Archive for the ‘Economics’ Category

Ban the box?

September 20, 2016

unknown-1Since 2007, eleven states have enacted bans on checking a job applicant’s credit score. The aim is equality and fair hiring – since someone with low credit would more likely be black, poor, and/or young. Yet when two economists (Robert Clifford and Daniel Shoag) studied these bans, they found hiring more racially biased.

Why so? Another well-intentioned liberal utopian idea whacked by the law of unintended consequences. It seems that when employers cannot see applicants’ credit scores (often a good predictor of reliability on the job), they give added weight to factors like educational attainment and experience – on which young, poor, and black people do even worse.

imagesThe Americans with Disabilities Act similarly aimed to help a disadvantaged class, by giving them a litany of on the-job-protections — enforceable through litigation. Thusly turning disabled workers into lawsuit bombs, making employers wary of employing them at all.

Well, you may say, what’s wrong with requiring employers to treat disabled staff fairly, and penalizing them if they don’t? But even an employer with all the goodwill in the world would realize that what she considers fair, someone else might not, and in today’s litigious culture, that’s a big risk. unknown-2Some lawyer sharks make their livings by cooking up dubious ADA cases and shaking down businesses for settlements. (The ADA was a bigger boon for lawyers than for disabled people.)

It’s all part of a trend to see businesses as enemies of society. As if people should provide you with goods and services with no profit, selflessly, as a public service. A friend of mine constantly whines about supermarkets making profits, asking why they can’t just give up some profit and cut prices. But she likes being able choose among thousands of products in one store. Supermarket profit margins average around 1%.

Now we have the “ban the box” movement – referring to the job application checkbox, “have you ever been convicted of a crime?” As though it’s somehow unfair for an employer to know this about a job seeker. Applicants do have rights; but don’t businesses have some rights too? Isn’t it, indeed, unfair to require a business to hire someone without knowing their credit rating, or criminal record? Those tell something about the person. And while people with bad credit or jail time deserve some consideration, are they entitled to be treated as though those facts about them aren’t facts?

unknown-3And I’m dubious anyway that “ban the box” would actually help the intended beneficiaries – let’s face it, mainly young black men. Who, percentagewise, have a greater likelihood of criminal justice encounters. Businesses know that. If barred from learning whether a black applicant has a clean record, a common response would be wariness about hiring him – making it harder for black men to get jobs. Just like with credit scores.

Sometimes the “unintended consequences” are not even a surprise. Sometimes they stare you in the face. But that never seems to daunt liberal do-gooders in their effort to repeal reality.

After I wrote this up, an article in The Economist reported on another study, showing states with “ban the box” laws, sure enough, do experience lower black hiring.

unknown-4And now Massachusetts has banned employers from asking job applicants what their present salary is. Fairness to women is the stated aim.

Why not just go for total fairness and require businesses to hire workers knowing nothing about them at all?

Observing an Alaskan feeding frenzy

August 31, 2016

We did an Alaska cruise. Not our first, but it’s a way for my 95-year-old Californian mother to get the whole family together.

imagesShe enjoys the shipboard slot machines. I pointed out there’s a device right in her stateroom where she could similarly put in money, press a button, and flush it away. Unknown-1But she prefers the ones in the casino.

One of our wildlife experiences was to witness that phenomenon called feeding frenzy. In the middle of the ship, they’d set up a special jewelry sale, a big table piled with boxed sets of necklaces, bracelets, etc, priced from $19.95 to $39.95. There was not much variety. But the deal of the century: buy four, get one free! Holy cow!

images-1Now, I am no connoisseur of women’s jewelry; but this garish stuff looked to me like what a six-year-old would enjoy for dress-up. Yet the table was thronged with women, grabbing stacks of boxes up to their chins.

I felt glad my wife wasn’t one of them. Then one friendly looking gal, holding a box, smiled wryly at me. images-2I said to her, “You don’t really need this.”

“I suppose,” she replied.

Emboldened, I added, “Looks like overpriced junk.”

“I suppose,” she said.

But I doubt this broke the spell or dissuaded her from buying.

The scene evoked that sneer word “consumerism,” which refers to your disapproval of someone else’s purchase choices. But I reminded myself of Pope Francis’s line: “Who am I to judge?”

Payday lending and lawyer extortionists

August 8, 2016

imagesPayday lending has been in the news again, with do-gooders seeking a crack-down. These are businesses making small short-term loans, to mostly poorer people in a fix for cash. Their charges, if calculated as annualized interest rates, might seem exorbitant. What would be reasonable? An 18% limit? On a one week $100 loan at 18%, the business would clear . . . thirty-five cents. Would you make such loans? With all the costs and overheads, rent, wages, etc., all the risks of running a business, handling a lot of cash, in what may be a crime-ridden neighborhood? Plus the risk of non-payment and all the hassles of trying to collect? Do these businesses actually make excessive profits? That we’re never told.

But well-intentioned liberals want to protect the poor from victimization by payday lenders. Put them out of business. So poor people needing quick cash will have no way to get it. Isn’t it great that affluent “progressives” stand up for the disadvantaged?

UnknownHowever, some businesses are predatory. Like Trump University. A total rip-off. And prominent among the predators are lawyers – whose predation mostly targets legitimate businesses. I’ve written about the class action lawsuit scam. You find some business that has done something maybe, arguably, a little bit wrong, no matter how trivial, and you sue their butt off, forcing them to settle to avoid ruinous litigation costs. The lawyers typically get six or seven figures, while the consumers they’re supposedly fighting for get peanuts.

Unknown-1One such case involved a restaurant’s alleged failure to honor a free meal coupon. A consumer, to get anything, would have to produce that old $3.99 coupon (good luck). The lawyers got $515,000. Who’s more guilty, them or the restaurant?

The Economist recently highlighted another such scam – lawsuits charging businesses with violation of the Americans with Disabilities Act. The ADA rulebook is hundreds of pages, so no business, however well-intentioned, can be in 100% compliance. And Congress, in its wisdom, instead of having a government agency police this, opened it up for private litigation. Maybe the lawyers’ lobbies had something to do with that.

UnknownAnd if you’re a business that’s sued — perhaps because a sign is not properly positioned – I’m not kidding – you might suppose you could simply fix it. Nope. No fun for lawyers in that. They get their pound of flesh just by showing a violation ever existed. And you have to pay their attorney fees too.

Not surprisingly, some lawyers have gone whole-hog into this ADA extortion racket – filing suits against every business in sight, shaking them down to settle rather than face even costlier litigation. Settlements typically run $3500-7500. But California has special rules even more skewed against businesses, so settlements there run $15,000-20,000. A California judge has ordered a Colorado retailer to pay legal fees likely to exceed $100,000 because its website didn’t accommodate screen-reading software for the blind. (There’s always something.) The Economist says some lawyers file dozens of these cases weekly.

So we target payday lenders, who provide a real service to needy people, but stack the deck in favor of predatory lawyers and against the legitimate businesses they victimize. And we wonder why small business growth in America is way down. Unknown-2All the yammering about “jobs, jobs, jobs” in political discourse seems disconnected from the fact that jobs come from businesses.

How to invest in stocks

July 9, 2016

imagesI’ve been investing in stocks for several decades. Here’s what I’ve learned.

In 2000, during the dot-com bubble, I owned AOL stock, going up and up and up. I thought it was crazy, but held on for the ride. Then came AOL’s buyout of Time-Warner. My rule of thumb is that mergers are bad for the acquiring company; the touted benefits rarely materialize. So I told my broker I wanted to sell my AOL stock. He tried to dissuade me, calling this merger the greatest thing ever.

UnknownIt was one of the greatest disasters ever. Turned out the AOL honchos knew their stock was way over-valued, and they were cashing in by using it to buy Time-Warner. The stock then collapsed.

Am I relating this to show how smart I was? Nope; I heeded my broker’s advice and didn’t sell. What is the lesson? I wasn’t so smart. My broker wasn’t either. Neither was Time-Warner. You can’t expect to outsmart the market or beat the market.

Everybody aims to pick stocks that will do better than average. Thousands of people are paid a lot of money for that. But the very fact that so many very smart people are trying is what makes it unachievable – they all cancel each other out.* Since they’re all so smart, with so many analytic tools at their disposal, so much information, computer programs and models, etc., no one can truly outperform the rest – except by mere luck.

Unknown-1That may be a bit overstated. It does happen. A good example is the housing bubble collapse that triggered the 2008 crisis. Most of the Wall Street herd didn’t see it coming, and continued drinking the Kool Aid right to the end. However, a few did see the true situation, and profited thereby. But that was a special case. More normally, if you’re smart enough to see something, a lot of others will be smart enough to see it too.

Now, since YOU surely aren’t smart enough to beat all that firepower in picking stocks, it might instead seem sensible to buy into a mutual fund, which employs hot-shots to do it for you. There are thousands of funds. Which to choose? Well, you can look at their track records and see which has performed best.

But here’s the thing about track records. Suppose all those mutual funds picked stocks by a random dartboard method. The results would form a standard bell-shaped curve – most performances would be middling, a few much above or below the average. If you choose the one that came top — what are the chances it will again be the best next year?

Unknown-2Of course mutual funds don’t use a dartboard method. They use, again, sophisticated analysis, computer models, etc. And because they all do, the results are the same – mostly bunched in the middle, some better, some worse. And remember, you can’t expect to beat the market, at least not consistently. So a mutual fund’s track record is not necessarily more predictive of future results than if they did shoot at dartboards.

Economists call this “reversion to the mean.” In a given year, out of a thousand mutual funds, inevitably one will clock the best performance. Does that indicate its guys are actually smarter than all the other very smart guys at all the other funds? Not likely! More likely it’s just natural random fluctuation around the mean (average) performance. So next year, its results will fall back to the average – “reversion to the mean.”**

Then too there’s “efficient market” theory. This says every piece of information relevant to valuing a stock is already folded into its price. You can’t really know something about a stock, affecting its future prospects, that the market doesn’t know (unless it’s “insider information,” illegal to trade on). Thus again it’s not normally possible to profit from trading stocks by being smarter than the market.

So you’d expect the entire universe of mutual funds to produce a return simply matching the market average. But actually it doesn’t. All that frenetic activity costs money, and they charge investors a percentage for their services, which makes the net return less than the market average.

imagesI recently read Nate Silver’s book, The Signal and the Noise, concerning all the problems of predictions. Wall Street is a major focus. Silver too notes that a lot of people are highly paid to try, and at the end of the day inevitably fail, to beat the market. Seems crazy. They all know about efficient market theory and that they can’t beat the market; or should know. But if they all actually followed the logical implications, no stock trading would occur at all. Yet having a functioning market serves a quite valuable purpose in the overall economy. The trillions worth of trades dwarfs the amounts “earned” by the investment industry (to essentially achieve nothing) – a small price to pay for having a financial market.

Every prospectus warns, “future results may not replicate the past.” Otherwise investing would be a snap and everyone would be a millionaire. The caveat is true on the largest scale. You’ve been told that in the long run, stocks do such-and-such; the market returns X%. And that may indeed be accurate concerning a very long past time span. But future results may not replicate the past. In fact, the future is quintessentially uncertain. The only certainty is that it will differ from the past.

Nevertheless, over the long term, stocks should provide a return for a simple reason. Their values are ultimately grounded in company earnings. And the typical company typically does earn profits. ***

Unknown-3If you ask people whether it’s a good time to buy stocks when they’ve been going up a lot, they’ll likely answer “yes;” and “no” when stocks have been falling. Those answers are – of course – wrong. In fact, this is really the most common investing mistake. When the market is high, stocks may well be over-valued; in a slump, they may be cheap. But optimism and pessimism are contagious. Many people plow in when stocks are up, while becoming demoralized and sell when they’re down.

A key consideration is the ratio between a company’s stock price and earnings. This P/E ratio for the whole market has, over the long term, averaged around 15 or perhaps somewhat more. If the market’s average P/E is much higher, stocks may be over-valued; and vice versa. Today’s P/E is above trend, at about 25.

If you want to just capture the market’s long-run tendency to produce a return through earnings, there’s a simple option: index funds that just track the performance of an index like the S&P 500. Since there’s no need for hot-shot analysis, fees to investors are typically quite low.

images-1So, how’ve I done, overall? Not bad. But I’ve had quite a few real disasters like AOL along the way. I’ve finally pretty much given up trying to be smart. That’s a sucker’s game.

* Remember that in general, whenever a share of stock is sold, somebody else is buying it.

** This was explained well in Leonard Mlodinow’s book, The Drunkard’s Walk.

 *** “Return” is the sum of dividends plus stock price appreciation. Earnings not paid out as dividends accumulate within the company and increase its net worth.


Trump’s trade trash talk

July 5, 2016

UnknownIf America is murdered, it will be in the Rustbelt Room, with the trade club. Pounding away with that club is Trump’s only chance of winning.

He exulted in Britain’s Brexit vote as a win for his anti-globalist line. Brits themselves are less celebratory, many already seeing their vote as an own-goal. Americans should not copy their economic suicide.

The Brexit vote spotlights breakdown of the old left-right political divide; now the more salient one is inward-looking versus outward-looking, open versus closed. UnknownThat has great resonance in America too. The Trump phenomenon is divorced from the conventional liberal/conservative dichotomy. The Republican party, long seen as a bastion of right-wing ideologues, has thrown that all overboard in embracing Trump, with his most telling anti-globalist symbol: a wall.

Alas, no important voices are refuting Trump’s trade tirade. Democrats, for most of their history, correctly saw free trade as good for the masses, with protectionism a means for business interests to screw consumers. But then, bent by the special interests of organized labor, they lost the plot. However, they found the snake oil politically saleable.

Unknown-1They never expected to be outflanked on the issue by a GOP candidate. Hillary, having bought the snake oil from the Bernie-ites, to placate them, dare not tell voters it’s poison. She’s reduced to merely mocking Trump’s hypocrisy in having profited from using foreign labor.

But if neither Republicans nor Democrats will expose Trump’s big lie, then I must.

Those good old industrial jobs, where with barely a high school education you could support a middle class family, are history. The main reason is advancing technology. We actually manufacture more than ever, but do it with ever less labor. Today’s economy no longer needs that much low or middle skilled labor.

This – making more with less – creates wealth and is why global living standards have risen dramatically. In the past century, worldwide average real-dollar incomes increased more than five-fold, and billions rose out of poverty.

And the other key factor, leveraging that benefit, is GLOBALIZED FREER TRADE. Freeing up trade enables nations to export more. They get richer, enabling them to import more, which means other nations can export more. Everybody gets richer; a virtuous circle.

imagesThis is the golden egg-laying goose Trump would kill. He assails the NAFTA free trade pact as a terrible deal that cost us jobs. In fact, the alleged U.S. job loss is very debatable . But NAFTA did cause huge job gains in Mexico, which became much more prosperous. Isn’t that something to our benefit? A richer Mexico buys more goods from us, increasing our exports, which creates U.S. jobs.

Anti-trade demagogues don’t mention that. Nor the real elephant in the room: that free trade, and importing cheaper goods from China and other countries, while admittedly entailing some job losses in the short run, saves U.S. consumers literally trillions of dollars. And when we spend those added trillions, that demand for other goods and services requires U.S. businesses to hire more workers to supply it. So in the big picture free trade really adds jobs.

What we need is not more barriers to trade, commerce, and enterprise, but fewer. People losing jobs to globalization won’t be helped by walling off America, but rather if they had more job prospects in a more open, dynamic economy. Ours has become sclerotic. We need to dismantle protections of all kinds enjoyed by special interests, restrictive practices, and roadblocks to open competition.

Slobovian widget

Slobovian widget

Here’s what anti-free-trade protectionists like Trump are really saying: that if Slobovia wants to sell us widgets cheaper than we can make them ourselves, we should refuse. Will that benefit us? Or Slobovia? It will benefit U.S. widget-makers at the expense of everyone else.

So Trump wants to impose tariffs – that is, import taxes – on Chinese goods, to keep them out. He doesn’t tell you this means you’ll pay more for much of what you buy. It won’t be a tax on China. It will be a tax on you. To protect business profits.

This is what some call populism.

What America needs: more competition

April 5, 2016

imagesUnfashionably, I am an unrepentant advocate for free market capitalism. Vocal “progressive” and populist critics assail the system as rotten, rigged against ordinary people, aggravating inequality. Their cure: more regulation and government intervention, protectionism, curbing free trade, forcing wages higher, and banning corporate money from politics.

Unknown-1Well, the system is indeed rigged. Corporate money does suborn government. And, as a recent piece in The Economist explains, not only have overall profits been strong,* but particularly profitable companies have, in this century, been able to sustain their dominance. That’s contrary to economic theory, which says fat profits in a sector will soon attract competitors, driving prices down and squeezing profits.

However, the cited “progressive” agenda would actually make things worse. Indeed, a lot of it is already part of the problem. The true problem is insufficient competition. And everything “progressives” seek would lessen competition.

When I wrote my Rational Optimism book in 2009, the airline industry was Exhibit A for the virtue of competitive free markets. Now it exemplifies what’s gone wrong. The industry once was pervasively regulated and government-cosseted, but in the 1970s Alfred Kahn (my former leader at the NY PSC) heroically swept all that aside. Unknown-2The resultant flowering of new small airlines and open competition slashed fares so much that flying was no longer for the rich alone. The skies opened to millions of travelers, a vast public boon. And, as of 2009, the industry’s cumulative profits, over its entire history, were approximately zero. In other words, all the benefits of airline investment were captured by consumers, with nothing for the “greedy capitalists” who made it possible!

But then a wave of consolidations and mergers drastically reduced airline competition. Carriers now have far more pricing power, becoming very profitable indeed. Their fuel costs recently collapsed – in competition’s heyday, that would have triggered huge fare cuts – but now airlines get to keep the windfall.

images-1So, as The Economist argued, what we need is not the anti-competitive “progressive” agenda but, rather, lower barriers to competition. One example they cited is the proliferation of licensing requirements, afflicting a host of trades from hairdressing to interior decorating. Supposed consumer protection masks the real purpose: squelching competitors to existing businesses. A hair salon can charge a lot more if there’s not another nearby. Likewise, incumbent taxi firms and hotels try to get government regulators to shield them from Uber and Airbnb.

Protectionism is the same story: protecting businesses against competition, so they can charge more. Sure, free trade means some job losses. They’re very visible, like when Carrier moves a factory to Mexico. Less visible is the benefit to consumers, of lower prices, adding trillions to their wallets – whose spending means vast job creation, making up for those lost. Protectionists ignore this.

Unknown-3I’ve written before how government regulation hurts competition. Coping with massively complex regulatory regimes like Dodd-Frank and Sarbanes-Oxley is doable for huge corporations with armies of lawyers and accountants. For small start-up firms, not so much. This has caused a big decline in our rate of new business creation.

Higher minimum wages too impede competition. Governor Cuomo’s $15 plan has brought forth a parade of small businesses explaining how it will hurt their viability, for self-evident reasons. “Progressives” dismiss such concerns, as if the money will just come out of fat profits, as if all business earn fat profits. Most in fact don’t. And driving some out of business, reducing competition, will make big ones even stronger, harming consumers.

I’ve recognized how campaign cash corrupts government to favor some businesses over others, again undermining competition. But opposing Citizens United is anti-competitive on the part of the political class itself. Government regulation of political campaigns will always be an incumbent-protection scheme, stifling electoral competition. I’ve advocated instead a tax credit for political donations, to unleash a flood of citizen contributions, freeing politicians from servitude to big money donors. The savings from reduced corporate welfare would dwarf the cost, to the Treasury, of the tax credit.

images-3Competition makes people better, do better, and live better.



The truth about immigration

March 30, 2016

My local community is having a celebration of immigrants. It’s timely, given our national panic attack over immigration. Unknown-1Forgetting Ronald Reagan’s “Tear down this wall,” now a presidential candidate wants to build a new one.

Do immigrants take jobs from Americans? Many think there are only so many jobs to go around, and anyone hired means someone else unemployed. Economists call this the “lump of labor fallacy.” It assumes a static, unchanging economy, whereas the reality is constant dynamic change.* Add productive capability, and uses for it will be found.

Immigrants do add to such capability, thus making our nation economically stronger, not weaker. Especially since they have more drive than the pre-existing population’s average. Countries like Mexico are not sending us “wretched refuse.” To the contrary, anyone willing to face all the hazards of emigrating is among the most courageous, ambitious, enterprising, resourceful, capable of people. We need them. They come here to get ahead, not to get hand-outs.

images-1In fact, we have a huge problem with a growing imbalance between our rising elderly population, collecting benefits, and those working and paying taxes to fund those benefits. Young work-hungry immigrants help redress that imbalance. Thusly replenishing our work force is a key factor making America’s economy stronger than Europe’s (actually more anti-immigrant than we are).

America believes in freedom. A fundamental freedom is to live where you want. Should we then let everybody in? It’s not a crazy idea. Economists have estimated – get this – worldwide free movement of people would double global GDP. Because migrants would multiply their earning power by going to where their work is more productive (often because of better technology). Most poor people are poor because they’re trapped where their productive potential is vastly underutilized. Remedying that, through freer movement, would go far toward eradicating poverty. And the resulting more efficient production of goods and services, globally, would make everyone richer.

Some fear immigrants will degrade our culture.

Learn English or get out

Learn English or get out

But successive waves of immigrants have enriched U.S. culture, continuously rejuvenating it; our polyglot diversity is what makes our culture the world’s most vibrant and attractive. Ironically, those who fear this cultural flux are not themselves paragons of cultural refinement. No, it’s not immigrants who threaten America with cultural degradation – it’s the immigrant-haters, who would hand the presidency to a braying, bragging brute.

Real Americans love apostrophes!

Apostrophes belong to Americans too!

*Automation is a similar jobs bugbear. So far employment has always actually expanded. But is technological progress finally leading to all production needs met without jobs for all? Ever fewer people are employed making stuff — but more in services. Unskilled work is disappearing, hurting the less educated. Our challenge is to make everyone productive.

Morocco: open for business

March 25, 2016

UnknownSince our daughter had a gap between jobs in Jordan and Afghanistan, we met up for a hastily booked Morocco tour.

We had been to this North African country before, a brief side excursion. I remember exiting the tourist bus in Tetouan and saying, “Toto, we’re not in Kansas any more” – it was like stepping back in time a thousand years. But that was not representative of Morocco, whose modernity, this time, surprised me.

photo by Elizabeth Robinson

photo by Elizabeth Robinson

It’s overwhelmingly Muslim, with two main ethnic groups, the indigenous Berbers, and Arabs who came later. Ethnic tensions seem minimal. I asked our tour guide about this, in light of sectarian strife in other Islamic lands. “Those people aren’t Muslims,” he said, “they’re fanatics.”

Moroccans are bilingual, equally using Arabic and French (this was a French colony, 1912-56). The distinctive Berber script is seen occasionally; and of course there’s Globalspeak (English).

Berber script

Berber script

Morocco is a constitutional monarchy, not what you’d call a free country; but while the King, Mohammad VI (since 1999), is really still the boss, he’s done a fair bit to modernize, liberalize and democratize Morocco.

Volubilis - photo by Elizabeth Robinson

Volubilis – photo by Elizabeth Robinson

It was part of the ancient kingdom of Mauretania; later, of the Roman Empire. A nice surprise was visiting the extensive ruins of the Roman city of Volubilis – off my radar screen because (unlike the typical ancient city), Volubilis issued virtually no coinage.

We spent quite a few hours in the “medina” (old city) of Fes – a vast labyrinth of narrow streets. Here, and elsewhere, one finds an incredible profusion of little stores and seller stalls; the country is like one gigantic flea market, offering every sort of edible, wearable, or useable. One stall might have nothing but a mountain of peanuts; others with pyramids of dates, or cookies, or spices, etc. Even bathtubs! People mostly do their shopping, and many earn their living, through these markets.

My wife wanted to try a sizable disk-shaped bread loaf. The quoted price was Two Dirhems – about 20 cents. But for that we actually received two loaves.

I wondered aloud how they all could sell enough to stay in business. But my daughter pointed out the obvious: they wouldn’t be there otherwise.

Then we went to Marrakech, where the souk (marketplace) was orders of magnitude larger, with the profusion of goods bordering on unbelievable: mountains of shoes, foodstuffs, handbags, electronics, souvenirs, jewelry, handicrafts (one entire section, for example, with stall after stall selling brasswork); a lot of the production was being done on site too, making for quite a humming scene.

imagesI had fantasized finding a pile of those cool cast 19th century Moroccan coins, but didn’t see any. At the end I asked our local guide, and he took me back to one gnarled ancient fellow who came forth with a bagful of about 30. But his price was way high. Then our guide knocked on a closed door, which opened into an antique shop, with a bucketful of silver coins. I bought a few Moroccan ones in unusually choice condition – and a 1929 Italian 10 Lire – good date! – and a steal. Meantime my daughter bought a handbag and some boots, proving herself better than me at haggling.

Photo by Elizabeth Robinson

Photo by Elizabeth Robinson

We also had the obligatory tourist visit to a carpet emporium. Once on a similar excursion in Turkey, I made the mistake of agreeing to sign in with my phone number. I couldn’t believe how often those carpet pushers called me in subsequent years, despite my increasingly angry brush-offs.

The overall impression of Morocco was one of basic prosperity. There were, admittedly, a fair number of beggars. But many looked no scruffier than a typical seller in the souk. I suppose that holding one’s hand out is actually a more effective way of getting passersby to part with cash.

UnknownBut Marrakech is also a very modern city, whose main drags might be hardly distinguishable from, say, Lille, or Dusseldorf. We visited one glitzy shopping mall, very different from the chaotic souk, with beautiful Moroccan décor, and the poshest brands. I remarked to my wife, “I must be the shabbiest looking person in this mall.”

And the Moroccan economy is not all souk sellers flogging kitsch. Everywhere you looked it was evident that every sort of modern business was thriving. The roads were jammed with vans and trucks displaying a profusion of their logos. If not politically free, this is manifestly a very open, free economy. I am always energized visiting countries like this. It’s part of a worldwide phenomenon, of recent decades, which many people fail to grasp amid all the gloom and doom talk. Economic openness, free enterprise, and trade, are transforming, for the better, the lives of billions of people.

I couldn’t help pondering the contrast with a country like Venezuela, where folks stand in line for hours outside the few stores, hoping for a rare chance to buy some meager necessities – thanks to their “21st century socialism.”

“Our Kids” and the real inequality

March 5, 2016

imagesInequality is a big issue. But focusing on the 99%-versus-1% is misguided. The idea that if the 1% had less the 99% would have more is incorrect.*

unknown3America’s real inequality problem is addressed in Robert Putnam’s recent book, Our Kids: the growing divide between two very different cultures, and decreasing mobility between them. It’s not the 1%-versus-99% but, roughly speaking, the top third versus the lower third.

Putnam’s departure point is the 1950s Ohio town where he grew up, where the phrase “our kids” was used by both rich and poor talking about all the town’s kids. Because they really all lived in a unified community. That kind of social solidarity is a bygone, sundered by a wall of separation.

Affluent well-educated people tend to marry well-educated mates and provide their kids with a stable, nurturing, well-resourced path for repeating the process.unknown-31 The other culture comprises those who don’t go to college and consequently earn much less. The divide is widening because the workplace value of education is increasing. It’s not some conspiracy by the rich to keep down the rest. Rather, it’s a raw economic reality that in today’s world unskilled work just isn’t worth what it used to be.

But the problem isn’t just money. Today’s lower income Americans actually have more income (when you count government benefits) than in Putnam’s 1950s town. And way more than in the Depression and before. Yet those poorer people nevertheless mostly managed to maintain stable, nurturing family structures. Today’s do not.

UnknownThis is the heart of Putnam’s book. In contrast to the Ozzie-and-Harriet child-supportive marriages of the educated class, today’s less educated tend to have more chaotic family situations, often without marriage at all, in which children don’t get comparable nurturing and support. And those kids are similarly set up to repeat the picture; it’s extremely hard to break out of that culture to obtain the education and personality traits needed for rising into the affluent class.

Drilling down into the reasons, Putnam sees parenting styles as crucial. For the affluent, the social norm has shifted from the relaxed Doctor Spock approach to “intensive parenting,” influenced by well-publicized research revealing the importance of early parent-child interactions in personality development.** Less educated parents haven’t gotten this memo, or else aren’t able to follow it, due to financial and other stresses in their own lives. images-1Compared to the affluent, their parenting is more restrictive and punitive – less hugging and more spanking.

One researcher contrasts the affluent’s “promotive” parenting strategies, aimed at encouraging children’s talents, with poorer parents hewing toward “preventive” strategies to cope with the dangers of a rough environment. Further, affluent parents not only speak vastly more words to their kids, but the vast majority are encouragements, whereas for parents on welfare the great majority are discouragements.

Not surprisingly, all these parenting differences have been shown to affect children’s brain and personality development. (See my post on the marshmallow test.) That’s how poor families get stuck reprising their trajectories.

What is to be done? Good schooling might ideally compensate for parenting disparities; but for a cat’s cradle of reasons, which Putnam explores, schools in disadvantaged neighborhoods tend to exacerbate rather than rectify cultural disparities. For example, because their environment is more stressful, good teachers flee them.

Putnam does conclude with a list of suggested fixes, but basically it’s all doing more of the well-intentioned things that are already done, generally inadequately. Unknown-1But here’s a more radical thought. It’s also clear from the book that less affluent kids do badly partly because they live in bad neighborhoods. Let’s move families to better neighborhoods. This has actually been tried and shown to produce good results.

* The mistake is thinking there’s a fixed amount of wealth to go around, so anyone’s gain is another’s loss. Wrong. Steve Jobs got rich selling gizmos for more than they cost to make, to people who valued them more than they paid. That’s how societal wealth is increased. Buyers of his products would not have been richer had Jobs not gained wealth, they’d have been poorer.

 ** Putnam acknowledges that “helicopter parenting” has its own problems; but still insists they’re dwarfed by the problems he documents in lower class families.

Can money buy happiness?

February 14, 2016

UnknownMoney does buy a lot of things that enhance well-being; and many of life’s problems can be solved if you have enough money. But past that point, scientific evidence suggests, more money may not make you happier. (Though still the quality of life is better, and I’d rather be rich and miserable than poor and miserable.)

Some profess bafflement why people who have enough still want more. As if that were not fundamental to human nature. Yet wanting more is labeled “greed;” and wanting more, globally, in the form of economic growth, likewise gets tarred as a kind of greed. There are even those (like climate activist Bill McKibben) who deem economic growth a bad thing. But that’s supercilious in a world still far from the point where everyone has enough to live decently.* (And, no, redistributing all the wealth of the rich wouldn’t do it.)

It’s also argued that wealth inequality actually reduces everyone’s well-being. At least some wish that were so, to bolster their anti-wealth political agenda. But I doubt the rich are much perturbed by inequality. Indeed, there’s evidence that on average they’re stingier, less charitable, and just less nice. It’s not clear whether wealth makes one mean, or being mean helps make one richer. But either way, many (though not all) rich people feel superior and disdainful.

UnknownHowever, if lefties then arguably have a point that wealth tends to go to the “wrong” people, that seems to be a basic fact of human society that cannot be undone without destroying the sources of economic growth and progress – that is, people striving to better their personal situations – that have meantime made the world as a whole so much richer, especially in the last century, eliminating so much squalor and misery.

Getting back to happiness, what the word actually means is a big and difficult question. But people generally seem born with (or to develop) a set-point along the happiness/unhappiness spectrum, to which they tend to revert eventually after the impact of any vicissitude. One element of a happier personality is a sense of gratitude – not taking one’s blessings for granted.

images-1A related key reason why, beyond a certain point, added wealth doesn’t increase happiness is what social scientists call the “adaptation effect.” One adapts psychologically to a new higher living standard; the surprise wears off and the “new normal” becomes what you now expect and take for granted.

Also relevant here is a set of Kenyan socioeconomic experiments reported by The Economist. In small villages, sizable cash grants were given at random (echoing the typically unequal distribution of economic growth). Recipients’ feelings of well-being measurably rose. But for neighbors, they fell, by even more. (Though all these deviations wore off after a while; the adaptation effect.)

But notably, as The Economist explained, “it was not inequality in general that bothered the unlucky, so much as a decline in their own wealth relative to the mean.” That is, their sense of well-being was governed not by their absolute wealth levels but, rather, by the comparison against their peers. The cash grants raised a village’s average wealth, making the non-recipients poorer compared not just to the recipients but to the average.

images-2“Keeping up with the Joneses” is a very real psycho-social force. As The Economist further says, in evaluating one’s relative position one tends to look at those above rather than below; so, “when our own lot improves, we shift our reference group to those who are still better off. In other words, we are never satisfied, since we quickly become accustomed to our own achievements.” The adaptation effect again. “Perhaps that is what spurs people to earn more, and economies to grow.” (My emphasis.)

imagesConclusion: to keep people from getting rich would not be good for the poor, but bad.