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Trickle-down, with the emphasis on “trickle”

Trickle-down, with the emphasis on “trickle”

Since the turn of the Millennium, a torrent of corporate tax cuts has resulted in a trickle of investment growth.

This morning Dean Baker objects to:

the argument … that reducing corporate taxes will lead to more investment and thereby greater wage growth in the future. The data from the last seventy years show there is no relationship between aggregate profits and investment.

As can be seen, there is no evidence that higher corporate profits are associated with an increase in investment. In fact, the peak investment share of GDP was reached in the early 1980s when the after-tax profit share was near its post war low. Investment hit a second peak in 2000, even as the profit share was falling through the second half of the decade. The profit share rose sharply in the 2000s, even as the investment share stagnated. In short, you need a pretty good imagination to look at this data and think that increasing after-tax profits will somehow cause firms to invest more

I was a little puzzled why Dean didn’t differently scale the two series so it would be easier to see any leading/lagging relationship.  Further, since corporate profits are a long leading indicator, and nonresidential fixed investment is more of a coincident indicator, I was pretty sure that there would be a correlation.

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Self-selection and Multigenerational Mobility of American Immigrants

Last year I wrote a post noting that the income of group of immigrants in the US is correlated with the income of the country from where those immigrants hailed. I noted that this correlation is especially strong for immigrants in the US for the longest.

I just stumbled on this paper from earlier this year by Joakim Ruist. Here’s the abstract:

This paper aims to explain the high intergenerational persistence of inequality between groups of different ancestries in the US. Initial inequality between immigrant groups is interpreted as largely due to differently strong self-selection on unobservable skill endowments. These endowments are in turn assumed to be more persistent than observable outcomes across generations. If skill endowments are responsible for a larger share of total inequality between immigrant groups than between individuals generally, the former inequality will be more persistent. This explanation implies the additional testable hypothesis that the correlation between home country characteristics that influence the self-selection pattern – in particular the distance to the US – and migrants’ or their descendants’ outcomes will increase with every new generation of descendants. This prediction receives strong empirical support: The migration distance of those who moved to the US around the turn of the 20th century has risen from explaining only 14% of inequality between ancestry groups in the immigrant generation itself, to a full 49% in the generation of their great-grandchildren today.

Here’s a paragraph from the conclusion:

The policy relevance of this result lies to a large extent in what it does not say. It is well known that inequality between ancestry groups in America is highly persistent, and also that some groups experience more mobility than others. Previous explanations for this to some extent indicate that something is “wrong”, in that certain groups’ upward mobility is hampered either by these groups’ own behavior, or American society’s behavior towards them. As such they also indicate a role for policy in improving the situation. In contrast, according to the results and interpretation reported here, ancestry groups’ low socioeconomic mobility is not an indication that something is wrong, but merely that the impact of migrants’ self-selection is longer-lasting than previously thought.

Here’s the last paragraph in the paper:

Finally these results say something important not only about migrants’ self-selection and intergenerational mobility, but also about America. In the 19th century, many millions of Europeans dreamed of a new life in America. But the journey was costly, and at least until the arrival of transatlantic steamships even dangerous, and only some actually made the leap. The results reported in this study not only support the view that those who actually did make the journey were equipped with qualities not equally possessed by all of those who did not. They also tell us that these qualities remained for several generations with their descendants, who made their native country the global hub of knowledge, innovation, entrepreneurship, and industry of the 20th century.

The modern era being what it is, I imagine that today, in some countries, it is easier to be a migrant than to stay put. Ruist’s paper would imply that immigrants from such countries might, on average, have multiple generations of descendants with particularly low SES scores.

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Crime and Punishment

I stumbled on a blog post by Jerry Ratcliffe, who is a Professor of Criminal Justice and Director of the Center for Security and Crime Science at Temple University, Philadelphia, and a former police officer with London’s Metropolitan Police (UK).

From one of this posts:

Graph no. 2 is another image from my Intelligence-Led Policing book. The crime funnel represents what happens to a random selection of 1,000 crimes that affect the public (top bar). It shows the loss of cases through the criminal justice system. These are British national data derived from public records, but the comparisons to the U.S. are very similar. If you take a random selection of 1,000 crimes actually suffered by the public (violence, robbery, vehicle theft, residential burglary, theft and criminal damage) you can see that they only report 530 to the police, who in turn record just 43 percent of the original total.

Click to embiggenize.

Of these 429 events, 99 are detected (solved or cleared in some way) and of these, 60 end up with a day in court. The majority of those are found guilty or plead the same, but in the end only four of the events from the original 1,000 end up in a custodial sentence for the offender. This is an incarceration rate of 0.4% based on crime suffered by the community.

The main point here is that impacting higher in the crime funnel will be more effective because it affects the numbers below and affects a larger number of actual cases. Improving the detection rate will have an impact on prosecutions, pleas and incarceration, but only to a minimal level. Being prevention focused and changing the higher numbers is much more impactful. Consider if you could have a 10% change on one level. Where would it be most effective?

I don’t know how accurate the figures above are, but I assume the numbers are about as reasonable as the law enforcement community can provide.  I’m not sure “an incarceration rate of 0.4% based on crime suffered by the community” is all that much of a deterrent, except insofar as crimes, apparently are just like potato chips – people who engage in crimes generally don’t stop at one.  Most delinquents commit multiple crimes and eventually get snagged for something.  But meanwhile, a whole of of people suffer a whole of outrage.

As to Ratcliffe’s question…  I suspect what Ratclife is getting at is what the current esteemed leadership in Baltimore considers heavy handed policing. And I bet his 0.4% figure is a whole lot lower for Baltimore these days too.

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2007 and Flood Insurance….blast from the past

Reader Dan sends along this one: (this was my newbie persona ten years ago


My insurance in MA was cancelled on property due to ‘limiting risk exposure’ by my insurance company. While near the coast, my investment property is not on a flood plain and well protected as well as being higher by far (40 ft.) than downtown. I wound up having to buy from a MA backed plan at 1.5 multiplier for less coverage.

I got to thinking. If I am getting cancelled, what’s up. I went to Florida via the web because I had heard that Allstate was canceling most of its coverage in the state, and other companies were considering the possibility. I found this:

Florida homeowners could see property insurance rates cut by as much as a total of 40 percent under a plan finalized Sunday by lawmakers hoping to reverse hurricane-fueled increases many residents say have threatened to price them out of their homes.

Lawmakers said the wide-ranging proposal they’ll vote on Monday is expected to provide savings of up to 20 percent for many of the coastal customers of Citizens Property Insurance Corp., the state-created company that has become Florida’s largest property insurer.

Getting the 20 percent rate reduction would require a number of factors, and the only guaranteed savings across the board appeared to be closer to 5 percent. But many customers will see much larger reductions, lawmakers said.

Rates for property owners insured by private companies are also expected to come down under the plan, which would still need approval from Republican Gov. Charlie Crist.

The state-created company was envisioned as a last-resort insurer for those who can’t get private coverage, but it has grown to be the state’s largest property insurer with 1.3 million customers.

Insurers including Allstate Corp., Nationwide Mutual Insurance Co., MetLife Inc. and State Farm have canceled or limited homeowners policies or significantly raised rates in an effort to reduce exposure to future catastrophes since the devastating hurricane seasons of 2004 and 2005, in which insurers lost $36 billion in Florida.

The industry also says the plan is a quick-fix bailout that puts more risk on the government. The plan increases the amount of backup coverage, or reinsurance, available to private insurance companies through the state’s Hurricane Catastrophe Fund.

While the insurance is for homeowners, business also needs flood and hurricane insurance to operate in the area. If Dade county is hit with a 4 or 5 force, the consequences would be huge. The season is just starting. Is this simple economics? Which homeowners get the most benefit? Does it preclude good zoning? Are there any social aspects to consider? How do businesses cope?

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Flood damage in Houston costs whom?

Via New York Times comes this information on flood insurance, which I believe is the predominate cause of storm damage in the Houston area and beyond:

Private homeowners’ policies generally cover wind damage and, in certain cases, water damage from storm surges. But for almost half a century, all other homeowners’ flood coverage has been underwritten by the National Flood Insurance Program, a federal program that itself faces financial uncertainty.

Flooding has dealt the hurricane’s biggest blow. And in areas where it is prudent — or even obligatory — to buy it, having flood coverage is the exception rather than the norm.

People without coverage will have to apply for grants or low-cost loans from other branches of the federal government, said Loretta Worters, a spokeswoman for the Insurance Information Institute. That means delays in receiving funds, if such requests are even approved.

The National Flood Insurance Program was created in 1968, after most private insurance companies stopped writing homeowners’ flood coverage because they could not charge premiums high enough to cover the potentially catastrophic costs. (In addition to wind and limited storm-surge damage, private insurers cover vehicles caught in flooding.)

The 49-year-old program is now run by FEMA. Its coverage has caps: $250,000 for a house and $100,000 for its contents, and $500,000 apiece for a business building and its contents. Larger companies can still buy flood coverage through commercial insurers.

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Is David Ignatius Falling For Saudi Propaganda?

Is David Ignatius Falling For Saudi Propaganda?

Washington Post columnist and occasional novelist and diplomat, David Ignatius, is one of the best informed and wisest of commentators on Middle East affairs.  Thus it is with concern that in yesterday’s Washington Post in a column titled, “A new chance for Middle East peace?” he seems to have fallen for third rate propaganda largely being pushed by the Saudi government, although also backed by the UAE ambassador (closely allied to Saudi Arabia in their anti-Iran and anti-Qatar escapades), as well as “the White House.”  I can appreciate that in recent years hopes for any kind of Israeli-Palestinian peace deal have simply been absent, so maybe he is indulging in some sort of optimistic thinking with the idea that pushing any sort of plan is better than having none.  But I fear that not only is he being a pollyanna here, but joining a herd of suckers for drivel coming out of the Saudi PR machine, which wishes to puff up new Saudi Crown Prince, Muhammed bin Salman (MBS) as a wonderfully progressive and open-minded reformer.  Yuck.

Indeed, what is probably the most dramatic point here is that indeed MBS has apparently been going around saying that “resolution of the Palestinian problem and peace with Israel are ‘crucial for the future of the Middle East.'”  This is indeed louder than what has been heard from Saudi leaders previously, although the late King Abdullah did put forward a peace plan that involved the Israelis moving back to the 1967 borders, a plan that went nowhere.  So, peace noises out of the Saudis are not exactly completely unprecedented.

The more detailed part of the column where Ignatius shows his usual ability to ferret out information not previously reported by others is that the specific plan being pushed involves using a UAE-based Gazan Palestinian named Mohammed Dahlan to get Hamas to moderate its demands on Israel in response for a bunch of economic aid, including a power plant to be built across the border from Gaza in Egypt.  No evidence that the current Hamas leaders in Gaza will go along with this is provided and, and it is admitted that Dalhan has long been at odds with Mahmoud Abbas, the PLO leader who is in charge of the West Bank.

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Baltimore Trade-off

I’ve been following the situation in Baltimore since the death of Freddie Gray because my wife hails from that city. Here is what is happening now according to the Baltimore Sun:

Baltimore’s top law enforcement leaders say they are working closely together to fight crime — but the community should not expect a turnaround soon.

State’s Attorney Marilyn J. Mosby and Police Commissioner Kevin Davis, in an exclusive joint interview with The Baltimore Sun, say they are overseeing crime-fighting in a different climate than six years ago, when the city experienced fewer than 200 homicides for the first time in decades. Both officials claimed those past gains were achieved using heavy-handed tactics that have been disavowed.

“There was a price to pay for” the drop below 200 homicides, a price “that manifested itself in April and May of 2015,” Davis said, referring to the uprising following the death of Freddie Gray. “I think the long view is that doing it the right way is doing it the hard way, and I think most Baltimoreans realize that the way forward is not always going to be easy.”

The article continues:

Baltimore is on track for more than 300 killings for the third consecutive year. Among the latest victims was a 15-year-old boy who was gunned down in the middle of the afternoon Tuesday, the third teenager killed this month. In addition to spiking crime, authorities have continued to grapple with scandals that have led to criminal charges against officers and the dropping of scores of court cases.

I’m not sure I understand what this means. Is there really a direct link between disavowing “heavy-handed tactics” and a more than 50% increase in the homicide rate? What exactly is the relationship here? Is everyone OK with the trade-off? In particular, are the families of the 100 marginal homicide victims copacetic? And what are those heavy-handed tactics anyway?

But let’s focus on the negatives:

Mosby cited zero-tolerance policing as a “failed strategy” that continued in Baltimore long after it was formally disavowed by the city’s leaders. “Those failed policies are what got us to the place we were at in the spring of 2015,” she said, referring to the unrest.

Davis noted that his agency is operating with about 500 fewer officers than a few years ago, when the city experienced several years of declines in gun violence. He said the police department at that time employed a strategy that won’t be duplicated.

“It was a geographic takeover strategy of neighborhoods, that cast nets over neighborhoods that happened to be overwhelmingly poor, overwhelmingly African-American, overwhelmingly impacted by all the failings of society. And they [celebrated] when they got to a certain artificial number of murders,” he said. “As if 200 murders is acceptable for a city of 600,000 people.”

I agree that 200 murders a year should not be seen as acceptable. But I would think that 300 murders a year should be viewed as quite a bit less acceptable.

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Notes on Harvey: if Karma could bring her litter to visit the Texas GOP

Notes on Harvey: if Karma could bring her litter to visit the Texas GOP

First of all, as many of you already know, the M.I.A. proprietor of Bonddad blog, Hale Stewart, resides in the Houston area.  I traded messages with him on Saturday, and as of then, he was doing OK.

Secondly, when Superstorm Sandy hit New Jersey and New York, Texas Republicans were prominent among those who opposed aid.  Ultimately aid was provided — but not until 75 days after the storm.

There were two Sandy-related aid bills.

The first bill granted FEMA a $9.7 billion increase to borrow for the National Flood Insurance Program. It passed the Senate on a voice vote, but the following Texas GOP Members of Congress voted against the aid:

Mike Conaway (Midland)
Bill Flores (Bryan)
Louie Gohmert (Tyler)
Kenny Marchant (Coppell)
Mac Thornberry (Clarendon)
Randy Weber (Pearland)
Roger Williams (Austin)

The second bill provided $17 billion emergency funding to the victims and to affected NY and NJ communities.  Both Texas Senators Ted Cruz and John Cornyn voted agains the bill.  In addition to all of the above Representatives, the following Texas GOPers also voted against this aid:

Ted Poe (Humble)
Sam Johnson (Plano)
John Ratcliffe (Heath)
Jeb Hensarling (Dallas)
Joe Barton (Arlington)
Kevin Brady (The Woodlands)
Michael McCaul (West Lake Hills)
Kay Granger (Fort Worth)
Lamar Smith (San Antonio)
Pete Olson (Sugarland)
Michael Burgess (Lewisville)
Blake Farenthold (Corpus Christi)
John Carter (Round Rock)
Pete Sessions (Dallas)

Now that it is Texas suffering a catastrophe, of course some of these same politicians will be at the front of the line braying for help. While with the GOP in control of the entire federal government, Karma will not be paying a visit with her litter, in a just world aid would be provided immediately — on the same day they all visit NY and NJ, apologize, and abjectly beg forgiveness.

Of course, the “better angels” will prevail this time. But rest assured, the next time a disaster befalls anywhere in the Northeast, these same Texas politicians will once again vote against aid. In the meantime, above is the Roll Call of Shame for posterity.

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