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Monday, July 30, 2012

EconTalk: Burkhauser on the Middle Class

So, again, late to the blog party as usual, but my comment today is on Econtalk's, April 9th, interview with Richard Burkhauser.  In it, Burkhauser refutes what us RavingLeftatics have been claiming for over a decade, about how the middle class is shrinking.

So Burkhauser's argument is simple.  It's not that Piketty and Saez were wrong, its just they measured the data differently than we did.  This was a highly technical podcast, and I won't pretend I understood everything I heard.  The way Piketty collected his data was to look at the figures and divide it by what they call the "tax unit" that is, the primary filer, adding his dependents, and/or including the income of a spouse.  Burkhauser instead, uses a number of person per household.  So Piketty's 1-3% growth, recalculated, is 15%.

I have a couple of thoughts on this.  Burkhauser makes a good point, in that a lot of young couples live together before marriage.  And so, there income is joint, and should be counted as such.  However, both he and Russ got a few things essentially (to my perspective) wrong.

Economies of scale are a grand thing.  But going from a one person household to a two person, or three person household does not a scale make.  Maybe its anecdotal, but when I moved in with my wife, she told me and I didn't believe her, "If you think this is going to save money, you're wrong." As she is with so many things.  She was right and I was wrong.

One person living by themselves is basically in subsistence mode.  They can skip meals, they can use pizza boxes for tables, they can have a whole box of blueberries for dinner.  They can do what they want, and that in and of itself, makes the calculus that backs the conclusion of this paper fundamentally wrong.

Now, maybe, (I didn't read the paper) but maybe there is an intermediary cited, another paper by this author, or another that says, "here is statistical evidence that families in economies of scale do on the whole spend less money."

But without that, the central mechanism for this conclusion to be true fails.  At some point, couples that live together are usually planning on making a life together.  At that point, their personal economies shift completely.  They "nest," they acquire things jointly, they start building joint resources, maybe they go in on health insurance together getting domestically partnered. And suddenly, they're spending more than they would before.  They're taking vacations together, they're visiting each other's family, they're buying food for two instead of skipping a meal because they had a big lunch.

Another thing I think both Roberts and Burkhauser misapprehend is that Burkhauser blithely states that "more and more people are living together," which is driving costs down.  Even assuming that living together is driving down costs, which clearly I don't, then maybe people are moving in together because they're cost of living is going down, not up.  That is the case for most of Europe, children live with their parents well into their thirties.  And they do so because housing is damned expensive, and there aren't enough jobs!

Last, what Roberts and Burkhauser ignore, and it seems likely that Piketty and Saez do as well (simply because as economists they are measuring just a few points of data) they ignore completely rising individual and household debt.  Given the recent crisis this seems like a grave omission.  But in all fairness, the papers are very explicit in what they do cover.  It's just disingenous to claim things are all rosy for the middle class when in fact most of us will probably never climb out of personal debt.

And then, he adds the value of health insurance.  This gets a little technical, and I don't really understand why.  Health insurance is a benefit, granted, but its one we pay for, and its not income.  If anything, its a tax on our earnings.  But clearly, his estimates rise from 23%, there was an intermediary step after 15% (government transfers, social security, unemployment, etc.) now all the way to 36%.  Why, the American middle class must have it better than ever! Frankly, health insurance isn't a privilege, its an entitlement.  In a civilized, fully functioning democracy, we should all have access to the best care.  Now, we shouldn't have coverage to get cosmetic surgery certainly, unless of course of a disfigurement, but basic medical needs are a critical issue in this country.

But why, on God's Greenish Earth, government transfers?  So, I can see where it might be useful: my parents are retirees.  The income they have is prinicipally from social security, and their remaining investments.  That money should be tracked.  And they are solidly in the middle class (not because of social security, but because of their investments), but this is not a statement of progress.  Most of the people who receive these benefits, must be in the waning years of their lives, tracking their data, isn't tracking a progressing movement at all.  When we measure income, we do not do so in a vacuum, we do so because there is a concern that there is a certain inequity or dearth in the workplace.  That is what we are looking to find out.  So adding all these other data points is simply making the picture more cloudly.

I should also note that Burkhauser graduated from the University of Chicago economics program, so we already know he has to be anti-Keynsian (though, in fairness, that is just an assumption!) One last point I'd like to make on Burkhauser is that in October of 2005, he was a panelist at a Bush economics forum event, and said the following, summing up his comments:

"The economy is fundamentally sound and if the current economic downturn is similar to those in the 1980s and 1990s, and I believe it is, we will soon be back on the path of economic growth."

Riiiight.  Maybe if Lehman Brothers and Washington Mutual had moved in together things would have been rosy for everyone.
Burkhauser closes with a very interesting comment.  That he is in favor of the 50 years of government transfers.  His work essentially proves that government programs work--and yet, the very act of his acknowledgement makes it obvious that there is something wrong with our economy as it is.  If the only way median middle class income is "ok" is through additional government transfers and healthcare, than people are clearly not making enough money from their jobs.  And those "non-payment" benefits, health insurance, life insurance, in no way increase our life-styles.  They just keep us from sliding into poverty.

Tuesday, July 24, 2012

Jim Ross, Stephen Colbert and Jon Stewart

On Monday, both Jon Stewart and Stephen Colbert came down kind of hard on poor Jim Ross of ABC News. 

Albeit, it was a sloppy, amateurish mistake, though no one, including Mr. Ross seems to have told us how they found out it wasn't true.  I mean, that's a sort of important fact, did Mr. Holmes call up ABC and say what the heck or did the Colorado Tea Party call up and say, what the heck?

Why is that important?  Well--people who have openly associated with the Tea Party, have gone to political rallies, packing heat.  While Ross (and conceivably the whole news team) were at fault for allowing this flub to get on the air, it wouldn't in any way, shape or form, be an illogical leap to assume someone's political beliefs might impinge on their actions, however sick they may be.  And the Tea Party, if anything at all, is pro-freedom on a very small subset of rights that only people on the far right care about (again, see my post of earlier today, Guns, Gods and Gays).

Regardless--watching Jon Stewart and Stephen Colbert lambaste Ross for an exceedingly common newsroom mistake, made me a little angry.

I'm frankly getting a little bit sick of the narrative that criticizing both the left and the right, somehow demonstrates fair and balanced commentary or reporting.  I feel like Jon Stewart, who was harsher than Colbert, probably set that one up for his buddy Bill O'Reilly. So that he can, at a later date, whine to him, but look at me, I did this, and Bill, in his melodious, deep voice, can say "Oh that's all right Jon, you're one of the good ones."

Both Stewart and Colbert's bits took up (combined) about 18 minutes of their respective 44 minutes of television.  You guys like to pretend about your truthiness and your values, but there is only one story tonight, and everyn ight until the firestorm goes away.  Why is there such poor gun control in this country?  No humor in this subject?  Clearly not, I've already posted some of The Onion's jibes.  And I've seen about a dozen jokes on facebook today about what cheeses are banned, and what guns are allowed, what requirements are mandatory for the acquisition of an automobile, and how easy it is to acquire guns in certain states.  To be fair, Jon's bit on this was pretty funny, but harping on Ross's flub draws away from the important aspect of this tragedy.  Which, I'm beginning to think, isn't the needless slaughter (that as Arthur Miller would say in his essay on tragedy, is just pathetic--his term, not mine) the tragedy is that we are doomed to repeat these senseless acts because we will not ever control guns in this country.

The possibility of victory must be there in tragedy. Where pathos rules, where pathos is finally derived, a character has fought a battle he could not possibly have won. The pathetic is achieved when the protagonist is, by virtue of his witlessness, his insensitivity, or the very air he gives off, incapable of grappling with a much superior force.

And that is political.  And that is partisan.  And that Mr. Stewart, Mr. Colbert, is why you're wrong.

Jason Alexander and The Onion--Gun Control

I have little to say on the topic of the Colorado massacre.  Except a few things:  The Onion says it best, there is a weird, almost hopeless ennui I think we're all feeling here.  One more massacre.  One more candelight vigil, one more media circus.  That's odd, isn't it?  It's like we have resigned ourselves, that we THE PEOPLE, can do nothing about it.

On another related topic.  Wolf Blitzer ought to resign.  The man has become a symbol for hopeless journalism, media sycophantry, and the utter uselessness of the 24-hour news cycle.

The rage of a Raving Leftatic, Jason Alexander.

The terrible ennui of a despondent liberal population., as always, from The Onion.

I share the trepidation of media elites in condemning Democrats for not taking a more progressive stance.  This is an election year.  And guns, god, and gays are the cries of not just the far right, but the vast middle.  I, frankly do not know what to do.  Save to advocate for gun control through agencies like The Brady Center.

Tuesday, July 17, 2012

Eugene White on Bank Regulations

So this post isn't really about Eugene White, though his paper on bank regulations sounds extremely interesting.  This post is more about our friend Russ Roberts at Econ Talk. As usual, I'd like to say that I have a great deal of respect for Russ, and unlike many economists and jerks (I'm looking at you Freakonomics) he is always willing to listen to opposing view points, and he very rarely goes on pejorative or mocking jaunts about those with whom his beliefs clash.

However, he proposed a very interesting rationale, which you've probably heard, about the reason for the Financial Crisis.  Namely that it was the moral hazard that created the risk.  That regulation, and regulations creating the FDIC in particular and requiring capital limits, etc., that spurred the banks to take risks with money that they might not have done had the market been allowed full freedom.

These matters are , of course, very complicated, and we both are guilty of oversimplifying to make a point.  However, I think Robert's worldview in this is very much compromised by his stance on overall social policy.

1)  First of all, it is always convienent to argue about what might have been, I know, I've done it myself.  But without evidence, such arguments are at best, merely speculative.  It is simply impossible to know what moral hazard may have done before the fact.

Quickly, let's redefine moral hazard:  Moral hazard is the theory that by insuring banks against their risks, and "bailing them out" when they become insolvent, you inure them to future risk and exacerbate the problem.  And further, that this cycle is self perpetuating, relying on the government as a backstop to all financial risk.

2) Academics and business types tend to forget something critical.  A government has a moral obligation to protect its people.  FDIC insurance, as allowed for the individual, is to insure them against destitition.  There is no risk posed by Moral Hazard that isn't worth it for that reason alone.  Academics and business types, love to talk about how failure is necessary for the system to work. I disagree. Quite simply, total loss is not required for a system to learn.  Fear alone is a learning tool, enough to galvanize and secure. Total loss on the otherhand, does little else but disenfranchise.  And a people that is disenfranchised are a people that can quickly resort to violence, and the sorts of moral exigencies that are a clear result of fear and violence.

3) As to the moral hazard of the banks.  Love him or hate'im, when Paulsen let Lehman fail, he destroyed moral hazard for the banks.  People forget about that.  Most of Lehman forget about that.  Most of the former Lehman Brothers employees are now at Barclay's, other banks, or in private equity and hedge funds.  I'd guess that there isn't a single one that isn't employed now, saving some of the support staff.  So its easy to forget just how scary that time was.  There is no moral hazard, there is no blanket policy of forgiveness.  If the system can withstand it, the regulators will always discharge what they cannot sustain.

4) Regarding banking institutions taking on high risk because they believe the government will bail them out.  I see two flaws.  First of all, prior to 2008 there was a fairly limited pool of evidence that such a thing would occur.  Though the government did help out in the SnL crisis, the monies used to bail out the system came in large part from other banks.  Lehman, was not a contributing member to that bail out, so there was some justice (and refutation of moral hazard) in its not being saved. Second of all, academics and business people (and I should stress that I mean economists and financiers largely) tend to forget that economic crisis are based largely on the collective actions of human beings.  And that human beings have a poor perception of long-term risk and long-term gain, and at worst, are completely irrational.

And it is for that reason that I hold to the hypothesis that the financial crisis was caused by a mixture of:
--Underfunded regulators
--Understaffed regulators
--Complicit regulators
--Lack of Proper Regulation
--Short Term Gain over possible risks by bankers
--Greed (unwillingness to wind down when it became transparently clear that a meltdown would occur)
--Poor record keeping
--Intentional racial targeting (again for short-term gain)
--Inappropriate compensation for bankers
--Lies and obfuscation intended to keep the investing public in the dark as long as possible

Tuesday, July 3, 2012

The Southern Gentleman

I don't know Sara Robinson, and the futurists I've met over the years have been self aggrandizing idiots.  But...I rather liked this piece on    It more or less says exactly what Philip Agre's seminal work "What is Conservativism and What is Wrong with It?" says.  Namely that conservatism has nothing to do with the size of government, or individual liberty, the moral majority or any of that other claptrap.  It's about the preservation of an old world aristocracy.

Here are two excerpts from Robinson's piece for your Fourth of July reading pleasure:

In the old South, on the other hand, the degree of liberty you enjoyed was a direct function of your God-given place in the social hierarchy. The higher your status, the more authority you had, and the more “liberty” you could exercise — which meant, in practical terms, that you had the right to take more “liberties” with the lives, rights and property of other people. Like an English lord unfettered from the Magna Carta, nobody had the authority to tell a Southern gentleman what to do with resources under his control. In this model, that’s what liberty is. If you don’t have the freedom to rape, beat, torture, kill, enslave, or exploit your underlings (including your wife and children) with impunity — or abuse the land, or enforce rules on others that you will never have to answer to yourself — then you can’t really call yourself a free man.

When a Southern conservative talks about “losing his liberty,” the loss of this absolute domination over the people and property under his control — and, worse, the loss of status and the resulting risk of being held accountable for laws that he was once exempt from — is what he’s really talking about. In this view, freedom is a zero-sum game. Anything that gives more freedom and rights to lower-status people can’t help but put serious limits on the freedom of the upper classes to use those people as they please. It cannot be any other way. So they find Yankee-style rights expansions absolutely intolerable, to the point where they’re willing to fight and die to preserve their divine right to rule.