In post on how to think about the compensation gap, Jim Manzi writes:

As it turns out, I’ve built many fixed effects, regression and similar models for the purpose of estimating the effects of various changes in compensation, pricing and other similar behavior drivers. And in contexts in which accuracy can be validated, fixed effects models are almost always better than the kinds of static models that I originally criticized. The reason is, as Biggs says, that some of the unobserved differences between groups are accounted for by them. So, I agree that that for the purpose of estimating a public-private compensation gap, that it is a reasonable belief that fixed effects models are better than static human capital models.
And a motorcycle is better than a bicycle for jumping the Grand Canyon, but I don’t advise you to attempt it with either one. The important accuracy issue here is not relative accuracy, but absolute accuracy. And the methods of assessing statistical significance and the like that are embedded within any of these approaches do not address the critique I am raising, because the critique is that the assumptions of the analysis itself are plausibly very wrong.

What depresses me is that some of our friends will say, “Aha! Jim Manzi thinks we can’t really understand the extent of the compensation gap if there is indeed a compensation gap, so clearly everything is hunky-dory. Solidarity forever!” Well, no. Rather, big, centralized systems are never going to be the way to get compensation “right,” because they reproduce errors of judgment throughout an organization. Competing autonomous providers, in contrast, can take advantage of the trial-and-error process, and the best, most efficient “firms” will dynamically embrace new hiring and retention policies best suited to providing high-quality services.

I also recommend Noah Millman’s post on zero-sum politics. I’ll briefly add that robust growth has a tendency to mask structural problems, which are papered over with rising revenues. That is why it is so vitally important to reform the way the public sector works now. When the economic climate improves, it will be, as always, the less affluent who will depend most heavily on public services, and expensive, low-quality public services won’t be seen as a pressing problem. They will instead be seen as an indispensable middle-class jobs program. And of course the folks effectively calling for more transfers in the form of above-market compensation to the politically active women and men holding those middle-class jobs will characterize this effort as selfless devotion to bettering the lives of the poorest and most vulnerable. Indeed, I’m pretty sure they’ll really see it that way too.

Some of my interlocutors have suggested that I become more cynical. How’s that?