Half Changed World

can you live without credit cards?

With Congress about to pass restrictions on some of the ways that credit card companies make life miserable for unwary users, the credit card companies are claiming that they're going to have to raise fees, curtail reward programs, and eliminate grace periods on those who pay off their cards every month.

This is obviously BS.  If the credit card companies were losing money on people who pay off their cards every month, they wouldn't be giving them credit.  They're making money now, even with the grace period and reward programs, because they charge merchants a cut every time someone uses their credit card.  And if they could make more money by eliminating the reward programs, etc., they would have done so already.  If they start charging fees, they'll just drive their customers away.

The NYTimes has an interesting discussion on the subject going, with lots of people saying that if credit card companies started charging annual fees, and/or eliminating the grace period, they'd just stop using credit cards.  I'm in this category -- I use my credit card for convenience, and could switch to a debit card without too much hassle.  I'd need to keep more of my money in the checking account to ensure against overdrawing, but could presumably find an interest-bearing checking account to use.

That said, there will be losers (other than the credit card industry) as a result of this bill. There will be fewer card offers with low teaser rates, and the people who successfully juggled different accounts to always keep the interest low will be worse off.

The credit card industry may also try to squeeze more out of merchant fees.  I'm not quite clear on how the system of merchant fees isn't a violation of anti-trust law, but they've got a pretty good monopoly going on.  And merchants are afraid they'll lose huge chunks of their customer base, or that customers will spend less, if they don't take plastic.  I noticed last summer when gas prices were really high that some stations were offering discounts for cash -- I hadn't seen that in a while.  (Visa and Mastercard don't allow stores to charge a transaction fee for using them, but they do allow discounts for cash.)  I'd assume that if they increase the fees enough, more stores will start offering discounts for cash.

Could you live without your credit card?  And how much of a discount for cash would it take to get you to switch over?

Harlem Miracle?

Last Friday, David Brooks had an op-ed in the New York Times with the headline The Harlem Miracle, discussing an evaluation of the schools run by the Harlem Children's Zone. While lots of people have been excited by the concept of the HCZ -- it's the basis for the "Promise Neighborhoods" idea that Obama talked about in the campaign and included in his budget -- there hasn't been any hard data about effectiveness until now.  Here's the underlying study* which really is quite exciting.

The main findings of the study are:

• For the middle school students, there were really enormous gains in math scores, although they took several years to kick in.  The gains in language arts scores were much more modest.  These findings are based on comparisons between those randomly selected for admission and those who applied but were randomly denied, so they're about as strong as you get.
• The elementary school impacts were stronger on language arts, somewhat smaller on math, but still impressive.  Because few students who applied for the elementary schools were denied admission, these findings are based on a different statistical approach (instrumental variables), which is somewhat less reliable.
• The authors did not find any significant effects on test scores for graduates of either Baby College or Harlem GEMS (the preschool program run by the HCZ).  They also note that the middle school impacts were as strong for kids who lived outside of the Zone as for those who were in it, suggesting that the full community package was not essential to the model.

So, what does this mean?  To start with, it refutes the claims of some that there's nothing you can do to help these kids do better in school and society. (The strong version of this claim is that IQ is genetic and can't be affected by anything you do, the weaker version is the claim that by the time the kids are in middle school it's too late.)

Brooks uses this finding to argue for "an emerging model for low-income students" where "schools create a disciplined, orderly and demanding counterculture to inculcate middle-class values."  The thing to notice here is that Brooks is lumping HCZ and KIPP together.  Both models certainly share some features, including extended school days and years, and very high expectations.

However, if you read Whatever it Takes, one of the main themes is that Geoffrey Canada  (who runs HCZ) was constantly fighting his board, who thought they should just bring KIPP in to run these schools.  Canada felt that KIPP was too focused on rescuing a few students -- and encouragin these students to define themselves in opposition to the neighborhood culture -- whereas he wanted to change the neighborhood culture.  He also fought against explicitly teaching behaviors like making eye contact, arguing that no middle class school does that.  So, I don't know whether Canada gave in on these points, or if Brooks is distorting HCZ to fit his agenda.

But presumably, other people do have a good idea of what exactly is going on the HCZ schools.  Is this model then broadly replicable?  That depends on a bunch of questions:

• Are there enough good teachers out there who are willling to work in low-income neighborhoods, with the kind of hours required, and under intense pressure to achieve good test scores?  (HCZ had extremely high turnover of teachers.)  And are we, as a society, willing to pay enough to recruit teachers to do this?
• Are the kids willing to work as hard they have to to succeed in this model?  To give up afternoons and summers and weekends, and to work harder in school than they ever have before?
• How much of this success is dependent on Canada himself?  His personal charisma is clearly part of what made both teachers and students willing to work so hard.  And his personal story makes him a very convincing messenger for the idea that if you work hard you can succeed, even coming from poverty in Harlem.  No one is going to give up their weekends and summers unless they're convinced that it will make a difference.

* It drives me crazy that the Times never includes links to underlying sources.  But it cracked me up that Judith Warner's blog last week included a linked definition for "muffin top."

Others on this column:

• Laura at 11d.
• GothamSchools
• Thoughts on Education Policy

Time to retire the "Mr. Mom" references

Today's New York Times had an article on unemployed financial-industry men who are spending more time with their kids.  It's all too typical of the Times' coverage of parenting, in that the reporter seems to have noticed a pattern among her neighbors and decided that it was a trend.  Far more interesting than the article is that pretty much every comment posted on the article said:

• It's called being a father.
• Why is this worth invisible when done by women but newsworthy when done by men?

And seriously, it's time to retire the "Mr. Mom" references.  It's just lazy copyediting.

universality and targeting

I ran across this LA Times article today, about (formerly) middle-class workers who have lost their jobs and are shocked to discover that their families don't qualify for most public benefit programs.  In many cases it's because with unemployment benefits, their incomes are still too high to qualify for food stamps or cash assistance; in other cases, they would qualify based on income, but have too much assets -- especially cars -- to qualify.

I don't know whether this makes those rejected for benefits more or less supportive of these programs.  I can imagine some people thinking "gee, if I can't live on this, how can people live on far less?" and supporting expansion and other people thinking "well, if these programs won't help me when I really need it, what good are they?" and supporting cuts.

Since the Recovery Act passed, I've been spending a lot of my time at work writing about the temporary assistance (TANF) provisions and trying to convince states to use that money to expand benefits for the neediest families.  It's been a tough sell.  Even though any increases would be 80 percent federally funded, state budgets are so tight that in many cases, they're saying they can't find the 20 percent.  And states are nervous about expanding programs with money that is designed to be temporary, because it's always hard politically to cut services back later.  I'm frustrated, but I get it -- I know how hard it is to sell any expansion of "welfare."

That said, I'm really shocked by how hard it is in some states, including Virginia, to get the unemployment insurance expansions passed.  For those who believe that welfare is bad, but contributory social insurance, like social security, is good, UI should fall on the "good" side of that divide -- it's based on wages and subject to a history of employment. The fact that it's still under fire makes me somewhat more skeptical about the claims that making programs universal will protect them from being attacked as "welfare."

Virginia Republicans to unemployed workers: drop dead

That's pretty much the meaning of the House of Delegates vote last week to reject the changes needed for Virginia to receive an additional $125 million of the unemployment insurance modernization funds from the Recovery Act.  (Virginia already has an alternative base period in place, so we automatically get the first $62 million.)  They claim it's because the expansion of benefits would cause taxes on business to go up in the long run.  What they don't tell you is that the Recovery Act provides enough funding to cover the costs of this expansion for 18 years!

Specifically, the two provisions that they shot down last week would have expanded eligibility to people who are only seeking part-time work (because after all, if you only work part-time, your family must not really need the income, right?) and provided extended benefits to people who are training for a new job (because what the 21st century economy really needs is lots of unskilled labor). 

Here's a video of Tim Kaine's reaction and here's a petition to express your outrage. 

safety nets

I just saw this article about whether the stronger European safety net means that they don't need separate stimulus packages.  I don't really know how much spending is needed to turn their economies around, but would note that less than half of the American Recovery and Reinvestment Act could even vaguely be described as safety net spending (and only that much if you include all of the individual tax credits in that category).

But, I think the broader point, that the European programs are far more countercyclical the US programs (meaning that they automatically grow during hard times) is really important.  There are a couple of reasons for this.  The obvious explanation is that their social programs are far more generous than ours in general.  But I think it's equally important -- although not as obvious -- that several of our major programs -- especially Unemployment Insurance, TANF, and Medicaid -- are administered at the state level.   By constitution, most states aren't allowed to run budget deficits, so they're forced to cut services or raise taxes just when people need help the most.

The Federal government often chips in to help states when times are bad, but that requires specific legislative action, which often creates political complications.  There's a program -- the Extended Benefits program -- that is supposed to provide extra unemployment insurance to workers in high unemployment states, but the mechanics of it are so messed up that in practice, Congress always comes in and passes a separate program.  And that often happens well after we're in a recession -- the one good thing about this one is that it got people to pay attention relatively early.  Obama's budget includes language about fixing the Extended Benefit triggers, which made this policy wonk happy.

The Times article that I linked to above mostly focuses on a German program called “Kurzarbeit,” or short-work, which allows firms to cut workers hours instead of laying people off, and the government makes up a portion of the reduced wages.  There's actually a U.S. version of that in some states, called work sharing, although almost no one has heard of it.  It's a good idea.

What does the PTA pay for?

I can't find the link now, but last week I heard a story on NPR about a PTA that was buying paper for the teachers to use in the classroom, with money they had been saving for new playground equipment.  The reporter was shocked that this was necessary, but I went to public schools in New York City in the 1970s, and I definitely remember the school running out of paper (for the mimeos!) by late in the term.

Laura at 11d linked to this article about a Long Island school district where parents raised over half a million dollars to preserve school sports and other extracurriculars after the school system's budget was turned down.  Laura wonders if this undermines school equity.  I'm less worried about that situation, where the largess seems to have been spread across the whole district, than the situation you sometimes see where parents raise hundreds of thousands of dollars for specific schools, sometimes hiring extra teachers.  They're willing to do it, because it's still cheaper than private school.

Our school PTA's total annual budget is about $25,000, with the largest fundraisers being sale of Sally Foster giftwrap, a silent auction, and a craft fair.  When the economy gets better, I want to look into putting the big items for the auction online and marketing them outside the school community -- we get some really nice donations, but there's just not enough people in the school who can afford them for them to go for more than the minimum bid.  But we sweat the small stuff too.  We had an election day bakesale, and we collect General Mills box tops.

What do we pay for?  The two biggest expenses are teacher workshops and training, and buses to let each class go on two field trips a year.  We buy some computer equipment for the school (smart boards) and books for the school library.  We bring in visiting authors, and give all the teachers small stipends to cover some of the things they buy for the classroom, which otherwise come out of their pockets.  It's not a ton of money, but it makes life measurably better for the school.

Oh yeah, and we also pay for cheese sandwiches for kids who don't have lunch money.  Unlike in some places, this hasn't been a big deal.  My guess is that it's because slightly more than half of the school qualifies for free or reduced price lunch, so the kids who wind up getting cheese sandwiches aren't particularly poor.  They're either kids whose families are having sudden hard times and haven't gotten the paperwork in, or they're kids who just forgot to bring in lunch money.  We do send a note to the parents, asking them to reimburse the PTA and giving them info on how to apply for school lunches. 

(By contrast, with hindsight, I'm horrified at the memory of the oh-so-progressive elementary school I attended, where only the kids who ate "hot lunch" sat in the cafeteria, and everyone else ate in the auditorium.  The hot lunch was notoriously awful, and I'm sure that everyone who ate it was getting the free lunch.  Sigh.)

What does your PTA pay for?  And do you think it's appropriate?

Prosper as a microcosm of the banking crisis

I've written here a few times before about Prosper, the social lending site.  Last year at tax time I noted that you could see the recession starting to show up in the statement, with two loans sold as delinquent, and more and more loans running behind in payment.  Well, this year I've got a bunch more delinquent loans. 

What's annoying though is that Prosper is reporting them as "charge-offs" meaning that they don't think they'll ever be repaid, but they're still trying to collect them.  This makes it questionable to claim them as losses on my taxes, even though the one loan where they subsequently made some collections was reported as income.*  By contrast, if they sold the loans for less than face value, it could have been a standard capital loss.  My understanding is that they tried to sell them, but couldn't find anyone who would buy them.  Sound familiar?

What makes this a less than complete miniature version of the banking crisis is that Prosper didn't sell tranches on its loans -- when you bought a share of a loan, it was just a straight fractional share, with everyone getting a corresponding share of the monthly payments. 

When Prosper suddenly stopped taking new money in the fall, they claimed it was because they were entering a SEC quiet period.  My understanding is that this wasn't exactly voluntary -- the SEC said that they weren't just a middleman, but were creating securities without any oversight.  Frankly, I'd be shocked if they ever reopen for business.

*I've googled, and it's clear that some people are planning on claiming the charge-offs as losses.  But the IRS looks very closely at losses that aren't matched with a 1099-B, and the $30 I would save on my taxes is not worth the increased risk of being audited.  Even if I wasn't a DC policy wonk.

sign of the times

I installed TurboTax tonight in order to take the first baby steps towards dealing with our taxes.  At the start, they ask you about a number of things that you might have done during the year that affect the questions they'll ask you -- things like did you marry, have a baby, move, start a new job. 

One of the questions was "Did you lose a home to foreclosure?" 

I'm pretty sure that they didn't ask that question last year.

thin news

I was shocked by how thin today's Washington Post was.  The Book Review section, which is ending as a stand-alone section in a few weeks, had essentially no ads.  The car ads were a single folded sheet, so 4 pages.  The help wanted section was a sheet and a half, 6 pages.  I don't see how they can survive like this.

I guess I'm one of the people responsible for the collapse of print newspapers.  I subscribe to the Sunday Post only, read both the Post and the NY Times online.  (We also get hard copies of both, plus the Wall Street Journal, at work, but I usually wind up reading online anyway.  It looks more like I'm goofing off when I'm reading in the lunch room than when I'm in front of the computer.)

lose your job, lose your health care

One of the joys of our system of employer-provided health insurance is that the odds are pretty good that if you lose your job, you'll also lose your health insurance. 

Well, you can continue your coverage with COBRA, but relatively few workers who have just lost their job can afford to pay 102 percent of their premiums for an extended period of time. The average COBRA payment eats up something like half of the average unemployment insurance benefit.

If you're young and healthy, you might be able to buy an individual plan for less than your COBRA payments, especially if you're willing to accept a high deductible and hope you don't get sick.  If you have children, they might qualify for public insurance, through SCHIP or Medicaid, but unless you were seriously living paycheck to paycheck and have no assets, you probably won't qualify.

The Economic Recovery bills moving through Congress attempt to deal with this problem in a couple of different ways:

• it would provide a federal subsidy for part of the cost of COBRA payments
• it would extend how long you could continue to participate in your former employer's plan if you were within 10 years of qualifying for Medicare, or had worked for your old employer for at least 10 years.
• At least on the House side (it may be in the Senate bill too, but I haven't found it), it would let states cover workers receiving unemployment benefits under Medicaid, without regard to income or assets.

I'm not an expert on health care policy, but this strikes me as a bit of a kludged together package.  For one thing, it leaves out the 60 percent of unemployed workers who don't qualify for unemployment insurance, most of whom probably didn't get employer-provided benefits in the first place, and so can't get COBRA either.  For another, COBRA is a pretty expensive way to cover people -- Medicaid is  lot cheaper. 

I'm not really objecting to the proposal -- it's better than doing nothing, and I recognize that health care reform isn't likely to happen in the next month.  But this really isn't a substitute for doing health care reform for real.

wow

I spent much of the day immersed in the details of the recovery legislation that's being introduced in the House.  And all I can say is, wow, we're really in a whole new world.

I know, there's still a long way to go between this preliminary bill being introduced and something being signed into law.  (I watched my schoolhouse rock, you know.)  But, for someone who has spent much of my life fighting for incredibly modest incremental improvements, it's just mindboggling to read a bill that in one stroke would do so much.

Just to give one example: you might remember that last fall, I was excited that the Senate tax bill would lower the threshold at which families begin to qualify for the child tax credit to $8,500.  Well, this bill would lower the threshold all the way to $0.  If a family with a child earns $1, they would get a $0.15 tax credit.

This is just totally outside of my zone of experience.  The only time in my life when Democrats have controlled both the Presidency and both houses of Congress was 1993-1994.  And Clinton was so convinced that he needed to bring the budget deficit under control that he famously complained that they had become "Eisenhower Republicans." 

So, wow.

work-life balance in bad times

Jen said she liked my wonkish take on work-family issues, so here's a post for her.

On money.com, I found this survival guide to keeping your job in a recession, which includes the following recommendation:

For now, forget about work-life balance. A major preoccupation when the economy was humming along nicely, "having time for outside interests has to go right out the window now," says Bright. "You need to concentrate on doing whatever it takes to make yourself indispensable."

I agree with the second half of this -- being indispensable is definitely a good way to keep your job -- but not necessarily the first.  If you're as productive in 8 hours as your colleagues are in 10 hours of sitting at their desks goofing off, you should be ok.  As long as your boss knows that you're productive, that is.  And if your boss doesn't know how productive you are, you've got problems, regardless of the economy.

That said, I suspect full-time telecommuters are somewhat more vulnerable to layoff than people who show up to an office, in part because it's a lot harder to tell someone you see every day that you don't need their services.

This blog post from the Sloan Work-Family Network suggests that people are pitching work-life flexibility as a way to reduce costs and boost productivity in a recession.  Juliet Bourke worries that this could cut both ways (e.g. employers might cut people's hours involuntarily -- and BLS data supports that there's a lot of involuntary part-time work out there), but concludes that it's probably a positive thing if it gets more employers used to the idea of workplace flexibility.

I also think there's another argument to be made, that if companies can't afford to give workers raises, but want to reward them and keep their loyalty, things like flexible hours or telecommuting can be a cheap way to make workers happy.  The downside of that argument is that it reinforces the idea that workplace flexibility is a perk for your best workers, rather than something that should be generally available.

What are you all seeing in real life? I can't seem to find the specific post, but Laura at 11d has said that she sees a lot more wall-street types catching the 5pm train instead of the 7 or 9 pm one, and seeing more of their kids as a result.

TBR: Whatever It Takes

On the plane last week, I finally had the chance to read Paul Tough's Whatever It Takes: Geoffrey Canada's Quest to Change Harlem and America.  Tough is a reporter for the NY Times Magazine, and this is his expanded coverage of the Harlem Children's Zone, which he's reported on over the years.  Obama has said he wants to create 20 Promise Neighborhoods, modeled after the HCZ, so I thought it was important to read the book.

HCZ is an attempt to change the odds for kids in a poor neighborhood by providing an extensive range of services, everything from parenting classes to preschool to charter schools to summer programs.  What makes it different from most other attempts is:

• it tries to cover kids from birth through college, on the assumption that no program lasting just a few years is going to keep kids on the right track in the face of overwhelming obstacles.  This is in many ways an implicit rebuke to the extravagant claims sometimes made for  Head Start or  home visiting  programs.
• it tries to reach enough kids -- ideally it would be at a scale to reach every kid in the target neighborhood -- to change the culture of the neighborhood for the better.  Canada explicitly argues that the well regarded KIPP charter schools encourage students to separate themselves from the community as a whole

Tough doesn't hide that he's a believer in the HCZ approach.  In general, the book is overwhelmingly positive about Canada and the HCZ, although a long section is devoted to the struggles at the charter middle school they operate, and the choice to give up on the first class of students after two years of disappointing results. 

I think HCZ is a fascinating experiment, but Whatever It Takes isn't quite a fascinating book.  It's a solid book, well-reported, with a decent popular summary of the academic literature behind the theory.  But, fundamentally, the story of HCZ is really only in its first chapter, with no one knowing how it will turn out.  Geoffrey Canada's personal story is quite intriguing, but Canada himself has already written that book.

If you like to listen to the radio, I might suggest the coverage of this book on This American Life or Talk of the Nation instead.

Meat

I was fascinated by this story in the NY Times about how the demand for Spam has risen as the economy gets worse.  What it tells me is that there's a lot of people who consider meat -- even in the form of highly processed parts -- essential to their diet.

Even if I ate pork, I can't imagine ever buying Spam.  If I don't have the money for regular meat, I'd rather eat vegetarian meals than Spam.  (Yes, I do occasionally eat beef hot dogs, which are only marginally closer to the "real meat" side of the spectrum.)

As I've said before, I think that my willingness to do without meat is a large part of the reason that we didn't have trouble doing the Thrifty Food Plan experiment.  The market basket that the plan is based on includes allowances for a reasonable amount of meat -- for an adult male, they assume 0.63 pounds of beef/pork/lamb and 2.55 pounds of poultry per week.  (The equivalent numbers are actually slightly higher for adult women.)  When we were following the TFP budget, we were eating significantly less meat than that.

The TFP is overall an interesting construct.  It's designed to be low-budget, to meet all the RDIs for nutrients, and to follow the food pyramid, but it's also based on what low-income people actually eat.  It's not a fully artificial construct of "how little could one spend and still have a nutritionally adequate diet."  So, no, they don't expect you to eat oatmeal, eggs and lentils day after day.  And it includes a fair amount of convenience foods.  (Although they do note that they were unable as a result to get down to the recommended levels of sodium consumption, even assuming no added salt at the table.)

So what about you?  If you're not a vegetarian, do you feel deprived without meat?  What substitutes are acceptable and what are not?

Technology and deflation

A couple of weeks ago, Planet Money tried to explain why deflation is a bad thing.  They basically gave two answers:

1)  Both inflation and deflation can spiral out of control, but a strong central bank has more things that it can do to control inflation (mostly raise interest rates).   The Fed can't lower interest rates below zero, and it's getting pretty close that wall already.

2) When people expect prices to drop, they don't want to buy things now that they can get cheaper next year.  And businesses don't want to invest today in order to make things that they'll have to sell for less next year.  So consumption and investment both drop.

The first answer makes sense to me, but I'm not entirely convinced by the second one. It certainly seems to apply to houses.  But we've been living in a world for the past several decades where consumer electronics get better and cheaper every year.  Everyone knows that if you wait for the next Apple upgrade cycle, you'll be able to buy an iPod that is smaller, has new features, and costs less.  But it hasn't stopped people from rushing out to buy.

So, is the overall economy more like buying a house, or buying an iPod?  Well, there's not much that people buy other than houses that are investments, rather than consumption.  And I'm not convinced that the reason people aren't buying cars is that they think they'll be cheaper at a future date -- rather, it's that they're afraid to borrow when they might lose their job (or can't get credit).

Am I missing something?

rocket science

It appears that the $700 billion bailout fund isn't going to be used to buy "toxic assets" from the banks after all.  I'm not sure how I feel about that. 

On the one hand, the folks at Planet Money have been telling me since before the bailout bill passed that most economists think a stock injection plan makes more sense than buying assets of unknown value.  On the other hand, Congress certainly thought they were giving Treasury authority to buy lousy assets, not all this other stuff.   Neel Kashkari, who is running the bailout office, may be doing the right things.  But no one elected him anything, and no one confirmed his appointment.  And I'm enough of a believer in checks and balances to think that maybe the Treasury ought to be going to back to Congress and saying "this is what we want to do and why."

I also think the fact that Kashkari is literally a rocket scientist* (well, technically an aerospace engineer) is a symptom of what's been wrong with the American economy.  There's just been so much money sloshing around the financial sector that it's been sucking smart people away from jobs where they actually do something productive.  Being an engineer is on average a good-paying job, but it's not a winner take all job -- very few engineers make more than $200,000 a year. 

*For what it's worth, David Kestenbaum at Planet Money has a PhD in Physics.  I haven't been able to find anyone working in finance who is literally a brain surgeon by training.

SBR: Trillion Dollar Meltdown

Since I think I'll be a bit distracted on Tuesday night, I'm posting this week's book review tonight.  The book is The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash, Charles R. Morris.

Morris wins a huge amount of credit for having written this book last winter, before everyone and her brother was talking about credit derivative swaps.  That said, his crystal ball wasn't perfect -- he spends a fair amount of time worrying about what will happen if other countries decide not to invest in the dollar anymore, while what seems to have happened is that everyone seems to have decided that the US Treasury is the one safe place to put your money in a world gone mad.

I definitely learned some useful things reading this book.  Nothing else I've read on the current economic collapse points out that there was a previous crash of collaterized mortgage obligations crash in 1994 when the Fed raised rate by 1/2 a percent.  But even more interesting than reading what Morris thought in February would happen in September would be to find out what he now thinks will be happening next March.

In the rush to get a full-length book out in a matter of months, the editing also suffered a bit.  Morris has some great lines: "That is the Greenspan Put: No matter what goes wrong, the Fed will rescue you by creating enough cheap money to buy you out of your troubles."  But at other times, he falls into a bit of jargon: "Similarly, the notional value of a derivative refers not to the derivative but to the size of the portfolio it is referencing."

Planet Money remains my pick for translating economist-speak into English. 

Why not make organ donation opt-out?

An organ transplant -- especially when it's a repeat job -- is never a simple operation, but all things considered, Annika seems to be doing pretty well.  I'm still keeping her and her family in my thoughts and prayers.

On one of the posts about her (not here, on another blog), someone posted a comment urging people to join something called LifeSharers.  Their stated goal is to increase the number of organs donated and reward the people who choose to donate, by giving people who commit to donate organs higher priority to receive organs themselves.  They're doing this by creating a free membership organization, where the condition to belong is that you commit to a) donating your organs and b) specifying that other members should get priority for those organs.

There's an interesting logic here.  It gets around the primary objection to paying people for their organs (e.g. that the amounts involved could be coercive, and might motivate your next of kin to make decisions that were in their best interest rather than yours).  They explicitly don't require that you be in good enough health for anyone to use your organs to join, so there's no discrimination in membership.  (Although, as T points out, since they seem to be mostly recruiting through the internet, there's a procedural bias towards the populations that are more likely to use it.)  And this doesn't appear to be one of the predictably irrational cases where you make people less altruistic by offering an external reward.

But, in looking at their site, it seems like many of the people who are endorsing it are at least as motivated by a desire to show that incentives and free markets can produce a better outcome than government solutions as they are by they desire to have more organs transplanted.

Because there's another very simple way to increase the number of organs that are available for transplant, that they don't mention at all.  Make organ donation opt-out, rather than opt-in.  In other words, rather than having to specify that you want to donate your organs (and then have your next of kin confirm that intention), it would be assumed that you gave consent for donation unless you specified otherwise.  This sounds like a radical concept, but  a bunch of European countries do it, and they have donation consent rates between 85 and 99.9 percent*, compared to less than 30 percent in countries that have opt-in policies.

Fundamentally, these alternative approaches to increasing donation are based on very different hypotheses about why more people don't donate.  LifeSharers is based on the hypothesis that there's not enough of an incentive to donate.  Opt-out is based on the hypothesis that thinking about dying freaks people out and so they avoid doing it as much as possible.  I'd put my money on the latter.

The UK is considering moving to a system of presumed consent.  Does anyone think it has a chance in the US?

*Sweden is the outlier here, at 85.9 percent, with no other opt-out country at under 88 percent.  I wonder if there's some cultural issue here against organ donation, or if they're more aggressive than the other countries in making sure people know of their right to opt-out.  Either way 85.9 percent is a heck of a lot higher than 30 percent.

the economy

I highly recommend this week's This American Life, appropriately titled Another Frightening Show about the Economy.  After listening to it, I finally feel like I have a decent idea about why the rest of the economy, not just Wall Street, is at risk, and what the heck a credit default swap is.  Enough so that I was annoyed at how bad the explanation of a CDS on Marketplace tonight was by comparison. 

The main thing I took away from it was just how massively leveraged the whole system was.  In Bonfire of the Vanities, my favorite scene is where the main character's daughter asks him what he does.  She says that her friend's daddy (a publisher) "makes books."  "So what do you do, daddy?"  And he tries to explain what an investment banker does, and totally confuses her.  So her mother, his wife (who despises him), jumps in and explains that what he does is like slicing up a cake, and passing it around, and whenever some crumbs fall off, he gets to keep them.  (This of course pisses him off, as he thinks he's a Master of the Universe.)

Well, as far as I can tell, what happened is that the ibankers decided that crumbs weren't enough, so they started passing the cake faster and faster.  And then they decided that they didn't actually need to pass the cake, they could just promise to deliver a cake next week, and they didn't have to own a cake, but they could get someone else to promise them a cake next week.  And they got to keep more and more crumbs.  But now someone's actually asking for the cake, and it turns out there isn't one.

In the comments on my last post about the meltdown, Amy and amy have been going on about how everyone who bought a house they couldn't afford, or who financed a better life than their cashflow justified through cash-out refinancing is guilty of contributing to this mess.  And on some level, they're right.  But if Wall Street hadn't leveraged all this to the nth degree, it wouldn't be threatening to take down much of our economic system.

Judith Warner had an interesting column last week on how much "regular" upper-middle-class New Yorkers, especially those who are by education upper-class, but not especially affluent, resented the huge amounts of money sloshing through Wall Street over the past decade.  And similarly, I think the people who didn't take out huge mortgages are bitter about bailing out those who did.

There's a good discussion going on at 11d about how much people feel like they're personally being affected.

matters outside my area of expertise

Two weeks ago, I had the chance to testify before a Congressional subcommittee.  It was quite exciting, even though the room was more than half empty, and only four of the members of Congress were present.  The whole thing was a little surreal, though, because the witness invited by the Republicans used all his time to argue that the biggest challenge facing American families is high energy costs, and so that we should expand domestic production of oil (in ANWR and offshore).  The ranking member therefore asked each of testifying whether we'd support expanding domestic production.

While those of you read this regularly can probably guess what I personally think of that, my organization certainly doesn't have a position on the matter.  So when it was my turn, I responded that I would decline to offer a position on an subject outside my area of expertise.  Representative Davis then commented that I had disqualified myself from ever running for Congress, as having opinions on topics that you know nothing about is an absolute prerequisite for members of Congress.

This week has certainly proved the truth of that observation.  I haven't been blogging about the bailout because I don't know what the right thing to do is, and I wish I had any confidence that anyone else really does.  I'm afraid that they're all making it up as they go along, and we're going to be left holding the bag at the end.

While I recognize the symbolic appeal of limiting executive pay, I think I'd actually rather see the banks commit to opening no fee bank accounts -- tied to debt cards, but programmed not to allow overdrafts -- for everyone in the country.

This made me laugh.  (No video, safe for work).

Is Christopher Cox the new Michael Brown?

Until today, I had never head of Christopher Cox.  He's the chairman of the Securities and Exchange Commission, and he seems to be becoming the poster boy for the total failure of the regulatory agencies to do anything to try to prevent the Wall Street meltdown.

Well, that's not quite fair.  As I learned this afternoon by listening to This American Life, he acted to ban naked short sales (e.g. the practice of selling stocks that you don't actually own and haven't borrowed from anyone) but only for Fannie Mae, Freddie Mac, Lehman, and 18 other financial institutions, and only for a limited period this summer. 

I'm not defending the idea that you should be able to sell things that you don't own (and it's apparently illegal in any case), but what this says to me is that he wanted to shoot the messenger.  Short sellers aren't what's bringing these institutions down.  Bad lending standards, massive leverage, and generally really bad judgment are.

When specifically asked by Senator Shelby (who is not exactly known for being an advocate for government intervention) if he wanted more regulatory authority, he said no.

John McCain says that Cox should be fired.  Bush says that he's doing a great job, Brownie.  (And as in FEMA, I think the problems go much further than the top leadership...)

graphing the tax plans

Via Bitch PhD and Yglesias, this terrific graph showing the Obama and McCain tax plans and how much they'll affect different income brackets' taxes, with the bands scaled to reflect the number of people affected:

This is from a site called chartjunk, which attempts to use Edward Tufte's principles in designing charts.  Definitely lots to learn from.

The Freakonomics blog at the NY Times picked up on this too.

While we're on the topic of taxes and distribution, I'll point out that the big tax cut bill coming out of the Senate, which includes both the Alternative Minimum Tax patch and a bunch of business tax extensions, does include one provision that is really important for low-income families: allowing families to start to receive the child tax credit starting at an income of $8,500, down from the $12,050 under current law.  This would help 13 million low-income children.  It's not at all guaranteed that the House bill will also include this provision, so it's worth dropping a line or calling your representative.

I'm going to use the blogger's prerogative to add this to the post, rather than risking having it get buried in the comments with all the back and forth about child support.

Maria commented on the stat that's shown in the third chart on the Freakonomics post -- that the top .1 percent of the country pays 20 percent of the income tax.  I haven't seen that elsewhere, but it seems plausible.  There are great statistics on US income and wealth inequality here.

It's worth noting that for all conservatives in the US mutter about European socialism, the tax system in almost all European countries is far less progressive than the US system, because they collect a large portion of their government funding through a Value Added Tax (VAT) which is if anything, somewhat regressive.

I

Wall street meltdown

I was at an all day class on Sunday, in downtown DC, and the teacher was from New York.  Some cultural differences appeared quickly -- she was shocked to discover that 90 percent of the restaurants downtown aren't open on Sunday.  Another difference showed up when during a break the teacher said something like "so, do you think Lehman is going to make it?"  And all the students sort of made polite murmurs and no one really answered.  If you live in New York (or nearby), the Wall Street collapse is something that is happening to you, or people you know, but here in DC, it all feels pretty abstract.

This doesn't mean that I'm not affected at all.  For one thing, each American's personal share of the debt has increased by more than $1,000 in the past 6 months.  For another thing, I've lost about $4,000 that we'd invested in Fannie Mae.  I'm also covered by an AIG life insurance policy, but everything I read seems to say that I don't need to worry about that.

I'm not sure either Presidential candidate has said anything particularly brilliant about the economy.  I do think it helps Obama for the conversation to get pushed back to the things that government does, rather than lipstick.  I think this ad  using McCain's words against him is effective.

Composition of the US Labor Force by Marriage and Parenting Status

Here's what I've been working on this week:

This is pretty different from the usual way these numbers are presented, which is based on families rather than workers.  (Remember, if half of the families with children have an at-home spouse and the other half is dual income, only 1/3 of the workers will have an at-home spouse.)

For what it's worth, the furthest back I was able to come up with roughly comparable numbers for is 1975, when 41.5 percent of the workforce were parents, and 35 percent of the working parents had an at-home spouse.

I'd love some feedback on these graphs -- what interests you?  Surprises you?  Is the second one too many slices to be easily interpreted?

Update:  I'm responding in the comments. But I also want to register my fury that Microsoft in Excel 2007 has made it impossible to apply patterns to different slices on a pie chart so that you can tell them apart when you print them in black and white.

Update 2: Ok, here's one that shows part-time vs. full-time.

interesting odds and ends

• I thought this article on the growth in Fairfax school enrollment was interesting  It says enrollment is up by 2,500, in part due to a shift of 1,000 students from Prince William county.  Some hypothesize it's due to Prince William's crackdown on undocumented immigrants; others suggest it's due to the high price of gas.  It's likely that both contribute, and may even affect the same families. I wonder what the typical shifts between the two counties are.

• Via Yglesias, I ran into this study arguing that redshirting of kindergarteners leads to reduced high school completion, since it means that kids have completed fewer years of school when they reach the age where they're no longer required to attend school.  This doesn't make sense to me, as it's overwhelmingly upper-middle-class families who hold their kids back a year, but lower-income kids who drop out as soon as they're legally able to.  Anyone want to take a crack at it?

• I love Alan Blinder's idea of stimulating the economy by buying back polluting clunkers for more than book value.  One of my pet bugaboos is that when people talk about "green jobs" they always focus on the sexy futuristic stuff like solar and wind power, when you could get a lot more bang for the buck subsidizing new boilers and more insulation in low-cost rental housing.  (As long as renters pay for the utility bills, it almost never makes economic sense for landlords to make those investments on their own.)

Are high food prices bad?

Parke at US Food Policy poses the bold question: "Are high food prices unambiguously bad?"

The obvious problem with high food prices is that they mean that people on the edge eat less, and often poorer quality food.  Food is one of the most flexible part of the budget for most people -- in the short term, you can't reduce your rent, but you can skip a few meals, or see if the local food pantry can help you out.  There's a study that shows that poor families eat less in cold winters, when utility bills are especially high.

So what's good about high food prices?  Let's start by thinking about the parallel question for gas.  I don't think that high gas prices are unambiguously bad.  While I worry about the effect on low-income folks, especially in rural areas, I think high gas prices generally send the right economic signals: buy more fuel-efficient cars, use more carpools and mass transit, think about the costs of commuting when you decide where to live.  I'd like to see more of the cost of gas going into funding things like better mass transit, and less going to enrich oil companies and OPEC, but that's a different issue.

So, is there something parallel for food?  Well, a big part of why food in the US is so cheap is that energy has been cheap.  When Michael Pollen says that the US food economy runs on corn, he could just as easily say it runs on oil -- in the form of fuel for tractors and combines, in the form of fertilizer (which is largely made from petroleum), in the form of the fuel for the trucks that move the corn from farm to processing plant to grocery store.  So, it's hard to imagine how food prices could stay as low as they've been in a world of higher energy prices.

It's also likely that the relative costs of different kinds of food will change.  Bananas may be more expensive compared to apples, free range chicken may only cost twice as much as factory farmed chicken, rather than five times as much.  Some things that have been unsustainably cheap will be more expensive, and that might be a good thing.

But, none of this makes the basic problem of low-income people not being able to afford food go away.  The Center on Budget and Policy Priorities has been doing a lot of thinking about how to make sure that low-income households are protected in the context of climate change legislation that will increase energy costs -- basically, the idea is that if the government auctions off all carbon permits, rather than assuming that companies are entitled to permits at the left that they currently pollute, it generates enough money to provide generous refunds to low and moderate income households.  I'm not sure what the food equivalent of that is.

All you can eat

Last weekend, I took the boys to the big Air and Space Museum annex, out by Dulles.  Like all the Smithsonian museums, admission is free, but they charge $12 for parking.  After some agonizing, I signed up for an annual parking permit.  I'm something of a sucker for unlimited admission passes -- we also got season passes for Six Flags.  I'm not sure they always make economic sense, but I'm a more relaxed and happier parent when I know that we can leave as soon as the boys start to fade, without having to endure the "death march of fun" in order to wring out the most value from our admission.  Economic logic says that once you've paid the admission it's a sunk cost, and thus the price of admission shouldn't affect how long you choose to stay, but I don't know anyone who actually behaves that way.  (I'm also pretty sure that we're still not mentally accounting for the price of gas when when we decide to go to the museum because it's "free.")

The Six Flags passes are an interesting case, because they cost barely more than a single admission.  As far as I can tell, they're a loss leader to get you to buy food and rent lockers at the park.

How low can you go?

When I worked at HHS, I occasionally found myself in the odd position of defending this administration to my friends.  Some of it (as my husband pointed out) was cognitive dissonance -- if I had believed that they were as evil as some of my friends said, I couldn't have survived working there as long as I did.  But it's also true that, after listening to the political appointees, I often found myself in a position where I disagreed with them, but was convinced that they genuinely believed that their policies (stricter work requirements, marriage promotion activities) were the best ways to help poor children and families.

This spring, OMB issued a directive that said that agencies wouldn't be allowed to rush through regs at the last minute.  I said at the time that I assumed this only applied to regulations they didn't want to issue, not to ones they did.  Sure enough, the Post reported today that DOL is trying to sneak through a regulation that would make it harder to regulate workplace toxins.  So I thought I was maybe getting cynical enough.

Nope.  Apparently the Bush Administration doesn't really believe that companies are supposed to pay their employees for the work they do.

the wrong kind of equality

I nearly choked this morning on my way to work when I heard on Marketplace radio Cato's Will Wilkenson arguing that we should allow more visas for skilled workers in order to reduce wage inequality. His claim is that wage inequality is largely driven by the increased demand for skilled workers relative to unskilled workers, and so by increasing the supply of skilled workers, we'd reduce inequality.  Let me count the things that are wrong with this:

1. Since when does Cato care about inequality?
2. I believe that relative wealth and relative poverty matter, but even I'm not brutal enough to suggest that the appropriate solution is to push the wages of middle-class workers down.  I'd be happy to impose higher marginal tax rates at the top, but that's not what this proposal would do.
3. The biggest driver of the growth of inequality in recent years is not the gap between the average college graduate and the average high school graduate -- it's the gap between the highest paid college grads and the average college graduates.  Only the top 10 percent of the income distribution has experienced gains that have kept up with productivity. 
4. Even if increasing the number of H1B [corrected -- I wrote HB2 before] visas reduced wage inequality, it would probably increase overall inequality in the US, by shifting money from skilled labor to capital.

TBR: (Not) Keeping Up With Our Parents

This week's book is (Not) Keeping Up with Our Parents: The Decline of the Professional Middle Class, by Nan Mooney.  In many ways, it covers the same ground as The Trap, Strapped, and  The Two-Income Trap-- how families today are squeezed by the high costs of housing, child care, health care, and college loans. 

The only problem is that -- as we've gone over here before -- there's not actually a lot of evidence that this generation is overall worse off than their parents were, and if their parents weren't college graduates, they're probably earning a lot more.  Mooney deals with this by narrowing her subjects down to what she calls "the professional middle class" -- those with college degrees, but excluding doctors, lawyers, businesspeople, and anyone else who is actually making decent money.  She focuses on teachers, social workers, journalists, artists, workers for non-profit organizations, etc.   

I wanted to like this book, but I found myself muttering that the subjects seemed to believe in Marjorie Williams' "no fault fairy."  I'm not sure who they think promised them that there would be no tradeoffs between interesting work, living in expensive vibrant urban areas, and living a middle class life with homeownership and a secure retirement.  Easy credit may make it possible to postpone these tradeoffs (and may even make things worse by thus increasing the supply of people who are willing to take interesting jobs at non-sustainable wages), but the existence of these tradeoffs isn't something new. 

Conservation and savings

We've been in this house for a bit more than a year now, so now we're able to do same month year-to-year comparisons of our energy use.  We've been steadily working on making the house more energy efficient, so I've been curious to see what the impacts are.  We've replaced the windows, one of the toilets, clothes washer, dryer, boiler, fridge, dishwasher, and stove.  Basically, the only things left to do are the hot water heater and the air conditioner...

So, the envelope please...

• Electricity -- Dominion Virginia Power has a handy-dandy button on its site that generates various comparisons for you once you've logged in.  It shows how much you paid in a given month compared to the previous month and the same month the year before, and divides the change out among different temperatures, different number of days in the billing cycle, change in prices, and "customer-controlled use."  So, we paid $71.20 in May 2008, down from $95.02 a year previously.  And the rates went up in that period, so they claim that customer-controlled use saved us $27.28.  So, a decent percentage savings, but not that impressive in absolute dollar amounts.  Even with the forthcoming 18% rate hike, it's going to take us a long time before the improvements pay for themselves.  (Obviously, the energy savings were not the primary reasons we made these changes, so we're not upset by this.)

• Gas -- Washington Gas doesn't offer this kind of comparison, so I have to sort of eyeball things.  We used 13.2 therms last month, versus 63 therms a year ago.  That's because it took us a while last year to figure out how much energy our old boiler was using keeping water hot even when it wasn't sending any into the baseboard heaters.  Once we figured out that we needed to shut the boiler off in the summer, it dropped down to 32 therms. (The remainder is for the clothes dryer and water heater, both of which are gas-powered.  Our new stove is also gas powered, but you'd have to work really hard to spend more than a few dollars that way...)  The more impressive comparison is February to March, when our use dropped from 258 therms to 151 when we installed the new boiler.  That improvement clearly is cost-effective, since our February bill was close to $400.*

• Water -- We get billed quarterly for water, and haven't paid more than $100 per quarter.  While the washer and dishwasher use less water than the old ones, I don't expect it to make a noticeable difference on our bills.  We put in a low-flow showerhead but I'm guessing that it impacts the gas bill more than the water bill.

Dominion is making a big deal out of their new conservation plan, but I'm pretty skeptical.  Based on my results, my guess is that just showing people how much their energy use costs won't significantly affect usage unless they also adopt variable rate pricing, where electricity costs a lot more during peak usage times. (Dominion does not appear to be doing that, since their demo says you'd be entering the rates from your bill.)  I think this is mostly an attempt to convince politicians to give them approval for the transmission lines and coal-burning plant they want to build.

* When I see stories like this one about people with $400 monthly electric bills, I have to assume that they have electric heat, and very poor insulation.  I'm not sure I could run up a $400 electric bill in this house even if I ran the air conditioning with the windows open.

Cross-posted to my home blog.  Also, note the new "Environment" category -- I'll go back when I get a chance and add the tag to some of my older posts. 

WBR: The Big Squeeze

Steven Greenhouse covers the labor beat for the New York Times, and The Big Squeeze: Tough Times for the American Worker is his summary of the state of working America.  It's not a pretty picture.  He describes a world of layoffs, unionbusting, sexual harassment, workplace injuries, and broken promises.  These issues are what I work on professionally, so little of it was news to me, but Greenhouse brings the abstract issues to life with individual stories.  And even I was surprised at the ubiquity with which Greenhouse found that store managers forged timekeeping records and forced workers to work off the clock in order to cheat them of overtime and keep labor costs down.

Unfortunately, while the topic is important, I have trouble imagining anyone reading it all the way through but those who are already convinced.  The unremitting grimness of the book is only slightly broken by a chapter on model employers, such as Costco, Patagonia, and Cooperative Home Care Associates.  The last chapter of the book offers some possible solutions, all of which would be positive steps, but which either don't seem up to the magnitude of the challenge (enforcing wage and hour laws more strongly) or are far easily said than done (expand health coverage to all while bringing costs under control).

Gas prices

The average price of regular gas in the US has officially passed $4 a gallon.  Here in DC, I haven't paid that yet, but may the next time I have to fill up.

Gallop polled people about the cost of gas last month, and a majority said they thought gas would hit $6 a gallon within the next 5 years, but only 19 percent thought it would hit $10 a gallon within that time period.  My personal guess is that it's likely to hit $6 or $7 in the next year or so, as part of a speculative bubble, but then fall back to the $3-$4 range.  But that's just a guess.  I'm pretty confident that gas-powered cars will still be around when my boys hit driving age, unlike the author of an essay I read recently.

My car needed some not-insignificant repairs to pass its inspection this month, so I spent some time crunching the numbers to see if it made sense to replace it with a hybrid.  The answer is no, at least not for economic reasons -- I drive less than 8,000 miles a year, and even if I doubled the fuel economy, I just wouldn't save that much money.  At the very minimum, it makes sense to hold out a couple of years so I can get a next-generation hybrid, which are supposed to have much higher fuel economy.

(I also read an article that suggested that a plug-in hybrid could be used as a backup power source.  Given the unreliability of power in our neighborhood, that would be a killer app for me.)

Incentives

Via Kathy G at the G Spot, I found this debate between Gary Becker and Richard Posner on the NYC experiments about providing cash incentives to parents and older teens to reward school attendance, parent-teacher conferences, and good grades.  This is part of Bloomberg's broader anti-poverty strategy, something that I had been meaning to discuss for a while, so I'll jump on in.

Becker has what is probably the classic economist's take:  "boys and girls as well as adults respond to incentives."  While recognizing that there may be challenges with targeting the program correctly, he thinks that it's worth trying the experiment to see if it work.  I basically agree with this -- I think it's funny that people get horrified about "bribing" kids to do well in school, but aren't upset when workers get bonuses for good performance.

Posner comes up with a number of nitpicks of the program, but his fundamental concern is that poor attendance is a symptom, not the disease: "Paying children to attend school will reduce truancy rates some but without improving school quality, and perhaps without improving the education of the children receiving the payments."  (He thinks that school vouchers are the solution, but that's another story.)

Interestingly, this has a lot in common with Margy Waller at Inclusionist's concern that the Bloomberg anti-poverty initiative assigns the blame for poverty to poor people's bad choices.  If the schools are fundamentally falling down at their job of educating kids, giving the kids money for passing tests is like giving me money to make a jump shot.  Similarly, low-wage workers have high job turnover in large part because that's how the jobs are designed.  But, that said, MDRC has been studying programs designed to improve job retention and advancement.  And so far, one of the most effective programs has been one in Texas, which provided financial incentives to former welfare recipients who were employed full-time.

I agree that I worry about the framing of these payments as all about overcoming poor people's bad values.  You can also tell a convincing story about how the financial incentives make it possible for a worker who is paid by the hour to take off from work to go to a parent teacher conference, or wait in a crowded medical clinic to get the kid immunized, or let the parent keep their job by hiring a more reliable babysitter, but that's not how these payments are being covered in the media.

Kathy notes that behavioral economics also raises the issue that there are some times when cash incentives can have perverse effects. In Ariely's language, a financial incentive can shift things from a social setting to a market setting.  So people were less likely to help someone load a car when offered an insultingly low wage than when asked to do it out of altruism, and were more likely to pick up their kids late from child care when the center instituted a late fee.  That's one of the reasons I won't tie my kids' allowances to their picking up their rooms or helping out around the house -- it would implicitly allow them to choose to forgo the allowance and not pitch in.  But I'm not convinced that this analogy applies to the incentives in the experiment.

Thrifty food plan, redux

The recent discussion of budgeting and how we're dealing with rising prices inspired me to revisit my experiment of trying to stick to the thrifty food plan for a month.  This gives us a budget of $501 a month.  (Note that this is different from the Food Stamp Challenge which asked politicians to live for a month on the average monthly benefit of about $90 a person a month.  The average benefit is significantly lower than the maximum benefit, because most Food Stamp recipients have earnings, and their benefits are reduced as a result -- they're not really expected to feed themselves with only their Food Stamps.)

As before, I'm only looking at actual expenditures, not trying to allocate a cost to the food that's in our pantries and fridge as we begin.  That said, we were totally out of milk this morning.

T stopped at Trader Joe's this afternoon, and our first grocery bill for the month comes in at $21.53, including two gallons of milk at $3.69 each, pizza dough and sausage for pizza later in the week, "Sir Strawberry Juice" and a couple of odds and ends.  By contrast, 3 years ago when we did this before, on the first day we paid $2.45 and $3.05 for two gallons of milk (at Costco, but still...).

update: for another view of inflation, check out this NY Times graphic (via Visualizing Economics).  Shows you both where the average consumer spends the most money, and what's getting more expensive (and what isn't).

How are you adjusting?

With energy and food prices both climbing, one of my regular readers suggested that I ask all of you all what adjustments you're making.  Are you reducing your driving?  Cutting coupons?  Reducing meals out?  Saving less?  And how much are these adjustments hurting?  Do you feel like it's a big sacrifice, or something you hardly notice?

In our household, I'd say we're making relatively minor adjustments:

• Trying to consolidate errands, do fewer grocery runs.
• Doing more shopping at the less expensive grocery stores, and buying less convenience foods
• Really paying attention to turning out lights, unplugging appliances when not in use.
• Taking the bus to NYC instead of driving (the parking costs in NYC were killing us)
• Generally asking "do we really need this" before buying stuff -- especially in the $20 to $50 range, which doesn't feel like big spending, but adds up fast.

I can't say we've really cut back on our day to day driving -- I was already driving to the metro, rather than downtown, and the bus is really more of a hassle than the additional savings justify.  (It's a bit slower than driving, but real problem is that the low frequency makes missing the bus a disaster, so you have to build in huge margins for error.)  I'm actually sort of dubious about these stories about how so many people are shifting from cars to buses.  I'm not disputing the fact that public transit systems are seeing big percentage increases in ridership -- but we're starting from such a low base that if only a few percent of drivers shift to buses, that can be a 30 or 40 percent increase in bus ridership.

I just put in a low-flow showerhead, but that was really an environmental choice rather than a frugal one.  Overall, we've done a lot to improve the efficiency of our house -- new windows, new boiler (we have baseboard heating), high efficiency washer and dryer, high
efficiency kitchen appliances.  Over the long run, these will save money, but for now, we've been writing a lot of big checks for them.

In the short run, things will be better for the next few months, as we won't have to pay for N's preschool, and have already paid for camp for the boys.  But then he's going 5 days a week instead of 3 next year, so that will cost about an extra $200 a month.   But then
after next year we'll be done with preschool and will feel rich.

Several years ago, I read an article on Money.com called the "60 percent solution" in which they argue that you should keep your fixed expenses down to 60 percent of your take-home income.  (I see I wrote about Warren and Tyagi's version of this plan two years ago).  If you were doing that before the recent run-up in prices, you're probably giving up some of your extras, but you don't have to do anything drastic.  If 80 or 90 percent of your paycheck was already allocated to fixed expenses, there's not a lot of room to adjust.

The reason I thought the 60 percent solution article was interesting was that it recognized that it's really hard to save significant amount of money by shaving your grocery bill.  Some of us never spent $5 a day on fancy coffees in the first place, and so can't find savings by giving them up. Instead of squeezing at the margin, it may be better to bite the bullet and look for big changes to make -- a smaller house or apartment, taking in a roommate, finding a second job.

The Giant Pool of Money

It's clear that when I don't have the energy to post, I should put up something about housing costs, and then my commenters will take it from there. 

I've been listening to the This American Life's piece about the housing bubble and crash, and it's fascinating.  As suggested by the title of the episode, The Giant Pool of Money, it focuses on the supply side of the mortgage business, how it was in everyone's business to keep generating loans and not to ask questions about whether they were really good risks.  It's nearly an hour, and if you didn't grab the podcast already, you need to stream it, but it's worth listening to anyway.

TBR: Predictably Irrational

This week's book is Predictably Irrational, by Dan Ariely.  It's a quick read, but has far reaching ramifications.  It's about how people aren't as rational as economists think we are.  That's not particularly surprising, but Ariely goes on to argue that people are irrational in systematic-- predictable -- ways, and to explain the elegant experiments that psychologists and behavioral economists have developed to tease these out.  So, let's look at some of the examples:

• People are hugely biased for the idea of getting something for "free."  They'll take the crappy thing for free over the good thing for a modest cost.

• People don't know what things are really worth, and so anchor to arbitrary comparisons.  People often won't buy the most expensive thing on the menu, but they'll buy the next most expensive thing.  I was particularly impressed by the studies that showed that if the researchers asked people if a percentage was higher or lower than the last two digits of their social security number, and then had them guess at a concrete number, there was a strong correlation between the guess and those last two digits.  Based on this, I'd guess that including a high "buy it now" price pulls up the value of bids on ebay, even when no one uses the buy it now option.  (Although I don't know if it would pull them up to offset the increased fee.)

• When you ask people to choose among three things, two of which are similar (but one is clearly better than the other) and one is very different, they're more likely to choose the better of the two similar choices.  It's hard to tell if an apple is better than an orange, but a fresh apple is clearly better than a rotten apple -- and the presence of the rotten apple stand out against the orange.

All this isn't just entertaining, but has pretty significant policy implications.  Orthodox economists -- for all their pessimistic reputation -- actually tend towards a Panglossian view of the world -- that we're in the very best of all possible worlds, or at least that the world couldn't be made better for anyone without making it worse for someone else.  This is because economists take pretty seriously the idea of revealed preference: the idea that you can tell what agents in a free market prefer by what they chose, given the options that are available to them.

Ariely more or less blows up this idea, by showing studies where given choices A, B and C, no one chose option B, but taking away option B dramatically changes the distribution of choices between A and C.  The bad news is that this means that lots of people are making suboptimal choices all the time; the good news is that it means there's room for improvements without making anyone worse off.  The problem is that there's a lot of resistance -- for good reasons -- to having public institutions adopt the strategies of direct marketers...

Somewhat related books that I've read recently:

• Discover Your Inner Economist, by Tyler Cowan (of Marginal Revolution).  While Cowan is much more of a traditional economist than Ariely, I'm not sure you'd be able to tell that by this book.  Cowan's big take-away here is that economics is about scarcity, and so the key is always to figure out what's the resource that's scarce (and it's often attention or time, rather than money).
• Your Money and Your Brain, by Jason Zveig.  Specifically focusing in on why we behave irrationally when it comes to investing.  I thought the first chapter or two was fascinating, but then it got repetitive, and I didn't finish the book before it was due back to the library.  Maybe a good one to give to your brother who thinks that he's figured out a way to beat the markets.

Homeownership rates

When I posted about whether young people are "falling behind" their parents, almost all of the commenters agreed that a big part of the reason that even relatively affluent young adults *feel* poor is that homeownership seems so out of reach (even with the declining market).  This made a lot of intuitive sense to me.

But my dad then sent me a ton of Census data on homeownership rates by age, going back to 1982.* (Yes, I come by my geekery honestly.)  And his point is that households under age 35 were just about as likely to own homes in 2008 (41.7 percent) as in 1982 (41.2 percent).   Homeownership rates for this group hit a low of 37.3 percent in 1993-1994, and then rose to 43.1 percent in 2004, before falling off slightly.

So how is it possible that homeownership can feel so out of reach to almost everyone I know, even as the homeownership rate didn't decline at all?  Well, part of the answer is that I live in an expensive housing market, so the "everyone" I know is a biased sample.  (The readers of this blog are more diverse, but I think are still disproportionately living in large urban areas, compared to the country as a whole.)   Also, a whole lot of condos were built in the 1990s, so if by "homeownership" you mean "owning a single family detached home," the homeownership rate probably did decline somewhat.

But it's also true that a lot of people -- at all age groups -- bought homes only by extending themselves to their limits.  There was this credit bubble that you might have heard about... (Supposedly in 2005, half of all loans made in DC were interest-only.)  And there was this dreadful fear that if you didn't jump in right away, even if you couldn't really afford it, you'd be priced out forever.  So, the people who didn't buy houses felt like they were falling behind because they couldn't afford a home, and the people who did felt like they were falling behind because they couldn't afford anything else.

*The Census table is only online as a text file -- if you want my Dad's Excel spreadsheet, I'm happy to send it on.

Stupidest policies ever

In his quasi-blog* at The Atlantic, James Fallows asked whether anyone can name a more stupid policy that passed with bipartisan support during the last 50 years than the McCain-Clinton proposal for a gas-tax holiday.  His pick from the many submissions he received is the mandates and subsidies for corn-based ethanol.  The full list of popular submissions is worth reading -- Fallows notes that while some of them had worse effects than ethanol subsidies, in order to make the short list, a policy had to be obviously bad even without the benefits of hindsight.

The policy that I was surprised not to see on the list is the mortgage interest deduction, the one policy that everyone from the Center on Budget and Policy Priorities to the American Enterprise Institute agrees is terrible policy.  It's expensive, regressive, and most people agree that it makes homeownership MORE expensive for the people likely to be on the margin between owning and renting.  I don't know if it misses the 50 year cut off, or if Fallows' readers are likely to be in the group that benefits from it, and so are blind to its faults.

What else would you put on the list?

*It's a quasi-blog because it doesn't allow comments.  This is clearly Fallows' choice rather than The Atlantic's because Yglesias has a real blog on their site.

BoltBus review

I took the BoltBus up to NYC and back this weekend, so thought I'd post a review.  This is unsolicited, and they didn't comp me anything.

Although you can't tell it from their website, BoltBus is actually run by Greyhound/Trailways.  It's their attempt to compete with the "Chinatown buses" which have been kicking their behinds over the past few years on the DC-NY and NY-Boston routes.  Like the Chinatown buses, it's very cheap -- I paid $35 round trip, but they're selling at least one seat on every trip for just $1 -- and doesn't require you to go to the bus terminal.  (The Port Authority isn't too bad in NYC, but the bus terminal in DC is several blocks from the metro, and not in the best of neighborhoods).

Unlikely the Chintown buses, on BoltBus, the seats are spread out enough to provide decent legroom, there are powerpoints for each pair of seats, and there's free wi-fi.  There are screens on the buses, but they didn't show movies on the trips I took, and it was blessedly quiet.  The buses are new and shiny -- in fact, the worst problem on my trip was one of the buses was so new that it stunk from the plastics outgassing.

I hate driving long distances, so even when gas was cheap, I'd almost never drive up to NYC by myself.  As a solo traveler, the question for me is whether the cost savings of a bus is worth the inconvenience compared to taking Amtrack.  Two years ago, the last time I took the bus to NYC, I took the bus one way, the train the other.  With these new buses, the "price" I pay in discomfort for taking the cheaper option has gotten a lot smaller.  (Note that I did go up Thursday and return Saturday -- I suspect the more crowded Friday and Sunday buses may be less comfortable.)

The bus is almost comfortable enough that I'd consider taking the boys on it, rather than driving as a family.  With the outlets, I could probably hypnotize them with the portable DVD player enough to keep them from being disruptive.  And between the cost of gas, tolls, and parking in NYC, busfare for three or four is somewhat cheaper than driving, even if we don't get the super-cheap fares.  But the boys are used to traveling by car, and being able to bring their own sleeping bags and suitcases, and I wouldn't want to deal with hauling all that on and off the bus.

My father is right

After reading yesterday's post, my dad emailed me to say that he thought the question of whether young adults are better off than their parents depends mostly on what level of education each generation has attained.  Specifically, he argued that a young adult with a college degree is likely to be better off than her parents if she's a first generation college student, but not if her parents also went to college.

Let's look at the possibilities. 

• If your parents went to college, and you went to college, they are probably earning more than you are.  (Obviously, there are exceptions when the parent suffers from a disability, or chose to be a starving artist, or got laid off, or when the kid joined Google or Microsoft at just the right time, but on average, 55 year old college grads earn a lot more than 25 year old college grads.  To be precise, in 2006, the average 25-34 year old with a bachelor's degree in 2006 earned $40,276 and the average 55-64 year old with bachelor's degree earned $50,397. 
• I wasn't convinced that young college graduates were necessarily earning more than their non-graduate parents but I looked up the numbers, and my father is right.  The average 55-64 year old with a high school degree and no college education earned  $29,283 in 2006.  While there are some plumbers and union mechanics who earn good money with just a high school degree, there's not enough of them to affect the median.
• Young high school graduates are also earning less than their HS-grad parents -- the average 25-35 year old with a high school degree and no college earned just $25,0354.
• And, to fill out the options, the HS grad child of college-graduate parents is clearly downwardly mobile.

[Sources PINC-03-part 37 and PINC-03-part 91.  All figures cited are medians.]

My dad's point was that because the fraction of the population going to college has increased so much, a significant portion of college graduates are from families where their parents didn't go to college. And they're doing better than their parents.  At least in terms of income -- they also have more college debt. And, as lots of people commented yesterday, their parents probably own a home that has appreciated significantly since they bought it, while in a lot of the country, homeownership is still out of reach for most young people, even those with good incomes.

Also, check out Figure 4 in this report.

is housing a positional good?

I left off yesterday with Robert Frank's hypothetical question of which would you prefer, World A, where you live in a 4,000 square foot house and everyone else lives in a 6,000 square foot house OR World B, where you live in a 3,000 square foot house and everyone else lives in a 2,000 square foot house.

He argues that most people would prefer B.  I'm not sure whether that's true, and to the extent it is true, how much it's driven by the correlation between housing prices and school quality.  I think I'd choose B, but my reasoning is that in world B, there would probably be nicer parks and other public spaces. 

The NY Times this week had an interesting article on people who were rejoicing in Bear Stearns' downfall, and more generally in the possibility of a setback to the Wall Street types who have driven up the cost of living in New York.

TBR: Falling Behind

I thought about calling this post, "the book that killed my blog."  I read Robert Frank's Falling Behind a couple of weeks ago, and have been wanting to post about it ever since, but I'm not sure I can do it justice, especially when I'm tired and distracted.  Although it's a short book (just over 100 pages, paperback), there's a lot of ideas packed into it.  So let's see if I can unpack them.

The main idea in the book is that people's well being is determined by their relative income as well as their absolute income, and by how far behind they are as well as their ordinal ranking.  I think this is a relatively non-controversial statement if you're talking about people at the very bottom of the income distribution -- most people recognize that the poor in the U.S. are still very well off compared to much of the world's population, but suffer from their low relative income and status.  But it's a pretty controversial statement to say that the very high wealth of Bill Gates or Wall Street financiers makes everyone else worse off.

So, probably the first third of the book goes to justify that statement.  This leads Frank into some interesting detours -- he first has to justify that "happiness" is something meaningful, and that "having more money" is not synonymous with "being better off."  He then spends a good chunk of space arguing that the reason that other people's wealth makes us worse off is not envy, or conscious attempts to "keep up with the Jones'" but rather the result of  context affecting our perception of what's adequate and what's reasonable.

One example he gives is that the existence of $2,000 grills with all sorts of bells and whistles makes it seem more reasonable for him to spend $300 on a new one, even though his old one that cost $40 had done a perfectly adequate job.  I can verify that I could see this happening as we made our choices about our kitchen. 

In the second half of the book, Franks argues that positional concerns cause people to spend more and more of their money on things where ranking rather than absolute levels of consumption matter.  But this makes everyone worse off, because if everyone doubles their spending, the ranking is left unchanged, only people have less money to spend on other things (or less free time).  I thought this made a lot of sense, although I'm still not entirely convinced by his arguments about what is and what is not a positional good.

Frank poses a pair of thought experiments about this, and I'd be interested in reading some responses.  He asks, which would you prefer:

1) World A, where you live in a 4,000 square foot house and everyone else lives in a 6,000 square foot house OR World B, where you live in a 3,000 square foot house and everyone else lives in a 2,000 square foot house.

2)  World C, where you have 4 weeks of vacation and everyone else has 6 weeks, OR World D where you have 3 weeks of vacation and everyone else has 2 weeks.

I think I'll stop here, and come back to the discussion after I've gotten some responses in the comments.

standby energy tax

Last night on the way home, I heard David Frum on Marketplace.  Frum is a former speechwriter for President Bush, and a fellow at the American Enterprise Institute, so I pretty much assume that I'm going to disagree with everything that comes out of his mouth.

But this is part of what he said:

"OK, the price [of energy] is high again. This is the perfect moment to pass a standby energy tax, a tax that would kick in when the price of oil falls below say $60 a barrel. Consumers could feel secure that if they make the investment in a hybrid car, or a smaller house with a shorter commute, they won't feel like fools in four or five years..."

This makes a great deal of sense to me.  I think we've talked about it here before, but it's pretty hard for most people to significantly reduce their driving in the short run in response to increased gasoline prices.  As a recent CBO study shows, the highest response is in those areas where there is existing mass transit as an alternative.  And if the price gets high enough, people start limiting leisure travel.  And indeed, there's some evidence that gas consumption is finally starting to drop a bit.  But most people can't just decide not to drive to work or the grocery store.  However, if people know that gas prices are going to stay high for long periods, they're more likely to make the sort of big changes that Frum mentions.

So, what am I missing?  Is there a hidden problem with it that I'm not seeing?  Or if it's really something that a libertarian true believer like Frum and a green progressive like myself can agree upon, why aren't any politicians talking about it?

Prosper update

I'm starting to do my taxes, so I've been looking at my Prosper statement.  I must stay, the headache of figuring out the taxes is a major disincentive to lending through Prosper.  The couple of bad loans I've had are a particular bother.  Prosper's tax page is pretty much useless: this blog post  and this wiki are a lot more helpful.

Since the last time I wrote about Prosper in October, my performance has dropped quite a bit.  As predicted, the two loans that were 3 months late were sold as delinquent; I now have another 3 that are between 1 and 3 months late.  What's striking is that only one of them was what I'd consider a "high risk" loan based on credit -- the other two had A or AA ratings.  And when I picked my loans, I made a deliberate choice to avoid anyone who wanted money for a real estate deal... So, another sign that people are hurting...

Inflation

No one who is my age or younger in the US really has any experience dealing with inflation.  If anything, we're used to consumer goods, especially electronics, getting cheaper each year.

I'm looking at the reports of 4.3 percent inflation over the past year, and the 4.5 percent interest we've been getting on our main savings account doesn't sound like such a good deal.  On the other hand, it beats the negative returns that my retirement account (which is mostly stocks) got.  And it's hard to see how banks are making money on mortgages in the 5% range, even setting aside the wave of defaults.

The headlines about stagflation are ridiculously premature.  But what's true is that the Fed can't do anything to combat inflation without risking turning the downturn into a full-blown recession.  So the hope is that weak consumer demand will control prices.  But the stimulus package and its "rebates" are supposed to increase consumer demands.

So what exactly are we supposed to be doing?

Payday loans and strange bedfellows

For those of you who don't live in Virginia, the key piece of background information here is that the Virginia House of Delegates is generally controlled by the lunatic right.  These are people who aren't sure that contraception should be legal, who would rather see all of Northern Virginia permanently frozen into gridlock than raise taxes to build roads, who think that preschool for poor kids is a socialist plot.  The Senate is usually more reasonable, even before the Democrats took back control in the last election.

So, I'm more than a little bit shocked to find myself supporting the payday lending reform bill adopted by the House of Delegates, rather than the sham reform being sponsored by Senate Majority Leader Dick Saslaw.  It's not a perfect bill --while it theoretically imposes a 36 percent cap on interest rates, it allows for fees to be charged on top of that, which drives the real cost of lending far higher.  But it would be a good start, and would help prevent people from getting caught into an endless cycle of taking out another loan to pay off the first one. 

By contrast, the folks who have been fighting payday loans -- including the AARP, the AFL-CIO, the NAACP, Voices for Virginia Children, and the Virginia Poverty Law Center -- say that the Senate bill could be worse than nothing.  It's hard not to conclude that campaign contributions are driving policy. 

As previously discussed here, there's a real need for low-cost small dollar loans for people without great credit.  Even usurious rates can be worthwhile if the choice is losing your job when your car breaks down.  I'm not sure what the best solution is.  But a study from North Carolina -- which banned payday loans a couple of years ago -- shows that low-income people aren't reporting hardship as a result of the ban.

Last time I posted about banking, reader Dave S. posted this link for the Predatory Lending Association.  I assume that anyone who spends a minute on that site will figure out that it's a parody put up by the opponents of payday lending.  By contrast, I'm not sure that it's immediately clear that the folks who were advertising on CNN during the coverage of the Potomac Primary results, with the URL "www.ReformPaydayVA.com" is the payday lending industry.

Plastic bags

One of the sections of The World Without Us that caught my attention is the description of the gigantic collection of plastic trash in the middle of the Pacific ocean.  It was running around in the back of my head last week when I read the NY Times article about how Ireland has essentially stopped using disposable shopping bags, driven in large part by a 33 cent per bag tax.  Meanwhile, D has been learning about recycling at school, and I've been trying to use that as a starting point for a broader lesson about the environment (and turning off lights when you leave the room, please).

So we've decided to see if we can break the plastic bag habit.  We'll keep track of how many we take in each month, and see how low we can get the number.

I understand that giving up plastic grocery bags isn't going to save the world.  And there are plenty of things that involve plastics that I have no intention of giving up.  But it strikes me that using disposable plastic bags in no way improves my quality of life.  It's just a habit.  And one that we can choose to break.

We've got some canvas bags already, and I went ahead and ordered some folding ones that I can keep in my purse so I always have one with me.  We'll see how it goes.

Updated:

So far, so good.  We've had some slip-ups, but have been using them more often than not (and often forgoing the plastic bag even when we didn't bring the grocery bags).

Jo(e) has a great post up about reusable bags.  She argues that the problem is that they're so convenient that they get used for everything BUT groceries.  But if you buy enough of them, they become ubiquitous, and you stop having to worry about what you did with them.