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Morals and income

Via Brad DeLong comes two posts with observations that add to the discussion on our observations of the economic conditions driven by human nature:

bradfordFigure 1

Paul Krugman points us to this notion:

Should-Read: Paul Krugman (2015): WHEN VALUES DISAPPEAR: “Back in the 60s and 70s… there was much talk about the disintegration of… African-American values… https://krugman.blogs.nytimes.com/2015/03/11/when-values-disappear/

…and how that was the root cause of America’s poverty…. The social dysfunction was clearly real. But was it cause or effect? William Julius Wilson, in When Work Disappears, famously argued that it was a symptom: good jobs in inner cities, where African-American men could take them, went away, and the cultural changes followed. So, how could you test that hypothesis? Well, here’s an experiment: change the structure of the economy in such a way that a large class of white men—say, white men without a college degree—similarly lose access to good jobs. If Wilson was right, we’d expect to see a sharp decline in stable marriages, a rise in unwed births, growing drug use, and other forms of social disruption. And that is, in fact, exactly what happened: William Julius Wilson was right.

Which makes it remarkable to see people look at that very evidence and say that it shows that the real problem isn’t money, it’s values…

This does not contradict what Mike points to in the post on self control, but does complicate the picture.

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What do we owe Raf & Laura Brannigan?

Self Control is one of the defining music hits of the 1980s. It was first released in 1984 by Italian singer-songwriter Raf (his first single). It was also released almost contemporaneously by Laura Brannigan.

The song includes these lyrics:

You take my self you take my self control
I I live among the creatures of the night
I haven’t got the will to try and fight

The first line of the quote I provided is wrong. Not in the sense that those words aren’t lyrics for the song, but in the sense that a person’s self-control does not get taken by someone else. I’ve stumbled on a number of papers published recently that noted something along these lines:

While the link between low self-control and several behavioral and social problems is widely supported, debate remains regarding the stability of and the genetic and environmental sources of variation in self-control. Using data from the Early Childhood Longitudinal Study, Kindergarten Class 1998–1999 restricted data set, a sample of 360 twins was compared to a sample of 423 non-twins in order to examine the stability in self-control. The twin sample was also used to examine the genetic and environmental sources of stability in self-control. Findings indicated two stable classes for both the twin and singleton samples, and substantial stability in average self-control from kindergarten through fifth grade in both samples. The ACE decomposition model indicated strong genetic contributions to self-control (76%) with the remaining variation attributed to non-shared environment. Overall, the data suggest that self-control is identifiable early in life, stable across childhood, increasingly influenced by genes, and thus, is a critical focus for early intervention.

And it turns out that other papers show that self control really matters:

Policy-makers are considering large-scale programs aimed at self-control to improve citizens’ health and wealth and reduce crime. Experimental and economic studies suggest such programs could reap benefits. Yet, is self-control important for the health, wealth, and public safety of the population? Following a cohort of 1,000 children from birth to the age of 32 y, we show that childhood self-control predicts physical health, substance dependence, personal finances, and criminal offending outcomes, following a gradient of self-control. Effects of children’s self-control could be disentangled from their intelligence and social class as well as from mistakes they made as adolescents. In another cohort of 500 sibling-pairs, the sibling with lower self-control had poorer outcomes, despite shared family background. Interventions addressing self-control might reduce a panoply of societal costs, save taxpayers money, and promote prosperity.

Its been pointed out before that some aspect of criminality is also genetic. And criminal tendencies are also tied to behaviors that can increase the likelihood someone is poor.

All of which leads to some ethical dilemmas. I think most people are comfortable with the idea that society works better if there is a safety net that helps people who through no fault of their own are down on their luck. The “through no fault of their own” argument applies very easily to a hard working conscientious guy whose job got outsourced to China. Does it apply as smoothly to someone who accepts his natural tendency to avoid labor altogether? What about the 17 year old whose lack of self-control caused him to fail several grades and landed him in juvie for assault? Do you want him in the same classroom with your eighth grader?

But those are the stuff of late night college BS sessions. Try this out if you want a thorny problem… We all know there is a genetic component to homosexuality. What we don’t all know is that there is also a genetic component to homophobia. The study of genes is in its early stages and it is naive to think there aren’t many other examples of “trait X is heritable” and “dislike of trait X is heritable.” Can we all just get along if our genes can’t all get along?

The universe does not have a sense of humor.

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June jobs report: great headline, but once again where are the wages?!?

June jobs report: great headline, but once again where are the wages?!?

HEADLINES:

  • +222,000 jobs added
  • U3 unemployment rate rose +0.1% from 4.3% to 4.4%
  • U6 underemployment rate rose +0.2% from 8.4% to 8.6%

Here are the headlines on wages and the chronic heightened underemployment:

Wages and participation rates

  • Not in Labor Force, but Want a Job Now: down -130,000 from 5.561 million to 5.431 million
  • Part time for economic reasons: up +107,000 from 5.219 million to 5.326 million
  • Employment/population ratio ages 25-54: up +0.1% from 78.4% to 78.5%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.04 from $21.99,  to $22.03, up +2.3% YoY.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)

Holding Trump accountable on manufacturing and mining jobs
Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise?

  • Manufacturing jobs rose by +1,000 for an average of +2000 vs. the last severn years of Obama’s presidency in which an average of 10,300 manufacturing jobs were added each month.
  • Coal mining jobs were unchanged for an average of +200 vs. the last severn years of Obama’s presidency in which an average of -300 jobs were lost each month

April was revised upward by +33,000. May was also revised upward by +14,000, for a net change of +47,000.

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Reality begins to sink in for GOPer economic confidence

Reality begins to sink in for GOPer economic confidence

While we are waiting for tomorrow’s employment report, here’s a little something to chew on. In the immediate aftermath of the Presidential election — as in, by the end of that week — Gallup’s measure of economic confidence soared, from its 2016 average of roughly -10 to a positive number and to nearly +10 by the end of November: In fact, while the confidence of Democrats sank, the confidence of GOPers skyrocketed even more. Since I have very little faith in the GOP agenda to deliver any uptick in growth, I have been watching and waiting for this confidence to ebb.  It did somewhat beginning in March, but never to the point of coming close to that in the final year of Obama’s term. (For the doubters, consider George W. Bush’s economic policies.  Despite being the most right-wing since the 1950s, we had the weakest post-War jobs and wage growth on record, and a weak GDP to boot. Where was the trickle-down?) Until last week.  Last week Gallup’s economic confidence index fell to -7:

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Republicans help pass Illinois budget over Rauner’s veto

Republicans help pass Illinois budget over Rauner’s veto

For the second time in as many months, legislative Republicans have turned on their Republican governor for his refusal to back tax increases to help balance the budget. Last month, supermajority Kansas Republicans revolted against Sam Brownback’s six-year tax-cutting experiment, which brought the state persistent budget problems and two credit downgrades.

Tonight (July 6) enough Republicans joined with the majority House Democrats to override Bruce Rauner’s veto of the Illinois budget (the Senate overrode on July 4 with one Republican vote), ending a two-year battle. Like Kansas, Illinois will now have tax increases, in this case on both the personal and corporate income tax, which are expected to raise $5 billion a year.

The budget also contains 5% budget cuts for most state agencies and a 10% cut to college education, according to the Chicago Tribune. Democrats had fought Rauner for two years over cuts and, as the Tribune reports, Rauner had refused to sign an income tax increase unless there was a property tax freeze and/or cuts to workers’ compensation. Amazingly, the budget battle led to state universities receiving no state funding since January; colleges and universities are refunded in the new budget.
Like so many Republicans, Rauner simplistically blames all of Illinois’ budget problems on Democrats and unions. His extreme policy proposals have bee presented as the only way to tackle the budget for his entire term of office, and he refused to negotiate. As a result, key members of his own party abandoned him on absolute opposition to tax increases. We’ll have to wait and see whether this mini-trend will spread to more states.

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three bad ideas which I think would be political winners for Democrats

Matthew Yglesias commands,
I obey. Now I just have to come up with three bad ideas.

1) $25 minimum wage. I am not sure about the $15 dollar proposal. I’m pretty sure that $25 would be too high. I guess it would be popular too.

2) Protection that’s what you’re here for . I am sure that total protectionism is a bad idea, and hinting at it worked pretty well for Trump.

3) Eliminate all taxes on the lower 99%.

I tend to wonder if maybe this isn’t such a bad idea, but I suspect that it would imply either huge deficits, undesireable cuts to Federal spending, or taxes on the top 1% which are higher than optimal.

In any case, I am rock solid certain that many Republicans are sure that Democrats are soon going to propose this and win all future elections. They wouldn’t argue against class warfare in the complete absense of any class warfare (except for theirs on behalf of the rich) if they weren’t terrified.

4) I would say health care reform with coverage of pre-existing conditions, gauranteed issue, Community rating and no mandate (to promise all the nice things without the necessary costs and destroy the individual insurance market entirely) except that Obama has already done that (the Barack Hussein Obama Jr was elected president of the USA, so don’t even think of tyring to tell me that bad policy is bad politics).

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Here is a Little Economics Lesson

Here’s a little economics lesson: supply and demand. You put the supply out there, and demand will follow. — Rick Perry, U.S. Secretary of Energy

While the media is having fun at the expense of Secretary Perry’s asinine “economics lesson” it is worth pointing out that the very same publications that ridicule Perry perpetually peddle the exact same theory under the guise of “debunking” the imaginary lump-of-labor fallacy. Here is The Economist from yesterday telling its readers that the demand for goods and services is infinite:

By the 1990s governments and employers realised they were making pension promises they would not be able to keep. The idea that there is only a finite number of jobs to go round—the “lump of labour”—was more widely exposed as a fallacy. It became fashionable to argue that “we must work till we drop.”

Just for the record, the number of jobs to go round is indeed finite. The demand for goods and services is limited by the funds and credit available to consumers to purchase them and the time available to consume them. Those funds and credit are, in principle, limited even though those limits are, in practice, quite malleable and difficult to pinpoint. Expansion of credit beyond those limits invariably leads to collapse when debt loses its “credibility” — which is to say the reasonable expectation that the debtor can continue to service the debt.

Perry may be a total fool but he is only parroting what he has been taught by… “economists.”

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Why You Should Never Use a Supply and Demand Diagram for Labor Markets

Dan here…I noticed further writing on the macro side of labor and asked Peter’s opinion, and he reminded me of this post.

by Peter Dorman  (originally published at Econospeak)

Why You Should Never Use a Supply and Demand Diagram for Labor Markets

You would know this if you read your Cahuc, Carcillo and Zylberberg, but you probably won’t, so read this instead.
A standard S&D diagram for the labor market might look like this:

It’s common to use W (wage) on the price axis and N (number of workers) on the quantity axis.  Equilibrium is supposed to occur at the W where quantity supplied equals quantity demanded.  From here you might introduce statutory minimum wage laws, or jobs with different nonpecuniary benefits and costs, etc.  The default conclusion is that free markets are best.

But hold on a moment.  S and D don’t tell you how many workers actually have jobs or how many jobs are actually filled—these are offer curves.  The S curve tells you how many workers would be willing to accept a job at various wages, and the D curve tells you how many jobs would be made available to them.  That’s not the same as employment.

They would be the same in a world in which labor markets operated according to a two-sided instantaneous matching algorithm, something designed by Google with no human interference at any stage of the process.  In such a world all offers would enter a digital hopper, and all deemed acceptable by someone else’s algorithm would be accepted immediately.  Maybe not Google but Priceline.

But that’s not the world we live in.  Finding out about job openings and job applicants is somewhat haphazard and time-consuming.  Applicants and jobs differ from one another in lots of obscure, subtle but crucial ways.  You really wouldn’t want an algorithm to make these decisions.  And so only some workers who offer their labor, even at what might be an equilibrium wage rate, are taken on, and only some job openings workers willingly apply for are filled.  When we measure unemployment and vacancies à la JOLTS, we are not seeing offers but changes in actual employment and disemployment.

So let’s redraw that diagram.

To the left of N*, the equilibrium number of employment offers, we find N**, the number of workers whose offers have actually been accepted and are now on the job.  A little reflection should be enough to indicate that S&D is a lousy way to frame this distinction.

First of all, what determines this gap between wanting to work (or fill a job) and actually working (or filling it)?  What does this apparatus tell you about N*–N**?  Nothing.  It isn’t built to answer that question, and it doesn’t answer it.

But it’s worse.  The apparatus indicates that N*–N** is the same on both sides of the market: the number of workers looking for work is exactly equal to the number of jobs looking for workers.  But why would we expect that to happen?  What reason is there to think that it’s equally easy for workers to find jobs and jobs to find workers?  On the contrary, the ratio of unemployed workers to job openings never falls to 1.0, or hasn’t since we’ve had JOLTS to inform us.
S&D is simply the wrong model, based on a failure to distinguish between offers and transactions.  Fortunately, there’s a better model out there, search theory, with fairly straightforward intuitions and tons of available data.

Anyone who waves an S&D model at me and makes claims about the labor market is simply advertising that they know less about economics than they think they do.

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Poverty, Crime and Causality

I was bouncing around my twitter feed and landed on this tweet which in turn took me to a paper entiteld Childhood family income, adolescent violent criminality and substance misuse: quasi-experimental total population study. The paper appeared in the British Journal of Psychiatry in 2014. Here’s the basic summary:

Background
Low socioeconomic status in childhood is a well-known
predictor of subsequent criminal and substance misuse
behaviours but the causal mechanisms are questioned.

Aims
To investigate whether childhood family income predicts subsequent violent criminality and substance misuse and whether the associations are in turn explained by unobserved familial risk factors.

Method
Nationwide Swedish quasi-experimental, family-based study following cohorts born 1989–1993 (ntotal = 526 167, ncousins = 262 267, nsiblings = 216 424) between the ages of 15 and 21 years.

Results
Children of parents in the lowest income quintile experienced a seven-fold increased hazard rate (HR) of being convicted of violent criminality compared with peers in the highest quintile (HR = 6.78, 95% CI 6.23–7.38). This association was entirely accounted for by unobserved familial risk factors (HR = 0.95, 95% CI 0.44–2.03). Similar pattern of effects was found for substance misuse.

Conclusions
There were no associations between childhood family income and subsequent violent criminality and substance misuse once we had adjusted for unobserved familial risk factors.

Declaration of interest
None.

Because the British (let alone the Swedes) seem incapable of doing proper American, it might be worth translating the paper into something we English speakers can follow. Here goes. The study looked at 526,167 Swedish kids, or about 89% of all kids born in Sweden from 1989 to 1993. (Kids were excluded from the sample if they died or emigrated before their 15th birthday, if they were born with birth defects, if they couldn’t be linked to their birth parents, or if the authors were unable to determine the parents’ level of income.)

The authors found (no surprise to anyone) that kids born into the lowest income twentieth percentile of the population are far more likely to get convicted of violent criminal activity or become substance abusers. But, by accounting for changes in a family’s income over time and how that affected (or didn’t) criminality and substance abuse outcomes of siblings and cousins, the authors were able to conclude that a family’s income was not associated with violent criminal activity or substance abuse except insofar as income was being driven by some other unobserved factor(s) that itself was associated with negative outcomes. That unobserved factor (or factors) runs in families.

The authors are not as clear as I’d like in describing the data adjustment, and the process they use is not one I have employed myself at any point.  But if I understand the limited description of the process correctly, they are basically noting that a kid in a 60th percentile income family is no less likely to become a criminal than his younger brother will be several years later when the family has dropped to below the 20th percentile of income.   Furthermore, within each income level, crime tends to run in families.

To take the paper’s findings a bit further, there is a serious implication here: it isn’t so much that poverty drives people into crime, but that families whose members have a tendency toward criminal behavior have an increased likelihood of ending up poor. Perhaps those who lack empathy are both more likely to commit crimes and less willing or able to behave in ways that allow them to get and retain good jobs. Of course, some of the smarter criminals can fake empathy enough to do quite well for themselves. It is also important to note that most poor people are not criminal. Nevertheless, the reason crime correlates with poverty is not that poverty leads to crime, but rather that for a not insignificant piece of the population, criminal tendencies are associated with traits that increase a person’s likelihood of being in poverty.

 

update…  grammatical error in the last line of the post corrected, July 7, 5:52 AM PST

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