Thursday, July 15, 2010

Gresham's Law

Well, not exactly, but close enough (from wikipedia):

Gresham's law is commonly stated: "Bad money drives out good", but more accurately stated: "Bad money drives out good if their exchange rate is set by law.".
This law applies specifically when there are two forms of commodity money in circulation which are required by legal-tender laws to be accepted as having similar face values for economic transactions. The artificially overvalued money tends to drive an artificially undervalued money out of circulation [1] and is a consequence of price control.
It seems like it needn't be an exchange rate set by law, though, in other contexts: it's the "being accepted at face value" that matters. For example, if a fake degree is accepted just as much as a real one, then who'd bother to get a real one? (Well, lots of people, but you see my point.) Sound ridiculous? Maybe you missed the story about the Pakistan MP scandal, where many were exposed to have faked their credentials.  Here's the quote (from ABC News):
The chief minister of Balochistan Province, Nawab Muhammad Aslam Raisani, told the press: "A degree is a degree, whether it is fake or genuine."
 What else is accepted at face value? Most proxies are, by most people. We generally don't really see what we look at (see Darwin's theory of sexual selection, for example). Here's a quote new to me by Diane Ravitch, now rather infamous for switching on No Child Left Behind. From the Philadelphia Inquirer:
[...] Ravitch notes, we find ourselves quite possibly on the way toward "a paradoxical and terrible outcome: higher test scores and worse education."
In other words, substitute test scores for authentic outcomes, and maximize to absurdity. Here's an opinion piece in Ed Week that describes the result: inflation of scores by any means possible. Here's the "debasing the currency" part:
Over the past several years, efforts to "hold teachers accountable" and "hold schools accountable" have produced perverse consequences. Instead of better education, we are getting cheating scandals, teaching to bad tests, a narrowed curriculum, lowered standards, and gaming of the system. Even if it produces higher test scores (of dubious validity), high-stakes accountability does not produce better education.
It seems like the policy makers have never heard of Murphy's Law either.

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