Relevant and even prescient commentary on news, politics and the economy.

Graduation 2010 – Daviess County, KY

An acquaintance was talking about a program called Graduation 2010 which was implemented in public schools in Daviess County, KY (total county population just south of 100K). Here’s an article from 2003:

Michelle Hancock doesn’t need to read brain research books. She reads her children.

One got in on the start of an experimental brain-building program in Owensboro, Ky., and one only experienced part of it.

Eleven-year-old Adam Hancock is in the first target class. He’s due to graduate in 2010. The program started when he was in kindergarten with special brain research-based programs in foreign language, music, art, exercise and chess. He knows some Spanish words, he reads music, he plays chess — and his brain just works differently from his older sister Tori’s, says Hancock.

“Adam is much more of a planner than his sister. He has got to know what he’s doing ahead of time. He thinks things over, then makes his move,” his mother says.

“It could be just a difference in personalities, but I have to think the chess has something to do with it.

“He’s getting things that Tori wasn’t exposed to. When kids are younger, that’s when their brains supposedly absorb like sponges.”

The article goes on:

That research is infused into the Daviess County school system’s classes, creating what internationally recognized author and brain-based education consultant David Sousa calls “a lighthouse district” among the nation’s schools.

Sousa, author of “How the Brain Learns,” served as a consultant to the school district. He spoke at community meetings, helped train teachers and has watched the program progress.

“It’s a well-organized, well-thought-out plan that’s been working for six years now,” he says. “We’re beginning to see more schools changing their programs (to reflect brain research), but Daviess County was one of the first.”

The program emphasizes major research areas in brain/education science: the well-accepted “window of opportunity” for foreign language learning that closes around age 12, the connection between making music and ability in mathematics, and the development of what Sousa calls higher order problem solving using chess and other challenging games and teaching methods.

It also incorporates a fitness program and expanded arts programs including dance and professional performances.

There’s a strong emphasis on parent involvement and a program wherein corporations adopt a class for those students’ full 13 years in school, acting as mentors, and participating in class-room and community projects with the students.

Every Daviess County teacher has received brain-based training.

From kindergarten on, children are exposed to nongraded Spanish language lessons, music and keyboard labs, dance and chess lessons to encourage critical thinking skills.

“I see a difference in the way these children respond to learning, and children 10 years ago,” Stacy Harper says. “These students are much more involved in their learning process.”

She’s read about the brain research findings, but the students prove it every day, she says.

“You can see, they’re developing those connections. We do Spanish videos two or three times a week, and we’re learning together. It’s so much easier for the kids to learn Spanish than for me as an adult. Now is the opportunity for them.”

Children who learn early increase their learning capacity forever, says Daviess County Superintendent Stu Silberman. That’s a staggering concept that educators can’t afford to ignore, he added.

Sadly, I have found very little on this program online. The name of the program doesn’t help: “Graduation 2010″ is a bit too generic. Nevertheless, it is hard to escape the conclusion that if the program did work, it would be touted more widely. So it probably didn’t work. (Note: the state of KY did experience a large increase in graduation rates from 2010 to 2013, but since Daviess County is so small I imagine the two facts are largely unrelated.)

Anyway, since I have a school-aged child, I have started paying more attention to children’s education. An awful lot of well-meaning and and logically-sounding ideas and concepts seem to have been tried over the years, only to be overtaken by the next generation of ideas and concepts. Other than parental involvement, time and effort, have any of these new approaches rolled out by the educational complex really helped? (This is a question, not a statement.)

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Issues Affecting Economic Growth – Gored Oxen Edition

I write about issues I believe affect economic growth. For example, over the years, I have written a lot about taxes. And here’s a simple graph showing why:

Tax Rates v Growth in Real GDP per capita

What we see is that tax rates at any given time seem to be related to the growth rate of real GDP per capita over the next decade. What is more, the correlation is positive. That is to say, growth tends to be faster when tax rates are higher, and not lower. This of course contradicts popular belief, particularly among Republicans. However, since economic growth is important for the quality of life of all Americans, getting this right matters. Unfortunately, over the past few decades, government policy has gradually moved us in a direction that inhibits growth.

Of course, it could be the relationship between tax rates and future growth shown in the graph is a spurious correlation. But that is unlikely, since it is very easy to explain why (up to a certain point) higher tax rates would lead to faster economic growth. Additionally, even people who get the direction of the correlation wrong are certain a correlation is there. But… if it ever does turn out that the relationship is spurious, we won’t find that out by keeping our head in the sand.

Another topic I have been writing on a lot lately is immigration. Here’s what a graph looking at the foreign born population in certain years and the growth rate of real GDP per capita over the next ten years:

Foreign Born Population v. Growth in Real GDP per capita

The correlation between the share of the population that is foreign born and the growth rate is negative, which indicates that as the foreign born share rises, growth falls. The correlation between these two variables, at least in the post WW2 era, is stronger than the correlation between tax rates and growth. This of course contradicts popular belief, particularly among Democrats. However, since economic growth is important for the quality of life of all Americans, getting this right matters. Unfortunately, over the past few decades, government policy has gradually moved us in a direction that inhibits growth.

Of course, it could be the relationship between the percentage of the population that is foreign born and future growth shown in the graph is a spurious correlation. But that is unlikely, since it is very easy to explain why (up to a certain point) having less immigration would lead to faster economic growth. Additionally, even people who get the direction of the correlation wrong are certain a correlation is there. But… if it ever does turn out that the relationship is spurious, we won’t find that out by keeping our head in the sand.

If it seems to you that I have written almost exactly the same thing about taxation and immigration, it isn’t your imagination.  I did a copy and paste of a big chunk of the first half of the post to the second half and changed a few words.  The fact is, the analysis is very similar. The only difference is whose ox is getting gored. A grown up is willing to look the data in the eyes and follow it where it goes.

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Culture Matters – Oil Curse Edition

The concept of the so-called Oil Curse is that countries that have an abundance of oil tend to be basket cases – undemocratic, kleptocratic, and poorly developed.  The Oil Curse is a special case of of what is sometimes called the Resource Curse.

Of course, not every country rich in oil has suffered from the Oil Curse.  Norway is a prime example of a nation that has benefited greatly from finding oil, but it is almost the exception that proves the rule.

On the other hand, if you think about it more broadly, there are plenty of other exceptions.  The big one is England.  Historians seem to think one of the reasons that the Industrial Revolution began there is because England had plenty of easily accessible coal and iron.  Which is to say, England struck oil, or at least the 18th century version of it.  Similarly, the oil boom that began in Titusville, PA around 1860 did great things for the US economy.

So what causes oil to be a curse for some countries but a boon to others?  One explanation commonly brought up is exploitation, particularly by Western oil companies.  I am no historian, but I don’t think this is right.  Many of the Oil Curse countries chose to go it alone, though some did so after expropriating the initial investments made by foreigners.

I think countries that appear to fall prey to the Oil Curse or any other Resource Curse don’t actually do so.  Instead, they are basket cases before the discovery of whatever resource, and they remain basket cases after.  On the other hand, countries that have functional economies that encourage innovation tend to find stumbling upon a resource to be a blessing.

Put another way…  having a culture that is conducive toward positive outcomes matters a lot.  And it seems to me that England on the verge of the Industrial Revolution, the US before 1860, and Norway before it stumbled on oil have a lot, culturally in common.  And the cultural traits those three cases have in common don’t seem to be shared by Oil Curse countries.

As I keep pointing out, the data shows that culture is a strong determinant of economic outcomes..

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Immigration, Democrats, Republicans and the NY Times

Tom Cotton, the junior United States Senator from Arkansas had a piece in the NY Times:

President-elect Trump now has a clear mandate not only to stop illegal immigration, but also to finally cut the generation-long influx of low-skilled immigrants that undermines American workers.

Yet many powerful industries benefit from such immigration. They’re arguing that immigration controls are creating a low-skilled labor shortage.

“We’re pretty much begging for workers,” Tom Nassif, the chief executive of Western Growers, a trade organization that represents farmers, said on CNN. A fast-food chain founder warned, “Our industry can’t survive without Mexican workers.”

These same industries contend that stricter immigration enforcement will further shrink the pool of workers and raise their wages. They argue that closing our borders to inexpensive foreign labor will force employers to add benefits and improve workplace conditions to attract and keep workers already here.

I have an answer to these charges: Exactly.

Higher wages, better benefits and more security for American workers are features, not bugs, of sound immigration reform. For too long, our immigration policy has skewed toward the interests of the wealthy and powerful: Employers get cheaper labor, and professionals get cheaper personal services like housekeeping. We now need an immigration policy that focuses less on the most powerful and more on everyone else.

Wasn’t this the Democrat’s position not long ago? When and why did that change?



1.  If it isn’t clear, Cotton is a Republican

2. The bolded section was part of Cotton’s piece, but I chose to bold it as I felt it was worth a special highlight.

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Neel Kashkari and the Minneapolis Plan to End Too Big to Fail

Neel Kashkari has been President of the Federal Reserve Bank of Minneapolis since January 1, 2016. Prior to that, he was brought over from Goldman Sachs to be Assistant Secretary of the Treasury for Stability from October 2008 to May 2009. His job was to hand out money to the banks as bailout.

I believe the first time first time he was mentioned at this blog was right after he was appointed to give away our money:

The bail-out will succeed only, repeat, only in the sense that the US succeeded in Iraq in 2003 and 2004 when Simone Ledeen and the rest of the Heritage interns were running around the country handing out trash bags full of money and giving Halliburton money for services it would never begin to render. There will be less yabbering of silly catchphrases like “but what about all the schools that were painted?” this time around, though, because the schools will be exploding when GW is no longer in office. To be extremely precise, this is what I think the success will look like: shady, undeserving characters will be enriched, young versions of the idiots who got us into the mess will launch successful careers (can you say “Kashkari”?), and the promised benefits to the American public, the schmucks footing the bill, will never materialize.

From memory, not only is that the first time I mentioned Mr. Kashkari, it is also the most complementary I have been toward him yet. But now, Mr. Kashkari is back with a new scheme to reduce the likelihood of a meltdown.

Kashkari provides this slide as a summary of his plan:

Figure 1 - The Minneapolis Plan

Figure 1  (click on the slide to embiggen)

Accompanying the slide is this platitude which also functions as a fly in the ointment:

We cannot make the risk zero, and safety isn’t free. Regulations can make the financial system safer, but they come with costs of potentially slower economic growth. Ultimately, the public has to decide how much safety they want in order to protect society from future financial crises and what price they are willing to pay for that safety.

Because Kashkari is a political creature who won’t speak clearly, to get an understanding of what the vegetables he wants us to eat taste like we go to the full plan:

We measure the cost of higher capital requirements in terms of lost GDP due to tighter lending conditions. This calculation requires a number of steps. We trace the impact of higher capital requirements to lower bank return on equity (ROE) and then to higher loan rates. Higher loan rates slow economic growth by restricting borrowing. As noted above, this approach closely follows the BIS.

And the banks agree:

The Financial Services Forum that represents U.S. financial services companies cautioned that implementing the recommendations would stymie the economy. “For those looking to accelerate economic growth and job creation, tripling bank capital levels — already double from pre-crisis levels — will make it much harder to meet those goals,” the forum’s spokeswoman, Laena Fallon, said by e-mail.

So, to summarize the negative side of this proposal: more stringent regulatory requirements –> higher interest rates –> less borrowing –> slower growth in GDP.

I recognize that this is gospel in the banking and regulatory community, and its been many moons since I thought of myself as an economist, but this seems pretty daft to me. Or rather, it seems like regulatory capture speaking. Consider for a moment this seemingly unrelated graph:

Figure 2 - The Fed Funds Rate and the Bank Prime Rate

Figure 2.

Note that the bank prime rate (orange line on the graph) is almost perfectly correlated with the fed funds rate (blue line on the graph) which is set by the Federal Reserve Bank. The difference between the two lines is shown in the gray bars. Do you see the large, sustained increase in that difference between the pre-Crisis period and the present that is due to the large increase in capital requirements we’ve already seen? No? Well, that’s because it didn’t happen. This notion that increased capital requirements raises the interest rates that banks charge their customers makes perfect sense in theory, but it stubbornly refuses to actually be true in the real world.

However, let’s assume this time things will be different. Let’s assume that unlike what we’ve seen so far, this time increased capital requirements do lead to a big sustained increase in the bank prime rate. Say for the sake of this post that the requirements effectively doubles the difference between the fed funds rate and the bank prime rate, permanently. What changes?

Well, if the Fed decided, at that point, that it wanted to raise or lower the interest rates charged by banks, it would do what it currently does in the same situation, namely change the federal funds rate. If anything changes at all, maybe, just maybe it will do so at the lower bound. And if there were some evidence that the Fed knows what its doing when the Fed Funds rate is near the lower bound, I admit that would be a concern.

So there’s no downside to this plan, at least as far as I can see.  Of course, the plan is just the tame one we’ve already enacted, but with a bit more in the way of a bite and, courtesy of Mr. Kashkari, a more extravagant soundtrack.  The Federal Reserve Bank of Minneapolis has a good sized research team. Kashkari could have asked any of them of to explain how the Fed Funds rate works, or about the relationship between the Fed Funds rate and the rates charged by banks. But failing upwards requires ignorance.  The higher up you are, the more ignorance is required. It is clear Mr. Kashkari has further to rise.

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Should Black Voters Favor Democrats?

One of the memes that was circulated in some quarters during the last election is that Black people are excessively loyal to the Democrats. In this post I will examine whether that is true using real median incomes.

The figure below shows the Black Median Income as a Percentage of the Total (i.e., all ethnicities) Median Income, with Democratic Presidential administrations shaded in gray:

Black Median Income as a Pct of Total Median Income 20161224a

Black median income was 48.5% of total median income in 1948, and increased to 78.9% of total median income in 2015. In any given year, however, the ratio of Black median income tended to increase by 0.9% when a Democrat was President, and by only 0.2% when a Republican was President. But… the big increase under Democrat is due largely to two periods: the JFK/LBJ administrations and the Clinton administration. In fact, the ratio barely budged in the Truman years (for which data is available) and the Carter administration, and actually declined under Obama so far.

But of course, the ratio of median income for Black people to the total median income can increase while still making everyone worse off if the entire pie is decreasing. So here’s what real median income (total, and for Black people only) looks like since 1948:

Real Median Income 20161224a

Once again, the performance is better under Democrats than under Republicans. But if we drill down, once more it appears the difference is due entirely to the JFK/LBJ and Clinton years. In fact, during the Truman, Carter and Obama presidencies, the total real median income increase was about $130 a year (beating the Republican average), but the increase in real median income for Black people was only $8 a year, which was less than the Republican average.

So we can conclude… Black people have gotten a bigger share of a growing pie under Democrats than under Republicans, but this is only true because of the extraordinary performance of the JFK/LBJ and Clinton administrations. On the other hand, hapless and ineffective Presidents like Carter and Obama have not, on average, posted positive income outcomes for the Black community.

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Female Doctors

This has been widely reported over the past few days:


Doctors from Harvard have an intriguing suggestion for saving 32,000 lives each year: Make sure all senior citizens who wind up in the hospital are treated by female doctors.

After examining the medical records of Medicare patients from across the country, the Harvard researchers calculated that 10.82% of those treated by physicians who were women died within 30 days of being admitted to the hospital. Among patients treated by male physicians, the 30-day mortality rate was 11.49%, according to a study published this week in JAMA Internal Medicine.

That gender gap persisted even after the researchers accounted for factors like the age, gender and income of patients, how sick those patients were when they first checked into the hospital, the resources of the hospitals and the experience of the doctors. In that analysis, the Harvard team found that 11.07% of patients treated by women died within 30 days of being hospitalized, compared with 11.49% of patients treated by men.

I haven’t had time to check out the original study, but I can’t see any particular reason why the effect being reported wouldn’t be true.

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Crime and Punishment – A Thought Experiment

Imagine two neighborhoods in the same city subject to the same laws. Assume the crime rate is the same. Then you would expect arrest and prosecution rates to be the same.

Now, assume two other neighborhoods, also in the same city and subject to the same laws. Call them A and B. Assume the arrest and prosecution rate is X times higher in A than in B. Assume that has been the case for a long time.

Given this scenario, under what conditions do you expect crime in Neighborhood A to exceed crime in Neighborhood B? Under what conditions would you expect the reverse to be true?

Note. A good answer is generalizable.

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