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

Weekly Indicators for March 18 – 22 at Seeking Alpha

by New Deal democrat

Weekly Indicators for March 18 – 22 at Seeking Alpha

My Weekly Indicators post is up at Seeking Alpha.

As you can imagine, the big news was about the fact that almost every single yield curve there is – except the one I report on every week in that post – inverted yesterday.

Also, as I mentioned in an e-mail to a couple of folks this morning, the big thing that bothers me is that ***EVERYONE*** is watching it. And a forecasting tool that everyone pays attention to, ceases to be an accurate forecasting tool. It’s called “Second Order Chaos.” Humans are very clever and intelligent chimpanzees, and when you observe them, they observe you back, and react to the observation.

Anyway, as usual, clicking over and reading helps reward me with a little $$$ for my efforts.

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Over 50% of all wealth in the US is inherited not earned

Over 50% of all wealth in the US is inherited not earned

I got waylaid putting together a very detailed post about how the newly-widened Panama Canal is disrupting the internal US transportation network. When it goes up at Seeking Alpha, I’ll link to it.

In the meantime, here is something that I found a week or two ago for you to chew on. Over half of all US wealth is not earned but inherited:

Click on picture to enlarge.

According to a report summarized recently in the Washington Post, “The wealthiest 1 percent of American households own 40 percent of the country’s wealth.”

It’s likely that about 25% of all wealth in the US is inherited of the top 1%. I strongly suspect the relationship is even more egregious at the level of the top 0.1% and top 0.01%.
It’s hard to argue that the US is at all a meritocracy when the starting points are so distorted.

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Alan Krueger And Happiness

Alan Krueger And Happiness

It took awhile for me to remember after his apparent suicide that the late Alan Krueger was the coauthor of what I consider to be the best paper published on happiness economics, “Develpments in the Measurement of Subjective Well-Being,” Journal of Economic Perspectives, 2006, 20(1), 2-24, https://www.aeaweb.org/articles?id=10.1257/08953300677 .  (I apologize if that link is no good.)

This paper was coauthored with is Princeton colleague, Nobel-Prize winning psychologist Daniel Kahneman.  What stood out was that this was as well done an empirical study of this difficult topic as I have ever seen, and above all in terms of his professional accomplishments, Krueger’s abillity to carry out very well done empirical studies stands above all else, and this paper with Kahneman certainly fits into that category.

Happiness research, or more properly research on “subjective well-being” as their paper titel put it, has been a controversial mess for some time.  The journals I have edited have been major outlets for this research, so I have seen lots of papers on it.  Not only that, but I have seen the referee reports on those papers, and this area of research has somehow attracted a lot of unhappy people taking out their unhappiness on papers that they referee.  This is not true  of all people in this field, and  I shall especially single out Richard  Easterlin, the fathr  of the field, who retired from USC last year at age 92 and deserves a Nobel Prize.  But many others in the field are not as happy as he has always been.

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… And, the 10 year treasury yield inverts

… And, the 10 year treasury yield inverts

Yesterday over at Seeking Alpha I wrote about how the Fed is boxed in. The essence of the article is that, while lower rates are good for the housing market, a fuller yield curve inversion adds to the evidence that a recession may take place first, unless the Fed completely reverses course and starts cutting interest rates very soon.

Please click on over and read the whole article. Not only should it be educational for you, but it rewards me a little for my efforts in writing about the economy.

And so what do I see when I check out interest rates this morning? This:

For the first time, the yield curve inversion has spread to the 10 year Treasury, which is yielding less than either the 6 month or even the one month Treasury bill.

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A couple of nuggets of good economic news

A couple of nuggets of good economic news

Sometimes there is almost no economic news at all. This isn’t one of those times.

Because there have been increasingly ominous signs among the long leading indicators, that have been spilling over into the short leading indicators, suddenly there are a lot of signs and portents to look at. A lot less about jobs and wages that I keep exclusively here.

So, once again I got waylaid preparing a long piece for Seeking Alpha, on how the Fed may need to *cut* rates quickly in order to avoid a recession, that may not get posted until tomorrow.

In the meantime, here are a couple of graphs to give you something to chew on.

First, I’ve noted in the last few months how wages for ordinary workers have started to take off. A few people have pointed out that it may be less due to overall tightness in the labor market and more due to statutory minimum wage increases.

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Back To School

In an earlier post, My Education In Going to College, I commented:

what was done most recently by some wonderfully-over-funded people in an effort to get their children into a Tier one school certainly did not have to happen in the manner it did. They could have just approached school authorities and with a “Thornton Mellon’s” (Back to School’s – Rodney Dangerfield) audacity, offered to pay full ride and make a sizeable donation to the school. Maybe I am wrong; but, I do not know of many schools who would turn down a half a $million donation or so and a student who is willing to pay full price at the same time. Schools are short of funding. I am pretty sure this is going on today with little being said about the donations. Perhaps, others here would disagree with me?

It appears my comment is more correct than wishful thinking as detailed in The Atlantic’s “Elite Colleges Constantly Tell Low-Income Students That They Do Not Belong.”

The Atlantic article explores Anthony Jack’s “The Privileged Poor” and gets into the detail of the prevailing wealth at top-tier schools. For instance, it is no secret, many of the students come from elite origins. For example:

“Led by the Harvard economist Raj Chetty a team of researchers found students coming from families in the top 1 percent of household incomes (those who make more than $630,000 a year) are 77 times more likely to be admitted to and attend an Ivy League school than students coming from families who make less than $30,000 a year.” I do not consider this to be a new discovery. Most people go to where they can and to what they can afford. And many end up at for-profits with a hope of achieving some type of equivalency and a chance to succeed.

“The study found that 38 elite colleges have more students who come from families in the top 1 percent than students who come from the bottom 60 percent or families making less than $65,000 a year.” Granted those 1 percenters are not the “real” rich in income as the 1 tenth of 1 percent comprising 115,000 households but, they do have enough money available to influence a school. They do count in the scheme of influencing outcomes.

14% of all the students at the elite colleges such as Stanford, Princeton, or Columbia come from the bottom half of the US income distribution. Before I go on, the author (Jack) details what he identifies as the privileged-poor and the doubly-disadvantaged. Privileged poor students come from low-income backgrounds and more than likely attended wealthy private high schools which gives them familiarity with and an acquired access to the social and cultural capital making people successful at elite universities. In other words, they know the ropes and how to get about. Doubly disadvantaged students arrive at these top institutions from neighborhood public schools many of which are overcrowded and underfunded. These students have excelled, however they are ill-equipped and lack the sociocultural tools necessary to understand the nuances of how these elite colleges operate. The doubly disadvantaged lack the social capital many students the 77-percenters and the privileged poor, the faculty, and the administrators have taken for granted. There are few mentors, councilors, or whatever you want to call them to guide them.

The advantage of the 77-percenters have is in the exposure to better schools, neighborhoods, and economics. For all intents and purposes their parents buy their way into the elite schools through private-school tuition, test prep, donations to colleges, and a myriad of other advantages which opened doors and prepared them to compete. They also rarely experience the same level of skepticism as to whether they have ‘earned’ their place as would those who enter the elite schools as a privileged poor of doubly disadvantaged.

Back to the controversy . . . rather than buy their way into the university with full price tuition and “Thorton Mellon-like” donations, these parents tried a cheaper route to getting their children admitted. Historically, the elite have used wealth to get their kids into top colleges via legal and widely recognized means—legacy, athletic admissions favoring the wealthy, and the use of test preparation to gain an advantage. Some followed the route of Thornton Mellon from “Back To School” and made or offered some nice donations meant to influence the school regardless of whether it paid for a new School of Business building or a revamped sports field.

The parents caught up in the illegal bribery opted instead for a different scheme of conspiracy and bribes. These bribes were cheaper than a building, less costly than paying for years of student preparation, going to sports games and having your child coached, and personally guiding and working with your children. Many were the vacations we took focused around soccer tournaments and many were the meetings we had with teachers and colleges.

Upfront here is the deal; a $million plus full tuition or meet me tonight at such and such place for $500,000 and full tuition. The only difference is how the bribe is made as the thumb is still on the admissions scale of yea or nay.

What is the difference? A bribe is a bribe and while one is illegal, I would say both face a test of morality.

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The widened Panama Canal is disrupting internal US transportation patterns

by New Deal democrat

The widened Panama Canal is disrupting internal US transportation patterns

The newly-widened Panama Canal opened to traffic in late 2016. Since then, there have been several ongoing disruptions in how goods are transported from suppliers in Asia to their ultimate markets in the US, including affects on seaports, trucking, and rail.

This post is up at Seeking Alpha.  As usual, clicking over and reading should be educational for you, and helps reward me for my work.

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Introductory Econ Textbooks: A Different Take on the Issues

Introductory Econ Textbooks: A Different Take on the Issues

My eyes were drawn to Timothy Taylor’s gloss on Greg Mankiw’s ruminations on the life of an econ textbook author.  As such an animal myself (Microeconomics and Macroeconomics: A Fresh Start), I’ve thought about many of the same questions.  Differently.

Issue #1: How do you teach the introductory economics courses if you have a dissenting perspective?  Mankiw lays out three alternatives, teaching the mainstream and suppressing your own views, teaching minority or fringe views (i.e. your own), or not teaching introductory econ at all.  He says the second option is “pedagogical malpractice”, and Taylor agrees.  I opted for an approach neither of them consider, to present mainstream economics in the third person: this is what that particular group thinks.  Allow for a critical distancing, which is not the same as critique.  I didn’t write “this stuff is garbage”, but “here are the assumptions that conventional economists make that distinguish their approach from others.”  Whenever possible, I point out where other disciplines differ, and while I encourage students to judge for themselves, I don’t pressure them into adopting any one point of view.  This is called critical thinking, and it barely exists in the world of economics textbooks, which proselytize shamelessly.

Issue #2: What should be the role of supply and demand theory and, in particular, the welfare interpretation of it?  Mankiw feels welfare economics gets short shrift in the typical intro econ course and text, while Taylor demurs.  I am mostly on Mankiw’s side here, but from a critical perspective.  I agree entirely that welfarism underlies virtually all applied econ work outside macroeconomics, and it’s important for students to understand what it means.  We just saw a “Nobel” prize awarded to an economist, Bill Nordhaus, whose primary claim to fame is an application of the welfare framework to climate change.  Nearly every economist working on climate issues adopts the same approach.  It would not be an exaggeration, however, to say that the vast majority of climate scientists regard their work as nuts.  Clearly there is a pressing need to present the underpinnings of welfare economics to as wide an audience as possible, so they can understand these disputes.

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