The Heart of Teaching Economics: Lessons from Leading Minds (Edward Elgar Publishing, 2010)

Simon W. Bowmaker, New York University

Interview with Caroline Hoxby, Stanford University

July 14, 2009

Caroline Hoxby was born in Cleveland, Ohio in 1966 and graduated with an AB in economics from Harvard University in 1988 and then obtained an MPhil in economics from the University of Oxford in 1990 and a PhD in economics from the Massachusetts Institute of Technology in 1994. She joined Harvard University as an Assistant Professor of Economics in 1994, and then served as the Morris Kahn Associate Professor of Economics between 1997 and 2000, and as the Allie S. Freed Professor of Economics between 2001 and 2007. She moved to Stanford University in 2007 to take up her current position as the Scott and Donya Bommer Professor of Economics. She is also a Senior Fellow at the Hoover Institution. At Stanford, Professor Hoxby teaches an undergraduate course in Economics of Education and a PhD course in Public Finance. At Harvard, in recognition for her outstanding contributions to teaching, she was a designated Harvard College Professor between 2005 and 2007 and received the Phi Beta Kappa Prize for Excellence in Teaching in 2006. Professor Hoxby’s research interests are public economics and labour economics. Her articles have appeared in the American Economic Review, Quarterly Journal of Economics, Journal of Political Economy, Journal of Public Economics and Journal of Human Resources, among others. Her edited books include College Choices: The Economics of Where to Go, When to Go, and How to Pay for It (University of Chicago Press, 2004) and The Economics of School Choice (University of Chicago Press, 2003). I interviewed Caroline Hoxby in her office in the Department of Economics at Stanford University. It was mid-morning of July 14, 2009.

BACKGROUND INFORMATION

Bowmaker: You took your first class in economics at the age of 13. Can you tell us about that formative experience?

Hoxby: It was an amazing experience because it made me think I wanted to be an economist when I was 13 years old. I took a class with a man named Sal Fabrisio, who had received a PhD in economics and gone back to teach high school social studies. He really wanted to teach economics, so he got to teach one economics class each year, and he had us read work by a lot of famous economists, like Adam Smith, David Ricardo, and Karl Marx. I just felt as though the world was opening up. I had many questions in my mind that troubled me, and no one around me seemed to have good, rigorous ways of answering them. All of a sudden, I realized there was a science of

2 answering the questions and that economists had some understanding. It was like a mental revolution. That was it. I never looked back.

Bowmaker: What was the eventual attraction to public economics?

Hoxby: I think public economics is absolutely at the core of economics. It is about all the ways in which the government can intervene in our lives to make things better, whether for efficiency reasons or for equity reasons. For instance, we often think of taxation being about equity, such as raising taxes so that we can re-distribute income to people. We think of other social policies, such as disability insurance or unemployment insurance, being more about efficiency. Both equity and efficiency are absolutely fundamental to economics. Almost everything a public economist does has a bearing on government policy. I also think that public economics is just a very meaty subject. Every part of economics is involved in public economics; very important theory, very modern empirical work, general equilibrium analysis, partial equilibrium analysis, public goods, externalities, and on and on. Finally, another thing that is very attractive about public economics is that it poses important problems, but it also offers solutions. We’re able to teach students about solutions, and I think that’s always nice.

Bowmaker: As a student, did any of your teachers stand out as being particularly influential or inspirational?

Hoxby: The problem with answering this question is there are so many who stand out! I’ve had the privilege of being taught by many really important economists. When I was an undergraduate, I was taught by Martin Feldstein, who later became my colleague. I thought he was fabulous as a professor. I was also taught by really wonderful people like Richard Freeman, Jeffrey Williamson, Larry Katz, Dale Jorgensen, and Jeffrey Sachs, all of whom I found very inspirational. When I was at Oxford, I had the privilege of having James Mirrlees as my microeconomics tutor, and you couldn’t do much better than that. Stephen Nickell, now Warden of Nuffield College and recently at the Bank of England, was my macroeconomics tutor. He was fantastic too. Then when I was in graduate school at MIT, I was taught by people like Jim Poterba, Hank Farber, and Jerry Hausman. All of them are great, but you learn different things from different people. What I

3 took away from Jerry Hausman was very different from what I took away from someone like Jim Mirrlees, for instance, but I greatly admire both of them. Hank Farber was fantastic about teaching from research. I think he was the first person I saw who could take apart a paper and reveal how all the moving parts were working underneath. That’s fantastic to see when you’re a graduate student. On the other hand, I think that students need to have teachers who have really clear insight into how a body of knowledge is organized. If their minds have it all organized in a particular way and you are able to see their clear organization, you end up organizing it very well yourself, even if your organization is not the same as theirs. People who exemplified this for me were Jim Poterba (public economics) and Jerry Hausman (econometrics).

Bowmaker: Based on your experience, can you tell us about any differences in teaching styles in England compared to the United States?

Hoxby: There are very big differences. I like both styles of teaching a lot, and I adored the English style of teaching. I think that if every American could get a year at Oxford, it would be a good thing. The English style of teaching is much more about deep reading and digestion. There is an expectation that you should know the history of economic thought behind each issue. There is a belief that you should read articles and books from the ‘50s, even the ‘30s, to fully understand an idea and why we approach it the way we do now. You are expected to read articles in a way that tries fully to empathize with what the author was trying to do, and then tries fully to understand the implications. American students are essentially trained via problem sets and, when they are asked to read articles, they are asked to distill from them certain pieces of information, certain lessons about methodology, or a certain empirical technique. They’re not reading the article to read it as a whole, and they’re certainly not encouraged to read the deep background behind a question most of the time. So, I think that the English and American styles are complementary to one another. The American style is very good at making you technically able, fast. The English style may be better at making you a deep thinker in economics.

Bowmaker: As a teacher, have any of your colleagues been particularly influential in terms of developing your style and approach in the classroom?

Hoxby: Well, one of the interesting things is that I almost never see my colleagues teach, so I can’t tell you what their teaching styles are. But the one person with whom I’ve co-taught a lot, so that I know his style and know I admire it, is Martin Feldstein. He has a crystal-clear style. He always takes the time to explain an issue; he gives you the institutional background, he explains the theory, and he lays it out neatly. His teaching is 100 percent about conveying the material in a way that’s clear to students. He has no ego in the classroom. He never presents something in a way that’s complicated or difficult because he wants to impress students with how fancy his knowledge is. I really admire that style of teaching.

WOMEN IN ECONOMICS

Bowmaker: Why do you think more women are not attracted to study economics?

Hoxby: There are several reasons. I think undergraduate women are just as interested in economic issues as are men, and I really see that in my classrooms. But I think that the culture of economics, as opposed to the content of economics, is still a male-dominated culture. I think a lot of women just find the culture off-putting. They don’t wish to live in a culture they consider to be a boys’ nerdy culture. The person likely to feel most comfortable in an economics classroom is someone who is male, who likes math, and is proud of the fact that he likes math. I’m most aware of our culture in economics when I go outside it to work in a professional setting that is more equally balanced between men and women. I find that I feel uncomfortable, which reveals that I don’t normally live in a culture that men and women equally influence. In addition, there are probably fewer female students who want to study economics for purely practical reasons such as working on Wall Street or in The City (London’s financial district).

Bowmaker: Do you think it’s important for women to become economists?

Hoxby: Yes, in the obvious sense that when I’m in a classroom I find that about half of my most talented students, who could become great economists and contribute to the science, are women. If

5 we figure that half of the potentially most talented economists in the world are women, but only about 15 per cent of the top of the profession are women, then we’re clearly losing some very talented economists along the way. That’s a pity. I’m not sure that the content of what we study would change if there were more women in economics, but I suspect it would change professionally.

Bowmaker: The two other women whom I interviewed in this book, Shoshana Grossbard and Nancy Folbre, are feminist economists. Are you in any sense a feminist economist?

Hoxby: The answer has to be “no” [laughs]. I think that you define yourself as a feminist economist if you feel that being female or being a feminist influences how you think about economic issues. That just not true of me. Being a female may influence how I deal with female students and may make me more interested in their careers, but I don’t think it affects how I think about economics.

Bowmaker: Do you think your students perceive you differently as compared to your male colleagues?

Hoxby: Students do treat female professors differently. They tend to feel that we are likely to be more approachable and more open to ideas that they don’t see represented as standard in economics. I don’t know that we’re actually more approachable or more open, but I think that’s what students perceive. They may also perceive us as being pioneering and thus a bit more innovative.

Bowmaker: What advice would you give to a female assistant professor about to teach for the first time?

Hoxby: I would give her the same advice that I would give to a male assistant professor. Be incredibly well-organized because you’ll make your own life a lot easier, and students will like you better [laughs]. Teach the classics because, in the end, students like ideas that are high quality, and classics have stood the test of time; they’re important ideas. Also, and this may seem like conflicting advice, but it isn’t, keep your lectures very current. Incorporate lots of material from new applications, and if you cover empirical work, include recent evidence. Students are young, so if you give them evidence that’s twenty years old, that’s often when they were born or were toddlers. They

6 will consider such evidence to be out of date. Finally, incorporate into your teaching your own stories or stories that other economists have told. I think of our stories as the little hooks on which students hang all the dry information we give them. The narrative side of economics has always been a very important part of helping students learn the subject and making economic knowledge salient to them.

RACE IN ECONOMICS

Bowmaker: You are one of the few African American economists teaching in the United States. What are the reasons for this?

Hoxby: Very few African Americans even go on to graduate school in economics. It’s a ‘pipeline’ and the bottleneck occurs early on in the pipe. Why this is I don’t know because I find that, in terms of everyday interactions, being an African American economist doesn’t matter. There is something odd about being an African American economist, however. It is that some people have strong expectations about the issues you are going to study and the results that you are going to find. If you do not end up working on stereotypical topics or finding stereotypical results, you can become persona non grata to them. For instance, I do not study affirmative action, a topic that African American economists are almost expected to study. And I also have some findings in the economics of education that are not what African Americans politicians stereotypically support. I do not understand why some people think that certain topics and certain findings are fine for white males, but not for others. If a question is important and economic analysis can help answer it, it ought to be a question for anyone who wants to pursue it.

Bowmaker: Does your race have any bearing on how you teach economics?

Hoxby: I don’t think it really affects my teaching. Just as I said about being a female economist, I think it may make me pay attention to African American students to ensure that they get even treatment.

Bowmaker: Does your race have any bearing on how students treat you?

Hoxby: I would say African American students, like female students, are more likely to feel that I’m approachable. They are more likely to bring career issues and problems to me than to other professors.

GENERAL THOUGHTS ON TEACHING

Bowmaker: What do you like most about teaching and what do you like least?

Hoxby: [Laughs]. I can tell you quickly what I like the least about teaching: the mundane things. Every professor hates grading because it’s not an exciting thing to do. What I like most about teaching is interacting with students and answering their questions. I had great students at Harvard, and I have great students here at Stanford. They are extremely smart, they ask excellent questions, and they are exciting because they are so energized. I find that they motivate me as a professor because they bring so much curiosity and analytic ability into the classroom.

Bowmaker: On balance, do you think that teaching effectiveness and research productivity are complementary or competing endeavours?

Hoxby: This is a research question [laughs]. I think the empirical evidence suggests that the correlation between teaching productivity and research productivity is positive, at least for people at big research universities. My personal experience is that teaching is bad for research in the very short run, on a day-to-day basis. If you’re teaching, then you’re obviously not writing a paper. I find, however, that in the slightly longer run, teaching is good for research because students ask fundamental questions all the time: “Why is this the way we look at this problem?” or “Why is this the right solution rather than this other potential solution?” Students are great at asking fundamental questions and good questions stimulate good research. I also find that I learn a lot from my students because they bring knowledge into the classroom. It’s not the sort of knowledge that I have already, knowledge about economic modelling and so on. Rather, they bring knowledge because they come from all over the world and often have very different backgrounds than I do.

Finally, when you have to teach material, you re-digest it in a way that’s very deep because you have to understand very completely if you are going to teach it well. In the process of gaining that depth of understanding, you think of better research. This is especially true for me in public economics, where 90 percent of my research is somehow linked to thoughts that came to me during the process of writing lectures.

THE LEARNING PROCESS

Bowmaker: How would you describe your understanding of how humans learn?

Hoxby: First of all, I don’t know very much about how humans learn, and I know I don’t know very much about it. Because I work on education, I know that, compared to the experts, I know very little about pedagogy and epistemology. My own understanding is that students need us to organize information for them in a clear, coherent way, and that they need us to give them narratives to bring that information to life in their own minds. Almost every lecture of mine is a combination of pretty dry material that’s logically organized, because I think that that logic is important, plus stories to help students remember the material. The stories may be from other people’s articles or from my own experiences, but somehow the stories must make the material memorable and help students put the pieces together.

Bowmaker: How do you assess whether students are learning the material?

Hoxby: I encourage students to ask questions in class. In class, it’s pretty easy to assess whether students are learning at a superficial level at least because their questions will reveal whether they’re following the lecture. However, I find that problem sets, exams, and papers are crucial for determining whether students are learning deeply. I often find that I’m surprised when I look at exam results; students who didn’t appear to be learning much in class turn out to have been learning a lot and vice versa. Questions asked in class are only so good an indicator.

Bowmaker: How do you check your progress and evaluate your own efforts?

Hoxby: I want my students to do well objectively. My students writing great papers that win awards and my PhD students getting hired by great universities—those are the most important things for me. I also try to get feedback from students about how I’m teaching, but in the end, I pay the most attention to their outcomes; whether they stay in economics, whether they do good research, whether they get good jobs, things like that.

Bowmaker: How much importance do you attach to the students’ official evaluations of your teaching?

Hoxby: We certainly have teaching evaluations. I find that teaching evaluations are very informative about practical issues, for instance, how to organize problem sets properly. However, if you were struggling as a professor, I think it would be hard to get enough content from teaching evaluations to figure out what you were not doing right.

TEACHING TECHNIQUE AND PHILOSOPHY

Bowmaker: What do you promise your students?

Hoxby: I promise my students that they should walk out of my classroom really sophisticated about applied microeconomics and able to understand, in a critical way, empirical work from all over the social sciences. I want them to be better readers of The New York Times for the rest of their lives, even if they never use economics in any other way. I want them to feel confident that, when they are approached about an economic question or a social scientific question more generally, they have a rigorous way to approach that question. That’s what I promise them—knowledge of how to get an analytic, evidence-based answer to a question.

Bowmaker: What do you expect of your students?

Hoxby: I expect my students to think hard; that’s really the number one thing. If they do empirical work, I expect them to work very hard. Doing empirical work as an economist involves a lot of

10 hard work, frankly. I expect them to be very objective. I don’t like it when students bring so much baggage into the classroom that they’re not listening to economics. As long as you listen in the classroom and try to absorb everything, you can always go home, say “This doesn’t fit with my previous thinking,” and think the problem through. But you’ve got to listen and be open in the classroom or you won’t learn very much from economics because, much of the time, it does not accord with the everyday, man-on-the-street’s thinking.

Bowmaker: How do you treat them?

Hoxby: I try to treat my undergraduate students like graduate students. I expect them to figure out how to do research and how to read journal articles. In fact, my undergraduate students read journal articles all the time. I try to treat my graduate students like colleagues as soon as possible. I also make it very clear that I have high expectations for my students, so if you don’t really like that, you’re probably not my student.

Bowmaker: How do you prepare to teach?

Hoxby: Apart from the stories that I told you about, every one of my lectures is essentially fully written out. It’s especially important that every equation be written out, so that students do not spend the whole lecture scribbling down equations that end up with mistakes in them.

Bowmaker: What are your primary teaching methods? Is there something in particular that you do that is intended to help and encourage students to learn?

Hoxby: The only thing I do that is unusual is distribute lecture notes that have most of the equations and a lot of the graphs and figures. The notes allow students to concentrate on writing down ideas and concentrate on digesting the content. I also try to vary what we’re doing in the classroom. If we are doing proofs for a while, I try to switch to empirical analysis for a break. I suspect that students find it stultifying to do only proofs or only empirical analysis for long periods of time.

Bowmaker: How do you deal with the heterogeneity that exists among students in a typical class?

Hoxby: The biggest form of heterogeneity that I face is students who come with very different levels of comfort in math and econometrics. Econometrics is even more of a problem than math, I find. Students who better understand math or econometrics end up understanding certain parts of the lecture at a different level than other students. Over time I’ve come to believe that it is reasonable to teach some topics at more than one level so that a student who wants to get the topic at the deep mathematical level will end up with a different version than a student who does not need that level. It’s okay if students do not learn every topic in exactly the same way because not all economists do the same thing. If a student wants to become a professional theorist or econometrician, he or she had better come at topics at a deeply mathematical level or in an econometric way. If a student wants to do something different, there should be a version that works for them as well.

Bowmaker: How do you keep the material fresh for your own sense of engagement in the classroom?

Hoxby: I change the material a lot every year. I’d say I change at least 15 to 20 percent of the articles on each reading list each year, and that keeps it fresh for me. I’m constantly learning new things in order to teach the new material. Renovating my reading lists also makes me ask myself every year, “Should I keep ‘this’ or should I keep ‘that’?” The process forces me to think through what’s truly happening in my field and I enjoy the process.

Bowmaker: How do you strike the right balance between being objective and incorporating your own views in the classroom?

Hoxby: I don’t incorporate my own views much; I incorporate my own stories but that’s not the same thing. Maybe because the fields I teach are public economics and the economics of education, I believe that it’s very important for students to be objective and for us (professors) to exemplify objectivity in the classroom. I want students to come away with the idea that economists’ role in life, and I know that all economists won’t agree with me here, is to be as engineers are to architects. It’s not our role to decide what is good for social welfare, what politicians should vote for, who deserves redistribution, and things like that. It’s our role to explain to people the trade-offs

12 associated with an issue. We should be able to present the pros and the cons in a way that’s very even-handed. That doesn’t mean that we expect policymakers to be uninfluenced by what we present; sometimes the pros are much stronger than the cons and sometimes the reverse is true. I want students to understand that functional objectivity is crucial for economists, and therefore I try not to incorporate my views. However, I do tell stories! For instance, when I was doing research on school finance in the state of Texas, I told students how politicians and judges made the deals that created the school finance system, why the system fell apart, and what economic fallacies people believed that caused them to make mistakes. I think that it is important to personalize economic logic whenever possible.

Bowmaker: Has any of your research on the economics of education made you reconsider how economics is taught at university or even how you teach economics?

Hoxby: My research in the economics of education has made me realize what an unusual type of professor I am, and how unusual my universities are. Because of my research, I’m aware of the fact that institutions of higher education in the world cover a vast range, everything from the Harvards, Stanfords, and Oxfords of this world to institutions that do not want to conduct research or train students in the way we do. Thus, my research keeps me focused on the fact that my job, at a major research university, is to train people who will either be the researchers of tomorrow or be the policymakers of tomorrow. If my students are not going to do something that requires a critical understanding of economics, I probably shouldn’t be teaching them.

Bowmaker: The economics of education often contains a lot of controversial research. Do you bring the debates into the classroom?

Hoxby: Yes, because students need to know about the debates. Let me give you an example. There’s a big debate about class size in the economics of education: Is reducing class size good for student achievement or not? I think it would be weird to teach the economics of education and not introduce that debate into the classroom. However, I try to talk about the topic in such a way that it is all about the evidence. We look at the most influential studies on both sides of the debate. I want students to assess them based on their rigour, their methodology, and how good the data were; all of

13 the grounds on which students should be able to assess studies. I really don’t care what answer students believe at the end of the day, but I do care how they analyze the studies. That’s the way in which I want students to be aware of debates. When I reach the end of a topic, students often ask me, “What do you think? Where do you come down on this topic?” I avoid answering those questions except on topics where the evidence on both sides is very preliminary. On such topics, I sometimes know a lot more than appears in published studies. If this is the case, then I’ll give students a sense of how I weigh the evidence because they have not seen the unpublished data. But if there is extensive evidence on a topic, I answer their questions by saying, “Judge for yourself.”

Bowmaker: You supervise several PhD students. What is your approach to being effective in this area?

Hoxby: I think the big thing with PhD students is to be totally engaged in their question; a form of total empathy. I don’t expect students to work on questions close to mine. In fact, I enjoy it more when they don’t. However, when a PhD student is in my office telling me about his or her work, I want to be 100 percent empathetic about what they are trying to achieve. If I am doing my job, I should feel as though it’s my paper, and as though I’m responsible for ensuring that it turns out to be interesting and convincing. Of course, the students have to do the actual work, but I should feel responsible for the outcome. I often find that when I’m sitting at my desk, doing some of my own research, I catch myself thinking about a problem in one of my student’s papers. It is empathetic problem-solving that, in my opinion, works for graduate students.

COURSE CONTENT AND DESIGN

Bowmaker: When you are designing your undergraduate syllabus on the economics of education, how do you strike the right balance between teaching established ideas that have stood the test of time and incorporating current research?

Hoxby: The established ideas show up on the syllabus every year. They are in papers that have been on my reading list from the first class, and that will still be there years from now. I start the course with classic articles on the theory of human capital and the theory of signaling. Good theory, if it is

14 once written down in a clear way, will stand the test of time, particularly with undergraduates who don’t need the latest refinement. Some theory is very recent yet already classic! However, empirical analysis is different than theory. Empirical work that was done 30 years ago has probably been superseded by empirical work that’s being done right now, not because the people 30 years ago were not just as smart, but because today we have more data, better empirical methods, greater computational capability, and so on. When I write a syllabus, I do not make a conscious effort to balance new and old, but, as a practical matter, the theory articles are more likely to be long established and the empirical studies turn over pretty fast.

Bowmaker: Given that the economics of education is a very applied field, how do you strike the right balance between theory, application, and policy?

Hoxby: About a third of what I teach in the economics of education is straight theory because if you don’t understand the theories, you don’t understand what you’re testing. The remaining two-thirds are 90 percent empirical work and only 10 percent policy implications. I really want students to draw policy implications for themselves, so I’ll teach them about the policies that are out there and what the policy options are. That gets taught in the context of teaching empirical work anyway because most empirical work is about testing some real policy.

Bowmaker: How about the balance between the economics of education in the US and the rest of the world?

Hoxby: My syllabus is getting to be more international, which I like. There’s no reason why the economics of education should be US-based at all; it’s a pretty universal subject. If we look at articles that are 10-15 years old, the quality of articles based on US policies or US data tends to be significantly higher than the quality of articles based on non-US policies or data. That is not a judgement about the authors because a lot of articles on US policies are written by non-US authors. Instead, it is a judgement about the quality of methods and data. So, the reason why there are still many US-based articles on my reading list is that, among older articles, US-based articles dominate the top of the quality spectrum. But among very recent articles, at least 60 to 65 percent of the best quality articles are not US-based. A lot of them are based on a developing country’s policies and data. This is because in developing countries, policy is much more dynamic (it’s changing faster)

15 and people are willing to do randomized experiments. Also, with developing countries, you can often use empirical methods that depend on your having very large datasets; developing countries often have a lot of people, so the datasets are large. In addition, I think the European literature on the economics of education has improved by leaps and bounds over the last decade. In short, the fact that most of the recent, high-quality articles are now international is a factor that is really changing my syllabus.

Bowmaker: Where does your course begin and why does it begin where it does?

Hoxby: It begins with the question of how much human capital should a person invest in. The course has to begin there because understanding that education or human capital is an investment, and not consumption, is fundamental to all other policy questions related to education. If everyone invested optimally in their own education and education generated no externalities, then there would be no need for government to intervene and no need for policy. Thus, much of what we learn in the economics of education derives from the idea that people are not making investments optimally. They may be constrained not to make their investments optimally because they cannot get sufficient financing, because of other market failures, or because their own education generates spillovers.

Bowmaker: Which are the key ideas at the heart of your course and how do you teach them?

Hoxby: The first key idea is that education is an investment and that we should each be investing in our own human capital up until we are making a rate of return that’s equal to the rate of return we could be making on other investments; for instance, investments in physical capital. We discuss the financing problems involved with actually making optimal investments in human capital; how are they solved or not solved by public schools, the financing of private schools, loans and grants for college education, and so on. We look at empirical evidence on what happens when we change financing policies for schools. Second, we discuss market failures in the provision of education. For instance, in primary and secondary education, market failures can often be traced to the fact that there is not much competition in the market and, to the extent that there is, the ‘playing field’ is uneven. Therefore, incentives for schools tend to be poor. Also, in primary and secondary education, there may be informational problems; families not getting the information they need to assess whether a school is producing knowledge efficiently. In higher education, there are market

16 failures as well. A few problems in higher education are actually caused by governments, which sometimes intervene so much in the pricing of higher education that they give people incentives to make non-optimal decisions. Finally, we discuss macro issues such as whether education causes growth, and how education changes developing countries in diverse ways, by affecting fertility and technology adoption, for instance.

Bowmaker: Do you ever incorporate any behavioural economics into the course?

Hoxby: I don’t make a point of it. I suppose that 5 to 10 percent of the time, behavioural economics appears in my lecture. I’m very open to it, so if it seems like a behavioural economics explanation might be the right one, I incorporate it. But much of the time there is a simpler explanation for why people don’t do what we think is optimal in education.

Bowmaker: How much weight do you give to efficiency versus equity concerns when you are teaching the economics of education?

Hoxby: Here, I would claim that there isn’t a trade-off in the economics of education. That sounds like a strange statement from an economist. But what I teach is that we are mainly concerned with the efficiency of investments in education. To see this, think of a very able student from a very low- income family. It is efficient to enable him to make a big investment on his own education, simply because he and society can earn a large return through that investment. If we don’t have policies that allow him to invest a lot, we as a society are not investing efficiently. That is, our incomes are not going to be maximized; our economy is not going to grow as fast as it could. Thus, many educational policies that appear to be redistributive are not about equity per se, they are about efficiency. Even a society that is not terribly altruistic should engage in policies that help low- income families invest in education. In fact, if what we want to do is simply redistribute resources to the poor, giving them resources in the form of schools is not a particularly effective way of doing that. It makes much more sense to induce everybody to make the optimal investment in his or her education and then tax the people whose investments generate large returns. That tax revenue can be distributed to the people for whom education is not a good investment, perhaps because they are not endowed with much ability, or to the people who are poor for some other reason. We should not provide

17 education thinking that it is an in-kind way of redistributing consumption. Education is not consumption, it is an investment. Indeed, the process of getting educated is not mainly fun—it’s work. In short, although people often think that the economics of education would pose numerous trade-offs of the classic equity-efficiency type, I don’t think that it does. We can look at most questions purely through the lens of efficiency, and they’ll tend to have equity consequences anyway. For instance, one of the issues I work on most is school finance; essentially, how to tax to raise revenue for schools and how to allocate the revenue once it is raised. School finance is all about efficiency, about allowing people to make optimal investments in education even though they are from families that cannot help to finance those investments.

Bowmaker: When you discuss policy, do you focus on the ‘benevolent dictator’ model of optimal policy design or the ‘public choice’ model that looks at how the actual policy design and implementation process affect policy outcomes?

Hoxby: I do use the benevolent dictator or the social planner to help students learn about optimal policy. It is usually the first way I present a problem because it clarifies matters for students. It helps them to understand the problem we are trying to solve and the solution we are trying to achieve. But, having once presented the problem in this way, I usually go on discuss how it is that we’ve ended up with the policies we have. That is all about politics.

Bowmaker: Which are the big questions that your course will help students answer?

Hoxby: I want students to be able to answer fundamental questions about how education changes the economy. Education plays a key role in making all economies attain high incomes and grow as fast as they can. I also want my students to learn how to diagnose market failures and how to design solutions that solve them.

Bowmaker: Which intellectual abilities or qualities will your course help students develop?

Hoxby: I want my students to develop minds that are very rigorous, empirically, quantitatively, and econometrically. In particular, I want my students to learn how to assess the empirical methods of

18 any study in the social sciences. I want them to feel impelled to think about whether the methods credibly support the conclusions of the study or not. Finally, I just want my students to be very logical about problems of education and problems in economics more generally. I want them to bring a disciplined, clear mind to each problem and break it down correctly until they truly understand it. Most of the time in economics, if we understand the problem very well, we can also say something fairly clear about possible solutions; what issues they will and won’t address.

Bowmaker: Are there any aspects of your course that students find particularly fascinating?

Hoxby: It’s very easy to teach my subject because the one thing that students know a lot about when they are in college is education. They may not know a lot about firms or international trade, but they know a lot about schools. Their personal experience has often given them strong ideas about numerous issues in education. Thus, I’d say I never find it hard to motivate them to study an issue. They find most of the course very interesting because it makes them reassess their own ideas. The one slight exception is school finance. When they are in college, students have not yet paid enough taxes to get excited about the best ways to tax people to support schools. Also, school finance is an inherently difficult topic because it requires the tools of general equilibrium analysis. Perhaps the thing that surprises students most about my course is econometrics. Many of them come into the course with less than a great love for econometrics. In my course, they see how incredibly powerful it can be. I want them to leave the class with a lifelong love of econometrics.

Bowmaker: How does your course end and why does it end where it does?

Hoxby: My course ends with the macro topics of how education affects economic growth and the development of countries. It is important for students to have absorbed most of the microeconomic questions and evidence before seeing such macro questions. If they have thought through the micro foundations, they will understand macro problems in a deeper, more logical way. I want them to end the course by thinking about how all of the small problems fit together and what they imply once they’re fit together. The macro questions are the best way to induce students to engage in this thought process.

TEXTBOOKS

Bowmaker: Which textbook do you recommend for your undergraduate course, and why?

Hoxby: I do not use textbooks in my course because I don’t think there’s a good enough textbook. Let me take off my economics teaching hat and put on my economist’s hat for a moment. Textbooks have to be written for an audience whose ability and training is much more diverse than that of the students whom I teach. I teach only advanced undergraduates and PhD students at one of the greatest universities in the world. Because such students make up only a tiny share of potential textbook buyers, few if any textbooks are written with my students in mind. Instead, I have essentially written a textbook, that is, my extensive lecture notes, for each of my courses. Thus, my students get a book that is written with their peculiar needs in mind.

TEACHING ECONOMICS IN THE FUTURE

Bowmaker: How do you think the process of teaching economics will change over the next few years, and to what extent will student demands and expectations shape those changes?

Hoxby: I think that technology is changing the way that students deal with material. They interact with material in a much more timely way. They download everything: data, scholarly studies, policy information. Their ability to get the most recent version of everything pushes us, as teachers, to stay very current. If the best article on some topic came out yesterday, why should my students not read that paper today? There’s really no reason why I can’t substitute it on the fly for an older, inferior article. Such swaps do not trouble them in the least. They have grown up in a world where, because of technology, information changes quickly. Also, economics as a science is very receptive to absorbing parts of other fields— psychology, sociology, political science, statistics, math, even neuroscience. I therefore expect that future economics teaching will work less within the traditional structure of the field and will incorporate new ideas and methods quickly from other fields.