Paying for Your Kid's College:The Principal-Agent problem

The financing of my daughter (3) and her sister's (due April 2012) education, and in particular college education is never too far from my mind. What is the best way to save and pay for college? This is a tough question given that there exists a lot of uncertainty. For starters I do not know IF either of them will decide to attend college. It is entirely possible that they may not have the aptitude or desire to continue studies beyond secondary school. Maybe they will seek a liberal arts education in the Marine Corps instead of at St. John's College. Even knowing what their career decisions will be at age 18, the saving-financing strategy is not very clear at all. Sure we could save but every dollar that gets put away for college is one less dollar for consumption today or for retirement tomorrow.

For a quick refresher as to why financing college is a difficult strategic task aside from the simple fact of scraping together a lot of money see The Atlantic article on how savers are punished when it comes to financial aid and a Fidelity website to assess the huge differential in cost between public versus private education. Then consult a CPA, a CFA, and an MBA.....run from an economist.

Not to dismiss those questions and issues but I think the more important question is "Should I pay for my kid's college?" and if so how much and in what way. The answer to those questions are fundamental and are prerequisites to untangling the mess above. This is where economics comes in handy.

Veteran's Day Thoughts

I like discounts and free stuff like anyone else but I felt like things got out of hand when I noticed recently on some US flights that airlines were allowing military personnel to board the aircraft first. In some cases it was for military in uniform, in other cases it was a general boarding priority to all US military personnel regardless if they were on official travel. Just to make this clear, military people were being given priority over families, elderly, disabled, and first class ticket-holders. While this policy was obviously well-intentioned it struck me as wrong and antithetical to the relationship between the military and society.

The soldier in uniform has responsibilities and duties in relation to the civilian-citizen and vice versa. Each has their role in defending the country and its interests. The civilian should pay his taxes, stay informed and vote for representatives who will act prudently with regards to resourcing and employing our military. The soldier, airmen, sailor and marine should be excellent stewards of the money and personnel of which they find themselves in charge and should execute to the best of their ability the directed war tasking. Our authorities are our politicians and ultimately our citizens. To place servants ahead of the master is to put the cart before the horse.

Nobel Tribute: Sargent and Sims

I'm not a huge macro guy. This statement can be confirmed by either my classmates or my grades in macroeconomic courses, (undergrad A/B-, grad school C+/B). But I think my general ignorance to this aspect of the "dismal science" can actually help in providing a decent blog as to why the 2011 Nobel Prize winners in Economics, Thomas Sargent and Christopher Sims were so deserving of the honor. Reading the press reports confirms that reporters haven't the foggiest clue as to why Sargent and Sims' contributions were gigantic...
Bloomberg here
BBC here
UChicago news here. (we are always quick to claim a Nobel as our own but this is really a Minnesota coup)
Excellent but probably inaccessible write up on Marginal Revolution by Tyler Cowen: Sims here and Sargent here. Alex Tabarrok's words here.

Probably the best layman read is on the nobel.org webite here. They provide a good 5 page explanation with pretty pictures. But even that would be difficult without having recently taken a macroeconomic and econometric course. Why is macro so opaque?