However, the role of financial aid has morphed in recent years to serve as a marketing tool, and functions similarly to a price-sensitivity indicator.* By this I mean that financial aid is to colleges as coupons are to grocery stores. The comparison is not perfect, of course, but the general comparison is the same in that both financial aid and coupons both serve to differentiate the price-sensitive from the price-insensitive.

What’s interesting is that both the original function and the modern function of financial aid are both the same: marketing. The original form, though, is less direct and has a longer time horizon. The latter is more price-driven. This suggests that the product has changed in some way. Assuming that a postsecondary education is a way to signal employ-ability, it should make sense that colleges emphasize affordability in their advertising because the signaling benefit has declined due to the increase in noise.

When only a few people graduate from college, there is likely an appreciable difference in the graduates of different institutions, hence the need for prestige. However, if a lot of people graduate from college, it will likely be difficult to discern a difference in the graduates of different institutions. The lesson in all this is that colleges that emphasize prestige in their marketing are colleges that will offer a clear signal of prestige while colleges that emphasize affordability are all likely interchangeable in terms of signal utility. Therefore, if you aren’t going to a prestigious university, the best course of action is to acquire a college education as cheaply as possible. And if you can’t a get a cheap college education, you are probably better off skipping college.

* I recall when I was being recruited by various colleges that many would state what percentage of students received financial aid. There were a large number of colleges that claimed that over three-quarters of their students received some sort of scholarship money.

In my first post, I argued that removing the fuel subsidy is ultimately the right thing for Nigeria to do, as it is riddled with corruption, offers massive benefits to a few companies fortunate enough to have been awarded import contracts, and dominates the government budget at the expense of critical infrastructure projects. What I hadn’t understood fully is that the protests aren’t against removal of the subsidy per se, but about a lack of trust in government. As Nicholas Ibekwe, one of the organizers of the Occupy Nigeria protests in London explains, “Most organizers of the protest believe that removal of subsidy is not a bad thing. And I share that sentiment as well. However, the removal of subsidy in Nigeria is not about economics, it is mostly about trust, corruption and timing. The Nigerian government has not given the ordinary Nigerian reason to trust it.”

Put more simply by Chude Jideonwo on YNaija, “This is good policy badly executed, not because of timing necessarily as because of trust.” In the long run, Nigeria needs to eliminate a fuel subsidy that buys imported fuel – it makes very little economic sense for a nation to produce raw petroleum, export it to countries that refine it and subsidize its reimportation. It would make much more sense for the Nigerian government to help rebuild the nation’s refineries so the oil could be processed locally.

The problem is that, as Ibekwe and Jideonwo both explain, people don’t trust the Jonathan government to repurpose the subsidy to build infrastructure. Many of the arguments against subsidy removal focus on overspending in the Nigerian government, particularly on salaries and benefits to elected officials. The assumption – not without some justification – is that any savings from the subsidy will line the pockets of politicians at the expense of ordinary Nigerians.

Based on the feedback I’ve gotten from Nigerian friends, there’s no doubt that the subsidy removal was implemented poorly. Removing the subsidy in one fell swoop may have been designed to minimize opportunities for dissent (as each step of a gradual increase might invite protest), but it maximizes harm to the ordinary Nigerians who are struggling to cope with cost increases. The removal of the subsidy during the Christmas season had the additional complication of stranding some Nigerians in their home villages without sufficient funds to pay for transport home. And, as the commentators I quote above have pointed out, the Jonathan government simply doesn’t enjoy enough popular support and trust to have implemented these changes so unilaterally.

Alex Thurston at Sahel Blog argues against two arguments he sees me making in the piece. The first argument he sees me making is that removal of the subsidy is a good thing. I don’t think that’s what my argument was, precisely – I think removing the subsidy, ultimately, is something Nigeria needs to do. But as I’ve conceded here, I agree the move was made badly, without sufficient consideration of the harms to ordinary Nigerians, and I hope it will be rolled back and implemented in a more careful, considered way.

The second argument Thurston disagrees with is my contention that a protest against the subsidy is reactionary. Here I think he and I genuinely disagree. Thurston suggests that removal of the subsidy favors the 1% over the 99%, and suggests that because the World Bank and IMF would like to see the subsidy removed, the interests of the powerful favor subsidy removal. I don’t think it’s especially fair to equate the oft-maligned IMF and World Bank with the globally rich and powerful. There are lots of smart economists – including Nigerian Finance Minister Ngozi Okonjo-Iweala, former Managing Director of the World Bank – who are looking for solutions to Nigeria’s long-term economic woes, and who see removing the subsidy as a step towards economic reform.

There’s no doubt that removal of the subsidy is hurting the 99% in the short term. But poor and middle-class Nigerians were experiencing a great deal of economic misery before removal of the subsidy. In the long term, one way or another, Nigeria needs a functioning infrastructure, a working power grid, better roads and rail, better health care and education. In the long term, some of these services need to come from the government… and the government will gain legitimacy by providing services that people want and need, beyond cheap fuel.

Thurston and the Occupy protesters seem to be arguing that the government can’t and won’t provide those services, and therefore we should focus on the short term: maintaining a large subsidy on the import of foreign petroleum products. That mistrust of government’s ability to provide any services sounds more like the Tea Party than the Occupy movement to me. I’m not saying that the protesters are wrong in their mistrust of Jonathan’s government. I am saying that a government taking steps towards modifying a budget to provide essential goods and services appears more progressive than supporting a massive subsidy.

In US terms, this argument sounds like a very typical right-wing argument: we can’t trust the bloated, lazy government to produce public goods, so we should have very low taxes and rely on the private sector for any goods and services. In practical terms, removal of a fuel subsidy is a tax increase. It’s a badly implemented tax increase and it affects people who are ill able to afford it. But the goal is a progressive one, so long as you accept the notion that Ngozi Okonjo-Iweala and Jonathan are genuinely trying to build infrastructure and help the economy recover. If you don’t trust their motives, obviously, you won’t see this move as anything other than an opportunity for more corruption.

Do I think the subsidy removal was a good idea? I think it’s an admirable goal in the long run, but was badly implemented and should be rolled back and implemented gradually in closer consultation with a variety of non-government groups. Do I support the Occupy Nigeria movement? Yes, inasmuch as I think it’s great to see organized, peaceful, popular opposition to corruption in Nigeria. But I am deeply worried that the movement is focused on rolling back a change that, in the long run, is intended to correct some of the major problems of the Nigerian economy. Do I still think the movement is reactionary? Yes, in the literal sense that protesters are trying to roll back a change made by government, and more figuratively, because the movement questions the ability of the government to create positive change for the people. I hope the movement will become a broader anti-corruption movement, which I would see as less reactionary, more progressive and more in line with global Occupy movements.

Do I expect that this post will reduce the amount of angry email I’ve recently received? Probably not. As several correspondents have pointed out, passions are understandably running very high around these issues. It’s hard to both critique and support a movement, but I think the issues here are complicated enough that it’s worth trying to do both simultaneously.

By Tuesday, the 3rd, protesters in Lagos were blocking access to petrol stations and shutting down stretches of motorways by building and burning barricades. On the 4th, protesters in Kano shut down petrol stations and threatened to burn down a newspaper they believed was supporting the removal of the subsidy. They occupied Silver Jubilee Square in the center of the city and attempted to maintain an encampment overnight, though police responded by firing tear gas and, allegedly, working with armed gangs to clear the square through violence and intimidation. The protests are led, in part, by two powerful trade unions, National Labour Congress and Trades Union Congress, who have promised to “occupy” Nigeria until the subsidies are restored. They plan a nationwide strike, beginning January 9th.

Michael Bociurkiw, writing in the Huffington Post, notes that it wasn’t obvious that petrol price increases would trigger such widespread protests. After all, there’s lots to protest in the country. Despite being sub-Saharan Africa’s largest producer of oil, most Nigerians are quite poor, the nation’s infrastructure is shambolic, and political corruption is widespread and well-documented. A rigged election in 2007 (and controversy over a mostly-clean election in 2011) led to some heated rhetoric, but little visible protest.

But petrol prices affect every aspect of life in Nigeria. The country has no (functioning) mass transit systems, which means urban dwellers are reliant on a complex system of minibuses, taxis and motorbikes, operated as private businesses. Those businesses will be sharply affected by the petrol price increase and pass the costs on to their customers. And because Nigeria’s electrical grid and power producing stations are notoriously unreliable, most businesses use generators to power their operations. Those generators have just become at least twice as expensive to operate, which is likely to increase prices at a wide variety of businesses. Complicating matters, Nigeria is least stable in the north, where tensions between Muslim and Christian groups have erupted into violence, and where the terrorist acts of Boko Haram, an extremist organization which wants all non-Islamic education and culture banned from Nigeria, have pushed President Goodluck Jonathan to declare a state of emergency in the North. Because the north is distant from the ports where Nigeria lands imports, goods are likely to increase sharply in price in the already troubled region.

Jonathan is not the first Nigerian leader to try to remove the fuel subsidy. Two of Nigeria’s military leaders – General Ibrahim Babangida and General Sani Abacha both tried to end the expensive program, and both were forced to back down due to popular opposition.

On the one hand, it’s exciting to see a Nigerian population that’s often overwhelmed into inaction taking to the streets. Stories about Muslim and Christian protesters finding agreement over shared prayer space – and images of Nigerian Christians encircling and protecting Muslim protesters at prayer in Kano – are genuinely encouraging. And there’s no doubt that making a living was a tough prospect for ordinary Nigerians with the subsidy in place and that a tough situation will get worse without it.

That said, ultimately, I think Nigeria needs to get rid of the subsidy. It’s incredibly expensive – depending on how you account for it, it cost between $8 billion and $16 billion in 2011. Nigeria’s tax authority collected just under $18 billion in 2010, and budgets for key sectors of the Nigerian economy are substantially smaller than the cost of the subsidy: defense spending is proposed at $6 billion, education at $2.5 billion, health at $1.8 billion. And while the subsidies make life easier for ordinary Nigerians, they’re a massive boon to the few companies the government allows to import refined petroleum… and contracts to import those petroleum products are a likely source of patronage revenues for corrupt government figures.

The IMF has pressured Nigeria to remove fuel subsidies for years, and Nigerian Finance Minister Ngozi Okonjo–Iweala, an internationally celebrated economist and anti-corruption reformer has been a powerful champion of reforms, offering long briefings to the President and other leaders on the importance of the reform effort. (Rumors have circulated that she threatened to resign if the subsidy wasn’t eliminated. She refuted those rumors in classic Nigerian fashion… on Twitter.)

Ideally, the Nigerian government would use the monies freed by eliminating the subsidy to address some of the country’s chronic problems: weak road and rail infrastructure, unreliable power, run-down refining facilities. It’s possible to imagine a Nigeria where imported petroleum products were less necessary, if the country had functioning rail systems, a reliable power grid minimizing the need for generators, and refineries that could produce diesel and gasoline locally. Given the history of corruption in the Nigerian government, it’s not hard to understand why many Nigerians are skeptical that the monies released from the subsidy will go anywhere other than in politicians’ pockets. As the BBC observes, many Nigerians feel like the fuel subsidy is the only government service they actually see.

If you want to understand opposition to removal of the subsidy, an oddly partisan view can be found on the Occupy Nigeria wikipedia page, which is quite far from NPOV, but a very interesting read nevertheless. Statements from Central Bank of Nigeria Governor Lamido Sanusi make the case for subsidy removal in a piece on Bloomberg News. His basic argument: Nigeria needs to borrow a lot of money to build infrastructure, and responsible lenders won’t give the country money as long as it keeps doing boneheaded stuff like subsidizing oil consumption instead of building infrastructure.

Even though I think Nigeria needs to end the subsidy, I would be surprised if Jonathan can sustain these changes in the face of a sustained strike. There’s tension already over the idea that this isn’t Jonathan’s “turn” at the presidency – there’s a popular notion that Nigeria’s presidency should rotate between northern Muslims and southern Christians. The previous president, the Muslim northerner Yar’Adua died in office, and Jonathan finished his term. Some believe that, by this rule of thumb, the 2011 president should have been a northerner… Some northern activists and some labor activists have made threats that they will make Nigeria “ungovernable” during a Jonathan administration. It’s not hard to see how protests over fuel could make Nigeria vastly harder to govern.

I’m interested to see Nigerian take on some of the rhetoric and tactics of the Occupy movement, including the occupation of a public square in Kano. I’ll be intrigued to see whether any of the global energy over Occupy goes to support the Nigerian protesters. The irony, I fear, is that while the global occupy movement seeks to equalize income disparities and fight government corruption, the Nigerian movement is currently pursuing radical and important reforms, and the Occupy Nigeria protesters are fighting against that change. Read one way, Occupy Nigeria is a conservative movement fighting to keep a dysfunctional status quo in place, which seems at odds with other branches of the movement.

This view is not altogether incorrect, but it seems to ignore the role of federal regulation and the role of shifting cultural/societal views regarding student self-esteem. The two generally go hand-in-hand and feed off each other, and so trying to delink the two is impossible. At any rate, what’s neglected in the discussion of the college bubble is the concept of grade inflation.

Grade inflation has occurred primarily for two reasons. First, as mentioned before, the relatively recent self-esteem movement has encouraged the dumbing down of the general curriculum in order to make subpar students feel good about themselves. The history of this movement is dodgy, relative to political intervention. There is no doubt that the government has latched on to the self-esteem movement, but it is not clear if the government was the first mover. Even if it weren’t, private desire and public policy has basically become a self-reinforcing feedback loop, so the point is basically moot. At any rate, the effects of the self-esteem movement are clear, in that students perform moderately well, relative to the world (see Steve Sailer’s take on PISA scores, eg.), while being told that they are highly intelligent. Fortunately, the self-esteem movement does not have as much momentum as it once did, at least from my perspective.

Second, the government has certainly played a role in grade inflation due to the increasing federalization of public schools. The federal government loves uniformity, particularly of outcome, and school outcomes are no exception. As my recent book review pointed out, in brief, the increased bureaucratization of public education has led to a situation where students perform better on an admittedly arbitrary class at the expense of learning things that aren’t on said test. NCLB, in particular, is responsible for this recent effect, and it is part of a larger trend. This trend has led to the inflation of grades in two ways. First, the decreased role of non-test subjects has led to less classroom time dedicated to them, which means that grades in these subjects are based on a smaller sample size of work, and teachers are likely to cut kids slack when grading (at least in my own experience). Second, teachers have cheated on the tests in order to make sure that the kids do well, which sometimes makes students seem smarter than they would otherwise.

Primary and secondary education simultaneously suffered from dumbed-down curriculum and grade inflation, shortchanging intelligent children. They needed some way to fight back and prove their higher intelligence and cognitive abilities, which is where college comes in. While direct federal subsidy of post-secondary education is blamed for the current college bubble—and rightfully so, I might add—this is not the whole picture. The dumbing down of public education has also contributed to the need for college because it now provides the surest means for intelligent students to finally get ahead.

If education is viewed as a way to signal work fitness, then a high school degree has become essentially meaningless. Graduating from high school is no longer a guarantee that one is proficient in math and can speak and write in plain, understandable English. Many colleges tacitly admit this fact with their offering of basic remedial courses. Thus, having a high school education no longer signals that one can be counted on to be a reliable employee.

Thus, intelligent students have two options: drop out of or avoid high school, or go to college. The former is not a good signal for future employment prospects, and thus should be avoided by all but the most entrepreneurial of intelligent students. The latter option—going to college—is the most viable option to demonstrate employment fitness. Thus, intelligent students can no longer simply graduate with good grades at the top of their high school class, they must also get a post-secondary education of some sort as well.

Therefore, while the current increases in college enrollment are undoubtedly the consequence of direct and indirect federal subsidy, it is both foolish and dangerous to ignore the effect of the self-esteem movement and federal regulation, and how both have distorted the signal of secondary education. As such, popping the college bubble won’t be as simple as ending federal regulation. Popping the bubble will also require federal deregulation, and a more appropriate view of the role of self-esteem in a child’s educational development.

I hope this isn’t the case, but if it is, it probably suggests a far more radical regulatory approach than the Independent Commission on Banking has considered. It might even point in the direction of ‘narrow’ or ‘limited purpose’ banking, which would involve imposing strict structural divisions in the finance industry, and require banks to hold dramatically higher levels of liquid reserves. Bank of England governor Mervyn King has nodded in this direction.

Of course, I’d much prefer the free market option, but the trouble with the Independent Commission on Banking’s proposals is – arguably – that they do neither one thing nor the other. They don’t eliminate moral hazard and risk subsidies or restore real market discipline to the financial sector. But they don’t offer a particularly strong regulatory response either. As such, the banking sector is liable to cause more problems in future.

The LERTA is actually just one tax abatement program impacting some city neighborhoods.  There exists a separate program that abates the tax on investments in residential investment in 28 city of Pittsburgh neighborhoods.

Want to make a real impact on the future growth of Pittsburgh? There is something we almost have to try at some point. My point a few years ago was to make the city’s tax abatement universal!

There is no real reason not to.  The argument against expanding it city-wide is that the city might forgo some new incremental tax revenues on new residential investment going on in the non-tax-abated neighborhoods.  Guess what?  The level of non-subsidized residential construction within the city of Pittsburgh is about as low as it can get.  In fact, most new housing in the City in the last decade have come entirely from Summerset and all the highly subsidized housing stock Downtown. That’s it pretty much.  I am not sure we have any more slag heaps needing redevelopment, and there isn’t much new money for more condo subsidization, so what does the future hold for the future of housing in Pittsburgh? Without any incremental jumps in property tax in the pipeline the cost of expanding the abatement program across the city are limited.  Yet the benefits could be spurring a new level of investment in residential construction or improvements that really are key to ever get the city of Pittsburgh population decline to itself abate.

To abate, or not to abate?  It all depends what you want to abate.

Philly’s tax abatement program has been credited with a revival in residential housing in Philadelphia and the census shows that Philadelphia’s population trend has literally reversed over the last decade.  At the same time Pittsburgh’s population continues to drop rapidly.  The presence of children is a decent proxy for future household population in the City of Pittsburgh, and the trend there is worse than the overall population trend.  Bottom line, if the city does not build out a housing stock attractive to new families then there is no reason to think the city’s population trend will reverse any time soon.

There has never been a place that has less to lose and more to gain from an omnibus tax abatement on new residential real estate investments than Pittsburgh.

OK, maybe we do have some other slag heaps out there to redevelop… but I at least am unaware of any bold initiative out there to repeat any time soon what was done with Summerset.

“He thinks it’s fundamentally wrong for a society to pin people’s best hope for a better life on something that is by definition exclusionary. “If Harvard were really the best education, if it makes that much of a difference, why not franchise it so more people can attend? Why not create 100 Harvard affiliates?” he says. “It’s something about the scarcity and the status. In education your value depends on other people failing. Whenever Darwinism is invoked it’s usually a justification for doing something mean. It’s a way to ignore that people are falling through the cracks, because you pretend that if they could just go to Harvard, they’d be fine. Maybe that’s not true.”

The question is, why doesn’t Thiel make it possible for anyone who wants to go to Harvard to be able to do it? After all, Thiel has made his fortune disrupting other hidebound institutions. Making it possible for motivated individuals to get the same quality of education that exists at the nation’s best universities without having to attend them would be the kind of disruption that would fit into Thiel’s social views and his economic ones.

We know from past history that highly motivated persons exposed to a quality education system will self-select for success. New York’s fabled City College is only one example.