Monday, June 12, 2017

Mattering Bias

The campus has a program to support low income students.  It is called Illinois Promise.  The program offers a variety of activities for such students, who are at higher risk of dropping out than the typical student.  One of those activities is a mentoring program.  I-Promise students opt into this program as mentees, meaning mentoring is optional for them.  The mentors are volunteers from the faculty and staff, retirees like me, others  from the community who have an interest in these students, and upper level students in I-Promise who now know the ropes and can pass on their knowledge to the next generation.

There is new leadership for the program.  To facilitate matching between mentees and mentors, potential mentors were asked to complete a Web form that gathered pertinent information.  I recently completed one of these and can report that one of the questions was a good and relevant one - Why do you want to be a mentor?  I puzzled about this for a while.  There is a highly idealistic conception of mentoring and then there is a very low to ground alternative, either of which might matter regarding the student's performance.  It's also possible that the mentoring is all surface-level, nothing more, and actually doesn't matter.  Let's describe each of these a bit.

For me, college was a wonderful time of life, especially after I transferred to Cornell and got comfortable there.  It was a time to ask the meaning-of-life questions and find some answers that made sense.  In current jargon, the answers that made sense to me were about finding Flow.  What in the college experience can help the student to produce flow with some regularity?  The mentor helping the student with that provides the idealistic conception of mentoring.

The vast majority of students, not just those in I-Promise but throughout the undergraduate population, are insufficiently pro-active about their studies, particularly when they are struggling in a class or in some of their classes.  Going to office hours, which is the responsible thing to do, is psychologically painful, because it is tantamount to admitting that the material is too hard and thus requires looking stupid in front of the instructor or the TA.  Nobody wants to look stupid.  Procrastination is often the product.  Mentoring, then, can be a mild form of nagging the student to act responsibly.  In the language of behavioral economics, mentoring serves as a Nudge.  As the be-all and end-all for mentoring, nagging the student doesn't cut it for me.  I hate being nagged; why would I want to nag anyone else?   Indeed, when I teach my class I tell them - I don't want to be your mother.  Nonetheless, some nagging may be necessary as an intermediate step toward the more ideal form of mentoring.  If there are too many obstacles of the mundane kind, flow can't be achieved.  The nagging is meant to get the student to address the obstacles and then get over them so higher level function is possible.

The difference between surface-level mentoring and effective mentoring is hard to describe.  Indeed, having attended several different training sessions for mentors over the years, I know that the evaluation results from mentee surveys and mentor surveys demonstrate a substantial asymmetry in perceived effectiveness, with the mentees reporting that the mentoring is quite valuable to them while the mentors report that the mentoring doesn't seem to matter very much.   So mentors tend not to be satisfied with the mentoring.  They are thus prone to steer the mentoring in such a way as to increase their own satisfaction, apparently mattering more.  This is the mattering bias in my title.

I developed this bit on mentoring, where I do have some experience to back up what I say, as a way  to introduce the notion of mattering bias.  In the next section I want to apply these ideas where I don't have the equivalent experience, but where I conjecture that the situation is parallel.

* * * * *

I want to take up the issue of charitable giving to not-for-profit organizations versus paying taxes for government provision of services.  As an economist, I'm prone to ask questions about this that might not occur to others.  What is the efficient division between activities that should be charity funded versus activities that should be funded out of tax revenues?  Are we close to that efficient division now or far from it?

A critical difference between charitable giving and paying taxes is that for the former the donor gets to choose the amount of the donation, the recipient, and the time when the donation is made.   In contrast, for the latter the amount is determined by rules set externally, the taxpayer has very little influence on how the funds will be spent, and the time taxes are paid is also specified by rules.

For the ordinary Joe, these differences are probably more molehill than mountain.  When I was a full time employee of the University of Illinois, the bulk of my charitable giving came via payroll deduction.  The campus would have a charitable fund drive sometime during the fall.  In response, faculty and staff would select which charities to support from an approved list along with the amounts for each.  If my experience is typical, you might think about this for 5 minutes or so.  Then it was out-of-sight-out-of-mind, as there were other items withheld from the paycheck (parking, optional life insurance, income tax, etc.) and at most you were cognizant of the take home pay, sometimes not even that.  Monitoring the various items being withheld was just too much bother.   Other charitable giving outside of payroll deduction would occur, but mainly in response to a solicitation, either a kid ringing the doorbell for some school thing or a friend or relative making a solicitation for a worthy cause.  Many people do respond to solicitations, which I suppose is why there are so many of those.  But then the charitable giving is less free choice, as described in the previous paragraph, and more caving into mild social pressure.

The situation is different for high rollers, who might make a very large donation.  I know this indirectly from my time on campus as an administrator.   The campus has a fund raising apparatus called the Foundation.  Each college also has its own fund raising apparatus, with full time staff dedicated to the effort.  Yet the closer on deals has to be the head honcho, the dean.  Deans spend a good chunk of their time on the road, schmoozing with the high rollers.  Arguably, this is an efficient use of time.  The donors want access to the dean, so they can get the straight scoop of what is going on, not filtered by some intermediary.  (I don't want to rule out that the donor might want to influence college function for his or her own purpose, but for now let's ignore that, as considering it here is a distraction.  Every college puts out its own high-gloss newsletter meant for alumni and friends of the college.  To understand what is really going on beyond that, you want to hear it from an insider in the know.  The dean is credible in this way where nobody else would be.)   Then they can can negotiate the nature of the gift, which is typically targeted - an endowed chair, naming a room in a large building or, if the gift is big enough, a new building entirely, or perhaps a scholarship fund for students in a certain category where the fund bears the donor's name.

In other words, the donor gets personalized treatment from the college and that is an expected part of the donation process.  Deans are evaluated, to some degree, on their ability to raise funds for their colleges.  This is a game being played by many and it has developed its own mechanisms.  I suspect these are quite similar to the mechanisms entailed in other areas of giving, say where the high roller contributes to a candidates political campaign or to some super PAC, and likewise to where the high roller sits on the board of directors of a big company, even if in that case it is contribution of time and name that matters and indeed money might flow in the opposite direction - pay for work done on the board.

If this is right then paying taxes really is quite different for the high roller.  It is obligation only, with no personalization and no attempt to give the high roller insider status.

I was drawn into thinking about this by a David Brooks column from last week, Giving Away Your Billion.  The piece makes reference to The Giving Pledge, which is the brainchild of Warren Buffet and Bill and Melinda Gates.  There are 169 letters from well to do individuals (or with their partners in life) which you can read off the homepage of the site (clicking on the picture of the person(s) making the pledge brings up the letter).   I scanned through the homepage and read a few of the letters.  There are a few names I recognized, many more that I didn't.

A couple of the names I did know surprised me for being there, Michael Milken and T. Boone Pickens.  I had made mention of Milken in a recent post, The Next Deal.  Pickens, as I remembered, was one of the people who financed the Swift Boat Campaign during the 2004 Presidential election which aimed at discrediting John Kerry's war record in Vietnam.  While I don't know this, I presume they are both lifelong Republicans and very much in favor of their party's anti-tax agenda.  So my initial reaction was surprise at seeing them on this list.  What I wrote above demonstrates going beyond that initial reaction to a plausible explanation (at least to me) of how these same individuals can, on the one hand, be deeply devoted to philanthropy while, on the other hand, be just as deeply anti-tax.    I suspect that many of the very rich can be characterized similarly.

The pledge itself is rather mild.  It specifies neither the recipients of the giving nor the purpose of the gifts.  Implicitly, then, it embraces the notion that all such gifts are equally valuable, so the donor is free to choose from among the possibilities.  But that might be quite wrong.  Suppose, instead, that by coordinating donations and acting in concert the givers can achieve much greater than is the sum of the benefits achieved when they make donations individually in an uncoordinated manner.  I will illustrate with a few examples below.  But before I do I want to note this issue.  If they do act in concert might it be that each individual gift matters less in that case?  In other words, if 168 out of the 169 listed on the pledge site acted in concert, could they then achieve the anointed purpose?  If so, it doesn't seem that the giving of the 169th donor matters much if at all.

There is thus a kind of free rider problem with getting the group to act in concert, though it is a different sort of free rider problem then is usually described in the public finance literature.  Here it is not tax avoidance per se which is the issue.  The person is willing to give, as long as the donor can see that the gift matters in an overt way.  The person only wants to avoid those gifts where it is not possible to determine that the individual gift matters or where, even if possible, it appears that the individual gift doesn't matter, although the aggregate gift does.

As to examples, I thought it most useful to consider existential threats, for all of mankind or perhaps just for us in America.  One candidate is global warming.  Suppose the group concluded that the pace with which we're addressing the problem is much too slow, so they agree to entirely underwrite the installation of solar panels in the roofs of houses and industrial buildings, much like I wrote about in a post from last year called Hard Hats That Are Green.  (In other words, there would be no out of pocket cost for the owner of the structure where the installation occurs.  There would just be the inconvenience from the installation itself.)  I note that Elon Musk is one of those who have made the pledge.  Suppose further, to cement the deal, he says that 100% of the profits that would accrue to his company from this arrangement will be funneled back into offering free solar panel roofs around the country and then around the globe.  Does such a going-all-in approach to combating global warming fit the bill for the group addressing a true existential threat?

Or consider the National Debt.  Some people fear that the Debt to GDP ratio has crossed a threshold (100%) from which our economy can't recover.  The group who have taken the pledge could use their collective gift to pay down the debt, perhaps raising $1 trillion or $2 trillion for this purpose, thereby moving all of us into safer territory.   As examples go, this one is potentially most interesting because the same consequence clearly could be achieved by raising taxes and using the tax revenues for the purpose of reducing the debt.  If this is the existential threat to combat, why not let the political system solve it?

Before I get to my third example, I want to observe that it wasn't just Brooks' column that stimulated my thinking on this piece.  Last Thursday, Thomas Edsall's column resonated with me while demoralizing me at the same time.  It's called The Democratic Party Is in Worse Shape Than You Thought.  The focus was on voters who supported President Obama in 2008 and 2012, but who then voted for Trump in 2016.  The explanation for this shift was given as follows:

Geoff Garin is a partner in the Garin-Hart-Yang Research Group which, together with the Global Strategy Group, conducted the surveys and focus groups for Priorities USA. Garin wrote in an email:
The biggest common denominator among Obama-Trump voters is a view that the political system is corrupt and doesn’t work for people like them.
Garin added that
Obama-Trump voters were more likely to think more Democrats look out for the wealthy than look out for poor people.

Then, to amplify on this, in the Sunday Review Richard Reeves had a column Stop Pretending You're Not Rich, addressed to members of the meritocracy, whom I like to refer to as the professional class, where he explains how the game is rigged to favor them and their offspring.  For example, deductions in the income tax, such as the mortgage deduction, actually serve as a kind of welfare for the well-to-do.  Such voters are loathe to sacrifice that benefit for the greater good.

For a while now I have maintained the belief that the professional class, which prides itself on being responsible, should embrace paying higher taxes themselves, in part because that is the socially responsible thing to do, also in part because without them paying higher taxes there would be no way to rein in the uber rich to do likewise.  But it occurs to me now that this might also cut the other way.  Reeves talks about a variety of anti-democratic behaviors that members of the professional class engage in, such as sending their children to private high schools with tuition as much as $30,000 per year, putting the children in an advantageous position to get into an elite college.  This sort of behavior is explained as follows:

There’s a kind of class double-think going on here. On the one hand, upper-middle-class Americans believe they are operating in a meritocracy (a belief that allows them to feel entitled to their winnings); on the other hand, they constantly engage in anti-meritocratic behavior in order to give their own children a leg up. To the extent that there is any ethical deliberation, it usually results in a justification along the lines of “Well, maybe it’s wrong, but everyone’s doing it.”

If we are ever to get past this sort of thinking and make the system actually work for everyone, which is my third example, then we have to counter the everyone's-doing-it excuse, in reference to gaming the system. A visible demonstration to this effect by the those who have taken The Giving Pledge might be just the sort of catalyst to get members of the professional class to wake up to their own folly and make the system as a whole much more democratic, thereby restoring faith in it.

Is this actually possible or only mere pipe dream?  I don't know.  Yet I am convinced that we are not getting the division between charitable giving and paying taxes close to correct.  There is skew in favor of the former and away from the latter.  We are remarkably under taxed.  The mattering bias of the wealthy is the primary reason why. 

Sometimes I think we look for solutions too fast and don't worry enough as to whether we've described the problem correctly first.  So here let me close with the following.  What if somebody who has made the giving pledge reads my blog post?  Might that person agree with the argument, at least in principle?  Might the founders - Warren Buffet and Bill and Melinda Gates agree with the argument?  That would be a big first step.  Maybe we shouldn't worry much about further steps until that first one is taken. 

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