Steven Pearlstein writes up a promising application called Aplia that helps teach introductory economics to college students. I can’t judge independently whether or not Pearlstein is right about the program’s merits, but I can say that he’s too optimistic about this: “For me, however, what’s really exciting about Aplia is that it finally holds out the possibility of bringing to higher education the same productivity revolution that has lowered costs and improved quality in almost every other industry over the past two decades.”

I used to think this way. I used to think that cost inflation in higher education was driven by a lack of productivity improvements. Therefore, I thought, when people invented productivity-enhancing technologies that made undergraduate education cheaper, we’d be on the road to curbing cost inflation. Then I read this eye-opening article by Kevin Carey in The Washington Monthly. Kevin points out that we actually have seen a bunch of things like Aplia that are making aspects of undergrad education more efficient. They’re just not making it any cheaper for students and their parents:

For the most part, colleges would just rather spend it elsewhere. The nonprofit Delta Project on Postsecondary Education Costs recently found that tuition and fee revenue per student at public research universities increased by 34 percent, in inflation-adjusted dollars, from 2000 to 2005. At the same time, spending per student on instruction and academic support declined. This is nothing new—overcharging for introductory courses is standard operating procedure in higher education, and has been for a long time. Colleges routinely use the excess revenues generated by huge, inexpensive lecture hall classes to support other, money-losing activities. Freshmen have always been cash cows—technology just made them more so.

You should read the whole article. But suffice it to say that the larger issue is that colleges and universities don’t face incentives to deliver cost effective undergraduate education. They face incentives to use undergraduate education as a profit center with which to finance other status-seeking endeavors like sports and research and higher salaries for administrators. If you want productivity enhancements to bring tuition down, you need to change those incentives.

Kari Manlove, one of my CAP colleagues from upstairs on the 11th floor, tells you what you need to know about adaptation to climate change:

Of course it would have been better to just get started with the mitigation ten years ago. But every year we delay action on that front we wind up making both the mitigation and the adaptation pieces harder.

A disapproving Atrios quotes Bloomberg: “Treasury Secretary Timothy Geithner is betting that U.S. banks can do something their Japanese counterparts were unable to accomplish in that country’s “lost decade” of the 1990s: earn their way out of trouble.” Duncan remarks:

The econ-finance brain trust of this country spend years obsessing about the horrible Japanese mistakes. I guess, like Vietnam, those “lessons” weren’t actually learned.

Recently, however, I began to hear the amazing tale of Richard Koo whose forthcoming book apparently argues that though the Japanese policy response wasn’t perfect, it was actually much better than it’s usually given credit for. According to Koo, given the scale of the negative balance sheet shock, Japan actually did quite well. You can see a summary of his view here at Seeking Alpha and here from Paul Kedrosky.

Do I believe this? I’m not sure. But guess who’s on the jacket flap?

There will probably never be a last word on the Japanese financial catastrophe of the 1990s but Richard Koo’s book may be the most significant analysis ever published. Agree or disagree, any analyst of the current United States situation must consider Koo’s arguments. – Lawrence H. Summers

Summers was among those criticizing the Japanese in the 1990s, but maybe he’s changed his mind?

Meanwhile, it’s become conventional on the left to attack the administration as unduly in hoc to “banksters” who are sure to destroy us. But Koo’s argument is that we ought to spend less time worrying about the banks, and just accept that it will take years for the private sector to restore its balance sheets. In the interim what’s needed is massive and sustained deficit-financed public investment. This, it seems to me, is an argument progressives could find pretty congenial.