Tuesday, April 26, 2011

Income Polarization and Asking the Right Question

An article on Yahoo News today addressed the truth to Obama's statements that the rich have been getting richer while the poor get poorer (Economic Study). The article is based on Richard Burkhauser's work. One of his articles that has already been published is similar to the Yahoo article. The one specifically referenced in Yahoo, however, is still coming down the pike.

The article that is already available is "Presidential Address: Evaluating the Questions That Alternative Policy Success Measures Answer" (a bit of an unwieldy title, huh?). Burkhauser makes an important point that at the bottom of every answer is a question, and how one asks the question often greatly affects the answer. So the question "are the rich getting richer while the poor get poorer?" is a great question for casual conversation, but when it comes to actually answering it, things get much more complicated. Specifically, how should we measure how rich or poor someone is? Usually we just look at income, but as Burkhauser points out, this can often be too simplistic.

Burkhaused has an issue with the convenient use of the "bottom 90% and top 10%" as definitions of rich and poor. He prefers to use quintiles (5 groups separated by 20%). Sounds good. Another problem Burkhauser has is with using just income as a judge. He says:
However, this measure of
income growth does not recognize that tax units are a subset of households and that
income sharing can occur across tax units within households. (For example, two
unmarried persons who live together must file their income tax forms separately.
Doing so makes them two separate sharing units in the Piketty and Saez world of
column 1, but they are nevertheless likely to share their market income between
them in their single household.)
Again, he may be onto something. He also believes we should include "in-cash government transfers." Taking these three new additions to the measure of rich or poor:
When we then acknowledge that households are of different sizes and that the
income available to a given individual will be affected by the number of persons in
his or her household (returns to scale are not perfect) and adjust our measure of
income in column 4 accordingly, we find that the increase of the median person’s
household size–adjusted pre-tax, post-government in-cash income increased by 23.6
percent, more than seven times the growth in column 1. The definition of income
used in column 4 is the one most often used in the United States poverty, income,
and income inequality literatures.
OK, I can dig it. Maybe those sounding the alarm about income polarization are a bit hyperbolic. Burkhauser then goes on to add fringe benefits to the mix. This makes income polarization even less likely.

So in addressing what the proper question should be, Burkhauser has revised the conventional approach and added some important ways to better judge income polarization. But has he arrived yet at the right question? No where does Burkhauser address hours worked per week. If the lower 20% are working twice as many hours a week for an increase in his revised income measure of 26.4%, that isn't a real increase. Or if a middle income earner spent 3 years going to school to get a degree and spent $60k of their own money to increase their human capital, that too must be included in the question. Other examples would be easy to come up with.

I appreciate Burkhauser's casuistry, but two things must go along with his revisions. One is the realization that his question still hasn't gotten to the bottom of the Question. And secondly, the more details and specifics that are included (and even those which are left out) can make it much more difficult to tell if a researcher is cherry-picking data in order to arrive at a pre-arranged solution. I am in no way implying that is what Burkhauser has done, simply that it needs addressed.

Sunday, April 24, 2011

Not Capitalism, but capitalisms

One pet peeve of mine is that when people are critical of the economic structure of the US, the free-market capitalists say "but that's not capitalism." As if the macroecnomic situation in this country were merely a case of semantics. Call it by another name and everything is fine, just don't call it capitalism.

Well obviously what we have in this country is capitalism. Vietnam has capitalism as well. So does England. Heck even China is approaching what could be called capitalism. There is no Capitalism with a capital C. There are merely various capitalisms.

At the heart of this argument is the difference between ideal types and reality. Some hold the Smith view of capitalism as the only ideal type for capitalism. Anything else demands another name. This is simply semantic hairsplitting. There will never be a real life incarnation of Smith's capitalism -- so making it the benchmark to judge whether an economy is "capitalist" or not is moot. What exist in the world are real-life versions of capitalism. And there are many of them. They are certainly not the same, but they are all capitalism.

(As an aside, I would offer the theory that economies and finance are socially constructed realities. Since all societies differ, their forms of economy will differ. This also means that what works well for one society may not work well for another. Hence the failure of exporting American capitalism to the developing world.)

I'm currently finishing Joseph Stiglitz's Making Globalization Work (I got it used for $2.25 on eBay and little did I know was signed by the author :O) and then moving onto James Childs's Greed (connecting the economic and Christian ethics dots) before hitting thesis reading full time. In his preface, Stiglitz says much more eloquently what I've been trying to say:

There is also a growing recognition that there is not just one form of capitalism, not just one "right" way of running the economy. There are, for instance, other forms of market economies . . . that have led to quite different societies, marked with better health care and education and less inequality. . .. And when there are alternatives and choices, democratic political processes should be at the center of the decision making -- not technocrats. 

Saturday, April 16, 2011

Palm Sunday vs Passion Sunday

It's the time of year for my annual lectionary rant. There are very few events in the New Testament that we can place chronologically. Outside of Holy Week and Pentecost, I can't think of any off-hand. We know that Jesus entered Jerusalem on a Sunday around Passover. We know he was crucified on Friday and that he rose the next Sunday. Yet the lectionary conflates Palm Sunday with Good Friday. I hate that.

The entry into Jerusalem is prophetic, glorious, and inspiring. It is usually relegated to a short march around the church waving palms and saying "Hosannas." Then the congregation enters to All Glory Laud and Honor and that's the end of it. From then on out it's about the events of Good Friday.

Then Good Friday service comes around and the readings are about . . . Good Friday. Yet we just heard this in its entirety on Sunday. Why the redundancy?

The only reason I can think of is that the expert developers of the lectionary were aware that Good Friday services were sparsely populated. Hearing the Passion is certainly important. So they made sure to put it on Palm Sunday so more people would hear it. This is a cop-out of an excuse. Admittedly, I haven't seen an official excuse offered.

It's time we returned the readings to their chronologically appointed days. Palm Sunday is for Hosannas and Blessed is He's. Good Friday is for the Passion. On top of this, everyone should be involved in a movement to get people to church on Good Friday (that is -- people who are church goers). Good Friday services are rightly solemn, but many times unnecessarily boring. Let's keep the solemn but work on the boring. Perhaps even a reintroduction of the Stations of the Cross (egads! But the Reformation!?)?

Here are some other blogs that pick up the topic -- and probably do a better job of it:

Rev Out Loud
Unlikely Conversation: A Lectionary Blog
Old Worship New

Thursday, April 14, 2011

What Is Consent After All?

This came from an assignment where I was supposed to say two pages worth of something interesting about a Foucault interview ("Politics and Ethics: An Interview" for those really interested). I don't know much about Hannah Arendt, but the interviewer asked Foucault about her theory of power compared to his. That part isn't all that interesting, just the very last part of his answer when, concerning power relations, he says “perhaps one must not be for consensuality, but one must be against nonconsensuality.” This is a response to Arendt's concept of consensual power, but I believe there are many questions that can be mined from it. How do we define consent? Is consent the presence of a “yes” or the absence of a “no”? This is a foundational question regarding the definition of consent that I believe is immediately difficult to answer.

If we take this question and turn to a topic Foucault was fond of, sex, we can complicate things even further. In the realm of sexual relations, how is consent obtained? Do the conditions under which it is obtained affect the nature of consent, or even whether consent exists at all? Does the presence of a “yes” with an understanding of a quid pro quo in some way diminish the “yes”?

“Honey I'd like to do x tonight.”
“Eww, I hate x.”
“Well if you let me do x tonight I'll let you do y tomorrow night.”
“OK that's fine.” 
From quid pro quo it is not a big jump to coercion. Is the absence of a “no” when obtained under coercion consent? “I don't know how much longer I can hold out baby.” Do threats, even if implicit, of leaving a relationship if sex is not consented to diminish the “amount” of consent when it is given? And from coercion it is not a large jump at all to exploitation. Can a 14 year old Greek boy truly give consent to a 28 year old man? Can a young girl in rural France consent to a “harmless” game of curdled milk? At what point does coercion become exploitation?

These are all questions that I believe would have been fascinating to hear Foucault address in the course of this interview. I believe they continue to be important today – possibly even more so. Given the amount of questionably consensual sex on college campuses, these questions are not merely exercises in theory – they are materially important. I think it is important, however, that in trying to answer them we do not lose sight of the specific in attempting to provide broad rules of conduct.

Thursday, April 7, 2011

Fixing Our Economy Is As Easy As 1 2

Two changes to help sort our stuff out. These are a combination that I think are direly needed (and related). 

(1) As pointed out by Russ Roberts over at Cafe Hayek (already linked his paper a couple time), loss needs to be returned to the market. The financial meltdown occurred in large part because the financial industry felt confident betting with other people's money with the implied assurance that the government would bail them out if something drastic happened. 

(2) The state needs to supervise the market as opposed to the other way around (a point brought up by Foucault cited by Palma in a good article on the meltdown). It doesn't do us much good to ask GE to write tax laws. It doesn't do much good to allow Wall St to pick and choose which regulators they'd like. Or to ask polluters to write laws on pollution. The government determines the rules that the market will play by. Or at least that's the way it should be.

There is nothing "natural" about markets or capitalism. They are products of our cultural milieu -- in much the same way that football is. There is nothing "natural" about football. Someone invented it and then we found out it worked (and we liked it). But football does not exist outside of the rules that were constructed to play it. The same goes for the market. The government sets up the rules that the market should play by, then the market plays. The way things have been operating (since 1980 or so) has been, in effect, that the Super Bowl winners have been allowed to write the rules for next season.

And this brings us to campaign finance reform and political contributions. 

Saturday, April 2, 2011

Who Decides the American Dream?

Now that we are 3+ years removed from the beginning of this financial mess, and with each set of data a recovery seems underway, many are starting to turn to the job of finding out just what happened and how to prevent it in the future. At the heart of this debate is homeownership and the perennial question "Who decides who gets to own a home?" Dig a little deeper and the question is "Who decides who decides who gets a home?"

Many point to the GSEs (Fred and Fan Mae) as being the responsible parties in subprime loans. They follow that one step further to the goals laid down by George W and Bill Clinton to boost homeownership which then gets backtracked to the Community Reinvestment Act of 1977. There is still an underlying question that isn't addressed by these causes though. The GSEs, Bill and George, and the CRA were merely trying to increase homeownership of those people who could afford a home but simply didn't qualify for a "conforming" mortgage as laid out by banks.

The above causes contributed to innovations such as 3% down mortgages and piggy-back loans which both served to counter the 20% down rule of conforming loans (I don't want to touch on 0 down loans as they seem barely justifiable even in highly specific cases). Russ Roberts lays out some good ideas in "Gambling With Other People's Money":
The opportunity to borrow money with a 3 percent down payment has three effects on the housing market: 
• It allows people who normally wouldn’t have accumulated a sufficient down payment to buy a house. 
• It encourages homeowners to bid on larger, more expensive houses rather than cheaper ones. 
• It encourages prospective buyers to bid more than a house is currently worth if the house is expected to appreciate in value
The first of the three points above is the whole point of the changes to conforming loans. The other two points are interesting but would take me way too long to comment on.

 Now we have a working class family that makes $40k a year with both parents working who want to buy a $120k house able to put down under $4000 instead of $24,000. Quite a difference. Assuming they can make the monthly payments, is there any reason they should not have the 3% mortgage available to them?

Was this push for higher homeownership rates simply identified with revisions to conformity rules on mortgages? Were banks (especially the GSEs) pressured to give more loans not only with less money down, but to people less likely to be able to pay? Part of this question addresses how the banks decided who was "worthy" of a loan. Whether upper-middle class families play the credit rating game better, or whether the rules to the credit rating game are biased towards the upper-middle class, I don't know. I do know that if you look at just credit scores, you will get some glaring disparities between the results and the actual thing you're trying to measure -- the credit worthiness of an individual. So the GSEs came up with some new ways to determine credit worthiness. Some of them were probably very good. Some of them ended up being pretty bad. No/low documentation mortgages and 0 down mortgages are glaringly bad. Looking at more than just credit rating is pretty darn good.

Now in 2011 we have some people trying to say the "American Dream" of homeownership isn't even all that great. A soon to be released article attempts to show that homeownership compared to renting isn't even beneficial financially: Second Thoughts on the American Dream. This premise seems awfully specious to me. I'll have to reserve judgement until the whole article is published though. And hope there aren't too many math problems in it. Owning a home isn't for everyone. And it's certainly not a right. I agree. But for whom is it for then? If one looks at the homeownership rates by income level, it seems pretty obvious that homeownership is a benefit. Homeownership rates go up as income goes up. This seems pretty damning evidence for this article.

At the end of all of this, who "deserves" a house? Who decides who deserves a house? Are the rules we make concerning mortgages, conformation, percent down, credit-worthiness, etc. effective at limiting homeownership to those who can afford it? Or are they constructed in a way that prohibits some from buying a home that otherwise could afford it?