The 180 on Parental Choice By Senator Warren

About ten years ago I read a very well done book by, then Harvard Law professor Elizabeth Warren entitled The Two-Income Trap: Why Middle-Class Parents Are (Still) Going Broke” (2003) by Elizabeth Warren and Amelia Warren Tyagi.

Below is an excerpt from that book which makes a great deal of sense. Unfortunately, since the time she wrote it, now Senator Warren has discovered the money train provided by the teacher's unions. As a result she has completely reversed her opinion of parental choice in schools. There are only two possibilities here:

1. Being elected to office removes rational thinking from your skill set.

2. Senator Warren (who once claimed to have American Indian heritage in order to enhance her employment possibilities) has always been a hypocrite.

Not sure which is the more flattering choice.

Any policy that loosens the ironclad relationship between location-location-location and school-school-school would eliminate the need for parents to pay an inflated price for a home just because it happens to lie within the boundaries of a desirable school district.
A well-designed voucher program would fit the bill neatly. A taxpayer-funded voucher that paid the entire cost of educating a child (not just a partial subsidy) would open a range of opportunities to all children. . . . Fully funded vouchers would relieve parents from the terrible choice of leaving their kids in lousy schools or bankrupting themselves to escape those schools.

We recognize that the term “voucher” has become a dirty word in many educational circles. The reason is straightforward: The current debate over vouchers is framed as a public-versus-private rift, with vouchers denounced for draining off much-needed funds from public schools. The fear is that partial-subsidy vouchers provide a boost so that better-off parents can opt out of a failing public school system, while the other children are left behind.
But the public-versus-private competition misses the central point. The problem is not vouchers; the problem is parental choice. Under current voucher schemes, children who do not use the vouchers are still assigned to public schools based on their zip codes. This means that in the overwhelming majority of cases, a bureaucrat picks the child’s school, not a parent. The only way for parents to exercise any choice is to buy a different home—which is exactly how the bidding wars started.
Short of buying a new home, parents currently have only one way to escape a failing public school: Send the kids to private school. But there is another alternative, one that would keep much-needed tax dollars inside the public school system while still reaping the advantages offered by a voucher program. Local governments could enact meaningful reform by enabling parents to choose from among all the public schools in a locale, with no presumptive assignment based on neighborhood. Under a public school voucher program, parents, not bureaucrats, would have the power to pick schools for their children—and to choose which schools would get their children’s vouchers.

Median HH Income is Stagnant, but NOT for the Reasons You've Been Told

Mark Perry  at U of Michigan created this very interesting chart. Yes, median household income has not been growing for the last 15 years. You've heard that. But real hourly compensation has been growing steadily. Mathematically this can only happen if the median number of hours worked per household fell. There are several possibilities which would contribute to this:

1. Employed people are working fewer hours. We know that Obamacare caused many jobs to become part-time rather than full time. People may also be voluntarily reducing

2. There are fewer people employed per household. We know that household size has been steadily decreasing for some time. If a working couple divorces, the number of hours worked per household (now 2 instead of 1) drops as does the medium income per household.

3. The percent of the workforce that is employed continues to drop year after year. That results in fewer hours worked per household.

The bottom line is that when the media and politicians shout that the "median household income is falling" it is not because people are being paid less to work. There is just a lot less work being done in the average household.

The Answer to Failing Schools is More Money?

According to the most recent report from the National Center for Education Statistics, the amount of money (in real dollars) spent on educating K-12 students is almost 4 times today what it was 50 years ago.  Yet the quality of education has not improved and by many measures has declined. What are the odds that the remedy for this is spending even more money on the same education?  If your Ford dealer told you that the best solution for a car that didn't run well was to spend ever more money on it, would you? Or would you perhaps try something different? And how would you feel if government told you that if you did try something else, you'd have to keep paying ever more money to that Ford dealer?


Total and current expenditures* per pupil in public elementary and secondary schools

1920          $  598
1930            1251
1940            1562
1950            2325
1960            3568
1970            5546
1980            7027
1990            9705
2000          11302
2014          12509

*Constant 2015-16 Dollars

Oxfam Blames the Wealthy for Poverty

Oxfam (a UK based charity whose mission is "fight poverty") recently sent out this appeal (see below) in which they imply that poverty is caused by businessmen who are wildly successful. They are repeating the falsehood that wealth is a zero sum game -- that the less successful would be wealthier if, somehow , the really successful were less so.

The fact of the matter is that the number of people who are desperately poor (living on $1/day) has been declining steadily and significantly over the last fifty years -- i.e. the time frame over which all the wealthy people whom Oxfam disparages accumulated their wealth. The poor have become less poor precisely because of that wealth creation. Bill Gates wealth via Microsoft is not the reason the poor are poor; it is why they are less poor. Mr. Gates did far more for the world's poor by making Microsoft a success than he will ever do with his foundation (and the two are non mutually exclusive).

Oxfam's sloppy thinking (I'm being generous here) is deplorable.

	January Newsletter
	Just 8 people now have the same wealth as the poorest 3.6 billion
	Have you seen the news this week that just 8 men own as much wealth as the poorest half of the world's population? This news comes after the release of our new report "An economy for the 99%". Here at home and across the world, millions of ordinary people have been left behind by an economy for the 1%. We must take urgent action to reverse dangerous inequality – not accelerate it. The poorest people in our societies have been hit hardest – particularly women who suffer high levels of economic discrimination, work in the lowest paid jobs, and take on the lion's share of unpaid care work. Read more about staggering inequality and how you can take action >> Find out more

The Real World (not Obama's World) Will Continue to Run on Fossil Fuels

While President Obama was sitting in his office contemplating Utopian worlds powered by wind and solar power, his Energy Department was contemplating the real world in their Annual Energy Outlook Report.

Global Warming Data for the Rest of Us

I realize that the case for Global Warming is based on "complex models" that nobody but the most sophisticated climatologists can understand, but . . .



don't you think the above chart makes it a little harder to join the "question is settled" crowd? Don't you think that the news media getting excited over one of these oscillating spikes is a bit naïve? As a statistician, this data looks pretty random around a zero mean to me.

Minimum Wage Insanity

I eat often at a breakfast spot in Arizona I like very much. They employ about ten people. Most of them make minimum wage (plus tips).  This year they may face an increased cost of close to $40,000 in their labor costs. I doubt if this restaurant clears more than $100,000 in net profit. What do you think they will do in the face of a 25% increase in labor costs? How do the people who impose these costs by legislation expect small businesses to manage? This is pure insanity.

The Economically Innumerate in Government

In 2010, the New York legislature raised cigarette taxes to $4.35 per pack, the highest in the nation. It did this, it said, to raise more revenue for the state. Since that time revenue from cigarette taxes has plunged by $400 million. Organized crime is happy, though, as smuggling now accounts for nearly 60% of the cigarettes sold in New York. Anyone smart enough to review the history of prohibition in New York could have predicted this. Apparently you don't have to be very smart to be in the New York legislature.

When I lived in Chicago in the early 1970s, the city council banned detergents containing phosphates. Now what do you think happened? Sales of Tide and other phosphated detergents boomed in the suburbs around Chicago and nobody bought the phosphate-free detergents left on Chicago store shelves (maybe because they didn't clean very well).  The City Council of Chicago said they took this action to reduce Lake Michigan pollution from sewage in the Chicago Sanitary Canal. Since the canal actually flows out of Lake Michigan, not into it, I guess you don't even have to be as smart as a New York legislator to be on the Chicago City Council. 

Comparing Purchasing Power by State

What a dollar buys in Omaha is more than what a dollar buys in New York. And what a Euro buys in Athens isn't the same as what $1.08 (currency exchanged) buys in Omaha either. Thus the adjustment of Purchasing Power Parity. PPP adjusts for these factors and really tries to compare apples to apples, or at least what it takes to buy an apple somewhere.

With that in mind here is a select table of GDP per capita on a PPP basis for 2014.

North Dakota                             $72,719
Wyoming                                     69,993
Massachusetts                              67,515
California                                     58 901
Texas                                            58,748
Ohio                                              49,049
Missouri                                        45,721
Sweden                                          45,183
West Virginia                                40,003
United Kingdom                            39,762
France                                            38,847
Mississippi                                     34,784
South Korea                                   34,355
Greece                                            25,877
Mexico                                           17,107
China                                              13,206

One of the obvious takeaways is that even the poorest of the United States (Mississippi) is almost as wealthy as Sweden, and considerably more so than Mexico or China (which Donald Trump says are "beating us").

The Life Expectancy Myth

It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.  --- Mark Twain

One of the most often cited reasons in support of socialized healthcare is the fact that the United States spends more per person on medical care than any other nation, yet our life expectancies are lower.

That statement is actually true. However, as Robert Ohsfeldt pointed out in his book The Business of Health, the reason it is true is because Americans have a very disproportionate tendency to kill themselves. If you exclude homicides and auto accidents from the data, US life expectancy is #1 in the world. While our health care system is doing a poor job of preventing shootouts and drunk driving, it is doing a good job of healing the sick.

One of the exercises we had in my first economics class was to write a paper using statistics to "prove" something that was demonstrably false. It tuned out to be an easy assignment (I think I proved that church attendance caused crime rates to increase). In this case, it turns out (not all that surprisingly) that there are many things that affect mortality besides health care. Always look behind the statistics.

Why Government Productivity is Always Less Than the Private Sector

Want to understand why government productivity is inevitably much worse than the private sector?

Imagine there are two companies. Lets call them Alpha and Beta.

At Alpha, employees get reviewed frequently and are rewarded with raises if they meet their goals. Those that don't meet their goals for many quarters are fired and replaced with new employees. The company's motto is: Adequate is Not Good Enough.

At Beta, performance reviews have few consequences. Employees don't get raises for meeting goals, but rather for years of employment with the company. Employees who fail to meet goals are allowed to stay with the company as long as they want to. The company's motto is: Adequate Is Good Enough. 

What would you expect to happen?  Beta employees who are ambitious and can meet goals realize they can make more money working at Alpha. Alpha employees who can't or don't want to meet their goals get fired or quit and go to work at Beta.  Over time, what happens? Alpha ends up with more of the better performers, Beta ends up with fewer.

Now if Alpha and Beta are both in competitive industries, Alpha does well and grows; Beta shrinks and eventually goes out of business. But what if Beta has no competition? What if they can literally force their shareholders to give them money to stay afloat? They just keep getting worse and bigger.

It's just that way with the public sector and the private sector. The private sector attracts more of the ambitious goal-oriented employees; the government attracts the less ambitious people who seek employment security over accomplishment. Neither will ever be made up entirely of one type or the other, but the skews will be in opposite directions.

Economics 101: That which you reward you will get more of. That which you penalize you will get less of.

California & Texas Produce as Much as Canada & France -- With Far Fewer Workers

The superior productivity of the American economy in two charts

France and California are both roughly equal in economic output (GDP), but France requires a workforce a third larger to produce it.

Canada and Texas are roughly equal in economic output also, yet Canada requires a workforce 50% larger than Texas to produce it.

Some questions:

1. Why is the US so much more productive than France and Canada? [My answer: Because capital investment is more intensive and because government regulatory burdens are lower].
2. Would we be better off if, as some people desire,  the US were less capital intensive --  that is, if we had less automation, offshored less manufacturing, and employed more people to produce the same amount of goods?
3. Would we be better off if, as some people desire, government regulation of businesses in the US were at higher levels?

Two-Thirds of Households are Net Recipients from the Federal Government

Mark Perry recaps the annual “Distribution of Household Income and Federal Taxes, 2013.” from the Congressional Budget Office, which shows that about two-thirds of all households are net recipients from the Federal Government. That is, they receive more in payments from the Federal government than they pay the Federal Government in taxes. At a time when we are asked to ponder what Making America Great Again entails, we might want to ask if  a country is Great when the majority become economically dependent on a much smaller minority.

The Welfare Trap: Mapping Benefits and Income

A report from the Illinois Policy Institute shows why people are trapped on welfare. The graph below shows what happens to a typical welfare recipient in Cook County with two children as she's tempted to earn more money. This person optimizes her income by earning between $8.25 and $12/hour ($16,500 to $24,000 per year). Why would anyone seek a better job paying, say, $20/hour, when it results in less income?

As a final insult, politicians in places like Seattle are enacting $15/hour minimum wage laws, which actually decrease the income of the very people they purport to care about. All of this underlines Drum's Rule 1: Politicians who claim to be "solving a problem" by meddling with market forces, inevitably make the problem worse.  

Manufacturing Jobs Did Not Disappear Overseas

For anyone who thinks the reason American manufacturing jobs have disappeared is because companies have "shipped jobs overseas" consider this inconvenient fact.

Since 1979, durable manufacturing output in the United States has increased 167% while employment in these industries has declined 37%.  Manufacturers are simply using technology to do more with fewer people. That has nothing to do with Mexico or China. In fact the same trend to producing more with less labor is going on in Mexico and China as well. 

Donald Trump, nor anyone else, is going to change this. 

The Most Protectionist Country in the World

If China had free elections there would likely be a Trump clone promising to get rid of all the unfair trade restrictions imposed by the United States. According to a study by Credit Suisse, the biggest protectionist country in the world is not China or Mexico as Donald Trump claims.

Election 2106 Votes by Segment

Being very datacentric, I thought this look at how voter turnout by segment affected the election was quite interesting. Contrary to what some expected, the "gender gap" did not help Hillary Clinton all that much. It's also pretty clear that Obama's reelection owed a lot to people who voted for him because of his race.

Growth and Productivity. Simple Math

The clueless (e.g. the media and politicians) keep asking why economic growth has remained slow. The answer is simple mathematics (which might explain their inability to understand it). More and more resources are being shifted away from sectors with high productivity into sectors with low productivity (e.g. government, education, and healthcare). These low productivity sectors are all ones that government subsidizes, so it should not be a surprise. Neither should the resulting slow growth be a surprise.

College Majors and Gender Pay Gaps

Mark Perry went back to the Glassdoor report on salaries by college major degree and appended the percentage of those degrees that are awarded to males (keep in mind that 58% of all bachelors degrees are awarded to women).

So if women want to reduce the "gender pay gap" with men, there's a really easy fix that doesn't involve whining or government interference. They can just choose college majors that pay more.

Productivity Stagnation = Wage Stagnation

Ultimately, wages must reflect productivity. You cannot justify higher wages without higher production . Efforts to counter that without changing productivity-- e.g. misguided minimum wage actions -- are, then, merely transferring money from one set of people (those whose labor value is less than the minimum and are, therefore, unemployable) to those with higher skills and labor value.

You can argue why productivity has been falling in the 21st century (I blame increased government regulation and capital controls), but unless you change this curve, overall wages are going to continue to be stagnate.