Government Subsidies Fuel Huge Tuition Increases

Previously I have commented about how college tuition costs have increased so much faster than any other industry in America.




Now Grey Gordon and Aaron Hedlund at the National Bureau of Economic Research have published a paper Accounting for the Rise in College Tuition confirming the source of this stratospheric rise -- tuition subsidizes (sometimes called "financial aid").  Their conclusion:

"colleges respond to expansions of financial aid by increasing tuition. In fact, the tuition response completely crowds out any additional enrollment that the financial aid expansion would otherwise induce, resulting instead in an enrollment decline."
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So in its usual perverse way, government distorts markets creating results that are exactly opposite to the ostensible goal.

Sound anything like what government did when it decided to increase home-ownership by subsidizing mortgages to buyers who were otherwise not qualified to obtain them? It should. Just as people were lured by mortgage subsidies to buy homes they really couldn't afford, lenders (in this case 90% government) lure young people to borrow money to pursue college degrees that many won't even achieve with the promise that college is a "sure thing" to a good job.

Bottom line: Owning a home and getting a college education are good things worth incurring debt for the right people who have a solid likelihood to repay. Government subsidies distort this equation such that all sorts of people who don't meet this requirement are enticed to borrow. People should be free to make bad decisions, but it's wrong for your government to actively enable them.

Median HH Income Has Fallen, But Not Because Workers are Earning Less

Yes, median household income has fallen. Not because those who are working are earning less, but because the number of households without earners is increasing. One-quarter of all households now have nobody employed and just subsist on the huge number of welfare handouts available In many states you are actually better off not working than having a job.

Yes, The Middle Class is Shrinking. It's Gotten Wealthier

I'm getting a little tired of hearing from both Democrats and Republicans that "the middle class is shrinking". Yes, the middle class is shrinking. And it's because they've gotten wealthier.


                                                                                             1967           2014

Share of American Households earning $100,000 
or more (2014 constant dollars)                                            8.1%         24.7%

Share of American Households earning
$50-100,000  (2014 constant dollars)                                  33.7%         28.5%

Share of American Households earning
$50,000 or less (2014 constant dollars)                               58.2%         46.8%



Why isn't this a good thing? Does this look like something that "must be fixed"? When your argument for socialism is that the Middle Class are getting richer, I think you've got a problem.  

Demagogue: A leader who makes use of popular prejudices and false claims in order to gain power.

Want More Unemployment? Adopt a Minimum Wage.

Want to have high numbers of unemployed? Just adopt a minimum wage to prevent people with low labor value from being able to work.

I'm sure it's just a coincidence that restaurant employment in Seattle stopped increasing just at the time Seattle enacted their $15 minimum wage.

Federal Government Is Big Source of Income Inequality

Chris Edwards at the Cato institute points out that the average Federal government worker's compensation is almost 80% higher than the average worker in the private sector. In fact just last year the VA Administration handed out over $140MM in bonuses (and they say that incompetence doesn't pay!).  The next time you hear Bernie Sanders or Hillary complain about income inequality, can we have a discussion of the Federal government's rule in that?

A Refresher on Marginal Tax Rates and Revenue

I'm pretty sure Bernie Sanders and Hillary Clinton were alive during the 1980s, so this shouldn't be necessary. But just as a refresher to them (and to those who weren't around then), let's review. In 1980, the top marginal tax rate was 70%. A few years later, Congress reduced the top rate to 28%. The chart below shows what happened to Federal Income Tax revenue from those in the top tax brackets. These aren't opinions; they're hard facts.

Now Bernie and Hillary are stumping to raise rates back to the high levels of 1980. To what end? To reduce the amount of tax the government collects? To reduce the number of people reporting high incomes? To prove, once again, that the Laffer Curve is quite real?

The Effect of Competition in ETFs

Eric Blachunas at Boomberg in one chart shows the effect of competition on Exchange Traded Funds. Management fees are much lower in the categories in which Vanguard (the low cost provider in mutual finds and ETFs) has an offering.

Is it any wonder that large financial firms continue to support regulations from Congress in order to stifle competition? Where they haven't been successful (e.g. ETFs) you can see the effect quite dramatically.

Government Subsidies Drive Higher Prices in Education

Economists (and non-economists willing to devote about 20 seconds of thought) understand that when you subsidize something the demand for it and the nominal price will both rise. For some reason, though (maybe there are just a lot of people who don't have those 20 seconds), the causal link between subsidizing college tuition and higher prices for that product hasn't sunk in. The Federal Reserve Bank of New York has published a new study which documents this perverse relationship. They conclude:

"We find a passthrough effect of Pell Grants and subsidized loans on sticker price tuition of about 55 and 65 cents on the dollar, respectively."

This is obviously a vicious cycle where tuition subsidies beget higher tuition, which in turn leads to calls for even greater subsidies. This may be exactly what the Democrat party wants, but it's clearly not in the best interests of the public.

It is no coincidence that the product categories with the highest rates of price increases are the ones that are most heavily subsidize -- i.e. tuition and medical purchases.

A Tale of Two Tickets -- Opportunity Cost and Climate Alarm.

John and Ted, two brothers, are big NFL football fans. Tickets to the Super Bowl are going for $5000 each on StubHub and Ebay. Suddenly they win two tickets to the SuperBowl in a raffle. John says to Ted, "We can't afford to pay $10,000 to go to the Super Bowl." Ted replies to John, "But we're not spending $10,000. We got the tickets for free." Discuss.

If you're an economist, the answer to this seems pretty obvious. If you're a politician, or a member of the general public, it isn't. But it illustrates an underlying problem in the political process -- namely, opportunity cost. The cost of those "free" tickets really is $10,000 for the simple reason that you could sell those tickets and use the $10,000 for something else. If you really would spend $10,000 for Super Bowl tickets, you're fine, but the fact that you already have them in hand is irrelevant.

This is the fundamental illogic that Bjørn Lomborg points out about Global Warming activists. Given that resources are not unlimited, if you spend $10 Trillion trying to change the climate, is the benefit of that greater than how else you could spend $10 Trillion? It's pretty clear from his analysis that it's not.

Every good idea is not worth doing. Because in doing that good idea you must sacrifice other ideas that may have more value. Going to the Super Bowl is a good idea for John and Ted. But is it a better idea than what else they could do with $10,000?

Without State Coercion Workers Opt Out of Unions

In 2001 the Washington State legislature declared that self-employed home health care workers (the sort that come in and care for you when you're ill) were effectively state employees because some of their customers were Medicaid recipients. Hence they were required to join and pay dues to the Service Employees International Union whether they wanted to or not. Because the SEIU funnels money to Democrats in the legislature it's pretty obvious why they did this.  In June, 2104, the Supreme Court struck down this arrangement. Here's what's happened since.


                                                         August  2014             August 2015

Child Care Providers                              6633                           7103
SEIU Union Members                            6633                           3451
% Opting to Be Unionized                      100%                          48%  


Within a year of being freed of the state coercion to belong to a union, half of them have opted out.

This is very reminiscent of East Germany needing to build a wall to keep people from fleeing the "workers paradise" they had created.    

College Majors Versus Earning Potential

The Democrats' chant of Free College just keeps getting louder. Bernie Sanders claims that free college would be the "driver of a new era of American Prosperity". But let's look at how well that's working today. An analysis by Georgetown University demonstrates that that there is no correlation at all between what a career pays and how many people choose to pursue it in college study. Few are opting for majors like engineering and pharmacy and finance that pay the most. More are opting for psychology and "fine arts" that pay the least. It's not clear how Free College churning out more "fine arts" majors is going to create prosperity. Maybe an economics course or two might help?

Also, a short quiz for Mr. Sanders and Mrs. Clinton. If you succeed in greatly increasing the number of college graduates with your Free Tuition scheme, what do you think will happen to the salaries for those with the degrees? Here, again, a course on basic economics might be helpful.

Bernie Sanders is Right. Our Economy IS Designed By the Wealthy

Bernie Sanders is running around the country braying that our economy is “designed by the wealthiest people in this country to benefit the wealthiest people in this country at the expense of everybody else.” If he'd left off the last six words, he's be absolutely right. Our economy is designed to reward those who are extraordinary economic producers. That's pretty much how you become really wealthy. Doing things that others find quite valuable -- whether designing great smartphones or hitting .325. The last six words are where he goes (intentionally, I'm sure) wrong. If the economy is "designed" by the successful to reward only the successful, they sure screwed it up. Darn,

Middle Class Incomes Declining?

The constant drum beat from the left: The Middle Class is disappearing. The number of people with middle class incomes is declining. Well, yes. The percentage of households earning less than $100,000 is, in fact, declining because more and more of those households are now earning greater than $100,000. How could that possibly be a bad thing? Unless you're a demagogue running for President.

Uber Expands The Ride Market

Bloomberg Business shows the effect that Uber and other ride services have had on the car-for-hire market. The Portland city government initially did what many incumbent-controlled city governments have done -- fight the innovation and the competition it brings to established markets. Finally in late April of 2015, they agreed to a 120 day "trial", which has since been extended. Not surprisingly, Uber and Lyft took market share from established taxi services. What they also did was expand the market in total. Portlanders took 100,000 more rides in August than they did in May. By introducing competition and making it easier for riders to hail a ride, Uber and Lyft have grown the total market. Just like the airlines grew the travel market while simultaneously taking share away form the railroads.

Pope Francis Should Look at What More Capitalism Might Have Done For Argentina

Pope Francis has been rather critical of capitalism. Perhaps he needs to review what has happened to the economic well-being of his fellow Argentinians relative to people in the United States.  I wonder if maybe Argentinians might wish they had experienced a little more capitalism in the last century?

The Prosperity Link to Fossil Fuels

So what should we make of the chart below? Obviously that the world's standard of living and life expectancy is highly correlated with the exploitation of cheap energy from fossil fuels.



Should this not at the very least give pause to those hell-bent on reducing the further development of fossil fuels in the pursuit of global warming? The ability of mankind to control the earth's constantly changing climate by building windmills is, at best, debatable. Is it worth jeopardizing the continued improvement in the lives of billions of people around the globe? More practically, what do you think the odds are that the governments of nations like China, India and Indonesia are going to say to their people, "We're going to dampen the growth in living standards you've been experiencing because some wealthy liberals in the US and Europe think that they can control the climate"?

The Obama Recovery in Nine Charts

President Obama insists that he's responsible for the economic recovery of the last seven years. I think he can take pretty clear responsibility for a lot of these. [Thanks to Zero Hedge for charts].

Where There's Smoke. . . There's Money Being Burned

According to the Washington Post, the number of  annual fires occurring in the country has fallen in half of the last 30 years while the number of career firefighters employed has risen by more than half.

                           Number of  Fires Annually       Number of Career Firefighters    Fires per Firefighter

1985                                 2.4MM                                      225,000                                    10.6

2015                                 1.2MM                                      360,000                                      3.3

% Change                          -47%                                          +57%                                     -69%


Are the firefighters we are hiring today just wimps?  Can't handle the task anymore?

Two words: Government Unions. The International Association of Firefighters brags that it is "one of the most active lobbying organizations in the country". And local governments cave in because, after all, who wants to be against firefighters? Or puppies? Doesn't this sound pretty similar to the NEA's constant whine to reduce class sizes for teachers?

The next time you see firefighters responding to something, notice how many of them show up. Usually two or three times as many as are needed.  Because they have nothing else to do. And the statistics above show you why.

Money Walks

On the site How Money Walks you can see how wealth migrates from high tax locations to lower tax locations. For example the two snapshots below show that Washington State is gaining wealth from high tax states and losing wealth to lower tax states.  This phenomenon is readily observable within the state as well, as wealth is migratiing from high tax counties like King to lower tax counties outside of Seattle.

And then, of course there's the well documented example of how California is driving wealth to other lower tax states.

And yet legislatures in these states keep drinking the poison of raising taxes. And Congress can't seem to understand how high US income taxes drive companies to send more business and jobs abroad.

The LA CIty Council's Minimum Wage Hike Is Also Working As Predicted

In September, 2014, Los Angeles City Council raised the minimum wage for hotel workers to $15.37. The wage went into effect in July, 2015, for hotels with 300 or more rooms, and will go into effect July, 2016 for 150-plus-room hotels.

Minimum Wage Hike Has The Immediate Effect the City Council Promised

The Seattle City Council said that its minimum wage law would have an intermediate effect on workers. They were right.

Capitalism is the Scourge of the Poor?

If you listen to those on the left -- Democrats, the media -- you would think that capitalism was the scourge of the poor. And then there are the facts . . . .

Private Versus Public Debt

Since the onset of the last recession the private sector has behaved prudently and reduced its borrowing. The public sector has been decidedly imprudent and continued to run up huge amounts of debt -- that the more prudent private sector will eventually have to pay. This is precisely how Greece got into the fix they are in.

Elefantes Blancos del Gobierno

It never ceases to amaze me that, despite all of the contrary evidence, people tend to think that government is wiser than they about how to spend their money, and that it acts in the best interests of the people rather than the government.

Exhibit A: Cuidad Real International Airport



Now, if you don't know where this is, you have a lot in common with the people of Spain (it;s about 100 miles form Madrid). You see, it's the brainchild of all those brilliant people who work in government. It's a €1 billion airport project, which the Spanish government recently sold to a Chinese consortium for -- ready? -- 10,000 Euros. And it's in pristine condition because it's never been used.

There are, of course, a few people who are quite happy about this. Like the friends of Spanish politicians who run the construction companies that were paid to create this white elephant. But the people of Spain? They're just next in line to slide into the same morass that the Greek government created for its people. For the same reasons.

Capitalism Makes Food Less Expensive.

"It's just sinful how those unfettered capitalists keep making food cheaper." -- Pope Francis?

People Think Obamacare is Bad -- Participation Rates Prove It

HHS released data around the participation rates among people who are eligible for Obamacare. Interestingly, but not surprisingly, as income levels rise and government subsidies decrease, participation levels fall off dramatically. What this says is that people do not find Obamacare to be a good value. The more of their own money they have to put up, the more they reject it.

Wouldn't it be nice if the government created plans that people actually wanted to buy instead of ones with richly mandated benefits that few need or want, restricted physician networks and a shell game where young people are asked to pay more so that older people can pay less?


Subsidy Level
% Above "Poverty Line"                % of Eligibles Participating

110-150%                                                     76%
151-200%                                                     41%
201-250%                                                     30%
251-300%                                                     20%
301-400%                                                     16%

Source: Health and Human Services (HHS)

Questions for Pope Francis

Pope Francis recently decried the effects of "unfettered capitalism" calling it the "dung of the devil".

Two questions for His Holiness:

1. What economic process does he think produced the results shown in the chart below?
2. Could he please name a place  -- any place -- where capitalism is unfettered today?




Don't you think the poor of Venezuela might prefer a big helping of "capitalist dung" to the dung they've had to eat under the "social justice" legacy of Hugo Chavez?

Economics Deniers

The Obama administration has been busy making it more expensive for companies to hire workers. For the first quarter of 2015 compensation increased 2.8%, while benefits increased 2.6%.The Obama administration recently increased employment costs by having the Department of Labor mandate time-and-a-half overtime pay for workers who had previously been classified as managerial. And now the 10-15% price increases for Obamacare medical policies are starting to be posted.  This will only raise labor costs and depress productivity further. 



The Obama administration wails constantly about "deniers" of global warming. But it appears that they themselves are "deniers" of economics -- somehow believing that imposing higher labor costs on employers will encourage them to hire more workers.

The Student Debt "Crisis"

$28,000   Average amount of debt owed by undergraduates who incur tuition debt

$17,000   Average annual salary difference between high school and college graduates

So the "crisis" is that I have to borrow money that I recoup in two years of working? Sounds like a good ROI to me. If that's a crisis, please bring me some more. 

Wages and Benefits Per Worker -- Perspective

Just something to keep in mind as you listen to all the rhetoric from Democrats running for President in the next year.

George Will's excellent reality-based graduation speech about the government-induced college bubble.

Income Inequality Is a Symptom, Not The Disease

Harvard  professor Robert Putnam has some revealing data in his book "Our Kids" that echoes the themes about which Charles Murray has been writing. Namely that America is becoming rigid. It is settling into immobile classes that don’t mix.  Not in neighborhoods, not in schools, not in marriage and not in work. 

The current fad is to focus on "Income Inequality". But this is focusing on the symptoms of a disease, not the disease itself.  It's akin to providing pain killers to cancer victims rather than chemo therapy . The disease is a growing class of people who, for a whole host of reasons other than not having much money, engage in adverse behaviors. Worse, they "infect" their children with those behaviors, as the two charts below demonstrate. 

AA figured this out out a long time ago. You can cite a dozen reasons why you're an alcoholic (including bad genes from your parents), but you can't stop being one until you take some personal responsibility for your condition. 

Education and Employment Qualification Screening

Not all that long ago when you applied for a job at Target or Safeway, you submitted a resume and went through a series of interviews. The purpose, of course, was to determine if you had the intelligence, skills and personal traits that were likely to make you a success in the position. Today, personal interviews are more a last-stage hiring formality. The initial screening is done by machine -- by online inventories and questionnaires.  Employers have proven statistically that this methodology is simply a better predictor than three managers conducting interviews. and much less expensive.

Let's now look at how employers go about hiring for higher skill jobs. Historically the most convenient way to make an initial cut is to screen for a college degree?  Why? 1) Because it was a fairly good way of separating the intelligent and motivated from the rest of the pack and 2) Because there were things you learned in college that were valuable to the employer. I think it's safe to say that the second reason is no longer terribly important for many employers who aren't hiring technical degrees. Half of today's college graduates work at jobs that really don't require a college-level education, and there just aren't that many jobs where a knowledge of gender studies or art history is critical. So for a lot of people we're left with a college degree being a crude way for you to signal to an employer that you're a cut above half the population that doesn't have that degree. 

That degree, that signal, is a very expensive one. Shouldn't there be a more efficient way to identify the types of people and the traits that are success factors for employers? Shouldn't there be some sort of testing mechanism whereby a person could say to an employer, "Look I have a A85 B92 C76 D47 E67 profile. Statistically that means I'm more likely to be a good performer for you than 80% of those people with college degrees who have lower scores on the attributes that are really important to you." 

This would not stop everyone from getting a college education. There will still be lots of people of who will want that experience and that education for personal reasons. There will be a few jobs where a degree in art history or gender studies really is useful. But its utility as a mechanism to signal employers that you probably have some general intelligence and verbal skills could be supplanted by much better and cheaper predictive tools. Then let the universities that want your (or more likely the government's) $100,000 demonstrate that what they teach you in those four years really adds a lot to your market worth. Surely they are up to that challenge, aren't they?

Killing the Job Goose: New Company Formation

Want to understand why job growth is slowing down? Almost all of net new jobs come from businesses that are less than ten years old, but the number of new companies being formed is declining. It is harder to start a new company today. Virtually impossible to take one public with all the new federal regulatory requirements (e.g. Sarbanes-Oxley). You can't even open a lemonade stand legally in under 60 days in most cities.  New businesses are the goose that lays the golden eggs, and we're strangling the goose.

Something to Remember on May Day

May Day was a day for the leftists in the Seattle population (which seems to be the same thing these days)  to get together for riots proclaiming the evils of capitalism -- how badly the people of the world have suffered from the advent and acceleration of market economics. Perhaps they'll want to use this chart as a discussion point the next time they meet.

Rich States, Poor States

According to Democrats the way to create a workers paradise is to heavily tax The Rich and enact more welfare programs and higher minimum wages. According to the latest Rich States Poor States report from the American Legislative Exchange Council, the five states with the highest taxes -- California, New York, New Jersey, Connecticut and Illinois -- lost 4 million residents over the last decade while low-tax states of Texas, Florida, North Carolina, Arizona and Georgia gained 4 million residents. Not surprisingly economic growth  in the high tax states is much lower than in the low tax states.

Apparently, people think "fairness" is more about growth and having a job than it is about redistributing wealth with "progressive" taxes.

Minimum Wages Laws=Greater Unemployment

Courtesy of Mark Perry comes this table contrasting the unemployment rates in European countries with statutory minimum wages versus those without such constraints. Just further evidence that the true goal of minimum wage advocates is not jobs, but to prevent wage competition from younger, less skilled workers. As the song goes, "Nice work  . . .  if you can get it."

Global Debts Keeps Piling Up

Debt is a tricky thing. If it's used productively (e.g. to finance purchase of cash generating equipment or an advanced degree that will land a high paying job) it can be growth accelerator. If it's used carelessly (e.g. to finance a vacation or to enable someone not to work) it can have disastrous consequences. In the last 15 years worldwide debt has more than doubled. Is it financing productivity? Or indulgence?

Why Bashing High Income Earners May Not Resonate So Well

Mark Perry points out why bashing high earners may not be getting as much traction with the public as Democrats would like.

Why China Grows Faster Than The US

One continues to hear a lot of China bashing. They compete "unfairly". American companies are "shipping jobs" to China. What you seldom hear is a discussion of the comparative economic incentives in China versus the US. The fact is, government in China has created a much more friendly place to work and produce than in the US. The US heavily taxes economic success. China does not. Wonder why Chinese businessmen no longer come to the US to set up their businesses? Look at the table below.


                                                              China                                                      United States

Capital Gains Taxes                                  0                                                            20-45%

Property Taxes                                          0                                                         Substantial

State and Local Taxes                               0                                                             10-20%

Top Federal Income Tax Rate                 35%                                                           43%

Corporate Tax Rate                                 15%                                                           39%

Inheritance Tax                                         0                                                               55%




Also consider that this China is not the casino economy the US is where everyone is playing with borrowed money.


Min. Home Loan Down Payment            30%                                                             3%

% Vehicles Purchased on Credit               7%                                                           >50%

Now, you might still rather live in the US for non-economic reasons. China  has a one-party government that can punish people it doesn't like (of course, as we have seen, the IRS behaves that way in the US). But what China has done is create the sort of economic climate that used to exist in the US. One where people were strongly incented to produce. One where people could keep most of what they produced instead of handing it over to government. The result is clear:

GDP Growth Rate                                   10%                                                             2%

Best Income Equalizer? Cheap Fuel.

Democrats are always posturing that they seek to "help the poor", but actions speak much more than those words. If Democrats really want to help the lower income population, cheap energy would be the place to start. Instead they fight fracking.  They fight pipelines. They fight gas production. They promote and impose expensive energy sources like solar power.  The wealthy can afford to pay for boutique energy.

If Grocery Stores Were Run Like K-12 Schools

Don Bourdreaux makes the point about the absurdity of the monopoly K-12 education by imaging what the grocery industry would look like if it were run the same way.

News reports would regularly include stories of “grocery experts” offering new and “pioneering” proposals to improve grocery distribution, and of the citizens of “grocery districts” meeting with their local “grocery boards” to discuss and debate these different proposals. ”Professors of Groceries” in all the top “Schools of Groceries” across the land would debate with each other and with the public the whys and why-nots of the failure of the latest scheme to make America again #1 in international measures of grocery distribution.  Newspapers of record would regularly feature headline reports on the “grocery crisis.”

Ordinary men and women – physicians, electricians, cab drivers, auto mechanics, professors of economics, web designers, kennel owners, carpenters – almost none of whom have the slightest bit of expertise or experience to qualify them to assess the different methods proposed to deliver groceries, would nevertheless be expected to have such an opinion, and they would be applauded if and when they attend the next meeting of the “Grocery Board” to express their opinions on how best to supply groceries.

Anyone proposing to get government out of the grocery-supply business would, of course, be ridiculed as being totally unrealistic or being an out-of-touch ideologue, or accused of harboring a secret desire to see the the vast majority of people starve while only the top one percent of the population continues to enjoy excellent access to superb groceries. 


Read the whole thing here http://cafehayek.com/2015/01/if-groceries-were-supplied-like-k-12-education.html

You Can Keep Your Wealth (NOT)

In his State of the Union Message, President Obama said the following:

And let’s close the loopholes that lead to inequality by allowing the top one percent to avoid paying taxes on their accumulated wealth. We can use that money to help more families pay for childcare and send their kids to college. 

This is an utterly bizarre statement any way you cut it.  It was lifted from the transcript, so it was not a mistake he made orally.  

First of all, there are no taxes on accumulated wealth. There are taxes on income that wealth may produce, but if you put your wealth into a checking account that pays zero interest, there are no taxes on it. This is not a "loophole"in the tax law. It is the tax law. 

Secondly, "loopholes" (even if they existed) do not produce inequality. What causes economic inequality are disparities in the ability to produce things of value for which others pay you. Inequality of skills and abilities has been the rule since recorded time. Yet the President thinks that inequality of wealth comes from something that the government does?

Thirdly,"we" can use that money? That is, that money you earned (after taxes) does not belong to you. Therefore it something that "we" can use for things that "we" feel like.

This is a very scary man who is not well connected to reality who mouths discredited Communist manifestos as if they were obvious givens. 

  

Household Income Has Fallen. People's Income May Not Have

This chart appeared in an article in the Wall Street Journal today. What it shows is actually true. The implications that the WSJ writer derives from it are not. Those not statistically literate (which is to say 95% of the population and 99% of journalists) would look at this chart and conclude that people are earning less now than in 2000.



A statistician would look at this and ask the question, "I wonder if the composition of households has changed since 2000?" It has.




The number of people per household who are actually earning an income has dropped quite a bit since 2000. Here's a simple example. Suppose you live in a neighborhood of 20 households. The median income per household is $70,000. The husband and wife in one household separate. Now there are 21 households in that neighborhood that, collectively, are earning exactly the same amount of money as they were before. The median income of that neighborhood has dropped, although nothing else as changed,.

It's important (even for journalists) that in examining data that you at least ask the question, "what else might be going on here?" before you leap to a conclusion.

Creating Jobs By Making Workers More Expensive to Hire

In the Bizarro World in which the President lives, the way you create more jobs for low-wage workers is to increase the cost to employers of hiring them. In no other universe do people spend more on something as the cost goes up.

The Queuing Economy in Venezuela

Hugo Chavez and his socialist successors in Venezuela have indeed created jobs for lower skilled workers there. You can now be employed as a "queue worker".  A queue worker is someone who gets paid to stand in line to purchase basic items -- such as mile, sugar, diapers, shampoo  -- that are in short supply due to government economic policies. Read the article here. It's a little hard to see how you could build a vibrant economy based on paying others to stand in line, but apparently the Venezuelan government is determined to try.

The Income Tax is More Skewed Than Ever

President Obama announced that in his State of the Union Message he would propose  to raise income taxes on The Rich. This announcement came in the same week that the IRS published new data for 2012 that show that income taxes are more skewed than ever before. Now we know facts and analysis are not the President's strong suit, but wasn't there anyone on his staff who could read charts for him? Or maybe it's the same staff that told him that Obamacare would reduce healthcare costs by $2500 per year? Or (more likely) the President just doesn't care much about the truth.

Why Government Continues to be "Floppy"

An article in The NY Times describes the efforts of Megan Smith to bring technology practices in the White House into the 21st century (they still use floppy disks there for example).

My prediction is that Ms. Smith will largely fail. Large, stodgy companies may be somewhat slower to adopt technology than those in Silicon Valley, but they do so at lightning speed compared to government. They don't do it to be "cool". They do it because it makes them more efficient. They do it because they are competing against other companies. They do it because it is profitable. None of these drivers are at play in government.

Instead, what drives government are political considerations that are often counterproductive. Exhibit A. In this article we learn that Ms. Smith is greatly concerned about what? Recruiting more female technologists. Can someone (Ms. Smith?) please explain why if the primary objective were to introduce technology for greater efficiency it would make one iota of difference what chromosomes are possessed by those designing the systems and writing the code? No doubt there will also be a push to recruit black technologists, Hispanic technologists and homosexual technologists. All of whom will continue to use floppy disks.