Wednesday, July 22, 2015

Here's Some Anti-American Dream Nonsense...

The Statue of Liberty front shot, on Liberty I...
The Statue of Liberty front shot, on Liberty Island. (Photo credit: Wikipedia)
It's hard, really hard to make it big in America.

Well, yes, success takes work, especially if you are trying to start a business, but some in the media and within academia seem to want to convince their audiences that unless you are born wealthy and white, there's almost no hope at all of living the American Dream.

The United States does have widening inequality. There are complex explanations for this, including the fact that our wealthy are wealthier (on average and at median) than the wealthy elsewhere. Income inequality, which isn't the same as wealth inequality, is also increasing for many complex reasons.

But, there are actual signs that more people can and do start businesses. You wouldn't know that, though, based on how some present research data to the public.

The following article from Quartz (The Atlantic) is so flawed, statistically and philosophically, it demonstrates how the media promote the "America isn't fair!" narrative.
Entrepreneurs don’t have a special gene for risk—they come from families with money - Quartz 
University of California, Berkeley economists Ross Levine and Rona Rubenstein analyzed the shared traits of entrepreneurs in a 2013 paper, and found that most were white, male, and highly educated. “If one does not have money in the form of a family with money, the chances of becoming an entrepreneur drop quite a bit,” Levine tells Quartz. 
Okay… but from 1996 to 2013, the percentage of white entrepreneurs fell from 76% down to 61% so the trend is fewer white males, but the article doesn't report the trend of entrepreneurship in the United States. The number of hispanic businesses jumped from 11% to 20% over that same period.

Also, the number of new entrepreneurs without a college degree is growing faster than those with a college degree. As is the number of entrepreneurs from the bottom two quintiles of household income.

So, yes, existing entrepreneurs are still mainly white, male, and well-off financially. But new entrepreneurs are changing demographics. Leave it to The Atlantic to jump to some unrelated research and imply something… but I have no idea what they want to imply.
New research out this week from the National Bureau of Economic Research (paywall) looked at risk-taking in the stock market and found that environmental factors (not genetic) most influenced behavior, pointing to the fact that risk tolerance is conditioned over time (dispelling the myth of an elusive “entrepreneurship gene“). 
What does stock market risk-taking have to do with starting 99% of small service-oriented businesses in the United States? The nail salon? The maid service? The two people fixing small engines on-site? Car detailing? Most entrepreneurs don't have any relation at all to the stock market or its way of thinking about money and risk.
Resilience is undoubtably a necessary trait for success; many notable entrepreneurs experienced success only after leading failed ventures. But the barrier to entry is very high. 
For creative professions, starting a new venture is the ultimate privilege. Many startup founders do not take a salary for some time. The average cost to launch a startup is around $30,000, according to the Kauffman Foundation. Data from the Global Entrepreneurship Monitor show that more than 80% of funding for new businesses comes from personal savings and friends and family.
Wait a minute… those stats and claims don't reflect anything, either. Average is always a statistically loaded word. If one firm required $1 million and a second required $1 to start, the "average" was $500,000 to start a new business. Averages are useless. Report medians, please. And, even then we need more data and more analysis to know the mode and various deviations from the median.

The Atlantic should be ashamed of this story and the professors cited should be even more ashamed of manipulating how data are presented to the public.

Do you want to know more about who the new entrepreneurs are? Read these data:

In reality, more people from the lower-income quintiles and from various ethnic backgrounds are the new entrepreneurs. It seems the United States does still offer opportunities. But don't let actual data trends get in the way of implying there are insurmountable barriers to success.

Quartz and The Atlantic, after all, are manipulating readers for some reason. There must be a motive behind such outright sloppy analysis.

Friday, June 26, 2015

Free college won't address inequality

Populist proposals for free or reduced college tuition won't help reduce inequality and might exacerbate it. Yet, I still support tuition breaks at state universities for some specific fields of study to encourage more graduates in those fields.

How could free education be a bad idea to reduce inequality?
  • Educational attainment K12 corresponds to income, and parental education attainment;
  • test scores also correspond to income and parents;
  • free colleges still have limited space;
  • elite schools, both private and state, will remain elite; and
  • college breaks benefit the upper-middle class most.
Yes, some students from low-income and lower-middle would be helped by free tuition, but many already qualify for grants and scholarships. The reality is that college tuition is a middle class concern, like the home mortgage deduction. Politicians aim for the middle, where voters are.

Colleges are not going to build thousands of new classrooms and hire tens of thousands of instructors. Not that there is a shortage of doctorates (surpluses explain the adjunct armies). However, free tuition is likely to come from existing spending. That could reduce any (nonexistent) plans to expand facilities and faculty.

Nations with free tuition don't offer the palaces of learning and "student life" now used to recruit at US campuses. Our elite colleges, including many state universities, are resorts and health clubs with some classrooms. And the best have no shortage of applicants; they know the market. It is about the "experience" to many education consumers.

I'd love more focus on teaching, but that's not going to happen. Students now shop on other criteria.

With limited space, schools must use placement tests and other quantifiable entrance requirements. Vague standards lead to lawsuits, so expect rigorous admissions policies. And for whom will these tougher standards work? The upper-middle class, statistically.

Think about it this way: California's best students will still want to attend Cal Berkeley and UCLA, the crown jewels of the University of California system. Out-of-state and international students also want to attend these great institutions. Space is limited. Already, admission into these universities is difficult for all but the best of the best students. Make them free and that situation won't change, and the competition to earn admission will escalate. Who will be able to afford the test-prep, interview training, and other extras that might help with placement? The well-off, of course.

If grants are made, at roughly the median cost of a university, that also benefits the middle-class more than it does other groups (for better or worse). Unless grants cover all expenses, low-income and lower-middle students are likely to attend lower-cost institutions in affordable cities. The rich will attend whatever universities admit them, regardless of cost.

In Germany and Sweden, where universities are "free" (at least the tuition is), students still accumulate debt, and graduation rates are about the same or slightly lower than the United States degree completion rate. How is that possible? Because "free" doesn't offset room, board, books, fees, and the incidental costs of living in the expensive cities in which universities tend to be.

The "free" universities internationally also aren't the leading research institutions they once were. That's probably not a coincidence.

To control costs, time limits would need to be in place to prevent "perpetual students" from taking seats. Colleges and universities would start to resemble large high schools, without much flexibility. If you want the public to pay for higher education, there's simply no way to avoid cost controls and restrictions on choices.

If people complain that universities feel like businesses (a claim I reject, for many reasons), imagine trying to structure them to handle exploding populations with already limited state and federal funds. As with healthcare, the United States actually spends quite a bit on education… with the states and cities spending the most getting some of the worst results. How will this trend translate to higher education without spending restraints? No, there will be restraints and tough choices.

One choice that must be made by states: what degree programs to expand and which to cut. Free or low-cost could result, as it has in France, in an oversupply of humanities graduates. Not that I don't love the humanities (I have an English degree, after all), but yet more English and art majors isn't a good investment of public monies. No, that's not "fair" if you don't believe in telling people what they can study — which is why I only half-heartedly support public subsidies for select fields.

How can I still support low-cost or free state college and university education in some fields?

The science, technology, engineering, and math (STEM) fields are among the most important to our futures. I'd argue these are the fields that will improve lives. Though the humanities matter, they simply aren't the engines of progress. And, despite what some of my colleagues claim, there's no evidence studying the humanities makes for "better" people: consider the painter Hitler or the philosopher Lenin. And I'm not going to argue that STEM experts are any more (or less) humane. But, we need inventors and scientists to move forward.

More importantly, STEM degrees do promote class mobility more than the humanities. Engineering does pay more than being a theatrical artist. Medicine pays more than being a "{fill in the blank} studies" expert.

If we can help students from lower- and middle-income prepare for college admissions, and that will require investing in our K12 systems, then grants for STEM field degrees would be a great way to offer upward mobility.

Reducing the cost of college won't fix the K12 problems. It won't equalize parental influence. It won't change which career paths pay the most or offer the most social standing. Free college isn't a magical solution to anything, and it might make some things "worse" in terms of inequality. Our colleges won't be magically populated by students from disadvantaged urban and rural school districts. That's just not going to happen.

My assumption is that university population profiles wouldn't change significantly with "free" tuition.

It hasn't worked to shift inequality in Germany or Sweden, and low-cost education elsewhere has had little to no effect on mobility. The higher mobility in other industrialized nations has more to do with their narrow class segments, a far more complicated issue than free college tuition.

Promising free or "affordable" college is really about appealing to particular voters. It isn't about improving educational quality, which has actually stagnated in the free-tuition nations.

That doesn't make "free" a horrible idea, but it won't address inequality.


Friday, June 19, 2015

Rhetorical Games Writing Professors Play

My original title for this posting was a bit presumptuous:

Rhetoric of the Liberal Professor Afraid to Debate

After reflection, I realize the professor isn't "afraid" to debate an economic issue, but simply doesn't realize there is a debate because his worldview and selection biases screen out other information. At least, that's my theory.

Recently, as part of a trend of articles on the dangers of too much political correctness and identity politics on campus, an anonymous "liberal professor" mentioned that a (racist) student wrongly associated Fannie and Freddie with the housing bubble. This example was to show that the professor handled "debates" well in the past. Actually, the example shows quite the opposite: that conservative and libertarian ideas are depicted as racist, mean-spirited, ill-informed, and furthered by ignorant people.

Quite simply, the example is a stereotype. Accurate of events or not, this shining example of how great the professor handled debate really shows how his biases led him away from a real, informed, discussion on an important topic.

Every economist, regulator, and financial professional I personally know (and I spend the last two years at a school famous for Nobel Laureates) casts at least some blame on the GSEs. But, by linking argument to a racist, the professor tailored his past defense of debates in class to his likely readers. Rhetoric, layers deep.
I'm a liberal professor, and my liberal students terrify me
by Edward Schlosser on June 3, 2015

What it was like before
In early 2009, I was an adjunct, teaching a freshman-level writing course at a community college. Discussing infographics and data visualization, we watched a flash animation describing how Wall Street's recklessness had destroyed the economy.

The video stopped, and I asked whether the students thought it was effective. An older student raised his hand.

"What about Fannie and Freddie?" he asked. "Government kept giving homes to black people, to help out black people, white people didn't get anything, and then they couldn't pay for them. What about that?"

I gave a quick response about how most experts would disagree with that assumption, that it was actually an oversimplification, and pretty dishonest, and isn't it good that someone made the video we just watched to try to clear things up? And, hey, let's talk about whether that was effective, okay? If you don't think it was, how could it have been?

The rest of the discussion went on as usual.
I am sorry, but only "most experts" this professor happens to read disagree with the idea Fannie and Freddie weren't a serious problem. And the Community Reinvestment Act (CRA), which was targeted at urban minorities, had serious problems with sub-prime and risky loans.

As framed, the "black people" phrase is horrible and inciting, but the professor (if he understood the economics) could have explained the good intentions that led to a bad policy (and are leading to the same policies again).

Using a racist to show how well you handle debate is a rhetoric stunt, not proof of your actual ability to engage in meaningful debate on serious economic and social topics.
The next week, I got called into my director's office. I was shown an email, sender name redacted, alleging that I "possessed communistical [sic] sympathies and refused to tell more than one side of the story." The story in question wasn't described, but I suspect it had do to with whether or not the economic collapse was caused by poor black people.

My director rolled her eyes. She knew the complaint was silly bullshit. I wrote up a short description of the past week's class work, noting that we had looked at several examples of effective writing in various media and that I always made a good faith effort to include conservative narratives along with the liberal ones.
Read the above simplification of what the student had probably said versus how the professor frames it. The student asked about Freddie and Fannie, along with minority lending (in a crude way, possibly). The professor, however, tells his director only that the student in question suggested "the economic collapse was caused by poor black people." No, the student, without the skills of a college-educated professor, was asking about a much larger public policy.

A great professor would have reframed the question, with the student, and suggested doing some additional research and presenting that later in a paper, with citations from both pro- and con- arguments about the role of GSEs in the economic collapse of the housing market and corresponding recession. There's even debate about if the collapse in housing was caused by labor issues or led to those labor market issues. Lots of great questions for study… all ignored.

And, because we are afraid to debate questions or we don't know any better, here we go again… according to The Economist, USA Today, Bloomberg, and other financial news outlets.
America restores the weak lending standards that led to the housing crash
Oct 25th 2014 | NEW YORK | From the print edition
WHEN politicians bashed Wall Street for its reckless mortgage lending in the wake of the subprime crisis, bankers retorted that it was the politicians' enthusiasm for expanding home ownership, even if it meant small deposits and low credit standards, that had really fomented the disaster. Yet that enthusiasm is undimmed: in a speech on October 20th Mel Watt, head of the Federal Housing Finance Authority (FHFA), announced plans to reintroduce mortgages with deposits as low as 3% through Fannie Mae and Freddie Mac, the two government-backed housing giants it regulates.

Both Fannie and Freddie were bailed out during the financial crisis. There was much talk in Congress of winding them down; in the meantime, they tightened loan requirements to limit the risk to taxpayers. But that changed when Barack Obama appointed Mr Watt, a congressman from North Carolina and long-term evangelist for home ownership.

Fannie and Freddie do not issue mortgages. Instead, they buy them from banks and guarantee the securities into which they are bundled for resale. Over the past two years many big mortgage lenders have paid billions of dollars in fines and been forced to buy back piles of dud loans on the grounds that they did not conform to Fannie's and Freddie's rules. These settlements were controversial, in that the pair had actively sought out risky mortgages to satisfy their mission to promote "affordable housing".
Clearly, there is another deep side to this debate. But, not as this professor views it. His biases limit his perspective and his reaction to an ill-informed (aren't most of them) student is not helpful or educational for that student.

I'm convinced this professor is constructing "conservative" questioners in an artificially bad light, but let's assume his recollections are entirely accurate. He still misrepresents the student to the writing program director. This "open-minded" liberal professor heard only the racist subtext of a question, and missed the serious policy question. That's sad. And that's what many conservatives and libertarians dislike about higher education.

Of course, would the writing professor be aware of the concerns about Fannie and Freddie voiced in financial media? Probably not. And certainly, this professor is not a reader of "conservative" or "libertarian" journals.
THERE ARE TWO KEY EXAMPLES of this misguided government policy. One is the Community Reinvestment Act (CRA). The other is the affordable housing "mission" that the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac were charged with fulfilling.
— American Spectator
Yes, the American Spectator is "conservative" but that doesn't mean its facts are incorrect or somehow not worthy of discussion. Our liberal professor, however, doesn't seem to be aware of alternative viewpoints that might have merit.

Things are actually returning to the pre-crash state. That should concern us, but this professor's students likely don't know we're inflating the markets again. Everything from quantitative easing (QE) by central banks to lowering of lending standards, all meant to kickstart weak economies, could create the same bubbles we saw with the dot-com and housing bubbles.

Today (June 2015) Bloomberg data show the MEDIAN down payment is back to 4%, a dangerously low level that means buyers have no equity in their homes. That limits mobility and results in negative liquidity if they must try to relocate.

Yes, I'm picking apart one aspect of what this professor wrote about how great and wonderful he was before becoming afraid of his liberal students. Yet, his example is a cherry-picked "conservative" that readers of this professor's column will find a believable representative of conservatives on campus.

For me, even if I agree with the points the professor later makes about liberals and progressives wanting to avoid any and all disturbing debates, the way the economic debate is depicted calls into question the author's teaching and actual ability to engage in deep discussions.

Friday, June 5, 2015

Bernie Sanders: Nice Guy, Bad Policy

Watching Senator Bernie Sanders on CNBC last week, I was reminded of why I like him as a person and worry that such an earnest, nice politician (a true rarity) could have such misguided ideas about economics. If only I felt the same about the men and women who tend support more classically liberal policies. I do not trust the politicians with whom I agree on economics, and I adamantly oppose the policies of the few politicians I might trust.

Yes, another lousy election season begins, not that they ever end.

Here is what Sen. Sanders said that troubles me. It proves he doesn't get market economics or how the areas in which government is most involved are least responsive to customers.
10 questions with Bernie Sanders
John Harwood
Tuesday, 26 May 2015 | 6:10 AM ET

The whole size of the economy and the GDP doesn't matter if people continue to work longer hours for low wages and you have 45 million people living in poverty. You can't just continue growth for the sake of growth in a world in which we are struggling with climate change and all kinds of environmental problems. All right? You don't necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country.
Forget 23 spray deodorants. I'm sure there are three or four times that number at my local Target and Walmart stores. And 18 different sneakers? Has Sanders not visited a Footlocker or Payless Shoes? I'm willing to wager Nike alone offers more than 18 styles for any demographic.

Limiting choices in clothing or personal hygiene products won't feed more children. What's sad is we have free lunch programs, SNAP, and other programs that aren't as efficient or as effective as planned. I've worked within impoverished urban and rural areas. Education is the only way to help families provide better and budget more wisely.

Children are not going hungry because we have choices within consumer products. Sorry, but developed nations have both the most choices for everything and the lowest rates of genuine starvation on the planet. If anything, because of those choices we have lower prices and allow money to be spent on more essential items.

In the United States, we spend less on housing, food, clothing, electronics, and many other items than in most industrial nations. We spend more on healthcare and education. What do healthcare and education have in common? Oh, yes… government involvement.

We spend (2014):
26.9% on housing
14.8% on transit
6.6% on food (lowest in the OECD nations)
5.1% on healthcare

If you aren't paying for college (which Sanders wants to make free — yet "free" is relative as Germany and other nations have discovered), and you have average healthcare insurance, the United States keeps getting cheaper for most citizens. I know it doesn't feel that way, but look at all the stuff we own today, from smartphones to HD televisions, that our grandparents couldn't imagine. Those things exist because of our free market and choices.

Even food, which I felt was increasing in price faster than inflation, is actually getting cheaper over time. Mother Jones, call it progressive or liberal or whatever, agrees that overall food costs are lower in the United States than elsewhere and getting even cheaper as a percentage of income.
On some level, this is pretty intuitive—food is a basic need, and there's only so much you can eat, no matter how much money you have. But even among developed countries, our food spending is ultra-low: People in most European countries spend over 10 percent of their incomes on food. In fact, Americans spend less on food than people in any other country in the world.
We do spend more of our gross domestic product on healthcare and education than other nations, for mediocre results — and both sectors of the economy are highly integrated with government. Nearly half of the expenditures in healthcare are from government programs (in the least efficient multi-layered payment model imaginable). If you want to drive down prices, make the billing easy and clear, especially for major medical procedures. Right now, people must let their insurance company or the government pay large bills without any understanding of the charges.

Real, transparent markets face pressures to compete.

Higher education assumes the middle-class will keep taking out subsidized loans forever, failing to respond to market pressures. Tuition isn't itemized, beyond the "per unit" cost. Unless you study the budget of a college, there's no way to know what you're really paying to receive. (Again, the "free" education markets in Europe turn out to be expensive, too, because only tuition is free, and the cities with universities are expensive places in which to live. More on that in another blog post.)

Sanders is a nice guy. He genuinely cares about the middle-class and everyone else. But, he doesn't seem to understand markets. That worries me, because people I respect are nodding in agreement with some of the economic statements made by Sanders. Do these people really imagine the federal government will somehow get magically more effective at allocating resources?

The market works, when you have a transparent and fair market. That's what we don't have in healthcare, education, or finance. Sanders' ideas might actually make the markets less transparent and less responsive.

Too bad other politicians support crony corporatism (not genuine capitalism) and don't seem to understand what our small and new businesses need for success. Sanders' policies would not be great for the United States, but I'm not sure they'd be significantly worse than the corporate welfare policies others continue to support.

Can we please have a free market candidate who is honest and able to educate voters in plain English? Not another crony corporatist and not a well-intentioned socialist, but someone with faith in the public and businesses to compete in a transparent market.

One of the mistakes Sanders and others make is claiming that libertarians resist all regulation. Not true. We support disclosure requirements, enforcement of contract law, fair (loophole free) tax policies, and considered public infrastructure. Most of us are not anarchists. We don't want to take away programs for the poor, disabled, and those hit by natural disasters. We want wiser spending, more fairly collected and disbursed.

Classical liberals should be wary right now. Sanders is a nice guy and he's going to sway a lot of voters — shifting policy debates further away from free markets. I blame crony capitalism that supported dishonest and uncompetitive "capitalists" for making Sanders' presidential run more influential.

We don't need government running the markets. We need government standing by to make sure the markets are open and fair. There is a difference.

Friday, May 1, 2015

Why Companies Are Individuals... and Not

Companies are people. And they aren't.

This concept of legal personhood, or legally responsible entity, is embodied in the United States Code:
1 U.S.C. §1 (United States Code): In determining the meaning of any Act of Congress, unless the context indicates otherwise the words "person" and "whoever" include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals;
The reason for this artificial legal construct is simple, though many progressives, and more than a few conservatives, fail to understand why the construct is necessary. If corporate entities didn't exist as people, they could not conduct business. Consider everything a company does that an individual does:
  1. Buy property.
  2. Pay bills.
  3. Enter into contracts.
  4. Pay individuals (employees and consultants).
  5. Register copyrights and patents.
  6. Pay taxes and fees.
  7. Pay fines… (yes, that matters).
Executives come and go, so suggesting they have the legal obligation for all contracts is absurd. Imagine having to reassign all contracts and property when a CEO, COO, CFO, or other executive left a company. That's not feasible. Likewise, board members and stockholder change. Companies are composed of people, but the composition changes constantly.

When you are hired by a company, no one individual is bound by the agreement: the entire company is. The people hiring you might leave, but you surely wouldn't want the employment contract to be instantly nullified. You need an employer to be bound by basic rules, just as a sole-proprietor would be.

Companies need to own buildings, furniture, technology, equipment, and real estate. Again, those items need to belong to "someone" (the legal entity) who isn't a person… because the people making purchases come and go. A delivery company owns its vans, and is legally responsible for those vehicles. The company has to pay for licenses, insurance, and any operational costs. That's personhood.

Legally, a person has free speech. Legally, a voluntary assembly of people has free speech. After all, that's what a political party is: a group of like-minded people engaged in free speech. So, does a company have free speech? What about a non-profit company? What are the limits and why?

The argument that companies aren't people is also accurate, but it ignores that people are the company.

Companies can't be sent to jail. But of course we should hold the individuals within a company responsible for illegal actions and decisions that harm others.

Trying to detail every case when a company is or is not a "person" would create messy legal disputes. We need to maintain the idea that companies are legal entities, while also holding leaders accountable for what they do as individuals.

Friday, April 24, 2015

The Post-WWII Boom... Not a Norm

I've long argued that it was not unions or government spending that produced the great post-war boom in the United States and much of the Western World. In December 2014, Tim Worstall published a column on The Register ("El Reg") that agrees with my basic theory: we had to rebuild after the war, and the U.S. was fortunate enough to be the one nation not destroyed during the two World Wars.
Bring back big gov, right? If only the economics, STUPID, could tell us more Post-WWII growth rates? Paaah Dec 2014 at 09:00, Tim Worst
You don't have to go all that far leftward these days to find someone brandishing economic growth statistics at you. Proving that growth was higher in the 1945-1973 period than it has been in our own more neoliberal age. Thus, of course, we should bring back the signal economic and political policies of those days so that we can speed up growth again. Big Unions, government controlling the commanding heights of the economy (this is not just Europe, by the way, the US economy was under a great deal of central control at the time as well), detailed planning. Hell, we should bring back the Old Labour wet dream!
Get ready for a lot of these claims during the 2015-16 presidential silly season. The "progressives" will call for a return to the past, arguing that correlation is causation. Obviously, in the progressive worldview, unions and government created the middle class (conveniently forgetting Henry Ford and a handful of other industrialists supported shorter workdays and higher wages for self-serving reasons). 

Unions and minimum wage laws were not created to help everyone, anyway. They were created to help some people — and harm others. 

Anyway, let us return to Worstall:
Which, to bring us back to our current state, means that sure, productivity growth today is slower than it was in the time of Big Unions. But not because of: it's just a coincidence that the unions thrived when we were playing catch up from the 1930s and '40s.
For here we end up with one of the central problems of economics as a field of study (at this point even I'm too embarrassed to try to call it a science). Which is that we've not really got all that information to be working with. We've really only got perhaps a half century of detailed information on perhaps 30 or so economies. What we've got for most places and most times is really pretty ropey stuff.

That's really just not enough information for us to be able to answer most questions definitively and accurately. […]
And, so it is with this discussion of post-World War II growth rates. Other than unions, planning and equaliteee, various thoughts are put forward. For example, that it was really about the rebound from WWII itself, which petered out after a time and we were back to normal.
And that is my argument: the Post-War boom was like a rubber band, pulled back and then bouncing quickly back into place. We had to rush quickly to return to normal, headed right past normal, and then vibrated a bit around the normal state.

War created demand and reduced the workforce. However horrible that is, war created a situation that felt like a huge economic boom. I'd argue that this isn't a great thing, since we have no idea what great minds and opportunities were lost while we built killing machines. Later, we rebuilt destroyed cities, but what if those great cities had not been leveled by carpet bombing? Yes, we had to bounce back, but was that really a "boom" so much as a quick recovery? I'm uncertain and don't want to test the economic benefits of global war any time soon. 

If we look at the global economic costs, the bounce back took until the 1970s for many nations. But, war did benefit the United States. From our perspective, there was a boom because we were not surrounded by the rubble of Europe or Japan. From an American perspective, the Post-War boom looks quite different and leads to assumptions about unions and big government programs. 

This faith in government also requires ignoring some of the problems associated with the New Deal, which likely extended the Great Depression and slowed recovery until World War II.

"What about the Cold War and Space Race?" progressives ask (and several books argue). Spending on technology to "Beat the Reds" led to innovations benefiting companies and society. Big Government spending powered economic growth!

If only the data supported this without any disagreement among economists.  
And – just for kicks – there's another possible explanation of the same facts.
Charles I. Jones, an economist at Stanford University, has "disassembled" American economic growth into component parts, such as increases in capital investment, increases in work hours, increases in research and development, and other factors. Looking at 1950–1993, he found that 80 per cent of the growth from that period came from the application of previously discovered ideas.
This is superficially similar to my own point. But it differs in detail. For people do point to the way that the State funded and directed must research and development post-war. And then tell us that the productivity growth came from that State involvement. But if all the basic research that we were applying to practical matters in that time came from before that time it cannot be the funding method of that time responsible, can it?
What? Research didn't create the economic boom, either? Not federally-funded research, no. 

It's hard to imagine, since we are taught that the Internet, the microchip, the computer, and so many things were dependent on government research. Reality is more complex. Companies wanted computing power, the same as government did. In some instances, the government solution was not the best technological solution, either. Government was one client, one research funding source, but not the only source and not always the best consumer. 

If Worstall and others are correct, we might not experience another boom like the Post-War period. The slower growth of today might be the real "normal" for our economic systems. No massive spending programs (Japan) or stronger unions (Spain, Greece) are going to counter the steady, slow economic normalcy we now inhabit. 

Then again, wars and other disasters do happen… 

Sunday, March 15, 2015

Another Would-Be Critic of Libertarianism Takes on a Straw Man -

The Fountainhead (film)
The Fountainhead (film) (Photo credit: Wikipedia)
When a critique of libertarianism consists primarily of figuratively shouting "Ayn Rand!" and tossing in the Koch brothers, Nietzsche, and Gordon Gecko (a fictional character, nonetheless), you can be assured the author isn't going to address the Nobel economists or noted philosophers associated with libertarianism on the left, right, and center. Instead of discussing the major thinkers of classical liberalism, the author will attack the caricature of "Libertarians" that has little to do with scholarly reflection.
Another Would-Be Critic of Libertarianism Takes on a Straw Man -
How refreshing it would be for someone to set forth the strongest case for libertarianism before attempting to eviscerate it.
Sheldon Richman | March 15, 2015 
We must face the fact that criticism of the libertarian philosophy in the mass media will most likely misrepresent its target, making the commentary essentially worthless. That’s painfully clear from what critics publish almost weekly on self-styled left-wing and progressive websites. How refreshing it would be for someone to set forth the strongest case for libertarianism before attempting to eviscerate it. Is the failure to do so a sign of fear that the philosophy is potentially appealing to a great many people?
I could list a great many economists and philosophers the left (and right) ignore when attacking libertarians and (almost) classical liberals like myself. Instead of engaging Hayek or Mill or Adam Smith, instead of exploring deeply individualistic philosophers on the left and right (not that critics don't rush to call existentialism or utilitarianism childish), the critics attack Ayn Rand… because some mildly educated radio personalities might quote her. Yes, because modern talking heads are the intellectual giants of politics. (Or maybe they are, on all sides. That's a sad thought.)

I wrote in 2013:
In the comments to both articles, progressives resort to attacks on Ayn Rand (and Ron Paul, Rand Paul, and few other people). The general claim is that Rand glorified greed. I don't like Rand — she was a lousy human being, but so were many, many other thinkers across the political and philosophical spectrum. But, I at least recognize that Ayn Rand did not glorify greed: she celebrated being true to yourself. The hero of The Fountainhead is not the richest or most powerful character. It is Howard Roark, the architect with a vision, a truly great artist more concerned with the art than money. How can liberals and progressives miss such a clear argument? It isn't about money, it's about the freedom to be true to your desires and talents. Ayn Rand was not a master of subtle plots. 
Rand's villains in The Fountainhead? The rich and powerful. The media. The political elite. The hero? An artist willing to walk away from money and crush rocks rather than surrender his integrity. Seriously? Liberals don't agree with that ideal? And as I wrote above, the classic movie adaptation of The Fountainhead is the only Rand work I can tolerate.

For more on misrepresentations of classical liberalism and the variety of libertarianism:

Friday, March 6, 2015

Society and Success

Success: It's not about money.

One of the critiques of "libertarian" and "classical liberalism" I answer is that these philosophical lines encourage greed, especially in the democratic capitalism of the United States.

Seeking your own success does not have to correspond to the pursuit of wealth as measured by bank statements and material goods. Authentic classical liberalism allows me to pursue whatever fulfillment I seek, without a government bureaucrat deciding we have too many artists, or too many doctors. We pursue our dreams — and the market demand determines if we can earn a "good enough" living.

And yet, there are cultural pressure in our society to count and tally our success in unhealthy ways.

Since childhood I have feared being poor. My family lived in tiny apartments, mobile homes, and small houses. We had "enough" but were always closer to less than more. My wife and I have lost everything. We have been broke. I had no checking or savings. No credit card. Nothing but the generosity of others. And it was horrible. But we survived.

For me, and many other upwardly mobile individuals, that dread of failure, of having nothing, makes us vulnerable to those social pressures of counting things. Oddly enough, you don't stop counting when you move into the top quintile, either.

In 2012, the top quintile started at $104,097. The average household income of families in the top fifth was $181,905 (Brookings Institute, June 2014). The top five percent of households had an average income of $318,052… and that top five percent started at $191,156 — not exactly Carnegie or Rockefeller wealth.

If you read those numbers, as I do, and consider where your household falls, is that a healthy way to look at success? It cannot be, and it should not be how we value ourselves.

My wife and I are successful, now. And I worry about that success vanishing. For the "semi-wealthy" or whatever we might call ourselves, there's a dread that the fall down is a matter of one lost job, one major illness, or the loss of a spouse. For some reason, we cannot relax and feel secure: we've worried our way to the top.

Unfortunately, the middle class tends to compare wealth… constantly. I hear it from my neighbors and coworkers. People earning decent salaries, with homes and cars and nice vacations, worry and compare.

Over the last three years, I have become shallower. I have let myself fall into the money matters nonsense of the competitive middle class, at home and at work. This need to prove to others that we are okay is fed by the poor manners of some people around us. I end up responding to their misguided bragging when I should walk away and remain quiet.

It isn't libertarianism or neo-liberalism or any other -ism that makes people behave this way. I've talked to anthropologists and historians about other cultures (and other times) when comparisons were different, yet still existed. Comparison to others seems to be a natural motivation to do better… but we should also be wise enough to know when comparisons cross a line and become unhealthy.

Looking at data, though, doesn't ease the stress.

I'm a contract university professor. I could have my hours cut to part-time. I could lose my job. Things could happen that would, in a moment, remove us from the top quintile. It shouldn't matter so much, but it does.

On the other hand, I worry about liking and doing things that are "conspicuous" and coming across as a jerk.

My wife and I are considering a new vehicle. I caught myself thinking about what the neighbors and my coworkers might think of various choices. No, I wasn't thinking about impressing anyone. Instead, I was wondering if we shouldn't get the best rated, second-highest mileage vehicle (by 1 MPG), because it might look like we were trying to show off to someone.

This is the current state of counting and competing: we want just enough to be equal to our neighbors, but we don't want to seem better than anyone else. We want to fit in with our friends, neighbors, and coworkers.

When what we should be wanting is whatever "success" means to us personally.

Friday, January 9, 2015

Rich or Smart... Knowledge, Skills Matter

Being "smart" (or at least hard-working with the opportunity to learn) matters, regardless of the economic class into which you are born. As even the most progressive, class-conscious scholars have found, a college education (in the STEM fields, ideally) at a good school corresponds well to later economic success. 

A year ago, The Atlantic featured this story:
Would You Rather Be Born Smart or Rich? WEISSMANN
DEC 2 2013, 12:17 PM ET
A recent Brookings paper gives reasons for optimism. Over the long term, it finds, smart kids earn more than rich kids. But sadly, there's a big catch.
The Brookings paper looked at the relationship between brains, motivation, and economic mobility among a group of youth the government began tracking in 1979. Here's the executive summary: If they were bright and driven, poor kids stood a decent chance of becoming upper-middle-class, or better. Of low-income teens who scored in the top third of test-takers on the Armed Forces Qualification Test (on the far left in green), more than 40 percent made it to the top two income quintiles by adulthood. Meanwhile, dimwitted children of affluence generally fell down the economic ladder. Among high-income teens who scored in the bottom third of AFQT takers (on the far right in orange), more than half ended up in the bottom two income quintiles. 
Studies using tests similar to the AFQT, such as the SAT or ACT, have found similar trends. Data indicate the rich and powerful are consistently in the top two percent academically. In other words, the "One Percent" (those wealthy people we should envy) consistently come from the "Two Percent" of academic test-takers (the "98th Percentile" in admissions parlance). 

As Jonathan Wai of Duke University wrote in his 2014 paper "Investigating The World's Rich And Powerful: Education, Cognitive Ability, And Sex Differences," the attendees of the Davos forums are well-educated in demanding STEM fields. Wai found: 
Among billionaires and Davos attendees, many majored in business and STEM. In the U.S., top 1% ability individuals were highly overrepresented: 45 times (base rate expectations) among billionaires, 56 times among powerful females, 85 times among powerful males, and 64 times among Davos participants.
As the Brookings Institute researchers found, and Wai confirmed the next year, academic success correlates to financial success and social leadership. Wai carefully recognized that wealth alone might not measure success, so he also included "leaders" of society in his data, though Brookings did limit their study to social mobility and educational potential.

Consider this chart from Brookings:

If you are born into the bottom quintile (the "lowest" class) but score well on academic placement exams, you have a pretty decent chance (clearly not all luck) of moving into the top two quintiles of income. If you are born into a top-income family, but score badly on placement tests, there's a decent likelihood that you will exit that upper-income quintile. 

As The Atlantic's Jordan Weissmann noted, there is a complication — and one I witness at the university at which I teach. 
Now about that catch. The unfortunate truth is that, more often than not, the rich kids are the smart kids. For many years now, the single biggest gap in American education has been between the well-to-do and the poor. Thanks to the resources their families can pour into parenting, wealthy students start out academically ahead the day they walk into kindergarten, and stay ahead through their high school graduation day.
By their late teens, six out of every ten children from the wealthiest slice of families place among the top third of test takers; six in ten children from the poorest slice of families place among the bottom third. They're mirror images of wealth and acumen.  
Now, we have a question that cannot be answered easily. The truth is going to be complicated in ways that please no political ideologues.

The genetic argument leads fallacies along uncomfortable ethnic lines, for example. Are the wealthy genetically predisposed to certain types of skills we now value in this economy? If that's the case, do their genes pass along some portion of the skills for success? 

The pure wealth argument (money buys opportunity) leads to ignoring genetics, culture, and other variables. Fallacies arise as simple correlations are used to "prove" the unfairness of tests, school, and the economy. The problem with this is that Wai studied data globally, not merely United States citizens. Success globally correlated to elite university educations. We also know that wealthy parents still can and do raise children who eventually fall out of the top income quintiles. 

The children of the wealthy fall from the top to the next-highest quintile. They do have a safety net, as data reflect. But, as adults those former children of the wealthy, newly part of the upper-middle classes, have children with even greater mobility — up and down the income ladder. Within generations, a family can rise or fall. In two generations, smart children and grandchildren of poor parents can reach the top two quintiles. 

In the United States, this intergenerational mobility isn't as quick as in some nations, but our income brackets expressed as class quintiles cover much wider income distributions. In other words, it is a much, much greater distance from the top to the bottom in the United States than in developed European nations. 

The true nature of social mobility eludes us. We know education is the key to success, including success not defined by money alone. But, how do we ensure access to education? And why do some people with access still fall from the top income quintiles? What variables determine how well someone uses the opportunity to obtain an education? 

Being test-smart and college-educated (at a top-tier school) matters a great deal in our technology-driven global economy. 

Friday, January 2, 2015

Washington Post... The Middle Class

Middle-class families have found themselves stagnating for the last two decades (at least). The Washington Post has published an outstanding series on the issues affecting the middle-class. The stories are long and well researched.

ABOUT THIS SERIES: The American middle class is floundering, and it has been for decades. The Post examines the mystery of what's gone wrong and shows what the country must focus on to get the economy working for everyone again.

My personal favorite part of this series has been Chapter 4, which describes how the appeal of the financial industry has drawn our best and brightest minds from other pursuits.