Paul Kedrosky's Infectious Greed

Some reports are saying that Chinese TOEFL-takers (the Test of English as a Foreign Language) have declined precipitously in recent years. According to the article, at peak, in 1999, 100,000 Chinese students a year took the test, most of whom hoped to study abroad, in particular in the U.S. That number has supposedly declined 90%, with only 10,000 Chinese students taking the TOEFL this year. The article blames post 9-11 visa restrictions.

If true (but see below), the decline has many implications. First, and most importantly, it means far fewer Chinese graduate students. And that, in itself, is a big deal for suffering U.S. universities. Foreign graduate students pay among the highest tuitions on campus, and they make up more than half of many graduate science & technology programs. Less Chinese graduate students means less university income, and less income means commensurate cost cuts — or more income from somewhere else, like tuition increases or goverment transfers (taxes).

Fewer incoming graduate students also means fewer outcoming graduate students. Given the disportionate numbers of such graduates employed at U.S. technology companies, from Intel to Cisco and so on, that is an implicit tax on U.S. technology firms. In effect, they are forced to bid for other students, thus raising the cost of doing business, while reducing the overall depth and quality of their workforce.

Finally, while I said at the outset this decline is thought to have to do with post-9/11 restrictions, any real decline would almost certainly also have to do with the slow but steady maturation of the Chinese economy. They simply don’t have as many students who feel that they have to go elsewhere to succeed — and that would be more noteworthy news for the rest of us than whimsical U.S. visa policies.

[Update] Despite the claims to the contrary I cited above, the statistics from the TOEFL folks themselves don’t bear this decline out. See this chart for what ETS says is the number of people in mainland China taking its TOEFL each year since 1999. Sure doesn’t look like decline to me. It actually looks more like a fairly healthy increase. While there may be regional patterns that are missed in this data, overall it certainly looks like 9/11 visa restrictions haven’t cut the Chinese ardor for taking the TOEFL.

From Marginal Revolution:

Political writers have established it as a maxim, that, in contriving any system of government, and fixing the several checks and controls of the constitution, every man ought to be supposed a knave, and to have no other end, in all his actions, than private interest. By this interest we must govern him, and, by means of it, make him, notwithstanding his insatiable avarice and action, cooperate to public good…. It is, therefore, a just political maxim, that every man must be supposed a knave; though, at the same time, it appears somewhat strange, that a maxim should be true in politics which is false in fact.

David Hume, “Of the Independency of Parliament”, in Essays Moral, Political, and Literary. Rpt. Oxford: Oxford University Press, 1963 [1741], pp. 40-47.

New Yorker writer James Surowiecki asks the right question concerning futures markets in public events and the like. While such markets are oft-criticized for being illiquid and being dens for (largely nonexistent) abritrageurs, Surowiecki points out that doesn’t invalidate the whole idea of betting on everything from terrorism, to the Lord of the Rings’ take last weekend. He writes, however:

“It’s perfectly possible that there is something about these markets — other than a lack of liquidity, which I think is a huge problem — that will guarantee their uselessness in contrast to other exchanges, but I’d like a coherent explanation of what that something is.”

I don’t think there is anything — other than lack of liquidity — that will make it tough for these markets to work. But that’s a biggie. Bifurcated markets are going to be a problem for some time, doubly so given that trade-driven interest in forcing markets to consolidate is nowhere near as high as it is, for example, in share markets like the NYSE and Nasdaq.