I don’t want no hippie pad:

— Conservatives still way ahead while pulling less than 40 percent of the vote.

— Singapore aims to be renmimbi hub.

— Arizona Governor Jan Brewer signs tea party flag bill.

— I’m old enough to remember when we had trials before punishing people.

— Misrata asks for NATO boots on the ground.

Descendants, “Suburban Home”.

Something people sometimes miss is that for technological improvements to boost overall living standards, the improvements need to come in sectors that constitute a large share of spending. So while the invention of the telescope and related improvements in lens-making in the 17th century were interesting episodes in the history of science, nothing of economic importance really happens until the Industrial Revolution started generating huge productivity improvements in textile manufacturing. The lens sector just lacked economic significance.

In that spirit, Karl Smith gives us the median household’s spending pattern:

The biggest ones on the list are shelter and transportation, so these are the areas in which relatively small improvements would create big gains in living standards. Part of what’s interesting here is that housing and transportation tend to be offsetting. My daily commute takes about 15-20 minutes and costs $0 because I live 0.7 miles from work and walk. But land that’s located near central business districts tends to be very expensive. That could simply mean very tall buildings, but we have a lot of regulatory restrictions on density so instead it means expensive homes. But the “technology” of better public policy could create large improvements here.

Neil Sinhababu is not a fan of haggling for cab fare:

The free market system one does see in some places, either as a legally established option or as the way things run de facto because price regulations aren’t enforced, is one where you have to haggle with the taxi driver about the price of going to your destination. I’ve done it in other parts of Thailand, and I hear it’s common in Malaysia. People’s sentiments will vary, but I don’t like this system. Haggling takes time, is unpleasant, and can result in no deal happening because somebody presented an overly ambitious ultimatum when both parties were actually willing to settle for a middle price. It also can lead to visitors who aren’t familiar with the local haggling economy getting ripped off.

The one place I’ve been where haggling for cab rides is the formal system is Stockholm, Sweden where (as is often the case) the Scandinavians combine high taxes with radical free market ideas. It was, as Neil suggests, extremely annoying. But it also made me wonder why more cities don’t do this. After all, the main impact seems to be that tourists get ripped off. But why should city governments care about stopping tourists from getting ripped off? Charging a kind of “ignorance tax” on visitors seems like exactly the kind of thing you’d expect cities to do.

In my mind, the way to start getting at the crux of the problem of why higher education costs keep going up is to try to put yourself in the shoes of the President of the University of Miami* in Coral Gables, Florida. Currently you’re ranked 47th on US News and World Report‘s “national universities” rankings. Naturally, you know that this is a highly imperfect methodology. But in a broad general sense you accept the judgment that your school is a lot better than a lot of other schools, but also that there are many better universities in America. Nevertheless in the 2010-2011 academic year, you’re able to charge $37,836 in tuition. That’s more than Princeton ($36,640) and only slightly less than the comparably sized University of Pennsylvania ($40,514).**

Now along comes a clever faculty member who figures out a way to teach a lot of your large introductory courses just as well at a small fraction of the cost. You implement the changes, and now your cost structure is lower. What happens next?

Well what doesn’t happen next is that you cut tuition. Maybe you use the extra money to pay yourself more and to hire more staff. But you probably don’t do that either. If you want to get paid more, you need to deliver results. But results in this case don’t mean cutting tuition. Results mean getting higher in the rankings. And you don’t move up the rankings by getting more cost-effective at educating the kinds of students you’re currently getting at the University of Miami. You move up the rankings, roughly speaking, by increasing the average SAT scores of your freshman class and/or by poaching faculty stars from other schools. To accomplish the latter, you need to spend more money. And to accomplish the former, you need to do two things. One is spending more money on fancier facilities to make more kids want to apply to your school (thus allowing you to be more selective) and the other is through very targeted financial aid to try to bribe some kids with high SAT scores into going to the University of Miami instead of to Princeton. If you do those things, the school will get more selective so your rankings will go up. Alumni will like that, faculty will like that, and your new cohorts of graduates will probably earn more money than your previous ones did and so all things considered your personal earnings will increase.

To change the trend, you need to change that dynamic.

If you look at Freddie de Boer’s ideas about how university administrators could control tuition costs they seem very sensible from a managerial perspective. But from the policy perspective the issue isn’t so much “what are some cost-reducing management practices?” as it is “why don’t university managers want to implement cost-reducing practices?” The answer is that the structure of the system gives them very little incentive to. When Wal-Mart cuts costs, it lowers prices to gain market share and make even more money. When universities cut costs, they plow the savings back into fancier facilities to move up the league tables.

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Noah Smith notes that America’s human capital stagnation has been accompanied by a drastic increase in the price of education that suggests a supply shortfall:

Which brings me to my idea of the day: A federally funded National University System.

When you have a supply shortage, one solution is to shift the supply curve to the right. Sometimes this is impossible. But in the case of U.S. public universities, it is very doable! Plenty of other countries have national university systems, and these national universities are often very high-quality. Why not us? Why don’t we build a system of high-quality, federally funded national universities to co-exist alongside our already excellent state universities?

That analysis naturally raises the question of why the supply of universities should be so inelastic in the faace of rising demand. I think a potential answer here is that the shortage isn’t so much of “universities” as it is of prestige. You could hire some people with PhDs and throw a few classrooms together pretty easily, but it would be extremely difficult to replicate the decades of history associated with America’s selective colleges and universities. Federal intervention really might make a difference here if it was done in the right way. One way to do this would be to create a National Civil Service Academy modeled on the military service academies. A National Law Enforcement Academy and a National Teacher’s College might also make sense.

To me these are all pretty good ideas, but I don’t think they’re really the fundamental issue. I’ll explain what I do think is fundamental in a followup post.