! When a furniture stores declines to open in your city due to sub-par educational attainment of potential customers, you have a BIG problem. Same situation occurred recently with a large California-based internet call center company that said they could not relocate here because the population was not skilled enough to field a highly skilled workforce necessary to staff the center. Oh well, I'm sure the Review-Journal would say that's OK because IKEA is a "socialist" Swedish company. And as for these ridiculous faux-statistical posts by a political science major like Mr. Gibbons, I'm reminded of the tendency to lie with statistics.

  6. I think the IKEA argument is pretty darn bogus. The furinture is cheap and its not that hard to put together... You also don't need college graduates to work at IKEA.

    I think the real issue is that the housing market is bust and when the housing market is bust people are less likely to need new furniture to put into their new homes...

    Those aren't faux numbers by the way. I posted the statistical sources so feel free to double check the numbers yourself...

  7. With new home construction stalled and furniture stores dropping like flies over the last few years, it doesn't take even a moron intellect to understand why IKEA didn't come to Las Vegas at this time. One thing is certain, it didn't have anything to do with college educated adults. On the contrary, a college educated adult would understand that if you really wanted cheap furniture, you could just drive down to IKEA in San Bernadino, or better yet, order online and avoid Nevada's extremely high sales tax.